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: September 30, 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.)





9
North West Fourth Ring Road Yingu Mansion Suite 1708


Haidian
District Beijing, People’s Republic of China 100190


(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 November 15, 2010 is as follows:




Class of Securities
              
              Shares OutstandingCommon
      Stock, $0.001 par value
              
              17,602,104





TABLE
OF CONTENTS




PART
      IFINANCIAL
      INFORMATIONITEM
      1.
                  FINANCIAL
      STATEMENTS
                  
                  3ITEM
      2.
                  MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                  
                  27ITEM
      3.
                  QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                  
                  37ITEM
      4(T).
                  CONTROLS
      AND PROCEDURES
                  
                  37PART
      IIOTHER
      INFORMATIONITEM
      1.
                  LEGAL
      PROCEEDINGS
                  
                  38ITEM
      1A.
                  RISK
      FACTORS
                  
                  38ITEM
      2.
                  UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                  
                  38ITEM
      3.
                  DEFAULTS
      UPON SENIOR SECURITIES
                  
                  38ITEM
      4.
                  RESERVE
                  
                  38ITEM
      5.
                  OTHER
      INFORMATION
                  
                  38ITEM
      6.
                  EXHIBITS
                  
                  39


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 September 30, 2010 (Unaudited) and as of June 30,
      2010
                    
                    3Consolidated
      Statements of Income and Other Comprehensive Income for the three Months
      Ended September 30, 2010 and 2009 (Unaudited)
                    
                    4Consolidated
      Statement of Stockholders’ Equity (Unaudited)
                    
                    5Consolidated
      Statements of Cash Flows for the three Months Ended September 30, 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 SEPTEMBER 30, 2010 AND JUNE 30,
2010





SEPTEMBER 30,
                  
                  
                  JUNE 30,2010
                  
                  
                  2010UNAUDITEDASSETSCURRENT
      ASSETS:Cash
                  
                  $
                  12,718,521
                  
                  
                  $
                  3,300,820Restricted
      cash
                  
                  
                  -
                  
                  
                  
                  57,580Accounts
      receivable, net of allowance for doubtful accounts of $618,170
      and  $456,085, respectively
                  
                  
                  51,102,000
                  
                  
                  
                  36,072,691Inventories
                  
                  
                  1,740,499
                  
                  
                  
                  2,164,769Other
      receivables
                  
                  
                  1,611,092
                  
                  
                  
                  1,416,653Prepayments
                  
                  
                  3,721,906
                  
                  
                  
                  2,821,687Total
      current assets
                  
                  
                  70,894,018
                  
                  
                  
                  45,834,200PLANT
      AND EQUIPMENT, net
                  
                  
                  28,198,369
                  
                  
                  
                  26,488,354OTHER
      ASSETS:Accounts
      receivable (non-current), net of allowance for doubtful accounts of
      $19,119 and $4,607 respectively
                  
                  
                  1,580,474
                  
                  
                  
                  364,371Deferred
      tax assets
                  
                  
                  -
                  
                  
                  
                  127,741Advances
      on equipment purchases
                  
                  
                  5,932,144
                  
                  
                  
                  8,382,383Long
      term prepayments
                  
                  
                  4,052,422
                  
                  
                  
                  4,414,391Total
      other assets
                  
                  
                  11,565,040
                  
                  
                  
                  13,288,886Total
      assets
                  
                  $
                  110,657,427
                  
                  
                  $
                  85,611,440LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Short
      term loans
                  
                  $
                  10,508,940
                  
                  
                  $
                  -Accounts
      payable
                  
                  
                  24,955,525
                  
                  
                  
                  16,473,080Customer
      deposits
                  
                  
                  1,391,144
                  
                  
                  
                  711,219Other
      payables
                  
                  
                  366,202
                  
                  
                  
                  329,136Other
      payables - shareholders
                  
                  
                  817,256
                  
                  
                  
                  772,644Accrued
      liabilities
                  
                  
                  1,892,253
                  
                  
                  
                  1,652,751Taxes
      payable
                  
                  
                  2,220,864
                  
                  
                  
                  1,569,914Total
      current liabilities
                  
                  
                  42,152,184
                  
                  
                  
                  21,508,744OTHER
      LIABILITIESWarrants
      liabilities
                  
                  
                  2,766,262
                  
                  
                  
                  2,920,520Total
      liabilities
                  
                  
                  44,918,446
                  
                  
                  
                  24,429,264SHAREHOLDERS'
      EQUITY:Common
      stock, $0.001 par value, 74,000,000 shares authorized,
      17,584,604  and 17,467,104 shares issued and outstanding as of
      September 30, 2010  and June 30, 2010,
    respectively
                  
                  
                  17,585
                  
                  
                  
                  17,467Paid-in-capital
                  
                  
                  33,898,946
                  
                  
                  
                  33,720,762Retained
      earnings
                  
                  
                  22,856,268
                  
                  
                  
                  19,912,444Statutory
      reserves
                  
                  
                  4,876,017
                  
                  
                  
                  4,511,520Accumulated
      other comprehensive income
                  
                  
                  4,090,165
                  
                  
                  
                  3,019,983Total
      shareholders' equity
                  
                  
                  65,738,981
                  
                  
                  
                  61,182,176Total
      liabilities, and shareholders' equity
                  
                  $
                  110,657,427
                  
                  
                  $
                  85,611,440





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 (LOSS)


FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009


(UNAUDITED)





2010
                
                
                2009REVENUESales
      of concrete
                
                $
                25,320,947
                
                
                $
                14,886,757Manufacturing
      services
                
                
                4,471,777
                
                
                
                2,805,614Technical
      services
                
                
                1,159,060
                
                
                
                1,244,895Others
                
                
                5,298
                
                
                
                543,870Total
      revenue
                
                
                30,957,082
                
                
                
                19,481,136COST
      OF REVENUEConcrete
                
                
                23,508,683
                
                
                
                14,336,716Manufacturing
      services
                
                
                3,217,125
                
                
                
                1,757,167Technical
      services
                
                
                106,010
                
                
                
                54,483Others
                
                
                -
                
                
                
                45,734Total
      cost of revenue
                
                
                26,831,818
                
                
                
                16,194,100GROSS
      PROFIT
                
                
                4,125,264
                
                
                
                3,287,036SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
                
                
                2,193,788
                
                
                
                895,031INCOME
      FROM OPERATIONS
                
                
                1,931,476
                
                
                
                2,392,005OTHER
      INCOME (EXPENSE), NETOther
      subsidy income
                
                
                1,787,563
                
                
                
                966,772Non-operating
      income (expense) , net
                
                
                169,227
                
                
                
                (49,203
                )Change
      in fair value of warrant liability
                
                
                154,258
                
                
                
                (7,273,441
                )Interest
      income
                
                
                4,929
                
                
                
                1,497Interest
      expense
                
                
                (12,906
                )
                
                
                (23,753
                )TOTAL
      OTHER INCOME (EXPENSE), NET
                
                
                2,103,071
                
                
                
                (6,378,128
                )INCOME
      (LOSS) BEFORE PROVISION FOR INCOME TAXES
                
                
                4,034,547
                
                
                
                (3,986,123
                )PROVISION
      FOR INCOME TAXES
                
                
                726,226
                
                
                
                536,814NET
      INCOME (LOSS)
                
                
                3,308,321
                
                
                
                (4,522,937
                )DIVIDENDS
      AND ACCRETION ON REDEEMABLE CONVERTIBLE PREFERRED STOCK
                
                
                -
                
                
                
                340,864NET
      INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
                
                
                3,308,321
                
                
                
                (4,863,801
                )RECONCILIATION
      OF COMPREHENSIVE INCOME:Net
      Income (loss)
                
                
                3,308,321
                
                
                
                (4,522,937
                )Unrealized
      loss from marketable securities
                
                
                -
                
                
                
                (5,577
                )Foreign
      currency translation adjustment
                
                
                1,070,182
                
                
                
                (62,431
                )COMPREHENSIVE
      INCOME (LOSS)
                
                $
                4,378,503
                
                
                $
                (4,590,945
                )EARNINGS
      (LOSSES) PER COMMON SHARE ALLOCATED TO COMMON SHAREHOLDERSWeighted
      average number of shares:Basic
                
                
                17,518,544
                
                
                
                10,985,405Diluted
                
                
                18,022,815
                
                
                
                10,985,405Earnings
      (Losses) per share:Basic
                
                $
                0.19
                
                
                $
                (0.44
                )Diluted
                
                $
                0.18
                
                
                $
                (0.44
                )





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
                  
                  
                  Additional
                  
                  
                  
                  
                  
                  Retained earnings
                  
                  
                  AccumulatedNumber
                  
                  
                  Par
                  
                  
                  Paid-in
                  
                  
                  Contribution
                  
                  
                  
                  
                  
                  Statutory
                  
                  
                  other comprehensiveof shares
                  
                  
                  amount
                  
                  
                  capital
                  
                  
                  receivable
                  
                  
                  Unrestricted
                  
                  
                  reserves
                  
                  
                  income
                  
                  
                  TotalBALANCE,
      June 30, 2009
                  
                  
                  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,
      July 1, 2009, as adjusted
                  
                  
                  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
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (149,126
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (149,126
                  )Accretion
      of discount on redeemable preferred stock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (191,738
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (191,738
                  )Stock
      based compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  60,155
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  60,155Issuance
      of Common Stock for cash at $2.3, net of offering cost
                  
                  
                  650,988
                  
                  
                  
                  651
                  
                  
                  
                  1,496,591
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,497,242Conversion
      of redeemable preferred stock into common stock
                  
                  
                  252,500
                  
                  
                  
                  252
                  
                  
                  
                  504,748
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  505,000Conversion
      of warrants into common stock
                  
                  
                  51,052
                  
                  
                  
                  51
                  
                  
                  
                  355,775
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  355,826Net
      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (4,522,937
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (4,522,937
                  )Adjustment
      to statutory reserve
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (293,400
                  )
                  
                  
                  293,400
                  
                  
                  
                  
                  
                  
                  
                  -Unrealized
      loss on marketable securities
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (5,577
                  )
                  
                  
                  (5,577
                  )Foreign
      currency translation gain
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (62,431
                  )
                  
                  
                  (62,431
                  )BALANCE,
      September 30, 2009 (unaudited)
                  
                  
                  11,550,040
                  
                  
                  $
                  11,550
                  
                  
                  $
                  14,033,406
                  
                  
                  $
                  (1,210,000
                  )
                  
                  $
                  5,660,746
                  
                  
                  $
                  3,058,579
                  
                  
                  $
                  2,637,259
                  
                  
                  $
                  24,191,540Dividends
      on redeemable preferred stock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (238,851
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (238,851
                  )Accretion
      of discount on redeemable preferred stock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (375,842
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (375,842
                  )Stock
      based compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  535,733
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  535,733Issuance
      of Common Stock for cash at $4.6, net of offering cost
                  
                  
                  2,300,000
                  
                  
                  
