UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10−Q
 (Mark
One)
  ̈
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
quarterly period ended: March 31, 2010
   ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
transition period from ____________ to _____________
  Commission
File Number: 333-141568
 
 CHINA ADVANCED CONSTRUCTION
MATERIALS GROUP, INC.
 (Exact
Name of Registrant as Specified in Its Charter)
 
 Delaware
                
                20-8468508(State or other jurisdiction of incorporation or organization)
                
                (I.R.S. Employer Identification No.)
 
 1515
Broadway, 11th Floor
 New
York, NY 10036
 (Address
of principal executive offices, Zip Code)
  +86
10 82525361
 (Registrant’s
telephone number, including area code)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes    ̈
  No    ̈
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).  Yes     ̈
  No    ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
 
 Large Accelerated Filer 
       ̈
                Accelerated Filer 
       ̈Non-Accelerated Filer 
       ̈
       (Do not check if a smaller reporting company)
                Smaller reporting company 
      x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes    ̈
  No    ̈
 
 The
number of shares outstanding of each of the issuer’s classes of common equity,
as of May 15, 2010 is as follows:
  Class
      of Securities
                        
                        Shares
      OutstandingCommon
      Stock, $0.001 par value
                        
                        16,402,352
  
 
 TABLE
OF CONTENTS
  PART
      IFINANCIAL
      INFORMATIONITEM
      1.
                  FINANCIAL
      STATEMENTS
                  
                  
                  2ITEM
      2.
                  MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                  
                  
                  30ITEM
      3.
                  QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                  
                  
                  44ITEM
      4(T).
                  CONTROLS
      AND PROCEDURES
                  
                  
                  44PART
      IIOTHER
      INFORMATIONITEM
      1.
                  LEGAL
      PROCEEDINGS
                  
                  
                  44ITEM
      1A.
                  RISK
      FACTORS
                  
                  
                  45ITEM
      2.
                  UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                  
                  
                  45ITEM
      3.
                  DEFAULTS
      UPON SENIOR SECURITIES
                  
                  
                  45ITEM
      4.
                  REMOVED
      AND RESERVED
                  
                  
                  45ITEM
      5.
                  OTHER
      INFORMATION
                  
                  
                  45ITEM
      6.
                  EXHIBITS
                  
                  
                  45
  1
 
 PART
I
 
 FINANCIAL
INFORMATION
  ITEM
1.    FINANCIAL STATEMENTS.
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC.  AND
SUBSIDIARIES
 
 CONSOLIDATED
FINANCIAL STATEMENTS
 
 PageConsolidated
      Balance Sheets as of March 31, 2010 (Unaudited) and as of June 30,
      2009
                      
                      
                      3Consolidated
      Statements of Income and Other Comprehensive Income for the Three Months
      and Nine Months Ended March 31, 2010 and 2009 (Unaudited)
                      
                      
                      4Consolidated
      Statement of Stockholders’ Equity (Unaudited)
                      
                      
                      5Consolidated
      Statements of Cash Flows for the Nine Months Ended March 31, 2010 and 2009
      (Unaudited)
                      
                      
                      6Notes
      to Consolidated Financial Statements (Unaudited)
                      
                      
                      7
  2
 
 CHINA ADVANCED CONSTRUCTION MATERIALS
GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 AS OF MARCH 31, 2010 AND JUNE
30, 2009
 
 March
      31,
                      
                      
                      June
      30,2010
                      
                      
                      2009(Unaudited)ASSETSCURRENT
      ASSETS:Cash
                      
                      $
                      5,589,981
                      
                      
                      $
                      3,634,805Restricted
      cash
                      
                      
                      412,524
                      
                      
                      
                      453,192Marketable
      securities
                      
                      
                      -
                      
                      
                      
                      71,880Notes
      receivable
                      
                      
                      -
                      
                      
                      
                      10,799Accounts
      receivable, net of allowance for doubtful accounts of $86,293
      and  $120,986, as of March 31, 2010 and December 31, 2009,
      respectively
                      
                      
                      27,165,324
                      
                      
                      
                      11,815,402Inventories
                      
                      
                      2,058,065
                      
                      
                      
                      1,216,014Other
      receivables
                      
                      
                      2,334,197
                      
                      
                      
                      3,845,186Prepayments
                      
                      
                      5,096,502
                      
                      
                      
                      4,255,326Total
      current assets
                      
                      
                      42,656,593
                      
                      
                      
                      25,302,604PLANT
      AND EQUIPMENT, net
                      
                      
                      24,591,947
                      
                      
                      
                      22,089,717OTHER
      ASSETS:Accounts
      receivable (non-current), net of allowance for doubtful accounts of
      $233,310 and $328,563 respectively
                      
                      
                      9,846,338
                      
                      
                      
                      4,132,706Long
      term prepayments
                      
                      
                      9,879,832
                      
                      
                      
                      4,794,746Total
      other assets
                      
                      
                      19,726,170
                      
                      
                      
                      8,927,452Total
      assets
                      
                      $
                      86,974,710
                      
                      
                      $
                      56,319,773LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Short
      term loans
                      
                      $
                      146,282
                      
                      
                      $
                      4,512,200Accounts
      payable
                      
                      
                      22,680,327
                      
                      
                      
                      10,722,741Customer
      deposits
                      
                      
                      559,452
                      
                      
                      
                      -Other
      payables
                      
                      
                      197,280
                      
                      
                      
                      352,880Other
      payables - shareholders
                      
                      
                      751,189
                      
                      
                      
                      806,946Accrued
      liabilities
                      
                      
                      996,024
                      
                      
                      
                      593,057Taxes
      payable
                      
                      
                      3,221,421
                      
                      
                      
                      3,048,179Total
      current liabilities
                      
                      
                      28,551,975
                      
                      
                      
                      20,036,003OTHER
      LIABILITIESWarrants
      liabilities
                      
                      
                      5,042,716
                      
                      
                      
                      -Total
      liabilities
                      
                      
                      33,594,691
                      
                      
                      
                      20,036,003COMMITMENTS
      AND CONTINGENCIES (Note 20)REDEEMABLE
      CONVERTIBLE PREFERRED STOCK ($0.001 par value, 454,875 shares issued and
      outstanding as of March 31, 2010 and 851,125 shares issued and
      outstanding as of June 30, 2009), net of discount for the amount of
      $46,027 and $567,581 as of March 31, 2010 and June 30, 2009,
      respectively
                      
                      
                      3,592,973
                      
                      
                      
                      6,241,419SHAREHOLDERS'
      EQUITYPreferred
      stock $0.001 par value, 1,000,000 shares authorized, 454,875 issued and
      outstanding as of March 31, 2010 and 851,125 issued and outstanding as of
      June 30, 2009, and classified outside shareholders' equity (see above),
      liquidation preference of $8.00 per share and accrued dividends as of
      March 31, 2010 and June 30, 2009
                      
                      
                      -
                      
                      
                      
                      -Common
      stock, $0.001 par value, 74,000,000 shares authorized, 15,652,352 and
      10,595,500 shares issued and outstanding, as of March 31, 2010 and June
      30, 2009, respectively
                      
                      
                      15,652
                      
                      
                      
                      10,596Paid-in-capital
                      
                      
                      29,825,270
                      
                      
                      
                      12,987,417Contribution
      receivable
                      
                      
                      -
                      
                      
                      
                      (1,210,000
                      )Retained
      earnings
                      
                      
                      13,426,827
                      
                      
                      
                      12,783,892Statutory
      reserves
                      
                      
                      3,891,009
                      
                      
                      
                      2,765,179Accumulated
      other comprehensive income
                      
                      
                      2,628,288
                      
                      
                      
                      2,705,267Total
      shareholders' equity
                      
                      
                      49,787,046
                      
                      
                      
                      30,042,351Total
      liabilities, redeemable preferred stock and shareholders'
      equity
                      
                      $
                      86,974,710
                      
                      
                      $
                      56,319,773
 
 The
accompanying notes are an integral part of these consolidated financial
statements. .
  3
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 FOR
THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)
 
 Three
      months ended
                  
                  
                  Nine
      months endedMarch
      31,
                  
                  
                  March
      31,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009REVENUEConcrete
      sales
                  
                  $
                  11,556,117
                  
                  
                  $
                  6,544,484
                  
                  
                  $
                  46,759,376
                  
                  
                  $
                  16,382,049Manufacturing
      services
                  
                  
                  4,060,284
                  
                  
                  
                  1,304,615
                  
                  
                  
                  10,529,012
                  
                  
                  
                  5,301,154Technical
      services
                  
                  
                  587,507
                  
                  
                  
                  431,456
                  
                  
                  
                  3,067,162
                  
                  
                  
                  1,471,583Mixer
      rental
                  
                  
                  197,736
                  
                  
                  
                  995,939
                  
                  
                  
                  1,158,376
                  
                  
                  
                  1,992,520Marketing
      cooperation
                  
                  
                  49,122
                  
                  
                  
                  32
                  
                  
                  
                  296,918
                  
                  
                  
                  94,167Sales
      of materials
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  285,370
                  
                  
                  
                  -Total
      revenue
                  
                  
                  16,450,766
                  
                  
                  
                  9,276,526
                  
                  
                  
                  62,096,214
                  
                  
                  
                  25,241,473COST
      OF REVENUEConcrete
      sales
                  
                  
                  10,479,691
                  
                  
                  
                  4,592,863
                  
                  
                  
                  43,269,703
                  
                  
                  
                  12,147,067Manufacturing
      services
                  
                  
                  1,657,288
                  
                  
                  
                  510,268
                  
                  
                  
                  5,478,101
                  
                  
                  
                  1,803,356Technical
      services
                  
                  
                  84,120
                  
                  
                  
                  22,059
                  
                  
                  
                  220,119
                  
                  
                  
                  119,742Mixer
      rental
                  
                  
                  45,123
                  
                  
                  
                  265,442
                  
                  
                  
                  135,981
                  
                  
                  
                  602,485Marketing
      cooperation
                  
                  
                  22,053
                  
                  
                  
                  13
                  
                  
                  
                  69,113
                  
                  
                  
                  38,720Sales
      of materials
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  239,043
                  
                  
                  
                  -Total
      cost of revenue
                  
                  
                  12,288,275
                  
                  
                  
                  5,390,645
                  
                  
                  
                  49,412,060
                  
                  
                  
                  14,711,370GROSS
      PROFIT
                  
                  
                  4,162,491
                  
                  
                  
                  3,885,881
                  
                  
                  
                  12,684,154
                  
                  
                  
                  10,530,103SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
                  
                  
                  1,538,889
                  
                  
                  
                  809,777
                  
                  
                  
                  3,591,170
                  
                  
                  
                  2,079,257INCOME
      FROM OPERATIONS
                  
                  
                  2,623,602
                  
                  
                  
                  3,076,104
                  
                  
                  
                  9,092,984
                  
                  
                  
                  8,450,846OTHER
      INCOME (EXPENSE), NETOther
      subsidy income
                  
                  
                  854,891
                  
                  
                  
                  470,971
                  
                  
                  
                  3,145,178
                  
                  
                  
                  1,300,992Realized
      gain from sales of marketable securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  27,008
                  
                  
                  
                  -Non-operating
      (expense) income, net
                  
                  
                  (12,359
                  )
                  
                  
                  (118,343
                  )
                  
                  
                  (90,887
                  )
                  
                  
                  (201,531
                  )Change
      in fair value of warrant liability
                  
                  
                  (473,302
                  )
                  
                  
                  -
                  
                  
                  
                  (4,389,947
                  )
                  
                  
                  -Interest
      income
                  
                  
                  2,973
                  
                  
                  
                  937
                  
                  
                  
                  6,006
                  
                  
                  
                  4,777Interest
      expense
                  
                  
                  -
                  
                  
                  
                  (194,200
                  )
                  
                  
                  (23,765
                  )
                  
                  
                  (640,544
                  )TOTAL
      OTHER INCOME (EXPENSE), NET
                  
                  
                  372,203
                  
                  
                  
                  159,365
                  
                  
                  
                  (1,326,407
                  )
                  
                  
                  463,694INCOME
      BEFORE PROVISION FOR INCOME TAXES
                  
                  
                  2,995,805
                  
                  
                  
                  3,235,469
                  
                  
                  
                  7,766,577
                  
                  
                  
                  8,914,540PROVISION
      FOR INCOME TAXES
                  
                  
                  604,006
                  
                  
                  
                  941,477
                  
                  
                  
                  1,952,633
                  
                  
                  
                  2,516,707NET
      INCOME
                  
                  
                  2,391,799
                  
                  
                  
                  2,293,992
                  
                  
                  
                  5,813,944
                  
                  
                  
                  6,397,833DIVIDENDS
      AND ACCRETION ON REDEEMABLE CONVERTIBLE PREFERRED STOCK
                  
                  
                  (209,535
                  )
                  
                  
                  (305,443
                  )
                  
                  
                  (869,234
                  )
                  
                  
                  (923,575
                  )NET
      INCOME AVAILABLE TO COMMON SHAREHOLDERS
                  
                  
                  2,182,264
                  
                  
                  
                  1,988,549
                  
                  
                  
                  4,944,710
                  
                  
                  
                  5,474,258RECONCILIATION
      OF COMPREHENSIVE INCOME (LOSS):Net
      Income
                  
                  
                  2,391,799
                  
                  
                  
                  2,293,992
                  
                  
                  
                  5,813,944
                  
                  
                  
                  6,397,833Unrealized
      loss (gain) from marketable securities
                  
                  
                  (20,605
                  )
                  
                  
                  15,901
                  
                  
                  
                  (20,605
                  )
                  
                  
                  (3,316
                  )Foreign
      currency translation adjustment
                  
                  
                  23,720
                  
                  
                  
                  (39,340
                  )
                  
                  
                  (56,374
                  )
                  
                  
                  98,839COMPREHENSIVE
      INCOME
                  
                  $
                  2,394,914
                  
                  
                  $
                  2,270,553
                  
                  
                  $
                  5,736,965
                  
                  
                  $
                  6,493,356EARNING
      PER COMMON SHARE ALLOCATED TO COMMON SHAREHOLDERSWeighted
      average number of shares:Basic
                  
                  
                  13,941,654
                  
                  
                  
                  10,525,200
                  
                  
                  
                  12,424,000
                  
                  
                  
                  10,525,066Diluted
                  
                  
                  16,419,906
                  
                  
                  
                  14,021,832
                  
                  
                  
                  15,644,427
                  
                  
                  
                  14,024,081Earnings
      per share:Basic
                  
                  $
                  0.16
                  
                  
                  $
                  0.19
                  
                  
                  $
                  0.40
                  
                  
                  $
                  0.52Diluted
                  
                  $
                  0.15
                  
                  
                  $
                  0.16
                  
                  
                  $
                  0.37
                  
                  
                  $
                  0.46
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  4
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
 
 Common
      stock
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        Retained
      earnings
                        
                        
                        AccumulatedNumber
                        
                        
                        Par
                        
                        
                        Paid-in
                        
                        
                        Contribution
                        
                        
                        Deferred
                        
                        
                        
                        
                        
                        Statutory
                        
                        
                        other
                          comprehensiveof
      shares
                        
                        
                        amount
                        
                        
                        capital
                        
                        
                        receivable
                        
                        
                        Compensation
                        
                        
                        Unrestricted
                        
                        
                        reserves
                        
                        
                        income
                        
                        
                        TotalBALANCE,
      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
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (472,850
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (472,850
                        )Accretion
      of discount on redeemable preferred stock
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (450,724
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (450,724
                        )Stock
      based compensation
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        66,619
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        66,619Forfeited
      stock compensation
                        
                        
                        (25,000
                        )
                        
                        
                        (25
                        )
                        
                        
                        (27,683
                        )
                        
                        
                        
                        
                        
                        
                        27,708
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        -Preferred
      stock converted to common stock
                        
                        
                        8,000
                        
                        
                        
                        8
                        
                        
                        
                        15,992
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        16,000Net
      income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        6,397,833
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        6,397,833Adjustment
      to statutory reserve
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (719,384
                        )
                        
                        
                        719,384
                        
                        
                        
                        
                        
                        
                        
                        -Unrealized
      loss on marketable securities
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (3,316
                        )
                        
                        
                        (3,316
                        )Foreign
      currency translation gain
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        98,839
                        
                        
                        
                        98,839BALANCE,
      March 31,2009, Unaudited
                        
                        
                        10,508,000
                        
                        
                        
                        10,508
                        
                        
                        
                        12,777,188
                        
                        
                        
                        (1,210,000
                        )
                        
                        
                        -
                        
                        
                        
                        8,012,151
                        
                        
                        
                        2,172,163
                        
                        
                        
                        2,693,989
                        
                        
                        
                        24,455,999Dividends
      on redeemable preferred stock
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (155,655
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (155,655
                        )Accretion
      of discount on redeemable preferred stock
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (150,244
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (150,244
                        )Stock
      based compensation
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        40,858
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        40,858Forfeited
      stock compensation
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (5,542
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (5,542
                        )Redeemable
      convertible preferred stock converted to common stock
                        
                        
                        87,500
                        
                        
                        
                        88
                        
                        
                        
                        174,913
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        175,001Net
      income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        5,670,656
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        5,670,656Adjustment
      to statutory reserve
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (593,016
                        )
                        
                        
                        593,016
                        
                        
                        
                        
                        
                        
                        
                        -Unrealized
      loss on marketable securities
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        23,921
                        
                        
                        
                        23,921Foreign
      currency translation loss
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (12,643
                        )
                        
                        
                        (12,643
                        )BALANCE,
      June 30, 2009, as previously reported
                        
                        
                        10,595,500
                        
                        
                        
                        10,596
                        
                        
                        
                        12,987,417
                        
                        
                        
                        (1,210,000
                        )
                        
                        
                        -
                        
                        
                        
                        12,783,892
                        
                        
                        
                        2,765,179
                        
                        
                        
                        2,705,267
                        
                        
                        
                        30,042,351Cumulative
      effect of reclassification of warrants
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (1,371,280
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (1,965,945
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (3,337,225
                        )BALANCE,
      June 30, 2009, as adjusted, (Unaudited)
                        
                        
                        10,595,500
                        
                        
                        
                        10,596
                        
                        
                        
                        11,616,137
                        
                        
                        
                        (1,210,000
                        )
                        
                        
                        -
                        
                        
                        
                        10,817,947
                        
                        
                        
                        2,765,179
                        
                        
                        
                        2,705,267
                        
                        
                        
                        26,705,126Dividends
      on redeemable preferred stock
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (347,681
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (347,681
                        )Accretion
      of discount on redeemable preferred stock
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (521,553
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (521,553
                        )Stock
      based compensation
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        483,789
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        483,789Issuance
      of Common Stock for cash at $2.3, net of offering costs
                        
                        
                        650,988
                        
                        
                        
                        651
                        
                        
                        
                        1,496,591
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        1,497,242Issuance
      of Common Stock for cash at $4.6, net of offering costs
                        
                        
                        2,300,000
                        
                        
                        
                        2,300
                        
                        
                        
                        9,617,552
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        9,619,852Conversion
      of redeemable preferred stock into common stock
                        
                        
                        1,585,000
                        
                        
                        
                        1,585
                        
                        
                        
                        3,168,414
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3,169,999Conversion
      of warrants into common stock
                        
                        
                        447,534
                        
                        
                        
                        447
                        
                        
                        
