UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549









FORM
10-Q









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





For
the quarterly period ended December 31, 2008





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





For
the transition period from ______to______.





CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC.


(Exact
name of registrant as specified in Charter)





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





Xianfu
Han


Yingu
Plaza, 9 Beisihuanxi Road, Suite 1708


Haidian
District, Beijing 100080 PRC


(Address
of Principal Executive Offices)









+86
10 82525361


(Issuer
Telephone number)







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




Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the issuer was required to file such reports), and (2)has been
subject to such filing requirements for the past 90 days. Yes  x
  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 filer.
 See definition of “accelerated filer” and “large accelerated filer” in
Rule 12b-2 of the Exchange Act (Check one):




Large
Accelerated Filer   ̈     Accelerated
Filer   ̈     Non-Accelerated
Filer   ̈     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 x




State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of February 12, 2009: 10,525,000 shares of common stock.










CHINA ADVANCED CONSTRUCTION MATERIALS
GROUP, INC.





FORM
10-Q





December
31, 2008





INDEX





PART
      I— FINANCIAL INFORMATIONItem
      1.
                Financial
      Statements
                2Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition
                39Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                52Item 4T.
                Control
      and Procedures
                52PART
      II— OTHER INFORMATIONItem
      1
                Legal
      Proceedings
                53Item 1A
                Risk
      Factors
                53Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                53Item
      3.
                Defaults
      Upon Senior Securities
                53Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                53Item
      5.
                Other
      Information
                53Item
      6.
                Exhibits
      and Reports on Form 8-K
                53SIGNATURE
                54









Item
1. Financial Information





CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC.





FINANCIAL
STATEMENTS





AS
OF DECEMBER 31, 2008





CONTENTS





CONSOLIDATED
      BALANCE SHEETS AS OF DECEMBER 31, 2008 (UNAUDITED) AND AS OF JUNE 30, 2008
      (AUDITED).
              3CONSOLIDATED
      STATEMENTS OF OPERATIONS FOR THE SIX MONTHS AND THREE MONTHS ENDED
      DECEMBER 31, 2008 AND 2007 (UNAUDITED).
              4CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY FOR THE SIX MONTHS ENDED DECEMBER 31,
      2008 (UNAUDITED).
              5CONSOLIDATED
      STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 2008 AND
      2007 (UNAUDITED).
              6NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
              7-38




- 2
-


CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
 
 CONSOLIDATED
BALANCE SHEETS
 AS OF
DECEMBER 31 AND JUNE 30, 2008
 
 December
      31, 2008
                                                                              
                                                                              
                                                                              June
      30, 2008(Unaudited)
                                                                              
                                                                              
                                                                              RESTATEDASSETSCURRENT
      ASSETS:Cash
                                                                              
                                                                              $
                                                                              3,225,178
                                                                              
                                                                              
                                                                              $
                                                                              1,910,495Restricted
      cash
                                                                              
                                                                              
                                                                              881,484
                                                                              
                                                                              
                                                                              
                                                                              913,092Marketable
      securities
                                                                              
                                                                              
                                                                              42,829
                                                                              
                                                                              
                                                                              
                                                                              61,767Accounts
      receivable, net of allowance for doubtful accounts of
      $273,787  and $224,924 as of December 31, 2008 and June 30,
      2008, respectively
                                                                              
                                                                              
                                                                              11,919,751
                                                                              
                                                                              
                                                                              
                                                                              9,365,486Inventories
                                                                              
                                                                              
                                                                              1,102,088
                                                                              
                                                                              
                                                                              
                                                                              237,836Other
      receivables
                                                                              
                                                                              
                                                                              717,903
                                                                              
                                                                              
                                                                              
                                                                              505,968Prepayment
                                                                              
                                                                              
                                                                              3,706,629
                                                                              
                                                                              
                                                                              
                                                                              3,240,394Total
      current assets
                                                                              
                                                                              
                                                                              21,595,862
                                                                              
                                                                              
                                                                              
                                                                              16,235,038PLANT
      AND EQUIPMENT, net
                                                                              
                                                                              
                                                                              15,780,128
                                                                              
                                                                              
                                                                              
                                                                              16,730,220OTHER
      ASSETS:Accounts
      receivable (non-current), net of allowance for doubtful accounts
      of  $508,462 and $411,061 as of December 31, 2008 and June 30,
      2008, respectively
                                                                              
                                                                              
                                                                              6,057,289
                                                                              
                                                                              
                                                                              
                                                                              4,753,006Total
      assets
                                                                              
                                                                              $
                                                                              43,433,279
                                                                              
                                                                              
                                                                              $
                                                                              37,718,264LIABILITIES
      AND SHAREHOLDERS' EQUITY
 CURRENT
      LIABILITIES:Accounts
      payable
                                  
                                  $
                                  5,665,840
                                  
                                  
                                  $
                                  6,293,553Customer
      deposits
                                  
                                  
                                  164,104
                                  
                                  
                                  
                                  165,434Short
      term loans
                                  
                                  
                                  4,899,047
                                  
                                  
                                  
                                  4,271,222Other
      payables
                                  
                                  
                                  311,289
                                  
                                  
                                  
                                  254,259Other
      payables - shareholder
                                  
                                  
                                  837,641
                                  
                                  
                                  
                                  880,302Accrued
      liabilities
                                  
                                  
                                  313,120
                                  
                                  
                                  
                                  145,207Taxes
      payable
                                  
                                  
                                  2,673,051
                                  
                                  
                                  
