UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10−Q


(Mark
One)


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




For the
quarterly period ended: September 30, 2009




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




For the
transition period from ____________ to _____________




Commission
File Number: 333-141568





CHINA ADVANCED CONSTRUCTION
MATERIALS GROUP, INC.


(Exact
Name of Registrant as Specified in Its Charter)





Delaware
              
              20-8468508(State or other jurisdiction of incorporation or organization)
              
              (I.R.S. Employer Identification No.)





1515
Broadway, 11th Floor


New
York, NY 10036


(Address
of principal executive offices, Zip Code)




+86
10 82525361


(Registrant’s
telephone number, including area code)





Yingu
Plaza, 9 Beisihuanxi Road, Suite 1708


Haidian
District, Beijing 100080


People’s
Republic of China


(Former
Name, Former Address and Formal Fiscal Year, if Changed Since Last
Report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes    ̈
  No    ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).  Yes     ̈
  No    ̈





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





Large Accelerated Filer 
       ̈
            Accelerated Filer 
       ̈Non-Accelerated Filer 
       ̈
       (Do not check if a smaller reporting company)
            Smaller reporting company 
      x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes    ̈
  No    ̈





The
number of shares outstanding of each of the issuer’s classes of common equity,
as of November 13, 2009 is as follows:




Class
      of Securities
                    
                    Shares
      OutstandingCommon
      Stock, $0.001 par value
                    
                    12,492,343








TABLE
OF CONTENTS




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


1





PART
I





FINANCIAL
INFORMATION




ITEM
1.    FINANCIAL STATEMENTS.





CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC.  AND
SUBSIDIARIES





CONSOLIDATED
FINANCIAL STATEMENTS





PageConsolidated
      Balance Sheets as of September 30, 2009 (Unaudited) and as of June 30,
      2009
                  
                  
                  3Consolidated
      Statements of Income and Other Comprehensive Income for the Three Months
      Ended September 30, 2009 and 2008 (Unaudited)
                  
                  
                  4Consolidated
      Statement of Stockholders’ Equity (Unaudited)
                  
                  
                  5Consolidated
      Statements of Cash Flows for the Three months Ended September 30, 2009 and
      2008 (Unaudited)
                  
                  
                  6Notes
      to Consolidated Financial Statements (Unaudited)
                  
                  
                  7


2




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


AS OF SEPTEMBER 30, 2009 AND JUNE 30,
2009





September
      30,
                                                                                    
                                                                                    
                                                                                    June
      30,2009
                                                                                    
                                                                                    
                                                                                    2009UNAUDITEDASSETSCURRENT
      ASSETS:Cash
                                                                                    
                                                                                    $
                                                                                    2,187,981
                                                                                    
                                                                                    
                                                                                    $
                                                                                    3,634,805Restricted
      cash
                                                                                    
                                                                                    
                                                                                    217,483
                                                                                    
                                                                                    
                                                                                    
                                                                                    453,192Marketable
      securities
                                                                                    
                                                                                    
                                                                                    66,178
                                                                                    
                                                                                    
                                                                                    
                                                                                    71,880Notes
      receivable
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    10,799Accounts
      receivable, net of allowance for doubtful accounts of
    $148,206and  $120,986,
      respectively
                                                                                    
                                                                                    
                                                                                    17,936,782
                                                                                    
                                                                                    
                                                                                    
                                                                                    11,815,402Inventories
                                                                                    
                                                                                    
                                                                                    1,659,267
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,216,014Other
      receivables
                                                                                    
                                                                                    
                                                                                    815,586
                                                                                    
                                                                                    
                                                                                    
                                                                                    3,845,186Prepayments
                                                                                    
                                                                                    
                                                                                    4,890,119
                                                                                    
                                                                                    
                                                                                    
                                                                                    4,255,326Total
      current assets
                                                                                    
                                                                                    
                                                                                    27,773,396
                                                                                    
                                                                                    
                                                                                    
                                                                                    25,302,604PLANT
      AND EQUIPMENT, net
                                                                                    
                                                                                    
                                                                                    21,484,917
                                                                                    
                                                                                    
                                                                                    
                                                                                    22,089,717OTHER
      ASSETS:Accounts
      receivable (non-current), net of allowance for doubtful accounts
      of$400,750
      and $328,563 respectively
                                                                                    
                                                                                    
                                                                                    6,149,609
                                                                                    
                                                                                    
                                                                                    
                                                                                    4,132,706Long
      term prepayments
                                                                                    
                                                                                    
                                                                                    4,417,287
                                                                                    
                                                                                    
                                                                                    
                                                                                    4,794,746Total
      other assets
                                                                                    
                                                                                    
                                                                                    10,566,896
                                                                                    
                                                                                    
                                                                                    
                                                                                    8,927,452Total
      assets
                                                                                    
                                                                                    $
                                                                                    59,825,209
                                                                                    
                                                                                    
                                                                                    $
                                                                                    56,319,773LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Short
      term loans
                                                                                    
                                                                                    $
                                                                                    117,000
                                                                                    
                                                                                    
                                                                                    $
                                                                                    4,512,200Accounts
      payable
                                                                                    
                                                                                    
                                                                                    15,169,634
                                                                                    
                                                                                    
                                                                                    
                                                                                    10,722,741Customer
      deposits
                                                                                    
                                                                                    
                                                                                    374,758
                                                                                    
                                                                                    
                                                                                    
                                                                                    -Other
      payables
                                                                                    
                                                                                    
                                                                                    370,718
                                                                                    
                                                                                    
                                                                                    
                                                                                    352,880Other
      payables - shareholders
                                                                                    
                                                                                    
                                                                                    755,389
                                                                                    
                                                                                    
                                                                                    
                                                                                    806,946Accrued
      liabilities
                                                                                    
                                                                                    
                                                                                    751,974
                                                                                    
                                                                                    
                                                                                    
                                                                                    593,057Taxes
      payable
                                                                                    
                                                                                    
                                                                                    1,911,199
                                                                                    
                                                                                    
                                                                                    
                                                                                    3,048,179Total
      current liabilities
                                                                                    
                                                                                    
                                                                                    19,450,672
                                                                                    
                                                                                    
                                                                                    
                                                                                    20,036,003OTHER
      LIABILITIESWarrant
      liabilities
                                                                                    
                                                                                    
                                                                                    10,254,840
                                                                                    
                                                                                    
                                                                                    
                                                                                    -Total
      liabilities
                                                                                    
                                                                                    
                                                                                    29,705,512
                                                                                    
                                                                                    
                                                                                    
                                                                                    20,036,003COMMITMENTS
      AND CONTINGENCIES (Note 18)REDEEMABLE
      CONVERTIBLE PREFERRED STOCK ($0.001 par value,788,000
      shares issued and outstanding  as of September 30, 2009 and
      851,125shares
      issued and outstanding as of June 30, 2009), net of discount for
      theamount
      of $375,843 and $567,581 as of September 30, 2009 and June 30,
      2009,respectively
                                                                                    
                                                                                    
                                                                                    5,928,157
                                                                                    
                                                                                    
                                                                                    
                                                                                    6,241,419SHAREHOLDERS'
      EQUITY:Preferred
      stock $0.001 par value, 1,000,000 shares authorized, 788,000
      issuedand
      outstanding as of September 30, 2009 and 851,125 issued and
      outstandingas
      of June 30, 2009, and classified outside shareholders' equity (see
      above),liquidation
      preference of $8.00 per share and accrued dividends as ofSeptember
      30, 2009 and June 30, 2009
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -Common
      stock, $0.001 par value, 74,000,000 shares authorized, 11,550,040
      andand
      10,595,500 shares issued and outstanding as of September 30, 2009
      andJune
      30, 2009, respectively
                                                                                    
                                                                                    
                                                                                    11,550
                                                                                    
                                                                                    
                                                                                    
                                                                                    10,596Paid-in-capital
                                                                                    
                                                                                    
                                                                                    14,033,406
                                                                                    
                                                                                    
                                                                                    
                                                                                    12,987,417Contribution
      receivable
                                                                                    
                                                                                    
                                                                                    (1,210,000
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (1,210,000
                                                                                    )Retained
      earnings
                                                                                    
                                                                                    
                                                                                    5,660,746
                                                                                    
                                                                                    
                                                                                    
                                                                                    12,783,892Statutory
      reserves
                                                                                    
                                                                                    
                                                                                    3,058,579
                                                                                    
                                                                                    
                                                                                    
                                                                                    2,765,179Accumulated
      other comprehensive income
                                                                                    
                                                                                    
                                                                                    2,637,259
                                                                                    
                                                                                    
                                                                                    
                                                                                    2,705,267Total
      shareholders' equity
                                                                                    
                                                                                    
                                                                                    24,191,540
                                                                                    
                                                                                    
                                                                                    
                                                                                    30,042,351Total
      liabilities, redeemable convertible preferred stock and shareholders'
      equity
                                                                                    
                                                                                    $
                                                                                    59,825,209
                                                                                    
                                                                                    
                                                                                    $
                                                                                    56,319,773





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


3




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)


FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 2009 AND 2008




Three
      months endedSeptember
      30,2009
                            
                            
                            2008(UNAUDITED)
                            
                            
                            (UNAUDITED)REVENUESales
      of concrete
                            
                            $
                            14,886,757
                            
                            
                            $
                            1,867,687Manufacturing
      services
                            
                            
                            2,805,614
                            
                            
                            
                            1,925,543Technical
      services
                            
                            
                            1,244,895
                            
                            
                            
                            616,797Mixer
      rental
                            
                            
                            543,870
                            
                            
                            
                            656,814Marketing
      cooperation
                            
                            
                            -
                            
                            
                            
                            69,905Total
      revenue
                            
                            
                            19,481,136
                            
                            
                            
                            5,136,746COST
      OF REVENUESales
      of concrete
                            
                            
                            14,336,716
                            
                            
                            
                            1,560,307Manufacturing
      services
                            
                            
                            1,757,167
                            
                            
                            
                            497,208Technical
      services
                            
                            
                            54,483
                            
                            
                            
                            67,902Mixer
      rental
                            
                            
                            45,734
                            
                            
                            
                            292,045Marketing
      cooperation
                            
                            
                            -
                            
                            
                            
                            30,870Total
      cost of revenue
                            
                            
                            16,194,100
                            
                            
                            
                            2,448,332GROSS
      PROFIT
                            
                            
                            3,287,036
                            
                            
                            
                            2,688,414SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
                            
                            
                            895,031
                            
                            
                            
                            657,109INCOME
      FROM OPERATIONS
                            
                            
                            2,392,005
                            
                            
                            
                            2,031,305OTHER
      INCOME (EXPENSE), NETOther
      subsidy income
                            
                            
                            966,772
                            
                            
                            
                            227,594Non-operating
      income (expense), net
                            
                            
                            (49,203
                            )
                            
                            
                            2,107Change
      in fair value of warrant liability
                            
                            
                            (7,273,441
                            )
                            
                            
                            -Interest
      income
                            
                            
                            1,497
                            
                            
                            
                            1,434Interest
      expense
                            
                            
                            (23,753
                            )
                            
                            
                            (228,774
                            )TOTAL
      OTHER (EXPENSE) INCOME, NET
                            
                            
                            (6,378,128
                            )
                            
                            
                            2,361(LOSS)
      INCOME BEFORE PROVISION FOR INCOME TAXES
                            
                            
                            (3,986,123
                            )
                            
                            
                            2,033,666PROVISION
      FOR INCOME TAXES
                            
                            
                            536,814
                            
                            
                            
                            574,827NET
      (LOSS) INCOME
                            
                            
                            (4,522,937
                            )
                            
                            
                            1,458,839DIVIDENDS
      AND ACCRETION ON REDEEMABLE CONVERTIBLEPREFERRED
      STOCK
                            
                            
                            340,864
                            
                            
                            
                            309,096NET
      (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS
                            
                            
                            (4,863,801
                            )
                            
                            
                            1,149,743RECONCILIATION
      OF COMPREHENSIVE INCOME:Net
      (Loss) Income
                            
                            
                            (4,522,937
                            )
                            
                            
                            1,458,839Unrealized
      loss from marketable securities
                            
                            
                            (5,577
                            )
                            
                            
                            (13,341
                            )Foreign
      currency translation adjustment
                            
                            
                            (62,431
                            )
                            
                            
                            63,424COMPREHENSIVE
      (LOSS)  INCOME
                            
                            $
                            (4,590,945
                            )
                            
                            $
                            1,508,922EARNING
      PER COMMON SHARE ALLOCATED TO COMMONSHAREHOLDERSWeighted
      average number of shares:Basic
                            
                            
                            10,985,405
                            
                            
                            
                            10,525,000Diluted
                            
                            
                            10,985,405
                            
                            
                            
                            14,121,413(Loss)
      Earnings per share:Basic
                            
                            $
                            (0.44
                            )
                            
                            $
                            0.11Diluted
                            
                            $
                            (0.44
                            )
                            
                            $
                            0.10





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


4




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY





Common
      stock
                      
                      
                      Additional
                      
                      
                      
                      
                      
                      
                      
                      
                      Retained
      earnings
                      
                      
                      AccumulatedNumber
                      
                      
                      Par
                      
                      
                      Paid-in
                      
                      
                      Contribution
                      
                      
                      Deferred
                      
                      
                      
                      
                      
                      Statutory
                      
                      
                      other
      comprehensiveof
      shares
                      
                      
                      value
                      
                      
                      capital
                      
                      
                      receivable
                      
                      
                      Compensation
                      
                      
                      Unrestricted
                      
                      
                      reserves
                      
                      
                      income
                      
                      
                      TotalBALANCE,
      June 30, 2008
                      
                      
                      10,525,000
                      
                      
                      $
                      10,525
                      
                      
                      $
                      12,722,260
                      
                      
                      $
                      (1,210,000
                      )
                      
                      $
                      (27,708
                      )
                      
                      $
                      3,257,276
                      
                      
                      $
                      1,452,779
                      
                      
                      $
                      2,598,466
                      
                      
                      $
                      18,803,598Dividends
      on redeemable preferred stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (158,855
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (158,855
                      )Accretion
      of discount on redeemable preferred stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (150,241
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (150,241
                      )Stock
      based compensation
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,771
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,771Forfeited
      stock compensation
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (24,937
                      )
                      
                      
                      
                      
                      
                      
                      24,937
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -Preferred
      stock converted to common stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -Net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,458,839
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,458,839Adjustment
      to statutory reserve
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (163,634
                      )
                      
