UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10−Q


(Mark
One)


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




For the
quarterly period ended: December 31, 2010




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




For the
transition period from ____________ to _____________




Commission
File Number: 333-141568





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.
Yesx    No  o





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    o   No  
o





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 
      o
            Accelerated Filer 
      oNon-Accelerated Filer 
      o  (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   o  No  
x





The
number of shares outstanding of each of the issuer’s classes of common equity,
as of February 11, 2010 is as
follows:




Class
      of Securities
                
                Shares
      OutstandingCommon
      Stock, $0.001 par value
                
                17,739,387









TABLE
OF CONTENTS


3




PART
      IFINANCIAL
      INFORMATIONITEM
      1.
              FINANCIAL
      STATEMENTS
              
              2ITEM
      2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
              
              24ITEM
      3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              
              43ITEM
      4(T).
              CONTROLS
      AND PROCEDURES
              
              43PART
      IIOTHER
      INFORMATIONITEM
      1.
              LEGAL
      PROCEEDINGS
              
              44ITEM
      1A.
              RISK
      FACTORS
              
              44ITEM
      2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
              
              44ITEM
      3.
              DEFAULTS
      UPON SENIOR SECURITIES
              
              44ITEM
      4.
              RESERVE
              
              44ITEM
      5.
              OTHER
      INFORMATION
              
              44ITEM
      6.
              EXHIBITS
              
              45




1




PART I





FINANCIAL
INFORMATION




ITEM
1.    FINANCIAL STATEMENTS.





CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC.  AND SUBSIDIARIES





UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





PageCondensed
      Consolidated Balance Sheets as of December 31, 2010 and as of June 30,
      2010
                
                3Condensed
      Consolidated Statements of Income and Comprehensive Income for the three
      and six months ended December 31, 2010 and 2009
                
                4Condensed
      Consolidated Statements of Cash Flows for the six months ended December
      31, 2010 and 2009
                
                5Notes
      to Unaudited Condensed Consolidated Financial Statements
                
                6





2







CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


AS
OF DECEMBER 31, 2010 AND JUNE 30, 2010




December
31,
                                                    
                                                    
                                                    June 30,ASSETS
                                                    
                                                    2010
                                                    
                                                    
                                                    2010CURRENT
    ASSETS:Cash
                                                    
                                                    $
                                                    3,153,149
                                                    
                                                    
                                                    $
                                                    3,300,820Restricted
    cash
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    57,580Accounts receivable, net of
      allowance for doubtful accounts
                                                    
                                                    
                                                    62,491,063
                                                    
                                                    
                                                    
                                                    36,072,691of $1,159,148
      and  $456,085, respectivelyInventories
                                                    
                                                    
                                                    2,443,336
                                                    
                                                    
                                                    
                                                    2,164,769Investment
                                                    
                                                    
                                                    11,947,960
                                                    
                                                    
                                                    
                                                    -Other
      receivables
                                                    
                                                    
                                                    3,607,624
                                                    
                                                    
                                                    
                                                    1,416,653Prepayments
                                                    
                                                    
                                                    3,795,404
                                                    
                                                    
                                                    
                                                    2,821,687Total current
      assets
                                                    
                                                    
                                                    87,438,536
                                                    
                                                    
                                                    
                                                    45,834,200PROPERTY, PLANT AND EQUIPMENT,
      net
                                                    
                                                    
                                                    28,707,245
                                                    
                                                    
                                                    
                                                    26,488,354OTHER
    ASSETS:Accounts receivable, net of
      allowance for doubtfulaccounts of $0 and
      $4,607 respectively
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    364,371Deferred tax
      assets
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    127,741Advances on equipment
      purchases
                                                    
                                                    
                                                    5,806,104
                                                    
                                                    
                                                    
                                                    8,382,383Prepayments
                                                    
                                                    
                                                    3,655,754
                                                    
                                                    
                                                    
                                                    4,414,391Total other
      assets
                                                    
                                                    
                                                    9,461,858
                                                    
                                                    
                                                    
                                                    13,288,886Total
assets
                                                    
                                                    $
                                                    125,607,639
                                                    
                                                    
                                                    $
                                                    85,611,440LIABILITIES AND SHAREHOLDERS'
      EQUITYCURRENT
      LIABILITIES:Short term loans,
      banks
                                                    
                                                    $
                                                    14,367,800
                                                    
                                                    
                                                    $
                                                    -Accounts
      payable
                                                    
                                                    
                                                    30,336,112
                                                    
                                                    
                                                    
                                                    16,473,080Customer
      deposits
                                                    
                                                    
                                                    857,323
                                                    
                                                    
                                                    
                                                    711,219Other
    payables
                                                    
                                                    
                                                    387,318
                                                    
                                                    
                                                    
                                                    329,136Other payables -
      shareholders
                                                    
                                                    
                                                    767,370
                                                    
                                                    
                                                    
                                                    772,644Accrued
      liabilities
                                                    
                                                    
                                                    1,899,288
                                                    
                                                    
                                                    
                                                    1,652,751Taxes
    payable
                                                    
                                                    
                                                    2,863,330
                                                    
                                                    
                                                    
                                                    1,569,914Total current
      liabilities
                                                    
                                                    
                                                    51,478,541
                                                    
                                                    
                                                    
                                                    21,508,744OTHER
      LIABILITIESWarrants
      liability
                                                    
                                                    
                                                    3,805,755
                                                    
                                                    
                                                    
                                                    2,920,520Total
      liabilities
                                                    
                                                    
                                                    55,284,296
                                                    
                                                    
                                                    
                                                    24,429,264Commitments and
      contingenciesSHAREHOLDERS'
      EQUITY:Common stock, $0.001 par value,
      74,000,000 shares authorized,
                                                      17,726,887 and 17,467,104 shares
      issued and outstanding as of
                                                      December 31 and June 30, 2010,
      respectively
                                                    
                                                    
                                                    17,727
                                                    
                                                    
                                                    
                                                    17,467Paid-in-capital
                                                    
                                                    
                                                    34,557,606
                                                    
                                                    
                                                    
                                                    33,720,762Retained
      earnings
                                                    
                                                    
                                                    25,563,396
                                                    
                                                    
                                                    
                                                    19,912,444Statutory
      reserves
                                                    
                                                    
                                                    5,400,877
                                                    
                                                    
                                                    
                                                    4,511,520Accumulated other comprehensive
      income
                                                    
                                                    
                                                    4,783,737
                                                    
                                                    
                                                    
                                                    3,019,983Total shareholders'
      equity
                                                    
                                                    
                                                    70,323,343
                                                    
                                                    
                                                    
                                                    61,182,176Total liabilities and
      shareholders' equity
                                                    
                                                    $
                                                    125,607,639
                                                    
                                                    
                                                    $
                                                    85,611,440




The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements




3





CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
(LOSS)


FOR
THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2010 AND 2009


(UNAUDITED)




For the three months
      ended
                                                        
                                                        
                                                        For the six months
      endedDecember
31,
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        December
31,2010
                                                        
                                                        
                                                        2009
                                                        
                                                        
                                                        2010
                                                        
                                                        
                                                        2009REVENUESales of
      concrete
                                                        
                                                        $
                                                        26,205,792
                                                        
                                                        
                                                        $
                                                        20,316,502
                                                        
                                                        
                                                        $
                                                        51,526,739
                                                        
                                                        
                                                        $
                                                        35,203,259Manufacturing
      services
                                                        
                                                        
                                                        7,108,447
                                                        
                                                        
                                                        
                                                        3,663,114
                                                        
                                                        
                                                        
                                                        11,580,224
                                                        
                                                        
                                                        
                                                        6,468,728Technical
      services
                                                        
                                                        
                                                        1,207,396
                                                        
                                                        
                                                        
                                                        1,234,760
                                                        
                                                        
                                                        
                                                        2,366,456
                                                        
                                                        
                                                        
                                                        2,479,655Other
                                                        
                                                        
                                                        4,311
                                                        
                                                        
                                                        
                                                        949,936
                                                        
                                                        
                                                        
                                                        9,609
                                                        
                                                        
                                                        
                                                        1,493,806Total
    revenue
                                                        
                                                        
                                                        34,525,946
                                                        
                                                        
                                                        
                                                        26,164,312
                                                        
                                                        
                                                        
                                                        65,483,028
                                                        
                                                        
                                                        
                                                        45,645,448COST OF
    REVENUEConcrete
                                                        
                                                        
                                                        22,835,629
                                                        
                                                        
                                                        
                                                        18,453,296
                                                        
                                                        
                                                        
                                                        46,344,312
                                                        
                                                        
                                                        
                                                        32,790,012Manufacturing
      services
                                                        
                                                        
                                                        4,913,916
                                                        
                                                        
                                                        
                                                        2,063,646
                                                        
                                                        
                                                        
                                                        8,131,041
                                                        
                                                        
                                                        
                                                        3,820,813Technical
      services
                                                        
                                                        
                                                        94,291
                                                        
                                                        
                                                        
                                                        81,516
                                                        
                                                        
                                                        
                                                        200,301
                                                        
                                                        
                                                        
                                                        135,999Other
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        331,228
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        376,962Total cost of
      revenue
                                                        
                                                        
                                                        27,843,836
                                                        
                                                        
                                                        
                                                        20,929,686
                                                        
                                                        
                                                        
                                                        54,675,654
                                                        
                                                        
                                                        
                                                        37,123,786GROSS
PROFIT
                                                        
                                                        
                                                        6,682,110
                                                        
                                                        
                                                        
                                                        5,234,626
                                                        
                                                        
                                                        
                                                        10,807,374
                                                        
                                                        
                                                        
                                                        8,521,662SELLING, GENERAL AND
      ADMINISTRATIVE EXPENSES
                                                        
                                                        
                                                        2,632,218
                                                        
                                                        
                                                        
                                                        1,157,250
                                                        
                                                        
                                                        
                                                        4,826,007
                                                        
                                                        
                                                        
                                                        2,052,281INCOME FROM
      OPERATIONS
                                                        
                                                        
                                                        4,049,892
                                                        
                                                        
                                                        
                                                        4,077,376
                                                        
                                                        
                                                        
                                                        5,981,367
                                                        
                                                        
                                                        
                                                        6,469,381OTHER INCOME (EXPENSE),
      NETOther subsidy
      income
                                                        
                                                        
                                                        1,998,855
                                                        
                                                        
                                                        
                                                        1,323,515
                                                        
                                                        
                                                        
                                                        3,786,418
                                                        
                                                        
                                                        
                                                        2,290,287Realized gain from sales of
      marketable securities
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        27,008
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        27,008Non-operating (expense),
      net
                                                        
                                                        
                                                        (357,201
                                                        )
                                                        
                                                        
                                                        (29,325
                                                        )
                                                        
                                                        
                                                        (187,974
                                                        )
                                                        
                                                        
                                                        (78,528
                                                        )Change in fair value of warrants
      liability
                                                        
                                                        
                                                        (1,414,408
                                                        )
                                                        
                                                        
                                                        3,356,796
                                                        
                                                        
                                                        
                                                        (1,260,150
                                                        )
                                                        
                                                        
                                                        (3,916,645
                                                        )Interest
    income
                                                        
                                                        
                                                        157,220
                                                        
                                                        
                                                        
                                                        1,524
                                                        
                                                        
                                                        
                                                        162,149
                                                        
                                                        
                                                        
                                                        3,021Interest
      expense
                                                        
                                                        
                                                        (224,136
                                                        )
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (237,042
                                                        )
                                                        
                                                        
                                                        (23,753
                                                        )TOTAL OTHER INCOME (EXPENSE),
      NET
                                                        
                                                        
                                                        160,330
                                                        
                                                        
                                                        
                                                        4,679,518
                                                        
                                                        
                                                        
                                                        2,263,401
                                                        
                                                        
                                                        
                                                        (1,698,610
                                                        )INCOME BEFORE PROVISION FOR INCOME
      TAXES
                                                        
                                                        
                                                        4,210,222
                                                        
                                                        
                                                        
                                                        8,756,894
                                                        
                                                        
                                                        
                                                        8,244,768
                                                        
                                                        
                                                        
                                                        4,770,771PROVISION FOR INCOME
      TAXES
                                                        
                                                        
                                                        978,233
                                                        
                                                        
                                                        
                                                        811,813
                                                        
                                                        
                                                        
                                                        1,704,459
                                                        
                                                        
                                                        
                                                        1,348,627NET INCOME
                                                        
                                                        
                                                        3,231,989
                                                        
                                                        
                                                        
                                                        7,945,081
                                                        
                                                        
                                                        
                                                        6,540,309
                                                        
                                                        
                                                        
                                                        3,422,144DIVIDENDS AND ACCRETION ON
      REDEEMABLE CONVERTIBLE PREFERRED STOCK
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        318,835
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        659,699NET INCOME AVAILABLE TO COMMON
      SHAREHOLDERS
                                                        