                  2,300
                  
                  
                  
                  9,617,552
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  9,619,852Conversion
      of redeemable preferred stock into common stock
                  
                  
                  3,114,500
                  
                  
                  
                  3,115
                  
                  
                  
                  6,225,884
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6,228,999Conversion
      of warrants into common stock
                  
                  
                  429,234
                  
                  
                  
                  429
                  
                  
                  
                  3,120,760
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,121,189Option
      exercised
                  
                  
                  73,330
                  
                  
                  
                  73
                  
                  
                  
                  187,427
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  187,500Dividends
      paid to shareholders and contributed as share capital
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,210,000
                  
                  
                  
                  (1,210,000
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -Net
      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  17,529,332
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  17,529,332Adjustment
      to statutory reserve
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,452,941
                  )
                  
                  
                  1,452,941
                  
                  
                  
                  
                  
                  
                  
                  -Gain
      realized on marketable securities
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (15,028
                  )
                  
                  
                  (15,028
                  )Foreign
      currency translation gain
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  397,752
                  
                  
                  
                  397,752BALANCE,
      June 30, 2010
                  
                  
                  17,467,104
                  
                  
                  $
                  17,467
                  
                  
                  $
                  33,720,762
                  
                  
                  $
                  -
                  
                  
                  $
                  19,912,444
                  
                  
                  $
                  4,511,520
                  
                  
                  $
                  3,019,983
                  
                  
                  $
                  61,182,176Restriced
      stocks issued for compensation and services
                  
                  
                  117,500
                  
                  
                  
                  118
                  
                  
                  
                  178,184
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  178,302Net
      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,308,321
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,308,321Adjustment
      to statutory reserve
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (364,497
                  )
                  
                  
                  364,497
                  
                  
                  
                  
                  
                  
                  
                  -Foreign
      currency translation gain
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,070,182
                  
                  
                  
                  1,070,182BALANCE,
      September 30, 2010 (unaudited)
                  
                  
                  17,584,604
                  
                  
                  $
                  17,585
                  
                  
                  $
                  33,898,946
                  
                  
                  $
                  -
                  
                  
                  $
                  22,856,268
                  
                  
                  $
                  4,876,017
                  
                  
                  $
                  4,090,165
                  
                  
                  $
                  65,738,981





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 THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009


(UNAUDITED)





2010
                
                
                2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                
                $
                3,308,321
                
                
                $
                (4,522,937
                )Adjustments
      to reconcile net income to cash provided by (used in) operating
      activities:Depreciation
                
                
                862,140
                
                
                
                668,020Stock-based
      compensation expense
                
                
                178,302
                
                
                
                60,155Bad
      debt expense
                
                
                167,058
                
                
                
                100,123Change
      in fair value of warrants
                
                
                (154,258
                )
                
                
                7,273,441Changes
      in operating assets and liabilitiesAccounts
      receivable
                
                
                (15,630,594
                )
                
                
                (8,261,428
                )Note
      receivable
                
                
                -
                
                
                
                10,775Inventories
                
                
                454,016
                
                
                
                (445,100
                )Other
      receivables
                
                
                (181,162
                )
                
                
                3,021,495Prepayments
                
                
                (844,255
                )
                
                
                (641,911
                )Deferred
      tax assets
                
                
                128,261
                
                
                
                -Long
      term prepayment
                
                
                428,676
                
                
                
                369,282Accounts
      payable
                
                
                7,967,380
                
                
                
                4,462,894Customer
      deposits
                
                
                660,301
                
                
                
                374,566Other
      payables
                
                
                32,377
                
                
                
                18,317Accrued
      liabilities
                
                
                211,575
                
                
                
                166,128Taxes
      payable
                
                
                617,851
                
                
                
                (1,131,202
                )Net
      cash (used in) provided by operating activities
                
                
                (1,794,011
                )
                
                
                1,522,618CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      proceeds from sales of fixed assets
                
                
                648,496
                
                
                
                -Purchase
      of property, plant and equipment
                
                
                (58,252
                )
                
                
                (101,183
                )Net
      cash provided by (used in) investing activities
                
                
                590,244
                
                
                
                (101,183
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from short term loan
                
                
                10,485,440
                
                
                
                -Payments
      of short term loan
                
                
                -
                
                
                
                (4,385,260
                )Rent
      financed by (payment to) shareholder
                
                
                43,725
                
                
                
                (51,435
                )Restricted
      cash
                
                
                57,580
                
                
                
                235,710Proceeds
      from issuance of common stock, net of offering costs
                
                
                -
                
                
                
                1,497,242Preferred
      dividends paid
                
                
                -
                
                
                
                (155,655
                )Net
      cash provided by (used in) financing activities
                
                
                10,586,745
                
                
                
                (2,859,398
                )EFFECTS
      OF EXCHANGE RATE CHANGE IN CASH
                
                
                34,723
                
                
                
                (8,861
                )NET
      INCREASE (DECREASE) IN CASH
                
                
                9,417,701
                
                
                
                (1,446,824
                )CASH,
      beginning of period
                
                
                3,300,820
                
                
                
                3,634,805CASH,
      end of period
                
                $
                12,718,521
                
                
                $
                2,187,981





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 entities (“VIEs”), is
engaged in producing general ready-mix concrete, customized mechanical refining
concrete, and other concrete-related products that are mainly sold in the
People’s Republic of China (“PRC”).
 
 Current
developments
 
 In March
and April 2010, Beijing Xin Ao Concrete Co., Ltd. (“Xin Ao”) established five
100% owned subsidiaries in China for consulting, concrete mixing and equipment
rental services. They are Beijing Heng Yuan Zheng Ke Technical Consulting Co.,
Ltd (“Heng Yuan Zheng Ke”), Beijing Hong Sheng An Construction Materials Co.,
Ltd (“Hong Sheng An”), Beijing Heng Tai Hong Sheng Construction Materials Co.,
Ltd (“Heng Tai”) and Da Tong Ao Hang Wei Ye Machinery, Equipment Rental Co., Ltd
(“Da Tong”) and Luan Xian Heng Xin Technology Co., Ltd (Heng Xin). Total
registered capital for these five subsidiaries is approximately $2.1 million
(RMB 14 million) and the purpose of these new subsidiaries is to support the
Company’s future growth.
 
 On
September 20, 2010, the Company established a 100% owned subsidiary, Advance
Investment Holdings Co., Inc. (“AIH”) in the State of Nevada.  AIH has no
operations up to date.
 
 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.
 
 Principles of
consolidation
 
 The
consolidated financial statements reflect the activities of the following
subsidiaries and variable interest entities (“VIEs). All material intercompany
transactions have been eliminated.
 
 Subsidairies and VIEs
                          
                          Place of incorporated
                          
                          OwnershippercentageAIH
                          
                          Nevada,
      USA
                          
                          
                          100
                          %Xin
      Ao Construction Materials, Inc. ("BVI-ACM")
                          
                          British
      Virgin Island
                          
                          
                          100
                          %Beijing
      Ao Hang Construction Material Technology Co., Ltd.
      ("China-ACMH")
                          
                          Beijing,
      China
                          
                          
                          100
                          %Xin
      Ao
                          
                          Beijing,
      China
                          
                          VIEHeng
      Yuan Zheng Ke
                          
                          Beijing,
      China
                          
                          VIEHong
      Sheng An
                          
                          Beijing,
      China
                          
                          VIEHeng
      Tai
                          
                          Beijing,
      China
                          
                          VIEDa
      Tong
                          
                          Datong,
      China
                          
                          VIEHeng
      Xin
                          
                          Luanxian,
      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 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.
  7
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 The
carrying amount of the VIEs’ assets and liabilities are as follows:
 
 September30,2010
                          (Unaudited)
                        
                        
                        June30,2010Current
      assets
                        
                        $
                        69,565,802
                        
                        
                        $
                        44,161,471Property,
      plant and equipment
                        
                        
                        27,640,275
                        
                        
                        
                        25,891,066Other
      noncurrent assets
                        
                        
                        7,201,286
                        
                        
                        
                        9,029,763Total
      assets
                        
                        
                        104,407,363
                        
                        
                        
                        79,082,300Liabilities
                        
                        
                        (41,274,498
                        )
                        
                        
                        (20,486,646
                        )Intercompany
      payables*
                        
                        
                        (9,621,507
                        )
                        
                        
                        (39,124,318
                        )Total
      liabilities
                        
                        
                        (50,896,005
                        )
                        
                        
                        (59,610,964
                        )Net
      assets
                        
                        $
                        53,511,358
                        
                        
                        $
                        19,471,336
 
 *
Payables to China-ACMH and BVI-ACMH are eliminated upon
consolidation.
 
 The
interim unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States,
or GAAP, for interim financial information and with the instructions to
Securities and Exchange Commission, or SEC, Form 10-Q and Article 10 of SEC
Regulation S-X and consistent with the accounting policies stated in the
Company’s 2010 Annual Report on Form 10-K. Certain information and note
disclosures normally included in financial statements prepared in accordance
with GAAP have been condensed or omitted pursuant to such rules and regulations.
Therefore, these financial statements should be read in conjunction with our
audited consolidated financial statements and notes thereto for the year ended
June 30, 2010, included in our Annual Report on Form 10-K filed with the
SEC.
 
 The
interim consolidated financial statements included herein are unaudited;
however, they contain all normal recurring accruals and adjustments that, in the
opinion of management, are necessary to present fairly our consolidated
financial position as of September 30, 2010, and our consolidated results of
operations and cash flows for the three months ended September 30, 2010 and
2009. The results of operations for the three months ended September 30, 2010
are not necessarily indicative of the results to be expected for future quarters
or the full year.
 
 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, AHI 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 $4,090,165 and $3,019,983 as of September 30, 2010 and June
30, 2010, respectively. Asset and liability accounts at September 30, 2010 and
June 30, 2010 were translated at RMB 6.70 and RMB 6.81 to $1.00, respectively.
The average translation rates applied to the consolidated statements of income
and cash flows for three months ended September 30, 2010 and 2009 were RMB 6.78
and RMB 6.84 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 months ended September 30, 2010 and
2009.
  8
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 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:
 
 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 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 June 2009 to June 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 ended September
30, 2010 and 2009.
  9
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 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:
 
 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, for
      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 the 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 September 30, 2010.
 
 CarryingValueat
                        September30,2010
                        (Unaudited)
                      
                      
                      Fair Value Measurement at
                        September 30, 2010
                        (Unaudited)Level 1
                      
                      
                      Level 2
                      
                      
                      Level 3Derivative
      liability – warrants
                      
                      $
                      2,766,262
                      
                      
                      $
                      -
                      
                      
                      $
                      2,766,262
                      
                      
                      $
                      -
 
 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
accounting standard.
 