                      
                      163,634
                      
                      
                      
                      
                      
                      
                      
                      -Unrealized
      loss on marketable securities
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (13,341
                      )
                      
                      
                      (13,341
                      )Foreign
      currency translation gain
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      63,424
                      
                      
                      
                      63,424BALANCE,
      September 30, 2008 (unaudited)
                      
                      
                      10,525,000
                      
                      
                      
                      10,525
                      
                      
                      
                      12,697,323
                      
                      
                      
                      (1,210,000
                      )
                      
                      
                      -
                      
                      
                      
                      4,243,385
                      
                      
                      
                      1,616,413
                      
                      
                      
                      2,648,549
                      
                      
                      
                      20,006,195Dividends
      on redeemable convertible preferred stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (469,650
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (469,650
                      )Accretion
      of discount on redeemable preferred stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (450,727
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (450,727
                      )Stock
      based compensation
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      107,477
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      107,477Forfeited
      stock compensation
                      
                      
                      (25,000
                      )
                      
                      
                      (25
                      )
                      
                      
                      (8,288
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (8,313
                      )Redeemable
      convertible preferred stock converted to common stock
                      
                      
                      95,500
                      
                      
                      
                      96
                      
                      
                      
                      190,905
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      191,001Net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      10,609,650
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      10,609,650Adjustment
      to statutory reserve
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,148,766
                      )
                      
                      
                      1,148,766
                      
                      
                      
                      
                      
                      
                      
                      -Unrealized
      loss on marketable securities
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      33,946
                      
                      
                      
                      33,946Foreign
      currency translation gain
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      22,772
                      
                      
                      
                      22,772BALANCE,
      June 30, 2009, as previously reported
                      
                      
                      10,595,500
                      
                      
                      
                      10,596
                      
                      
                      
                      12,987,417
                      
                      
                      
                      (1,210,000
                      )
                      
                      
                      -
                      
                      
                      
                      12,783,892
                      
                      
                      
                      2,765,179
                      
                      
                      
                      2,705,267
                      
                      
                      
                      30,042,351Cumulative
      effect of reclassification of warrants as a derivative
    underASC815
      (EITF 07-05)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,371,280
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,965,945
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (3,337,225
                      )BALANCE,
      July 1, 2009, as adjusted
                      
                      
                      10,595,500
                      
                      
                      
                      10,596
                      
                      
                      
                      11,616,137
                      
                      
                      
                      (1,210,000
                      )
                      
                      
                      -
                      
                      
                      
                      10,817,947
                      
                      
                      
                      2,765,179
                      
                      
                      
                      2,705,267
                      
                      
                      
                      26,705,126Dividends
      on redeemable convertible preferred stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (149,126
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (149,126
                      )Accretion
      of discount on redeemable preferred stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (191,738
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (191,738
                      )Stock
      based compensation
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      60,155
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      60,155Issuance
      of common stock for cash at $2.30
                      
                      
                      650,988
                      
                      
                      
                      651
                      
                      
                      
                      1,496,591
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,497,242Redeemable
      convertible preferred stock converted to common stock
                      
                      
                      252,500
                      
                      
                      
                      252
                      
                      
                      
                      504,748
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      505,000Warrants
      converted to common stock
                      
                      
                      51,052
                      
                      
                      
                      51
                      
                      
                      
                      355,775
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      355,826Net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (4,522,937
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (4,522,937
                      )Adjustment
      to statutory reserve
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (293,400
                      )
                      
                      
                      293,400
                      
                      
                      
                      
                      
                      
                      
                      -Unrealized
      loss on marketable securities
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (5,577
                      )
                      
                      
                      (5,577
                      )Foreign
      currency translation gain
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (62,431
                      )
                      
                      
                      (62,431
                      )BALANCE,
      September 30, 2009 (unaudited)
                      
                      
                      11,550,040
                      
                      
                      $
                      11,550
                      
                      
                      $
                      14,033,406
                      
                      
                      $
                      (1,210,000
                      )
                      
                      $
                      -
                      
                      
                      $
                      5,660,746
                      
                      
                      $
                      3,058,579
                      
                      
                      $
                      2,637,259
                      
                      
                      $
                      24,191,540





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


5




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH
FLOWS


FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008


September
      30,2009
                          
                          
                          2008(UNAUDITED)
                          
                          
                          (UNAUDITED)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (Loss) Income
                          
                          $
                          (4,522,937
                          )
                          
                          $
                          1,458,839Adjustments
      to reconcile net income to net cash(used in) provided by operating activities:Depreciation
                          
                          
                          668,020
                          
                          
                          
                          533,125Bad
      debt expense
                          
                          
                          100,123
                          
                          
                          
                          2,771Amortization
      of deferred compensation expense
                          
                          
                          60,155
                          
                          
                          
                          -Change
      in fair value of warrants
                          
                          
                          7,273,441
                          
                          
                          
                          88,144Changes
      in operating assets and liabilitiesAccounts
      receivable
                          
                          
                          (8,261,428
                          )
                          
                          
                          (4,797,624
                          )Note
      receivable
                          
                          
                          10,775Inventories
                          
                          
                          (445,100
                          )
                          
                          
                          (433,383
                          )Other
      receivables
                          
                          
                          3,021,495
                          
                          
                          
                          301,005Prepayments
                          
                          
                          (641,911
                          )
                          
                          
                          1,012,365Long
      term deferred expense
                          
                          
                          369,282
                          
                          
                          
                          -Accounts
      payable
                          
                          
                          4,462,894
                          
                          
                          
                          854,631Other
      payables
                          
                          
                          18,317
                          
                          
                          
                          (40,636
                          )Accrued
      liabilities
                          
                          
                          166,128
                          
                          
                          
                          191,718Customer
      deposits
                          
                          
                          374,566
                          
                          
                          
                          (27,286
                          )Taxes
      payable
                          
                          
                          (1,131,202
                          )
                          
                          
                          579,742Net
      cash provided by (used in) operating activities
                          
                          
                          1,522,618
                          
                          
                          
                          (276,589
                          )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property, plant and equipment
                          
                          
                          (101,183
                          )
                          
                          
                          (19,067
                          )Net
      cash used in investing activities
                          
                          
                          (101,183
                          )
                          
                          
                          (19,067
                          )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of common stock
                          
                          
                          1,497,242
                          
                          
                          
                          -Proceeds
      from short term loan
                          
                          
                          -
                          
                          
                          
                          7,354,278Payments
      of short term loan
                          
                          
                          (4,385,260
                          )
                          
                          
                          (3,821,544
                          )Payment
      to shareholder for rent
                          
                          
                          (51,435
                          )
                          
                          
                          (86,558
                          )Preferred
      dividends paid
                          
                          
                          (155,655
                          )
                          
                          
                          -Restricted
      cash
                          
                          
                          235,710
                          
                          
                          
                          24,290Net
      cash (used in) provided by financing activities
                          
                          
                          (2,859,398
                          )
                          
                          
                          3,470,466EFFECTS
      OF EXCHANGE RATE CHANGE IN CASH
                          
                          
                          (8,861
                          )
                          
                          
                          (1,343
                          )NET
      (DECREASE) INCREASE IN CASH
                          
                          
                          (1,446,824
                          )
                          
                          
                          3,173,467CASH,
      beginning of year
                          
                          
                          3,634,805
                          
                          
                          
                          1,910,495CASH,
      end of the period
                          
                          $
                          2,187,981
                          
                          
                          $
                          5,083,962





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


6




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)




Note 1 – Organization and description
of business





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





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





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





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





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





On
November 28, 2007, China-ACMH entered a series of contractual arrangements (the
“Contractual Arrangements”) with Xin Ao and its shareholders in which China-ACMH
effectively took over management of the business activities of Xin Ao. The term
of these agreements is for ten (10) years and terminates automatically upon
expiration, and may be extended only if China-ACMH gives its written consent of
the extension before the expiration. The parties, through negotiations,
determine the extension term. During the term, Xin Ao may not terminate the
agreements except in the case of gross negligence, fraud or other illegal acts
or bankruptcy of China-ACMH.  Notwithstanding the foregoing,
China-ACMH may terminate the agreement at any time with a written notice to Xin
Ao thirty (30) days before such termination. Additionally, without China-ACMH’s
prior written consent, Xin Ao cannot assign or otherwise transfer its rights and
obligations under the agreements. Subject to compliance with the laws of China,
China-ACMH may assign the agreements to any affiliate or any other designated
entity without the prior consent of Xin Ao.





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





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





7





CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)


Note
2 – Summary of significant accounting policies





Basis of
presentation





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





Management
has included all normal recurring adjustments considered necessary to give a
fair presentation of operating results for the periods presented. Interim
results are not necessarily indicative of results for a full year. The
information included in this Form 10-Q should be read in conjunction with
information included in the 2009 annual report filed on Form 10-K.





Principles of
consolidation





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





In
accordance with FASB guidance on variable interest entities (“VIE”), all VIEs
with which the Company is involved must be evaluated to determine the primary
beneficiary of the risks for financial reporting purposes. Based upon a series
of Contractual Arrangements, The Company determined that Xin Ao is a variable
interest entity subject to consolidation and that the Company is the primary
beneficiary. Accordingly, the financial statements of Xin Ao are consolidated
into the financial statements of the Company.





Use of
estimates





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





Foreign currency
translation





The
reporting currency of the Company is the U.S. dollar. The functional currency of
China ACM and BVI-ACM is the U.S. dollar. China-ACMH and Xin Ao use their local
currency Chinese Renminbi (“RMB”) as their functional currency. In accordance
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 the historical exchange rates.
As a result, amounts related to assets and liabilities reported on the
consolidated statements of cash flows will not necessarily agree with changes in
the corresponding balances on the consolidated balance sheets.





Accumulated
other comprehensive income in the consolidated statements of shareholders’
equity amounted to $2,637,259 and $2,705,267 as of September 30 and June 30,
2009, respectively. Asset and liability accounts at September 30, 2009 and June
30, 2009 were translated at RMB 6.84 and RMB 6.83 to $1.00, respectively. The
average translation rates applied to the consolidated statements of income and
cash flows for the three months ended September 30, 2009 and 2008 were RMB 6.84
and RMB 6.84 to $1.00, respectively.





Translation
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred. Gains and losses from foreign currency
transactions are included in the results of operations. There were no material
transaction gains or losses for the three months ended September 30, 2009 and
2008.





Revenue
recognition





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





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





Ÿ
            Delivery
      has occurred or services have been
rendered;




8


CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)


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





Ÿ
            Collectability
      of payment is reasonably assured.





The
Company sells its concrete products and provides concrete technical services
primarily to major local construction companies. Sales agreements are signed
with each customer. The agreements list all terms and conditions with the
exception of delivery date and quantity, which are evidenced separately in
purchase orders. The purchase price of products is fixed in the agreement and
customers are not permitted to renegotiate after the contracts have been signed.
The agreements include a cancellation clause if the Company or customers breach
the contract terms specified in the agreement.





The
Company does not sell products to customers on a consignment basis. There is no
right of return after the product has been injected into the location specified
by the contract and accepted by the customer. The Company recognizes revenue
when the goods and services are provided by the Company and are accepted by the
customer.





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





Due to
the fact that the Company uses recycled raw materials to manufacture its
products, the State Administration of Taxation has granted the Company VAT tax
exemption from August 2005 to August 2009 and a two year extension on the VAT
tax exemption from August 2009 to August 2011. The VAT tax collected during the
aforementioned period from the Company’s customers is retained by the Company
and recorded as other subsidy income.





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





The
Company also earns income from the renting of certain of its vehicles to other
non-related concrete companies.  The rental amounts are based on
pre-determined rental rates on a per cubic meter basis.





Segment
report





Management
reviews financial information presented on a consolidated basis, accompanied by
disaggregated information about revenues by product lines for purposes of
allocating resources and evaluating financial performance. There are no segment
managers who are held accountable for operations, operating results and plans
for levels or components below the consolidated unit level.  Based on
qualitative and quantitative criteria established by FASB’s guidance on
disclosures about segments of an enterprise and related information, the Company
considers itself to be operating within one reportable segment.





Shipping and
handling





Shipping
and handling costs related to costs of the raw materials purchased is included
in cost of revenues.  Further, transportation costs incurred in the
delivery of the Company’s concrete products are also included in cost of
revenues.





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, substantially
      the full term of the financial
instrument.




9


CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)


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





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





As
required by a FASB accounting standard, financial assets and liabilities are
classified in their entirety based on the lowest level of input that is
significant to the fair value measurement.  The fair value of the
warrants was determined using the CRR Binomial Model, as level 3 inputs,
and recorded the change in earnings. As a result, the derivative
warrant liability is carried on the balance sheet at its fair
value.





The
following table sets forth by level within the fair value hierarchy our
financial assets and liabilities that were accounted for at fair value on a
recurring basis as of September 30, 2009 (unaudited).





Carrying
                          Value
      at
                          September
                          30,
      2009
                        
                        
                        Fair
      Value Measurement at
                          September
      30, 2009Level
      1
                        
                        
                        Level
      2
                        
                        
                        Level
      3Marketable
      securities
                        
                        $
                        66,178
                        
                        
                        $
                        66,178
                        
                        
                        $
                        -
                        
                        
                        $
                        -Derivative
      warrants liability
                        
                        $
                        10,254,840
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        10,254,840





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





Stock-based
compensation





The
Company records stock-based compensation expense pursuant to FASB’s accounting
standard regarding stock compensation which requires companies to measure
compensation cost for stock-based employee compensation plans at fair value at
the grant date and recognize the expense over the employee's requisite service
period. The Company’s expected volatility assumption is based on the historical
volatility of Company’s stock or the expected volatility of similar entities.
The expected life assumption is primarily based on historical exercise patterns
and employee post-vesting termination behavior. The risk-free interest rate for
the expected term of the option is based on the U.S. Treasury yield curve in
effect at the time of grant.





Stock-based
compensation expense is recognized based on awards expected to vest, and there
were no estimated forfeitures as the Company has a short history of issuing
options. This accounting standard requires forfeitures to be estimated at the
time of grant and revised in subsequent periods, if necessary, if actual
forfeitures differ from those estimates.