                                  1,073,237Total
      current liabilities
                                  
                                  
                                  14,864,092
                                  
                                  
                                  
                                  13,083,214Total
      liabilities
                                  
                                  $
                                  14,864,092
                                  
                                  
                                  $
                                  13,083,214COMMITMENTS,
      CONTINGENCIES, AND SUBSEQUENT EVENTREDEEMABLE
      PREFERRED STOCK ($0.001 par value, 875,000 shares issued) net of
      discount  of $868,064 and $1,168,548 at December 31, 2008 and
      June 30, 2008, respectively, liquidation preference of $8.00 per share and
      accrued dividends
                                  
                                  
                                  6,131,936
                                  
                                  
                                  
                                  5,831,452SHAREHOLDERS'
      EQUITY:Preferred
      stock $0.001 par value, 1,000,000 shares authorized, 875,000 redeemable
      preferred shares issued and outstanding in 2008, and classified above
      outside shareholders' equity above, liquidation preference of $8.00 per
      share and accrued dividends
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Common
      Stock, $0.001 par value, 74,000,000 shares
      authorized,  10,525,000 shares issued and outstanding,
      respectively
                                  
                                  
                                  10,525
                                  
                                  
                                  
                                  10,525Paid-in-capital
                                  
                                  
                                  12,723,533
                                  
                                  
                                  
                                  12,722,260Contribution
      receivable
                                  
                                  
                                  (1,210,000
                                  )
                                  
                                  
                                  (1,210,000
                                  )Retained
      earnings
                                  
                                  
                                  6,283,769
                                  
                                  
                                  
                                  3,257,276Statutory
      reserves
                                  
                                  
                                  1,911,996
                                  
                                  
                                  
                                  1,452,779Accumulated
      other comprehensive income
                                  
                                  
                                  2,717,428
                                  
                                  
                                  
                                  2,598,466Deferred
      compensation
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (27,708
                                  )Total
      shareholders' equity
                                  
                                  
                                  22,437,251
                                  
                                  
                                  
                                  18,803,598Total
      liabilities, redeemable preferred stock, and shareholders'
      equity
                                  
                                  $
                                  43,433,279
                                  
                                  
                                  $
                                  37,718,264
  The
accompanying notes are an integral part of these consolidated financial
statements.
  - 3
-
  CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC AND
SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 FOR THE
SIX MONTHS AND THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007
 (UNAUDITED)
 
 Six
      months ended
                                                
                                                
                                                Three
      months endedDecember
      31,
                                                
                                                
                                                December
      31,2008
                                                
                                                
                                                2007
                                                
                                                
                                                2008
                                                
                                                
                                                2007REVENUE:Sales
      of concrete
                                                
                                                $
                                                9,837,565
                                                
                                                
                                                $
                                                13,050,518
                                                
                                                
                                                $
                                                7,969,878
                                                
                                                
                                                $
                                                7,068,849Manufacturing
      services
                                                
                                                
                                                3,996,539
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,070,996
                                                
                                                
                                                
                                                -Technical
      services
                                                
                                                
                                                1,040,127
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                423,330
                                                
                                                
                                                
                                                -Mixer
      rental
                                                
                                                
                                                996,581
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                339,767
                                                
                                                
                                                
                                                -Marketing
      cooperation
                                                
                                                
                                                94,135
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                24,230
                                                
                                                
                                                
                                                -Total
      revenue
                                                
                                                
                                                15,964,947
                                                
                                                
                                                
                                                13,050,518
                                                
                                                
                                                
                                                10,828,201
                                                
                                                
                                                
                                                7,068,849COST
      OF REVENUE:Cost
      of concrete
                                                
                                                
                                                7,554,204
                                                
                                                
                                                
                                                10,550,302
                                                
                                                
                                                
                                                5,993,897
                                                
                                                
                                                
                                                5,599,431Manufacturing
      services
                                                
                                                
                                                1,293,088
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                795,880
                                                
                                                
                                                
                                                -Technical
      services
                                                
                                                
                                                97,683
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                29,781
                                                
                                                
                                                
                                                -Mixer
      rental
                                                
                                                
                                                337,043
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                44,998
                                                
                                                
                                                
                                                -Marketing
      cooperation
                                                
                                                
                                                38,707
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                7,837
                                                
                                                
                                                
                                                -Total
      cost of revenue
                                                
                                                
                                                9,320,725
                                                
                                                
                                                
                                                10,550,302
                                                
                                                
                                                
                                                6,872,393
                                                
                                                
                                                
                                                5,599,431GROSS
      PROFIT
                                                
                                                
                                                6,644,222
                                                
                                                
                                                
                                                2,500,216
                                                
                                                
                                                
                                                3,955,808
                                                
                                                
                                                
                                                1,469,418SELLING,
      GENERAL AND  ADMINISTRATIVE EXPENSES
                                                
                                                
                                                1,269,480
                                                
                                                
                                                
                                                629,266
                                                
                                                
                                                
                                                612,371
                                                
                                                
                                                
                                                330,291INCOME
      FROM OPERATIONS
                                                
                                                
                                                5,374,742
                                                
                                                
                                                
                                                1,870,950
                                                
                                                
                                                
                                                3,343,437
                                                
                                                
                                                
                                                1,139,127OTHER
      (EXPENSE) INCOME, NETOther
      subsidy income
                                                
                                                
                                                830,021
                                                
                                                
                                                
                                                782,725
                                                
                                                
                                                