 Stock-based
compensation
 
 The
Company records stock-based compensation expense pursuant to 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.
  10
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Concentration of
risk
 
 Cash –
Cash includes cash on hand and demand deposits in accounts maintained with state
owned banks within the PRC and US bank accounts. The Company considers all
highly liquid instruments purchased with original maturities of three months or
less, and money market accounts, to be cash equivalents. As of September 30,
2010 and June 30, 2010, the Company had deposits in excess of federally insured
limits totaling $11,814,376 and $2,340,854, respectively.  Also, as of
September 30, 2010 and June 30, 2010, the Company held $0 and $57,580 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.
 
 Major
customers – For the three months ended September 30, 2010, one customer
accounted for 13% of the company’s total sales. For the three months ended
September 30, 2009, no customer accounted for more than 10% of the company’s
total sales. As of September 30, 2010, one customer accounted for 10% of the
company’s account receivable balance amounted to $5,140,625.
 
 Major
suppliers – For the three months ended September 30, 2010, one supplier
accounted for 15% of the company’s total purchases. For the three months ended
September 30, 2009, no supplier accounted for more than 10% of the company’s
total purchases. As of September 30 and June 30, 2010, no supplier accounted for
more than 10% 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, 2009,
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 September 30, 2010 and June
30, 2010, the Company determined no reserves for obsolescence were
necessary.
  11
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Prepayments and
advances
 
 The
Company advances monies to certain suppliers for raw materials, plant and
equipment, and factory rent. These advances are interest free and
unsecured.
 
 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.
 
 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 ended September 30, 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
September 30, 2010 and June 30, 2010.
 
 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 September 30, 2010 and June 30, 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 was required to redeem the preferred
stock on June 11, 2010, if it has not been previously converted by the holders,
in accordance with the accounting standard, the preferred stock is classified
outside of shareholders’ equity. As of June 30, 2010, all redeemable convertible
preferred stock has been converted or redeemed. See Note 11 for
detail.
  12
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 In
accordance with an accounting standard 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 accounts for income taxes in accordance with the accounting standards,
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.
 
 The
accounting standard defines uncertainty in income taxes and 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. The Company had no material deferred tax amounts as
of September 30, 2010 and June 30, 2010 from its US operation, 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 for the three
months ended September 30, 2010 and 2009.  GAAP also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosures and transition.
 
 The
Company’ VIE entities have cumulative undistributed earnings of approximately
$33.4 million and $29.5 million as of September 30, 2010 and June 30, 2010,
respectively, 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 has incurred net operating losses of
$253,166 for income tax purposes for the three months ended September 30, 2010,
which excludes $178,302 stock based compensation expenses and gain in fair value
of warrant liabilities of $154,258. The cumulative net operating loss carry
forwards for United States income taxes amounted to $1,239,633.  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 ended September 30, 2010 was an increase of approximately $86,076.
Management reviews this valuation allowance periodically and makes adjustments
accordingly.
 
 Chinese income
taxes
 
 China-ACMH
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.
  13
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 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 adopted accounting policies in accordance with U.S. GAAP with regard to
provisions, reserves, inventory valuation method, and depreciation that are
consistent with requirements under Chinese income tax laws. The Company had
deferred tax assets of $0 and $127,741 as of September 30, 2010 and June 30,
2010 from its Chinese operations, respectively.  The deferred tax asset
balance was acquired by the VIE entity’s (XinAo) operating station through the
four-year operating lease agreement (see Note 15) during the fiscal year ended
June 30, 2010.  The lease agreement stated the leasor, as part of the lease
agreement, would transfer its own operating loss carry forward to VIE entity to
offset the net income from the station. The net operating loss carry forward
resulted in $668k of deferred tax assets on the VIE entity’s book and the
effective rental payment was therefore reduced by the same amount. For the three
months ended September 30, 2010, the deferred tax assets of $127,741 had been
used to offset the tax liability.
 
 The
deferred tax assets and allowance are as followed:
 
 China
      ACMDeferred
      tax assets, July 1, 2009
                      
                      $
                      -NOL
                      
                      
                      742,000Income
      tax rate
                      
                      
                      34
                      %Deferred
      tax assets
                      
                      
                      252,280Allowance
                      
                      
                      (252,280
                      )Deferred
      tax assets, June 30, 2010
                      
                      
                      -NOL
                      
                      
                      253,166Income
      tax rate
                      
                      
                      34
                      %Deferred
      tax assets
                      
                      
                      86,076Allowance
                      
                      
                      (86,076
                      )Deferred
      tax assets, September 30, 2010 (Unaudited)
                      
                      $
                      -Xin
      AoDeferred
      tax assets, July 1, 2009
                      
                      $
                      -NOL
      acquired from Xin Ao’s station through rental agreement
                      
                      
                      2,671,644Current
      year’s net income from the station
                      
                      
                      (2,160,680
                      )NOL
      as of June 30, 2010
                      
                      
                      510,964Tax
      rate for such station
                      
                      
                      25
                      %Deferred
      tax assets, June 30, 2010
                      
                      
                      127,741Current
      year’s net income from the station
                      
                      
                      (705,477
                      )NOL
      as of September 30, 2010
                      
                      
                      -Tax
      rate for such station
                      
                      
                      25
                      %Deferred
      tax assets, September 30, 2010 (Unaudited)
                      
                      
                      -
 
 The
Company classifies interest and penalties assessed due to underpayment of income
taxes as interest expense and other expenses, respectively. The Company incurred
no such expenses for the three months ended September 30, 2010 and 2009,
respectively.
 
 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 another two-year extension from June 2009 through June 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 months ended September 30, 2010 and 2009 were $147,900 and
$37,562, respectively.
  14
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Earnings per
share
 
 The
Company reports earnings per share in accordance with the accounting standards,
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
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 authoritative guidance to eliminate the exception to
consolidate a qualifying special-purpose entity, change the approach to
determining the primary beneficiary of a variable interest entity and require
companies to more frequently re-assess whether they must consolidate variable
interest entities. Under the new guidance, the primary beneficiary of a variable
interest entity is identified qualitatively as the enterprise that has both (a)
the power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance, and (b) the obligation
to absorb losses of the entity that could potentially be significant to the
variable interest entity or the right to receive benefits from the entity that
could potentially be significant to the variable interest entity. This guidance
becomes effective for the Company at its fiscal 2011 year-end and interim
reporting periods thereafter. The Company does not expect this guidance to have
a material impact on its consolidated financial statements.
 
 In July 2010, the FASB
issued Accounting Standards Update 2010-20 which amends “Receivables”(Topic 310).ASU 2010-20 is
intended to provide additional information to assist financial statement users
in assessing an entity’s risk exposures and evaluating the adequacy of its
allowance for credit losses. The disclosures as of the end of a reporting period
are effective for interim and annual reporting periods ending on or after
December 15, 2010. The disclosures about activity that occurs during a reporting
period are effective for interim and annual reporting periods beginning on or
after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not
require, comparative disclosures for earlier reporting periods that ended before
initial adoption. However, an entity should provide comparative disclosures for
those reporting periods ending after initial adoption. The Company does not
expect this ASU to have a material impact on its consolidated financial
statements.
 
 In
September 2010, FASB issued Accounting Standard Update 2010-25, “Plan
Accounting—Defined Contribution Pension Plans (Topic 962): Reporting Loans to
Participants by Defined Contribution Pension Plans” or ASU 2010-25. The ASU
clarifies how loans to participants should be classified and measured by defined
contribution plans and how IFRS compare to these provisions. The amendments in
this update are effective for fiscal years ending after December 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
 
 For the
three months ended September 30, 2010 and 2009, the Company paid interest in the
amount of $898 and $118,720, respectively.
 
 Cash
payments for income taxes for the three months ended September 30, 2010 and 2009
were $51,282 and $1,682,537, respectively.
  15
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Non-cash transactions in the
years ended September 30, 2010 and 2009
 
 For the
three months ended September 30, 2010 and 2009, the accretion of the
discount on redeemable preferred stock amounted to approximately $0 and
$191,738, respectively, and has been included in the consolidated
statements of shareholders’ equity.
 
 For the
three months ended September 30, 2010, no warrant was converted.  For the
three months ended September 30, 2009, 57,500 shares of common stock underlying
warrants were converted into 51,052 shares of common stock by the exercise of
such warrants on a cashless basis.
 
 For the
three months ended September 30, 2009, 63,125 shares of redeemable convertible
preferred stock were converted into 252,500 shares of common stock on a cashless
basis
 
 Note
4 – 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
September 30, 2010 and June 30, 2010, accounts receivable and allowance for
doubtful accounts consisted of the following:
 
 September 30,
                        2010
                        (Unaudited)
                      
                      
                      June 30, 2010Accounts
      receivable, current
                      
                      $
                      51,720,170
                      
                      
                      $
                      36,528,776Less:  allowance
      for doubtful accounts, current
                      
                      
                      (618,170
                      )
                      
                      
                      (456,085
                      )Net
      accounts receivable, current
                      
                      
                      51,102,000
                      
                      
                      
                      36,072,691Accounts
      receivable, non-current
                      
                      
                      1,599,593
                      
                      
                      
                      368,978Less:  allowance
      for doubtful accounts, non-current
                      
                      
                      (19,119
                      )
                      
                      
                      (4,607
                      )Net
      accounts receivable, non-current
                      
                      
                      1,580,474
                      
                      
                      
                      364,371Total
      accounts receivable, net
                      
                      $
                      52,682,474
                      
                      
                      $
                      36,437,062
 
 The
following table consists of allowance for bad debts:
 
 Allowance
      for bad debts, current as July1, 2009
                      
                      $
                      120,986Bad
      debt expense
                      
                      
                      27,506Effect
      of foreign currency translation
                      
                      
                      (286
                      )Allowance
      for bad debts, current as September 30, 2009 (Unaudited)
                      
                      
                      148,206Reclassified
      from non-current
                      
                      
                      398,137Bad
      debt recovery
                      
                      
                      (92,638
                      )Effect
      of foreign currency translation
                      
                      
                      2,380Allowance
      for bad debt, current as June 30, 2010
                      
                      
                      456,085Bad
      debt expense
                      
                      
                      152,795Effect
      of foreign currency translation
                      
                      
                      9,290Allowance
      for bad debt, current as September 30, 2010 (Unaudited)
                      
                      $
                      618,170
 
 Allowance
      for bad debts, non-current as July 1, 2009
                      
                      $
                      328,563Bad
      debt expense
                      
                      
                      72,915Effect
      of foreign currency translation
                      
                      
                      (728
                      )Allowance
      for bad debts, non-current at September 30, 2009
    (Unaudited)
                      
                      
                      400,750Reclassified
      to current
                      
                      
                      (398,137
                      )Bad
      debt expense
                      
                      
                      865Effect
      of foreign currency translation
                      
                      
                      1,129Allowance
      for bad debt, non-current as June 30, 2010
                      
                      
                      4,607Bad
      debt expense
                      
                      
                      14,263Effect
      of foreign currency translation
                      
                      
                      249Allowance
      for bad debt, non-current as September 30, 2010
(Unaudited)
                      
                      $
                      19,119
  16
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Note
5 – Plant and equipment
 
 Plant and
equipment consist of the following as of September 30, 2010 and June 30,
2010:
 
 September 30,
                        2010
                        (Unaudited)
                      
                      
                      June 30, 2010Transportation
      equipment
                      
                      $
                      22,771,405
                      
                      
                      $
                      20,502,987Plant
      and machinery
                      
                      
                      14,966,797
                      
                      
                      
                      13,615,455Buildings
                      
                      
                      135,961
                      
                      
                      
                      123,702Office
      equipment
                      
                      
                      134,516
                      
                      
                      
                      125,550Construction-in-progress
                      
                      
                      2,148,721
                      
                      
                      
                      3,089,785Total
                      
                      
                      40,157,400
                      
                      
                      
                      37,457,479Less:
      accumulated depreciation
                      
                      
                      (11,959,031
                      )
                      
                      
                      (10,969,125
                      )Plant
      and equipment, net
                      
                      $
                      28,198,369
                      
                      
                      $
                      26,488,354
 
 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.
 