The
Company estimates the fair value of the awards using the CRR binomial model.
Option pricing models, such as the CRR binomial model, require the input of
highly complex and subjective variables including the expected life of options
granted and the Company’s expected stock price volatility over a period equal to
or greater than the expected life of the options. Because changes in the
subjective assumptions can materially affect the estimated value of the
Company’s employee stock options, it is management’s opinion that the CRR
binomial model may not provide an accurate measure of the fair value of the
Company’s employee stock options. Although the fair value of employee stock
options is determined in accordance with the accounting standard aforementioned
using an option-pricing model, which value may not be indicative of the fair
value observed in a willing buyer/willing seller market
transaction.





Concentration of
risk





Cash -
Cash includes cash on hand and demand deposits in accounts maintained with state
owned banks within the PRC. The Company considers all highly liquid instruments
purchased with original maturities of three months or less, and money market
accounts, to be cash equivalents. Total cash in these banks at September 30 and
June 30, 2009 amounted to $2,187,981 and $3,634,805, respectively, of which no
deposits were covered by insurance. Also, as of September 30 and June 30, 2009,
the Company held $217,483 and $453,192 in restricted cash in a corporate legal
counsel’s trust account respectively , in accordance with an agreement with
investors for the restricted use of preferred stock dividend and investor
relation related expenses. Nonperformance by these institutions could expose the
Company to losses not covered by insurance. Management reviews the financial
condition of these institutions on a periodic basis.  The Company has
not incurred any losses on these accounts from nonperformance by the
aforementioned institutions.




10


CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)


Major
customers – For the three months ended September 30, 2009, two customers
accounted for approximately 10.17% of the Company’s sales and approximately
7.26% of the Company’s accounts receivable as of September 30, 2009. For the
three months ended September 30, 2008, two customers accounted for approximately
37.3% of the Company’s sales and 9.3% of the Company’s account receivable as of
September 30, 2008.





Major
suppliers – For the three months ended September 30, 2009, two suppliers
accounted for approximately 12.56% of the Company purchase and approximately
6.74% of the Company’s accounts payable as of September 30, 2009. For the three
months ended September 30, 2008, two suppliers accounted for approximately 51.8%
of the Company purchase and approximately 4.4% of the Company’s accounts payable
as of September 30, 2008.





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





Restricted
Cash





Restricted
cash represents portion of the proceeds received from the June 11, 2008, Private
Placement that was deposited in a trust account held by the Company’s legal
counsel for payment of dividends, investor relations fees, and other
professional fees (see Note 12). The restricted cash balance was $217,483 and
$453,192 as of September 30, 2009 and June 30, 2009 respectively.





Accounts
receivable





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





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





Inventories





Inventories
consist of raw materials and are stated at the lower of cost or market, using
the weighted average cost method. The Company reviews its inventory periodically
for possible obsolescence or if a write down is necessary because the carrying
value exceeds net realizable value. As of September 30 and June 30, 2009, the
Company determined no reserves for obsolescence were necessary.





Prepayments





The
Company advances monies to certain suppliers for raw materials and short term
prepaid rent. These advances are interest free and unsecured. In addition, the
prepayments also include amounts prepaid for rent.





Plant, machinery and
equipment





Plant,
machinery and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to earnings as incurred while additions, renewals and
betterments are capitalized. Depreciation is provided over the estimated useful
life of each class of depreciable assets and is computed using the straight-line
method with 5% residual value.


11


CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 The
estimated useful lives of assets are as follows:
 
 Useful
      LifeTransportation
      equipment
                  10
      yearsPlant
      and machinery
                  10
      yearsOffice
      equipment
                  5
      years
  The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the
consolidated statements of income.  Construction-in-progress
represents labor costs, materials, and capitalized interest incurred in
connection with the construction of a new mixer station inside the current plant
facility in Beijing.  Interest incurred during construction is
capitalized into construction in progress. All other interest is expensed as
incurred.  No depreciation is provided for construction in progress
until it is completed and placed into service. Maintenance, repairs and minor
renewals are charged to expense as incurred. Major additions and betterment to
property and equipment are capitalized.
 
 Long-lived
assets of the Company are reviewed at least annually, more often if
circumstances dictate, for possible impairment. Whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable, the Company records an impairment charge to reduce the related
assets to their net realizable value. The Company believes no impairment exists
at September 30, 2009.
 
 Redeemable convertible
preferred stock
 
 On June
11, 2008, the Company completed the sale to certain accredited investors of
875,000 investment units for gross proceeds of $7,000,000, each unit consisting
of one share of the Company’s Series A Convertible Preferred Stock and one
warrant to purchase two shares of the Company’s common stock. The preferred
stock pays annual dividends of 9% regardless of the Company’s profitability.
Each preferred share is convertible into four shares of common stock. The
Company received net proceeds of approximately $5.3 million after offering
expenses and net of $930,000 restricted cash which was required to be placed in
escrow. Upon the two year anniversary of the closing date, the Company is
required to redeem for cash the outstanding preferred stock, if not previously
converted by the holders, for $8.00 per share plus accrued but unpaid
dividends.  Because the Company is required to redeem the
preferred stock on June 11, 2010, if it has not been previously converted by the
holders, in accordance with a FASB accounting standard, the preferred stock is
classified outside of shareholders’ equity.
 
 In
accordance with an accounting standard issued by the FASB regarding debt with
conversion and other options,  the Company allocated the proceeds
received between the preferred stock and the warrants.  The resulting
discount from the face amount of the preferred stock is being amortized using
the effective interest method over the period to the required redemption date.
After allocating a portion of the proceeds to the warrants, the effective
conversion price of the preferred stock was higher than the market price at the
date of issuance, and therefore, no beneficial conversion feature was
recorded. The dividends on the preferred stock, together with the periodic
accretion of the preferred stock to its redemption value, are charged to
retained earnings.
 
 Income
taxes
 
 The
Company’s WOFE and its VIE, Xin Ao, in China are governed by the income tax laws
of the PRC. The Company accounts for income taxes in accordance with a FASB
accounting standard, which requires the Company to use the assets and liability
method of accounting for income taxes. Under the assets and liability method,
deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years
to differences between financial statement carrying amounts and the tax bases of
existing assets and liabilities. Under this accounting standard,, the effect on
deferred income taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is recognized if
it is more likely than not that some portion, or all of, a deferred tax asset
will not be realized. Since the Company’s operations are outside of the U.S.,
the Company did not have any provision for U.S. income taxes including any
deferred income taxes, for the three months ended September 30, 2009 and
2008.
 
 Under the
accounting standard defines uncertainty in income taxes, the evaluation of a tax
position is a two-step process. The first step is to determine whether it is
more likely than not that a tax position will be sustained upon examination,
including the resolution of any related appeals or litigation based on the
technical merits of that position. The second step is to measure a tax position
that meets the more-likely-than-not threshold to determine the amount of benefit
to be recognized in the financial statements. A tax position is measured at the
largest amount of benefit that is greater than 50 percent likelihood of being
realized upon ultimate settlement. Tax positions that previously failed to meet
the more-likely-than-not recognition threshold should be recognized in the first
subsequent period in which the threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not criteria should be
de-recognized in the first subsequent financial reporting period in which the
threshold is no longer met. GAAP also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosures, and transition.  The adoption had no effect on the
Company’s consolidated financial statements.  There were no material
deferred tax amounts as of September 30 and June 30, 2009.
  12
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 The
Company has cumulative undistributed earnings of China ACMH of approximately
$18.1 million as of September 30, 2009, is 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.
 
 Chinese Income
Taxes
 
 The
Company, its subsidiaries, and VIE in China are governed by the income tax laws
of the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and
various local income tax laws (the “Income Tax Laws”).
 
 Xin Ao’s
use of recycled raw materials in its production since its inception entitled the
Company to an income tax exemption from January 1, 2003, through to December 31,
2007 and an income tax reduction from 25% to 15% from January 1, 2009 to
December 31, 2012  as granted by the State Administration of Taxation
of the PRC. The income tax exemption granted to the Company was eliminated after
December 31, 2007.  Beginning January 1, 2008, the new Chinese
Enterprise Income Tax (“EIT”) law replaced the existing laws for Domestic
Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”). Effective January
1, 2009, the new reduced EIT rate of 15% replaced the existing rates of 25%
currently applicable to both DES and FIEs.
 
 PRC laws
require that before a FIE can legally distribute profits to its shareholders, it
must satisfy all tax liabilities, provide for losses in previous years, and make
allocations in proportions made at the discretion of the board of directors,
after the statutory reserve. The statutory reserve includes the surplus reserve
fund, the common welfare fund, and represents restricted retained
earnings.
 
 The
Company adopted accounting policies in accordance to U.S. GAAP with regard to
provisions, reserves, inventory valuation method, and depreciation that are
consistent with requirements under Chinese income tax laws. Therefore, there
were no significant deferred tax assets or liabilities during the three months
ended September 30, 2009 and 2008.
 
 The
Company classifies interest and penalties assessed due to underpayment of income
taxes as interest expense and other expenses, respectively. The Company incurred
no such expenses for the three months ended September 30, 2009 and
2008.
 
 Value added
tax
 
 Enterprises
or individuals, who sell commodities, engage in repair and maintenance, or
import and export goods in the PRC are subject to a value added tax. The
standard VAT rate is 6% of gross sales for the Company’s industry. A credit is
available whereby VAT paid on the purchases of raw materials used in the
production of the Company’s finished products can be used to offset the VAT due
on sales of finished products. Due to the fact that the Company uses recycled
raw materials to manufacture its products, the State Administration of Taxation
has granted the Company VAT exemption from August 2005 through to August 2009
and a two year tax (VAT) credit extension from August 2009 through August
2011.
 
 Research and development
costs
 
 Research
and development costs are expensed as incurred. The cost of materials and
equipment that are acquired or constructed for research and development
activities, and have alternative future uses, either in research and
development, marketing, or sales, are classified as property and equipment, and
depreciated over their estimated useful lives. Research and development expenses
for the three months ended September 30, 2009 and 2008 is $37,562 and $0
respectively.
 
 Earnings per
share
 
 The
Company reports earnings per share in accordance with a FASB accounting
standard, 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 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.
  13
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Comprehensive (loss)
income
 
 The FASB
accounting standard for reporting and display of comprehensive (loss) income and
its components in financial statements, requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same providence as other financial statements. The accompanying consolidated
financial statements include the provision of this accounting standard,, and
therefore, comprehensive (loss) income consists of net income, unrealized gains
and losses from marketable securities, and foreign currency translation
adjustments.
 
 Recently issued accounting
pronouncements
 
 In
January 2009, the FASB issued an accounting standard which amended the
impairment model by removing its exclusive reliance on “market participant”
estimates of future cash flows used in determining fair value. Changing the cash
flows used to analyze other-than-temporary impairment from the “market
participant” view to a holder’s estimate of whether there has been a “probable”
adverse change in estimated cash flows allows companies to apply reasonable
judgment in assessing whether an other-than-temporary impairment has occurred.
The adoption of this accounting standard did not have a material impact on the
Company’s consolidated financial statements because all of the investments in
debt securities are classified as trading securities.
 
 In April
2009, the FASB issued authoritative guidance related to the determination of
fair value when the volume and level of activity for an asset or liability has
significantly decreased, the identification of transactions that are not
orderly, the recognition and presentation of other-than-temporary impairments,
and the disclosure of the fair value of financial instruments on an interim
basis. The adoption of the guidance did not have a material impact on the
Company’s consolidated financial statements.
 
 In April
2009, the FASB issued an accounting standard to make the other-than-temporary
impairments guidance more operational and to improve the presentation of
other-than-temporary impairments in the financial statements. This standard will
replace the existing requirement that the entity’s management assert it has both
the intent and ability to hold an impaired debt security until recovery with a
requirement that management assert it does not have the intent to sell the
security, and it is more likely than not it will not have to sell the security
before recovery of its cost basis. This standard provides increased disclosure
about the credit and noncredit components of impaired debt securities that are
not expected to be sold and also requires increased and more frequent
disclosures regarding expected cash flows, credit losses, and an aging of
securities with unrealized losses. Although this standard does not result in a
change in the carrying amount of debt securities, it does require that the
portion of an other-than-temporary impairment not related to a credit loss for a
held-to-maturity security be recognized in a new category of other comprehensive
income and be amortized over the remaining life of the debt security as an
increase in the carrying value of the security. This standard became effective
for interim and annual periods ending after June 15, 2009. The adoption of
this standard did not have a material impact on the Company’s consolidated
financial statements.
 
 In April
2009, the FASB issued an accounting standard that requires disclosures about
fair value of financial instruments not measured on the balance sheet at fair
value in interim financial statements as well as in annual financial statements.
Prior to this accounting standard, fair values for these assets and liabilities
were only disclosed annually. This standard applies to all financial instruments
within its scope and requires all entities to disclose the method(s) and
significant assumptions used to estimate the fair value of financial
instruments. This standard does not require disclosures for earlier periods
presented for comparative purposes at initial adoption, but in periods after the
initial adoption, this standard requires comparative disclosures only for
periods ending after initial adoption. The adoption of this standard did not
have a material impact on the disclosures related to its consolidated financial
statements.
 
 In May
2009, the FASB an accounting standard which provides guidance to establish
general standards of accounting for and disclosures of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. The standard also requires entities to disclose the date
through which subsequent events were evaluated as well as the
rationale for why that date was selected. The standard is effective for
interim and annual periods ending after June 15, 2009, and accordingly, the
Company adopted this Standard during the second quarter of 2009. The standard
requires that public entities evaluate subsequent events through the date
that the financial statements are issued.
 
 In June
2009, the FASB issued an accounting standard amending the accounting and
disclosure requirements for transfers of financial assets. This accounting
standard requires greater transparency and additional disclosures for transfers
of financial assets and the entity’s continuing involvement with them and
changes the requirements for derecognizing financial assets. In addition, it
eliminates the concept of a qualifying special-purpose entity (“QSPE”). This
accounting standard is effective for financial statements issued for fiscal
years beginning after November 15, 2009. The Company has not completed the
assessment of the impact this new standard will have on the Company’s
financial condition, results of operations or cash flows.
  14
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 In June
2009, the FASB also issued an accounting standard amending the accounting and
disclosure requirements for the consolidation of variable interest entities
(“VIEs”). The elimination of the concept of a QSPE, as discussed above, removes
the exception from applying the consolidation guidance within
this accounting standard. Further, this accounting standard requires a
company to perform a qualitative analysis when determining whether or not it
must consolidate a VIE. It also requires a company to continuously reassess
whether it must consolidate a VIE. Additionally, it requires enhanced
disclosures about a company’s involvement with VIEs and any significant
change in risk exposure due to that involvement, as well as how its involvement
with VIEs impacts the company’s financial statements. Finally, a company will be
required to disclose significant judgments and assumptions used to determine
whether or not to consolidate a VIE. This accounting standard is effective
for financial statements issued for fiscal years beginning after November 15,
2009.  The Company has not completed their assessment of the
impact that this pronouncement will have on the Company’s financial condition,
results of operations or cash flows.
 