                                                602,427
                                                
                                                
                                                
                                                424,010Non-operating
      income (expense), net
                                                
                                                
                                                (83,188
                                                )
                                                
                                                
                                                (27,391
                                                )
                                                
                                                
                                                (85,295
                                                )
                                                
                                                
                                                (12,682
                                                )Interest
      income
                                                
                                                
                                                3,840
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,406
                                                
                                                
                                                
                                                (1,196
                                                )Interest
      expense
                                                
                                                
                                                (446,344
                                                )
                                                
                                                
                                                (147,569
                                                )
                                                
                                                
                                                (217,570
                                                )
                                                
                                                
                                                (63,029
                                                )Total
      other income, net
                                                
                                                
                                                304,329
                                                
                                                
                                                
                                                607,765
                                                
                                                
                                                
                                                301,968
                                                
                                                
                                                
                                                347,103INCOME
      BEFORE PROVISION FOR INCOME TAXES
                                                
                                                
                                                5,679,071
                                                
                                                
                                                
                                                2,478,715
                                                
                                                
                                                
                                                3,645,405
                                                
                                                
                                                
                                                1,486,230PROVISION
      FOR INCOME TAXES
                                                
                                                
                                                1,575,230
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1,000,403
                                                
                                                
                                                
                                                -NET
      INCOME
                                                
                                                
                                                4,103,841
                                                
                                                
                                                
                                                2,478,715
                                                
                                                
                                                
                                                2,645,002
                                                
                                                
                                                
                                                1,486,230Dividends
      and accretion on redeemable preferred stock
                                                
                                                
                                                618,132
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                309,036
                                                
                                                
                                                
                                                -Net
      income available to common shareholders
                                                
                                                
                                                3,485,709
                                                
                                                
                                                
                                                2,478,715
                                                
                                                
                                                
                                                2,335,966
                                                
                                                
                                                
                                                1,486,230RECONCILIAITION
      OF COMPREHENSIVE INCOME:Net
      income
                                                
                                                
                                                4,103,841
                                                
                                                
                                                
                                                2,478,715
                                                
                                                
                                                
                                                2,645,002
                                                
                                                
                                                
                                                1,486,230Unrealized
      (loss) gain from marketable securities
                                                
                                                
                                                (19,217
                                                )
                                                
                                                
                                                23,443
                                                
                                                
                                                
                                                (5,876
                                                )
                                                
                                                
                                                (4,084
                                                )Foreign
      currency translation adjustment
                                                
                                                
                                                138,179
                                                
                                                
                                                
                                                559,325
                                                
                                                
                                                
                                                74,755
                                                
                                                
                                                
                                                386,510COMPREHENSIVE
      INCOME
                                                
                                                $
                                                4,222,803
                                                
                                                
                                                $
                                                3,061,483
                                                
                                                
                                                $
                                                2,713,881
                                                
                                                
                                                $
                                                1,868,656EARNING
      PER SHAREBasicWeighted
      average number of shares
                                                
                                                
                                                10,525,000
                                                
                                                
                                                
                                                8,809,583
                                                
                                                
                                                
                                                10,525,000
                                                
                                                
                                                
                                                8,809,583Earning
      per share
                                                
                                                $
                                                0.33
                                                
                                                
                                                $
                                                0.28
                                                
                                                
                                                $
                                                0.22
                                                
                                                
                                                $
                                                0.17DilutedWeighted
      average number of shares
                                                
                                                
                                                14,220,410
                                                
                                                
                                                
                                                8,809,583
                                                
                                                
                                                
                                                14,220,410
                                                
                                                
                                                
                                                8,809,583Earning
      per share
                                                
                                                $
                                                0.29
                                                
                                                
                                                $
                                                0.28
                                                
                                                
                                                $
                                                0.19
                                                
                                                
                                                $
                                                0.17
  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, 2007
                                  
                                  
                                  8,809,583
                                  
                                  
                                  $
                                  8,810
                                  
                                  
                                  $
                                  12,091,290
                                  
                                  
                                  $
                                  (13,470,100
                                  )
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  6,309,675
                                  
                                  
                                  $
                                  896,634
                                  
                                  
                                  $
                                  659,922
                                  
                                  
                                  $
                                  6,496,231Net
      income
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,505,554
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,505,554Adjustment
      to statutory reserve
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (247,398
                                  )
                                  
                                  
                                  247,398
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -Unrealized
      gain from marketable securities
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  27,527
                                  
                                  
                                  
                                  27,527Distribution
      to offset contribution receivable
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  7,260,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (7,627,051
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  367,051
                                  
                                  
                                  
                                  -Foreign
      currency translation gain
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  523,781
                                  
                                  
                                  
                                  523,781BALANCE,
      December 31, 2007 (unaudited)
                                  
                                  
                                  8,809,583
                                  
                                  
                                  $
                                  8,810
                                  
                                  
                                  $
                                  12,091,290
                                  
                                  
                                  $
                                  (6,210,100
                                  )
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  940,780
                                  
                                  
                                  $
                                  1,144,032
                                  
                                  
                                  $
                                  1,578,281
                                  
                                  
                                  $
                                  9,553,093Shares
      issued due to reorganization
                                  
                                  
                                  1,690,417
                                  
                                  
                                  
                                  1,690
                                  
                                  
                                  
                                  (1,690
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -Shares
      issued for services
                                  
                                  
                                  25,000
                                  
                                  
                                  
                                  25
                                  
                                  
                                  