                                                        
                                                        3,231,989
                                                        
                                                        
                                                        
                                                        7,626,246
                                                        
                                                        
                                                        
                                                        6,540,309
                                                        
                                                        
                                                        
                                                        2,762,445COMPREHENSIVE
      INCOME:Net Income
                                                        
                                                        
                                                        3,231,989
                                                        
                                                        
                                                        
                                                        7,945,081
                                                        
                                                        
                                                        
                                                        6,540,309
                                                        
                                                        
                                                        
                                                        3,422,144Foreign currency translation
      adjustment
                                                        
                                                        
                                                        693,572
                                                        
                                                        
                                                        
                                                        (17,663
                                                        )
                                                        
                                                        
                                                        1,763,754
                                                        
                                                        
                                                        
                                                        (80,094
                                                        )COMPREHENSIVE
      INCOME
                                                        
                                                        $
                                                        3,925,561
                                                        
                                                        
                                                        $
                                                        7,927,418
                                                        
                                                        
                                                        $
                                                        8,304,063
                                                        
                                                        
                                                        $
                                                        3,342,050EARNINGS PER COMMON SHARE
      ALLOCATED TO
                                                          COMMON
      SHAREHOLDERSWeighted average number of
      shares:Basic
                                                        
                                                        
                                                        17,651,620
                                                        
                                                        
                                                        
                                                        12,377,182
                                                        
                                                        
                                                        
                                                        17,585,082
                                                        
                                                        
                                                        
                                                        11,681,294Diluted
                                                        
                                                        
                                                        18,202,555
                                                        
                                                        
                                                        
                                                        15,955,516
                                                        
                                                        
                                                        
                                                        18,067,924
                                                        
                                                        
                                                        
                                                        15,624,782Earnings per
      share:Basic
                                                        
                                                        $
                                                        0.18
                                                        
                                                        
                                                        $
                                                        0.62
                                                        
                                                        
                                                        $
                                                        0.37
                                                        
                                                        
                                                        $
                                                        0.24Diluted
                                                        
                                                        $
                                                        0.18
                                                        
                                                        
                                                        $
                                                        0.50
                                                        
                                                        
                                                        $
                                                        0.36
                                                        
                                                        
                                                        $
                                                        0.22
  The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements




4




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE SIX MONTHS ENDED DECEMBER 31, 2010 AND 2009


(UNAUDITED)


For the six months
      endedDecember
31,2010
                                            
                                            
                                            2009CASH FLOWS FROM OPERATING
      ACTIVITIES:Net income
                                            
                                            $
                                            6,540,309
                                            
                                            
                                            $
                                            3,422,144Adjustments to reconcile net
      income to cash provided by (used in) operating
      activities:Depreciation
                                            
                                            
                                            1,819,065
                                            
                                            
                                            
                                            1,387,883Stock-based compensation
      expense
                                            
                                            
                                            462,189
                                            
                                            
                                            
                                            120,778Deferred tax
      provision
                                            
                                            
                                            129,354
                                            
                                            
                                            
                                            -Provision for (recovery) of
      allowance for doubtful accounts
                                            
                                            
                                            676,697
                                            
                                            
                                            
                                            (129,354
                                            )Change in fair value of warrants
      liability
                                            
                                            
                                            1,260,150
                                            
                                            
                                            
                                            3,916,645Loss realized from disposal of
      property, plant, and equipment
                                            
                                            
                                            252,727
                                            
                                            
                                            
                                            -Realized gain on sale of
      marketable securities
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (27,008
                                            )Changes in operating assets and
      liabilitiesAccounts
      receivable
                                            
                                            
                                            (25,411,159
                                            )
                                            
                                            
                                            (19,737,549
                                            )Notes
      receivable
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (3,502
                                            )Inventories
                                            
                                            
                                            (217,625
                                            )
                                            
                                            
                                            (664,483
                                            )Other
      receivables
                                            
                                            
                                            (2,135,501
                                            )
                                            
                                            
                                            2,011,537Prepayments
                                            
                                            
                                            (886,350
                                            )
                                            
                                            
                                            (1,276,446
                                            )Long term
      prepayment
                                            
                                            
                                            864,656
                                            
                                            
                                            
                                            (424,307
                                            )Accounts
      payable
                                            
                                            
                                            12,598,938
                                            
                                            
                                            
                                            11,375,636Customer
      deposits
                                            
                                            
                                            125,331
                                            
                                            
                                            
                                            462,849Other
    payables
                                            
                                            
                                            50,438
                                            
                                            
                                            
                                            39,898Accrued
      liabilities
                                            
                                            
                                            202,793
                                            
                                            
                                            
                                            896,045Taxes
    payable
                                            
                                            
                                            1,234,213
                                            
                                            
                                            
                                            (314,895
                                            )Net cash (used in) provided by
      operating activities
                                            
                                            
                                            (2,433,775
                                            )
                                            
                                            
                                            1,055,871CASH FLOWS FROM INVESTING
      ACTIVITIES:Proceeds from sale of marketable
      securities
                                            
                                            
                                            -
                                            
                                            
                                            
                                            78,207Advances on equipment
      purchase
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (80,462
                                            )Proceeds from disposal of
      property, plant, and equipment
                                            
                                            
                                            742,242
                                            
                                            
                                            
                                            -Purchase of property, plant and
      equipment
                                            
                                            
                                            (890,859
                                            )
                                            
                                            
                                            (258,580
                                            )Investment
                                            
                                            
                                            (11,880,800
                                            )
                                            
                                            
                                            -Net cash used in investing
      activities
                                            
                                            
                                            (12,029,417
                                            )
                                            
                                            
                                            (260,835
                                            )CASH FLOWS FROM FINANCING
      ACTIVITIES:Proceeds from short term
      loan
                                            
                                            
                                            12,285,820
                                            
                                            
                                            
                                            146,284Payments on short term
      loan
                                            
                                            
                                            (74,580
                                            )
                                            
                                            
                                            (4,502,287
                                            )Rent payment to
      shareholder
                                            
                                            
                                            (5,775
                                            )
                                            
                                            
                                            (141,060
                                            )Restricted
    cash
                                            
                                            
                                            57,580
                                            
                                            
                                            
                                            192,330Proceeds from warrants
      exercised
                                            
                                            
                                            -
                                            
                                            
                                            
                                            386,100Proceeds from issuance of common
      stock, net of offering costs
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,497,242Preferred dividends
      paid
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (304,781
                                            )Net cash provided by (used in)
      financing activities
                                            
                                            
                                            12,263,045
                                            
                                            
                                            
                                            (2,726,172
                                            )EFFECT OF EXCHANGE RATE CHANGE ON
      CASH
                                            
                                            
                                            2,052,476
                                            
                                            
                                            
                                            (7,330
                                            )NET DECREASE IN
      CASH
                                            
                                            
                                            (147,671
                                            )
                                            
                                            
                                            (1,938,466
                                            )CASH, beginning of
      period
                                            
                                            
                                            3,300,820
                                            
                                            
                                            
                                            3,634,805CASH, end of
      period
                                            
                                            $
                                            3,153,149
                                            
                                            
                                            $
                                            1,696,339


The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements




5




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)




Note
1 – Organization and description of business
 
 China
Advanced Construction Materials Group, Inc. (“China ACM” ) was incorporated in
the State of Delaware on February 15, 2007. China ACM through its 100% owned
subsidiaries and its variable interest entities (“VIEs”) (collectively, the
“Company”), 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”).  China ACM has
a wholly-owned subsidiary in the British Virgin Islands (“BVI-ACM”) which is a
holding company with no operations.  BVI-ACM has a wholly-owned
foreign enterprise (“WOFE”) and the WOFE has contractual agreements with an
entity which is considered a VIE.
 
 In March
and April 2010, the VIE established five 100% owned subsidiaries in the PRC for
consulting, concrete mixing and equipment rental services: (1) Beijing Heng Yuan
Zheng Ke Technical Consulting Co., Ltd (“Heng Yuan Zheng Ke”), (2) Beijing Hong
Sheng An Construction Materials Co., Ltd (“Hong Sheng An”), (3) Beijing Heng Tai
Hong Sheng Construction Materials Co., Ltd (“Heng Tai”), (4) Da Tong Ao Hang Wei
Ye Machinery, Equipment Rental Co., Ltd (“Da Tong”) and (5) 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 subsidiaries is to support the Company’s future growth.
 
 On
September 20, 2010, China ACM established a 100% owned subsidiary, Advance
Investment Holdings Co., Inc. (“AIH”) in the State of Nevada.  AIH has
no operations to date.
 
 Note
2 – Summary of significant accounting policies
 
 Basis of
presentation
 
 The
Company’s accounting policies used in the preparation of the accompanying
unaudited condensed consolidated financial statements conform to accounting
principles generally accepted in the United States of America ("US GAAP") and
have been consistently applied.
 
 Theinterim unauditedcondensedconsolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States
(“GAAP”), for interim financial information and
with the instructions to Securities and Exchange Commission (“SEC”), Form 10-Q and Article 10 of SEC
Regulation S-X and consistent with the accounting policies stated in the
Company’s 2010Annual 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
endedJune 30, 2010, included in our Annual Report on Form
10-K filed with the SEC.
 
 The interimcondensedconsolidated 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 December 31, 2010,
and itsconsolidated
results of operations and cash flows for the threeand sixmonths endedDecember 31, 2010 and 2009. The results of
operationsfor the
threeand sixmonths endedDecember 31, 2010 are not necessarily indicative of
the results to be expected for future quarters or the full
year.
 
 Principles of
consolidation
 
 The
unaudited condensed consolidated financial statements reflect the activities of
the Company. All material intercompany transactions have been
eliminated.
  6
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  OwnershipSubsidairies and
      VIEs
                            
                            Place of
      incorporated
                            
                            percentageAIH
                            
                            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 withthe USGAAP, VIEs are generally entities that
lack sufficient equity to finance their activitieswithout 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,rewardsand the economic controlof the VIE. The primary beneficiary is
required to consolidate the VIE for financial reporting
purposes.
 
 Accounting Standards Codification
(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 determines that Beijing
Xin Ao Concrete Group Co., Ltd. (“Xin Ao”) and its subsidiaries are VIEs subject
to consolidation and that the Company is the primary beneficiary. Accordingly,
the financial statements of Xin Ao and its subsidiaries are consolidated into
the financial statements of the Company.
 
 The
carrying amount of the VIEs’ assets and liabilities are as follows:
 
 December 31,
      2010
                  
                  
                  June 30, 2010Current
    assets
                  
                  $
                  86,451,390
                  
                  
                  $
                  44,161,471Property, plant and
      equipment
                  
                  
                  28,146,546
                  
                  
                  
                  25,891,066Other noncurrent
      assets
                  
                  
                  5,053,211
                  
                  
                  
                  9,029,763Total
assets
                  
                  
                  119,651,147
                  
                  
                  
                  79,082,300Liabilities
                  
                  
                  (50,614,031
                  )
                  
                  
                  (20,486,646
                  )Intercompany
      payables*
                  
                  
                  (9,685,525
                  )
                  
                  
                  (39,124,318
                  )Total
      liabilities
                  
                  
                  (60,299,556
                  )
                  
                  
                  (59,610,964
                  )Net assets
                  
                  $
                  59,351,591
                  
                  
                  $
                  19,471,336
 
 *
Payables are eliminated upon consolidation.
 
 Use of
estimates
 
 The
preparation of financial statements in conformity with 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 unaudited condensed consolidated financial statements relate to
the assessment of the fair value of share-based payments, the collectability of
accounts receivable, valuation allowance of deferred income taxes and useful
lives of property, plant and equipment. 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, AIH, the WOFE and its VIEs is 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.
  7
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 Asset and
liability accounts at December
31, 2010 and June 30, 2010 were translated at RMB 6.59 and RMB 6.81 to
$1.00, respectively. The average translation rates applied to the condensed
consolidated statements of income and cash flows for six months ended December 31, 2010 and 2009 were
RMB 6.72 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 and six months ended December 31, 2010
and 2009.
 
 Revenue
recognition
 
 The
Company recognizes revenue when the following 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. 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 in the PRC has granted the
Company VAT tax exemption up 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 other 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.
  8
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED 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.
 
 Warrants
liability, receivables and current liabilities qualify as financial
instruments. 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.
 
 Financial assets and liabilities are
classified in their entirety based on the lowest level of input thatis significant to the fair value
measurement.The fair value of the warrants was
determined using theCox-Ross-Rubinstein (CRR)Binomial Model, as level 2 inputs, and
recorded the change in earnings. As a result, the derivative liability is
carried on thebalance
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 ofDecember 31, 2010.
 