 Depreciation
expense for the three months ended September 30, 2010 and 2009 amounted to
$862,140 and $668,020 respectively.
 
 Note
6 – Prepayments (short-term and long-term)
 
 Short-term
prepayments are primarily comprised of short-term portion of the factory rental
prepayments the Company made (see Note 15 for more information on the factory
rental) and advances on inventory purchases. Short-term prepayments as of
September 30 and June 30, 2010 and 2009 consisted of the following:
 
 September 30,
                        2010
                        (Unaudited)
                      
                      
                      June 30, 2010Advances
      on inventory purchases
                      
                      $
                      1,589,480
                      
                      
                      $
                      691,364Current
      portion of rent prepayments
                      
                      
                      2,114,926
                      
                      
                      
                      2,112,823Others
                      
                      
                      17,500
                      
                      
                      
                      17,500Total
      short-term prepayments
                      
                      $
                      3,721,906
                      
                      
                      $
                      2,821,687
 
 Long-term
prepayments represent the long-term factory rental prepayments the Company has
made. As of September 30, 2010 and June 30, 2010, the Company prepaid $4,052,422
and $4,414,391 long-term prepayment, respectively.
 
 Note
7 – Short term loans
 
 Short
term loans represent amounts due to banks and the Company’s employees that are
due within one year or on demand. As of September 30 and June 30, 2010, the
outstanding balances on these loans were $10,508,940 and $0, respectively, and
these loans consisted of the following:
  17
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 September 30,
                        2010
                        (Unaudited)
                      
                      
                      June 30, 2010Loan
      from Huaxia Bank. interest rate of 5.841% per annum, due August 18, 2011,
      guaranteed loan.
                      
                      $
                      1,497,000
                      
                      
                      $
                      -Loan
      from Shanghai Pufa Bank. interest rate of 5.841% per
      annum,   due September 29, 2011, guaranteed
      loan
                      
                      
                      8,982,000
                      
                      
                      
                      -Loan
      from an employee, effective interest rate of 0% per annum, due upon
      demand, unsecured.
                      
                      
                      29,940
                      
                      
                      
                      -Total
      short term loans
                      
                      $
                      10,508,940
                      
                      
                      $
                      -
 
 Interest
expense on short-term loans for the three months ended September 30, 2010 and
2009 amounted to $11,446 and $23,753, respectively.
 
 Note
8 – 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 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 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 $2,766,262 and $2,920,520 on September 30 and June 30, 2010. 
The Company recognized a $154,258 gain and $7,273,441 loss from the change
in fair value for the three months ended September 30, 2010 and 2009,
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:
 
 September 30, 2010
                        (Unaudited)
                      
                      
                      June 30, 2010Annual
      dividend yield
                      
                      
                      -
                      
                      
                      
                      -Expected
      life (years)
                      
                      
                      2.75
                      
                      
                      
                      3.00Risk-free
      interest rate
                      
                      
                      0.57
                      %
                      
                      
                      0.98
                      %Expected
      volatility
                      
                      
                      80
                      %
                      
                      
                      80
                      %
 
 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.
  18
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 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
9 – Related party transactions
 
 Other payables –
shareholders
 
 Beginning
in July 2007, Mr. He Weili, a 20.10% shareholder, leased office space to the
Company at approximately the current fair market value from July 2009 to June
2010 with annual payments of $172k. For the three months ended September
30, 2010 and 2009, the Company recorded rent expense from the shareholder in the
amount of approximately $43,725 and $43,215, respectively. As of September 30
and June 30, 2010, approximately $66k and $4k, respectively, remained unpaid,
and is included in other payables - shareholders.
 
 The
Company’s 30.1% and 20.1% shareholders, Mr. Han Xianfu and Mr. He Weili,
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 September 30, 2010 and June 30, 2010 as
follows:
 
 September 30,
                        2010
                        (Unaudited)
                      
                      
                      June 30, 2010Han
      Xianfu, shareholder
                      
                      $
                      450,540
                      
                      
                      $
                      450,540He
      Weili, shareholder
                      
                      
                      366,716
                      
                      
                      
                      322,104Total
      other payable – shareholders
                      
                      $
                      817,256
                      
                      
                      $
                      772,644
 
 Note
10 – 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.
Xin Ao had received its tax holiday treatment until December 2007.  During
the fourth quarter of the last year, Xin Ao has applied and received the
Enterprise High-Tech Certificate. The certificate was awarded based on Xin Ao’s
involvement in producing high-tech products, its research and development, as
well as its technical services. As a result of this certification, Xin Ao'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.
 
 Xin Ao
was granted income tax exemption from January 1, 2003 to March 31, 2007.
Beginning on January 1, 2009, Xin Ao and its subsidiaries were subject to an EIT
rate of 25%.  Xin Ao was granted a 10% tax deduction on 90% of the total
sales revenue by the local authority due to Xin Ao’s utilization of recycled raw
materials.  Beginning on January 1, 2009, Xin Ao and its subsidiaries were
subject to an EIT rate of 15%.  For the three months ended September 30,
2010 and 2009, the provision for income taxes amounted to $726,226 and $536,814,
respectively.
 
 The
estimated tax savings for the three months ended September 30, 2010 and 2009
amounted to $366,572 and $357,178, respectively. The net effect on earnings per
share attributable to controlling interest had the income tax been applied would
decrease earnings (losses) per share from $0.19 to $0.17 for the three months
ended September 30, 2010, and ($0.44) to ($0.47) for the three months ended
September 30, 2009.
 
 The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the three months ended September 30, 2010 and 2009:
 
 September 30,
                                2010
                                (Unaudited)
                              
                              
                              September 30,
                                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
                              )%
                              
                              
                              (10
                              )%Other
      (a)
                              
                              
                              3
                              %
                              
                              
                              (29
                              )%Effective
      income tax rates
                              
                              
                              18
                              %
                              
                              
                              (14
                              )%
 
  19
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 (a)The 3%
and (29%) represents certain expenses in the amount of $339,462 and $7,413,651
incurred in the U.S. entity that are not deductible for PRC income tax for the
three months ended September 30, 2010 and 2009, respectively.
 
 Taxes payable consisted of the following:September, 30,
                        2010
                        (Unaudited)
                      
                      
                      June, 30, 2010Income
      taxes payable
                      
                      $
                      2,115,607
                      
                      
                      $
                      1,536,610Other
      taxes payables
                      
                      
                      105,257
                      
                      
                      
                      33,304Total
      taxes payable
                      
                      $
                      2,220,864
                      
                      
                      $
                      1,569,914
 
 Note
11 – 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 at $8 per share.  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
resulted in the allocation of $5,798,000 to the Series A Preferred and
$1,202,000 to the warrants.
 
 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 $0.01 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 WarrantsExercise Price
                        
                        Number
                        
                        Average Remaining
                          Contractual LifeUS
      $2.40
                        
                        
                        678,875
                        
                        2.69 years
  20
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Following
is a summary of the activities of Common Stocks underlying Warrant:
 
 Number of Common
                        stock underlying
                        WarrantsOutstanding
      as of June 30, 2009
                      
                      
                      1,995,000Granted
                      
                      
                      -Forfeited
                      
                      
                      -Exercised
                      
                      
                      (637,250
                      )Outstanding
      as of June 30, 2010
                      
                      
                      1,357,750Granted
                      
                      
                      -Forfeited
                      
                      
                      -Exercised
                      
                      
                      -Outstanding
      as of September 30, 2010 (unaudited)
                      
                      
                      1,357,750
 
 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
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 September 30, 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 who 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 June 30, 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 September 30, 2010, the
15,000 and 50,000 contingent options were forfeited due to failure to meet
performance condition.
  21
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 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
                    
                    
                    5.50
                    
                    
                    
                    44
                    %
                    
                    
                    0
                    %
                    
                    
                    1.70
                    %
                    
                    $
                    5.95
 
 The
following is a summary of the option activity:
 
 Number of options
                          
                          
                          Intrinsic ValueOutstanding
      as of June 30, 2009
                          
                          
                          250,000Granted
                          
                          
                          112,500Forfeited
                          
                          
                          (165,000
                          )Exercised
                          
                          
                          (100,000
                          )Outstanding
      as of June 30, 2010
                          
                          
                          97,500Granted
                          
                          
                          -Forfeited
                          
                          
                          -Exercised
                          
                          
                          -Outstanding
      as of September 30, 2010 (Unaudited)
                          
                          
                          97,500
                          
                          
                          $
                          -
 
 Following
is a summary of the status of options outstanding at September 30,
2010:
 
 Outstanding options
                            
                            
                            Exercisable optionsAverage
                            
                            
                            
                            
                            
                            
                            
                            
                            Weightedremaining
                            
                            
                            Average
                            
                            
                            
                            
                            
                            averageAverage
                            
                            
                            
                            
                            
                            contractual life
                            
                            
                            Exercise
                            
                            
                            
                            
                            
                            exerciseExercise price
                            
                            
                            Number
                            
                            
                            (years)
                            
                            
                            price
                            
                            
                            Number
                            
                            
                            price$
                            2.90
                            
                            
                            
                            50,000
                            
                            
                            
                            8.02
                            
                            
                            $
                            2.90
                            
                            
                            
                            50,000
                            
                            
                            $
                            2.90$
                            4.64
                            
                            
                            
                            12,500
                            
                            
                            
                            9.51
                            
                            
                            
                            4.64
                            
                            
                            
                            12,500
                            
                            
                            
                            4.64$
                            5.38
                            
                            
                            
                            35,000
                            
                            
                            
                            9.51
                            
                            
                            
                            5.38
                            
                            
                            
                            35,000
                            
                            
                            
                            5.38
 
 For the
three months ended September 30, 2010 and 2009, the Company recognized
approximately $0 and $41,355, respectively, as compensation expenses for its
stock option plan.
 
 Restricted Stock
Awards
 
 Restricted
stocks awarded are measured based on the market price on the grant date. The
Company has awarded restricted shares of common stocks to the board of
directors, senior management, and consultants.  For the three months ended
September 30, 2009, the Company granted 10,000 shares of restricted stock and
recognized $18,800 of related compensation expense.
 