                                  33,225
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (27,708
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  5,542Warrants
      issued to placement agent on issuanceof redeemable preferred
      stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  169,345
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  169,345Capital
      contribution received
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  5,000,100
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  5,000,100Fair
      value of warrants issued with preferred stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,201,935
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,201,935Offering
      costs related to issuance of redeemable preferred
      stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (771,845
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (771,845
                                  )Accretion
      of discount on redeemable preferred stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (33,387
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (33,387
                                  )Net
      income
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,658,630
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,658,630Adjustment
      to statutory reserve
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (308,747
                                  )
                                  
                                  
                                  308,747
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -Unrealized
      loss on marketable securities
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (40,009
                                  )
                                  
                                  
                                  (40,009
                                  )Foreign
      currency translation gain
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,060,194
                                  
                                  
                                  
                                  1,060,194BALANCE,
      June 30, 2008 - Restated
                                  
                                  
                                  10,525,000
                                  
                                  
                                  $
                                  10,525
                                  
                                  
                                  $
                                  12,722,260
                                  
                                  
                                  $
                                  (1,210,000
                                  )
                                  
                                  $
                                  (27,708
                                  )
                                  
                                  $
                                  3,257,276
                                  
                                  
                                  $
                                  1,452,779
                                  
                                  
                                  $
                                  2,598,466
                                  
                                  
                                  $
                                  18,803,598Stock
      based compensation
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  26,210
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,771
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  28,981Forfeited
      stock compensation
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (24,937
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  24,937
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -Dividends
      on redeemable preferred stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (317,650
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (317,650
                                  )Accretion
      of discount on redeemable preferred stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (300,481
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (300,481
                                  )Net
      income
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  4,103,841
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  4,103,841Adjustment
      to statutory reserve
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (459,217
                                  )
                                  
                                  
                                  459,217
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -Unrealized
      loss on marketable securities
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (19,217
                                  )
                                  
                                  
                                  (19,217
                                  )Foreign
      currency translation gain
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  138,179
                                  
                                  
                                  
                                  138,179BALANCE,
      December 31, 2008 (unaudited)
                                  
                                  
                                  10,525,000
                                  
                                  
                                  $
                                  10,525
                                  
                                  
                                  $
                                  12,723,533
                                  
                                  
                                  $
                                  (1,210,000
                                  )
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  6,283,769
                                  
                                  
                                  $
                                  1,911,996
                                  
                                  
                                  $
                                  2,717,428
                                  
                                  
                                  $
                                  22,437,251
  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
SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007
 (UNAUDITED)
 
 2008
                                      
                                      
                                      2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                                      
                                      $
                                      4,103,841
                                      
                                      
                                      $
                                      2,478,715Adjustments
      to reconcile net income to cash (used in) provided by operating
      activities:Depreciation
                                      
                                      
                                      1,071,362
                                      
                                      
                                      
                                      544,359Stock-based
      compensation expense
                                      
                                      
                                      26,210
                                      
                                      
                                      
                                      -Amortization
      of deferred compensation expense
                                      
                                      
                                      2,771
                                      
                                      
                                      
                                      -Bad
      debt expense
                                      
                                      
                                      142,485
                                      
                                      
                                      
                                      3,089Changes
      in operating assets and liabilitiesAccounts
      receivable
                                      
                                      
                                      (8,111,508
                                      )
                                      
                                      
                                      6,003,336Inventories
                                      
                                      
                                      (861,184
                                      )
                                      
                                      
                                      56,148Other
      receivables
                                      
                                      
                                      (208,733
                                      )
                                      
                                      
                                      962,577Other
      receivables - related parties
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (3,903,903
                                      )Prepayment
                                      
                                      
                                      155,626
                                      
                                      
                                      
                                      (4,564
                                      )Accounts
      payable
                                      
                                      
                                      2,931,338
                                      
                                      
                                      
                                      (4,788,317
                                      )Other
      payables
                                      
                                      
                                      55,886
                                      
                                      
                                      
                                      159,128Accrued
      liabilities
                                      
                                      
                                      166,881
                                      
                                      
                                      
                                      (1,488
                                      )Customer
      deposits
                                      
                                      
                                      (2,232
                                      )
                                      
                                      
                                      -Taxes
      payable
                                      
                                      
                                      1,590,669
                                      
                                      
                                      
                                      (630
                                      )Net
      cash provided by operating activities
                                      
                                      
                                      1,063,412
                                      
                                      
                                      
                                      1,508,450CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of plant and equipment
                                      
                                      
                                      (31,666
                                      )
                                      
                                      
                                      (11,385
                                      )Net
      cash used in investing activities
                                      
                                      
                                      (31,666
                                      )
                                      
                                      
                                      (11,385
                                      )CASH
      FLOWS FINANCING ACTIVITIES:Principal
      payments of short term loan
                                      
                                      
                                      (6,749,544
                                      )
                                      
                                      
                                      (3,031,400
                                      )Proceeds
      from short term loan
                                      
                                      
                                      7,354,278
                                      
                                      
                                      
                                      644,648Other
      payables - shareholders
                                      
                                      
                                      (43,282
                                      )
                                      
                                      
                                      -Preferred
      dividends paid
                                      
                                      
                                      (317,648
                                      )
                                      
                                      
                                      -Restricted
      cash
                                      
                                      
                                      31,608
                                      
                                      
                                      
                                      -Net
      cash provided by (used in) financing activities
                                      
                                      
                                      275,412
                                      
                                      
                                      
                                      (2,386,752
                                      )EFFECTS
      OF EXCHANGE RATE CHANGE IN CASH
                                      
                                      
                                      7,525
                                      
                                      
                                      
                                      2,391INCREASE
      (DECREASE) IN CASH
                                      
                                      
                                      1,314,683
                                      
                                      
                                      
                                      (887,296
                                      )CASH,
      beginning of period
                                      
                                      
                                      1,910,495
                                      
                                      
                                      
                                      1,424,883CASH,
      end of period
                                      
                                      $
                                      3,225,178
                                      
                                      
                                      $
                                      537,587
  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
 DECEMBER
31, 2008
 (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 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.
 