 Carrying Value atDecember 31,
    2010
                          
                          
                          Fair Value Measurement
      at
                            December 31,
      2010Level 1
                          
                          
                          Level 2
                          
                          
                          Level 3Warrants
      liability
                          
                          $
                          3,805,755
                          
                          
                          $
                          -
                          
                          
                          $
                          3,805,755
                          
                          
                          $
                          -
 
 Carrying Value atJune 30,
    2010
                        
                        
                        Fair Value Measurement
      at
                          June 30,
    2010Level 1
                        
                        
                        Level 2
                        
                        
                        Level 3Warrants
      liability
                        
                        $
                        2,920,520
                        
                        
                        $
                        -
                        
                        
                        $
                        2,920,520
                        
                        
                        $
                        -
 
 The following is a reconciliation of the
beginning and ending balances of warrants liability measured at fair value on a
recurring basis using significantobservable inputs (Level 2) as of
December 31, 2010:
 
 Beginning
      balance
                    
                    $
                    2,920,520Warrants exercised for the six
      months ended December 31, 2010
                    
                    
                    (374,915
                    )Change in fair value for the six
      months ended December 31, 2010
                    
                    
                    1,260,150Ending
    balance
                    
                    $
                    3,805,755
 
 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.
  9
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  Stock-based
compensation expense is recognized based on awards expected to vest, and there
were no estimated forfeitures as the Company has a short history of issuing
options. This accounting standard requires forfeitures to be estimated at the
time of grant and revised in subsequent periods, if necessary, if actual
forfeitures differ from those estimates.
 
 The
Company estimates the fair value of the awards using the CRR binomial model.
Option pricing models, such as the CRR binomial model, require the input of
highly complex and subjective variables including the expected life of options
granted and the Company’s expected stock price volatility over a period equal to
or greater than the expected life of the options. Because changes in the
subjective assumptions can materially affect the estimated value of the
Company’s employee stock options, it is management’s opinion that the CRR
binomial model may not provide an accurate measure of the fair value of the
Company’s employee stock options. Although the fair value of employee stock
options is determined in accordance with the accounting standard aforementioned
using an option-pricing model, which value may not be indicative of the fair
value observed in a willing buyer/willing seller market
transaction.
 
 Concentration of
risk
 
 Major
customers – For the three months ended December 31, 2010, no customer
accounted for more than 10% of the company’s total sales.  For the six
months ended December 31,
2010, one customer accounted for 12% of the company’s total sales. For the three
and six months ended December 31, 2009, no customer accounted for more than 10%
of the company’s total sales. As of December 31 and June 30, 2010, no
customer accounted for more than 10% of the company’s account receivable
balance.
 
 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.
 
 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.
Wheninventories 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 December 31, 2010 and June 30,
2010, the Company determined no reserves for obsolescence were
necessary.
 
 Investment
 
 During
the three months ended December 31, 2010, the Company entered into a one-year
investment agreement with a financial investment company, whereby the Company
may invest up to RMB 100,000,000.  The financial investment company
will then invest the Company’s funds in certain financial instruments including
bonds, mortgage trust or mutual funds.  The return on this investment
is guaranteed at 7% per annum.  The Company’s investment is not
subject to market fluctuation; therefore, the Company will not experience gain
or loss on its investment.  However, the Company’s funds deposited
with the financial investment company are not insured.  For the three
months ended December 31, 2010, the Company invested a total of RMB 79,000,000
($11,947,960).  Investment income of RMB 1,036,000 (approximately
$155,000) was recognized and included in the non-operating income.
 
 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.Managementassessesthe 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 valueof the asset. Whenmanagementidentifiesan impairment,the Companyreducesthe 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 ofDecember 31, 2010 and June 30,
2010, management believes
there was no impairment.
  10
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 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 December 31, 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 theperiodincurred.  No significant
penalties or interest relating to income taxes have been incurredforthesix monthsendedDecember 31, 2010and 2009.  GAAP also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosures and transition.
 
 The VIE
entities have cumulative undistributed earnings of approximately $37.9 million
and $29.5 million as of December
31, 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
approximately $380,000 for income tax purposes for the six months ended December 31, 2010, which excludes
the tax effect of $462,189 stock based compensation expenses and loss in fair
value of warrant liabilities of $1,260,150.  The cumulative net
operating loss carry forwards for United States income taxes amounted to
approximately $1,367,000.  The net operating loss carry forwards may
be available to reduce future years’ taxable income. These carry forwards will
expire through 2030. 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 six months ended December
31, 2010 was an increase of approximately $129,310. Management reviews
this valuation allowance periodically and makes adjustments
accordingly.
 
 Income
tax returns for United States for the years prior to 2007 are no longer subject
to examination by tax authorities.  The deferred tax assets and
allowance are as followed:
 
 China
      ACM
                        
                        December
      31,
                          2010
                        
                        
                        June
      30,
                          2010Net
      operating losses carryforward
                        
                        $
                        1,367,000
                        
                        
                        $
                        742,000Income
      tax rate
                        
                        
                        34
                        %
                        
                        
                        34
                        %Deferred
      tax assets
                        
                        
                        465,000
                        
                        
                        
                        252,280Valuation
      allowance
                        
                        
                        (465,000
                        )
                        
                        
                        (252,280
                        )$
                        -
                        
                        
                        $
                        -
  11
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  Chinese income
taxes
 
 China-ACMH
and VIEs are governed by the income tax laws of the PRC concerning Foreign
Invested Enterprise (“FIE”), 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 entitles the
Company to an income tax exemption from January 1, 2003, through 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.
 
 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 December 31, 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 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
$668,000 of deferred tax assets on the VIE entity’s book and the effective
rental payment was therefore reduced by the same amount. For the six months
ended December 31, 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:
 
 Xin
      Ao
                          
                          
                          
                          
                          Deferred
      tax assetDeferred
      tax asset, July 1, 2009
                          
                          
                          
                          
                          $
                          -Net
      operating losses acquired from Xin Ao’s station through
      rental   agreement
                          
                          $
                          2,671,644Current
      year’s net income from the station
                          
                          
                          (2,160,680
                          )Net
      operating losses available, June 30, 2010
                          
                          
                          510,964Station’s
      income tax rate
                          
                          
                          25
                          %
                          
                          
                          127,741Deferred
      tax assets, June 30, 2010
                          
                          
                          
                          
                          
                          
                          127,741Net
      operating losses used to offset current period’s net income from the
      station
                          
                          
                          (510,964
                          )Station’s
      income tax rate
                          
                          
                          25
                          %
                          
                          
                          (127,741Deferred
      tax asset, December 31, 2010
                          
                          
                          
                          
                          
                          
                          -
 
 The
Company records 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 six months ended December 31, 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 through June 2011.
 
 Earnings per
share
  12
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  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 company’s financial statements and displayed with the
same providence as other financial statements. The accompanying unaudited
condensed consolidated financial statements include comprehensive income
consisting of net income and foreign currency translation
adjustments.
 
 Recently issued accounting
pronouncements
 
 In
January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. This guidance amends the disclosure requirements related to
recurring and nonrecurring fair value measurements and requires new disclosures
on the transfers of assets and liabilities between Level 1 (quoted prices in
active market for identical assets or liabilities) and Level 2 (significant
other observable inputs) of the fair value measurement hierarchy, including the
reasons and the timing of the transfers. Additionally, the guidance requires a
roll forward of activities on purchases, sales, issuance and settlements of the
assets and liabilities measured using significant unobservable inputs (Level 3
fair value measurements). The guidance will be effective for the years beginning
after December 15, 2010,   except for the disclosure of the roll
forward activities for Level 3 fair value measurements, which will become
effective for the years beginning after December 15, 2011. The update requires
new disclosures only and will have no impact on our condensed consolidated
financial position, results of operations, or cash flow.
 
 In April
2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades,” or ASU 2010-13. ASU 2010-13 provides amendments to
Topic 718 to clarify that an employee share-based payment award with an exercise
price denominated in currency of a market in which a substantial portion of the
entity’s equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010.  The Company does not expect the adoption of ASU 2010-17 to have a
significant impact on its condensed consolidated financial
statements.
 
 Note
3 – Supplemental disclosure of cash flow information
 
 For the
six months ended December 31, 2010 and 2009, the Company paid interest in the
amount of $190,929 and $328,543, respectively.
 
 Cash
payments for income taxes for the six months ended December 31, 2010 and 2009
were $419,961 and $1,682,537, respectively.
 
 For the
six months ended December 31, 2009, $4.2 million was assigned as prepayment for
purchase of equipment.
 
 Non-cash
transactions in the periods ended December 31, 2010 and 2009
 
 For the six months endedDecember 31, 2010 and 2009, the accretion of the discount on
redeemable preferred stock
amounted toapproximately
$0 and $399,728,
respectively.
 
 For the
six months ended December 31, 2010, 12,500 shares of common stock underlying
warrants were converted into 64,783 shares of common stock by the exercise of
such warrants on a cashless basis..  For the six months ended December
31, 2009, 230,687 shares of common stock underlying warrants were converted into
139,608 shares of common stock by the exercise of such warrants on a cashless
basis.
  13
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  For the
six months ended December 31, 2010, $2,627,297 of advances on equipment
purchases were reclassified into property, plant, and equipment.
 
 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.
 
 Accounts
receivable and allowance for doubtful accounts consisted of the
following:
 December
      31, 2010
                    
                    
                    June
      30, 2010Accounts
      receivable, current
                    
                    $
                    63,650,211
                    
                    
                    $
                    36,528,776Less:  allowance
      for doubtful accounts, current
                    
                    
                    (1,159,148
                    )
                    
                    
                    (456,085
                    )Net
      accounts receivable, current
                    
                    
                    62,491,063
                    
                    
                    
                    36,072,691Accounts
      receivable, non-current
                    
                    
                    -
                    
                    
                    
                    368,978Less:  allowance
      for doubtful accounts, non-current
                    
                    
                    -
                    
                    
                    
                    (4,607
                    )Net
      accounts receivable, non-current
                    
                    
                    -
                    
                    
                    
                    364,371Total
      accounts receivable, net
                    
                    $
                    62,491,063
                    
                    
                    $
                    36,437,062
 
 Note
5 – Property, plant and equipment
 
 Property,
plant and equipment consisted of the following:
 Estimated
      useful life
                  
                  
                  December
      31, 2010
                  
                  
                  June
      30, 2010Transportation
      equipment
                  
                  10
      years
                  
                  
                  $
                  21,766,808
                  
                  
                  $
                  20,502,987Plant
      and machinery
                  
                  10
      years
                  
                  
                  
                  17,759,766
                  
                  
                  
                  13,615,455Buildings
                  
                  20
      years
                  
                  
                  
                  143,551
                  
                  
                  
                  123,702Office
      equipment
                  
                  5
      years
                  
                  
                  
                  952,638
                  
                  
                  
                  125,550Construction-in-progress
                  
                  
                  -
                  
                  
                  
                  103,620
                  
                  
                  
                  3,089,785Total
                  
                  
                  
                  
                  
                  
                  40,726,383
                  
                  
                  
                  37,457,479Less:
      accumulated depreciation
                  
                  
                  
                  
                  
                  
                  (12,019,138
                  )
                  
                  
                  (10,969,125
                  )Plant
      and equipment, net
                  
                  
                  
                  
                  
                  $
                  28,707,245
                  
                  
                  $
                  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 December 31, 2010 and 2009 amounted to
$956,925 and $719,863 respectively.  Depreciation expense for the six
months ended December 31, 2010 and 2009 amounted to $1,819,065 and $1,387,883
respectively.
 
 Note
6 – Prepayments
 
 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
December 31 and June 30, 2010 consisted of the following:
  14
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  December
      31, 2010
                  
                  
                  June
      30, 2010Advances
      on inventory purchases
                  
                  $
                  2,024,476
                  
                  
                  $
                  691,364Current
      portion of rent prepayments
                  
                  
                  1,753,428
                  
                  
                  
                  2,112,823Other
                  
                  
                  17,500
                  
                  
                  
                  17,500Total
      short-term prepayments
                  
                  $
                  3,795,404
                  
                  
                  $
                  2,821,687
 
 Long-term
prepayments represent the long-term factory rental prepayments the Company has
made. As of December 31, 2010 and June 30, 2010, the Company prepaid $3,655,754
and $4,414,391 long-term prepayment, respectively.
  Note
7 – Short term loans, banks
 
 Short
term loans represent amounts payable to banks that are due within one year or on
demand. As of December 31 and June 30, 2010, the outstanding balances on these
loans were $14,367,800 and $0, respectively, and these loans consisted of the
following:
  December
      31, 2010
                    
                    
                    June
      30, 2010Loan
      from Huaxia Bank. interest rate of 5.841% per annum, due August 18,
                      2011,
      guaranteed by Mr. Han Xianfu, Beijing Jinshengding Mineral Products
                      Co.,
      LTD and Beijing Xinhang Construction Material Co., LTD
                    
                    $
                    1,512,400
                    
                    
                    $
                    -Loan
      from Shanghai Pudong Development Bank. interest rate of 5.841% per
                      annum,
      due September 29, 2011, guaranteed by Beijing Xinhang Construction
                      Group
                    
                    
                    9,074,400
                    
                    
                    
                    -Loan
      from Citibank, interest rate of 5.83% per annum, due September 26,
                      2011,
      guaranteed by Beijing Xinhang Construction Group, Mr. Han XianFu
                      and
      Mr. He Weili
                    
                    
                    2,268,600
                    
                    
                    
                    -Loan
      from Zhaoshang Bank, interest rate of 6.116% per annum, due November 4,
                      2011,
      guaranteed by Mr. Han Xianfu and Beijing Jinshengding Mineral Co.,
      LTD.
                    