 On August
30, 2010, the Company engaged a consulting firm for investor relation for six
months, and granted 120,000 shares of restricted stock, total fair value
amounted to $411,600 on the grant date, and amortize through the period of
services. For the three months ended September 30, 2010, the Company recognized
$178,302 of related compensation expenses.  As of September 30 and June 30,
2010, the Company had unrecognized share-based compensation cost of $427,828 and
$194,530 associated with these awards, respectively.  Following is a
summary of the restricted stock awards for the three months ended
September 30, 2010.
  22
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Nonvested
      as of June 30, 2009
                      
                      
                      -Granted
                      
                      
                      100,000Vested
                      
                      
                      37,500Nonvested
      as of June 30, 2010
                      
                      
                      62,500Granted
                      
                      
                      120,000Vested
                      
                      
                      85,000Nonvested
      as of September 30, 2010 (Unaudited)
                      
                      
                      97,500
 
 Note
12 – 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. The remaining reserve to fulfill the 50% registered capital requirement
amounted to approximately $12 million as of September 30, 2010 and June 30,
2010.
 
 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
13 – Earnings per share
 
 The
following is a reconciliation of the basic and diluted earnings per share
computation for the three months ended September 30, 2010 and 2009:
 
 September
                        30, 2010
                        (Unaudited)
                      
                      
                      September
                        30, 2009
                        (Unaudited)Basic earnings
      (loss) per shareNet
      income (loss) available to common shareholders
                      
                      $
                      3,308,321
                      
                      
                      $
                      (4,863,801
                      )Weighted
      average shares outstanding-Basic
                      
                      
                      17,518,544
                      
                      
                      
                      10,985,405Earnings
      (loss) per share-Basic
                      
                      $
                      0.19
                      
                      
                      $
                      (0.44
                      )Diluted
      earnings (loss) per shareNet
      income (loss) available to common shareholders
                      
                      $
                      3,308,321
                      
                      
                      $
                      (4,863,801
                      )Add:
      Dividends on preferred stock
                      
                      
                      -
                      
                      
                      
                      149,126Add:
      Accretion on preferred stock
                      
                      
                      -
                      
                      
                      
                      191,738Net
      income (loss) for diluted EPS
                      
                      $
                      3,308,321
                      
                      
                      $
                      (4,522,937
                      )Weighted
      average shares outstanding-Basic
                      
                      
                      17,518,544
                      
                      
                      
                      10,985,405Restricted
      stock
                      
                      
                      65,000
                      
                      
                      
                      -Warrants
      and options
                      
                      
                      439,271
                      
                      
                      
                      -Preferred
      stock
                      
                      
                      -
                      
                      
                      
                      -Weighted
      shares outstanding-Diluted
                      
                      
                      18,022,815
                      
                      
                      
                      10,985,405Earnings
      (loss) per share-Diluted
                      
                      $
                      0.18
                      
                      
                      $
                      (0.44
                      )
  23
  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 June 30, 2010, 865,625 shares preferred stock had been
converted into 3,462,500 of common stock and 9,375 shares of preferred stock had
been redeemed for $75,000.  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 period ended September 30, 2010, 678,875 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 430,530
of common stocks, 50,000 shares of option and 65,000 of restricted stock vested
but not issued were included in the diluted EPS calculation.
 
 Note
14 – Employee pension
 
 The
Company offers a discretionary pension fund, a defined contribution plan, to
qualified employees. The pension includes two parts: the first to be paid by the
Company is 20% of the employee’s actual salary in the prior year. The other
part, paid by the employee, is 8% of the actual salary. The Company’s
contributions of employment benefits, including pension were approximately
$71,253 and $17,681 for the three months ended September 30, 2010 and 2009,
respectively.
 
 Note
15 – 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 $197k.  Further, the Company agreed to lease office space from the
Company’s shareholder, Mr. He Weili, from July 2010 to June 2011 with annual
payment of $172k. The rent is valued at fair value from the main property
management.
 
 The
Company entered into three five-year and one four-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 $213k. 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 September 30, 2010 and 2009
was $707,070 and $595,027, respectively, and is included in cost of revenue,
selling, general, and administrative expenses. Future annual lease payments, net
of rent prepayment made as of September 30, 2010, under non-cancelable operating
leases with a term of one year or more consist of the following:
 
 Years ending September
      30,
                      
                      Amount2011
                      
                      $
                      738,8902012
                      
                      
                      938,7802013
                      
                      
                      938,7802014
                      
                      
                      627,3552015
                      
                      
                      -Thereafter,
                      
                      
                      -
 
 Note
16 - 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.
  24
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 For the
three months ended September 30, 2010:
 
 Sales of
                        concrete
                      
                      
                      Manufacturing
                        services
                      
                      
                      Technical
                        services
                      
                      
                      Mixer
                        rental
                      
                      
                      Corporate
                      
                      
                      TotalNet
      sales
                      
                      $
                      25,320,947
                      
                      
                      $
                      4,471,777
                      
                      
                      $
                      1,159,060
                      
                      
                      $
                      5,298
                      
                      
                      $
                      -
                      
                      
                      $
                      30,957,082Depreciation
                      
                      
                      (301,447
                      )
                      
                      
                      (526,421
                      )
                      
                      
                      (32
                      )
                      
                      
                      -
                      
                      
                      
                      (34,240
                      )
                      
                      
                      (862,140
                      )Segment
      profit
                      
                      
                      1,632,899
                      
                      
                      
                      1,228,893
                      
                      
                      
                      1,113,444
                      
                      
                      
                      5,268
                      
                      
                      
                      (2,049,028
                      )
                      
                      
                      1,931,476Other
      income (expenses)
                      
                      
                      1,519,257
                      
                      
                      
                      268,307
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      315,507
                      
                      
                      
                      2,103,071Interest
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      4,929
                      
                      
                      
                      4,929Interest
      expenses
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (12,906
                      )
                      
                      
                      (12,906
                      )Capital
      expenditure
                      
                      
                      (59,554
                      )
                      
                      
                      (10,517
                      )
                      
                      
                      -
                      
                      
                      
                      (12
                      )
                      
                      
                      -
                      
                      
                      
                      (70,083
                      )Total
      assets as of September 30, 2010 (Unaudited)
                      
                      $
                      94,031,439
                      
                      
                      $
                      16,606,313
                      
                      
                      $
                      -
                      
                      
                      $
                      19,675
                      
                      
                      $
                      -
                      
                      
                      $
                      110,657,427
 
 For the
three months ended September 30, 2009:
 
 Sales of
                        concrete
                      
                      
                      Manufacturing
                        services
                      
                      
                      Technical
                        services
                      
                      
                      Mixer
                        rental
                      
                      
                      Corporate
                      
                      
                      TotalNet
      sales
                      
                      $
                      14,886,757
                      
                      
                      $
                      2,805,614
                      
                      
                      $
                      1,244,895
                      
                      
                      $
                      543,870
                      
                      
                      $
                      -
                      
                      
                      $
                      19,481,136Depreciation
                      
                      
                      (290,725
                      )
                      
                      
                      (324,148
                      )
                      
                      
                      (1,274
                      )
                      
                      
                      (45,808
                      )
                      
                      
                      (6,065
                      )
                      
                      
                      (668,020
                      )Segment
      profit
                      
                      
                      428,516
                      
                      
                      
                      1,025,544
                      
                      
                      
                      1,180,250
                      
                      
                      
                      493,696
                      
                      
                      
                      (736,001
                      )
                      
                      
                      2,392,005Other
      income (expenses)
                      
                      
                      798,435
                      
                      
                      
                      168,337
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (7,322,644
                      )
                      
                      
                      (6,355,872
                      )Interest
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,497
                      
                      
                      
                      1,497Interest
      expenses
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (23,753
                      )
                      
                      
                      (23,753
                      )Capital
      expenditure
                      
                      
                      (82,733
                      )
                      
                      
                      (15,592
                      )
                      
                      
                      -
                      
                      
                      
                      (3,023
                      )
                      
                      
                      -
                      
                      
                      
                      (101,348
                      )Total
      assets as of June 30, 2010
                      
                      $
                      69,101,360
                      
                      
                      $
                      15,326,776
                      
                      
                      $
                      -
                      
                      
                      $
                      1,183,304
                      
                      
                      $
                      -
                      
                      
                      $
                      85,611,440
 
 Note
17 – 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 $294,600 (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 September 30, 2010, the
Company has factored this amount to an unrelated third party trust company and
the trust company has received the payment from Boda.
  25
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Note
18 – Subsequent Events
 
 On
October 10, 2010, the Company, through its variable interest entity, Xin Ao,
entered into a financing agreement with Citibank (China) Co., Ltd. Beijing
Branch to borrow up to RMB 15,000,000 (US$2.2 million) and Xin Ao subsequently
received RMB 7,500,000 (US$1.1 million) on October 10, 2010.
 
 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 September 30,
2010.  During this period, the Company did not have any material
recognizable subsequent events.
  26




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: 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 Advanced Investment Holdings Co,
Inc., Xin Ao Construction Materials, Inc. and Beijing Ao Hang Construction
Materials Technology Co., Ltd., as well as the Company’s variable interest
entities, Beijing Xin Ao Concrete Co., Ltd., Beijing Heng Yuan Zheng Ke
Technical Consulting Co., Ltd., Hong Sheng An Construction Materials Co., Ltd.,
Heng Tai Hong Sheng Construction Materials Co., Ltd., Da Tong Ao Hang Wei Ye
Machinery, Equipment Rental Co., Ltd., and Luan Xian Heng Xin Technology Co.,
Ltd..





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 non-cash expense of $24,044 for the three months ended
September 30, 2010 on option and stock-based compensation along with the 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 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.