 - 7
-
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 On
November 28, 2007, China-ACMH entered a series of contractual arrangements (the
“Contractual Arrangements”) with Xin Ao and its shareholders in which China-ACMH
effectively took over management of the business activities of Xin Ao. The
Contractual Arrangements are comprised of a series of agreements,
including:
 
 ·
              Exclusive
      Technical Consulting and Services Agreement, through which China-ACMH will
      provide exclusive technical consulting and services to Xin Ao for an
      annual fee in the amount of Xin Ao’s yearly net income after
      tax.
  ·
              Equity
      Pledge Agreement, through which Xin Ao’s shareholders pledged their
      rights, title and equity interest in Xin Ao as security for China-ACMH to
      collect technical consulting and services fees provided to
      China-ACMH.
  ·
              Operating
      Agreement, through which China-ACMH has exclusive authority of all
      decision-making of ongoing major operations, including establishing
      compensation levels and hiring and termination of key personnel. In order
      to ensure Xin Ao’s normal operations, China-ACMH agreed to act as the
      guarantor and provide full guarantee for Xin Ao in entering and performing
      contracts, agreements or transactions in association with Xin Ao’s
      operations between Xin Ao and any other third parties. As a counter
      guarantee, Xin Ao agreed to mortgage all of its assets including
      receivables which have not been mortgaged to any third parties at the
      execution date of this agreement to
China-ACMH.
  ·
              Power
      of Attorney, signed by Xin Ao’s 100% shareholders Mr. Han Xianfu and Mr.
      He Weili, which authorized the individuals appointed by China-ACMH to
      exercise all of their respective voting rights as a shareholder at Xin
      Ao’s shareholder meetings.
  ·
              Option
      Agreement, through which Xin Ao’s shareholders granted China-ACMH the
      exclusive right and option to acquire all of their equity interests in Xin
      Ao. Further, the shareholders of Xin Ao pledged their shares in Xin Ao as
      collateral for the annual fees due to the
  Company.
  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.
  - 8
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 Through
China-ACMH, BVI-ACM operates and controls Xin Ao through the Contractual
Arrangements. BVI-ACM utilized the Contractual Arrangements to gain control of
the operations of Xin Ao, instead of acquiring Xin, due to : (i) new PRC laws
governing share exchange transactions with foreign entities, effective since
September 8, 2006, make the consequences of such acquisitions uncertain and (ii)
other than by share exchange transactions, PRC laws require Xin Ao to be
acquired for cash and BVI-ACM was not able to raise sufficient funds to pay the
full appraised value for Xin Ao’s assets or shares as required under PRC
laws.
 
 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.
 
 While
management believes that the disclosures are adequate and they included all
normal recurring adjustments considered necessary to give a fair presentation of
operating results for the periods presented, the results of operations for the
six months ended December 31, 2008 and 2007 are not necessarily indicative of
results for a full year. It is suggested that the information included in this
Form 10-Q should be read in conjunction with information included in the
2008 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 Financial Accounting Standards Board (“FASB”) Interpretation No.
46(R) (“FIN 46(R)”), “Consolidation of Variable Interest
Entities,” all VIEs with which the Company is involved must be evaluated
to determine the primary beneficiary of the risks for financial reporting
purposes. Through a series of Contractual Arrangements, China-ACMH effectively
took over management of daily business activities of Xin Ao and has the right to
appoint all executives, senior management and members of the board of directors
of Xin Ao. Equity holders of Xin Ao also signed a Power of Attorney, which
authorizes the individuals appointed by China-ACMH to exercise all of their
voting rights as shareholder at Xin Ao’s shareholder meetings. China-ACMH
provides exclusive technical consulting and other services to Xin Ao for an
annual fee equal to Xin Ao’s yearly net income, and guarantees all of Xin Ao’s
business activities with any third parties and in return is guaranteed all of
Xin Ao’s assets. In addition, shareholders of Xin Ao pledged their shares in Xin
Ao as collateral for the annual fees due to the Company and granted China-ACMH
the exclusive right and option to acquire all of their equity interests in Xin
Ao. In accordance with FIN 46(R), 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.
  - 9
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
  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
with SFAS No. 52, “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 $2,717,428 and $2,598,466 as of December 31, 2008 and June
30, 2008, respectively. Asset and liability accounts at December 31, 2008 and
June 30, 2008 were translated at 6.85 RMB and 6.87 RMB to $1.00, respectively.
Equity accounts were stated at their historical rates. The average translation
rates applied to consolidated statements of income and cash flows for the six
months ended December 31, 2008 and 2007 were 6.83 RMB and 7.49 RMB to $1.00,
respectively.
 
 Translation
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred. Gains and losses from foreign currency
transactions are included in the results of operations. There were no material
transaction gains or losses for the six and three months ended December 31, 2008
and 2007.
 