                    
                    1,512,400
                    
                    
                    
                    -$
                    14,367,800
                    
                    
                    $
                    -
  Interest
expense on short-term loans for the three months ended December 31, 2010 and
2009 amounted to $186,611 and $0, respectively.  Interest expense on
short-term loans for the six months ended December 31, 2010 and 2009 amounted to
$198,057 and $23,753, respectively.
 
 Note
8 – Warrants liability
 
 Effective July 1, 2009, the Company
reclassified the fair value ofitswarrants from equity to liability, as
ifthese warrants were
treated as a derivative liability since their issuance in June2009.  On July 1, 2009, the Company
reclassified frompaid-in capital, as a cumulative effect
adjustment, $1,965,945 to beginning retained earnings and $3,337,225to warrantsliabilityto recognize the fair value of such
warrants. The fair value of the warrants was $3,805,755 and $2,920,520onDecember 31 and June30, 2010.For the three months ended December 31,
2010 and 2009, the Company recognized a$1,414,408 loss and $3,356,796
gainfrom the change in fair value, respectively.For the six months ended
December 31, 2010 and 2009, the Company recognized lossesof$1,260,150 and $3,916,645, respectively,from the change in fair
value of the warrants
liability.
 
 These common stock purchase warrants do
not trade in an active securities market, and as such,the Companyestimatesthe fair value of these warrants using
theCRR Binomial
Modelusing the following
assumptions:
  December 31,
      2010
                  
                  
                  June 30,
    2010Annual dividend
      yield
                  
                  
                  -
                  
                  
                  
                  -Expected life
      (years)
                  
                  
                  2.50
                  
                  
                  
                  3.00Risk-free interest
      rate
                  
                  
                  0.79
                  %
                  
                  
                  0.98
                  %Expected
      volatility
                  
                  
                  85
                  %
                  
                  
                  80
                  %
  15
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  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.
 
 Note
9 – Related party transactions
 
 Other payables –
shareholders
 
 Mr. He
Weili, a 20.10% shareholder, leases office space to the Company at approximately
the current fair market value from July 2010 to June 2011 with annual payments
of approximately $176,000. For the three months ended December 31, 2010 and
2009, the Company recorded rent expense to the shareholder in the amount of
approximately $44,000 and $43,000, respectively. For the six months ended
December 31, 2010 and 2009, the Company recorded rent expense to the shareholder
in the amount of approximately $88,000 and $86,000, respectively. As of December
31 and June 30, 2010, approximately $95,000 and $4,000, 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 working
capital purposes. The loan is non-interest bearing, unsecured, and is payable on
demand.
 
 Total
other payables - shareholders as of December 31, and June 30, 2010 as
follows:
 December
      31, 2010
                  
                  
                  June
      30, 2010Han
      Xianfu, shareholder
                  
                  $
                  450,540
                  
                  
                  $
                  450,540He
      Weili, shareholder
                  
                  
                  316,830
                  
                  
                  
                  322,104Total
      other payable – shareholders
                  
                  $
                  767,370
                  
                  
                  $
                  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.For the three months
ended December 31, 2010 and 2009, the provision for income taxes amounted to
$978,233 and $811,813, respectively.  For the six months ended
December 31, 2010 and 2009, the provision for income taxes amounted to
$1,704,459 and $1,348,627, respectively.
 
 The
estimated tax savings for the three months ended December 31, 2010 and 2009
amounted to $652,155 and $541,208, respectively. The net effect on earnings per
share attributable to controlling interest had the income tax been applied would
decrease earnings per share from $0.18 to $0.14 for the three months ended
December 31, 2010, and $0.62 to $0.58 for the three months ended December 31,
2009.
 
 The
estimated tax savings for the six months ended December 31, 2010 and 2009
amounted to $1,136,306 and $899,085, respectively. The net effect on earnings
per share attributable to controlling interest had the income tax been applied
would decrease earnings per share from $0.37 to $0.31 for the six months ended
December 31, 2010, and $0.24 to $0.16 for the six months ended December 31,
2009.
  16
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  For the three months
      ended
                  
                  
                  For the six months
    endedDecember
31,
                  
                  
                  December
31,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009CurrentUSA
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -China
                  
                  
                  978,233
                  
                  
                  
                  811,813
                  
                  
                  
                  1,704,459
                  
                  
                  
                  1,348,627978,233
                  
                  
                  
                  811,813
                  
                  
                  
                  1,704,459
                  
                  
                  
                  1,348,627DeferredAllowance for doubtful
      accounts
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net operating loss
      carryforwardutilized
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Valuation
      allowance
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
deferred
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  978,233
                  
                  
                  $
                  811,813
                  
                  
                  $
                  1,704,459
                  
                  
                  $
                  1,348,627
 
 Taxes
      payable consisted of the following:December
      31, 2010
                  
                  
                  June,
      30, 2010Income
      taxes payable
                  
                  $
                  2,754,243
                  
                  
                  $
                  1,536,610Other
      taxes payables
                  
                  
                  109,088
                  
                  
                  
                  33,304Total
      taxes payable
                  
                  $
                  2,863,330
                  
                  
                  $
                  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 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.
  17
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  Following
is a summary of the status of warrants outstanding:
  Outstanding 
      WarrantsExercise
                        Price
                      
                      Number
                      
                      Average
      Remaining Contractual LifeUS
      $2.40
                      
                      
                      616,375
                      
                      2.44 years
  The
      following is a summary of the warrants activity for the six months ended
      December 31, 2010:   Outstanding
      as of June 30, 2010
                      
                      
                      678,875Granted
                      
                      
                      -Forfeited
                      
                      
                      -Exercised
                      
                      
                      (62,500
                      )Outstanding
      as of December 31, 2010
                      
                      
                      616,375
 
 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 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
 
 Under the
employee stock option plan, the Company’s stock options expire ten years from
the date of grant.  On October 3, 2008, the Company entered into a
one-year agreement with one of the Company’s 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
December 31, 2010, all of the 50,000 options have been fully
vested.
  On
December 1, 2008, the Company entered into a three-year agreement with
the Company’s former Chief Financial Officer. In connection with his
services, the Company issued from the option bonus pool a total of 200,000
options to purchase the Company’s common stock. 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 first quarter of
2010, 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 options
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 December 31, 2010, the
15,000 and 50,000 contingent options were forfeited due to failure to meet the
performance condition.
  18
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED 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 during the six months ended
December 31, 2010:
  Number
      of optionsOutstanding
      as of June 30, 2010
                    
                    
                    97,500Granted
                    
                    
                    -Forfeited
                    
                    
                    -Exercised
                    
                    
                    -Outstanding
      as of December 31, 2010
                    
                    
                    97,500
 
 Following
is a summary of the status of options outstanding and exercisable at December
31, 2010:
 
 Outstanding options
                                      
                                      
                                      Exercisable optionsAverage
                                      
                                      
                                      Number
                                      
                                      
                                      Average
                                      
                                      
                                      Average
                                      
                                      
                                      Number
                                      
                                      
                                      WeightedExercise price
                                      
                                      
                                      
                                      
                                      
                                      remaining
                                      
                                      
                                      Exercise
                                      
                                      
                                      
                                      
                                      
                                      averagecontractual life
                                      
                                      
                                      price
                                      
                                      
                                      
                                      
                                      
                                      exercise(years)
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      price$
                                      2.90
                                      
                                      
                                      
                                      50,000
                                      
                                      
                                      
                                      7.77
                                      
                                      
                                      $
                                      2.90
                                      
                                      
                                      
                                      50,000
                                      
                                      
                                      $
                                      2.90$
                                      4.64
                                      
                                      
                                      
                                      12,500
                                      
                                      
                                      
                                      9.15
                                      
                                      
                                      
                                      4.64
                                      
                                      
                                      
                                      12,500
                                      
                                      
                                      
                                      4.64$
                                      5.38
                                      
                                      
                                      
                                      35,000
                                      
                                      
                                      
                                      9.18
                                      
                                      
                                      
                                      5.38
                                      
                                      
                                      
                                      35,000
                                      
                                      
                                      
                                      5.38
  For the
three months ended December 31, 2010 and 2009, the Company recognized
approximately $0 and $22,089, respectively, as compensation expenses for its
stock option plan. For the six months ended December 31, 2010 and 2009, the
Company recognized approximately $0 and $63,396, 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
26, 2010, the Company engaged a consulting firm for investor relations 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 December 31, 2010 and 2009, the Company
recognized $283,887 and $38,534 of related compensation expenses.  For
the six months ended December 31, 2010 and 2009, the Company recognized $462,189
and $57,382 of related compensation expenses.  Following is a summary
of the restricted stock activity for the six months ended December 31,
2010:
  19
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  Nonvested
      as of June 30, 2010
                  
                  
                  62,500Granted
                  
                  
                  120,000Vested
                  
                  
                  (162,500
                  )Nonvested
      as of December 31, 2010
                  
                  
                  20,000
 
 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 $11.5 million and $12 million as of December 31, 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 and six months ended December 31, 2010 and
2009:
 
 Three
      months ended
                    
                    
                    Six
      months endedDecember
      31,
                    
                    
                    December
      31,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Basic earnings per shareNet
      income available to common shareholders
                    
                    $
                    3,231,989
                    
                    
                    $
                    7,626,246
                    
                    
                    $
                    6,540,309
                    
                    
                    $
                    2,762,445Weighted
      average shares outstanding-Basic
                    
                    
                    17,651,620
                    
                    
                    
                    12,377,182
                    
                    
                    
                    17,585,082
                    
                    
                    
                    11,681,294Earnings
      per share-Basic
                    
                    $
                    0.18
                    
                    
                    $
                    0.62
                    
                    
                    $
                    0.37
                    
                    
                    $
                    0.24Diluted
      earnings per shareNet
      income available to common shareholders
                    
                    $
                    3,231,989
                    
                    
                    $
                    7,626,246
                    
                    
                    $
                    6,540,309
                    
                    
                    $
                    2,762,445Add:
      Dividends on preferred stock
                    
                    
                    -
                    
                    
                    
                    110,843
                    
                    
                    
                    -
                    
                    
                    
                    259,969Add:
      Accretion on preferred stock
                    
                    
                    -
                    
                    
                    
                    207,990
                    
                    
                    
                    -
                    
                    
                    
                    399,728Net
      income for diluted EPS
                    
                    $
                    3,231,989
                    
                    
                    $
                    7,945,079
                    
                    
                    $
                    6,540,309
                    
                    
                    $
                    3,422,142Weighted
      average shares outstanding-Basic
                    
                    
                    17,651,620
                    
                    
                    
                    12,377,182
                    
                    
                    
                    17,585,082
                    
                    
                    
                    11,681,294Restricted
      stock
                    
                    
                    5,000
                    
                    
                    
                    7,500
                    
                    
                    
                    5,000
                    
                    
                    
                    7,500Warrants
      and options
                    
                    
                    545,935
                    
                    
                    
                    1,093,508
                    
                    
                    
                    477,842
                    
                    
                    
                    1,052,507Preferred
      stock
                    
                    
                    -
                    
                    
                    
                    2,477,326
                    
                    
                    
                    -
                    
                    
                    
                    2,883,481Weighted
      shares outstanding-Diluted
                    
                    
                    18,202,555
                    
                    
                    
                    15,955,516
                    
                    
                    
                    18,067,924
                    
                    
                    
                    15,624,782Earnings
      per share-Diluted
                    
                    $
                    0.18
                    
                    
                    $
                    0.50
                    
                    
                    $
                    0.36
                    
                    
                    $
                    0.22
  20
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 On June
11, 2008, the Company issued 875,000 shares of preferred stock of which 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, were 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 was treated as common stock equivalents on an as-converted
basis. The dividends and accretion on the preferred stock were 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 three and six months ended December 31, 2010, 616,375
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
530,360 and 465,448 shares of common stocks.  Further, 50,000 stock
options and 5,000 shares of restricted stock vested but not issued were included
in the diluted EPS calculation for the three and six months ended December 31,
2010.
 