Three Months EndedSeptember 30,(UNAUDITED)
                            
                            
                            Increase2010
                            
                            
                            2009
                            
                            
                            (Decrease)Net
      Income (Loss) -GAAP
                            
                            $
                            3,308,321
                            
                            
                            $
                            (4,522,937
                            )
                            
                            $
                            7,831,258Subtract:Dividends
      and accretion on redeemable convertible preferred stock
                            
                            $
                            0
                            
                            
                            $
                            340,864
                            
                            
                            $
                            (340,864
                            )Net
      Income available to Common shareholders -GAAP
                            
                            $
                            3,308,321
                            
                            
                            $
                            (4,863,801
                            )
                            
                            $
                            8,172,122Add
      Back (Subtract):Change
      in fair value of warrants
                            
                            $
                            (154,258
                            )
                            
                            $
                            7,273,441
                            
                            
                            $
                            (7,427,699
                            )Add
      Back:Change
      in Option and Equity Based Compensation
                            
                            $
                            178,302
                            
                            
                            $
                            60,155
                            
                            
                            $
                            118,147Adjusted
      Net Income available to Common shareholders -non-GAAP
                            
                            $
                            3,332,365
                            
                            
                            $
                            2,469,795
                            
                            
                            $
                            862,570Basic
      earnings per share - GAAP
                            
                            $
                            0.19
                            
                            
                            $
                            (0.44
                            )
                            
                            $
                            0.63Add
      back (Subtract):Change
      in fair value of warrant
                            
                            $
                            0.01
                            
                            
                            $
                            0.66
                            
                            
                            $
                            (0.67
                            )Add
      back (Subtract):Change
      in Option and Equity-Based Compensation
                            
                            $
                            0.01
                            
                            
                            $
                            0.01
                            
                            
                            $
                            -Adjusted
      basic earnings per share non-GAAP
                            
                            $
                            0.19
                            
                            
                            $
                            0.23
                            
                            
                            $
                            (0.04
                            )Diluted
      earnings per share-GAAP
                            
                            $
                            0.18
                            
                            
                            $
                            (0.44
                            )
                            
                            $
                            0.62Add
      back (Subtract):Change
      in fair value of warrant
                            
                            $
                            (0.01
                            ) (a)
                            
                            $
                            0.66
                            
                            
                            $
                            (0.67
                            )Add
      back (Subtract):Change
      in Option and Equity-Based Compensation
                            
                            $
                            0.01
                            (b)
                            
                            $
                            0.01
                            
                            
                            $
                            -Adjusted
      diluted earnings per share non-GAAP
                            
                            $
                            0.19
                            
                            
                            $
                            0.23
                            
                            
                            $
                            (0.04
                            )Weighted
      average number of sharesBasic
                            
                            
                            17,518,544
                            
                            
                            
                            10,985,405Diluted
                            
                            
                            18,022,815
                            
                            
                            
                            10,985,405


27





(a) The
Company adopted the provisions of FASB accounting standard ASC 815, 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
$154,258 gain from the change in fair value for the three months ended September
30, 2010.





(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
September 30, 2010 and 2009, the Company recognized $178,302 and $18,800 of
restricted stock as compensation expense. For the three months ended September
30, 2010 and 2009, the Company recognized $0 and $41,355, respectively, as
compensation expenses for its stock option plan.





Overview




We are a
holding company whose primary business operations are conducted through our
wholly-owned subsidiaries BVI-ACM and China-ACMH, and our variable interest
entity, Xin Ao. The Company engages in the production of advanced construction
materials for large scale commercial, residential, and infrastructure
developments. We are 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.





In March
and April 2010, XinAo established five 100% owned subsidiaries in China and they
are Beijing Heng Yuan ZhengKe Technical Consulting Co., Ltd (“Heng Yuan
ZhengKe”), Beijing Hong Sheng An Construction Materials Co., Ltd (“Hong Sheng
An”), Beijing Heng Tai Hong Sheng Construction Materials Co., Ltd (“Heng Tai”),
Da Tong Ao Hang Wei Ye Machinery and Equipment Rental Co., Ltd (“Da Tong”)and
Luan Xian HengXin Technology Co., Ltd (“Luan Xian HengXin”). Total registered
capital for these five subsidiaries is approximately $2.1 million (RMB 14
million) and there has been no actual operation as of September 30, 2010. The
purpose of these new subsidiaries is to support the Company's future
growth.





During
the three months ended September 30, 2010, we, together with our subsidiaries
and variable interest entities-supported materials, services and our high speed
railway projects through our network of five ready-mixed concrete plants
throughout Beijing and twenty portable plants located in various provinces
throughout China. We own one concrete plant and its related equipment, and we
lease four additional plants in Beijing. 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. Two of the technically serviced plants are located in Datong, Shaanxi
and one in Mianyang, Sichuan. 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 primarily on transportation related
projects such as railway, highway, and transportation related infrastructure.
Additionally, the Ministry of Rail has announced its plans to invest $120.75
Billion (RMB823.5 Billion) in 70 new projects upgrading rail infrastructure in
calendar 2010 which together with future planned rail infrastructure investment
will total $730 Billion (RMB5 Trillion) by 2020. China’s State Development and
Reform Commission recently announced plans to expand China’s subway system to 6,100KM
investing $105 Billion (RMB700 Billion) through 2020. According to
the Investment Research Institute of China’s State Development and
Reform Commission during the 12th5 year plan from 2011-2015
the Chinese government will invest $450 Billion (RMB 3 Trillion) in Railway and
another $460 Billion (RMB3.05 Trillion) in Rural
Infrastructure.


28





Principal
Factors Affecting Our Financial Performance




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




·
            Large Scale
      Contractor Relationships.We have contracts with major
      construction contractors which are constructing key infrastructure,
      commercial and residential projects. Our sales efforts focus on
      large-scale projects and large customers which place large recurring
      orders and present less credit risk to us. For the three months ended
      September 30, 2010, Five customers accounted for approximately 34% of the
      Company’s sales and 11% of the Company’s account receivables as of
      September 30, 2010, respectively. Should we lose any of these customers in
      the future and are unable to obtain additional customers, our revenues
      will decrease.





·
            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.  Significant turnover in our senior management could
      significantly deplete the institutional knowledge held by our existing
      senior management team.





·
            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.





·
            Competition. Our
      competition includes a number of state-owned and large private PRC-based
      manufacturers and distributors that produce and sell products similar to
      ours. We compete primarily on the basis of quality, technological
      innovation and price. Essentially all of the contracts on which we bid are
      awarded through a competitive bid process, with awards often being made to
      the lowest bidder for our concrete sales business segment, distinct from
      our manufacturing services segment, though other factors such as shorter
      schedules or prior experience with the customer are often just as
      important. Within our markets, we compete with many national, regional and
      local state-owned and private construction firms some of which have
      achieved greater market penetration or have greater financial and other
      resources than us. In addition, there are a number of larger national
      companies in our industry that could potentially establish a presence in
      our markets and compete with us for contracts. If we are unable to compete
      successfully in our markets, our relative market share and profits could
      be reduced.





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.


29





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 June
2009 to June 2011.





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.





Business
Segments and Periods Presented





We have
provided a discussion of our results of operations on a consolidated basis and
have also provided certain detailed segment information for each of our business
segments below for the three months ended September 30, 2010 and 2009, in order
to provide a meaningful discussion of our business segments. We have organized
our operations into four principal segments: selling concrete, manufacturing
concrete, providing technical support services and others, which include mixer
rental, sales of materials and marketing cooperation. We present our segment
information along the same lines that our executives review our operating
results in assessing performance and allocating resources.





For the three months ended
September 30, 2010 (unaudited):





Sales of
                    concrete
                  
                  
                  Manufacturing
                    services
                  
                  
                  Technical
                    services
                  
                  
                  Mixer
                    rental
                  
                  
                  Corporate
                  
                  
                  TotalNet
      sales
                  
                  $
                  25,320,947
                  
                  
                  $
                  4,471,777
                  
                  
                  $
                  1,159,060
                  
                  
                  $
                  5,298
                  
                  
                  $
                  -
                  
                  
                  $
                  30,957,082Depreciation
                  
                  
                  (301,447
                  )
                  
                  
                  (526,421
                  )
                  
                  
                  (32
                  )
                  
                  
                  -
                  
                  
                  
                  (30,240
                  )
                  
                  
                  (862,140
                  )Segment
      profit
                  
                  
                  1,632,899
                  
                  
                  
                  1,228,893
                  
                  
                  
                  1,113,444
                  
                  
                  
                  5,268
                  
                  
                  
                  (2,049,028
                  )
                  
                  
                  1,931,476Other
      income (expenses)
                  
                  
                  1,519,257
                  
                  
                  
                  268,307
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  315,507
                  
                  
                  
                  2,103,071Interest
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,929
                  
                  
                  
                  4,929Interest
      expenses
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (12,906
                  )
                  
                  
                  (12,906
                  )Capital
      expenditure
                  
                  
                  (59,554
                  )
                  
                  
                  (10,517
                  )
                  
                  
                  -
                  
                  
                  
                  (12
                  )
                  
                  
                  -
                  
                  
                  
                  (70,083
                  )Total
      assets as of September 30, 2010 (Unaudited)
                  
                  $
                  94,031,439
                  
                  
                  $
                  16,606,313
                  
                  
                  $
                  -
                  
                  
                  $
                  19,675
                  
                  
                  $
                  -
                  
                  
                  $
                  110,657,427





For the three months ended
September 30, 2009 (unaudited):


Sales of
                    concrete
                  
                  
                  Manufacturing
                    services
                  
                  
                  Technical
                    services
                  
                  
                  Mixer
                    rental
                  
                  
                  Corporate
                  
                  
                  TotalNet
      sales
                  
                  $
                  14,886,757
                  
                  
                  $
                  2,805,614
                  
                  
                  $
                  1,244,895
                  
                  
                  $
                  543,870
                  
                  
                  $
                  -
                  
                  
                  $
                  19,481,136Depreciation
                  
                  
                  (290,725
                  )
                  
                  
                  (324,148
                  )
                  
                  
                  (1,274
                  )
                  
                  
                  (45,808
                  )
                  
                  
                  (6,065
                  )
                  
                  
                  (668,020
                  )Segment
      profit
                  
                  
                  428,516
                  
                  
                  
                  1,025,544
                  
                  
                  
                  1,180,250
                  
                  
                  
                  493,696
                  
                  
                  
                  (736,001
                  )
                  
                  
                  2,392,005Other
      income (expenses)
                  
                  
                  798,435
                  
                  
                  
                  168,337
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (7,322,644
                  )
                  
                  
                  (6,355,872
                  )Interest
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,497
                  
                  
                  
                  1,497Interest
      expenses
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (23,753
                  )
                  
                  
                  (23,753
                  )Capital
      expenditure
                  
                  
                  (82,733
                  )
                  
                  
                  (15,592
                  )
                  
                  
                  -
                  
                  
                  
                  (3,023
                  )
                  
                  
                  -
                  
                  
                  
                  (101,348
                  )Total
      assets as of June 30, 2010
                  
                  $
                  69,101,360
                  
                  
                  $
                  15,326,776
                  
                  
                  $
                  -
                  
                  
                  $
                  1,183,304
                  
                  
                  $
                  -
                  
                  
                  $
                  85,611,440


30





Concrete
Sales Business





Our
concrete sales business segment is comprised of the formulation, production and
delivery of the Company’s line of C10-C100 concrete mixtures primarily through
our current fixed plant network of 5 ready mix concrete batching plants in
Beijing. For this segment of our business, we procure all of our own raw
materials, mix them according to our measured mixing formula, ship the final
product in mounted transit mixers to the destination work site, and, for more
sophisticated structures, will pump the mixture and set it into structural frame
moulds as per structural design parameters.





Manufacturing
Services Business





Our
manufacturing services business segment is comprised of the formulation,
production and delivery of project-specific concrete mixtures primarily through
our current portable plant network of 20 rapid assembly and deployment batching
plants, located in various provinces throughout China. Our clients will purchase
and provide the raw materials in volume on a separate account which we will then
proportion and mix according to our formulation for a given project’s
specifications. At present, our manufacturing services business segment is
primarily dedicated to various high speed rail projects in China which demand
very high quality standards on a time sensitive work schedule.