 In June
2009, the FASB issued an accounting standard which establishes the FASB
Accounting Standards CodificationTM (the “Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. The Codification does not change current U.S.
GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by
providing all the authoritative literature related to a particular topic in
one place. The Codification is effective for interim and annual periods ending
after September 15, 2009, and as of the effective date, all existing
accounting standard documents will be superseded. The Codification is effective
for the Company in the third quarter of 2009, and accordingly, the
Company’s Quarterly Report on Form 10-Q for the quarter ending September 30,
2009 and all current and subsequent public filings will reference
the Codification as the sole source of authoritative
literature.
 
 In August
2009, the FASB issued an Accounting Standards Update (“ASU”) regarding measuring
liabilities at fair value. This ASU provides additional guidance clarifying the
measurement of liabilities at fair value in circumstances in which a quoted
price in an active market for the identical liability is not available; under
those circumstances, a reporting entity is required to measure fair value using
one or more of valuation techniques, as defined. This ASU is effective for the
first reporting period, including interim periods, beginning after the issuance
of this ASU. The adoption of this ASU did not have a material impact on the
Company’s consolidated financial statements.
 
 In
October 2009, the FASB issued an ASU regarding accounting for own-share lending
arrangements in contemplation of convertible debt issuance or other
financing.  This ASU requires that at the date of issuance of the
shares in a share-lending arrangement entered into in contemplation of a
convertible debt offering or other financing, the shares issued shall be
measured at fair value and be recognized as an issuance cost, with an offset to
additional paid-in capital. Further, loaned shares are excluded from basic and
diluted earnings per share unless default of the share-lending arrangement
occurs, at which time the loaned shares would be included in the basic and
diluted earnings-per-share calculation.  This ASU is effective for
fiscal years beginning on or after December 15, 2009, and interim periods within
those fiscal years for arrangements outstanding as of the beginning of those
fiscal years. The Company is currently evaluating the impact of this ASU on its
consolidated financial statements.
 
 Note
3 – Supplemental disclosure of cash flow information
 
 During
the three months ended September 30, 2009 and 2008, the Company paid interest in
the amount of $118,720 and $58,645, respectively.
 
 Cash
payments for income taxes for the three months ended September 30, 2009 and 2008
were $1,682,537 and $0, respectively. The income tax payment made in the amount
of $1,682,537 was for calendar year 2008 corporate income tax due to the
governments. The Company was subject to corporate income tax exemption for
calendar year 2007.
  For the
three months ended September 30, 2009, 57,500 shares of common stock underlying
warrants were converted into 51,052 shares of common stock by the exercise of
such warrants on a cashless basis.
 
 For the
three months ended September 30, 2009, 63,125 shares of redeemable convertible
preferred stock were converted into 252,500 shares of common stock on a cashless
basis.
 Note
4 – Marketable securities
 
 Marketable
securities are the mutual fund that Xin Ao purchased from CYJA Allianz Fund, all
securities are available for sale and therefore are carried at fair value with
unrealized gains and losses reported as accumulated other comprehensive income
(loss) in shareholders’ equity. Realized gains and losses on marketable
securities are included in other income or expense in the period they incurred,
and when applicable, are reported as a reclassification adjustment in other
comprehensive income. Gains and losses on the sale of marketable securities are
determined using the specific-identification method.
  Note
5 – Accounts receivable
 
 Accounts
receivable are generated from concrete products sold, vehicle rental services
provided to other unrelated concrete companies, and technological consulting
services provided to the Company’s customers and other concrete companies with
which the Company conducts business. The payment terms are defined in the
respective contracts. Over 75% of the Company’s receivables are due within a
year by contract and are classified as current assets on the consolidated
balance sheets as of September 30, 2009. For certain large construction projects
that can take several years to complete, the Company provides extended payment
terms to the general contractors. These contractors are usually large
state-owned builders with good credit ratings. At the end of each period, the
Company evaluates the structure and collectability of accounts receivable and
for these receivables that are past due or not being paid according to payment
terms, the Company takes appropriate actions including seeking legal resolution
in a court of law, for its collection efforts.
  15
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 As of
September 30 and June 30, 2009, accounts receivable and allowance for doubtful
accounts consisted of the following:
 
 September30,
                        2009
                      
                      
                      June 30,

                          2009(Unaudited)Accounts
      receivable, current
                      
                      $
                      18,084,988
                      
                      
                      $
                      11,936,388Less:  allowance
      for doubtful accounts, current
                      
                      
                      (148,206
                      )
                      
                      
                      (120,986
                      )Net
      accounts receivable, current
                      
                      
                      17,936,782
                      
                      
                      
                      11,815,402Accounts
      receivable, non-current
                      
                      
                      6,550,359
                      
                      
                      
                      4,461,269Less:  allowance
      for doubtful accounts, non-current
                      
                      (400,750)
                      
                      
                      
                      (328,563
                      )Net
      accounts receivable, non-current
                      
                      
                      6,149,609
                      
                      
                      
                      4,132,706Total
      accounts receivable, net
                      
                      $
                      24,086,391
                      
                      
                      $
                      15,948,108
 
 Note
6 – Plant and equipment
 
 Plant and
equipment consist of the following as of September 30, 2009 and June 30,
2009:
 
 September 30,
                        
                        
                        June 30,2009
                          (Unaudited)
                        
                        
                        2009Transportation
      equipment
                        
                        $
                        20,355,466
                        
                        
                        $
                        20,375,873Plant
      and machinery
                        
                        
                        9,681,024
                        
                        
                        
                        6,246,380Office
      equipment
                        
                        
                        94,072
                        
                        
                        
                        95,556Construction-in-progress
                        
                        
                        6,669
                        
                        
                        
                        3,369,500Total
                        
                        
                        30,137,231
                        
                        
                        
                        30,087,309Less:
      accumulated depreciation
                        
                        
                        (8,652,314
                        )
                        
                        
                        (7,997,592
                        )Plant
      and equipment, net
                        
                        $
                        21,484,917
                        
                        
                        $
                        22,089,717
 
 Construction-in-progress
represents labor costs, materials, and capitalized interest incurred in
connection with the construction of a new mixer station inside and outside of
the current plant facility in Beijing. No depreciation is provided for
construction-in-progress until it is completed and placed into service. Most
construction-in-progress is related to assembling of portable machinery we
purchased with cash and in general the assembling process can be done in less
than three weeks. Therefore, no interest expense was capitalized as the
capitalized interest was not significant.
 
 Construction
of the new portable mixing stations was completed and $3,369,500 was transferred
to fixed assets during the three months ended September 30, 2009
 
 Depreciation
expense for the three months ended September 30, 2009 and 2008 amounted to
$668,020 and $533,125, respectively. For the three months ended September 30,
2009 and 2008, no material interest amounts were capitalized.
 
 Note
7 – Prepayments
 
 Prepayments
comprised of short-term and long-term factory rental prepayments the Company
made during the first quarter of 2010 and also prepayments for inventory
purchases. Prepayments as of September 30 and June 30, 2009 consisted of the
following:
 
 September30,
                        2009
                      
                      
                      June 30,
                        2009(Unaudited)Prepayments
      for inventories
                      
                      $
                      3,252,117
                      
                      
                      $
                      2,431,401Short
      term prepayments-rent
                      
                      
                      1,638,002
                      
                      
                      
                      1,823,925Total
      prepayments
                      
                      $
                      4,890,119
                      
                      
                      $
                      4,255,326
  16
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Long term
prepayments represented the non-current portion of the factory rental
prepayments the Company made during the first quarter of 2010. As of September
30 and June 30, 2009, long term prepayments amounted to $4,417,287 and
$4,794,746, respectively. Rent payments for the next five years ended June 30
amounted to $6,055,289 and consists of the following:
 
 Years ending September 30,
                    
                    Amount2010
                    
                    $
                    1,638,0022011
                    
                    
                    1,418,6262012
                    
                    
                    1,418,6262013
                    
                    
                    1,068,1592014
                    
                    
                    511,876Thereafter
                    
                    
                    -
 
 Note
8 – Short term loans
 
 Short
term loans represent amounts due to the Company’s employees that are due on
demand or within one year. As of September 30, 2009 and June 30, 2009, the
outstanding balances on these loans were $117,000 and $4,512,200, respectively,
and these loans consisted of the following:
  September
                          30,
                        
                        
                        June 30,
                          20092009
                          (Unaudited)Loan
      from Beijing International Trust Co, Ltd. interest rate of 15% per annum,
      due July 15, 2009, guaranteed by Rayland Credit Guarantee Co. Ltd., paid
      off in July 2009
                        
                        $
                        -
                        
                        
                        $
                        4,395,000Loan
      from various employees, effective interest rate of 20% per annum, due upon
      demand, unsecured.
                        
                        
                        117,000
                        
                        
                        
                        117,200Total
      short term loans
                        
                        $
                        117,000
                        
                        
                        $
                        4,512,200
 
 Interest
expense on short-term loans for the three months ended September 30, 2009 and
2008 amounted to $23,753 and $227,811, respectively.
 
 Note
9 – Derivative Warrant liability
 
 Effective
July 1, 2009, the Company adopted a FASB accounting standard, ASC 815 (EITF
07-05) which defines determining whether an instrument (or embedded feature) is
indexed to an entity’s own stock.  This accounting standard specifies
that a contract that would otherwise meet the definition of a derivative but is
both (a) indexed to the Company’s own stock and (b) classified in stockholders’
equity in the statement of financial position would not be considered a
derivative financial instrument.  This FASB accounting standard
provides a new two-step model to be applied in determining whether a financial
instrument or an embedded feature is indexed to an issuer’s own stock and thus
able to qualify for the scope exception.
 
 As a
result of adopting this FASB accounting standard warrants previously treated as
equity pursuant to the derivative treatment exemption are no longer afforded
equity treatment because the warrants have downward ratchet provision on the
exercise price. As a result, the warrants are not considered indexed to the
Company’s own stock, and as such, all future changes in the fair value of these
warrants will be recognized currently in earnings in our consolidated statement
of income under the caption “Change in fair value of warrant
liability” until such time as the warrants are exercised or
expire.
  17
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 As such,
effective July 1, 2009, the Company reclassified the fair value of these
warrants from equity to liability, as if these warrants were treated as a
derivative liability since their issuance in June 2008.  On July 1, 2009,
the Company reclassified from additional paid-in capital, as a cumulative effect
adjustment, $1,965,945 to beginning retained earnings and $3,337,225 to warrant
liabilities to recognize the fair value of such warrants. The fair value of the
warrants was $10,254,840 on September 30, 2009.  Therefore, the
Company recognized a $7,273,441 loss from the change in fair value for the
three months ended September 30, 2009.
 
 These
common stock purchase warrants do not trade in an active securities market, and
as such, we estimate the fair value of these warrants using the
Cox-Ross-Rubinstein (“CRR”) Binomial Model using the following
assumptions:
 
 September 30,
                          2009
                        
                        
                        July 1,
                          2009(Unaudited)Annual
      dividend yield
                        
                        
                        -
                        
                        
                        
                        -Expected
      life (years)
                        
                        
                        3.75
                        
                        
                        
                        4.00Risk-free
      interest rate
                        
                        
                        1.75
                        %
                        
                        
                        2.07
                        %Expected
      volatility
                        
                        
                        75
                        %
                        
                        
                        75
                        %
 
 Expected
volatility is based on historical volatility of a similar U.S. public company
due to limited trading history of the Company’s common stock.  The
Company has no reason to believe future volatility over the expected remaining
life of these warrants is likely to differ materially from historical
volatility. The expected life is based on the remaining term of the warrants.
The risk-free interest rate is based on U.S. Treasury securities according to
the remaining term of the warrants. The expected dividend yield was based on the
Company’s current and expected dividend policy.
  The
conversion option does not need to be separated from the redeemable convertible
preferred stock and accounted for as derivative liability because it 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. A FASB’s accounting standard provides guidance 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 the redeemable convertible
preferred stock.
 
 Note
10 – Related party transactions
 
 Other payables –
shareholders
 
 Beginning
in July 2007, Mr. He Weili, a 38.10% shareholder, leased an office space to the
Company at approximately the current fair market value from July 2009 to June
2010 with annual payment of $172,950.  For the three months ended
September 30, 2009 and 2008, the Company recorded rent expense from the
shareholder in the amount of approximately $43,215 and $43,279, respectively. As
of September 30 and June 30, 2009, approximately $4,489 and $56,046,
respectively, remained unpaid, and is included as other payables -
shareholders.
 
 The
Company’s shareholders Mr. Han Xianfu and Mr. He Weili, who have 57.15% and
38.10% indirect ownership interests in BVI-ACM, respectively, together loaned
$750,900 to BVI-ACM on March 12, 2008, for the entity’s cash flow purposes. The
loan is non-interest bearing, unsecured, and is payable in cash on
demand.
 
 Total
other payables - shareholders as of September 30, 2009 and June 30, 2009 is as
follows:
 
 September 30,
                        
                        
                        June 30,2009
                          (Unaudited)
                        
                        
                        2009Han
      Xianfu, shareholder
                        
                        $
                        450,550
                        
                        
                        $
                        450,550He
      Weili, shareholder
                        
                        304,839
                        
                        
                        
                        356,396Total
      other payables – shareholders
                        
                        $
                        755,389
                        
                        
                        $
                        806,946
  18
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  Note
11 – Income taxes
 
 Corporate
income taxes
 
 Companies
established before March 16, 2007, will continue to enjoy tax holiday treatment
approved by the local government for a grace period of either for the next five
years or until the tax holiday term is completed, whichever is sooner. These
companies will pay the standard tax rate when the grace period expires. The
Company’s VIE, Xin Ao, had received its tax holiday treatment until December
2007.  During the fourth quarter of the 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 has been reduced to 15% from
25%. The new tax rate will be retroactive to January 1, 2009 and will be
effective for three years, through December 31, 2011.
 