                        3,255,360
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3,255,807Option
      exercised
                        
                        
                        73,330
                        
                        
                        
                        73
                        
                        
                        
                        187,427
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        187,500Dividends
      paid to shareholders and contributed as share capital
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        1,210,000
                        
                        
                        
                        
                        
                        
                        
                        (1,210,000
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        -Net
      income
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        5,813,944
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        5,813,944Adjustment
      to statutory reserve
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (1,125,830
                        )
                        
                        
                        1,125,830
                        
                        
                        
                        
                        
                        
                        
                        -Unrealized
      loss on marketable securities
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (20,605
                        )
                        
                        
                        (20,605
                        )Foreign
      currency translation loss
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (56,374
                        )
                        
                        
                        (56,374
                        )BALANCE,
      March 31, 2010, Unaudited
                        
                        
                        15,652,352
                        
                        
                        $
                        15,652
                        
                        
                        $
                        29,825,270
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        13,426,827
                        
                        
                        $
                        3,891,009
                        
                        
                        $
                        2,628,288
                        
                        
                        $
                        49,787,046
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  5
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH
FLOWS
 FOR
THE NINE MONTHS ENDED MARCH 31, 2010 AND 2009
 (UNAUDITED)
 
 March
      31,
                        
                        
                        March
      31,2010
                        
                        
                        2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                        
                        $
                        5,813,944
                        
                        
                        
                        6,397,833Adjustments
      to reconcile net income to cash provided by operating
      activities:Depreciation
                        
                        
                        2,112,510
                        
                        
                        
                        1,611,255Stock-based
      compensation expense
                        
                        
                        483,789
                        
                        
                        
                        66,619Bad
      debt expense
                        
                        
                        (128,996
                        )
                        
                        
                        383,581Change
      in fair value of warrants
                        
                        
                        4,389,947
                        
                        
                        
                        -Realized
      gain on sale of marketable securities
                        
                        
                        (27,008
                        )
                        
                        
                        -Changes
      in operating assets and liabilitiesAccounts
      receivable
                        
                        
                        (20,953,143
                        )
                        
                        
                        (14,505,340
                        )Notes
      receivable
                        
                        
                        10,780
                        
                        
                        
                        -Inventories
                        
                        
                        (843,654
                        )
                        
                        
                        (538,551
                        )Other
      receivables
                        
                        
                        1,504,898
                        
                        
                        
                        (998,078
                        )Prepayments
                        
                        
                        (847,300
                        )
                        
                        
                        (83,374
                        )Long
      term prepayment
                        
                        
                        (264,834
                        )
                        
                        
                        -Accounts
      payable
                        
                        
                        11,970,616
                        
                        
                        
                        5,365,721Customer
      deposits
                        
                        
                        559,316
                        
                        
                        
                        (155,310
                        )Other
      payables
                        
                        
                        (25,427
                        )
                        
                        
                        25,142Accrued
      liabilities
                        
                        
                        471,460
                        
                        
                        
                        265,272Taxes
      payable
                        
                        
                        177,730
                        
                        
                        
                        2,389,830Net
      cash provided by operating activities
                        
                        
                        4,404,628
                        
                        
                        
                        224,600CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from sale of marketable securities
                        
                        
                        78,187
                        
                        
                        
                        -Advances
      - short term loan receivable
                        
                        
                        -
                        
                        
                        
                        (1,464,500
                        )Deposits
      on equipment purchases
                        
                        
                        (4,826,142
                        )
                        
                        
                        -Purchase
      of plant and equipment
                        
                        
                        (4,646,959
                        )
                        
                        
                        (50,423
                        )Net
      cash used in investing activities
                        
                        
                        (9,394,914
                        )
                        
                        
                        (1,514,923
                        )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from short term loan
                        
                        
                        146,247
                        
                        
                        
                        7,398,231Payments
      of short term loan
                        
                        
                        (4,508,664
                        )
                        
                        
                        (6,961,984
                        )Payment
      to shareholder for rent
                        
                        
                        (185,369
                        )
                        
                        
                        (117,160
                        )Restricted
      cash
                        
                        
                        40,668
                        
                        
                        
                        246,138Proceeds
      from exercise of options
                        
                        
                        187,500Proceeds
      from exercise of warrants
                        
                        
                        571,351
                        
                        
                        
                        -Proceeds
      from issuance of common stock, net
                        
                        
                        11,117,094
                        
                        
                        
                        -Preferred
      dividends paid
                        
                        
                        (415,624
                        )
                        
                        
                        (317,649
                        )Net
      cash provided by financing activities
                        
                        
                        6,953,203
                        
                        
                        
                        247,576EFFECTS
      OF EXCHANGE RATE CHANGE IN CASH
                        
                        
                        (7,741
                        )
                        
                        
                        2,392NET
      INCREASE (DECREASE) IN CASH
                        
                        
                        1,955,176
                        
                        
                        
                        (1,040,355
                        )CASH,
      beginning of period
                        
                        
                        3,634,805
                        
                        
                        
                        1,910,495CASH,
      end of period
                        
                        $
                        5,589,981
                        
                        
                        $
                        870,140
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  6
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Note
1 – Organization and description of business
 
 China
Advanced Construction Materials Group, Inc. (“China ACM” or the “Company”) was
incorporated in the State of Delaware on February 15, 2007. The Company through
its 100% owned subsidiaries and its variable interest entity (“VIE”), is engaged
in producing general ready-mix concrete, customized mechanical refining
concrete, and other concrete-related products that are mainly sold in the
Peoples Republic of China (“PRC”).
 
 Current
Development
 
 In March
2010, Xin Ao established four 100% owned subsidiaries in China for consulting,
concrete mixing and equipment rental services. They are Beijing Heng Yuan Zheng
Technical Consulting Co., Ltd (“Heng Yuan Zheng”), Beijing Hong Sheng An
Construction Materials Co., Ltd (“Hong Sheng An”), Beijing Heng Tai Hong Sheng
Construction Materials Co., Ltd (“Heng Tai”) and Ta Dong Ao Hang Wei Ye
Machinery and Equipment Rental Co., Ltd (“Ta Tong”). Total registered capital
for these four subsidiaries is approximately $1.9 million (RMB 13 million) and
there are no actual operations as of March 31, 2010.
 
 Note
2 – Summary of significant accounting policies
 
 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-Q should be read in conjunction with
information included in the 2009 annual report filed on Form 10-K.
 
 Principles of
consolidation
 
 The
consolidated financial statements reflect the activities of the following
subsidiaries and VIEs. All material intercompany transactions have been
eliminated.
 
 Place incorporated
                            
                            Ownership
                              percentageBVI-ACM
                            
                            British
      Virgin Island
                            
                            
                            100
                            %China-ACMH
                            
                            Beijing,
      China
                            
                            
                            100
                            %Xin
      Ao
                            
                            Beijing,
      China
                            
                            VIEHeng
      Yuan Zheng
                            
                            Beijing,
      China
                            
                            VIEHong
      Sheng An
                            
                            Beijing,
      China
                            
                            VIEHeng
      Tai
                            
                            Beijing,
      China
                            
                            VIETa
      Tong
                            
                            Beijing,
      China
                            
                            VIE
 
 In
accordance with the interpretation of US GAAP, 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.
 
 ASC 810,
addresses whether certain types of entities referred to as variable interest
entities (“VIEs”), should be consolidated in a company’s consolidated financial
statements.
 
 Based
upon a series of Contractual Arrangements, The Company determined that Xin Ao
and its subsidiaries are VIEs subject to consolidation and that the Company is
the primary beneficiary. Accordingly, the financial statements of Xin Ao and its
subsidiaries are consolidated into the financial statements of the
Company.
 
 The
carrying amount of the VIEs’ assets and liabilities are as
follows:
  7
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 March31,2010
                              
                              
                              June30,2009(Unaudited)Current
      assets
                              
                              $
                              40,498,778
                              
                              
                              $
                              24,769,527Property,
      plant and equipment
                              
                              
                              24,591,947
                              
                              
                              
                              22,089,717Other
      noncurrent assets
                              
                              
                              14,898,856
                              
                              
                              
                              8,927,452Total
      assets
                              
                              
                              79,989,581
                              
                              
                              
                              55,786,696Liabilities
                              
                              
                              (27,587,882
                              )
                              
                              
                              (19,062,845
                              )Intercompany
      payables*
                              
                              
                              (35,151,246
                              )
                              
                              
                              (20,554,895
                              )Total
      liabilities
                              
                              
                              (62,739,128
                              )
                              
                              
                              (39,617,740
                              )Net
      assets
                              
                              $
                              17,250,453
                              
                              
                              $
                              16,168,956
 
 * Intercompany
payables are payables to China-ACMH, BVI-ACMH, and China ACM and are eliminated
upon consolidation.
 Use of
estimates
 
 The
preparation of financial statements in conformity with U.S. 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 relate 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, upon which the carrying values were based.
 
 Foreign currency
translation
 
 The
reporting currency of the Company is the U.S. dollar. The functional currency of
China ACM and BVI-ACM is the U.S. dollar. China-ACMH and its VIEs use their
local currency Chinese Renminbi (“RMB”) as their functional currency. In
accordance with the FASB’s guidance on Foreign Currency Translation, the
Company’s 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
historical exchange rates. As a result, amounts related to assets and
liabilities reported on the consolidated statements of cash flows will not
necessarily agree with changes in the corresponding balances on the consolidated
balance sheets.
 
 Accumulated
other comprehensive income in the consolidated statements of shareholders’
equity amounted to $2,628,288 and $2,705,267 as of March 31, 2010 and June 30,
2009, respectively. Asset and liability accounts at March 31, 2010 and June 30,
2009 were translated at RMB 6.836 and RMB 6.83 to $1.00, respectively. The
average translation rates applied to the consolidated statements of income and
cash flows for the nine months ended March 31, 2010 and 2009 were RMB 6.84 and
RMB 6.83 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. There were no material
transaction gains or losses for the three and nine months ended March 31, 2010
and 2009.
 
 Revenue
recognition
 
 The
Company recognizes revenue in accordance with FASB issued accounting standards
regarding revenue recognition 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.
  8
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 The
Company sells its concrete products and provides concrete technical services
primarily 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 or customers breach
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 and services are provided by the Company and are accepted by the
customer.
 
 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 VAT 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 to August 2009 and a two year extension on the VAT
tax exemption from August 2009 to August 2011. The VAT tax collected during the
aforementioned period from the Company’s customers is retained by the Company
and recorded as other subsidy income.
 
 The
Company also provides manufacturing services, technical consulting services and
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 concrete company, which
specifies all terms and conditions including prices to be charged. Once concrete
products are produced by the concrete company and supplied to builders referred
by the Company or cost savings are realized by the use of technical solutions
provided by the Company, the Company has in effect rendered its service pursuant
to the agreements. The Company recognizes revenue and invoices the concrete
companies monthly for technical service and marketing cooperation on a
per-cubic-meter basis and for equipment rental on a per-mixer truck
basis.
 
 The
Company also earns income from the renting of certain of its vehicles to other
non-related concrete companies.  The rental amounts are based on
pre-determined rental rates on a per cubic meter basis.
 
 Shipping and
handling
 
 Shipping
and handling costs related to costs of the raw materials purchased is included
in cost of revenues.  Further, transportation costs incurred in the
delivery of the Company’s concrete products are also included in cost of
revenues.
 
 Contingencies
 
 From time
to time, the Company may be subject to proceedings, lawsuits and other claims.
The Company assesses the likelihood of any adverse judgments or outcomes of
these matters as well as potential ranges of probable losses. The Company
records a loss contingency when an unfavorable outcome and the amount of
the loss can be reasonably estimated. Legal expenses incurred related to loss
contingencies are classified as general and administrative expenses in the
period incurred. No significant legal expenses related to any potential
loss contingencies have been incurred during the three months and nine months
ended March 31, 2010 and 2009.
 
 Financial
instruments
 
 The
accounting standards regarding fair value of financial instruments and related
fair value measurements define fair value, establish a three-level valuation
hierarchy for disclosures of fair value measurement, and enhance disclosure
requirements for fair value measures.
 
 The three
levels are defined as follows:
 
 ·
                  Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.
 
 ·
                  Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the 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.
  9
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Marketable
securities, warrant liabilities, receivables and current liabilities qualify as
financial instruments. Marketable securities were determined using
Level 1, which are carried on the consolidated balance sheets at fair value,
with fair values determined by the financial institution who sold the
securities. The carrying amounts reported in the consolidated balance sheets for
receivables and current liabilities are reasonable estimates of fair values
because of the short period of time between the origination of such instruments
and their expected realization and their current market rates of
interest.
 
 As
required by a FASB accounting standard, financial assets and liabilities are
classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. The fair value of the warrants was
determined using the CRR Binomial Model, as level 2 inputs, and recorded the
change in earnings. As a result, the derivative liability is carried on the
balance sheet at its fair value.
 
 The
following table sets forth by level within the fair value hierarchy our
financial assets and liabilities that were accounted for at fair value on a
recurring basis as of March 31, 2010 (unaudited).
 
 CarryingValueat
                            
                            
                            Fair Value Measurement at
                              March 31, 2010March31,2010
                            
                            
                            Level1
                            
                            
                            Level2
                            
                            
                            Level3Derivative
      liability - warrants
                            
                            $
                            5,042,716
                            
                            
                            $
                            -
                            
                            
                            $
                            5,042,716
                            
                            
                            $
                            -
 
 Other
than the derivative liability - warrants carried at fair value, the Company did
not identify any other assets and liabilities that are required to be presented
on the consolidated balance sheet at fair value in accordance with the FASB
accounting standard.
 
 Stock-based
compensation
 
 The
Company records stock-based compensation expense pursuant to FASB’s accounting
standard regarding stock compensation which requires companies to measure
compensation cost for stock-based employee compensation plans at fair value at
the grant date and recognize the expense over the employee's requisite service
period. Under ASC Topic 718, the Company’s expected volatility assumption is
based on the historical volatility of Company’s stock or the expected volatility
of similar entities. The expected life assumption is primarily based on
historical exercise patterns and employee post-vesting termination behavior. The
risk-free interest rate for the expected term of the option is based on the U.S.
Treasury yield curve in effect at the time of grant.
 
 Stock-based
compensation expense is recognized based on awards expected to vest, and there
were no estimated forfeitures as the Company has a short history of issuing
options. This accounting standard requires forfeitures to be estimated at the
time of grant and revised in subsequent periods, if necessary, if actual
forfeitures differ from those estimates.
 
 The
Company estimates the fair value of the awards using the CRR binomial model.
Option pricing models, such as the CRR binomial model, require the input of
highly complex and subjective variables including the expected life of options
granted and the Company’s expected stock price volatility over a period equal to
or greater than the expected life of the options. Because changes in the
subjective assumptions can materially affect the estimated value of the
Company’s employee stock options, it is management’s opinion that the CRR
binomial model may not provide an accurate measure of the fair value of the
Company’s employee stock options. Although the fair value of employee stock
options is determined in accordance with the accounting standard aforementioned
using an option-pricing model, which value may not be indicative of the fair
value observed in a willing buyer/willing seller market
transaction.
 
 Concentration of
risk
 
 Cash -
Cash includes cash on hand and demand deposits in accounts maintained with state
owned banks within the PRC. The Company considers all highly liquid instruments
purchased with original maturities of three months or less, and money market
accounts, to be cash equivalents. Total cash in these banks at March 31, 2010
and June 30, 2009 amounted to $2,719, 042 and $3,634,805, respectively, of which
$250,000 in deposits were covered by insurance. Also, as of March 31, 2010 and
June 30, 2009, the Company held $412,524 and $453,192 in restricted cash in a
corporate legal counsel’s trust account respectively, 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. Management reviews the
financial condition of these institutions on a periodic basis.  The
Company has not incurred any losses on these accounts from nonperformance by the
aforementioned institutions.
  10
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Major
customers – For the three and nine months ended March 31, 2010 and 2009, no
customer was over 10% of the company's total sales. As of March 31, 2010 and
June 30, 2009, there was no customer over 10% of the company’s account
receivable balance.
 
 Major
suppliers – For the three months ended March 31, 2010 and 2009, no supplier was
over 10% of the company's total purchases. For the nine months ended March 31,
2010 and 2009, one supplier accounted for approximately 11.8% and 23.3% of the
Company total purchases.  As of March 31, 2010, no supplier accounted
for more than 10% of the Company’s accounts payable balance.  As of
June 30, 2009, one supplier accounted for 16.0% of the Company’s accounts
payable balance.
 
 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.
 
 Restricted
cash
 
 Restricted
cash represents a 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
professional fees.
 
 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 the receivables. The bifurcation between current and
noncurrent portions of accounts receivable is based on management’s estimate and
predicated on historical collection experience.
 
 Inventories
 
 Inventories
consist of raw materials and are stated at the lower of cost or market, as
determined using the weighted average cost method. Management compares the cost
of inventories with the market value and an allowance is made for writing down
the inventory to its market value, if lower than cost. On an ongoing basis,
inventories are reviewed for potential write-down for estimated obsolescence or
unmarketable inventories equal to the difference between the costs of
inventories and the estimated net realizable value based upon forecasts for
future demand and market conditions. When inventories are written-down to the
lower of cost or market, it is not marked up subsequently based on changes in
underlying facts and circumstances.  As of March 31, 2010 and June 30,
2009, the Company determined no reserves for obsolescence were
necessary.
 
 Prepayments
 
 The
Company advances monies to certain suppliers for raw materials and short term
prepaid rent. These advances are interest free and unsecured. In addition, the
prepayments also include amounts prepaid for rent.
 
 Plant and
equipment
 
 Plant and
equipment are stated at cost. Expenditures for maintenance and repairs are
charged to earnings as incurred while additions, renewals and betterments are
capitalized. Depreciation is provided over the estimated useful life of each
class of depreciable assets and is computed using the straight-line method with
5% residual value.
  11
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 The
estimated useful lives of assets are as follows:
 
 Useful LifeTransportation
      equipment
                    10
      yearsPlant
      and 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
consolidated statements of income.  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 and outside of Beijing.  Interest incurred during construction
is capitalized into construction in progress. All other interest is expensed as
incurred. 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 betterments to property
and equipment are capitalized. Interest incurred during construction is
capitalized into construction in progress. All other interest is expensed as
incurred. For the three months and nine months ended March 31, 2010 and 2009, no
material interest was capitalized into construction in progress.
 
 The
Company recognizes an impairment loss when estimated cash flows estimated by
those assets are less than the carrying amounts of the asset. Based on
management review, the Company believes that there were no impairments as of
March 31, 2010 and June 30, 2009.
 
 Accounting for long-lived
assets
 
 Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. We assess
the recoverability of the assets based on the undiscounted future cash flow the
assets are expected to generate and recognize an impairment loss when estimated
undiscounted future cash flow expected to result from the use of the asset plus
net proceeds expected from disposition of the asset, if any, are less than the
carrying value of the asset. When we identify an impairment, we reduce the
carrying amount of the asset to its estimated fair value based on a discounted
cash flow approach or, when available and appropriate, to comparable market
values.  As of March 31, 2010, management believes there was no
impairment.
 
 Redeemable convertible
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 the Company is required to redeem the
preferred stock on June 11, 2010, if it has not been previously converted by the
holders, in accordance with a FASB accounting standard, the preferred stock is
classified outside of shareholders’ equity.
 