Technical
Services Business





Our
technical services business segment is comprised of the our third party
production management services, including chemical engineering and ready-mix
consulting services for independently owned concrete plants and their associated
projects. We manage the production and receive a percentage of our client
contractors’ profits based on cost savings generated.





Other
Services





Our final
business segment is comprised of other services which we engage in from time to
time, including marketing cooperation and mixer rentals. When we are unable to
service projects due to geographic limitations, we refer projects to several
other independently-owned mixture stations as part of our marketing cooperation
and existing relationships with contractors. We are paid a percentage of the
sales price of the business that is referred. The marketing cooperation allows
us to capture business that might otherwise be uneconomical due to capital
requirements. We also generate revenues by renting our mixing trucks to other
mixer stations.





Consolidated
Results of Operations




The
following table sets forth key components of our results of operations for the
three months ended September 30, 2010 and 2009, in US dollars:





Three
      Months EndedSeptember 30,2010
                                      
                                      
                                      2009(UNAUDITED)
                                      
                                      
                                      
                                      
                                      
                                      PercentageIncrease
                                        (Decrease)
                                      
                                      
                                      Increase
                                        (Decrease)Total
      revenue
                                      
                                      $
                                      30,957,082
                                      
                                      
                                      $
                                      19,481,136
                                      
                                      
                                      $
                                      11,475,946
                                      
                                      
                                      
                                      59
                                      %Total
      cost of revenue
                                      
                                      
                                      26,831,818
                                      
                                      
                                      
                                      16,194,100
                                      
                                      
                                      
                                      10,637,718
                                      
                                      
                                      
                                      66
                                      %Gross
      profit
                                      
                                      
                                      4,125,264
                                      
                                      
                                      
                                      3,287,036
                                      
                                      
                                      
                                      838,228
                                      
                                      
                                      
                                      26
                                      %Selling,
      general and administrative expenses
                                      
                                      
                                      2,193,788
                                      
                                      
                                      
                                      895,031
                                      
                                      
                                      
                                      1,298,757
                                      
                                      
                                      
                                      145
                                      %Other
      income, net
                                      
                                      
                                      2,103,071
                                      
                                      
                                      
                                      (6,378,128
                                      )
                                      
                                      
                                      8,481,199
                                      
                                      
                                      
                                      133
                                      %Income
      before provision for income taxes
                                      
                                      
                                      4,034,547
                                      
                                      
                                      
                                      (3,986,123
                                      )
                                      
                                      
                                      8,020,670
                                      
                                      
                                      
                                      201
                                      %Income
      taxes expense
                                      
                                      
                                      726,226
                                      
                                      
                                      
                                      536,814
                                      
                                      
                                      
                                      189,412
                                      
                                      
                                      
                                      35
                                      %Net
      income
                                      
                                      
                                      3,308,321
                                      
                                      
                                      
                                      (4,522,937
                                      )
                                      
                                      
                                      7,831,258
                                      
                                      
                                      
                                      173
                                      %Dividends
      and accretion on redeemable preferred
                                      
                                      
                                      -
                                      
                                      
                                      
                                      340,864
                                      
                                      
                                      
                                      (340,864
                                      )
                                      
                                      
                                      (100
                                      )
      %Net
      income available to Common shareholders
                                      
                                      $
                                      3,308,321
                                      
                                      
                                      $
                                      (4,863,801
                                      )
                                      
                                      $
                                      8,172,122
                                      
                                      
                                      
                                      168
                                      %


31





Results
of Operations




Comparison
of the Three Months Ended September 30, 2010 and 2009





Revenue.
Our revenue is generated from sales of our advanced ready-mix concrete products,
manufacturing services, technical consulting services, and others. For the three
months ended September 30, 2010, we generated revenue of $30,957,082 compared to
$19,481,136 during the same period of 2009, an increase of $11,475,946 or 59%.
We increased our production volumes in and outside of Beijing this fiscal year
compared to our last fiscal year.





As a
result, our concrete sales revenue was $25,320,947 for the three months ended
September 30, 2010, an increase of $10,434,190 or 70%. The increase in revenues
attributable to concrete sales was principally due to addition of two new fixed
plants as well as a broader client base.





During
the three months ended September 30, 2010, we continued to supply concrete
products to 10 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 Anhui Province. These ten projects contributed $4,471,777 to our
total revenue for the three months ended September 30, 2010, an increase of
$1,666,163 or 59%, compared to the three months ended September 30, 2009. The
increase in revenues attributable to our manufacturing services was principally
due to addition of eleven new portable plants to service a growing business
pipeline. 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
$1,159,060 during the three months ended September 30, 2010, a decrease of
$85,835 or 7% compared to the same fiscal quarter in 2009. The decrease is due
to the expiry of two technically serviced plants in Beijing. During the three
months ended September 30, 2010, we also rented our mixer trucks to mixture
stations which generated mixer rental revenues of $5,298, a decrease of $538,572
or 99%, as we experienced greater overall fleet capacity utilization as the
business expands. 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 and the 12th 5 Year
Plan installment which will be announced during the first half of our 2011
fiscal year.





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 $26,831,818 for the three
months ended September 30, 2010, as compared to $16,194,100 for the three months
ended September 30, 2009, an increase of $10,637,718, or 66%. The increase of
cost of revenue was due to the 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 to the addition
of eleven 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 period last year. We are uncertain whether crude oil prices or raw
material prices will maintain at the current level in the near future. We intend to raise our
concrete prices to keep pace with increases in raw material
pricing.





The cost
of sales on concrete increased $9,171,967 or 64% for the three months ended
September 30, 2010 as compared to the same period of 2009. Such increase was due
to an increase in our concrete production as a result of additional plants we
added in Beijing during the second fiscal quarter leading to a larger base of
raw material purchases supporting a higher overall volume of traditional
concrete sales for a resulting broader client base, as well as the increase in
crude oil prices and raw materials as indicated above as compared to the same
period last year.





Cost of
sales with respect to our manufacturing services increased $1,459,958 or 83%
during the three months ended September 30, 2010, as compared to the same period
last year. The primary reason for the Cost of Sales increase is due primarily to
the greater operational fixed cost base associated with the addition of eleven
new portable plants which have not yet reached production economies of scale as
well slowing production at 2 portable plants nearing project completion in
Lulong, Hebei and Hangzhou, Zhejiang; operational inefficiencies at Zhaoqing,
Guangdong due to delayed municipal government resident relocation efforts for
land development and the minimal relocation costs of 1 retired portable plant at
Suzhou, Jiangsu.




Gross
Profit. Our gross profit is equal to the difference between our revenue
and cost of sales. Gross profit was $4,125,264 for the three months ended
September 30, 2010, as compared to $3,287,036 for the three months ended
September 30, 2009. Our gross profit for sale of concrete was $1,812,264, or
7.2% of revenue, for the three months ended September 30, 2010, compared to
$550,041, or 4% of revenue, for the same period last year, an increase of
$1,262,223. The higher gross profit for concrete sales for the three months
ended September 30, 2010, compared with the same period in 2009, reflects higher
demand and higher prices for our concrete products in Beijing as compared to the
same period last year. The primary reason for the margin drop in concrete sales
from 10.35% in Q4 FY2010 is due to the increase in costs of raw materials and
transportation as a result of the increase in the price of crude oil and
municipal traffic restrictions. More specifically, raw material price increases
as a percentage of cost of goods sold increased approximately 2% whereby average
unit sales price for our concrete products were also lowered 1.5% in the same
period amounting to a total margin reduction of 3.5%. We intend to raise our
concrete sales prices 20-30% across our various concrete sales product
categories to account for raw material price increases in this and subsequent
quarters.


32





Our gross
profit with respect to our manufacturing services was $1,254,652, or 28%, for
the three months ended September 30, 2010, an increase of $206,205 from the same
period of 2009. Such increase was principally due to the addition of new
portable plants, which was offset by an increase of fixed costs incurred as a
result of the addition of a large number of new portable plants before they
commenced production, as well as slowing production rates at plants nearing
project completion and project delays stemming from delayed municipal government
resident relocation efforts as well as an increase in costs of transportation.
The primary reason for the margin drop from 37% during the same period last year
is due primarily to the mismatch of a larger operation fixed cost base during a
period of capacity ramp-up.  In addition, 6 plants nearing project
completion experienced production slowdowns as they approach redeployment or
retirement at Lulong, Hebei; Panjin, Liaoning ; Shangyu A and B, Zhejiang;
Yuyao, Zhejiang; and Ningbo, Zhejiang.  Finally, operational inefficiencies
were experienced due to project delays associated with municipal government
delayed resident relocation efforts at 2 Plants at Zhaoqing, Guangdong and
Guangxi. Finally, 3 Plants (Suzhou, Jiangsu; Liuzhou, Guangxi and Ankang,
Shaanxi) were retired/redeployed as the reached the end of their contracts. The
company expects to record in subsequent periods the balance of income associated
with delayed projects for ongoing contracts which are generally assigned a fixed
completion term as well as additional income for the new capacity which has been
added.





Our gross
profit with respect to technical services was $1,053,050, or 91%, for the three
months ended September 30, 2010, compared to $1,190,412, or 96%, for the same
period last year, a decrease of $137,362 or 12%. The primary reason for the
decrease is the service term expiration of two technically serviced plants in
Beijing.





Our gross
profit with respect to mixer rentals was $5,298 or 100% during the three months
ended September 30, 2010 compared to $498,136, or 92%, for the same period last
year, a decrease of $492,838 or 99% as we experienced greater overall fleet
capacity utilization as the business expands.





We plan
to continue expanding our manufacturing services as well as targeting new higher
margin concrete sales markets, which produce the highest scalable 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 $2,193,788 for the
three months ended September 30, 2010, an increase of $1,298,757, or 145%, as
compared to $895,031 for the three months ended September 30, 2009. The increase
was principally due to an increase in employment, salary and benefit and lease
expenses resulting from higher production and a larger base of operations during
the year, and professional and consulting expenses from being a public company
and resulting from our overall production expansion during the
year.





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 $2,103,071 for the three months ended September 30, 2010, as
compared to net other (expense) of $(6,378,128) for the three months ended
September 30, 2009, an increase of $8,481,199 or 133%. The increase in net other
income was primarily due to a decrease in change in fair value of warrants of a
credit of $154,258 as compared to an (expense) of $(7,273,441) during the same
period last year. We also experienced an increase in other subsidy income to
$1,787,563 for the three months ended September 30, 2010, as compared to
$966,772 in the same period of 2009, an increase of $820,791 or 85%. 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
June 2009 to June 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 interest expense of $(12,906) for the three months
ended September 30, 2010, as compared to $(23,753) for the three months ended
September 30, 2009, a decrease of $10,847.