 Xin Ao
was granted income tax exemption from January 1, 2003 to December 31, 2007.
Beginning on January 1, 2008, Xin Ao was subject to an EIT rate of
25%.  Xin Ao was granted a 10% tax deduction on 90% of the total sales
revenue by the local authority due to the Company’s utilization of recycled raw
materials.  Beginning on January 1, 2009, the Company, its
subsidiaries, and VIE were subject to an EIT rate of 15%.  For the
three months ended September 30, 2009 and 2008, the provision for income taxes
amounted to $536,814 and $574,827, respectively.
 
 The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the three months ended September 30, 2009 and 2008:
 
 September 30,
                    
                    
                    September 30,2009
                      (Unaudited)
                    
                    
                    2008
                      (Unaudited)U.S.
      statutory rates
                    
                    
                    34
                    %
                    
                    
                    34
                    %Foreign
      income not recognized in the U.S.
                    
                    
                    (34
                    )%
                    
                    
                    (34
                    )%China
      income taxes
                    
                    
                    25
                    %
                    
                    
                    25
                    %China
      income tax exemption
                    
                    
                    (10
                    )%
                    
                    
                    -Other(a)
                    
                    
                    (29
                    )%
                    
                    
                    3
                    %Effective
      income tax rates
                    
                    
                    (14
                    )%
                    
                    
                    28
                    %
 (a)The 29%
represents the expenses (such as change in fair value of warrants in the amount
of $10,254,840 and certain expenses in the amount of $140,000 incurred in the
U.S. entity) incurred by the Company that are not deductible for PRC income tax
for the three months ended September 30, 2009.
 
 Taxes
payable consisted of the following:
 
 September 30,
                        
                        
                        June 30,2009
                          (Unaudited)
                        
                        
                        2009Income
      taxes payable
                        
                        $
                        1,888,411
                        
                        
                        $
                        3,039,905Other
      taxes
                        
                        
                        22,788
                        
                        
                        
                        8,274Total
      taxes payable
                        
                        $
                        1,911,199
                        
                        
                        $
                        3,048,179
 
 Note
12 – Shareholders’ equity
 
 On June
11, 2008, the Company completed an offering (the “Offering”) on the sale of
875,000 of investment units for a total of $7,000,000, each unit consisting of
one share of the Company’s Series A Convertible Preferred Stock, $0.001 par
value per share, and one (1) five year warrant to purchase two shares of Common
Stock (the “Warrants”). Each preferred share is convertible into four shares of
common stock.  Additionally, each holder is entitled to cumulative
dividends equal to 9% annually, payable in cash, irrespective of the
profitability of the Company.
  19
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 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 additional paid-in
capital. The allocation of the proceeds from the investment to a relative
fair value basis which resulted in the allocation of $5,798,000 to the Series A
Preferred and $1,202,000 to the warrants.
 
 The
following is a summary of our current Redeemable Convertible Preferred Stock
issued and outstanding net of discount:
 
 As of September 30,
                      
                      
                      As of June 30,2009
                        (Unaudited)
                      
                      
                      2009Numbers
      of Redeemable Convertible Preferred shares outstanding in the beginning of
      the fiscal year
                      
                      
                      851,125
                      
                      
                      
                      875,000Redeemable
      Convertible Preferred shares converted to Common share during the fiscal
      year
                      
                      
                      (63,125
                      )
                      
                      
                      (23,875
                      )Current
      Redeemable Convertible Preferred shares outstanding
                      
                      
                      788,000
                      
                      
                      
                      851,125Per
      share conversion price from Redeemable Convertible Preferred shares to
      Common share
                      
                      $
                      8
                      
                      
                      $
                      8Current
      Redeemable Convertible Preferred outstanding before
    discount
                      
                      $
                      6,304,000
                      
                      
                      $
                      6,809,000Discount
      on Redeemable Convertible Preferred shares outstanding
                      
                      $
                      (375,843
                      )
                      
                      $
                      (567,581
                      )Total
      Current Redeemable Convertible Preferred stocks net of
      discount
                      
                      $
                      5,928,157
                      
                      
                      $
                      6,241,419
 
 The
Company also issued to the placement agent a warrant to purchase an aggregate of
245,000 shares of common stock with an exercise price of $2.40 per share with a
term of five years. The warrants are exercisable on a cashless basis, in whole
or in part, at an exercise price equal to $2.40 per share. The Company may call
the warrants for redemption at any time after the warrants become exercisable
(i) at a price of $.01 per warrant; (ii) upon not less than 30 days’ prior
written notice of redemption to each warrant holder; and (iii) if, and only if,
the last sale price of the common stock equals or exceeds $5.00 per share, for
any twenty (20) trading days within a thirty (30) consecutive trading day period
ending on the third business day prior to the notice of redemption to warrant
holders.
 
 The value
of the warrants issued to the placement agent was $169,345 calculated by using
the Cox-Ross-Rubinstein (“CRR”) Binomial Model. The fair value of these warrants
of $169,345 was recognized as offering expense and charged to additional paid-in
capital. The value of the warrants was determined using the CRR Binomial Model
using the following assumptions: volatility 75%; risk-free interest rate of
3.49% of the Investor Warrants, the Placement and Advisory Warrants; dividend
yield of 0%, and expected term of 5 years of the Investor Warrants and the
Placement and Advisory Warrants. The volatility of the Company’s common stock
was estimated by management based on the historical volatility of a similar U.S.
public company due to limited trading history of the Company’s common stock. The
risk-free interest rate was based on the Treasury Constant Maturity Rates
published by the U.S. Federal Reserve for periods applicable to the expected
life of the warrants. The expected dividend yield was based on the Company’s
current and expected dividend policy and the expected term is equal to the
contractual life of the warrants.
 
 Following
is a summary of the status of warrants outstanding:
 
 Outstanding Common Stocks Underlying WarrantsExercise
      Price
                          
                          Number
                          
                          Average
                            Remaining
                            Contractual LifeUS$2.40
                          
                          
                          1,670,000
                          
                          3.75
       yearsUS$2.40
                          
                          
                          227,500
                          
                          3.75 yearsTotal
                          
                          
                          1,897,500
  20
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 Following
is a summary of the warrant activity:
 
 Number of Common
                      stock underlying
                      WarrantsOutstanding
      as of June 30, 2008
                    
                    
                    1,995,000Granted
                    
                    
                    -Forfeited
                    
                    
                    -Exercised
                    
                    
                    -Outstanding
      as of June 30, 2009
                    
                    
                    1,995,000Granted
                    
                    
                    -Forfeited
                    
                    
                    -Exercised
                    
                    
                    (97,500
                    )Outstanding
      as of September 30, 2009 (Unaudited)
                    
                    
                    1,897,500
 
 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
penalties for late registration and was paid based on the contract in connection
with the private placement.
 
 Employee Stock
Options
 
 On May 1,
2008, the Company issued 25,000 common shares to a Company executive, par value
$0.001 for services the executive renders to the Company.  The shares
become fully vested after one year from the date of grant. On July 31 2008, the
executive’s employment with the Company terminated, and the 25,000 shares were
forfeited upon resignation.
 
 On
October 3, 2008, the Company entered into a one-year agreement with one of the
Company’s board of directors. In connection with his services, the Company
issued an aggregate of 50,000 options of the Company’s common stock at an
exercise price of $2.90 per share. The options vest in equal quarterly
installments over the first year of the agreement.
  On
December 1, 2008, the Company entered into a three-year agreement with
the Company’s Chief Financial Officer. In connection with his services, the
Company issued a total of 200,000 options of the Company’s common stock
from the option bonus pool. The option bonus pool consists of four equal
tranches of 50,000 options, with the first tranche of 50,000 options carrying an
exercise price of $3.00, the second tranche of 50,000 options carrying an
exercise price of $3.50, the third tranche of 50,000 options carrying an
exercise price of $4.00, and the fourth tranche of 50,000 options carrying an
exercise price of $4.50. A quarter (25%) of each tranche of options will vest at
the end of each twelve-month period of the agreement.
 
 The
Company valued the stock options by the Cox-Ross-Rubinstein (“CRR”) binomial
model with the following assumptions:
 
 Expected
                                
                                
                                Expected
                                
                                
                                Dividend
                                
                                
                                Risk Free
                                
                                
                                Grant DateTerm
                                
                                
                                Volatility
                                
                                
                                Yield
                                
                                
                                Interest Rate
                                
                                
                                Fair ValueChief
      Financial Officer
                                
                                
                                6.25
                                
                                
                                
                                75
                                %
                                
                                
                                0
                                %
                                
                                
                                1.16
                                %
                                
                                $
                                3.00Director
                                
                                
                                5.31
                                
                                
                                
                                75
                                %
                                
                                
                                0
                                %
                                
                                
                                1.41
                                %
                                
                                $
                                2.90
  21
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  
 Number of
                        optionsOutstanding
      as of June 30, 2008
                      
                      
                      -Granted
                      
                      
                      250,000Forfeited
                      
                      
                      -Exercised
                      
                      
                      -Outstanding
      as of June 30, 2009
                      
                      
                      -Granted
                      
                      
                      250,000Forfeited
                      
                      
                      -Exercised
                      
                      
                      -Outstanding
      as of September 30, 2009 (Unaudited)
                      
                      
                      250,000
 
 Following
is a summary of the status of options outstanding at September 30,
2009:
 
 Outstanding options
                      
                      
                      Exercisable optionsAverage
                        Exercise price
                      
                      Number
                      
                      
                      Average
                        remaining
                        contractual
                        life(years)
                      
                      
                      Average
                        exercise
                        price
                      
                      
                      Number
                      
                      
                      Weighted
                        average
                        exercise
                        price$
                      2.90
                      
                      
                      50,000
                      
                      
                      
                      9.01
                      
                      
                      $
                      2.90
                      
                      
                      
                      37,500
                      
                      
                      $
                      -3.00
                      
                      
                      50,000
                      
                      
                      
                      9.18
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -3.50
                      
                      
                      50,000
                      
                      
                      
                      9.18
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -4.00
                      
                      
                      50,000
                      
                      
                      
                      9.18
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -4.50
                      
                      
                      50,000
                      
                      
                      
                      9.18
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -$
                      3.58
                      
                      
                      250,000
                      
                      
                      
                      
                      
                      
                      $
                      2.90
                      
                      
                      
                      37,500
                      
                      
                      $
                      -
 
 As of
September 30, 2009, there was approximately $270,700 of total unrecognized
compensation expense related to un-vested share-based compensation arrangements.
That cost is expected to be recognized over a weighted-average period of three
years.
 
 For the
three months ended September 30, 2009 and 2008, the Company recognized
approximately $41,355 and $2,771, respectively, as compensation expenses for its
stock option plan.
  On August
15, 2009, the Company issued 10,000 shares of restricted stock to each of its
three board of directors for one year of service. The restricted stocks vest in
equal quarterly installments over the first year of the
agreement.  For the three months ended September 30, 2009, the Company
recognized approximately $18,800 of the restricted stock as compensation
expense.  As of September 30, 2009, $134,000 of total unrecognized
compensation expense related to the unvested restricted stock based compensation
arrangements.
 
 Note
13 – Contribution receivable
 
 On July
8, 2005, Xin Ao’s board of directors passed a resolution to increase the
registered capital from $3,630,000 (RMB30 million) to $12,100,000 (RMB100
million). The increase in registered capital of $8,470,000 (RMB70 million) was
funded by the undistributed profits as of June 30, 2005. Based on the PRC
government’s regulations, all companies are required to record its capital in
accordance with the business license, and since Xin Ao did not have sufficient
undistributed profits as of June 30, 2005, the unfunded amount has been recorded
as contribution receivable.  Since the capital should be contributed
by the shareholders of the Company, the contribution receivable was recorded as
part of the equity transaction.
 
 Further,
pursuant to BVI-ACM’s establishment of China-ACMH in November 2007, BVI-ACM was
required to pay 15% of $5,000,000 by February 22, 2008, and the remaining
balance by November 22, 2009, in accordance with the laws of the
PRC.
  22


CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





On March
30, 2008, Xin Ao’s board of directors approved to transfer $7,260,000 from
undistributed retained earnings into registered capital of the Company.
Contemporaneously, China-ACMH made a payment of $5,000,000 and BVI-ACM made a
payment of $100 to the Company. As of September 30, 2009, a contribution
receivable in the amount of $1,210,000 remains unpaid.





Contribution
receivable consisted of the following:





Xin Ao
                  
                  
                  CHINA-ACMH
                  
                  
                  BVI-ACM
                  
                  
                  TotalBalance,
      June 30, 2008
                  
                  $
                  1,210,000
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,210,000Less:
      contribution received
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Balance,
      June 30, 2009
                  
                  $
                  1,210,000
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,210,000Less:
      contribution received
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Balance,
      September 30, 2009, Unaudited
                  
                  $
                  1,210,000
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,210,000





Note
14 – 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 $5.5 million and $5.8 million as of September 30, 2009
and June 30, 2009, respectively.





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.


23


CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Note
15 – (Loss) Earnings per share





The
following is a reconciliation of the basic and diluted (loss) earnings per share
computation for the three months ended September, 2009 and 2008:





Three months endedSeptember, 302009
                    (Unaudited)
                  
                  
                  2008
                    (Unaudited)Basic (loss)
      earning per shareNet
      (loss) income available to common shareholders
                  
                  $
                  (4,863,801
                  )
                  
                  $
                  1,149,743Weighted
      average shares outstanding-Basic
                  
                  
                  10,985,405
                  
                  
                  
                  10,525,000(Loss)
      Earnings per share-Basic
                  
                  $
                  (0.44
                  )
                  
                  $
                  0.11Diluted
      (loss) earning per shareNet
      (loss) income available to common shareholders
                  
                  $
                  (4,863,801
                  )
                  
                  $
                  1,149,743Add:
      Dividends on preferred stock
                  
                  
                  -
                  
                  
                  
                  158,855Add:
      Accretion on preferred stock
                  
                  
                  -
                  
                  
                  
                  150,241Net
      (loss) income for diluted EPS
                  
                  $
                  (4,863,801
                  )
                  
                  $
                  1,458,839Weighted
      average shares outstanding-Basic
                  
                  
                  10,985,405
                  
                  
                  
                  10,525,000Warrants
                  
                  
                  -
                  
                  
                  
                  96,413Preferred
      stock
                  
                  
                  -
                  
                  
                  
                  3,500,000Weighted
      shares outstanding-Diluted
                  
                  
                  10,985,405
                  
                  
                  
                  14,121,413(Loss)
      Earning per share-Diluted
                  
                  $
                  (0.44
                  )
                  
                  $
                  0.10





On June
11, 2008, the Company issued 875,000 shares of preferred stock, each of which
can be converted into four shares of common stock. The convertible preferred
stock is mandatorily redeemable for cash at the end of two years if not yet
converted. As of September 30, 2009, 87,000 of the preferred stock had been
converted into 348,000 of common stock. Dividends on the preferred stock and
accretion of the initial discount from the redemption value of the preferred
stock, both of which are charged to retained earnings, are subtracted from net
income to determine net income available to common shareholders for the purposes
of computing basic earnings per share. In calculating diluted earnings per
share, the convertible preferred stock is treated as common stock equivalents on
an as-converted basis, the diluted weighted average common shares outstanding
for the three months ended September 30, 2008 were 10,525,000 shares.
The dividends and accretion on the preferred stock are added back to the net
income available to common shareholders for calculating diluted earnings per
share, as if the preferred stock were converted at the beginning of the
period.  For the three months ended September 30, 2009 and 2008, total
dividend and accretion were $340,864 and $309,096,
respectively.  For three months ended September 30, 2009, 57,500
warrants were converted into 51,052 shares of common stock. For the three months
ended September 30, 2008, 1,995,000 warrants at an exercise price of $2.40 per
share were included in the diluted EPS calculation, which under treasury stock
method resulted in an additional 96,413 shares of common stocks.