 In
accordance with an accounting standard issued by the FASB regarding debt with
conversion and other options, 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.
 
 Income
taxes
 
 The
Company’s subsidiaries and VIEs are governed by the income tax laws of the PRC.
The Company accounts for income taxes in accordance with a FASB accounting
standard, 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 this accounting standard, 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 U.S., the Company
did not have any provision for U.S. income taxes including any deferred income
taxes, for the nine months ended March 31, 2010 and 2009,
respectively.
  12
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 The
accounting standard defines uncertainty in income taxes, 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 likelihood 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. There were no material deferred tax amounts as of
March 31, 2010 and June 30, 2009, respectively. Penalties and interest incurred
related to underpayment of income tax are classified as income tax expense in
the period incurred.  No significant penalties or interest relating to
income taxes have been incurred during the three and nine months ended March 31,
2010 and 2009.  GAAP also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosures and transition.
 
 The
Company has cumulative undistributed earnings of China ACMH of approximately
$24.3 million as of March 31, 2010, included in consolidated retained earnings
and will continue to be indefinitely reinvested in international operations.
 Accordingly, no provision has been made for U.S. deferred taxes related to
future repatriation of these earnings.
 
 China ACM
was organized in the United States and have incurred net operating losses for
income tax purposes for the three months and nine months ended March 31, 2010
and 2009. The net operating loss carry forwards for United States income taxes
amounted to $623,748, which excludes $483,789 stock based compensation expenses
and change in fair value of warrant liabilities of $4,389,947 for the nine
months ended March 31, 2010 due to temporary and permanent timing differences,
respectively. The net operating loss carry forwards may be available to reduce
future years’ taxable income. These carry forwards will expire, if not utilized,
starting from 2027. Management believes that the realization of the benefits
from these losses appears uncertain due to the Company’s limited operating
history and continues losses for United States income tax purposes. Accordingly,
the Company has provided a 100% valuation allowance on the deferred tax asset
benefit to reduce the asset to zero. The net change in the valuation allowance
for the three months and nine months ended March 31, 2010 was an increase of
approximately $128,956. Management will review this valuation allowance
periodically and make adjustments accordingly.
 
 Chinese income
taxes
 
 The
Company‘s subsidiary and VIEs are governed by the income tax laws of the PRC
concerning FIEs, Foreign Enterprises and various local income tax laws (the
“Income Tax Laws”).
 
 Xin Ao
use of recycled raw materials in its production since its inception entitled the
Company to an income tax exemption from January 1, 2003, through to March 31,
2007 and an income tax reduction from 25% to 15% from January 1, 2009 to
December 31, 2011  as granted by the State Administration of Taxation
of the PRC. Beginning January 1, 2009, the new Chinese Enterprise Income Tax
(“EIT”) law replaced the existing laws for Domestic Enterprises (“DEs”) and
FIEs. Effective January 1, 2009, the new reduced EIT rate of 15% replaced the
existing rates of 25% currently applicable to both DEs and FIEs.
 
 PRC laws
require that before a FIE can legally distribute profits to its shareholders, 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, the common welfare fund, and represents restricted retained earnings, see
note 12 for further discussion.
  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 and nine months ended March 31, 2010 and 2009,
respectively.
  13
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 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. 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 exemption from August 2005 through to August 2009
and a two year tax, VAT, credit extension from August 2009 through August
2011.
 
 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
for the three and nine months ended March 31, 2010 were $5,756 and $46,232,
respectively. The Company did not incur any research and development expense for
the nine months ended March 31, 2009.
 
 Earnings per
share
 
 The
Company reports earnings per share in accordance with a FASB accounting
standard, which requires presentation of basic and diluted earnings per share in
conjunction with the disclosure of the methodology used in computing such
earnings per share. Basic earnings per share excludes dilution and is computed
by dividing income available to common shareholders by the weighted average
common shares outstanding during the period.  Diluted earnings per
share takes into account the potential dilution that could occur if securities
or other contracts, such as warrants, options and convertible preferred stock,
to issue common stock were exercised and converted into common stock. Dilutive
securities having an anti-dilutive effect on diluted earnings per share are
excluded from the calculation.
 
 Comprehensive
income
 
 The FASB
accounting standard for reporting and display of comprehensive income and its
components in its financial statement 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 this accounting standard, 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 June
2009, the FASB issued an accounting standard amending the accounting and
disclosure requirements for transfers of financial assets. This accounting
standard requires greater transparency and additional disclosures for transfers
of financial assets and the entity’s continuing involvement with them and
changes the requirements for derecognizing financial assets. In addition, it
eliminates the concept of a qualifying special-purpose entity (“QSPE”).
This accounting standard is effective for financial statements issued for fiscal
years beginning after November 15, 2009. The Company is currently
evaluating the impact of this ASU, however, the Company does not expect the
adoption of this ASU to have a material impact on its consolidated financial
statements.
 
 In June
2009, the FASB also issued an accounting standard amending the accounting and
disclosure requirements for the consolidation of variable interest entities
(“VIEs”). The elimination of the concept of a QSPE, as discussed above, removes
the exception from applying the consolidation guidance within
this accounting standard. Further, this accounting standard requires a
company to perform a qualitative analysis when determining whether or not it
must consolidate a VIE. It also requires a company to continuously reassess
whether it must consolidate a VIE. Additionally, it requires enhanced
disclosures about a company’s involvement with VIEs and any significant
change in risk exposure due to that involvement, as well as how its involvement
with VIEs impacts the company’s financial statements. Finally, a company will be
required to disclose significant judgments and assumptions used to determine
whether or not to consolidate a VIE. This accounting standard is effective
for financial statements issued for fiscal years beginning after November 15,
2009.  The Company is currently evaluating the impact of this ASU,
however, the Company does not expect the adoption of this ASU to have a material
impact on its consolidated financial statements.
  14
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 In August
2009, the FASB issued an Accounting Standards Update (“ASU”) regarding measuring
liabilities at fair value. This ASU provides additional guidance clarifying the
measurement of liabilities at fair value in circumstances in which a quoted
price in an active market for the identical liability is not available; under
those circumstances, a reporting entity is required to measure fair value using
one or more of valuation techniques, as defined. The adoption of this guidance
did not have a material impact on the Company’s consolidated financial
statements.
 
 In
October 2009, the FASB issued an ASU regarding accounting for own-share lending
arrangements in contemplation of convertible debt issuance or other
financing.  This ASU requires that at the date of issuance of the
shares in a share-lending arrangement entered into in contemplation of a
convertible debt offering or other financing, the shares issued shall be
measured at fair value and be recognized as an issuance cost, with an offset to
additional paid-in capital. Further, loaned shares are excluded from basic and
diluted earnings per share unless default of the share-lending arrangement
occurs, at which time the loaned shares would be included in the basic and
diluted earnings-per-share calculation.  This ASU is effective for
fiscal years beginning on or after December 15, 2009, and interim periods within
those fiscal years for arrangements outstanding as of the beginning of those
fiscal years. The Company is currently evaluating the impact of this ASU,
however, the Company does not expect the adoption of this ASU to have a material
impact on its consolidated financial statements.
 
 In
November 2009, the FASB issued an ASU regarding accounting for stock dividends,
including distributions to shareholders with components of stock and cash. This
ASU clarifies that the stock portion of a distribution to shareholders that
contains components of cash and stock and allows shareholders to select their
preferred form of the distribution (with a limit on the amount of cash that will
be distributed in total) should be considered a stock dividend and included in
EPS calculations as a share issuance. The adoption of this guidance did not have
a material impact on the Company’s consolidated financial
statements.
 
 In
December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of
Financial Assets. This Accounting Standards Update amends the FASB Accounting
Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140.The amendments in
this Accounting Standards Update improve financial reporting by eliminating the
exceptions for qualifying special-purpose entities from the consolidation
guidance and the exception that permitted sale accounting for certain mortgage
securitizations when a transferor has not surrendered control over the
transferred financial assets. In addition, the amendments require enhanced
disclosures about the risks that a transferor continues to be exposed to because
of its continuing involvement in transferred financial assets. Comparability and
consistency in accounting for transferred financial assets will also be improved
through clarifications of the requirements for isolation and limitations on
portions of financial assets that are eligible for sale accounting. The adoption
of this ASU did not have a material impact on its consolidated financial
statements.
 
 In
December, 2009, FASB issued ASU No. 2009-17, Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities. This Accounting
Standards Update amends the FASB Accounting Standards Codification for the
issuance of FASB Statement No. 167, Amendments to FASB Interpretation
No. 46(R). The amendments in this Accounting Standards Update replace the
quantitative-based risks and rewards calculation for determining which reporting
entity, if any, has a controlling financial interest in a variable interest
entity with an approach focused on identifying which reporting entity has the
power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the
entity. An approach that is expected to be primarily qualitative will be more
effective for identifying which reporting entity has a controlling financial
interest in a variable interest entity. The amendments in this Update also
require additional disclosures about a reporting entity’s involvement in
variable interest entities, which will enhance the information provided to users
of financial statements. The adoption of this ASU did not have a material impact
on its consolidated financial statements.
 
 In
January 2010, FASB issued ASU No. 2010-01– Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate
is considered a share issuance that is reflected in EPS prospectively and is not
a stock dividend for purposes of applying Topics 505 and 260 (Equity and
Earnings Per Share). The adoption of this ASU did not have a material impact on
its consolidated financial statements.
  15
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 In
January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect accounting and reporting by an entity that
exchanges a group of assets that constitutes a business or nonprofit activity
for an equity interest in another entity. The amendments in this update are
effective beginning in the period that an entity adopts SFAS No. 160,
“Non-controlling Interests in Consolidated Financial Statements – An Amendment
of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of the date
the amendments in this update are included in the Accounting Standards
Codification, the amendments in this update are effective beginning in the first
interim or annual reporting period ending on or after December 15, 2009. The
amendments in this update should be applied retrospectively to the first period
that an entity adopted SFAS No. 160. The Company is currently evaluating the
impact of this ASU, however, the Company does not expect the adoption of this
ASU to have a material impact on its consolidated financial
statements.
 
 In
January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair
Value Measurements. This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers. 2) Activity in Level 3 fair value measurements. In
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), a reporting entity should present separately information about
purchases, sales, issuances, and settlements (that is, on a gross basis rather
than as one net number). This update provides amendments to Subtopic 820-10 that
clarifies existing disclosures as follows: 1) Level of disaggregation. A
reporting entity should provide fair value measurement disclosures for each
class of assets and liabilities. A class is often a subset of assets or
liabilities within a line item in the statement of financial position. A
reporting entity needs to use judgment in determining the appropriate classes of
assets and liabilities. 2) Disclosures about inputs and valuation techniques. A
reporting entity should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements. Those disclosures are required for fair value measurements that
fall in either Level 2 or Level 3. The new disclosures and clarifications of
existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. These disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. The Company is currently evaluating the impact of this ASU, however, the
Company does not expect the adoption of this ASU to have a material impact on
its consolidated financial statements.
 
 In
February 2010, FASB issued ASU No. 2010-9 –Amendments to Certain Recognition and
Disclosure Requirements. This update addresses certain implementation issues
related to an entity’s requirement to perform and disclose subsequent-events
procedures, removes the requirement that public companies disclose the date of
their financial statements in both issued and revised financial statements.
According to the FASB, the revised statements include those that have been
changed to correct an error or conform to a retrospective application of U.S.
GAAP.  The adoption of this ASU did not have a material impact on the
Company’s consolidated financial statements.
 
 In March
2010, FASB issued ASU No. 2010-10 –Amendments for Certain Investment Funds. This
update defers the effective date of the amendments to the consolidation
requirements made by FASB Statement 167 to a reporting entity’s interest in
certain types of entities. The deferral will mainly impact the evaluation of
reporting enterprises’ interests in mutual funds, private equity funds, hedge
funds, real estate investment entities that measure their investment at fair
value, real estate investment trusts, and venture capital funds. The ASU also
clarifies guidance in Statement 167 that addresses whether fee arrangements
represent a variable interest for all service providers and decision makers. The
ASU is effective for interim and annual reporting periods in fiscal year
beginning after November 15, 2009. The Company is currently evaluating the
impact of this ASU, however, the Company does not expect the adoption of this
ASU to have a material impact on its consolidated financial
statements.
 
 In March
2010, FASB issued ASU No. 2010-11 –Scope Exception Related to Embedded Credit
Derivatives. Embedded credit-derivative features related only to the transfer of
credit risk in the form of subordination of one financial instrument to another
are not subject to potential bifurcation and separate accounting as clarified by
recently issued FASB guidance. Other embedded credit-derivative features are
required to be analyzed to determine whether they must be accounted for
separately. This update provides guidance on whether embedded credit-derivative
features in financial instruments issued by structures such as collateralized
debt obligations (CDOs) and synthetic CDOs are subject to bifurcation and
separate accounting. The guidance is effective at the beginning of a company’s
first fiscal quarter beginning after June 15, 2010. The Company does not expect
the adoption of this ASU to have a material impact on the Company’s consolidated
financial statements.
 
 Note
3 – Supplemental disclosure of cash flow information
 
 During
the nine months ended March 31, 2010 and 2009, the Company paid interest in the
amount of $23,762 and $637,124, respectively.
  16
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Cash
payments for income taxes for the nine months ended March 31, 2010 and 2009 were
$2,171,366 and $146, 000, respectively.
 
 Non-cash transactions in the
nine months ended March 31, 2010
 
 For the
nine months ended March 31, 2010, the accretion of the discount on
redeemable preferred stock amounted to approximately $521,553, and has been
included in the consolidated statements of shareholders’ equity.
 
 For the
nine months ended March 31, 2010, 184,437 shares of warrants were converted into
209,469 shares of common stock by the exercise of such warrants on a cashless
basis.
 
 For the
nine months ended March 31, 2010, 396,250 shares of redeemable convertible
preferred stock were converted into 1,585,000 shares of common stock on a
cashless basis.
 
 Note
4 – Marketable securities
 
 Marketable
securities are the mutual fund that XinAo purchased from CYJA Allianz Fund. 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 on marketable securities are
included in other income or expense in the period they incurred, and when
applicable, are reported as a reclassification adjustment in other comprehensive
income. Gains and losses on the sale of marketable securities are determined
using the specific-identification method. On December 21, 2009, the Company sold
marketable securities at a total cash value of $78,207; a gain of $27,008 was
recorded as realized gain.
 
 Note
5 – Accounts receivable
 
 Accounts
receivable are generated from concrete products sold, vehicle rental services
provided to other unrelated concrete companies, and technological consulting
services provided to the Company’s customers and other concrete companies with
which the Company conducts business. The payment terms are defined in the
respective contracts. Over 73% of the Company’s receivables are due within a
year by contract and are classified as current assets on the consolidated
balance sheets. For certain large construction projects that can take several
years to complete, the Company provides extended payment terms to the general
contractors. These contractors are usually large state-owned builders with good
credit ratings. At the end of each period, the Company evaluates the structure
and collectability of accounts receivable and for these receivables that are
past due or not being paid according to payment terms, the Company takes
appropriate actions including seeking legal resolution in a court of law, for
its collection efforts.
 
 As of
March 31, 2010 and June 30, 2009, accounts receivable and allowance for doubtful
accounts consisted of the following:
 
 March 31,
                              
                              
                              June 30,2010
                                (Unaudited)
                              
                              
                              2009Accounts
      receivable, current
                              
                              $
                              27,251,617
                              
                              
                              $
                              11,936,388Less:  allowance
      for doubtful accounts, current
                              
                              
                              (86,293
                              )
                              
                              
                              (120,986
                              )Net
      accounts receivable, current
                              
                              
                              27,165,324
                              
                              
                              
                              11,815,402Accounts
      receivable, non-current
                              
                              
                              10,079,648
                              
                              
                              
                              4,461,269Less:  allowance
      for doubtful accounts, non-current
                              
                              
                              (233,310
                              )
                              
                              
                              (328,563
                              )Net
      accounts receivable, non-current
                              
                              
                              9,846,338
                              
                              
                              
                              4,132,706Total
      accounts receivable, net
                              
                              $
                              37,011,662
                              
                              
                              $
                              15,948,108
  17
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Note
6 – Plant and equipment
 
 Plant and
equipment consist of the following as of March 31, 2010 and June 30,
2009:
 
 March 31,
                            
                            
                            June 30,2010
                              (Unaudited)
                            
                            
                            2009Transportation
      equipment
                            
                            $
                            20,376,288
                            
                            
                            $
                            20,375,873Plant
      and machinery
                            
                            
                            12,878,451
                            
                            
                            
                            6,246,380Office
      equipment
                            
                            
                            113,544
                            
                            
                            
                            95,556Construction-in-progress
                            
                            
                            1,322,391
                            
                            
                            
                            3,369,500Total
                            
                            
                            34,690,674
                            
                            
                            
                            30,087,309Less:
      accumulated depreciation
                            
                            
                            (10,098,727
                            )
                            
                            
                            (7,997,592
                            )Plant
      and equipment, net
                            
                            $
                            24,591,947
                            
                            
                            $
                            22,089,717
 
 Construction-in-progress
represents labor costs, materials, and capitalized interest incurred in
connection with the construction of a new mixer station inside and outside of
the current plant facility in Beijing. No depreciation is provided for
construction-in-progress until it is completed and placed into service. Most
construction-in-progress is related to assembling of portable machinery the
Company purchased with cash and in general the assembling process can be done in
less than three weeks. Therefore, no interest expense was capitalized as the
capitalized interest was not significant.
 
 Construction
of some of the new portable mixing stations was completed and approximately
$6.36 million was transferred to fixed assets during the nine months ended March
31, 2010.
 
 Depreciation
expense for the three months ended March 31, 2010 and 2009 amounted to $724,627
and $539,885 respectively. Depreciation expense for the nine months ended March
31, 20010 and 2009 amounted to $2,112,510 and $1,611,255,
respectively.
 
 Note
7 – Prepayments
 
 Prepayments
are comprised of short-term and long-term factory rental prepayments the Company
made and also prepayments for inventory purchases. Short-term prepayments as of
March 31, 2010 and June 30, 2009 consisted of the following:
 
 March 31,
                          
                          
                          June 30,2010
                            (Unaudited)
                          
                          
                          2009Prepayments
      for inventories
                          
                          $
                          2,667,846
                          
                          
                          $
                          2,431,401Short
      term prepayments-rent
                          
                          
                          2,413,656
                          
                          
                          
                          1,823,925Others
                          
                          
                          15,000
                          
                          
                          
                          -Total
      prepayments
                          
                          $
                          5,096,502
                          
                          
                          $
                          4,255,326
 
 Long term
prepayments represented advance on equipment purchases and the non-current
portion of the factory rental prepayments the Company made. Advance on equipment
purchases amounted to $5,161,697 as of March 31, 2010. Long term rental
prepayments amounted to $4,718,135 and $4,794,746 as of March 31, 2010 and June
30, 2009, respectively.
 