 Revenue
recognition
 
 The
Company recognizes revenue in accordance with Staff Accounting Bulletin (“SAB”)
No. 101, “Revenue Recognition
in Financial Statements,” as amended by SAB No. 104 (together, “SAB
104”), which specifies that revenue is realized or realizable and earned when
four criteria are met:
  - 10
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 ·
                Persuasive
      evidence of an arrangement exists (the Company considers its sales
      contracts and technical service agreements to be pervasive evidence of an
      arrangement);
 ·
                Delivery
      has occurred or services have been
rendered;
 ·
                The
      seller’s price to the buyer is fixed or determinable;
  and
 ·
                Collectability
      of payment is reasonably
assured.
 
 The
Company sells its concrete products and provides concrete 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 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 and services are provided by the Company 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 value-added tax at the rate of 6% of the gross sales
price.
 
 Due to
the fact that the Company uses recycled raw materials to manufacture its
products, the State Administration of Taxation has granted the Company VAT tax
exemption from August 2005 through to August 2009. The VAT tax collected from
the Company’s customers is kept by the Company and recorded as other subsidy
income.
 
 The
Company also provides technical consulting services and enters into 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 use of technical solutions
provided by the Company, the agreements consider the Company has rendered its
service. 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.
 
 - 11
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 The
Company also earns income from the renting of certain of its vehicles to other
non-related concrete companies.  The rental amounts are based on
pre-determined rental rates on a per cubic meter basis.
 
 Shipping and
handling
 
 Shipping
and handling costs related to costs of the raw materials purchased is included
in cost of revenues.  Further, transportation costs incurred in the
delivery of the Company’s concrete products are also included in cost of
revenues.
 
 Use of
estimates
 
 The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. The significant estimates made in the
preparation of the Company’s consolidated financial statements related to the
assessment of the fair value of share-based payments and the collectability of
accounts receivable. Actual results could be materially different from those
estimates, upon which the carrying values were based.
 
 Financial
instruments
 
 SFAS 107,
“Disclosures about Fair Value
of Financial Instruments,” requires disclosure of the fair value of
financial instruments held by the Company. SFAS 107 defines the fair value of
the financial instruments as the amount at which the instrument could be
exchanged in a current transaction between willing parties.  The
Company considers the carrying amounts of cash, accounts receivable, other
receivables, prepayments, accounts payable, accrued liabilities, other payables,
taxes payable, and loans to approximate their fair values because of the short
period of time between the origination of such instruments and their expected
realization and their current market rate of interest.
 
 On July
1, 2008, the Company adopted SFAS 157, “Fair Value Measurements.”
SFAS 157 defines fair value, establishes a three-level valuation hierarchy for
disclosures of fair value measurements and enhances disclosures
requirements.
  - 12
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
  The three levels are
defined as follows:
  ·
                Level
      1inputs to the valuation
      methodology are quoted prices (unadjusted) for identical assets or
      liabilities in active
markets.
 
 ·
                Level
      2inputs 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.
 
 ·
                Level
      3 inputs to the valuation methodology are
      unobservable and significant to the fair value
      measurement.
 
 Marketable
securities, receivables and current liabilities qualify as financial
instruments. Fair values were determined using Level 3. Marketable
securities are carried 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 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. The Company did not
identify any assets and liabilities that are required to be presented on the
consolidated balance sheets at fair value in accordance with SFAS
157.
 
 Stock-based
compensation
 
 The
Company records stock-based compensation expense pursuant to SFAS 123R, "Share Based
Payment.”  SFAS 123R requires companies to measure compensation
cost for stock-based employee compensation plans at fair value at the grant date
and recognize the expense over the employee's requisite service period. Under
SFAS 123R, 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. SFAS 123R 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 Cox-Ross-Rubinstein
(“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 SFAS 123R using an
option-pricing model, that value may not be indicative of the fair value
observed in a willing buyer/willing seller market transaction.
  - 13
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 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 December 31, 2008 and June 30, 2008 amounted to $3,807,026
      and $1,795,388, respectively, of which no deposits were covered by
      insurance. Also, as of December 31, 2008, the Company held $881,484 in
      restricted cash in a corporate legal counsel’s trust account, in
      accordance with an agreement with investors for the restricted use of
      preferred stock dividend and investor relation related expenses.
      Nonperformance by these institutions could expose the Company to losses
      not covered by insurance. Management reviews the financial condition of
      these institutions on a periodic basis and does not believe the
      concentration of cash results in a high level of
  risk.
 
 ·
              Major
      customers – As of and for the six months ended December 31, 2008, three
      customers accounted for approximately 21% of the Company’s accounts
      receivable and approximately 39% of the Company's sales. As of and for the
      six months ended December 31, 2007, three customers accounted for
      approximately 26% of the Company’s accounts receivable and approximately
      36% of the Company's sales.
 
 ·
              Major
      suppliers – As of and for the six months ended December 31, 2008, two
      suppliers accounted for approximately 19% of the Company’s accounts
      payable and approximately 45% of the Company’s purchases.  As of
      and for the six months ended December 31, 2007, three suppliers accounted
      for approximately 8% of the Company’s accounts payable and approximately
      38% of the Company’s purchases.
 
 ·
              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.
 
 - 14
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 Restricted
Cash
 
 Restricted
cash represents portion of the proceeds received from the June 11, 2008, Private
Placement that was deposited in a trust account held by the Company’s legal
counsel for payment of dividends, investor relations fees, and other
professional fees (see Note 10). The restricted cash balance was $881,484 as of
December 31, 2008.  As of June 30, 2008, the restricted cash balance
was $913,092.
 