Provision for
Income Taxes. Provision for income taxes amounted to $726,226 and
$536,814 for the three months ended September 30, 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 three months ended
December 31, 2009 comprised of a 15% income tax rate compared to a 25% income
tax rate for the same period 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 three
months ended September 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.




Net (Loss)
Income. We
recognized net income of $3,308,321 for the three months ended September 30,
2010, as compared to net income of $(4,522,937) for the same period in 2009, an
increase of $7,831,258. Such increase in net income was attributable to a yearly
increase in our plant production capacity across our plant network including the
addition of two new fixed plants in Beijing and eleven portable plants across
the country, all of which were offset by an increase in production costs for
retiring plants, plants nearing retirement, new portable plants not yet in
operation, project delays associated with delayed resident relocations and
selling, general, and administrative expense on an increased labor base of a
larger scale operations. Our management believes that our profits may increase
during the next 9 months as we continue to expand into service sectors and
geographies 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.


33





Dividends and
accretion on redeemable preferred stock. The decrease in dividends and
accretion on redeemable convertible preferred stock of $340,864 for the three
months ended September 30, 2010, as compared to the same period of 2009, was due
to the maturity of the redeemable convertible preferred in Q4 FY 2010 on June
12, 2010.




Net Income
available to Common shareholders. Excluding the effect from non-cash
charges related to changes in fair market of warrants, accretion of discount on
redeemable preferred stock and stock and option-based compensation, our net
income available to Common shareholders would be $3,332,365 for the three months
ended September 30, 2010, an increase of $862,570 or 35%,as compared to net
income after cash dividends paid of $2,469,795 for the same period in 2009. See
the section “Use of Non-GAAP Financial Measures” above for a discussion
regarding the presentation of net income excluding non-cash gain
(loss).





Liquidity
and Capital Resources




As of
September, 2010, we had cash and cash equivalents of $12,718,521. 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 StatementsThree Months EndedSeptember 30,2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Unaudited)Net
      cash (used in) provided by operating activities
                    
                    $
                    (1,794,011
                    )
                    
                    $
                    1,522,618Net
      cash provided by (used in)  investing activities
                    
                    
                    590,244
                    
                    
                    
                    (101,183
                    )Net
      cash provided by (used in) financing activities
                    
                    
                    10,586,745
                    
                    
                    
                    (2,859,398
                    )Effect
      of foreign currency translation on cash and cash
    equivalents
                    
                    
                    34,723
                    
                    
                    
                    (8,861
                    )Net
      increase (decrease) in cash and cash equivalent
                    
                    $
                    9,417,701
                    
                    
                    $
                    (1,446,824
                    )





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.





Net Cash Provided
by Operating Activities. Net cash used in operating activities totaled
$1,794,011 for the three months ended September 30, 2010, as compared to net
cash provided by operating activities of $1,522,618 for the same period of 2009.
The decrease in net cash provided by operating activities was primarily due to
an increase of accounts receivable and other receivables which were partially
offset by an increase in our cash flows from increased sales activities, an
increase in accounts payable and taxes payable and a decrease of inventories
during the three months ended September 30, 2010. We aim to make improvements in
our cash flow from operating activities stemming from increases in construction
industry activity in Beijing , combined with winning a larger proportion of
manufacturing services revenues and strengthening our efforts to negotiate more
favorable terms with our suppliers and customers which will be offset by greater
working capital needs for our expanding operations.




Net Cash Used In
Investing Activities. Net cash provided by investing activities was
$590,244 for the three months ended September 30, 2010, as compared to $101,183
used for the three months ended September 30, 2009. The increase in cash
provided by investing activities was largely due to the cash receipts from
disposal of fixed assets upon completion of the contract agreement.





Net Cash Provided
by Financing Activities. Net cash provided by financing activities
totaled $10,586,745 for the three months ended September 30, 2010, as compared
to net cash used in financing activities of $2,859,398 during the same period of
2009. The increase in cash provided by financing activities was due to net
proceeds of our August 18, 2010 HuaXia Bank Loan Facility of $1,497,000 and
proceeds from our September 30, 2010 Shanghai Pudong Development Bank Loan
Facility of $8,982,000. The net proceeds from the loan facilities will be used
for financing working capital, raw material purchases and general corporate
purposes.





Cash. As of September 30, 2010,
we had cash of $12,718,521 as compared to $3,300,820 as of September 30, 2009.
This increase is due primarily to newly approved loans and credit facilities
amounting to $10,508,940.





We
believe that our cash and revenues from ongoing operations in addition to
closely managing our accounts payable and accounts receivable is sufficient to
meet our liquidity and capital requirements for all of our ongoing operations.
However, we may need to raise additional capital in order to undertake our plans
for expansion.


34





Accounts
Receivable





Although
accounts receivable have increased with revenues, they have not grown as quickly
as revenues.  Collection days averaged 127 days for the three months ended
September 30, 2010 as compared to 93 average turnover days for the three months
ended September 30, 2009 primarily due to the acceleration of sales, with a
disproportionate impact coming from Beijing concrete sales accounts receivable
inclusive of raw material unit sales costs.





Loan
Facilities





We had a
total of $10,508,940 and $0 outstanding on loans and credit facilities as of
September 30, 2010 and June 30, 2010, respectively. The loans consisted of the
following:





September 30, 2010
                          
                          
                          June 30, 2010(UNAUDITED)Loan from Beijing Branch Shanghai Pudong Development Bank
      interest rate of 5.841% per annum, due September 29, 2011, guaranteed by
      Beijing Xinhang Construction Materials Group, Inc and personally
      guaranteed by CEO Xianfu Han, COO Weili He and their
      spouses.
                          
                          $
                          8,982,000
                          
                          
                          $
                          0Loan
      from Huaxia Bank interest rate of 5.841% per annum, due August 18, 2011,
      guaranteed by Beijing Jinshengding Mineral Products Co., Ltd. and Beijing
      Xinhang Construction Material Group Co., Ltd., together with a personal
      guarantee from Mr. Han, the Company's CEO.
                          
                          
                          1,497,000
                          
                          
                          
                          0Loan
      from an employee, effective interest rate of 0% per annum, due upon
      demand, unsecured.
                          
                          
                          29,940
                          
                          
                          
                          0Total short term loans
                          
                          $
                          10,508,940
                          
                          
                          $
                          0





Total
interest expense on short-term loans for the three months ended September 30,
2010 and 2009 amounted to $11,446 and $23,753, 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 entity Xin Ao. All significant inter-company transactions and
balances have been eliminated in consolidation. China ACM, its subsidiaries and
Xin Ao, together are referred to as the Company. In accordance with FASB
Interpretation No. 46(R), Consolidation of Variable Interest Entities, or FIN
46(R), variable interest entities, or VIEs, are generally entities that lack
sufficient equity to finance their activities without additional financial
support from other parties or whose equity holders lack adequate decision making
ability. All VIEs with which the Company is involved must be evaluated to
determine the primary beneficiary of the risks and rewards of the VIE. The
primary beneficiary is required to consolidate the VIE for financial reporting
purposes. In connection with the adoption of FIN 46(R), the Company concludes
that Xin Ao is a VIE and China ACM is the primary beneficiary. Under FIN 46(R)
transition rules, the financial statements of Xin Ao are then consolidated into
the Company’s consolidated financial statements.





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




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


35





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





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





·
            Delivery has occurred or services
      have been rendered;





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





·
            Collectability of payment is
      reasonably assured.





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





Sales
revenue represents the invoiced value of goods, net of a value-added tax, 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 June 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.





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.





Income
taxes





The
Company accounts for income taxes in accordance with the accounting standards,
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.





The
accounting standard defines uncertainty in income taxes and 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. The Company had no material deferred tax amounts as
of September 30, 2010 and 2009 from its US operation, 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 for the years ended
September 30, 2010 and 2009.  GAAP also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosures and transition.


36





The
Company’ VIE entities have cumulative undistributed earnings of approximately
$33.4 million and $29.5 million as of September 30, 2010 and June 30, 2010,
respectively, 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 has incurred net operating losses of
$253,166 for income tax purposes for the three months ended September 30, 2010,
which excludes $178,302 stock based compensation expenses and gain in fair value
of warrant liabilities of $154,258. The cumulative net operating loss carry
forwards for United States income taxes amounted to $1,239,633.  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 ended September 30, 2010 was an increase of approximately $86,076.
Management reviews this valuation allowance periodically and makes adjustments
accordingly.





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 VAT. The
standard VAT rate is 6% of gross sales for the Company’s industry. A credit is
available whereby VAT paid on the purchases of raw materials used in the
production of the Company’s finished products can be used to offset the VAT due
on sales of finished products. Due to the fact that the Company uses recycled
raw materials to manufacture its products, the State Administration of Taxation
has granted the Company VAT Tax Exemption from August 2005 through to August
2009 and a two year tax (VAT) credit extension from August 2009 through August
2011. For the three months ended September 30, 2010 and 2009, $1,787,563 and
$966,772 respectively, was recognized as other subsidy income from VAT taxes
collected.





Recently
Issued Accounting Pronouncements





In June
2009, the FASB issued authoritative guidance to eliminate the exception to
consolidate a qualifying special-purpose entity, change the approach to
determining the primary beneficiary of a variable interest entity and require
companies to more frequently re-assess whether they must consolidate variable
interest entities. Under the new guidance, the primary beneficiary of a variable
interest entity is identified qualitatively as the enterprise that has both (a)
the power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance, and (b) the obligation
to absorb losses of the entity that could potentially be significant to the
variable interest entity or the right to receive benefits from the entity that
could potentially be significant to the variable interest entity. This guidance
becomes effective for the Company at its fiscal 2011 year-end and interim
reporting periods thereafter. The Company does not expect this guidance to have
a material impact on its consolidated financial statements.





In July
2010, the FASB issued Accounting Standards Update 2010-20 which amends
“Receivables” (Topic 310). ASU 2010-20 is intended to provide additional
information to assist financial statement users in assessing an entity’s risk
exposures and evaluating the adequacy of its allowance for credit losses. The
disclosures as of the end of a reporting period are effective for interim and
annual reporting periods ending on or after December 15, 2010. The disclosures
about activity that occurs during a reporting period are effective for interim
and annual reporting periods beginning on or after December 15, 2010. The
amendments in ASU 2010-20 encourage, but do not require, comparative disclosures
for earlier reporting periods that ended before initial adoption. However, an
entity should provide comparative disclosures for those reporting periods ending
after initial adoption. The Company does not expect this ASU to have a material
impact on its 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 and
our principal accounting and 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.


37





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




As of
September 30, 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 effective as of September 30, 2010.




Changes
in Internal Control over Financial Reporting.




During
the fiscal quarter ended September 30, 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.





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, 2010, 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
September 30, 2010.





ITEM 3.     DEFAULTS UPON SENIOR
SECURITIES





There
were no defaults upon senior securities during the fiscal quarter ended
September 30, 2010.





ITEM
4.     (REMOVED AND RESERVED)








ITEM
5.     OTHER INFORMATION





Not
applicable.


38





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.


39




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: 
      November 15, 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)