 Rent
prepayments for the next five years ended March 31 consists of the
following:
 
 Years ending March 31,
                          
                          Amount2011
                          
                          
                          2,413,6572012
                          
                          
                          1,828,5282013
                          
                          
                          1,828,5282014
                          
                          
                          914,797Thereafter
                          
                          
                          146,282
  18
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Note
8 – Short term loans
 
 Short
term loans represent amounts due to banks and the Company’s employee that are
due within one year or on demand. As of March 31, 2010 and June 30, 2009, the
outstanding balances on these loans were $146,282 and $4,512,200, respectively,
and these loans consisted of the following:
  March 31,
                          
                          
                          June 30,2010
                            (Unaudited)
                          
                          
                          2009Loan
      from Beijing International Trust Co, Ltd. interest rate of 15% per annum,
      due July 15, 2009, guaranteed by Rayland Credit Guarantee Co. Ltd., paid
      off in July 2009
                          
                          $
                          -
                          
                          
                          $
                          4,395,000Loan
      from an employee, effective interest rate of 0% per annum, due upon
      demand, unsecured.
                          
                          
                          146,282
                          
                          
                          
                          117,200Total
      short term loans
                          
                          $
                          146,282
                          
                          
                          $
                          4,512,200
 
 Interest
expense on short-term loans for the three months ended March 31, 2010 and 2009
amounted to $0 and $190,563, respectively. Interest expense on short-term loans
for the nine months ended March 31, 2010 and 2009 amounted to $23,765 and
$636,907, respectively.
 
 Note
9 – Derivative liability
 
 Effective
July 1, 2009, the Company adopted a FASB accounting standard, which defines
determining whether an instrument (or embedded feature) is indexed to an
entity’s own stock.  This accounting standard specifies that a
contract that would otherwise meet the definition of a derivative but is both
(a) indexed to the Company’s own stock and (b) classified in stockholders’
equity in the statement of financial position would not be considered a
derivative financial instrument.  This FASB accounting standard
provides a new two-step model to be applied in determining whether a financial
instrument or an embedded feature is indexed to an issuer’s own stock and thus
able to qualify for the scope exception.
 
 As a
result of adopting this FASB accounting standard, warrants previously treated as
equity pursuant to the derivative treatment exemption are no longer afforded
equity treatment because the warrants have downward ratchet provision on the
exercise price. As a result, the warrants are not considered indexed to the
Company’s own stock, and as such, all future changes in the fair value of these
warrants will be recognized currently in earnings until such time as the
warrants are exercised or expired.
 
 As such,
effective July 1, 2009, the Company reclassified the fair value of these
warrants from equity to liability, as if these warrants were treated as a
derivative liability since their issuance in June 2009.  On July 1, 2009,
the Company reclassified from paid-in capital, as a cumulative effect
adjustment, $1,965,945 to beginning retained earnings and $3,337,225 to warrant
liabilities to recognize the fair value of such warrants. The fair value of the
warrants was $5,042,716 on March 31, 2010.  Therefore, the Company
recognized a $473,302 and $4,389,947 loss from the change in fair value for
the three and nine months ended March 31, 2010, respectively.
 
 These
common stock purchase warrants do not trade in an active securities market, and
as such, we estimate the fair value of these warrants using the CRR Binomial
Model using the following assumptions:
  19
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 March 31, 2010
                        
                        
                        July 1, 2009(Unaudited)Annual
      dividend yield
                        
                        
                        -
                        
                        
                        
                        -Expected
      life (years)
                        
                        
                        3.25
                        
                        
                        
                        4.00Risk-free
      interest rate
                        
                        
                        1.60
                        %
                        
                        
                        2.07
                        %Expected
      volatility
                        
                        
                        75
                        %
                        
                        
                        75
                        %
 
 Expected
volatility is based on historical volatility of a similar U.S. public company
due to limited trading history of the Company’s common stock.  The
Company has no reason to believe future volatility over the expected remaining
life of these warrants is likely to differ materially from historical
volatility. The expected life is based on the remaining term of the warrants.
The risk-free interest rate is based on U.S. Treasury securities according to
the remaining term of the warrants. The expected dividend yield was based on the
Company’s current and expected dividend policy.
 
 The
conversion option does not need to be separated from the redeemable convertible
preferred stock and accounted for as derivative liability because it has the
risks and rewards of an equity instrument and clearly and closely related to the
risks and rewards of the redeemable convertible preferred stock, which has been
accounted for as an equity instrument.
 
 The
redeemable convertible preferred stock contains residual equity interest, which
on dissolution and liquidation of the Company, entitle the preferred
stockholders to liquidation value and accumulated dividends, and rank equal with
the common shareholders on an as if converted basis. A host contract is
considered an equity instrument if it encompasses a residual interest in an
entity.
 
 Note
10 – Related party transactions
 
 Other payables –
shareholders
 
 Beginning
in July 2007, Mr. He Weili, a 38.10% shareholder, leased office space to the
Company at approximately the current fair market value from July 2009 to June
2010 with annual payments of $172,950. For the three months ended March 31,
2010 and 2009, the Company recorded rent expense from the shareholder in the
amount of approximately $43,238 and $43,000, respectively. For the nine months
ended March 31, 2010 and 2009, the Company recorded rent expense from the
shareholder in the amount of approximately $129,713 and $87,000, respectively.
As of March 31, 2010 and June 30, 2009, approximately $289 and $56,046,
respectively, remained unpaid, and is included in other payables -
shareholders.
 
 The
Company’s shareholders Mr. Han Xianfu and Mr. He Weili, who have 57.15% and
38.10% indirect ownership interests in BVI-ACM, respectively, together loaned
$750,900 to BVI-ACM on March 12, 2008, for the entity’s cash flow purposes. The
loan is non-interest bearing, unsecured, and is payable in cash on
demand.
 
 Total
other payables - shareholders as of March 31, 2010 and June 30, 2009 is as
follows:
 
 March 31,
                            
                            
                            June 30,2010
                              (Unaudited)
                            
                            
                            2009Han
      Xianfu, shareholder
                            
                            $
                            450,550
                            
                            
                            $
                            450,550He
      Weili, shareholder
                            
                            
                            300,639
                            
                            
                            
                            356,396Total
      other payable – shareholders
                            
                            $
                            751,189
                            
                            
                            $
                            806,946
 
 Monies
advanced to an entity that was in part formerly owned by Mr. He Weili. Prior to
the reverse acquisition, the Company and this related entity were engaged in
joint contracts, business licenses, and other partnership agreements. Pursuant
to the reverse acquisition, the Company and this related entity began separate
operations and the process of obtaining separate contracts, business licenses,
and other partnership agreements were initiated. To date, the Company and this
related entity are finalizing the aforementioned process of obtaining separate
contracts, business licenses, and agreements.Due
to the relationship of the two companies, certain monies were exchanged as part
of their joint contracts. For the nine months ended March 31, 2010, the Company
advanced approximately $5.04 million to this entity, and approximately $4.33
million was repaid.  As of March 31, 2010 and June 30, 2009, the
balance of other receivable for related party transaction was approximately
$710,000 and $0, respectively.
  20
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Note
11 – Other receivables
 
 As of
March 31, 2010, other receivables mainly includes advances to employees, monies
to another entity, receivables from insurance company, VAT tax refund and other
deposits paid. The company paid VAT tax of approximately $532,310 and $0 as of
March 31, 2010 and June 30, 2009 while waiting for VAT tax exemption extension
and the amount paid is now due for a refund. Monies advanced to other entities,
employees, and auction deposit amounted to $1.06 million and $0.28 million as of
March 31, 2010 and June 30, 2010, respectively.
 
 Monies to
individual entities were short term in nature, due on demand and free of
interest. Monies advanced to an entity that was in part formerly owned by Mr. He
Weili, as described in Note 10 above, amounted to $710,000 and $0, as of March
31, 2010 and June 30, 2009, respectively.
 
 As of
June 30, 2009, other receivables consisted of receivables that were factored to
a trust company, employee advances, station advances, and bidding deposits. For
the fiscal year ended June 30, 2009, the Company had a factoring agreement with
a third party unrelated trust company wherein it transferred its receivables for
cash during the fourth quarter of 2009. As of June 30, 2009, the Company had not
collected $3.6 million from the trust company and recorded the uncollected
balances as other receivable. The Company received its remaining balances in
July 2009.
 
 Note
12 – Income taxes
 
 Corporate income taxes for
China
 
 Companies,
established before March 16, 2007, will continue to enjoy tax holiday treatment
approved by the local Chinese government for a grace period of either for the
next five 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 had received its tax holiday treatment until December
2007.  During the fourth quarter of the year, the Company has applied
and received the Enterprise High-Tech Certificate. The certificate was awarded
based on the Company's involvement in producing high-tech products, its research
and development, as well as its technical services. As a result of this
certification, the Company's effective income tax rate for China has been
reduced to 15% from 25%. The new tax rate will be retroactive to January 1, 2009
and will be effective for three years, through December 31, 2011.
 
 The
Company was granted income tax exemption from January 1, 2003 to March 31, 2007.
Beginning on January 1, 2009, the Company and its subsidiaries were subject to
an EIT rate of 25%.  The Company was granted a 10% tax deduction on
90% of the total sales revenue by the local authority due to the Company’s
utilization of recycled raw materials.  Beginning on January 1, 2009,
the Company and its subsidiaries were subject to an EIT rate of
15%.  For the nine months ended March 31, 2010 and 2009, the provision
for income taxes amounted to $1,952,633 and $2,516,707,
respectively.
 
 The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the three months ended March 31, 2010 and 2009:
 
 March 31,
                                      
                                      
                                      March 31,2010
                                        (Unaudited)
                                      
                                      
                                      2009
                                        (Unaudited)U.S.
      statutory rates
                                      
                                      
                                      34
                                      %
                                      
                                      
                                      34
                                      %Foreign
      income not recognized in the U.S.
                                      
                                      
                                      (34
                                      )%
                                      
                                      
                                      (34
                                      )%China
      income taxes
                                      
                                      
                                      25
                                      %
                                      
                                      
                                      25
                                      %China
      income tax exemption
                                      
                                      
                                      (10
                                      )%
                                      
                                      
                                      -Other
                                      
                                      
                                      5
                                      %(a)
                                      
                                      
                                      4
                                      %(a)Effective
      income tax rates
                                      
                                      
                                      20
                                      %
                                      
                                      
                                      29
                                      %
 
 (a)The 5%
represents expenses (such as change in fair value of warrants in the amount of
$473,302 and certain expenses in the amount of $483,700 incurred in the U.S.
entity) incurred by the Company that are not deductible for PRC income tax for
the three months ended March 31, 2010. The 4% represents the expenses incurred
in the U.S entity that were not subjected to PRC income tax for the three months
ended March 31, 2009.
  21
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the nine months ended March 31, 2010 and 2009:
 
 March 31,
                                      
                                      
                                      March 31,2010
                                        (Unaudited)
                                      
                                      
                                      2009
                                        (Unaudited)U.S.
      statutory rates
                                      
                                      
                                      34
                                      %
                                      
                                      
                                      34
                                      %Foreign
      income not recognized in the U.S.
                                      
                                      
                                      (34
                                      )%
                                      
                                      
                                      (34
                                      )%China
      income taxes
                                      
                                      
                                      25
                                      %
                                      
                                      
                                      25
                                      %China
      income tax exemption
                                      
                                      
                                      (10
                                      )%
                                      
                                      
                                      -Other
                                      
                                      
                                      10
                                      %(a)
                                      
                                      
                                      3
                                      %(a)Effective
      income tax rates
                                      
                                      
                                      25
                                      %
                                      
                                      
                                      28
                                      %
 
 (a)
                  The
      10% represents the expenses (such as change in fair value of warrants in
      the amount of $4,389,947 and certain expenses in the amount of $863,100
      incurred in the U.S. entity) incurred by the Company that are not
      deductible for PRC income tax for the nine months ended March 31, 2010.
      The 3% represents the expenses incurred in the U.S entity that were not
      subjected to PRC income tax for the nine months ended March 31,
      2009.
 
 Taxes
payable consisted of the following:
 
 March 31,
                            
                            
                            June 30,2010
                              (Unaudited)
                            
                            
                            2009Income
      taxes payable
                            
                            $
                            3,161,635
                            
                            
                            $
                            3,039,905Other
      taxes payables
                            
                            
                            59,786
                            
                            
                            
                            8,274Total
      taxes payable
                            
                            $
                            3,221,421
                            
                            
                            $
                            3,048,179
 
 Note
13 – 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, irrespective of the
profitability of the Company.
 
 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 approximating $602,500 were charged to paid-in capital. The
allocation of the proceeds from the investment to a relative fair value basis
which resulted in the allocation of $5,798,000 to the Series A Preferred and
$1,202,000 to the warrants.
 
 The
following is a summary of our current Redeemable Convertible Preferred Stock
issued and outstanding net of discount:
 As of March 31,
                                                                
                                                                
                                                                As of June 30,2010
                                                                  (Unaudited)
                                                                
                                                                
                                                                2009Numbers
      of Redeemable Convertible Preferred shares outstanding in the beginning of
      the fiscal year
                                                                
                                                                
                                                                851,125
                                                                
                                                                
                                                                
                                                                875,000Redeemable
      Convertible Preferred shares converted to Common share during the fiscal
      year
                                                                
                                                                
                                                                (396,250
                                                                )
                                                                
                                                                
                                                                (23,875
                                                                )Current
      Redeemable Convertible Preferred shares outstanding
                                                                
                                                                
                                                                454,875
                                                                
                                                                
                                                                
                                                                851,125Per
      share conversion price from Redeemable Convertible Preferred shares to
      Common shares
                                                                
                                                                $
                                                                8
                                                                
                                                                
                                                                $
                                                                8Current
      Redeemable Convertible Preferred Stock outstanding before
      discount
                                                                
                                                                $
                                                                3,639,000
                                                                
                                                                
                                                                $
                                                                6,809,000Discount
      on Redeemable Convertible Preferred shares outstanding
                                                                
                                                                $
                                                                (46,027
                                                                )
                                                                
                                                                $
                                                                (567,581
                                                                )Total
      Current Redeemable Convertible Preferred stocks net of
      discount
                                                                
                                                                $
                                                                3,592,973
                                                                
                                                                
                                                                $
                                                                6,241,419
  22
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 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
term 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 $169,345 calculated by using
the Cox-Ross-Rubinstein (“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 U.S.
public company due to limited trading history of the Company’s common stock. The
risk-free interest rate was based on the 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.
 
 Following
is a summary of the status of warrants outstanding:
 
 Outstanding Common Stocks Underlying Warrants
 Exercise
      Price
                              
                              Number
                              
                              Average Remaining
                                Contractual LifeUS
      $2.40
                              
                              
                              710,000
                              
                              3.19 years
 
 Following
is a summary of the warrant activity:
 
 Number of Common
                            stock underlying
                            WarrantsOutstanding
      as of June 30, 2008
                          
                          
                          1,995,000Granted
                          
                          
                          -Forfeited
                          
                          
                          -Exercised
                          
                          
                          -Outstanding
      as of June 30, 2009
                          
                          
                          1,995,000Granted
                          
                          
                          -Forfeited
                          
                          
                          -Exercised
                          
                          
                          (575,000
                          )Outstanding
      as of March 31, 2010 (unaudited)
                          
                          
                          1,420,000
  23
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 In
connection with the private placement, 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, as defined. The registration
statement was declared effective in January 2009; the Company incurred $140,000
in penalties for late registration and was paid based on the contract in
connection with the private placement.
 
 On July
16, 2009, the Company issued 650,988 shares of its common stock, at a price of
$2.30 per share, to its employees. The Company received net proceeds of
approximately $1.5 million.
 
 On March
1, 2010, the Company closed an offering of 2,000,000 shares of its common stock,
at a price of $4.6 per share, less than 1% underwriting
commission.  The Company received net proceeds of approximately $8.4
million after deducting a total of $0.82 million underwriting commission, legal
counsel, and other expenses directly related to the offering.  Also,
the Company issued an additional 300,000 shares of common stock to cover
over-allotments on March 22, 2010 and received net proceeds of $1.2 million less
$0.14 million underwriter commission and other direct expenses.
 
 Employee Stock
Options
 
 On May 1,
2008, the Company issued 25,000 common shares to a Company executive, par value
$0.001 for services the executive renders to the Company.  The shares
become fully vested after one year from the date of grant. On July 31 2008, the
executive’s employment with the Company terminated, and the 25,000 shares were
forfeited upon resignation.
 
 On
October 3, 2008, the Company entered into a one-year agreement with one of the
Company’s board of directors. In connection with his services, the Company
issued an aggregate of 50,000 options of the Company’s common stock at an
exercise price of $2.90 per share. The options vest in equal quarterly
installments over the first year of the agreement. As of March 31, 2010, all of
the 50,000 options have been fully vested.
  On
December 1, 2008, the Company entered into a three-year agreement with
the Company’s previous Chief Financial Officer. In connection with his
services, the Company issued a total of 200,000 options 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 tranche 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
agreement.  Upon termination of his service in the third quarter, in
addition to the 50,000 vested options per the vesting schedule described above,
the Company agreed to vest additional 50,000 shares of options (12,500 shares
from each tranche) immediately.
 
 In
January, 2010, the Company appointed a new CFO officer whom is also the
President of the Company. In connection with his services, the Company granted
12,500 option vesting on February 23, 2010 with an exercise price of $4.64,
35,000 share options vesting on March 5, 2010 with an exercise price $5.38,
15,000 option vesting on March 31, 2010 contingent upon a performance condition
and exercise price at $5.38, and 50,000 options vesting on July 15, 2010
contingent upon a performance condition and exercise price at $5.38. As of March
31, 2010, the 15,000 contingent options were forfeited due to failure to meet
performance condition.
 
 The
Company valued the stock options by the CRR binomial model with the following
assumptions:
 
 Expected
                      
                      
                      Expected
                      
                      
                      Dividend
                      
                      
                      Risk Free
                      
                      
                      Grant DateTerm
                      
                      
                      Volatility
                      
                      
                      Yield
                      
                      
                      Interest Rate
                      
                      
                      Fair ValueDirector
                      
                      
                      5.31
                      
                      
                      
                      75
                      %
                      
                      
                      0
                      %
                      
                      
                      1.41
                      %
                      
                      $
                      2.90CFO
      and president
                      
                      
                      5.07
                      
                      
                      
                      75
                      %
                      
                      
                      0
                      %
                      
                      
                      1.70
                      %
                      
                      $
                      5.95
 
 The
following is a summary of the option activity:
 Number of
                                                    options
                                                  
                                                  
                                                  Intrinsic ValueOutstanding
      as of June 30, 2008
                                                  
                                                  
                                                  -Granted
                                                  
                                                  
                                                  250,000Forfeited
                                                  
                                                  
                                                  -Exercised
                                                  
                                                  
                                                  -Outstanding
      as of June 30, 2009
                                                  
                                                  
                                                  250,000Granted
                                                  
                                                  
                                                  112,500Forfeited
                                                  
                                                  
                                                  (115,000
                                                  )Exercised
                                                  
                                                  
                                                  (100,000
                                                  )Outstanding
      as of March 31, 2010 (unaudited)
                                                  
                                                  
                                                  147,500
                                                  
                                                  
                                                  $
                                                  118,875
  24
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Following
is a summary of the status of options outstanding at March 31,
2010:
 
 Outstanding options
                                
                                
                                Exercisable optionsAverage
                                
                                
                                
                                
                                
                                
                                
                                
                                Weightedremaining
                                
                                
                                Average
                                
                                
                                
                                
                                
                                averageAverage
                                
                                
                                
                                
                                contractual life
                                
                                
                                Exercise
                                
                                
                                
                                
                                
                                exerciseExercise price
                                
                                Number
                                
                                
                                (years)
                                
                                
                                price
                                
                                
                                Number
                                
                                
                                price$
                                2.90
                                
                                
                                50,000
                                
                                
                                
                                8.52
                                
                                
                                $
                                2.90
                                
                                
                                
                                50,000
                                
                                
                                $
                                2.90$
                                4.64
                                
                                
                                12,500
                                
                                
                                
                                9.91
                                
                                
                                $
                                4.64
                                
                                
                                
                                12,500
                                
                                
                                $
                                4.64$
                                5.38
                                
                                
                                35,000
                                
                                
                                
                                9.91
                                
                                
                                $
                                5.38
                                
                                
                                
                                35,000
                                
                                
                                $
                                5.38$
                                5.38
                                
                                
                                50,000
                                
                                
                                
                                9.91
 
 For the
three months ended March 31, 2010 and 2009, the Company recognized approximately
$264,342 and $40,409, respectively, as compensation expenses for its stock
option plan. For the nine months ended March 31, 2010 and 2009, the Company
recognized approximately $327,738 and $66,619, respectively, as compensation
expenses for its stock option plan.
 