Because
the Company reported a net loss for the three months ended September 30, 2009,
common stock equivalents were anti-dilutive; therefore, the amount reported for
basic and diluted loss per share are the same.


24


CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Note
16 – 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
$17,681 and $17,450 for the three months ended September 30, 2009 and 2008,
respectively.





Note
17 – Operating leases





The
Company entered into a lease agreement for a manufacturing plant with an
unrelated party from October 1, 2008 to September 30, 2013 with monthly payment
of $16,000.  Further, the Company agreed to lease office space from
the Company’s shareholder, Mr. He Weili, from July 2009 to June 2010 with annual
payment of $172,950, the rent is valued at fair value from the main property
management.





The
Company entered into three different five-year operating lease agreements during
the fourth quarter of 2009.  The lease payments are for three
manufacturing plants with various unrelated parties for a total monthly payment
of $179,000. Certain lease payments have been pre-paid by transferring the
Company’s long-term accounts receivable to the lessors as the Company believes
that a lump-sum pre-payments from aging receivable in exchange for agreeing to
no increase in the future lease will benefit its future operation.





Total
operating lease expense for the three months ended September 30, 2009 and 2008
was $595,027 and $92,590, respectively, and is included in selling, general, and
administrative expenses. Future minimum annual lease payments under
non-cancelable operating leases with a term of one year or more consist of the
following:





Years ending June 30,
                          
                          AmountNine months remaining in 2010
                          
                          $
                          1,742,1202011
                          
                          
                          2,149,8772012
                          
                          
                          2,149,8772013
                          
                          
                          2,149,8772014
                          
                          
                          1,635,564Thereafter,
                          
                          
                          -





Note
18 – Commitments and contingencies





Litigation





From time
to time, the Company is a party to various legal actions arising in the ordinary
course of business.  The Company’s management does not expect the legal
matters involving the Company would have a material impact on the Company’s
consolidated financial position or results of operations.





Following
is the summary of the current litigation:





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





In August
2006, Xin Ao filed a lawsuit against Beijing Boda Guosheng Investment Co., Ltd
(“Boda”) seeking specific performance of Boda’s obligations under the sales
contract to pay approximately $275,380 (RMB 2,000,000) for the cement supplied
by Xin Ao between March 2005 and June 2005 and compensatory damages of
approximately $23,500 (RMB 171,000) to cover the interest incurred on the unpaid
balance. The Court ruled against Boda and ordered Boda to pay the amounts
requested by Xin Ao; however, Boda appealed the court’s rulings. In November
2007, the Appeals Court upheld the original verdict and again ordered Boda to
pay all the damages. Management does not believe that the ultimate outcome of
this case will have a material adverse effect on the Company’s consolidated
financial position or results of operations. As of September 30, 2009, the
Company has factored this amount to an unrelated third party trust company and
the trust company has received the payment from Boda.





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


25


CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





In May
2006, an action against Xin Ao and Beijing Shangdi Xinda Company was filed by
Yunwei Zhang (“Shangdi”) in Beijing District Court seeking payment of
approximately $112,000 (RMB 814,000) for damages caused by Qingbao Zhang, a
contracted driver of Xin Ao and an employee of Zhangbei County Labor Service
Co., Ltd. The vehicle involved in the accident is owned by Beijing Shangdi
Xingda Company who leased to Xin Ao who subsequently leased the vehicle to
Zhangbei County Labor Service Company. On June 16, 2008, the Court ruled against
Xin Ao and Shangdi to pay the damages incurred to Yunwei Zhang in the accident.
Xin Ao is responsible for approximately $39,000 (approximately RMB 273,000) for
the damages, and as of September 30, 2009, the Company has paid the final
payment approximately $35,000.  The remaining $4,000 will be paid by
Beijing Shangdi Xingda Company.





Note
19 – Subsequent Events





The
Company received approval to list its common stock on the NASDAQ Global Market
and commenced trading on NASDAQ on November 2, 2009. The Company continues to
trade under the symbol "CADC."





The
Company evaluated subsequent events through the time of filing this Quarterly
Report on Form 10-Q on November 16, 2009. No significant events occurred
subsequent to the balance sheet date but prior to the filing of this report that
would have a material impact on our Consolidated Financial
Statements.







26


ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.




This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). The words “believe,” “expect,” “anticipate,”
“project,” “target,” “optimistic,” “intend,” “aim,” “will” or similar
expressions are intended to identify forward-looking statements. Such statements
include, among others, those concerning our expected financial performance and
strategic and operational plans, as well as all assumptions, expectations,
predictions, intentions or beliefs about future events. These statements are
based on the beliefs of our management as well as assumptions made by and
information currently available to us and reflect our current view concerning
future events. As such, they are subject to risks and uncertainties that could
cause our results to differ materially from those expressed or implied by such
forward-looking statements. Such risks and uncertainties include, among many
others: our significant operating losses; our limited operating history;
uncertainty of capital resources; the speculative nature of our business; our
ability to successfully implement new strategies; present and possible future
governmental regulations; operating hazards; competition; the loss of key
personnel; any of the factors in the “Risk Factors” section of the Company’s
Annual Report on Form 10-K; other risks identified in this Report; and any
statements of assumptions underlying any of the foregoing. You should also
carefully review other reports that we file with the SEC. The Company assumes no
obligation and does not intend to update these forward-looking statements,
except as required by law.





All
statements other than statements of historical fact are statements that could be
deemed forward-looking statements. The Company assumes no obligation and does
not intend to update these forward-looking statements, except as required by
law. When used in this report, the terms “China ACM”, “Company”, “we”, “our”,
and “us” refer to China Advanced Construction Materials Group, Inc. (a Delaware
corporation) and its wholly-owned subsidiaries Xin Ao Construction Materials,
Inc. and Beijing Ao Hang Construction Materials Technology Co., Ltd., as well as
Beijing Xin Ao Concrete Co., Ltd., the Company’s variable interest
entity.





Use
of Non-GAAP Financial Measures




The
Company makes reference to Non-GAAP financial measures in portions of
“Management’s Discussion of Financial Condition and Results of Operations”.
Management believes that investors may find it useful to review our financial
results that exclude the non-cash expense, change in fair value of warrant,
shown in the below chart, of $7,273,441 due to the adoption of a Financial
Accounting Standards Board’s (“FASB”) ASC 815 (EITF
07-05) accounting standard as discussed in the section “Derivative
Liability” below.




Management
believes that these Non-GAAP financial measures are useful to investors in that
they provide supplemental information to possibly better understand the
underlying business trends and operating performance of the Company. The Company
uses these Non-GAAP financial measures to evaluate operating performance.
However, Non-GAAP financial measures should not be considered as an alternative
to net income or any other performance measures derived in accordance with
GAAP.





Three
                          Months
                          EndedSeptember 30
                        
                        
                        
                        
                        
                        June 302009
                          (Unaudited)
                        
                        
                        2008
                          (Unaudited)
                        
                        
                        Differences
                        
                        
                        2009Net
      Income (Loss) -GAAP
                        
                        $
                        (4,522,937
                        )
                        
                        $
                        1,458,839
                        
                        
                        $
                        (5,981,776
                        )
                        
                        $
                        12,068,489Subtract:Dividends
      and accretion on redeemable convertible preferred
    stock
                        
                        $
                        340,864
                        
                        
                        $
                        309,096
                        
                        
                        $
                        31,768
                        
                        
                        
                        1,229,473Net
      Income (loss) available to Common shareholders -GAAP
                        
                        $
                        (4,863,801
                        )
                        
                        $
                        1,149,743
                        
                        
                        $
                        (6,013,544
                        )
                        
                        $
                        10,839,016Add
      Back:Change
      in fair value of warrant
                        
                        $
                        7,273,441
                        (a)
                        
                        $
                        -
                        
                        
                        $
                        7,273,441
                        
                        
                        $
                        -Adjusted
      Net Income available to Common shareholders -non-GAAP
                        
                        $
                        2,409,640
                        
                        
                        $
                        1,149,743
                        
                        
                        $
                        1,259,897
                        
                        
                        $
                        10,839,016Basic
      earning (loss) per share - GAAP
                        
                        $
                        (0.44
                        )
                        
                        $
                        0.11
                        
                        
                        $
                        (0.55
                        )
                        
                        $
                        1.03Add
      back:Change
      in fair value of warrant
                        
                        $
                        0.66
                        
                        
                        $
                        -
                        
                        
                        $
                        0.66
                        
                        
                        $
                        -Adjusted
      basic earning per share non-GAAP
                        
                        $
                        0.22
                        
                        
                        $
                        0.11
                        
                        
                        $
                        0.11
                        
                        
                        $
                        1.03Diluted
      earning (loss) per share-GAAP
                        
                        $
                        (0.44
                        )
                        
                        $
                        0.10
                        
                        
                        $
                        (0.54
                        )
                        
                        $
                        0.86Add
      back:Change
      in fair value of warrant
                        
                        $
                        0.48
                        
                        
                        $
                        -
                        
                        
                        $
                        0.48
                        
                        
                        $
                        -Change
      in diluted earnings
                        
                        $
                        0.14
                        
                        
                        $
                        -
                        
                        
                        $
                        0.14
                        
                        
                        $
                        -Adjusted
      diluted earning per share non-GAAP
                        
                        $
                        0.18
                        
                        
                        $
                        0.10
                        
                        
                        $
                        0.08
                        
                        
                        $
                        0.86Weighted
      average number of shares - GAAPBasic
                        
                        
                        10,985,405
                        
                        
                        
                        10,525,000
                        
                        
                        
                        -
                        
                        
                        
                        10,526,719Diluted
                        
                        
                        10,985,405
                        
                        
                        
                        14,121,413
                        
                        
                        
                        -
                        
                        
                        
                        14,032,479Weighted
      average number of shares - non GAAPBasic
                        
                        
                        10,985,405
                        
                        
                        
                        10,525,000
                        
                        
                        
                        -
                        
                        
                        
                        10,526,719Diluted
                        
                        
                        15,061,158
                        
                        
                        
                        14,121,413
                        
                        
                        
                        -
                        
                        
                        
                        14,032,479




27


(a)
The Company adopted the provisions of a FASB accounting standard, ASC
815 (EITF 07-05), which provides standards with respect to determining
whether an instrument (or embedded feature) is indexed to an entity’s own stock.
As a result of adopting this accounting standard, warrants previously treated as
equity pursuant to the derivative treatment exemption are no longer afforded
equity treatment because the warrants have a downward ratchet provision on the
exercise price. As a result, the warrants are not considered indexed to the
Company’s own stock, and as such, all future changes in the fair value of these
warrants will be recognized currently in earnings until such time as the
warrants are exercised or expired. Effective July 1, 2009, the Company
reclassified the fair value of these warrants from equity to liability, as if
these warrants were treated as a derivative liability since their issuance in
June 2008.  On July 1, 2009, the Company recognized a
$7,273,441  loss from the change in fair value for the three
months ended September 30, 2009.





Overview




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




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


28


Together
with our subsidiaries, we provide materials and services through our network of
seven ready-mixed concrete plants throughout Beijing and eleven portable
concrete plants located in various provinces all over China in supporting our
high speed railway projects during the first quarter of fiscal year 2010. We own
one concrete plant and its related equipment, lease three plants.  In
addition, we have technical and preferred procurement agreements with three
independently owned concrete mixture stations, pursuant to which we are paid by
percentages of cost savings for technical support provided to clients and of
sales price for projects we refer to other stations due to the geographical
location of our owned and leased plants. Our manufacturing services are
used primarily for our national high speed railway projects; almost all of our
general contract contractors on the high speed railway projects supply the
needed raw materials, which results in higher gross margins for us and reduces
our upfront capital investments needed to purchase raw materials.  We
also produce ready-mix concrete at portable plants, which can be dismantled and
moved to new sites for new projects. Our management believes that we have the
ability to capture a much greater share of the Beijing market and further expand
our footprint in China via expanding relationships and networking, signing new
contracts, and continually developing market-leading innovative and eco-friendly
ready-mix concrete products.  Based on reports from the National
Development and Reform Commission, or NDRC, we anticipate that our market share
will further expand due to the announced $586 billion infrastructure stimulus
packages by the Chinese government last year, which will focus primary on
transportation related projects such as railway, highway, and transportation
related infrastructure.





Principal
Factors Affecting Our Financial Performance




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




Large Scale Contractor
Relationships. We have contracts with major construction contractors
which are constructing key infrastructure, commercial and residential projects.
Our sales efforts focus on large-scale projects and large customers which place
large recurring orders and present less credit risks to us. For the three months
ended September 30, 2009, two customers accounted for approximately 10.17% of
the Company’s sales and approximately 7.26% of the Company’s accounts
receivable. For the three months ended September 30, 2008, two customers
accounted for approximately 37.3% of the Company’s sales and 9.3% of the
Company’s accounts receivable.




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




Innovation Efforts. We strive
to produce the most technically and scientifically advanced products to our
customers and maintain close relationships with Tsinghua University, Xi’an
University of Architecture and Technology and Beijing Dongfangjianyu
Institute of Concrete Science & Technology which assist us with our
research and development activities. During our 5 year agreement with the
parties, we have realized an advantage over many of our competitors by gaining
access to a wide array of resources and knowledge.  At present, no
payments have been made by us under the agreement.