 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
$114,357 and $39,142 for the three months ended December 31, 2010 and 2009,
respectively.  The Company’s contributions of employment benefits,
including pension were approximately $185,610 and $56,822 for the six months
ended December 31, 2010 and 2009, respectively.
 
 Note
15 – Operating leases
 
 The
Company entered into a lease agreement for a manufacturing plant with an
unrelated party and the lease will expire on September 30, 2013 with annual
payments of approximately $197,000.  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 approximately $176,000. 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 $213,000. Certain lease payments have been pre-paid by transferring
the Company’s long-term accounts receivable to the lessors in exchange for
agreeing to no increase in the future.  One of the lease agreements
was terminated early on November 30, 2010.
 
 Total
operating lease expense for the three months ended December 31, 2010 and 2009
was $792,155 and $796,343, respectively.  Total operating lease
expense for the six months ended December 31, 2010 and 2009 was $1,499,225 and
$1,391,370, respectively.  Operating lease expense is included in cost
of revenue, selling, general, and administrative expenses. Future annual lease
payments, net of rent prepayment made as of December 31, 2010, under
non-cancelable operating leases with a term of one year or more consist of the
following:
 
 Years ending December
      31,
                        
                        Amount2011
                        
                        $
                        200,9782012
                        
                        
                        200,9782013
                        
                        
                        250,7112014
                        
                        
                        206,920
  21
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 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.
 
 For the
three months ended December 31, 2010:
 
 Sales
      of concrete
                      
                      
                      Manufacturing
      services
                      
                      
                      Technical
      services
                      
                      
                      Others
                      
                      
                      Corporate
                      
                      
                      TotalNet
      sales
                      
                      $
                      26,205,792
                      
                      
                      $
                      7,108,447
                      
                      
                      $
                      1,207,396
                      
                      
                      $
                      4,311
                      
                      
                      $
                      -
                      
                      
                      $
                      34,525,946Depreciation
                      
                      
                      (296,245
                      )
                      
                      
                      (644,991
                      )
                      
                      
                      (1,394
                      )
                      
                      
                      -
                      
                      
                      
                      (14,295
                      )
                      
                      
                      (956,925
                      )Operating
      income(loss)
                      
                      
                      1,807,073
                      
                      
                      
                      1,776,332
                      
                      
                      
                      1,041,106
                      
                      
                      
                      4,051
                      
                      
                      
                      (578,670
                      )
                      
                      
                      4,409,892Other
      income (expenses)
                      
                      
                      1,636,091
                      
                      
                      
                      362,763
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,771,608
                      )
                      
                      
                      227,246Interest
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      157,220
                      
                      
                      
                      157,220Interest
      expenses
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (224,136
                      )
                      
                      
                      (224,136
                      )Capital
      expenditure
                      
                      
                      (2,706,519
                      )
                      
                      
                      (741,112
                      )
                      
                      
                      -
                      
                      
                      
                      (442
                      )
                      
                      
                      -
                      
                      
                      
                      (3,448,073
                      )
  For the
six months ended December 31, 2010:
  Sales
      of concrete
                    
                    
                    Manufacturing
      services
                    
                    Technical
      services
                    
                    
                    Mixer
      rental
                    
                    
                    Corporate
                    
                    
                    TotalNet
      sales
                    
                    $
                    51,526,739
                    
                    
                    $
                    11,580,224
                    
                    
                    $
                    2,366,456
                    
                    
                    $
                    9,609
                    
                    
                    $
                    -
                    
                    
                    $
                    65,483,028Depreciation
                    
                    
                    (597,692
                    )
                    
                    
                    (1,171,412
                    )
                    
                    
                    (1,426
                    )
                    
                    
                    -
                    
                    
                    
                    (48,535
                    )
                    
                    
                    (1,819,065
                    )Operating
      income(loss)
                    
                    
                    2,229,451
                    
                    
                    
                    2,785,525
                    
                    
                    
                    2,030,535
                    
                    
                    
                    9,059
                    
                    
                    
                    (1,073,203
                    )
                    
                    
                    5,981,367Other
      income (expenses)
                    
                    
                    3,155,348
                    
                    
                    
                    631,070
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,448,124
                    )
                    
                    
                    (2,338,294
                    )Interest
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    162,149
                    
                    
                    
                    162,149Interest
      expenses
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (237,042
                    )
                    
                    
                    (237,042
                    )Capital
      expenditure
                    
                    
                    (2,766,073
                    )
                    
                    
                    (751,629
                    )
                    
                    
                    -
                    
                    
                    
                    (454
                    )
                    
                    
                    -
                    
                    
                    
                    (3,518,156
                    )Total
      assets as of December 31, 2010
                    
                    $
                    102,542,830
                    
                    
                    $
                    23,045,684
                    
                    
                    $
                    -
                    
                    
                    $
                    19,125
                    
                    
                    $
                    -
                    
                    
                    $
                    125,607,639
 
 For the
three months ended December 31, 2009:
 
 Sales
      of concrete
                    
                    
                    Manufacturing
      services
                    
                    
                    Technical
      services
                    
                    
                    Others
                    
                    
                    Corporate
                    
                    
                    TotalNet
      sales
                    
                    $
                    20,316,502
                    
                    
                    $
                    3,663,114
                    
                    
                    $
                    1,234,760
                    
                    
                    $
                    949,936
                    
                    
                    $
                    -
                    
                    
                    $
                    26,164,312Depreciation
                    
                    
                    (241,139
                    )
                    
                    
                    (421,619
                    )
                    
                    
                    (1,273
                    )
                    
                    
                    (45,124
                    )
                    
                    
                    (10,709
                    )
                    
                    
                    (719,863
                    )Operating
      income(loss)
                    
                    
                    1,764,973
                    
                    
                    
                    1,581,756
                    
                    
                    
                    1,147,274
                    
                    
                    
                    614,115
                    
                    
                    
                    (1,030,742
                    )
                    
                    
                    4,077,376Other
      income
                    
                    
                    1,077,857
                    
                    
                    
                    216,333
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    27,008
                    
                    
                    
                    1,321,198Interest
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,524
                    
                    
                    
                    1,524Interest
      expenses
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Capital
      expenditure
                    
                    
                    (114,282
                    )
                    
                    
                    (48,467
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (527
                    )
                    
                    
                    (163,276
                    )
 
 For the
six months ended December 31, 2009:
 
 Sales
      of concrete
                  
                  
                  Manufacturing
      services
                  
                  
                  Technical
      services
                  
                  
                  Others
                  
                  
                  Corporate
                  
                  
                  TotalNet
      sales
                  
                  $
                  35,203,259
                  
                  
                  $
                  6,468,728
                  
                  
                  $
                  2,479,655
                  
                  
                  $
                  1,493,806
                  
                  
                  $
                  -
                  
                  
                  $
                  45,645,448Depreciation
                  
                  
                  (531,393
                  )
                  
                  
                  (745,240
                  )
                  
                  
                  (2,544
                  )
                  
                  
                  (90,858
                  )
                  
                  
                  (17,848
                  )
                  
                  
                  (1,387,883
                  )Operating
      income(loss)
                  
                  
                  2,193,685
                  
                  
                  
                  2,607,338
                  
                  
                  
                  2,327,540
                  
                  
                  
                  1,107,819
                  
                  
                  
                  (1,767,001
                  )
                  
                  
                  6,469,381Other
      income
                  
                  
                  1,854,061
                  
                  
                  
                  379,163
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,543
                  
                  
                  
                  2,238,767Interest
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,021
                  
                  
                  
                  3,021Interest
      expenses
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (23,753
                  )
                  
                  
                  (23,753
                  )Capital
      expenditure
                  
                  
                  (150,431
                  )
                  
                  
                  (3,463,262
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (6,131
                  )
                  
                  
                  (3,619,824
                  )Total
      assets as of December 31, 2009
                  
                  
                  60,152,105
                  
                  
                  
                  11,053,259
                  
                  
                  
                  -
                  
                  
                  
                  1,641,629
                  
                  
                  
                  359,984
                  
                  
                  
                  73,206,977
  22
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  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 December 31, 2010, the
Company has factored this amount to an unrelated third party trust company and
the trust company has received the payment from Boda.
 
 23





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. (“BVI-ACM”) and Beijing Ao Hang
Construction Materials Technology Co., Ltd. (“China-ACMH”), as well as the
Company’s variable interest entities, Beijing Xin Ao Concrete Co., Ltd. (“Xin
Ao”), 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 $1,722,339 for the six months ended
December 31, 2010 on option and stock-based compensation along with the change
in fair value of warrants liability, shown in the below chart, due to the
adoption of Financial Accounting Standards Board’s (“FASB”) Accounting
Standards Codification (“ASC”) 815, “Derivatives and Hedging,” 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.





24


Three
      Months Ended
                                        December
      31,
                                      
                                      
                                      
                                      
                                      
                                      Six
      Months Ended
                                        December
      31,2010
                                      
                                      
                                      2009
                                      
                                      
                                      Increase
      (Decrease)
                                      
                                      
                                      2010
                                      
                                      
                                      2009
                                      
                                      
                                      Increase
      (Decrease)(Unaudited)
                                      
                                      
                                      
                                      
                                      
                                      (Unaudited)Net
      Income (Loss) -GAAP
                                      
                                      $
                                      3,231,989
                                      
                                      
                                      $
                                      7,945,081
                                      
                                      
                                      $
                                      (4,713,092
                                      )
                                      
                                      $
                                      6,540,309
                                      
                                      
                                      $
                                      3,422,144
                                      
                                      
                                      $
                                      3,118,165Subtract:Dividends
      and accretion on redeemable convertible preferred stock
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      318,835
                                      
                                      
                                      $
                                      (318,835
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      659,699
                                      
                                      
                                      $
                                      (659,699
                                      )Net
      Income available to Common shareholders -GAAP
                                      
                                      $
                                      3,231,989
                                      
                                      
                                      $
                                      7,626,246
                                      
                                      
                                      $
                                      (4,394,257
                                      )
                                      
                                      $
                                      6,540,309
                                      
                                      
                                      $
                                      2,762,445
                                      
                                      
                                      $
                                      3,777,864Add
      Back (Subtract):Change
      in fair value of warrants
                                      
                                      $
                                      1,414,408
                                      
                                      
                                      $
                                      (3,356,796
                                      )
                                      
                                      $
                                      4,771,204
                                      
                                      
                                      $
                                      1,260,150
                                      
                                      
                                      $
                                      3,916,645
                                      
                                      
                                      $
                                      (2,656,495
                                      )Add
      Back (Subtract):Change
      in Option and Equity Based Compensation
                                      
                                      $
                                      283,887
                                      
                                      
                                      $
                                      38,534
                                      
                                      
                                      $
                                      245,353
                                      
                                      
                                      $
                                      462,189
                                      
                                      
                                      $
                                      120,778
                                      
                                      
                                      $
                                      341,411Adjusted
      Net Income available to Common shareholders -non-GAAP
                                      
                                      $
                                      4,930,284
                                      
                                      
                                      $
                                      4,307,984
                                      
                                      
                                      $
                                      622,300
                                      
                                      
                                      $
                                      8,262,648
                                      
                                      
                                      $
                                      6,799,868
                                      
                                      
                                      $
                                      1,462,780Basic
      earning per share - GAAP
                                      
                                      $
                                      0.18
                                      
                                      
                                      $
                                      0.62
                                      
                                      
                                      $
                                      (0.44
                                      )
                                      
                                      $
                                      0.37
                                      
                                      
                                      $
                                      0.24
                                      
                                      
                                      $
                                      0.13Add
      back (Subtract):Change
      in fair value of warrant
                                      
                                      $
                                      0.08
                                      
                                      
                                      $
                                      (0.27
                                      )
                                      
                                      $
                                      0.35
                                      
                                      
                                      $
                                      0.07
                                      
                                      
                                      $
                                      0.34
                                      
                                      
                                      $
                                      (0.27
                                      )Add
      back (Subtract):Change
      in Option and Equity-Based Compensation
                                      
                                      $
                                      0.02
                                      
                                      
                                      $
                                      0.00
                                      
                                      
                                      $
                                      0.02
                                      
                                      
                                      $
                                      0.03
                                      
                                      
                                      $
                                      0.01
                                      
                                      
                                      $
                                      0.02Adjusted
      basic earning per share non-GAAP
                                      
                                      $
                                      0.28
                                      
                                      
                                      $
                                      0.35
                                      
                                      
                                      $
                                      (0.07
                                      )
                                      
                                      $
                                      0.47
                                      
                                      
                                      $
                                      0.59
                                      
                                      
                                      $
                                      (0.12
                                      )Diluted
      earning per share-GAAP
                                      