 Restricted Stock
Awards
 
 On August
15, 2009, the Company issued 10,000 shares of restricted stock to each of its
three board of directors for one year of service. On January 4, 2010, the
Company issued 50,000 shares of restricted stock to its new Chief Financial
Officer for one year of service. On February 7, 2010, the Company issued 10,000
shares of restricted stock to a new board of director for one year of service.
The restricted stocks vest in equal quarterly installments over the first year
of the agreement
 
 For the
three months ended March 31, 2010, the Company recognized $98,669 of the
restricted stock as compensation expense. For the nine months ended March 31,
2010, the Company recognized approximately $156,051 of the restricted stock as
compensation expense.  As of March 31, 2010, $273,298 of total
unrecognized compensation expense was related to the unvested restricted stock
based compensation arrangements.
 
 Note
14 – Contribution receivable
 
 On July
8, 2005, Xin Ao’s board of directors passed a resolution to increase the
registered capital from $3,630,000 (RMB 30 million) to $12,100,000 (RMB 100
million). The increase in registered capital of $8,470,000 (RMB 70 million) was
funded by the undistributed profits as of June 30, 2005. Based on the PRC
government’s regulations, all companies are required to record its capital in
accordance with the business license, and since Xin Ao did not have sufficient
undistributed profits as of June 30, 2005, 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.
 
 Further,
pursuant to BVI-ACM’s establishment of China-ACMH in November 2007, BVI-ACM was
required to pay 15% of $5,000,000 by February 22, 2009, and the remaining
balance by November 22, 2009, in accordance with the laws of the
PRC.
 
 On March
30, 2009, Xin Ao’s board of directors approved to transfer $7,260,000 from
undistributed retained earnings into registered capital of the Company.
Contemporaneously, China-ACMH made a payment of $5,000,000 and BVI-ACM made a
payment of $100 to the Company. On October 9, 2009, the Company has transferred
$1,210,000 (RMB 10,000,000) from unrestricted retained earnings to registered
capital.
  25
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Note
15 – Reserves and dividends
 
 The laws
and regulations of the PRC require that before a 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. As of March 31, 2010, the Company is required to reserve $8.1 million
to the statutory reserves.
 
 The
transfer to this reserve must be made before distribution of any dividends to
the Company’s 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 foreign invested enterprises. Approval
by the Chinese government must be obtained before distributions of these amounts
can be returned to the shareholders.
 
 Note
16 – Earnings per share
 
 The
following is a reconciliation of the basic and diluted earnings per share
computation for the three and nine months ended March 31, 2010 and
2009:
 
 Three months ended
                            
                            
                            Nine months endedMarch 31,
                            
                            
                            March 31,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009(Unaudited)
                            
                            
                            (Unaudited)
                            
                            
                            (Unaudited)
                            
                            
                            (Unaudited)Basic earnings per shareNet
      income available to common shareholders
                            
                            $
                            2,182,264
                            
                            
                            $
                            1,988,549
                            
                            
                            $
                            4,944,710
                            
                            
                            $
                            5,474,258Weighted
      average shares outstanding-Basic
                            
                            
                            13,941,654
                            
                            
                            
                            10,525,000
                            
                            
                            
                            12,424,000
                            
                            
                            
                            10,525,066Earnings
      per share-Basic
                            
                            $
                            0.16
                            
                            
                            $
                            0.19
                            
                            
                            $
                            0.40
                            
                            
                            $
                            0.52Diluted
      earnings per shareNet
      income available to common shareholders
                            
                            $
                            2,182,264
                            
                            
                            $
                            1,988,549
                            
                            
                            $
                            4,944,710
                            
                            
                            $
                            5,474,258Add:
      Dividends on preferred stock
                            
                            
                            87,712
                            
                            
                            
                            155,200
                            
                            
                            
                            347,681
                            
                            
                            
                            472,850Add:
      Accretion on preferred stock
                            
                            
                            121,823
                            
                            
                            
                            150,243
                            
                            
                            
                            521,553
                            
                            
                            
                            450,725Net
      income for diluted EPS
                            
                            $
                            2,391,799
                            
                            
                            $
                            2,293,992
                            
                            
                            $
                            5,813,944
                            
                            
                            $
                            6,397,833Weighted
      average shares outstanding-Basic
                            
                            
                            13,941,654
                            
                            
                            
                            10,525,000
                            
                            
                            
                            12,424,000
                            
                            
                            
                            10,525,066Restricted
      stock
                            
                            
                            15,000
                            
                            
                            
                            -
                            
                            
                            
                            15,000
                            
                            
                            
                            -Warrants
      and options
                            
                            
                            643,752
                            
                            
                            
                            -
                            
                            
                            
                            1,385,927
                            
                            
                            
                            -Preferred
      stock
                            
                            
                            1,819,500
                            
                            
                            
                            3,496,632
                            
                            
                            
                            1,819,500
                            
                            
                            
                            3,499,015Weighted
      shares outstanding-Diluted
                            
                            
                            16,419,906
                            
                            
                            
                            14,021,832
                            
                            
                            
                            15,644,427
                            
                            
                            
                            14,024,081Earnings
      per share-Diluted
                            
                            $
                            0.15
                            
                            
                            $
                            0.16
                            
                            
                            $
                            0.37
                            
                            
                            $
                            0.46
  26
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 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 March 31, 2010, 396,250 of the preferred stock had been
converted into 1,585,000 of common stock. 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. 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 nine months ended March 31, 2010 and
2009, total dividend and accretion were $869,234 and $923,573,
respectively.  For nine months ended March 31, 2010, 410,000 warrants
were converted into 447,534 shares of common stock. For the nine months ended
March 31, 2010, 710,000 warrants at an exercise price of $2.40 per share were
included in the diluted EPS calculation, which under treasury stock method
resulted in an additional 1,714,201 shares of common stocks.
 
 Note
17 – 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’s
contributions of employment benefits, including pension were approximately
$50,674 and $21,582 for the three months ended March 31, 2010 and 2009,
respectively. The Company’s contributions of employment benefits, including
pension were approximately $107,496 and $55,316 the nine months ended March 31,
2010 and 2009, respectively.
 
 Note
18 – Operating leases
 
 The
Company entered into a lease agreement for a manufacturing plant with an
unrelated party from October 1, 2008 to September 30, 2013 with annual payments
of $197,052.  Further, the Company agreed to lease office space from
the Company’s shareholder, Mr. He Weili, from July 2009 to June 2010 with annual
payment of $172,946. The rent is valued at fair value from the main property
management.
 
 The
Company entered into four different five-year operating lease agreements during
the fourth quarter of 2009.  The lease payments are for four
manufacturing plants with various unrelated parties for a total monthly payment
of $213,000. Certain lease payments have been pre-paid by transferring the
Company’s long-term accounts receivable to the lessors as the Company believes
that a lump-sum pre-payment from aging receivable in exchange for agreeing to no
increase in the future lease will benefit its future operation.
 
 Total
operating lease expense for the three months ended March 31, 2010 and 2009 was
$703,245 and $92,705, respectively. Total operating lease expense for the nine
months ended March 31, 2010 and 2009 was $2,094,615 and $277,884, respectively,
and is included in cost of revenue, selling, general, and administrative
expenses. Future minimum annual lease expense under non-cancelable operating
leases with a term of one year or more consist of the following:
 
 Period ending March
31,
                            
                            Amount2011
                            
                            $
                            2,756,3712012
                            
                            $
                            2,756,3712013
                            
                            $
                            2,604,7352014
                            
                            $
                            633,1352015
                            
                            $
                            -
  27
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Note
19 — Business Segments
 
 The
Company’s operations are classified into four principal reportable segments that
provide different products or services.  The Company is engaged in the
business of selling concrete, manufacturing concrete, providing technical
support services and others, which include mixer rental, sales of materials and
marketing cooperation. Separate segment is required because each business unit
is subject to different production and technology strategies.
 
 For the
three months ended March 31, 2010 (unaudited):
 Sales of
                          concrete
                        
                        
                        Manufacturing
                          services
                        
                        
                        Technical
                          services
                        
                        
                        Others
                        
                        
                        Corporate
                        
                        
                        TotalNet
      sales
                        
                        $
                        11,556,117
                        
                        
                        $
                        4,060,284
                        
                        
                        $
                        587,507
                        
                        
                        $
                        246,858
                        
                        
                        $
                        -
                        
                        
                        $
                        16,450,766Depreciation
                        
                        
                        (181,552
                        )
                        
                        
                        (487,801
                        )
                        
                        
                        (1,682
                        )
                        
                        
                        (46,074
                        )
                        
                        
                        (7,518
                        )
                        
                        
                        (724,627
                        )Operating
      income
                        
                        
                        1,015,670
                        
                        
                        
                        2,381,649
                        
                        
                        
                        500,298
                        
                        
                        
                        178,384
                        
                        
                        
                        (1,452,399
                        )
                        
                        
                        2,623,602Other
      income (expenses)
                        
                        
                        601,917
                        
                        
                        
                        240,615
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        842,532Interest
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2,985
                        
                        
                        
                        2,985Interest
      expenses
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (12
                        )
                        
                        
                        (12
                        )Capital
      expenditure
                        
                        
                        (21,210
                        )
                        
                        
                        (28,084
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (5,630
                        )
                        
                        
                        (58,924
                        )
 
 For the
nine months ended March 31, 2010 (unaudited):
 
 Sales of
                              concrete
                            
                            
                            Manufacturing
                              services
                            
                            
                            Technical
                              services
                            
                            
                            Others
                            
                            
                            Corporate
                            
                            
                            TotalNet
      sales
                            
                            $
                            46,759,376
                            
                            
                            $
                            10,529,012
                            
                            
                            $
                            3,067,162
                            
                            
                            $
                            1,740,644
                            
                            
                            $
                            -
                            
                            
                            $
                            62,096,194Depreciation
                            
                            
                            (751,539
                            )
                            
                            
                            (1,198,643
                            )
                            
                            
                            (4,228
                            )
                            
                            
                            (136,027
                            )
                            
                            
                            (22,073
                            )
                            
                            
                            (2,112,510
                            )Operating
      income
                            
                            
                            3,209,690
                            
                            
                            
                            4,987,866
                            
                            
                            
                            2,828,678
                            
                            
                            
                            1,286,084
                            
                            
                            
                            (3,219,334
                            )
                            
                            
                            9,092,984Other
      income (expenses)
                            
                            
                            2,455,431
                            
                            
                            
                            620,355
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            5,513
                            
                            
                            
                            3,081,299Interest
      income
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            6,006
                            
                            
                            
                            6,006Interest
      expenses
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (23,765
                            )
                            
                            
                            (23,765
                            )Capital
      expenditure
                            
                            
                            (158,372
                            )
                            
                            
                            (4,756,574
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (29,022
                            )
                            
                            
                            (4,943,968
                            )
 
 For the
three months ended March 31, 2009 (unaudited):
 
 Sales of
                          concrete
                        
                        
                        Manufacturing
                          services
                        
                        
                        Technical
                          services
                        
                        
                        Others
                        
                        
                        Corporate
                        
                        
                        TotalNet
      sales
                        
                        $
                        6,544,484
                        
                        
                        $
                        1,304,615
                        
                        
                        $
                        431,456
                        
                        
                        $
                        995,971
                        
                        
                        $
                        -
                        
                        
                        $
                        9,276,526Depreciation
                        
                        
                        (347,476
                        )
                        
                        
                        (110,804
                        )
                        
                        
                        (1,273
                        )
                        
                        
                        (78,768
                        )
                        
                        
                        -
                        
                        
                        
                        (538,321
                        )Operating
      income
                        
                        
                        1,904,455
                        
                        
                        
                        784,945
                        
                        
                        
                        406,287
                        
                        
                        
                        723,338
                        
                        
                        
                        (742,921
                        )
                        
                        
                        3,076,104Other
      income (expenses)
                        
                        
                        392,694
                        
                        
                        
                        78,277
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (118,343
                        )
                        
                        
                        352,628Interest
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        937
                        
                        
                        
                        937Interest
      expenses
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (194,200
                        )
                        
                        
                        (194,200
                        )Capital
      expenditure
                        
                        
                        -
                        
                        
                        
                        (18,724
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (18,724
                        )
 
 For the
nine months ended March 31, 2009 (unaudited):
 Sales of
                                          concrete
                                        
                                        
                                        Manufacturing
                                          services
                                        
                                        
                                        Technical
                                          services
                                        
                                        
                                        Others
                                        
                                        
                                        Corporate
                                        
                                        
                                        TotalNet
      sales
                                        
                                        $
                                        16,382,049
                                        
                                        
                                        $
                                        5,301,154
                                        
                                        
                                        $
                                        1,471,583
                                        
                                        
                                        $
                                        2,086,687
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        25,241,473Depreciation
                                        
                                        
                                        (1,171,143
                                        )
                                        
                                        
                                        (248,302
                                        )
                                        
                                        
                                        (3,818
                                        )
                                        
                                        
                                        (187,992
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (1,611,255
                                        )Operating
      income
                                        
                                        
                                        4,113,938
                                        
                                        
                                        
                                        3,458,629
                                        
                                        
                                        
                                        1,340,968
                                        
                                        
                                        
                                        1,430,063
                                        
                                        
                                        
                                        (1,892,752
                                        )
                                        
                                        
                                        8,450,846Other
      income (expenses)
                                        
                                        
                                        982,923
                                        
                                        
                                        
                                        318,069
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (201,531
                                        )
                                        
                                        
                                        1,099,461Interest
      income
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        4,777
                                        
                                        
                                        
                                        4,777Interest
      expenses
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (640,544
                                        )
                                        
                                        
                                        (640,544
                                        )Capital
      expenditure
                                        
                                        
                                        (22,155
                                        )
                                        
                                        
                                        (18,724
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (9,487
                                        )
                                        
                                        
                                        (50,366
                                        )Total
      assets as of:March
      31, 2010
                                        
                                        $
                                        68,896,321
                                        
                                        
                                        $
                                        15,513,684
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        2,564,705
                                        
                                        
                                        $
                                        
                                        
                                        
                                        $
                                        86,974,710June
      30, 2009
                                        
                                        $
                                        41,905,192
                                        
                                        
                                        $
                                        10,512,222
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        3,902,359
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        56,319,773
  28
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Note
20 – Commitments and contingencies
 
 Litigation
 
 From time
to time, the Company is a party to various legal actions arising in the ordinary
course of business.  The Company’s management does not expect the legal
matters involving the Company would have a material impact on the Company’s
consolidated financial position or results of operations.
 
 Following
is the summary of the current litigation:
 
 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 (RMB 2,000,000) for the cement supplied
by Xin Ao between March 2005 and June 2005 and compensatory damages of
approximately $23,500 (RMB 171,000) 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 March 31, 2010, the Company
has factored this amount to an unrelated third party trust company and the trust
company has received the payment from Boda.
 
 Note
21 – Subsequent Events
 
 On April
19, 2010, Xin Ao established a 100% owned subsidiary, Qi Xian Heng Xing
Technology Co., Ltd in China for technology consulting services. The registered
capital for the new subsidiary is $146,700 (RMB 1million).
 
 The
Company has performed an evaluation of subsequent events through the date these
consolidated financial statements were issued to determine whether the
circumstances warranted recognition and disclosure of those events or
transactions in the consolidated financial statements as of March 31,
2010.
  29
  ITEM 2.
                MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.
  This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). The words “believe,” “expect,” “anticipate,”
“project,” “target,” “optimistic,” “intend,” “aim,” “will” or similar
expressions are intended to identify forward-looking statements. Such statements
include, among others, those concerning our expected financial performance and
strategic and operational plans, as well as all assumptions, expectations,
predictions, intentions or beliefs about future events. These statements are
based on the beliefs of our management as well as assumptions made by and
information currently available to us and reflect our current view concerning
future events. As such, they are subject to risks and uncertainties that could
cause our results to differ materially from those expressed or implied by such
forward-looking statements. Such risks and uncertainties include, among many
others: our significant operating losses; our limited operating history;
uncertainty of capital resources; the speculative nature of our business; our
ability to successfully implement new strategies; present and possible future
governmental regulations; operating hazards; competition; the loss of key
personnel; any of the factors in the “Risk Factors” section of the Company’s
Annual Report on Form 10-K; other risks identified in this Report; and any
statements of assumptions underlying any of the foregoing. You should also
carefully review other reports that we file with the SEC. The Company assumes no
obligation and does not intend to update these forward-looking statements,
except as required by law.
 
 All
statements other than statements of historical fact are statements that could be
deemed forward-looking statements. The Company assumes no obligation and does
not intend to update these forward-looking statements, except as required by
law. When used in this report, the terms “China ACM”, “Company”, “we”, “our”,
and “us” refer to China Advanced Construction Materials Group, Inc. (a Delaware
corporation) and its wholly-owned subsidiaries Xin Ao Construction Materials,
Inc. and Beijing Ao Hang Construction Materials Technology Co., Ltd., as well as
Beijing Xin Ao Concrete Co., Ltd., the Company’s variable interest
entity.
 