PRC
Taxation





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





Xin Ao
has been using recycled raw materials in its production since its inception
which entitled us to an income tax exemption from January 1, 2003 through
December 31, 2007 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 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 Enterprise Income Tax (“EIT”) law replaced the existing
laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”).
Effective January 1, 2009, the China-ACM new reduced EIT rate of 15% replaced
the existing rates of 25% currently applicable to both DES and
FIEs.


29


Derivative
Liability





Effective
July 1, 2009, the Company became subject to a FASB accounting standard, ASC 815(EITF 07-05),
which determines whether an instrument (or embedded feature) is indexed to an
entity’s own stock.  This accounting standard specifies that a
contract which would otherwise meet the definition of a derivative but is both
(a) indexed to the Company’s own stock and (b) classified as stockholders’
equity in the statement of financial position would not be considered a
derivative financial instrument.  This accounting
standard  provides a new two-step model to be applied in determining
whether a financial instrument or an embedded feature is indexed to an issuer’s
own stock and thus able to qualify for the scope exception.





As such,
warrants previously treated as equity pursuant to the derivative treatment
exemption are no longer afforded equity treatment because the warrants have a
downward ratchet provision on the exercise price. As a result, the warrants are
not considered indexed to the Company’s own stock, and, as such, all future
changes in the fair value of these warrants will be recognized as earnings until
such time as the warrants are exercised or expire.





The
conversion option does not need to be separated from the redeemable convertible
preferred stock and accounted for as derivative liability because it contains a
residual equity interest, which on dissolution and liquidation of the Company,
entitle the preferred stockholders to liquidation value and accumulated
dividends, and rank equal with the common shareholders on an as if converted
basis.  A 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.





Results
of Operations




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





Three Months Ended
                            September 30,2009
                          
                          
                          2008(Unaudited)
                          
                          
                          (Unaudited)Total
      revenue
                          
                          $
                          19,481,136
                          
                          
                          $
                          5,136,746Total
      cost of revenue
                          
                          
                          16,194,100
                          
                          
                          
                          2,448,332Gross
      profit
                          
                          
                          3,287,036
                          
                          
                          
                          2,688,414Selling,
      general and administrative expenses
                          
                          
                          (895,031
                          )
                          
                          
                          (657,109
                          )Other
      (expense) income, net
                          
                          
                          (6,378,128
                          )
                          
                          
                          2,361(Loss)
      Income before provision for income taxes
                          
                          
                          (3,986,123
                          )
                          
                          
                          2,033,666Income
      taxes expense
                          
                          
                          (536,814
                          )
                          
                          
                          (574,827
                          )Net
      (Loss) income
                          
                          
                          (4,522,937
                          )
                          
                          
                          1,458,839Dividends
      and accretion on redeemable preferred
                          
                          
                          340,864
                          
                          
                          
                          309,096Net
      (Loss) income available to Common shareholders
                          
                          $
                          (4,863,801
                          )
                          
                          $
                          1,149,743


30







Three Months Ended
                      September30,2009
                    
                    
                    2008(Unaudited)
                    
                    
                    (Unaudited)Total revenue
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %Total
      cost of revenue
                    
                    
                    83.1
                    %
                    
                    
                    47.7
                    %Gross profit
                    
                    
                    16.9
                    %
                    
                    
                    52.3
                    %Selling,
      general and administrative expenses
                    
                    
                    (4.6
                    )%
                    
                    
                    (12.8
                    )%Other
      expense, net
                    
                    
                    (32.7
                    )%
                    
                    
                    0.0
                    %(Loss) Income before provision
      for incometaxes
                    
                    
                    (20.4
                    )%
                    
                    
                    39.5
                    %Income
      taxes expense
                    
                    
                    (2.8
                    )%
                    
                    
                    (11.2
                    )%Net (loss) income
                    
                    
                    (23.2
                    )%
                    
                    
                    28.3
                    %Dividends
      and accretion on redeemable preferred
                    
                    
                    1.7
                    %
                    
                    
                    6.0
                    %Net (loss) income available to
      Common shareholders
                    
                    
                    (24.9
                    )%
                    
                    
                    22.3
                    %





Comparison
of the three months Ended September 30, 2009 and 2008





Revenue.
Our revenue is generated from sales of our advanced ready-mix concrete products,
manufacturing services, technical consulting services, and mixer rental. For the
three months ended September 30, 2009, we generated revenue of $19,481,136
compared to $5,136,746 during the same period of 2008, an increase of
$14,344,390 or 279.3%. The Company increased its production volumes from fixed
concrete plants in Beijing area in the first quarter this fiscal year compared
to the same period last year.  As a result, our concrete sales revenue
increased by $13,019,070, despite
a decrease in unit sale price, compared to the same period last year.
During the quarter ended September 30, 2009, we continued to supply concrete
products to eleven railway projects all over China through our portable plants,
specifically the projects located in Jiangsu Province, Hebei Province, Guangxi
Province, Zhejiang Province, Guangdong Province, Henan Province, Liaoning
Province, and Beijing. These eleven projects contributed $2,805,614 to our total
revenue for the quarter ended September 30, 2009 compared to $1,925,543 in
revenue from three projects we operated for the same quarter in 2008. The
revenue increase in manufacture service was principally due to additional
portable plants we operated this fiscal quarter compared to the same quarter
last year. For these railway projects, the general contractors supplied their
own raw materials and we provided manufacturing and transportation services. In
addition, technical consulting services generated revenue of $1,244,895 during
the first quarter of 2009, an increase of $628,098 or 101.8% compared to the
same quarter in 2008. During the three month period ended September 30, 2009, we
also rented our mixer trucks to mixture stations which generated mixer rental
revenues of $543,870, a decrease of $112,944 or 17.2%. During this quarter, we
relocated some mixer trucks to support our manufacture services and thus reduced
the availability of mixer truck rental. We anticipate our overall sales revenue
will continue to grow as the Chinese government announced its 4 trillion Yuan
(USD$586 billion) stimulus package in November 2008 well as the Chinese
government’s railroad project plans which are expected to cost a total of $730
billion through 2020. We should be a direct beneficiary of transportation and
infrastructure build-out from China’s stimulus package. In addition, we plan to
continue expanding our business into new geographical markets by leveraging our
strong relationships with major contractors throughout China.





Cost of
Sales. Cost of
Sales, which consists of direct labor, rentals, depreciation, other overheads
and raw materials including inbound freight charge, was $16,194,100 for the
quarter ended September 30, 2009 as compared to $2,448,332 for the quarter ended
September 30, 2008, an increase of 561.4% or $13,745,768.  During the
fiscal quarter prior to the celebration of National Day of the People's Republic
of China in Beijing, our primary area of operation, all construction surrounding
the city was halted and delayed due to severe restrictions on traffic controls.
The increase on cost of revenue was due to overall increase in production from
four fixed concrete plants in Beijing areas and increase production on
manufacture and technical services as well as other services compared to the
same period in 2008. The increase in cost of sales was also due to increases in
cruel oil prices which increased the costs of raw materials and transportation
during the quarter. The cost of sales on concrete increased $12,776,409 this
fiscal quarter compared to the same quarter last year.  Such increase
was due to an increase in our concrete production as a result of the three
additional plants we added in last fiscal quarter, as well as the increase in
cruel oil prices as indicated above. Although our production volume increased
during this fiscal quarter, the overall plant utilization rate was down mainly
due to severe traffic and construction restrictions in Beijing in anticipation
of the National Day of the PRC and the increase in the price of cruel oil. Cost
of sales in manufacturing service increased $1,259,959 during the fiscal quarter
ended September 30, 2009 as compared to the same quarter last
year.  Such increase was due to the increase in total operational
capacity and decrease in utilization rate for the three new portable plants we
recently added to operation as well as an increase in transportation costs. We
anticipate our production and utilization rate will start picking up during the
second quarter as the celebration National Day of PRC came to an end in the
beginning of October.  However, we are uncertain whether the cruel oil
prices will maintain at the current level in the near future.




Gross
Profit. Our gross profit is equal to the difference between our revenue
and cost of sales. Gross profit was $3,287,036 for the fiscal quarter ended
September 30, 2009 as compared to $2,688,414 for the quarter ended September 30,
2008. The gross profit for sale of concrete was $550,041 or 3.7% for the quarter
ended September 30, 2009 compared to $307,380 or 16.5% for the same period last
year, an increase of $242,661. The decrease in concrete gross margin this fiscal
quarter compared to the same period last year was primarily due to the increase
in costs of raw materials and transportation as a result of the increase in the
price of cruel oil as well as the low utilization rate from newly leased plants
and traffic restrictions due to the National Day of the PRC as discussed
above. However, heading into the second quarter, our traditional concrete
production continues to increase and our utilization has improved, which should
favorably impact our gross margins.  The gross profit on our manufacturing
services was $1,048,447 or 37.4% for the quarter ended September 30, 2009, a
decrease of $379,888. Such decrease was principally due to fixed costs incurred
on our new portable plants before they commenced production during the quarter
as well as the increase in costs of transportation.  We expect the
gross margin in manufacturing services will start picking up in the second
fiscal quarter this year as the celebration of National Day of PRC came to an
end in the beginning of October. The gross margins on technical services and
mixer rental were 95.6% and 91.6% respectively during the quarter ended
September 30, 2009.  We plan to continue expanding our manufacturing
and technical services, which produce the highest gross profits among our
revenue sectors.


31


Selling, General
and Administrative Expenses. Selling, general and administrative expenses
consist of sales commissions, advertising and marketing costs, office rent and
expenses, costs associated with staff and support personnel who manage our
business activities, and professional and legal fees paid to third parties. The
company incurred selling, general and administrative expenses of $895,031 for
the quarter ended September 30, 2009, an increase of 36.2% or $237,922, as
compared to $657,109 for the quarter ended September 30, 2008. The increase was
principally due to increase in salary expense, research and development expense,
and sale and marketing expense resulting from our overall production expansion
during the quarter.





Other Income
(Expense), net. Our other income (expense) consists of valued added tax
exemption from the government, interest income (expense), change in fair value
of warrants, and other non-operating income (expense). We incurred net other
expense of $6,378,128 for the quarter ended September 30, 2009 as compared to
net other income of $2,361 for the quarter ended September 30, 2008, a decrease
of $6,380,489. The decrease in net other income was primarily due the increase
in other non-operating expense and a non-cash loss due to changes in the
fair value of our outstanding warrant of $7,273,441, which was a result of the
adoption of the accounting standard aforementioned in July 1, 2009 which
requires us to record financial instruments such as warrants as derivative
liabilities and a non-cash charge to income statement at fair market value (See
Note 2, Financial Instruments). We also experienced an increase in other subsidy
income for $739,178 during the three months ended September 30, 2009 as compared
to the same period of 2008. In addition, we had interest expenses of $23,753 for
the quarter ended September 30, 2009 as compared to $228,774 for the quarter
ended September 30, 2008, a decrease of $205,021. The decrease of interest
expense was primarily due to us paying off a short-term loan in July
2009.





Provision for
Income Taxes. Provision for income taxes amounted to $536,814 and
$574,827 for the quarters ended September 30, 2009 and 2008, 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 and as of January 1, 2009, to 15% income tax rate.  Accordingly,
our total income taxes incurred for the fiscal quarter ended September 30, 2009
comprised of 15% income tax rate compared to 25% income tax rate for the same
quarter last year. The new tax rate granted to the Company in June this year and
the provision for income taxes provision was retro-active adjusted from the
beginning of the calendar year 2009 in the fourth quarter ended June 30, 2009.
The Company paid $1,682,537 for its corporate income tax during this
quarter.  In the past, XinAo has paid the corporate income tax on
behalf of China-ACMH, and there could be a potential liability for additional
taxes for China-ACMH, though at present the Company is unable to determine the
extent of any such liability, if any




Net(Loss)Income. We
incurred a net loss of $4,522,937 for the quarter ended September 30, 2009, as
compared to net income of $1,458,839 for the same quarter in 2008, a decrease of
$5,981,776. Such decrease in net income was attributable to an increase in our
plant production in the Beijing area, higher gross profits on the eleven railway
projects, technical services, and rental income from mixing trucks, all of which
was offset by an increase in selling, general, and administrative expense as
well as a non-cash loss of $7,273,441 related to changes in the fair value of
our outstanding warrant. As discussed above, we adopted an accounting standard
in July 1, 2009, and the warrants issued in connection with our June 11, 2008
private placement were re-classed from equity to derivative warrant liabilities
and marked to fair market value.  Our management believes that our
profits should increase during the next 12 months as we continue to expand into
service sectors that generate higher gross margins and because we are a direct
beneficiary of Chinese government’s stimulus package on infrastructure projects.
We also plan to lease or build new plants in order to increase our accessibility
to construction sites located in Beijing, expand into other geographical areas,
as well as vertically integrate our operations across the supply chain, which
should lower our costs and provide greater profitability





Excluding
the affect from non-cash loss related to changes in fair market of warrant, our
net income would be $2,750,504 for the three months ended September 30, 2009 as
compared to net income of $1,458,839 for the same period in 2008, during which
we did not incur the same non-cash loss.  See the section “Use of
Non-GAAP Financial Measures” above for a discussion regarding the presentation
of net income excluding non-cash expense.





Dividends and
accretion on redeemable preferred stock.The increase in
dividends and accretion on redeemable convertible preferred stock of $31,768
compared to the quarter ended September 30, 2008 was due to our redeemable
preferred stock offering in June 2008.  It included preferred dividend
expense of $149,126 and $158,855 for the quarter ended September 30, 2009 and
2008 and accretion of discount on the preferred stock of $191,738 and $150,241
for the quarter ended September 30, 2009 and 2008.