                                      $
                                      0.18
                                      
                                      
                                      $
                                      0.50
                                      
                                      
                                      $
                                      (0.32
                                      )
                                      
                                      $
                                      0.36
                                      
                                      
                                      $
                                      0.22
                                      
                                      
                                      $
                                      0.14Add
      back (Subtract):Change
      in fair value of warrant
                                      
                                      $
                                      0.08
                                      (a)
                                      
                                      $
                                      (0.21
                                      )
                                      
                                      $
                                      0.29
                                      
                                      
                                      $
                                      0.07
                                      (a)
                                      
                                      $
                                      0.25
                                      
                                      
                                      $
                                      (0.18
                                      )Add
      back (Subtract):Change
      in Option and Equity-Based Compensation
                                      
                                      $
                                      0.01
                                      (b)
                                      
                                      $
                                      0.00
                                      
                                      
                                      $
                                      (0.01
                                      )
                                      
                                      $
                                      0.03
                                      (b)
                                      
                                      $
                                      0.01
                                      
                                      
                                      $
                                      0.02Adjusted
      diluted earning per share non-GAAP
                                      
                                      $
                                      0.27
                                      
                                      
                                      $
                                      0.29
                                      
                                      
                                      $
                                      (0.02
                                      )
                                      
                                      $
                                      0.46
                                      
                                      
                                      $
                                      0.48
                                      
                                      
                                      $
                                      (0.02
                                      )Weighted
      average number of sharesBasic
                                      
                                      
                                      17,651,620
                                      
                                      
                                      
                                      12,377,182
                                      
                                      
                                      
                                      5,274,438
                                      
                                      
                                      
                                      17,585,082
                                      
                                      
                                      
                                      11,681,294Diluted
                                      
                                      
                                      18,202,555
                                      
                                      
                                      
                                      15,955,516
                                      
                                      
                                      
                                      2,247,039
                                      
                                      
                                      
                                      18,067,924
                                      
                                      
                                      
                                      15,624,782




25




(a) The
Company adopted the provisions of FASB ASC 815, which provides guidance 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 $1,414,408 charge
from the change in fair value for the three months ended December 31,
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 718, “Compensation-Stock Compensation,” 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 six months ended December 31, 2010 and 2009, the Company recognized
$462,189 and $57,382 of restricted stock as compensation expense. For the six
months ended December 31, 2010 and 2009, the Company recognized $0 and $63,396,
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 and its subsidiaries. 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 significant operations as of December 31,
2010.  The purpose of these new subsidiaries is to support the
Company's future growth.





During
the six months ended December 31, 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 three 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. On November 30, 2010 we terminated our
Tianshun Plant lease so that as of December 31, 2010 we now have a network of
four ready-mixed concrete 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 revenues 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.




26




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 six months ended December 31, 2010, five customers
      accounted for approximately 28% of the
      Company’s sales and 16% of the Company’s account receivables as of
      December 31, 2010, respectively. Should we lose any of these customers in
      the future and are unable to obtain additional customers, our revenues
      will suffer.





•
            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.
      One payment of approximately $153,000 to Dongfangjianyu Institute of
      Concrete Science and Technology was paid 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




27




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.





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 through
June 2011.





Derivative
Liability





Effective
July 1, 2009, the Company adopted the provisions of ASC 815, 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.




28




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 and six months ended December 31, 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.





BUSINESS
SEGMENT RESULTS – THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009





Concrete
      Sales
                
                
                Manufacturing
      Services
                
                
                Technical
      Services
                
                
                Mixer
      Rental
                
                
                Corporate
                
                
                Total2010
                
                
                2009
                
                
                2010
                
                
                2009
                
                
                2010
                
                
                2009
                
                
                2010
                
                
                2009
                
                
                2010
                
                
                2009
                
                
                2010
                
                
                2009Net
      sales
                
                
                26,205,792
                
                
                
                20,316,502
                
                
                
                7,108,447
                
                
                
                3,663,114
                
                
                
                1,207,396
                
                
                
                1,234,760
                
                
                
                4,311
                
                
                
                949,936
                
                
                
                -
                
                
                
                -
                
                
                
                34,525,946
                
                
                
                26,164,312Depreciation
                
                
                (296,245
                )
                
                
                (241,139
                )
                
                
                (644,991
                )
                
                
                (421,619
                )
                
                
                (1,394
                )
                
                
                (1,273
                )
                
                
                -
                
                
                
                (45,124
                )
                
                
                (14,295
                )
                
                
                (10,709
                )
                
                
                (956,925
                )
                
                
                (719,863
                )Segment
      profit
                
                
                1,807,073
                
                
                
                1,764,973
                
                
                
                1,776,332
                
                
                
                1,581,756
                
                
                
                1,041,106
                
                
                
                1,147,274
                
                
                
                4,051
                
                
                
                614,115
                
                
                
                (578,670
                )
                
                
                (1,030,742
                )
                
                
                4,409,892
                
                
                
                4,077,376Other
      income (expenses)
                
                
                1,636,091
                
                
                
                1,077,857
                
                
                
                362,763
                
                
                
                216,333
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,771,608
                )
                
                
                27,008
                
                
                
                227,246
                
                
                
                1,321,198Interest
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                157,220
                
                
                
                1,524
                
                
                
                157,220
                
                
                
                1,524Interest
      expenses
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (224,136
                )
                
                
                -
                
                
                
                (224,136
                )
                
                
                -Capital
      expenditure
                
                
                (2,706,519
                )
                
                
                (114,882
                )
                
                
                (741,112
                )
                
                
                (48,467
                )
                
                
                -
                
                
                
                -
                
                
                
                (442
                )
                
                
                -
                
                
                
                -
                
                
                
                (527
                )
                
                
                (3,448,073
                )
                
                
                (163,276
                )





BUSINESS
SEGMENT RESULTS – SIX MONTHS ENDED DECEMBER 31, 2010 AND 2009





Concrete
      Sales
                
                
                Manufacturing
      Services
                
                
                Technical
      Services
                
                
                Mixer
      Rental
                
                
                Corporate
                
                
                Total2010
                
                
                2009
                
                
                2010
                
                
                2009
                
                
                2010
                
                
                2009
                
                
                2010
                
                
                2009
                
                
                2010
                
                
                2009
                
                
                2010
                
                
                2009Net
      sales
                
                
                51,526,739
                
                
                
                35,203,259
                
                
                
                11,580,224
                
                
                
                6,468,728
                
                
                
                2,366,456
                
                
                
                2,479,655
                
                
                
                9,609
                
                
                
                1,493,806
                
                
                
                -
                
                
                
                -
                
                
                
                65,483,028
                
                
                
                45,645,448Depreciation
                
                
                (597,692
                )
                
                
                (531,393
                )
                
                
                (1,171,412
                )
                
                
                (745,240
                )
                
                
                (1,426
                )
                
                
                (2,544
                )
                
                
                -
                
                
                
                (90,858
                )
                
                
                (48,535
                )
                
                
                (17,848
                )
                
                
                (1,819,065
                )
                
                
                (1,387,883
                )Segment
      profit
                
                
                2,229,451
                
                
                
                2,193,685
                
                
                
                2,785,525
                
                
                
                2,607,338
                
                
                
                2,030,535
                
                
                
                2,327,540
                
                
                
                9,059
                
                
                
                1,107,819
                
                
                
                (1,073,203
                )
                
                
                1,767,001
                )
                
                
                5,981,367
                
                
                
                6,469,381Other
      income (expenses)
                
                
                3,155,348
                
                
                
                1,854,061
                
                
                
                631,070
                
                
                
                379,163
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,448,124
                )
                
                
                5,543
                
                
                
                (2,338,294
                )
                
                
                2,238,767Interest
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                162,149
                
                
                
                3,021
                
                
                
                162,149
                
                
                
                3,021Interest
      expenses
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (237,042
                )
                
                
                (23,753
                )
                
                
                (237,042
                )
                
                
                (23,753
                )Capital
      expenditure
                
                
                (2,766,073
                )
                
                
                (150,431
                )
                
                
                (751,629
                )
                
                
                (3,463,262
                )
                
                
                -
                
                
                
                -
                
                
                
                (454
                )
                
                
                -
                
                
                
                -
                
                
                
                (6,131
                )
                
                
                (3,518,156
                )
                
                
                (3,619,824
                )Total
      assets as of December 31 (Unaudited)
                
                
                102,542,830
                
                
                
                60,152,105
                
                
                
                23,045,684
                
                
                
                11,053,259
                
                
                
                -
                
                
                
                -
                
                
                
                19,125
                
                
                
                1,641,629
                
                
                
                -
                
                
                
                359,984
                
                
                
                125,607,639
                
                
                
                73,206,977





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. As of November 30, 2010, we terminated our lease for our Tianshun plant
so that as of December 31, 2010 we now have a network of four ready-mixed
concrete 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.




29




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 23 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





Comparison
of the Three Months Ended December 31, 2010 to December 31, 2009




The
following table sets forth key components of our results of operations for the
three months ended December 31, 2010 and 2009, in US dollars:





Three
      Months EndedDecember
      31,2010
                                              
                                              
                                              2009(UNAUDITED)
                                              
                                              
                                              
                                              
                                              
                                              PercentageIncrease
                                                (Decrease)
                                              
                                              
                                              Increase
                                                (Decrease)Total
      revenue
                                              
                                              $
                                              34,525,946
                                              
                                              
                                              $
                                              26,164,312
                                              
                                              
                                              $
                                              8,361,634
                                              
                                              
                                              
                                              32
                                              %Total
      cost of revenue
                                              
                                              
                                              27,843,836
                                              
                                              
                                              
                                              20,929,686
                                              
                                              
                                              
                                              6,914,150
                                              
                                              
                                              
                                              33
                                              %Gross
      profit
                                              
                                              
                                              6,682,110
                                              
                                              
                                              
                                              5,234,626
                                              
                                              
                                              
                                              1,447,484
                                              
                                              
                                              
                                              28
                                              %Selling,
      general and administrative expenses
                                              
                                              
                                              2,632,218
                                              
                                              
                                              
                                              1,157,250
                                              
                                              
                                              
                                              1,474,968
                                              
                                              
                                              
                                              56
                                              %Other
      income, net
                                              
                                              
                                              160,330
                                              
                                              
                                              
                                              4,679,518
                                              
                                              
                                              
                                              (4,519,188)
                                              
                                              
                                              
                                              (97)
                                              %Income
      before provision for income taxes
                                              
                                              
                                              4,210,222
                                              
                                              
                                              
                                              8,756,894
                                              
                                              
                                              
                                              (4,546,672)
                                              
                                              
                                              
                                              (52)
                                              %Income
      taxes expense
                                              
                                              
                                              978,233
                                              
                                              
                                              
                                              811,813
                                              
                                              
                                              
                                              166,420
                                              
                                              
                                              
                                              20
                                              %Net
      income
                                              
                                              
                                              3,231,989
                                              
                                              
                                              
                                              7,945,081
                                              
                                              
                                              
                                              (4,713,092)
                                              
                                              
                                              
                                              (59)
                                              %Dividends
      and accretion on redeemable preferred
                                              
                                              
                                              -
                                              
                                              
                                              
                                              318,835
                                              
                                              
                                              
                                              (318,835)
                                              
                                              
                                              
                                              (100)
                                              %Net
      income available to Common shareholders
                                              
                                              $
                                              3,231,989
                                              
                                              
                                              $
                                              7,626,246
                                              
                                              
                                              $
                                              (4,394,257)
                                              
                                              
                                              
                                              (58)
                                              %




30




Revenue.
Our revenue is primarily generated from sales of our advanced ready-mix concrete
products, manufacturing services and technical consulting services. For the
three months ended December 31, 2010, we generated revenue of $34,525,946,
compared to $26,164,312 during the same period of 2009, an increase of
$8,361,634, or 32%. Such increase in our revenue is due primarily to our
increased production volumes both in and outside of Beijing for the three months
ended December 31, 2010 compared to the three months ended December 31, 2009.
On November 15, 2010,
we announced a 25% average price increase across our various concrete grade
sales to keep in line with an average raw material cost increase of
19.8%.




As a
result, our concrete sales revenue was $26,205,792 for the three months ended
December 31, 2010, an increase of $5,889,290, or 29%. The increase in revenues
attributable to concrete sales was principally due to a greater number of fixed
plants than the same period in fiscal year 2010 as well as higher prices and
organic growth to include a broader client base.




During
the three months ended December 31, 2010, we continued to supply concrete
products to 10 railway projects throughout China through our portable plants,
specifically projects located in Shaanxi Province, Hebei Province, Guangxi
Province, Zhejiang Province, Guangdong Province, Liaoning Province, and Anhui
Province. These ten projects contributed $7,108,447 to our total revenue for the
three months ended December 31, 2010, an increase of $3,445,333, or 94%,
compared to the three months ended December 31, 2009. The increase in revenue
was attributable principally to the addition of new portable plants to service a
growing business pipeline compared to the same period in the prior fiscal year.
For these railway projects, the general contractors typically supplied their own
raw materials while we provided manufacturing and transportation
services.