 Use
of Non-GAAP Financial Measures
  The
Company makes reference to Non-GAAP financial measures in portions of
“Management’s Discussion of Financial Condition and Results of Operations”.
Management believes that investors may find it useful to review our financial
results that exclude the aggregate non-cash expenses of $4,873,736 for the nine
months ended March 31, 2010, and the aggregate non-cash expenses of $836,313 for
the three months ended March 31, 2010 on option and stock-based compensation
along with change in fair value of warrant, shown in the below chart, due to the
adoption of a Financial Accounting Standards Board’s (“FASB”) ASC
815 (EITF 07-05) accounting standard as discussed in the section
“Derivative Liability” below.
  Management
believes that these Non-GAAP financial measures are useful to investors in that
they provide supplemental information to possibly better understand the
underlying business trends and operating performance of the Company. The Company
uses these Non-GAAP financial measures to evaluate operating performance.
However, Non-GAAP financial measures should not be considered as an alternative
to net income or any other performance measures derived in accordance with
GAAP.
  30
  Three
      Months Ended
                                      
                                      
                                      Nine
      Months EndedMarch
      31,
                                      
                                      
                                      March
      31,2010
                                      
                                      
                                      2009
                                      
                                      
                                      Increase
                                        (Decrease)
                                      
                                      
                                      2010
                                      
                                      
                                      2009
                                      
                                      
                                      Increase
                                        (Decrease)Net
      Income available to Common shareholders -GAAP
                                      
                                      $
                                      2,182,264
                                      
                                      
                                      $
                                      1,988,549
                                      
                                      
                                      $
                                      193,715
                                      
                                      
                                      $
                                      4,944,710
                                      
                                      
                                      $
                                      5,474,258
                                      
                                      
                                      $
                                      (529,548
                                      )Add
      Back (Subtract):Change
      in fair value of warrants
                                      
                                      $
                                      473,302
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      473,302
                                      
                                      
                                      $
                                      4,389,947
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      4,389,947Add
      Back (Subtract):Change
      in Option and Equity Based Compensation
                                      
                                      $
                                      363,011
                                      
                                      
                                      $
                                      40,409
                                      
                                      
                                      $
                                      322,602
                                      
                                      
                                      $
                                      483,789
                                      
                                      
                                      $
                                      66,619
                                      
                                      
                                      $
                                      417,170Adjusted
      Net Income available to Common shareholders -non-GAAP
                                      
                                      $
                                      3,018,577
                                      
                                      
                                      $
                                      2,028,958
                                      
                                      
                                      $
                                      989,619
                                      
                                      
                                      $
                                      9,818,446
                                      
                                      
                                      $
                                      5,540,877
                                      
                                      
                                      $
                                      4,277,569
 Add
      Back (Subtract):Dividends
      and accretion on redeemable convertible preferred stock
                              
                              $
                              209,535
                              
                              
                              $
                              305,443
                              
                              
                              $
                              (95,908
                              )
                              
                              $
                              869,234
                              
                              
                              $
                              923,575
                              
                              
                              $
                              (54,341
                              )Adjusted
      Net Income -non-GAAP
                              
                              
                              3,228,113
                              
                              
                              
                              2,334,401
                              
                              
                              
                              893,712
                              
                              
                              
                              10,687,680
                              
                              
                              
                              6,464,452
                              
                              
                              
                              4,223,228
 Basic
      earning per share – GAAP
                                    
                                    $
                                    0.16
                                    
                                    
                                    $
                                    0.19
                                    
                                    
                                    $
                                    (0.03
                                    )
                                    
                                    $
                                    0.40
                                    
                                    
                                    $
                                    0.52
                                    
                                    
                                    $
                                    (0.12
                                    )Add
      back (Subtract):Change
      in fair value of warrant
                                    
                                    $
                                    0.03
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    0.03
                                    
                                    
                                    $
                                    0.35
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    0.35Add
      back (Subtract):Change
      in Option and Equity-Based Compensation
                                    
                                    $
                                    0.03
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    0.03
                                    
                                    
                                    $
                                    0.04
                                    
                                    
                                    $
                                    0.01
                                    
                                    
                                    $
                                    0.03Adjusted
      basic earning per share non-GAAP
                                    
                                    $
                                    0.22
                                    
                                    
                                    $
                                    0.19
                                    
                                    
                                    $
                                    0.03
                                    
                                    
                                    $
                                    0.79
                                    
                                    
                                    $
                                    0.53
                                    
                                    
                                    $
                                    0.26Diluted
      earning per share-GAAP
                                    
                                    $
                                    0.15
                                    
                                    
                                    $
                                    0.16
                                    
                                    
                                    $
                                    (0.01
                                    )
                                    
                                    $
                                    0.37
                                    
                                    
                                    $
                                    0.46
                                    
                                    
                                    $
                                    (0.9
                                    )Add
      back (Subtract):Change
      in fair value of warrant
                                    
                                    $
                                    0.03
                                    (a)
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    0.03
                                    
                                    
                                    $
                                    0.28
                                    (a)
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    0.28Add
      back (Subtract):Change
      in Option and Equity-Based Compensation
                                    
                                    $
                                    0.02
                                    (a)
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    0.02
                                    
                                    
                                    $
                                    0.03
                                    (a)
                                    
                                    $
                                    0.01
                                    
                                    
                                    $
                                    0.02Adjusted
      diluted earning per share non-GAAP
                                    
                                    $
                                    0.20
                                    
                                    
                                    $
                                    0.16
                                    
                                    
                                    $
                                    0.04
                                    
                                    
                                    $
                                    0.68
                                    
                                    
                                    $
                                    0.47
                                    
                                    
                                    $
                                    0.21Weighted
      average number of sharesBasic
                                    
                                    
                                    13,941,654
                                    
                                    
                                    
                                    10,525,200
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    12,424,000
                                    
                                    
                                    
                                    10,525,066Diluted
                                    
                                    
                                    16,419,906
                                    
                                    
                                    
                                    14,021,832
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    15,644,427
                                    
                                    
                                    
                                    14,024,081
  (a) The
Company adopted the provisions of FASB accounting standard ASC
815 (EITF 07-05), which provides standards with respect to determining
whether an instrument (or embedded feature) is indexed to an entity’s own stock.
As a result of adopting this accounting standard, warrants previously treated as
equity pursuant to the derivative treatment exemption are no longer afforded
equity treatment because the warrants have a downward ratchet provision on the
exercise price. As a result, the warrants are not considered indexed to the
Company’s own stock, and as such, all future changes in the fair value of these
warrants will be recognized currently in earnings until such time as the
warrants are exercised or expired. Effective July 1, 2009, the Company
reclassified the fair value of these warrants from equity to liability, as if
these warrants were treated as a derivative liability since their issuance in
June 2008.  The Company recognized a $4,389,947 loss from the change
in fair value for the nine months ended March 31, 2010, and a $473,302 loss
from the change in fair value for the three months ended March 31,
2010.
  31
 
 (b) The
Company records stock-based compensation expense pursuant to FASB’s accounting
standard regarding stock compensation which requires companies to measure
compensation cost for stock-based employee compensation plans at fair value at
the grant date and recognize the expense over the employee's requisite service
period. Under ASC Topic 718, the Company’s expected volatility assumption is
based on the historical volatility of Company’s stock or the expected volatility
of similar entities. The expected life assumption is primarily based on
historical exercise patterns and employee post-vesting termination behavior. The
risk-free interest rate for the expected term of the option is based on the U.S.
Treasury yield curve in effect at the time of grant. For the three months ended
March 31, 2010, the Company recognized $98,669 of restricted stock as
compensation expense. For the nine months ended March 31, 2010, the Company
recognized $156,051 of restricted stock as compensation expense.  For
the three months ended March 31, 2010 and 2009, the Company recognized $264,342
and $40,409, respectively, as compensation expenses for its stock option plan.
For the nine months ended March 31, 2010 and 2009, the Company recognized
$327,738 and $66,619, respectively, as compensation expenses for its stock
option plan.
 
 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. In addition, 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.
 
 In March
2010, Xin Ao established four 100% owned subsidiaries in China and they are
Beijing Heng Yuan Zheng Technical Consulting Co., Ltd (“Heng Yuan Zheng”),
Beijing Hong Sheng An Construction Materials Co., Ltd (“Hong Sheng An”), Beijing
Heng Tai Hong Sheng Construction Materials Co., Ltd (“Heng Tai”) and Ta Dong Ao
Hang Wei Ye Machinery and Equipment Rental Co., Ltd (“Ta
Tong”).  Total registered capital for these four subsidiaries is
approximately $1.9 million (RMB 13 million) and there has been no actual
operation as of March 31, 2010. The purpose of these new subsidiaries is to
support the Company's future growth.
 
 During
the nine months ended March 31, 2010, we, together with our subsidiaries and
variable interest entities (“VIEs”), supported materials, services and our high
speed railway projects through our network of eight ready-mixed concrete plants
throughout Beijing and sixteen portable concrete plants located in various
provinces throughout China. We own one concrete plant and its related equipment,
and we lease four additional plants.  In addition, we have technical
and preferred procurement agreements with three independently owned concrete
mixture stations, pursuant to which we are paid by percentages of cost savings
for technical support provided to clients and of sales price for projects we
refer to other stations due to the geographical location of our owned and leased
plants. Our manufacturing services are used primarily for our national high
speed railway projects; almost all of our general contract contractors on the
high speed railway projects supply the needed raw materials, which results in
higher gross margins for us and reduces our upfront capital investments needed
to purchase raw materials.  We also produce ready-mix concrete at
portable plants, which can be dismantled and moved to new sites for new
projects. Our management believes that we have the ability to capture a 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.  Based on reports from the National Development and Reform
Commission, or NDRC, we anticipate that our market share will further expand due
to the announced $586 billion infrastructure stimulus packages by the Chinese
government in 2008, which will focus primary on transportation related projects
such as railway, highway, and transportation related infrastructure.
Additionally, the Ministry of Rail has announced its plans to invest $USD120.75
Billion (RMB823.5 Billion) in 70 new projects upgrading rail infrastructure in
calendar 2010 which together with future planned rail infrastructure investment
will total $USD730 Billion (RMB5 Trillion) by 2020.
 
 Principal
Factors Affecting Our Financial Performance
  We
believe that the following factors will continue to affect our financial
performance:
  32
 
 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. For the three months
and nine months ended March 31, 2010 and March 31, 2009, the Company does not
have customer over 10% of sales. For the three months ended March 31, 2010, two
customers accounted for approximately 11.91% of the Company’s sales and 6.11% of
the Company’s account receivables as of March 31, 2010.  For the nine
months ended March 31, 2010, three customers accounted for approximately 10.02%
of the Company’s sales and 8.53% of the Company’s account receivable as of March
31, 2010.
 
 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.
 
 Innovation Efforts. We strive
to produce the most technically and scientifically advanced products for 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.  At present, no
payments have been made by us under the agreement.
 
 PRC
Taxation
 
 Our
subsidiary, China-ACMH and its VIE, Xin Ao are governed by the Income Tax Law of
the People’s Republic of China concerning Foreign Investment Enterprises, or
FIEs, 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 and an income tax reduction from 25% to 15% from January 1,
2009 through December 31, 2011 as granted by the State Administration of
Taxation, PRC. The renewal certificate was awarded based on the company's
involvement in producing high-tech products, its research and development, as
well as its technical services.
 
 On March
16, 2007, the National People’s Congress of the PRC passed the new enterprise
income tax law, or 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% 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. The new EIT Law imposes a unified
income tax rate of 25% 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. Because the Company’s operating subsidiary, Xin Ao’s
use of recycled raw materials in its production since its inception entitled the
Company to an income tax exemption from January 1, 2003, through to December 31,
2007 and an income tax reduction from 25% to 15% from January 1, 2009 to
December 31, 2011 as granted by the State Administration of Taxation of the PRC.
The income tax exemption granted to the Company was eliminated after December
31, 2007.  Beginning January 1, 2008, the new Chinese EIT law replaced
the existing laws for Domestic Enterprises, or DES, and FIEs. Effective January
1, 2009, the China-ACM new reduced EIT rate of 15% replaced the existing rates
of 25% currently applicable to both DES and FIEs
 
 Derivative
Liability
 
 Effective
July 1, 2009, the Company became subject to FASB accounting standard ASC
815   (EITF 07-05), which determines whether an instrument (or embedded
feature) is indexed to an entity’s own stock.  This accounting
standard specifies that a contract which would otherwise meet the definition of
a derivative but is both (a) indexed to the Company’s own stock and (b)
classified as stockholders’ equity in the statement of financial position would
not be considered a derivative financial instrument.  This accounting
standard provides a new two-step model to be applied in determining whether
a financial instrument or an embedded feature is indexed to an issuer’s own
stock and thus able to qualify for the scope exception.
 
 As such,
warrants previously treated as equity pursuant to the derivative treatment
exemption are no longer afforded equity treatment because the warrants have a
downward ratchet provision on the exercise price. As a result, the warrants are
not considered indexed to the Company’s own stock, and, as such, all future
changes in the fair value of these warrants will be recognized as earnings until
such time as the warrants are exercised or expire.
 
 The
conversion option does not need to be separated from the redeemable convertible
preferred stock and accounted for as derivative liability because it contains a
residual equity interest, which on dissolution and liquidation of the Company,
entitle the preferred stockholders to liquidation value and accumulated
dividends, and rank equal with the common shareholders on an as if converted
basis.  This FASB accounting standard provides that if the instrument
has a residual equity interest, it “should” be considered to be an equity
instrument and if the preferred stock is considered to be an equity instrument,
then the embedded conversion option would not be separated because its risks and
rewards are clearly and closely related to that of redeemable convertible
preferred stock.
  33
 
 Results
of Operations
  Comparison
of the three months Ended March 31, 2010 and 2009
 
 The
following table sets forth key components of our results of operations for the
three months ended March 31, 2010 and 2009, in US dollars:
 
 Three
      Months EndedMarch
      31,2010
                          
                          
                          2009(Unaudited)
                          
                          
                          (Unaudited)
                          
                          
                          Increase
                            (decrease)
                          
                          
                          Percentage
                            Increase
                            (decrease)Total
      revenue
                          
                          $
                          16,450,766
                          
                          
                          $
                          9,276,526
                          
                          
                          $
                          7,174,240
                          
                          
                          
                          77
                          %Total
      cost of revenue
                          
                          
                          12,288,275
                          
                          
                          
                          5,390,645
                          
                          
                          
                          6,897,630
                          
                          
                          
                          128
                          %Gross
      profit
                          
                          
                          4,162,491
                          
                          
                          
                          3,885,881
                          
                          
                          
                          276,610
                          
                          
                          
                          7
                          %Selling,
      general and administrative expenses
                          
                          
                          1,538,889
                          
                          
                          
                          809,777
                          
                          
                          
                          729,112
                          
                          
                          
                          90
                          %Other
      income, net
                          
                          
                          372,203
                          
                          
                          
                          159,365
                          
                          
                          
                          212,838
                          
                          
                          
                          134
                          %Income
      before provision for income taxes
                          
                          
                          2,995,805
                          
                          
                          
                          3,235,469
                          
                          
                          
                          (239,664
                          )
                          
                          
                          (7
                          )%Income
      taxes expense
                          
                          
                          604,006
                          
                          
                          
                          941,477
                          
                          
                          
                          (337,471
                          )
                          
                          
                          (36
                          )%Net
      income
                          
                          
                          2,391,799
                          
                          
                          
                          2,293,992
                          
                          
                          
                          97,807
                          
                          
                          
                          4
                          %Dividends
      and accretion on redeemable preferred
                          
                          
                          209,535
                          
                          
                          
                          305,443
                          
                          
                          
                          (95,908
                          )
                          
                          
                          (31
                          )%Net
      income available to Common shareholders
                          
                          $
                          2,182,264
                          
                          
                          $
                          1,988,549
                          
                          
                          $
                          193,715
                          
                          
                          
                          10
                          %
 
 Revenue.
Our revenue is generated from sales of our advanced ready-mix concrete products,
manufacturing services, technical consulting services, mixer rental and
marketing cooperation. For the three months ended March 31, 2010, we generated
revenue of $16,450,766 compared to $9,276,526 during the same period of 2009, an
increase of $7,174,240 or 77%. We increased our production volumes in and
outside of Beijing in the third quarter this fiscal year compared to the same
period last year.  As a result, our concrete sales revenue increased
by $5,011,633, despite a decrease in unit sale price, compared to the same
period last year. We experienced lower capacity utilization concrete sales for
our Beijing fixed plant for the three months ended March 31, 2010 due to lower
capacity utilization at the plant resulting from the extended holiday period
associated with Chinese New Year along with the diversion of (out of a current
total national fleet of 137) 24 of 61 Beijing-based fleet trucks to our portable
plants. During the quarter ended March 31, 2010, we continued to supply concrete
products to thirteen railway projects throughout China through our portable
plants, specifically the projects located in Shaanxi Province, Jiangsu Province,
Hebei Province, Guangxi Province, Zhejiang Province, Guangdong Province,
Liaoning Province, and Beijing. These thirteen projects contributed $4,060,284
to our total revenue for the quarter ended March 31, 2010, compared to
$1,304,615 in revenue from three projects we worked on during the same quarter
in 2009. The increase in revenues attributable to our manufacturing services was
principally due to a diversion of our Beijing-based fleet trucks to service our
portable plants during the third quarter ended March 31, 2010, as compared to
the same quarter in 2009. For these railway projects, the general contractors
generally supplied their own raw materials while we provided manufacturing and
transportation services. In addition, revenue generated through our technical
consulting services was $587,507 during the three months ended March 31, 2010,
an increase of $156,051 or 36% compared to the same fiscal quarter in 2009.
During the three month period ended March 31, 2010, we also rented our mixer
trucks to mixture stations which generated mixer rental revenues of $197,736, a
decrease of $798,203 or 80%, as we diverted (out of 119 national total) 21 of 54
Beijing transit mixers and (out of 18 national total) 3 of 7 Beijing pump trucks
to support portable plants in Zhejiang and Liaoning Provinces and generated
marketing cooperation revenue of $49,122. We anticipate our overall sales
revenue will continue to grow due to the Chinese government’s announcement of a
4 trillion Yuan (USD$586 billion) stimulus package in November 2008 as well as
the Chinese government’s railroad project plans, which are expected to cost a
total of $730 billion through 2020. We anticipate that we will be a direct
beneficiary of transportation and infrastructure build-out from China’s stimulus
package. In addition, we plan to continue expanding our business into new
geographical markets by leveraging our strong relationships with major
contractors throughout China.
  34
 
 Cost of
Sales. Cost of
Sales, which consists of direct labor, rentals, depreciation, other overhead and
raw materials, including inbound freight charges, was $12,288,275 for the
quarter ended March 31, 2010, as compared to $5,390,645 for the quarter ended
March 31, 2009, an increase of $6,897,630, or 128%.  The increase of cost
of revenue was due to overall increase in production from our five fixed
concrete plants in the Beijing area and increased production on manufacturing
and technical services as well as other services compared to the same period in
2009. The increase in cost of sales was also due the addition of four new
portable plants, the increases in crude oil prices which increased the costs of
raw materials and transportation during this quarter compared to the same
quarter last year.  We are uncertain whether crude oil prices will
maintain at the current level in the near future. The cost of sales on concrete
increased $5,886,828 this fiscal quarter compared to the same quarter last
year.  Such increase was due to an increase in our concrete production
as a result of additional plants we added during the first fiscal quarter, as
well as the increase in crude oil prices as indicated above as compared to the
same period last year. Cost of sales with respect to our manufacturing services
increased $1,147,020 during the fiscal quarter ended March 31, 2010, as compared
to the same quarter last year.  Such increase was due to the increase
in total operational capacity and a decrease in the utilization rate for
the three new portable plants we added to our operations in the third fiscal
quarter, as well as an increase in transportation costs. Our production and
utilization rates were below average due to the extended holiday period
associated with Chinese New Year.
  Gross
Profit. Our gross profit is equal to the difference between our revenue
and cost of sales. Gross profit was $4,162,491 for the fiscal quarter ended
March 31, 2010, as compared to $3,885,881 for the quarter ended March 31, 2009.
Our gross profit for sale of concrete was $1,076,426, or 9.3% of revenue, for
the three months ended March 31, 2010, compared to $1,951,621, or 30% of
revenue, for the same period last year, a decrease of $875,195. The lower gross
margin for concrete sales for the three months ended March 31, 2010,
compared with the same period in 2009, reflects exceptionally high demand, and
much higher industry prices, for capacity constrained premium concrete blends
within unusually tight and convergent project timelines for many large Beijing
Olympic era projects completed in the first half of calendar 2009 with the last
installment of Olympic-era projects, namely the Beijing South Railway Station
which was completed by the 4th fiscal
quarter of 2009. The decrease in gross profit margin with respect to sales of
concrete compared to the same quarter last year was also due to the increase in
costs of raw materials and transportation as a result of the increase in the
price of crude oil, municipal traffic restrictions, the lower utilization rate
of our newly leased plants due to the extended holiday period associated with
Chinese New Year along with the diversion of (out of 119 national total) 21 of
54 Beijing transit mixers and (out of 18 national total) 3 of 7 Beijing pump
trucks to support portable plants. Our gross margin with respect to our
sales of concrete was up 0.2% sequentially this quarter compared to the prior
quarter ended December 31, 2009 in spite of lower respective capacity
utilization as we focus on higher quality sales, which favorably impacts our
gross margins over time.  Our gross profit with respect to our
manufacturing services was $2,402,996, or 59%, for the quarter ended March 31,
2010, an increase of $1,608,649 from the same period in 2009. Such increase was
principally due to diversion of Beijing based truck fleet to support our
portable plants, which was offset by an increase of fixed costs incurred as a
result of the addition of new portable plants before they commenced production,
as well as the increase in costs of transportation this quarter compared to the
same period last year.  Our gross profit margin with respect to
technical services was $503,387, or 86%, for the quarter ended March 31, 2010,
compared to $409,397, or 95%, for the same quarter last year, an increase of
$93,990.  Our gross margins with respect to mixer rentals and
marketing cooperation were $152,613 and $27,069, respectively; and their margin
rates were 77% and 55%, respectively during the quarter ended March 31,
2010.  We plan to continue expanding our manufacturing and technical
services, which produce the highest gross profits among our revenue
sectors.
 