Liquidity
and Capital Resources




As of
September 30, 2009, we had cash and cash equivalents of $2,187,981 and
restricted cash of $217,483. The following table provides detailed information
about our net cash flow for financial statement periods presented in this Form
10-Q:


32





Three Months EndedSeptember30,(Unaudited)
                  
                  
                  (Unaudited)2009
                  
                  
                  2008Net
      cash provided by (used in) operating activities
                  
                  $
                  1,522,618
                  
                  
                  $
                  (276,589
                  )Net
      cash used in  investing activities
                  
                  
                  (101,183
                  )
                  
                  
                  (19,067
                  )Net
      cash (used in) provided by financing activities
                  
                  
                  (2,859,398
                  )
                  
                  
                  3,470,466Effect
      of foreign currency translation on cash and cash
    equivalents
                  
                  
                  (8,861
                  )
                  
                  
                  (1,343
                  )Net
      (decrease) increase in cash and cash equivalent
                  
                  $
                  (1,446,824
                  )
                  
                  $
                  3,173,467





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





Comparison
of the Three Months Ended September 30, 2009 and 2008





Net Cash Provided
by Operating Activities. Net cash provided by operating activities
totaled $1,522,618 for the three months ended September 30, 2009 as compared to
net cash used in operating activities of $276,589 for the quarter ended
September 30, 2008. The increase in net cash provided by operating activities
was primarily due to accounts payable and other receivables, which were
partially offset by deferred payment of cash on tax and accounts receivable
during the three month ended September 30, 2009. We expect our cash flow from
operating activities to improve as the construction industry in Beijing
increases its activity following the PRC National Day holiday, and we strengthen
our efforts to negotiate more favorable terms with our suppliers and
customers.




Net Cash Used In
Investing Activities.  Net cash used in investing activities was
$101,183for the
three month ended September 30, 2009 as compared to $19,067 for the three month
ended September 30, 2008. The cash was principally used to purchase new
production and office equipment for the three month ended September 30,
2009.





Net Cash Provided
by/used in Financing Activities. Net cash used in financing activities
totaled $2,859,398for the three months
ended September 30, 2009 as compared to net cash provided by financing
activities of $3,470,466 for the three month ended September 30, 2008. The
decrease in cash used by financing activities was due to a short-term loan
payoff of $4,395,000 (RMB 30 million) to Beijing International Trust &
Investment Co., offset by proceeds of our common stock offering of $1,497,272 in
July 2009, compared to proceeds of short term loans of $7,354,278 in the same
quarter last year. The net proceeds from the common stock offering this quarter
will be used for building plants, purchasing concrete mixers and pump trucks,
working capital and general corporate purposes.





Cash.  As of September
30, 2009, we had cash of $2,187,981 as compared to $5,083,962 as of September
30, 2008. This decrease was due principally to a decrease in accounts receivable
and a short-term loan payoff of $4,395,000 (RMB 30 million) to Beijing
International Trust & Investment Co., which was partially offset by increase
in short-term borrowings and prepayment





We
believe that we can meet our liquidity and capital requirements for our ongoing
operations from a variety of sources in 2010 without conducting a financing,
however, we will need to raise additional capital in order to
undertake out current plans for expansion.





Loan
Facilities





We had a
total of $117,000 and $4,512,200 outstanding on loans and credit facilities as
of September 30, 2009 and June 30, 2009 respectively. For the three months ended
September 30, 2009, we had paid $4,385,260 for our June 30, 2009 outstanding
loan.





Total
interest expense on short-term loans for the three months ended September 30,
2009 and 2008 amounted to $23,753 and $227,811, respectively.


33





Seasonality




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




Critical
Accounting Policies and Estimates




The
accompanying consolidated financial statements include the financial statements
of China ACM and its wholly owned subsidiaries, BVI-ACM, China-ACMH and its
variable interest entity Xin Ao. All significant inter-company transactions and
balances have been eliminated in consolidation. China ACM, its subsidiaries and
Xin Ao, together are referred to as the Company. In accordance with an
accounting standard regarding the consolidation of 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 accounting standard 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 into the Company’s
consolidated financial statements.





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





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




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


Ÿ
              Persuasive
      evidence of an arrangement exists (the Company considers its sales
      contracts and technical service agreements to be pervasive evidence of an
      arrangement);
 Ÿ
                Delivery
      has occurred or services have been
  rendered;
 Ÿ
                  The
      seller’s price to the buyer is fixed or determinable;
      and
 Ÿ
                    Collectability
      of payment is reasonably
assured.


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





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





Due to
the fact that the Company uses recycled raw materials to manufacture its
products, the State Administration of Taxation has granted the Company VAT tax
exemption from August 2005 through to August 2011. The VAT tax collected from
the Company’s customers is kept by the Company and recorded as Other Subsidy
Income.





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




34




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, 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.





As of
September 30, 2009, the outstanding principal on the Company’s short term loan
was $117,000.  The Company paid off its bank loan balance due to
Beijing International Trust Co. Ltd. for the amount of $4,395,000 in July 2009.
Management concluded the carrying value of the short term loan is a reasonable
estimate of fair value because the amounts are due within one year and the
stated interest rate approximates current rates available.





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





Effective
July 1, 2009, the Company adopted the provisions of an accounting standard
issued by the FASB, which defines determining whether an instrument (or embedded
feature) is indexed to an entity’s own stock. This accounting standard is
effective for financial statements for fiscal years beginning after December 15,
2008.  It specifies that a contract that would otherwise meet the
definition of a derivative but is both (a) indexed to the Company’s own stock
and (b) classified in stockholders’ equity in the statement of financial
position would not be considered a derivative financial
instrument.  This accounting standard provides a new two-step model to
be applied in determining whether a financial instrument or an embedded feature
is indexed to an issuer’s own stock and thus able to qualify for the ASC Topic
815 scope exception.





As a
result of adopting this accounting standard, warrants previously treated as
equity pursuant to the derivative treatment exemption are no longer afforded
equity treatment because the warrants have downward ratchet provision on the
exercise price. As a result, the warrants are not considered indexed to the
Company’s own stock, and as such, all future changes in the fair value of these
warrants will be recognized currently in earnings until such time as the
warrants are exercised or expired.





As such,
effective July 1, 2009, the Company reclassified the fair value of these
warrants from equity to liability, as if these warrants were treated as a
derivative liability since their issuance in June 2008.  On July 1, 2009,
the Company reclassified from additional paid-in capital, as a cumulative effect
adjustment, $1,965,945 to beginning retained earnings and $3,337,225 to warrant
liabilities to recognize the fair value of such warrants. The fair value of
the warrants was $10,254,840 on September 30, 2009 determined by using level
3.  Therefore, the Company recognized a $7,273,441 (un-audited) loss
from the change in fair value for the three months ended September 30,
2009.





These
common stock purchase warrants do not trade in an active securities market, and
as such, we estimate the fair value of these warrants using the
Cox-Ross-Rubinstein (“CRR”) Binomial Model using the following
assumptions:





September 30, 2009
                    
                    
                    July 1, 2009(Unaudited)Annual
      dividend yieldExpected
      life (years)
                    
                    
                    3.75
                    
                    
                    
                    4.00Risk-free
      interest rate
                    
                    
                    1.75
                    %
                    
                    
                    2.07
                    %Expected
      volatility
                    
                    
                    75
                    %
                    
                    
                    75
                    %





Expected
volatility is based on historical volatility of a similar U.S. public company
due to limited trading history of the Company’s common stock.  The
Company has no reason to believe future volatility over the expected remaining
life of these warrants is likely to differ materially from historical
volatility. The expected life is based on the remaining term of the warrants.
The risk-free interest rate is based on U.S. Treasury securities according to
the remaining term of the warrants. The expected dividend yield was based on the
Company’s current and expected dividend policy.




35




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





The
following table sets forth by level within the fair value hierarchy our
financial assets and liabilities that were accounted for at fair value on a
recurring basis as of September 30, 2009 (unaudited).





Carrying Value
                              atSeptember
                              30, 2009
                            
                            
                            Fair Value Measurement at
                              September 30, 2009Level 1
                            
                            
                            Level 2
                            
                            
                            Level 3Marketable
      securities
                            
                            $
                            66,178
                            
                            
                            $
                            66,178
                            
                            
                            $
                            -
                            
                            
                            $
                            -Derivative
      liability - warrants
                            
                            $
                            10,254,840
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            10,254,840





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




The
Company analyzes all financial instruments with features of both liabilities and
equity. The Company did not identify any assets and liabilities, other than
marketable securities, that are required to be presented on the consolidated
balance sheets at fair value in accordance with the accounting standard
aforesaid.





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





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





Recently Issued Accounting
Pronouncements





Recently issued accounting
pronouncements





In
January 2009, the FASB issued an accounting standard which amended the
impairment model by removing its exclusive reliance on “market participant”
estimates of future cash flows used in determining fair value. Changing the cash
flows used to analyze other-than-temporary impairment from the “market
participant” view to a holder’s estimate of whether there has been a “probable”
adverse change in estimated cash flows allows companies to apply reasonable
judgment in assessing whether an other-than-temporary impairment has occurred.
The adoption of this accounting standard did not have a material impact on the
Company’s consolidated financial statements because all of the investments
in debt securities are classified as trading securities.





In April
2009, the FASB issued authoritative guidance related to the determination of
fair value when the volume and level of activity for an asset or liability has
significantly decreased, the identification of transactions that are not
orderly, the recognition and presentation of other-than-temporary impairments,
and the disclosure of the fair value of financial instruments on an interim
basis. The adoption of the guidance did not have a material impact on the
Company’s consolidated financial statements.





In April
2009, the FASB issued an accounting standard to make the other-than-temporary
impairments guidance more operational and to improve the presentation of
other-than-temporary impairments in the financial statements. This standard will
replace the existing requirement that the entity’s management assert it has both
the intent and ability to hold an impaired debt security until recovery with a
requirement that management assert it does not have the intent to sell the
security, and it is more likely than not it will not have to sell the security
before recovery of its cost basis. This standard provides increased disclosure
about the credit and noncredit components of impaired debt securities that are
not expected to be sold and also requires increased and more frequent
disclosures regarding expected cash flows, credit losses, and an aging of
securities with unrealized losses. Although this standard does not result in a
change in the carrying amount of debt securities, it does require that the
portion of an other-than-temporary impairment not related to a credit loss for a
held-to-maturity security be recognized in a new category of other comprehensive
income and be amortized over the remaining life of the debt security as an
increase in the carrying value of the security. This standard became effective
for interim and annual periods ending after June 15, 2009. The adoption of
this standard did not have a material impact on the Company’s consolidated
financial statements.




36




In April
2009, the FASB issued an accounting standard that requires disclosures about
fair value of financial instruments not measured on the balance sheet at fair
value in interim financial statements as well as in annual financial statements.
Prior to this accounting standard, fair values for these assets and liabilities
were only disclosed annually. This standard applies to all financial instruments
within its scope and requires all entities to disclose the method(s) and
significant assumptions used to estimate the fair value of financial
instruments. This standard does not require disclosures for earlier periods
presented for comparative purposes at initial adoption, but in periods after the
initial adoption, this standard requires comparative disclosures only for
periods ending after initial adoption. The adoption of this standard did not
have a material impact on the disclosures related to its consolidated financial
statements.





In May
2009, the FASB an accounting standard which provides guidance to establish
general standards of accounting for and disclosures of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. The standard also requires entities to disclose the date
through which subsequent events were evaluated as well as the
rationale for why that date was selected. The standard is effective for
interim and annual periods ending after June 15, 2009, and accordingly, the
Company adopted this Standard during the second quarter of 2009. The standard
requires that public entities evaluate subsequent events through the date
that the financial statements are issued.





In June
2009, the FASB issued an accounting standard amending the accounting and
disclosure requirements for transfers of financial assets. This accounting
standard requires greater transparency and additional disclosures for transfers
of financial assets and the entity’s continuing involvement with them and
changes the requirements for derecognizing financial assets. In addition, it
eliminates the concept of a qualifying special-purpose entity (“QSPE”). This
accounting standard is effective for financial statements issued for fiscal
years beginning after November 15, 2009. The Company has not completed
the assessment of the impact this new standard will have on the Company’s
financial condition, results of operations or cash flows.





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





In June
2009, the FASB issued an accounting standard which establishes the FASB
Accounting Standards CodificationTM (the “Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. The Codification does not change current U.S.
GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by
providing all the authoritative literature related to a particular topic in
one place. The Codification is effective for interim and annual periods ending
after September 15, 2009, and as of the effective date, all existing
accounting standard documents will be superseded. The Codification is effective
for the Company in the third quarter of 2009, and accordingly, the
Company’s Quarterly Report on Form 10-Q for the quarter ending September 30,
2009 and all current and subsequent public filings will reference
the Codification as the sole source of authoritative
literature.





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





In
October 2009, the FASB issued an ASU regarding accounting for own-share lending
arrangements in contemplation of convertible debt issuance or other
financing.  This ASU requires that at the date of issuance of the
shares in a share-lending arrangement entered into in contemplation of a
convertible debt offering or other financing, the shares issued shall be
measured at fair value and be recognized as an issuance cost, with an offset to
additional paid-in capital. Further, loaned shares are excluded from basic and
diluted earnings per share unless default of the share-lending arrangement
occurs, at which time the loaned shares would be included in the basic and
diluted earnings-per-share calculation.  This ASU is effective for
fiscal years beginning on or after December 15, 2009, and interim periods within
those fiscal years for arrangements outstanding as of the beginning of those
fiscal years. The Company is currently evaluating the impact of this ASU on its
consolidated financial statements.





Off-Balance
Sheet Arrangements




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




37




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




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




As of
September 30, 2009, the quarterly period covered by this report, we carried out
an evaluation, under the supervision and with the participation of our
management, including our principal executive officer and our principal
accounting and financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on the foregoing, our
president and our chief financial officer concluded that our disclosure controls
and procedures were not effective as of September 30, 2009 or during the entire
period covered by this report.




Changes
in Internal Control over Financial Reporting.




During
the fiscal quarter ended September 30, 2009, 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, 2009, which
could materially affect our business, financial condition or future results. The
risks described in our Annual Report on Form 10-K are not the only risks
facing our Company. Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect
our business, financial condition or future results.





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





There
were no unregistered sales of equity securities during the fiscal quarter ended
September 30, 2009.




38




ITEM
3.     DEFAULTS UPON SENIOR SECURITIES





There
were no defaults upon senior securities during the fiscal quarter ended
September 30, 2009.





ITEM
4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





No
matters were submitted to a vote of our security holders during the fiscal
quarter ended September 30, 2009.





ITEM
5.     OTHER INFORMATION





Not
applicable.





ITEM
6.     EXHIBITS





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





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




39




SIGNATURES





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








Date: November 16, 2009
                    CHINA ADVANCED CONSTRUCTION
                      MATERIALS GROUP, INC.By:
                    /s/
      Xianfu HanXianfu
      Han, Chief Executive Officer(Principal
      Executive Officer)By:
                    /s/ Chin
      HsiaoChin
      Hsiao, Chief Financial Officer(Principal
      Financial Officer and Principal
                      Accounting
      Officer)