In
addition, revenue generated through our technical consulting services was
$1,207,396 during the three months ended December 31, 2010, a decrease of
$27,364, or 2%, compared to the same fiscal quarter in 2009. The decrease is due
to the expiry of two technically serviced contract plants in Beijing compared to
the same fiscal quarter in 2009. During the three months ended December 31,
2010, we also rented our mixer trucks to mixture stations which generated mixer
rental revenues of $4,311, a decrease of $945,625, or 99%, as we experienced
greater overall fleet capacity utilization as our business expands.





We
anticipate that 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.  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
Revenue. Cost of
Revenue, which consists of direct labor, rentals, depreciation, other overhead
and raw materials, including inbound freight charges, was $27,843,836 for the
three months ended December 31, 2010, as compared to $20,929,686 for the three
months ended December 31, 2009, an increase of $6,914,150, or 33%. The increase
of cost of revenue was due to the overall increase in production from our fixed
concrete plants in the Beijing area and increased production on manufacturing
services as compared to the same period in 2009. The increase in cost of revenue
was also due to the fixed costs associated with the addition of seven new
portable plants, as well as 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 materialand particularly cementpricing.




The cost
of revenue on concrete increased $4,382,333, or 24%, for the three months ended
December 31, 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 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. The Company also
experienced operational inefficiencies at our Beijing Tianshun Fixed Plant,
generating a negative gross margin of (9.5%) for the three month period ending
December 31, 2010, resulting in the termination of its lease on November 30,
2010.




31




Cost of
revenue with respect to our manufacturing services increased $2,850,270, or
138%, during the three months ended December 31, 2010, as compared to the same
period last year. The increase in our cost of sales is due primarily to the
greater operational fixed cost base associated with the addition of new portable
plants which have not yet reached production economies of scale, as well slowing
production at portable plants nearing project completion in and Hangzhou, Ningbo
and Xiaoshan, Zhejiang; and Panjin, Liaoning; and minor operational
inefficiencies at Zhaoqing, Guangdong and Guangxi due to delayed municipal
government resident relocation efforts for land development.




Gross
Profit. Our gross profit is equal to the difference between our revenue
and cost of sales. Gross profit was $6,682,110 for the three months ended
December 31, 2010, as compared to $5,234,626 for the three months ended December
31, 2009. Our gross profit for sale of concrete was $3,370,163, or 13% of
revenue, for the three months ended December 31, 2010, compared to $1,863,206,
or 9% of revenue, for the same period last year, an increase of $1,506,957. The
increased gross profit for concrete sales for the three months ended December
31, 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. More specifically, on November 15,
2010,we announced a 25% average
price increase across our various concrete grade sales to keep in line with an
average rawmaterial cost increase of
19.8%. As a value added cement product, we intend to continue adjusting
our concrete sales prices in tandem with changes in the prices of
cement.


Our gross
profit with respect to our manufacturing services was $2,194,531, or 31%, for
the three months ended December 31, 2010, an increase of $595,063 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 reasons for the margin drop from 44% during the same period last
year are (i) the mismatch of a larger operation fixed cost base during a period
of capacity ramp-up, (ii) the fact that four plants (Panjin, Liaoning ; Zhuji
Xiaoshan, Zhejiang; Hangzhou, Zhejiang; and Ningbo, Zhejiang) nearing project
completion experienced production slowdowns as they approach redeployment or
retirement, and (iii) operational inefficiencies due to project delays
associated with municipal government delayed resident relocation efforts at two
of our plants (Zhaoqing, Guangdong and Guangxi). 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 $1,113,105, or 92%, for the three
months ended December 31, 2010, compared to $1,153,244, or 93%, for the same
period last year, a decrease of $40,139, or 3%. 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 $4,311, or 100%, during the three
months ended December 31, 2010 compared to $618,708, or 65%, for the same period
last year, a decrease of $614,397, or 99%, as we experienced greater overall
fleet capacity utilization as our 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 $2,632,218 for the
three months ended December 31, 2010, an increase of $1,474,968, or 56%, as
compared to $1,157,250 for the three months ended December 31, 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.




32




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 $160,330 for the three months ended December 31, 2010, as
compared to net other income of $4,679,518 for the three months ended December
31, 2009, a decrease of $4,519,188, or 97%. The decrease in net other income was
primarily due to an increase in change in fair value of warrants expense of
($1,414,408) as compared to an income of $3,356,796 during the same period last
year. We also experienced an increase in other subsidy income to $1,998,855 for
the three months ended December 31, 2010, as compared to $1,323,515 in the same
period of 2009, an increase of $675,340, or 51%. Due to the fact that we use
recycled raw materials to manufacture our products, the State Administration of
Taxation granted us VAT tax exemption through 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
$(224,136) for the three months ended December 31, 2010, as compared to $0 for
the three months ended December 31, 2009, an increase of $224,136. This was
offset by Interest income of $157,220 for the three months ended December 31,
2010, as compared to $1,524 in the same period of 2009, an increase of $155,696,
or 10216%





Provision for
Income Taxes. Provision for income taxes amounted to $978,233 and
$811,813 for the three months ended December 31, 2010 and 2009, respectively. We
have used recycled raw materials in our concrete production since our inception,
which entitled us to an income tax exemption from January 1, 2003 through
December 31, 2007, and an income tax rate reduction from January 1, 2009 to
December 31, 2011, as granted by the State Administration of Taxation, PRC. From
January 1, 2008 through December 31, 2008, we were subject to a 25% income tax
rate. Since January 1, 2009, we have been subject to a 15% income tax rate. 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 such liability, if
any.




Net (Loss)
Income. We
recognized net income of $3,231,989 for the three months ended December 31,
2010, as compared to net income of $7,626,246 for the same period in 2009, a
decrease of $4,394,257. Such decrease in net income was attributable to an
increase in change in fair value of warrants expense of $1,414,408 as compared
to an income of $3,356,796 during the same period last year offset by a yearly
increase in our plant production capacity across our plant network including the
addition of new portable plants across the country, all of which were offset by
an increase in production costs for 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 6 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 may also consider to lease or build new plants in
order to increase our accessibility to construction sites located in Beijing,
expand into other geographical areas, as well as vertically integrate our
operations across the supply chain, which we believe will lower our costs and
provide greater profitability.




Dividends and
accretion on redeemable preferred stock. The decrease in dividends and
accretion on redeemable convertible preferred stock of $318,835 for the three
months ended December 31, 2010, as compared to the same period of 2009, was due
to the maturity of the redeemable convertible preferred 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 share-based compensation, our net income
available to Common shareholders would be $4,930,284 for the three months ended
December 31, 2010, an increase of $622,300, or 14%, as compared to net income
after cash dividends paid of $4,307,984 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).




33




Comparison
of the Six Months Ended December 31, 2010 to December 31, 2009




The
following table sets forth key components of our results of operations for the
six months ended December 31, 2010 and 2009, in US dollars:





Six
      Months EndedDecember
      31,2010
                                            
                                            
                                            2009(UNAUDITED)
                                            
                                            
                                            
                                            
                                            
                                            PercentageIncrease
                                              (Decrease)
                                            
                                            
                                            Increase
                                              (Decrease)Total
      revenue
                                            
                                            $
                                            65,483,028
                                            
                                            
                                            $
                                            45,645,448
                                            
                                            
                                            $
                                            19,837,580
                                            
                                            
                                            
                                            43
                                            %Total
      cost of revenue
                                            
                                            
                                            54,675,654
                                            
                                            
                                            
                                            37,123,786
                                            
                                            
                                            
                                            17,551,868
                                            
                                            
                                            
                                            47
                                            %Gross
      profit
                                            
                                            
                                            10,807,374
                                            
                                            
                                            
                                            8,521,662
                                            
                                            
                                            
                                            2,285,712
                                            
                                            
                                            
                                            27
                                            %Selling,
      general and administrative expenses
                                            
                                            
                                            4,826,007
                                            
                                            
                                            
                                            2,052,281
                                            
                                            
                                            
                                            2,773,726
                                            
                                            
                                            
                                            135
                                            %Other
      income (expense), net
                                            
                                            
                                            2,263,401
                                            
                                            
                                            
                                            (1,698,610)
                                            
                                            
                                            
                                            3,962,011
                                            
                                            
                                            
                                            233
                                            %Income
      before provision for income taxes
                                            
                                            
                                            8,244,768
                                            
                                            
                                            
                                            4,770,771
                                            
                                            
                                            
                                            3,473,997
                                            
                                            
                                            
                                            73
                                            %Income
      taxes expense
                                            
                                            
                                            1,704,459
                                            
                                            
                                            
                                            1,348,627
                                            
                                            
                                            
                                            355,832
                                            
                                            
                                            
                                            26
                                            %Net
      income
                                            
                                            
                                            6,540,309
                                            
                                            
                                            
                                            3,422,144
                                            
                                            
                                            
                                            3,118,165
                                            
                                            
                                            
                                            91
                                            %Dividends
      and accretion on redeemable preferred
                                            
                                            
                                            -
                                            
                                            
                                            
                                            659,699
                                            
                                            
                                            
                                            (659,699)
                                            
                                            
                                            
                                            (100)
                                            %Net
      income available to Common shareholders
                                            
                                            $
                                            6,540,309
                                            
                                            
                                            $
                                            2,762,445
                                            
                                            
                                            $
                                            3,777,864
                                            
                                            
                                            
                                            137
                                            %





Revenue.
Our revenue is primarily generated from sales of our advanced ready-mix concrete
products, manufacturing services and technical consulting services. For the six
months ended December 31, 2010, we generated revenue of $65,483,028 compared to
$45,645,448 during the same period of 2009, an increase of $19,837,580 or 43%.
Such increase is due to our increased production volumes both in and outside of
Beijing for the six months ending December 31, 2010 compared to the six months
ending December 31, 2009. In addition, on November 15, 2010, we
announced a 25% average price increase across our various concrete grade sales
to keep in line with an average raw material cost increase of
19.8%.


As a
result, our concrete sales revenue was $51,526,739 for the six months ended
December 31, 2010, an increase of $16,323,480, or 46%. The increase in revenues
attributable to concrete sales was principally due to higher prices and organic
growth to include a broader client base.




During
the six months ended December 31, 2010, we continued to supply concrete products
to 10 railway projects throughout China through our portable plants,
specifically our projects located in Shaanxi Province, Jiangsu Province, Hebei
Province, Guangxi Province, Zhejiang Province, Guangdong Province, Liaoning
Province, and Anhui Province. These ten projects contributed $11,580,224 to our
total revenue for the six months ended December 31, 2010, an increase of
$5,111,496, or 79%, compared to the six months ended December 31, 2009. The
increase in revenues attributable to our manufacturing services was principally
due to the addition of 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
$2,366,456 during the six months ended December 31, 2010, a decrease of
$113,199, or 5%, compared to the same fiscal quarter in 2009. The decrease is
due to the expiry of two technically serviced contract plants in Beijing when
compared to the six months ending December 31, 2009. During the six months ended
December 31, 2010, we also rented our mixer trucks to mixture stations which
generated mixer rental revenues of $9,609, a decrease of $1,484,197, or 99%, as
we experienced greater overall fleet capacity utilization as the business
expands.




34




We
anticipate that 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.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
Revenue. Cost of
Revenue, which consists of direct labor, rentals, depreciation, other overhead
and raw materials, including inbound freight charges, was $54,675,654 for the
six months ended December 31, 2010, as compared to $37,123,786 for the six
months ended December 31, 2009, an increase of $17,551,868, or 47%. The increase
of cost of revenue was due to the overall increase in production from our 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 revenue was also due to the addition of new
portable plants, as well as 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 pricingin particular the price of
cement.




The cost
of revenue on concrete increased $13,554,300, or 41%, for the six months ended
December 31, 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. The Company also experienced operational inefficiencies at our
Beijing Tianshun Fixed Plant, generating a negative gross margin of (5.5%) for
the three month period ended September 30, 2010, and (9.5%) for the three month
period ending December 31, 2010, resulting in the termination of its lease on
November 30, 2010.




Cost of
revenue with respect to our manufacturing services increased $4,310,228, or 79%,
during the six months ended December 31, 2010, as compared to the same period
last year. The increase in our cost of sales is due primarily to the greater
operational fixed cost base associated with the addition of new portable plants
which have not yet reached production economies of scale, as well slowing
production at portable plants nearing project completion in Panjin, Liaoning;
Lulong, Hebei; and Ningbo, Hangzhou and Zhuji Xiaoshan, in Zhejiang, and
operational inefficiencies at Zhaoqing, Guangdong and Guangxi due to delayed
municipal government resident relocation efforts for land development and the
fact that three plants (Suzhou, Jiangsu; Liuzhou, Guangxi and Ankang, Shaanxi)
were retired/redeployed as they reached the end of their
contracts.