 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. We
incurred selling, general and administrative expenses of $1,538,889 for the
quarter ended March 31, 2010, an increase of $729,112, or 90%, as compared to
$809,777 for the quarter ended March 31, 2009. The increase was principally due
to an increase in employment, salary and benefit and lease expenses resulting
from higher production during the quarter, and professional and consulting
expenses from being a public company and resulting from our overall production
expansion during the quarter.
 
 Other Income
(Expense), net. Our other income (expense) consists of valued added tax
exemption from the PRC government, interest income (expense), change in fair
value of warrants, and other non-operating income (expense). We incurred net
other income of $372,203 for the quarter ended March 31, 2010, as compared to
net other income of $159,365 for the quarter ended March 31, 2009, an increase
of $212,838. The increase in net other income was primarily due to a decrease in
other non-operating expenses and interest expenses. We also experienced an
increase in other subsidy income to $854,891 during the three months ended March
31, 2010, as compared to $470,971 in the same period of 2009, an increase of
$383,920 or 82%. Due to the fact that we use recycled raw materials to
manufacture our products, the State Administration of Taxation granted us VAT
tax exemption from August 2005 to August 2009, and thereafter a two year
extension on the VAT tax exemption from August 2009 to August 2011. The VAT tax
collected during the aforementioned period from our customers is retained by the
Company and recorded as other subsidy income. In addition, we had no interest
expense for the quarter ended March 31, 2010, as compared to $194,200 for the
quarter ended March 31, 2009, a decrease of $194,200.
 
 Provision for
Income Taxes. Provision for income taxes amounted to $604,006 and
$941,477 for the quarters ended March 31, 2010 and 2009, respectively. We have
used recycled raw materials in our concrete production since our inception,
which entitled us to an income tax exemption from January 1, 2003 through
December 31, 2007, and an income tax rate reduction from January 1, 2009 to
December 31, 2011, as granted by the State Administration of Taxation, PRC. From
January 1, 2008 through December 31, 2008, we were subject to a 25% income tax
rate. Since January 1, 2009, we have been subject to a 15% income tax
rate.  Accordingly, our total income taxes incurred for the fiscal
quarter ended December 31, 2009 comprised of a 15% income tax rate compared to a
25% income tax rate for the same quarter last year. The new tax rate was granted
to the Company in June 2009, and the provision for income taxes provision was
retro-actively applied to the beginning of the calendar year 2009 in the fourth
quarter ended June 30, 2009. In the past, XinAo has paid the corporate income
tax on behalf of China-ACMH, and there could be a potential liability for
additional taxes for China-ACMH, though at present the Company is unable to
determine the extent of any such liability, if any.
  35
  Net (Loss)
Income. We
recognized net income of $2,391,799 for the quarter ended March 31, 2010, as
compared to net income of $2,293,992 for the same quarter in 2009, an increase
of $97,807. Such increase in net income was attributable to a yearly increase in
our plant production in the Beijing area, increased fleet support from Beijing
to our portable plants, higher gross profits on our thirteen railway projects,
technical services and marketing cooperation, all of which were offset by an
increase in production costs for new portable plants not yet in operation,
selling, general, and administrative expense as well as a non-cash charge of
$473,302 related to changes in the fair value of our outstanding warrants and a
non-cash charge of $363,011 related to stock and option-based compensation. As
discussed above, we adopted an accounting standard in July 1, 2009, and the
warrants issued in connection with our June 11, 2008 private placement were
re-classed from equity to derivative warrant liabilities and marked to fair
market value.  Our management believes that our profits may increase
during the next 12 months as we continue to expand into service sectors that
generate higher gross margins and because we are a direct beneficiary of Chinese
government’s stimulus package on infrastructure projects. We also plan to lease
or build new plants in order to increase our accessibility to construction sites
located in Beijing, expand into other geographical areas, as well as vertically
integrate our operations across the supply chain, which we believe will lower
our costs and provide greater profitability.
  Dividends and
accretion on redeemable preferred stock.  The decrease in
dividends and accretion on redeemable convertible preferred stock of $95,908 for
the three months ended March 31, 2010, as compared to the same period of 2009,
was due to conversions of our redeemable preferred stockholders into common,
thereby proportionately lowering the amount in respects to the offering in June
2008.  The decrease in dividends and accretion on redeemable
convertible preferred included preferred dividend expense of $87,710 and
$155,200 for the quarter ended March 31, 2010 and 2009, respectively; and
accretion of a discount on the preferred stock of $121,825 and $150,243 for the
quarter ended March 31, 2010 and 2009, respectively.
  Net Income
available to Common shareholders.
 
 Comparison
of the nine months ended March 31, 2010 and 2009
 
 The
following table sets forth key components of our results of operations for the
nine months ended March 31, 2010 and 2009, in US dollars:
 
 Nine
      Months EndedMarch
      31,2010
                                        
                                        
                                        2009(Unaudited)
                                        
                                        
                                        (Unaudited)
                                        
                                        
                                        Increase
                                          (decrease)
                                        
                                        
                                        Percentage
                                          Increase
                                          (decrease)Total
      revenue
                                        
                                        $
                                        62,096,214
                                        
                                        
                                        $
                                        25,241,473
                                        
                                        
                                        $
                                        36,854,741
                                        
                                        
                                        
                                        146
                                        %Total
      cost of revenue
                                        
                                        
                                        49,412,060
                                        
                                        
                                        
                                        14,711,370
                                        
                                        
                                        
                                        34,700,690
                                        
                                        
                                        
                                        236
                                        %Gross
      profit
                                        
                                        
                                        12,684,154
                                        
                                        
                                        
                                        10,530,103
                                        
                                        
                                        
                                        2,154,051
                                        
                                        
                                        
                                        20
                                        %Selling,
      general and administrative expenses
                                        
                                        
                                        3,591,170
                                        
                                        
                                        
                                        2,079,257
                                        
                                        
                                        
                                        1,511,913
                                        
                                        
                                        
                                        73
                                        %Other
      expense (income), net
                                        
                                        
                                        1,326,407
                                        
                                        
                                        
                                        (463,694
                                        )
                                        
                                        
                                        1,790,101
                                        
                                        
                                        
                                        (386
                                        )%Income
      before provision for income taxes
                                        
                                        
                                        7,766,577
                                        
                                        
                                        
                                        8,914,540
                                        
                                        
                                        
                                        (1,147,963
                                        )
                                        
                                        
                                        (13
                                        )%Provision
      for income taxes
                                        
                                        
                                        1,952,633
                                        
                                        
                                        
                                        2,516,707
                                        
                                        
                                        
                                        (564,074
                                        )
                                        
                                        
                                        (22
                                        )%Net
      income
                                        
                                        
                                        5,813,944
                                        
                                        
                                        
                                        6,397,833
                                        
                                        
                                        
                                        (583,889
                                        )
                                        
                                        
                                        (9
                                        )%Dividends
      and accretion on redeemable preferred
                                        
                                        
                                        869,234
                                        
                                        
                                        
                                        923,575
                                        
                                        
                                        
                                        54,341
                                        
                                        
                                        
                                        (6
                                        )%Net
      income to Common shareholders
                                        
                                        $
                                        4,944,710
                                        
                                        
                                        $
                                        5,474,258
                                        
                                        
                                        $
                                        (529,548
                                        )
                                        
                                        
                                        (10
                                        )%
  36
 
 Revenue.
Our revenue is generated from sales of our advanced ready-mix concrete products,
manufacturing services, technical consulting services, mixer rental, marketing
cooperation, and sales of raw material. For the nine months ended March 31,
2010, we generated revenue of $62,096,214 compared to $25,241,473 during the
same period of 2009, an increase of $36,854,741, or 146%. We
increased our production volume by adding additional fixed concrete plants as
compared to the same period last year. As a
result, our revenue from sales of concrete increased by $30,377,327 or 185%,
despite a decrease in unit sale price, compared to the same period last year.
During the nine months ended in March 31, 2010, we continued to supply concrete
products to thirteen railway projects throughout China through our portable
plants, specifically the projects located in Shaanxi Province, Jiangsu Province,
Hebei Province, Guangxi Province, Zhejiang Province, Guangdong Province,
Liaoning Province, and Beijing. These thirteen projects contributed $10,529,012
to our total revenue for the nine months ended March 31, 2010, compared to
$5,301,154 in revenue from the three projects we worked on during the same
period in 2009. The revenue increase with respect to our manufacturing services
was principally due to the addition of portable plants during this fiscal year
as compared to the same period last year. For our railway projects, the general
contractors generally supplied their own raw materials while we provided
manufacturing and transportation services. In addition, revenues generated from
our technical consulting services was $3,067,162 during the nine months ended in
March 31, 2010, an increase of $1,595,579, or 108%, compared to the same period
in 2009. During the nine month period ended March 31, 2010, we also generated
$296,918 in revenue from marketing cooperation, an increase of $202,751, or
215%, and rented our mixer trucks to mixture stations which generated mixer
rental revenues of $1,158,376, a decrease of $834,144, or 42%. We anticipate our
overall sales revenue will continue to grow due to the Chinese government’s
announcement of a 4 trillion Yuan (USD$586 billion) stimulus package in November
2008 as well as the Chinese government’s railroad project plans which are
expected to cost a total of $730 billion through 2020. We anticipate that we
will be a direct beneficiary of transportation and infrastructure build-out from
China’s stimulus package. In addition, we plan to continue expanding our
business into new geographical markets by leveraging our strong relationships
with major contractors throughout China.
 
 Cost of
Sales. Cost of
Sales, which consists of direct labor, rentals, depreciation, other overhead and
raw materials, including inbound freight charges, was $49,412,060for the nine
months ended March 31, 2010, as compared to $14,711,370 for the nine months
ended March 31, 2009, an increase of  $34,700,690, or
236%.  During the fiscal quarter prior to the celebration of National
Day of the People's Republic of China in Beijing, our primary area of operation,
all construction surrounding the city was halted and delayed due to severe
restrictions on traffic controls. The increase in our cost of revenue was due to
overall increase in production from our five fixed concrete plants in the
Beijing area, and increased production from our manufacturing and technical
services, as well as other services compared to the same period in 2009. The
increase in our cost of sales was also due to lower capacity utilization at our
newly leased Beijing fixed plants reflecting the early ramp up of those
facilities in the first fiscal quarter, traffic restrictions from national day,
and the extended holiday period of Chinese New Year, as well as increases in
crude oil prices, which increased the costs of raw materials and transportation
during the nine months ended March 31, 2010. The cost of sales with respect to
concrete sales increased $31,122,636 during the first nine months of this fiscal
year as compared to the same period last year.  Such increase was due
to an increase in our concrete production in the Beijing area as a result of the
addition of one new plant during the first nine months of this fiscal year, as
well as the increase in crude oil prices as indicated above. Although our
production volume increased during the nine months ended March 31, 2010, our
overall plant utilization rate was down, primarily due to severe traffic and
construction restrictions in Beijing in anticipation of the National Day of the
PRC and the increase in the price of crude oil. Cost of sales with respect to
our manufacturing service increased $3,674,745 during the nine months ended
March 31, 2010 as compared to the same period last year.  Such
increase was due to an increase the number of portable plants, in
total operational capacity and a decrease in utilization rate for our new
portable plants as we synchronized with the pace of the general contractors, as
well as an increase in transportation costs.
  Gross
Profit. Our gross profit is equal to the difference between our revenue
and cost of sales. Gross profit was $12,684,154 for the nine months ended March
31, 2010, as compared to $10,530,103 for the nine months ended March 31, 2009.
The gross profit for sale of concrete was $3,489,673, or 7% of revenue, for the
nine months ended March 31, 2010, compared to $4,234,982, or 26% of revenue, for
the same period last year, a decrease of $745,309. The lower gross margin for
concrete sales for the nine months ended March 31, 2010, compared with the
same period in 2009, reflects exceptionally high demand, and much higher
industry prices, for capacity constrained premium concrete blends within
unusually tight and convergent project timelines for many large Beijing Olympic
era projects completed in the second half of calendar 2008 with the last
installment of Olympic-era projects, namely the Beijing South Railway Station
which was completed in the 4 quarter of our fiscal 2009. The decrease in the
sales of concrete gross margin in the 9 months ended March 31, 2010 compared to
the same period last year, was also due to an increase in the costs of raw
materials and transportation as a result of higher crude oil and diesel fuel
prices and traffic restrictions due to the National Day of the PRC in our first
fiscal quarter, the low utilization rate at our newly leased plants reflecting
the early ramp up of those facilities, as well as the extended holiday period of
Chinese New Year in this third fiscal quarter as discussed above  Gross
profit with respect to our manufacturing services was $5,050,911, or 48%, for
the fiscal year ended March 31, 2010, an increase of $1,553,113 as compared to
$3,497,798, or 66% in the same period in the prior year. Such increase was
principally due to addition of new portable plants as railway projects
increases. The decrease in gross profit margin is primarily due to fixed costs
incurred on our new portable plants before they commenced production during the
period, as well as the increase in costs of transportation.  Gross
margin with respect to our technical services was $2,847,043, or 93%, for the
nine months ended March 31, 2010, compared to $1,351,841, or 92%, for the same
period last year, an increase of $1,495,202.  Gross margins with
respect to our mixer rentals, marketing cooperation and sales of materials were
88%,77%, and 16% respectively during the nine months ended March 31,
2010.  We plan to continue expanding our manufacturing and technical
services, which produce the highest gross profits among our revenue
sectors.
 
 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. We
incurred selling, general and administrative expenses of $3,591,170 for the nine
months ended March 31, 2010, an increase of $1,511,913, or 73%, as compared to $
2,079,257 for the nine months ended March 31, 2009. The increase was principally
due to an increase in salary and benefit expenses, lease expenses, and
professional and consulting expenses resulting from our overall production
expansion this period.
  37
 
 Other Income
(Expense), net. Our other income (expenses) consists of a valued added
tax exemption from the PRC government, interest income (expense), changes in
fair value of warrants, and other non-operating income (expense). We incurred
net other expenses of $(1,326,407) for the nine months ended March 31, 2010, as
compared to net other income of $463,694 for the nine months ended March 31,
2009, a decrease of $1,790,101. The decrease in net other income was primarily
due to a non-cash loss due to changes in the fair value of our warrant
liabilities of $(4,389,947), which was a result of the adoption of the
aforementioned accounting standard in July 1, 2009, which requires us to record
financial instruments such as warrants as derivative liabilities and a non-cash
charge to income statement at fair market value (See Note 2, Financial
Instruments). We also experienced an increase in other subsidy income to
$3,145,178 during the nine months ended March 31, 2010, as compared to
$1,300,992 in the same period of 2009. In addition, we had interest expenses of
$23,765 for the nine months ended March 31, 2010, as compared to $640,544 for
the nine months ended March 31, 2010, a decrease of $616,779. The decrease of
interest expense was primarily due to the repayment of a short-term loan in July
2009.
 
 Provision for
Income Taxes. Provision for income taxes amounted to $1,952,633 and
$2,516,707 for the nine months ended March 31, 2010 and 2009, respectively. We
have used recycled raw materials in our concrete production since our inception,
which entitled us to an income tax exemption from January 1, 2003 through
December 31, 2007 and an income tax rate reduction from January 1, 2009 to
December 31, 2011 as granted by the State Administration of Taxation, PRC. From
January 1, 2008 through December 31, 2008, we were subject to a 25% income tax
rate.  Since and as of January 1, 2009, we have been subject to a 15%
income tax rate.  Accordingly, our total income taxes incurred during
the fiscal quarter ended December 31, 2009, comprised of a 15% income tax rate
compared to a 25% income tax rate for the same quarter last year. The new tax
rate was granted to the Company in June 2009 and the provision for income taxes
provision was retro-actively applied to the beginning of calendar year 2009
during the fourth quarter ended June 30, 2009. We paid $2,171,366 in corporate
income taxes during the nine months ended March 31, 2010.  In the
past, XinAo has paid the corporate income tax on behalf of China-ACMH, and there
could be a potential liability for additional taxes for China-ACMH, though at
present the Company is unable to determine the extent of any such liability, if
any.
  Net Income. We
recognized net income of $5,813,944 for the nine months ended March 31, 2010, as
compared to net income of $6,397,833 for the same period in 2009, a decrease of
$583,889. Such decrease in net income was primarily attributable to the non-cash
charge of $4,389,947 related to changes in the fair market value of warrants. As
discussed above, we adopted an accounting standard on July 1, 2009, and the
warrants issued in connection with our June 11, 2008 private placement were
re-classed from equity to derivative warrant liabilities and marked to fair
market value.
 