 Inventories
 
 Inventories
consist of raw materials and are stated at the lower of cost or market, using
the weighted average cost method. The Company reviews its inventory periodically
for possible obsolescence. As of December 31, 2008, the Company determined no
reserves for obsolescence were necessary.
 
 Prepayments
 
 The
Company advances monies to certain suppliers for raw materials. These advances
are interest free and unsecured.
 
 Plant and
equipment
 
 Plant and
equipment are stated at cost. Depreciation is provided over the estimated useful
life of each class of depreciable assets and is computed using the straight-line
method with 5% residual value.
 
 The
estimated useful lives of assets are as follows:
 
 Useful
      LifeTransportation
      equipment
                  10
      yearsPlant
      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.
 
 - 15
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 Impairment of long-lived
assets
 
 Long-lived
assets of the Company are reviewed at least annually, more often if
circumstances dictate, for possible impairment. Whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable, the Company records an impairment charge to reduce the related
assets to their net realizable value. The Company believes no impairment exists
at December 31, 2008.
 
 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.
 
 Redeemable preferred
stock
 
 On June
11, 2008, the Company completed the sale to certain accredited investors of
875,000 investment units for gross proceeds of $7,000,000, each unit consisting
of one share of the Company’s Series A Convertible Preferred Stock and one
warrant to purchase two shares of the Company’s common stock. The preferred
stock pays annual dividends of 9% regardless of the Company’s profitability.
Each preferred share is convertible into four shares of common stock. The
Company received net proceeds of approximately $5.3 million after offering
expenses and net of $930,000 restricted cash which was required to be placed in
escrow. Upon the two year anniversary of the closing date, the Company is
required to redeem for cash the outstanding preferred stock, if not previously
converted by the holders, for $8.00 per share plus accrued but unpaid
dividends.  Because 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 EITF Topic D-98, the preferred stock is classified outside of
shareholders’ equity.
  - 16
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 In
accordance with Accounting Principles Board (“APB”) No. 14, “Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants,” the Company allocated the
proceeds received between the preferred stock and the warrants.  The
resulting discount from the face amount of the preferred stock is being
amortized using the effective interest method over the period to the required
redemption date. After allocating a portion of the proceeds to the warrants, the
effective conversion price of the preferred stock was higher than the market
price at the date of issuance and therefore no beneficial conversion feature was
recorded.The
dividends on the preferred stock, together with the periodic accretion of the
preferred stock to its redemption value, are charged to retained
earnings.
 
 Income
taxes
 
 The
Company is governed by the income tax laws of the PRC. The Company accounts for
income taxes in accordance with SFAS 109, “Accounting for Income Taxes,”
which requires the Company to use the assets and liability method of accounting
for income taxes. Under the assets and liability method, deferred income taxes
are recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences between
financial statement carrying amounts and the tax bases of existing assets and
liabilities. Under SFAS 109, the effect on deferred income taxes of a change in
tax rates is recognized in income in the period that includes the enactment
date. A valuation allowance is recognized if it is more likely than not that
some portion, or all of, a deferred tax asset will not be realized. Since the
Company’s operations are outside of the U.S., the Company did not have any
provision for U.S. income taxes including any deferred income taxes, for the six
months ended December 31, 2008 and 2007.
 
 The
Company adopted FIN 48, “Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statements No. 109,” as of July 1,
2007.  Under FIN 48, the evaluation of a tax position is a two-step
process. The first step is to determine whether it is more likely than not that
a tax position will be sustained upon examination, including the resolution of
any related appeals or litigation based on the technical merits of that
position. The second step is to measure a tax position that meets the
more-likely-than-not threshold to determine the amount of benefit to be
recognized in the financial statements. A tax position is measured at the
largest amount of benefit that is greater than 50 percent 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. FIN 48 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 deferred
tax amounts as of December 31, 2008 and June 30, 2008.
 
 - 17
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 Chinese Income
Taxes
 
 The
Company and its subsidiaries are governed by the income tax laws of the PRC
concerning Foreign Investment Enterprises and Foreign Enterprises and various
local income tax laws (the “Income Tax Laws”).
 
 Xin Ao’s
use of recycled raw materials in its production since its inception entitled the
Company to an income tax exemption from January 1, 2003, through to December 31,
2007, 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”). The new standard EIT rate of 25% replaced
the existing rates currently applicable to both DES and FIEs. The Company is
currently evaluating the effect the new EIT law will have on its consolidated
financial position.
 
 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
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the six months ended December 31, 2008 and 2007:
 
 2008
                          
                          
                          2007U.S.
      statutory rates
                          
                          
                          34.0
                          %
                          
                          
                          34.0
                          %Foreign
      income not recognized in the U.S.
                          
                          
                          (34.0
                          )
                          
                          
                          (34.0
                          )China
      income taxes
                          
                          
                          25.0
                          
                          
                          
                          33.0China
      income tax exemption
                          
                          
                          -
                          
                          
                          
                          (33.0
                          )Effective
      income tax rates
                          
                          
                          25.0
                          %
                          
                          
                          -
                          %
 
 The
Company adopted accounting policies in accordance to U.S. GAAP with regard to
provisions, reserves, inventory valuation method, and depreciation that are
consistent with requirements under Chinese income tax laws. Therefore, there
were no deferred tax assets or liabilities during the six months ended December
31, 2008 and 2007.
 