Gross
Profit. Our gross profit is equal to the difference between our revenue
and cost of sales. Gross profit was $10,807,374 for the six months ended
December 31, 2010, as compared to $8,521,662 for the six months ended December
31, 2009. Our gross profit for sale of concrete was $5,182,427, or 10% of
revenue, for the six months ended December 31, 2010, compared to $2,413,247, or
7% of revenue, for the same period last year, an increase of $2,769,200. The
higher gross profit for concrete sales for the six months ended December 31,
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 increase in concrete sales from 7% in
the first quarter of our 2011 fiscal year is due to a 25% average price increase
in the second fiscal quarter of our 2011 fiscal year across our various concrete
grade sales to keep in line with an average raw material cost increase of 19.8%
in addition to improving overall operational efficiencies at our Beijing fixed
plants. We intend to continue to adjust our concrete sales prices in tandem with
price fluctuations in cement.




Our gross
profit with respect to our manufacturing services was $3,449,183, or 30%, for
the six months ended December 31, 2010, an increase of $801,268 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 reasons for the margin drop from 41% during the same period last
year are (i) the mismatch of a larger operation fixed cost base during a period
of capacity ramp-up, (ii) the fact that a significant number of plants (Lulong,
Hebei; Panjin, Liaoning; Ningbo, Zhejiang; Hangzhou, Zhejiang and Zhuji
Xiaoshan, Zhejiang) nearing project completion experienced production slowdowns
as they approach redeployment or retirement, (iii) operational inefficiencies
due to project delays associated with municipal government delayed resident
relocation efforts at two of our plants (Zhaoqing, Guangdong and Guangxi), and
(iv) the fact that three 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.




35




Our gross
profit with respect to technical services was $2,166,155, or 92%, for the six
months ended December 31, 2010, compared to $2,343,656, or 95%, for the same
period last year, a decrease of $177,501, or 8%. The primary reason for the
decrease is the service term expiration of two technically serviced plants in
Beijing when compared to the six months ended December 31,
2009.




Our gross
profit with respect to mixer rentals was $9,609, or 100%, during the six months
ended December 31, 2010, compared to $1,116,844, or 75%, for the same period
last year, a decrease of $1,107,235, or 99%, as we experienced greater overall
fleet capacity utilization as our 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 $4,826,007 for the six
months ended December 31, 2010, an increase of $2,773,726, or 135%, as compared
to $2,052,281 for the six months ended December 31, 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.




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 $2,263,401 for the six months ended December 31, 2010, as
compared to net other (expense) of $(1,698,610) for the six months ended
December 31, 2009, an increase in other income of $3,962,011, or 233%. The
increase in net other income was primarily due to a decrease in change in fair
value of warrants expense of ($1,260,150) as compared to an expense of
$(3,916,645) during the same period last year. We also experienced an increase
in other subsidy income to $3,786,418 for the six months ended December 31,
2010, as compared to $2,290,287 in the same period of 2009, an increase of
$1,496,131, or 65%. 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 $(237,042) for the six months ended December 31, 2010, as compared to
$(27,753) for the six months ended December 31, 2009, a decrease of $209,289. In
addition the Company also had Interest income of $162,149 for the six months
ended December 31, 2010, as compared to $3,021 in the same period of 2009, an
increase of $159,128, or 5267%.





Provision for
Income Taxes. Provision for income taxes amounted to $1,704,459 and
$1,348,627 for the six months ended December 31, 2010 and 2009, respectively. We
have used recycled raw materials in our concrete production since our inception,
which entitled us to an income tax exemption from January 1, 2003 through
December 31, 2007, and an income tax rate reduction from January 1, 2009 to
December 31, 2011, as granted by the State Administration of Taxation, PRC. From
January 1, 2008 through December 31, 2008, we were subject to a 25% income tax
rate. Since January 1, 2009, we have been subject to a 15% income tax rate. 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 such liability, if
any.




36




Net (Loss)
Income. We
recognized net income of $6,540,309 for the six months ended December 31, 2010,
as compared to net income of $3,422,144 for the same period in 2009, an increase
of $3,118,165. Such
increase in net income was attributable to higher prices and organic growth to
include a broader client base driving a yearly increase in our plant production
capacity across our plant network including the addition of new 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 6 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 may also consider
to lease or build new plants in order to increase our accessibility to
construction sites located in Beijing, expand into other geographical areas, as
well as vertically integrate our operations across the supply chain, which we
believe will lower our costs and provide greater profitability.





Dividends and
accretion on redeemable preferred stock. The decrease in dividends and
accretion on redeemable convertible preferred stock of $659,699 for the six
months ended December 31, 2010, as compared to the same period of 2009, was due
to the maturity of the redeemable convertible preferred 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 $8,262,648 for the six months
ended December 31, 2010, an increase of $1,462,780, or 22%, as compared to net
income after cash dividends paid of $6,799,868 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
December 31, 2010, we had cash and cash equivalents of $3,153,149. 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 StatementsSix
      Months EndedDecember
      31,2010
                        
                        
                        2009(Unaudited)
                        
                        
                        (Unaudited)Net
      cash (used in) provided by operating activities
                        
                        $
                        (2,433,775)
                        
                        
                        $
                        1,055,871Net
      cash provided by (used in)  investing activities
                        
                        
                        (12,029,417)
                        
                        
                        
                        (260,835)Net
      cash provided by (used in) financing activities
                        
                        
                        12,263,045
                        
                        
                        
                        (2,726,172)Effect
      of foreign currency translation on cash and cash
    equivalents
                        
                        
                        2,052,476
                        
                        
                        
                        (7,330)Net
      decrease in cash and cash equivalent
                        
                        $
                        (147,671)
                        
                        
                        $
                        (1,938,466)





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




Operating
Activities. Net cash used in operating activities totaled $2,433,775 for
the six months ended December 31, 2010, as compared to net cash provided by
operating activities of $1,055,871 for the same period of 2009. The decrease in
net cash provided by operating activities was primarily due to an increase of
accounts receivable due to increased sales coupled with slower collection of the
receivables 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 six months ended
December 31, 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.




37




Investing
Activities. Net cash used in investing activities was $12,029,417 for the
six months ended December 31, 2010, as compared to $260,835 net cash used in
investing activities for the six months ended December 31, 2009. The increase in
cash used in investing activities was due to the Company entered into an
investment agreement with financial investment guaranty company, whereby the
Company  may invest up to RMB 100,000,000. The financial investment
company then will invest the company’s funds in financial instruments including
bonds, mortgage trust and mutual funds.  The return on this investment
is guaranteed at 7% per annum. The company’s funds deposited with the financial
investment company are not insured.  For the three months ended
December 31, 2010, the Company invested a total of RMB 79,000,000
($11,880,800).  Investment income of RMB 1,036,000 (approximately
$155,000) was recognized and included in the non-operating income. The company
also spent approximately $890,859 on office equipment associated with our new
quality control system.




Financing
Activities. Net cash provided by financing activities totaled $12,263,045
for the six months ended December 31, 2010, as compared to net cash used in
financing activities of $2,726,172 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 $1,512,400, proceeds from our September
29, 2010 Shanghai Pudong Development Bank Loan Facility of
$9,074,400,  proceeds from our September 26, 2010 Citibank Bank Loan
Facility of $2,268,600, and proceeds from our November 4, 2010 Zhaoshang Bank
Loan Facility of $1,512,400. The net proceeds from the loan facilities will be
used for financing working capital, raw material purchases and general corporate
purposes.





Cash. As of December 31, 2010, we
had cash of $3,153,149 as compared to $1,696,339 as of December 31, 2009. This
increase is due primarily to newly approved loans and credit facilities
amounting to $14,367,800.





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.





Accounts
Receivable





Although
accounts receivable have increased with revenues, they have not grown as quickly
as revenues.   Collection days averaged 127 days for the six months ended
December 31, 2010, as compared to 93 average turnover days for the six months
ended December 31, 2009.  Accounts receivable from 0-90 days were 49%,
91-180 days were 29% between 181-365 days were 19%, and 1-2 years were
3%.  The increase in collection days is primarily due to the increased
sales coupled with slower collection of the receivables, 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 $14,367,800 and $0 outstanding on loans and credit facilities as of
December 31, 2010 and June 30, 2010, respectively. The loans consisted of the
following:




38




December
      31, 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.
                        
                        $
                        9,074,400
                        
                        
                        $
                        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.
                        
                        
                        1,512,400
                        
                        
                        
                        0Loan
      from Citibank, interest rate of 5.83% per annum, due September 26, 2011,
      guaranteed by Beijing Xinhang Construction Material Group Co., Ltd.,
      together with a personal guarantee from Mr. Han, the Company's CEO and COO
      Weili He.
                        
                        
                        2,268,600
                        
                        
                        
                        0Loan
      from Zhaoshang Bank, interest rate of 6.116% per annum, due November 4,
      2011, guaranteed by Beijing Jinshengding Mineral Products Co., Ltd
      together with a personal guarantee from Mr. Han, the Company's
      CEO.
                        
                        
                        1,512,400
                        
                        
                        
                        0Total short term loans
                        
                        $
                        14,367,800
                        
                        
                        $
                        0





Total
interest expense on short-term loans for the six months ended December 31, 2010
and 2009 amounted to $186,611 and $0, 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 condensed 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 ASC 810, Consolidation of Variable Interest Entities, 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 this ASC810, the Company concludes that Xin Ao is a VIE and
China ACM is the primary beneficiary. Under the transition rules, the financial
statements of Xin Ao are then consolidated with China ACM’s financial
statements.





Our
management's discussion and analysis of our financial condition and results of
operations are based on the condensed 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.




39




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





Revenue
Recognition. The Company recognizes revenue in accordance with 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.




40




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.





Accounting
for long-lived assets




Long-lived assets are reviewedfor impairment whenever
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. Management assesses 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 managementidentifies an impairment, the Company
reduces 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.





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 December 31, 2010 and 2009 from its US operations. Penalties and interest
incurred to underpayment of income tax, if any, 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 December 31,
2010 and 2009.




The VIE
entities have cumulative undistributed earnings of approximately $37.9 million
and $29.5 million as of December 31, 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
$380,000 for income tax purposes for the six months ended December 31, 2010,
which excludes $462,189 stock based compensation expenses and gain in fair value
of warrant liabilities of $1,260,150. The cumulative net operating loss carry
forwards for United States income taxes amounted to $1,367,000.  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 2030.
Management believes that the realization of the benefits from these losses
appears uncertain due to the Company’s limited operating history and continued
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.




41




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.





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.





Warrants
liability, receivables and current liabilities qualify as financial
instruments. 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.


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 theCox-Ross-Rubinstein (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.




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.




Recently
Issued Accounting Pronouncements




42





In
January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. This guidance amends the disclosure requirements related to
recurring and nonrecurring fair value measurements and requires new disclosures
on the transfers of assets and liabilities between Level 1 (quoted prices in
active market for identical assets or liabilities) and Level 2 (significant
other observable inputs) of the fair value measurement hierarchy, including the
reasons and the timing of the transfers. Additionally, the guidance requires a
roll forward of activities on purchases, sales, issuance and settlements of the
assets and liabilities measured using significant unobservable inputs (Level 3
fair value measurements). The guidance will be effective for the years beginning
after December 15, 2011, except for the disclosure of the roll forward
activities for Level 3 fair value measurements, which will become effective for
the years beginning after December 15, 2010. The update requires new disclosures
only and will have no impact on our condensed consolidated financial position,
results of operations, or cash flow.




In April
2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades,” or ASU 23. ASU 2010-13 provides amendments to Topic 718
to clarify that an employee share-based payment award with an exercise price
denominated in currency of a market in which a substantial porting of the
entity’s equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010.  The adoption of ASU 2010-17 will not have a significant impact on
the company’s condensed 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.





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.




43




As of
December 31, 2010, the quarterly period covered by this report, we carried out
an evaluation, under the supervision and with the participation of our
management, including our principal executive officer and our principal
accounting and financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on the foregoing, our
president and our chief financial officer concluded that our disclosure controls
and procedures were effective as of December 31, 2010.




Changes
in Internal Control over Financial Reporting.




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





PART
II





OTHER
INFORMATION





ITEM
1. LEGAL PROCEEDINGS





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





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
December 31, 2010.





ITEM 3. DEFAULTS UPON SENIOR
SECURITIES





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





ITEM
4. (REMOVED AND RESERVED)








ITEM
5. OTHER INFORMATION





Not
applicable.




44




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.







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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: 
      February 11, 2011
                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)




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