 Dividends and
accretion on redeemable preferred stock.  The decrease in
dividends and accretion on redeemable convertible preferred stock of $54,341
compared to the nine months ended March 31, 2009, was due to conversions of our
redeemable preferred stockholders into common, thereby proportionately lowering
the amount in respects to our redeemable preferred stock offering in June
2008.  It included preferred dividend expense of $347,681 and $472,850
for the nine months ended March 31, 2010 and 2009, respectively and accretion of
discount on the preferred stock of $521,553 and $450,725 for the period ended
March 31, 2010 and 2009, respectively.
  Net Income avaiable to Common
shareholders.
  Liquidity
and Capital Resources
  As of
March 31, 2010, we had cash and cash equivalents of $5,589,981, and restricted
cash of $412,524. The following table provides detailed information about our
net cash flow for financial statement periods presented in this Form
10-Q:
 
 Summary of Cash Flow
      StatementsNine monthsEndedMarch 31,(Unaudited)
                                              
                                              
                                              (Unaudited)2010
                                              
                                              
                                              2009Net cash provided by operating
      activities
                                              
                                              $
                                              4,404,628
                                              
                                              
                                              $
                                              224,600Net cash (used in)  investing
      activities
                                              
                                              
                                              (9,394,914
                                              )
                                              
                                              
                                              (1,514,923
                                              )Net cash provided by financing
      activities
                                              
                                              
                                              6,953,203
                                              
                                              
                                              
                                              247,576Effect of foreign currency
      translation on cash and cash equivalents
                                              
                                              
                                              (7,741
                                              )
                                              
                                              
                                              2,392Net increase (decrease) in cash
      and cash equivalent
                                              
                                              $
                                              1,955,176
                                              
                                              
                                              $
                                              (1,040,355
                                              )
  38
 
 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 the Nine months Ended March 31, 2010 and 2009
 
 Net Cash Provided
by Operating Activities. Net cash provided by operating activities
totaled $4,404,628 for the nine months ended March 31, 2010, as compared to net
cash provided in operating activities of $224,600 for the nine months ended
March 31, 2009. The increase in net cash provided by operating activities was
primarily due to increase in our cash flows from increased sales activities and
an increase of accounts payable, which were partially offset by an increase of
accounts receivable and prepayment during the nine month ended March 31,
2010.  We expect our cash flow from operating activities to improve as
the construction industry in Beijing increases its activity following the
Chinese New Year holiday, and we strengthen our efforts to negotiate more
favorable terms with our suppliers and customers.
  Net Cash Used In
Investing Activities.  Net cash used in investing activities was
$9,394,914 for the nine month ended March 31, 2010, as compared to $1,514,923
for the nine months ended March 31, 2009. The cash was principally used to
purchase new production equipment and office equipment during the nine months
ended March 31, 2010.
 
 Net Cash Provided
by Financing Activities. Net cash provided by financing activities
totaled $6,953,203 for the nine months ended March 31, 2010, as compared to net
cash provided by financing activities of $247,576 for the nine months ended
March 31, 2009. The increase in cash provided by financing activities was due to
net proceeds of our July 2009 common stock offering totaled $1,497,242, net
proceeds from our March 1, 2010 underwritten common stock offering of
$9,619,852, and proceeds from options and warrant exercises of $758,851 offset
by a short-term loan payoff of $4,508,664 (RMB 30 million) to Beijing
International Trust & Investment Co. and preferred dividends
paid.  The net proceeds from the common stock offering will be used
for purchasing plant equipment, concrete mixers and pump trucks, working capital
and general corporate purposes.
  Cash.   As of March 31,
2010, we had cash of $5,589,981 as compared to $3,634,805 as of June 30, 2009.
This increase is due primarily to the net proceeds of our March 2010 common
stock offering and warrants exercised, which was partially offset by a decrease
in accounts receivable and a short-term loan payoff of $4,508,664 (RMB 30
million) to Beijing International Trust & Investment Co.
 
 We may
have a cash redemption obligation upon the 2 year anniversary of our June 11,
2008 private placement for the balance of any unconverted redeemable convertible
preferred shares issued thereunder which are outstanding as of June 11,
2010.
 
 We
believe that we can meet our liquidity and capital requirements for our ongoing
operations from a variety of sources. However, we will need to raise
additional capital in order to undertake out current plans for
expansion.
 
 Loan
Facilities
 
 We had a
total of $146,282 and $4,512,200 outstanding on loans and credit facilities as
of March 31, 2010 and June 30, 2009, respectively. During the nine months ended
March 31, 2010, we paid $4,508,664 towards our June 30, 2009 outstanding
loans.
 
 Interest
expense on short-term loans for the three months ended March 31, 2010 and 2009
amounted to $0 and $194,200, respectively.
 
 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. Additionally, the
onset of the extended holiday period of Chinese New Year has significant impact
on our operations as all workers go on extended leave of absences for one to two
weeks.
  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 entities Xin Ao. All significant inter-company transactions
and balances have been eliminated in consolidation. In accordance with the interpretation of
Generally Accepted Accounting Principles (GAAP), variable interest entities
(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.
  39




ASC 810 (Financial Accounting Standards
Board (“FASB”) Interpretation Number (“FIN”) 46 (revised December 2003),
“Consolidation of Variable Interest Entities, and Interpretation of ARB No. 51”
(“FIN 46R”), addresses whether certain types of entities referred to as variable
interest entities (“VIEs”), should be consolidated in a company’s consolidated
financial statements.




Based
upon a series of Contractual Arrangements, The Company determined that Xin Ao
and its subsidiaries are variable interest entities subject to consolidation and
that the Company is the primary beneficiary. Accordingly, the financial
statements of Xin Ao and its subsidiaries are consolidated into the financial
statements of the Company.





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:





Revenue
Recognition





The
Company recognizes revenue in accordance with accounting standards issued by the
FASB, which specifies that revenue is realized or realizable and earned when
four criteria are met:





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





Ÿ
            Delivery has occurred or services
      have been rendered;





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





Ÿ
            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 , or
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 2011. 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.





Financial
instruments





The
accounting standards regarding fair value of financial instruments and related
fair value measurements define fair value, establish a three-level valuation
hierarchy for disclosures of fair value measurement, and enhance disclosure
requirements for fair value measures.





The three
levels are defined as follows:


40





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





Ÿ
            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, substantially
      the full term of the financial
instrument.





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





Marketable
securities, warrant liabilities, receivables and current liabilities qualify as
financial instruments. Marketable securities were determined using
Level 1, which are carried on the consolidated balance sheets at fair value,
with fair values determined by the financial institution who sold the
securities. The carrying amounts reported in the consolidated balance sheets for
receivables and current liabilities are reasonable estimates of fair values
because of the short period of time between the origination of such instruments
and their expected realization and their current market rates of
interest.





As
required by a FASB accounting standard, financial assets and liabilities are
classified in their entirety based on the lowest level of input that is
significant to the fair value measurement.  The fair value of the
warrants was determined using the CRR Binomial Model, as level 2 inputs, and
recorded the change in earnings. As a result, the derivative liability is
carried on the balance sheet at its fair value.





The
following table sets forth by level within the fair value hierarchy our
financial assets and liabilities that were accounted for at fair value on a
recurring basis as of March 31, 2010 (unaudited).





CarryingValueat
                      
                      
                      Fair Value Measurement at
                        March 31, 2010March31,2010
                      
                      
                      Level1
                      
                      
                      Level2
                      
                      
                      Level3Derivative
      liability - warrants
                      
                      $
                      5,042,716
                      
                      
                      $
                      -
                      
                      
                      $
                      5,042,716
                      
                      
                      $
                      -





Other
than the marketable securities and derivative liability - warrants carried at
fair value, the Company did not identify any other assets and liabilities that
are required to be presented on the consolidated balance sheet at fair value in
accordance with the FASB accounting standard.





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 non-current, net of allowance for doubtful
accounts relating to that portion of receivables. The bifurcation between
current and non-current portions of accounts receivable is based on management’s
estimate and predicated on historical collection experience.





Chinese Income
Taxes





The
Company and its subsidiaries are governed by the income tax laws of the PRC
concerning Foreign Investment Enterprises, or FIEs, and Foreign Enterprises and
various local income tax laws, or the Income Tax Laws.





Xin Ao’s
use of recycled raw materials in its production since its inception entitled the
Company to an income tax exemption from January 1, 2003, through to December 31,
2007 and an income tax reduction from 25% to 15% from January 1, 2009 to
December 31, 2012  as granted by the State Administration of Taxation
of the PRC. The income tax exemption granted to the Company was eliminated after
December 31, 2007.  Beginning January 1, 2008, the new Chinese
Enterprise Income Tax, or EIT, law replaced the existing laws for Domestic
Enterprises, or DES, and FIEs. Effective January 1, 2009, the new reduced EIT
rate of 15% replaced the existing rates of 25% currently applicable to both DES
and FIEs.





PRC laws
require that before a FIE can legally distribute profits to its shareholders, 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, the common welfare fund, and represents restricted retained
earnings.





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. Therefore, there
were no significant deferred tax assets or liabilities during the nine months
ended March 31, 2010 and 2009.


41





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 nine months ended March 31, 2010 and 2009.





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. 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 exemption from August 2005 through to August 2009
and a two year tax (VAT) credit extension from August 2009 through August
2011.





Recently
Issued Accounting Pronouncements





In June
2009, the FASB issued an accounting standard amending the accounting and
disclosure requirements for transfers of financial assets. This accounting
standard requires greater transparency and additional disclosures for transfers
of financial assets and the entity’s continuing involvement with them and
changes the requirements for derecognizing financial assets. In addition, it
eliminates the concept of a qualifying special-purpose entity (“QSPE”). This
accounting standard is effective for financial statements issued for fiscal
years beginning after November 15, 2009. The Company is currently
evaluating the impact of this ASU, however, the Company does not expect the
adoption of this ASU to have a material impact on its consolidated financial
statements.





In June
2009, the FASB also issued an accounting standard amending the accounting and
disclosure requirements for the consolidation of variable interest entities
(“VIEs”). The elimination of the concept of a QSPE, as discussed above, removes
the exception from applying the consolidation guidance within
this accounting standard. Further, this accounting standard requires a
company to perform a qualitative analysis when determining whether or not it
must consolidate a VIE. It also requires a company to continuously reassess
whether it must consolidate a VIE. Additionally, it requires enhanced
disclosures about a company’s involvement with VIEs and any significant
change in risk exposure due to that involvement, as well as how its involvement
with VIEs impacts the company’s financial statements. Finally, a company will be
required to disclose significant judgments and assumptions used to determine
whether or not to consolidate a VIE. This accounting standard is effective
for financial statements issued for fiscal years beginning after November 15,
2009.  The Company is currently evaluating the impact of this ASU,
however, the Company does not expect the adoption of this ASU to have a material
impact on its consolidated financial statements.





In August
2009, the FASB issued an Accounting Standards Update (“ASU”) regarding measuring
liabilities at fair value. This ASU provides additional guidance clarifying the
measurement of liabilities at fair value in circumstances in which a quoted
price in an active market for the identical liability is not available; under
those circumstances, a reporting entity is required to measure fair value using
one or more of valuation techniques, as defined. The adoption of this guidance
did not have a material impact on the Company’s consolidated financial
statements.





In
October 2009, the FASB issued an ASU regarding accounting for own-share lending
arrangements in contemplation of convertible debt issuance or other
financing.  This ASU requires that at the date of issuance of the
shares in a share-lending arrangement entered into in contemplation of a
convertible debt offering or other financing, the shares issued shall be
measured at fair value and be recognized as an issuance cost, with an offset to
additional paid-in capital. Further, loaned shares are excluded from basic and
diluted earnings per share unless default of the share-lending arrangement
occurs, at which time the loaned shares would be included in the basic and
diluted earnings-per-share calculation.  This ASU is effective for
fiscal years beginning on or after December 15, 2009, and interim periods within
those fiscal years for arrangements outstanding as of the beginning of those
fiscal years. The Company is currently evaluating the impact of this ASU,
however, the Company does not expect the adoption of this ASU to have a material
impact on its consolidated financial statements.





In
November 2009, the FASB issued an ASU regarding accounting for stock dividends,
including distributions to shareholders with components of stock and cash. This
ASU clarifies that the stock portion of a distribution to shareholders that
contains components of cash and stock and allows shareholders to select their
preferred form of the distribution (with a limit on the amount of cash that will
be distributed in total) should be considered a stock dividend and included in
EPS calculations as a share issuance. The adoption of this guidance did not have
a material impact on the Company’s consolidated financial
statements.





In
December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of
Financial Assets. This Accounting Standards Update amends the FASB Accounting
Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140.The amendments in
this Accounting Standards Update improve financial reporting by eliminating the
exceptions for qualifying special-purpose entities from the consolidation
guidance and the exception that permitted sale accounting for certain mortgage
securitizations when a transferor has not surrendered control over the
transferred financial assets. In addition, the amendments require enhanced
disclosures about the risks that a transferor continues to be exposed to because
of its continuing involvement in transferred financial assets. Comparability and
consistency in accounting for transferred financial assets will also be improved
through clarifications of the requirements for isolation and limitations on
portions of financial assets that are eligible for sale accounting.The adoption
of this ASU did not have a material impact on its consolidated financial
statements.


42





In
December, 2009, FASB issued ASU No. 2009-17, Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities. This Accounting
Standards Update amends the FASB Accounting Standards Codification for the
issuance of FASB Statement No. 167, Amendments to FASB Interpretation
No. 46(R). The amendments in this Accounting Standards Update replace the
quantitative-based risks and rewards calculation for determining which reporting
entity, if any, has a controlling financial interest in a variable interest
entity with an approach focused on identifying which reporting entity has the
power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the
entity. An approach that is expected to be primarily qualitative will be more
effective for identifying which reporting entity has a controlling financial
interest in a variable interest entity. The amendments in this Update also
require additional disclosures about a reporting entity’s involvement in
variable interest entities, which will enhance the information provided to users
of financial statements. The adoption of this ASU did not have a material impact
on its consolidated financial statements.





In
January 2010, FASB issued ASU No. 2010-01– Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings
Per Share). The amendments in this update are effective for interim and annual
periods ending on or after December 15, 2009, and should be applied on a
retrospective basis. The
adoption of this ASU did not have a material impact on its consolidated
financial statements.





In
January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect accounting and reporting by an entity that exchanges
a group of assets that constitutes a business or nonprofit activity for an
equity interest in another entity. The amendments in this update are effective
beginning in the period that an entity adopts SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If
an entity has previously adopted SFAS No. 160 as of the date the amendments in
this update are included in the Accounting Standards Codification, the
amendments in this update are effective beginning in the first interim or annual
reporting period ending on or after December 15, 2009. The amendments in this
update should be applied retrospectively to the first period that an entity
adopted SFAS No. 160. The Company is currently evaluating the impact of this
ASU, however, the Company does not expect the adoption of this ASU to have a
material impact on its consolidated financial statements.





In
January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair
Value Measurements. This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers. 2) Activity in Level 3 fair value measurements. In
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), a reporting entity should present separately information about
purchases, sales, issuances, and settlements (that is, on a gross basis rather
than as one net number). This update provides amendments to Subtopic 820-10 that
clarifies existing disclosures as follows: 1) Level of disaggregation. A
reporting entity should provide fair value measurement disclosures for each
class of assets and liabilities. A class is often a subset of assets or
liabilities within a line item in the statement of financial position. A
reporting entity needs to use judgment in determining the appropriate classes of
assets and liabilities. 2) Disclosures about inputs and valuation techniques. A
reporting entity should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements. Those disclosures are required for fair value measurements that
fall in either Level 2 or Level 3. The new disclosures and clarifications of
existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. These disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. The Company is currently evaluating the impact of this ASU, however, the
Company does not expect the adoption of this ASU to have a material impact on
its consolidated financial statements.





In
February 2010, FASB issued ASU No. 2010-9 –Amendments to Certain Recognition and
Disclosure Requirements. This update addresses certain implementation issues
related to an entity’s requirement to perform and disclose subsequent-events
procedures, removes the requirement that public companies disclose the date of
their financial statements in both issued and revised financial statements.
According to the FASB, the revised statements include those that have been
changed to correct an error or conform to a retrospective application of U.S.
GAAP. The amendment is effective for interim and annual reporting periods in
fiscal year ending after June 15, 2010. The
adoption of this ASU did not have a material impact on the Company’s
consolidated financial statements.





In March
2010, FASB issued ASU No. 2010-10 –Amendments for Certain Investment Funds. This
update defers the effective date of the amendments to the consolidation
requirements made by FASB Statement 167 to a reporting entity’s interest in
certain types of entities. The deferral will mainly impact the evaluation of
reporting enterprises’ interests in mutual funds, private equity funds, hedge
funds, real estate investment entities that measure their investment at fair
value, real estate investment trusts, and venture capital funds. The ASU also
clarifies guidance in Statement 167 that addresses whether fee arrangements
represent a variable interest for all service providers and decision makers. The
ASU is effective for interim and annual reporting periods in fiscal year
beginning after November 15, 2009. The Company is currently evaluating the
impact of this ASU, however, the Company does not expect the adoption of this
ASU to have a material impact on its consolidated financial
statements.


43





In March
2010, FASB issued ASU No. 2010-11 –Scope Exception Related to Embedded Credit
Derivatives. Embedded credit-derivative features related only to the transfer of
credit risk in the form of subordination of one financial instrument to another
are not subject to potential bifurcation and separate accounting as clarified by
recently issued FASB guidance. Other embedded credit-derivative features are
required to be analyzed to determine whether they must be accounted for
separately. This update provides guidance on whether embedded credit-derivative
features in financial instruments issued by structures such as collateralized
debt obligations (CDOs) and synthetic CDOs are subject to bifurcation and
separate accounting. The guidance is effective at the beginning of a company’s
first fiscal quarter beginning after June 15, 2010. The Company does not expect
the adoption of this ASU to have a material impact on the Company’s consolidated
financial statements.





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.





Not
Applicable.





ITEM
4(T).   CONTROLS AND PROCEDURES.





Evaluation
of Disclosure Controls and Procedures.





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed under the Securities 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
March 31, 2010, the quarterly 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 and
financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our president and
our chief financial officer concluded that our disclosure controls and
procedures were not effective as of March 31, 2010 or during the entire period
covered by this report.





Changes
in Internal Control over Financial Reporting.





During
the fiscal quarter ended March 31, 2010, there were no changes in our internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.





PART
II





OTHER
INFORMATION





ITEM
1.     LEGAL PROCEEDINGS





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


44





ITEM
1A.     RISK FACTORS





In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, "Item 1A. Risk Factors" in
our Annual Report on Form 10-K for the year ended June 30, 2009, which
could materially affect our business, financial condition or future results. The
risks described in our Annual Report on Form 10-K are not the only risks
facing our Company. Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect
our business, financial condition or future results.





ITEM
2.     UNREGISTERED SALES OF EQUITY SECURITIES OR USE
OF PROCEEDS





There
were no unregistered sales of equity securities during the fiscal quarter ended
March 31, 2010.





ITEM
3.     DEFAULTS UPON SENIOR SECURITIES





There
were no defaults upon senior securities during the fiscal quarter ended March
31, 2010.





ITEM
4.     (REMOVED AND RESERVED)







ITEM
5.     OTHER INFORMATION





Not
applicable.





ITEM
6.     EXHIBITS





The
following exhibits are filed with this report, except those indicated as having
previously been filed with the SEC and are incorporated by reference to another
report, registration statement or form. As to any shareholder of record
requesting a copy of this report, we will furnish any exhibit indicated in the
list below as filed with this report upon payment to us of our expenses in
furnishing the information.





Exhibit No.
                    
                    Description31.1
                    
                    Certifications
      of Principal Executive Officer filed pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                    
                    Certifications
      of Principal Financial Officer filed pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                    
                    Certifications
      of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2
                    
                    Certifications
      of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.




45




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, thereunto duly
authorized.





Date: May
      17, 2010
                      CHINA ADVANCED CONSTRUCTION
                        MATERIALS GROUP, INC.By:
                      /s/ Xianfu HanXianfu
      Han, Chief Executive Officer(Principal
      Executive Officer)By:
                      /s/ Jeremy GoodwinJeremy
      Goodwin, Chief Financial Officer(Principal
      Financial Officer and Principal
                        Accounting
      Officer)




46