 The
Company classifies interest and penalties assessed due to underpayment of income
taxes as interest expense and other expenses, respectively. The Company incurred
no such expenses for the six months periods ended December 31, 2008 and
2007.
 
 - 18
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 Value added
tax
 
 Enterprises
or individuals who sell commodities, engage in repair and maintenance, or import
and export goods in the PRC are subject to a value added tax. The standard VAT
rate is 6% of gross sales for the Company’s industry. A credit is available
whereby VAT paid on the purchases of raw materials used in the production of the
Company’s finished products can be used to offset the VAT due on sales of
finished products. Due to the fact that the Company uses recycled raw materials
to manufacture its products, the State Administration of Taxation has granted
the Company VAT exemption from August 2005 through to August 2009. For the six
months ended December 31, 2008 and 2007, the Company recognized VAT collected as
other subsidy income in the amounts of $830,021 and $782,725,
respectively.
 
 Research and development
costs
 
 Research
and development costs are expensed as incurred. The cost of materials and
equipment that are acquired or constructed for research and development
activities, and have alternative future uses, either in research and
development, marketing, or sales, are classified as property and equipment, and
depreciated over their estimated useful lives. Research and development expenses
amounted to $5,938 for the six months ended December 31, 2007.  The
Company did not incur any research and development expenses for the six months
ended December 31, 2008.
 
 Earnings per
share
 
 The
company reports earnings per share in accordance with SFAS 128, “Earnings Per Share.” SFAS 128
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.
 
 Comprehensive
income
 
 SFAS 130,
“Reporting Comprehensive
Income,” establishes standards for reporting and display of comprehensive
income and its components in financial statements. It requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same providence as other financial statements. The accompanying consolidated
financial statements include the provision of SFAS 130, and therefore,
comprehensive income consists of net income, unrealized gains and losses from
marketable securities, and foreign currency translation
adjustments.
 
 - 19
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 Recently issued accounting
pronouncements
 
 In
December 2007, the FASB issued SFAS 141(R), “Business Combinations,” which
replaces SFAS 141. SFAS 141R retains the purchase method of accounting for
acquisitions, but requires a number of changes, including changes in the way
assets and liabilities are recognized in the purchase accounting as well as
requiring the expensing of acquisition-related costs as incurred. Furthermore,
SFAS 141R provides guidance for recognizing and measuring the goodwill acquired
in the business combination and determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. SFAS 141R is effective for fiscal years
beginning on or after December 15, 2008. Earlier adoption is prohibited. The
Company is evaluating the impact, if any, that the adoption of this statement
will have on its consolidated results of operations or consolidated financial
position.
 
 In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements — An Amendment of ARB No. 51.” SFAS 160
amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It is intended to eliminate the diversity in practice regarding the
accounting for transactions between equity and noncontrolling interests by
requiring that they be treated as equity transactions. Further, it requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. SFAS 160 also
establishes a single method of accounting for changes in a parent’s ownership
interest in a subsidiary that do not result in deconsolidation, requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated, requires expanded disclosures in the consolidated financial
statements that clearly identify and distinguish between the interests of the
parent’s owners and the interests of the noncontrolling owners of a subsidiary,
among others. SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008, with early adoption permitted, and it is to be applied
prospectively. SFAS 160 is to be applied prospectively as of the beginning of
the fiscal year in which it is initially applied, except for the presentation
and disclosure requirements, which must be applied retrospectively for all
periods presented. The Company has not yet evaluated the impact that SFAS 160
will have on its consolidated financial position or consolidated results of
operations.
  - 20
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 In
February 2008, the FASB issued FASB Staff Position 157-1 ("FSP 157-1"), "Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13." FSP 157-1 indicates that it does not apply under
SFAS 13, "Accounting for
Leases," and other accounting pronouncements that address fair value
measurements for purposes of lease classification or measurement under SFAS 13.
This scope exception does not apply to assets acquired and liabilities assumed
in a business combination that are required to be measured at fair value under
SFAS 141 or SFAS 141R, regardless of whether those assets and liabilities are
related to leases.
 
 Also in
February 2008, the FASB issued FASB Staff Position 157-2 ("FSP 157-2"), "Effective Date of FASB Statement No.
157." With the issuance of FSP 157-2, the FASB agreed to: (a) defer the
effective date in SFAS 157 for one year for certain nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually), and
(b) remove certain leasing transactions from the scope of SFAS 157. The deferral
is intended to provide the FASB time to consider the effect of certain
implementation issues that have arisen from the application of SFAS 157 to these
assets and liabilities.
 
 In March
2008, the FASB issued SFAS 161, "Disclosures about Derivative
Instruments and Hedging Activities." SFAS 161 is intended to improve
financial reporting of derivative instruments and hedging activities by
requiring enhanced disclosures to enable financial statement users to better
understand the effects of derivatives and hedging on an entity's financial
position, financial performance and cash flows. The provisions of SFAS 161 are
effective for interim periods and fiscal years beginning after November 15,
2008, with early adoption encouraged. The Company does not anticipate that the
adoption of SFAS 161 will have a material impact on its consolidated results of
operations or consolidated financial position.
 
 In May
2008, the FASB issued SFAS 162, "The Hierarchy of Generally Accepted
Accounting Principles." SFAS 162 is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with GAAP for nongovernmental entities. SFAS 162 is
effective 60 days following the SEC's approval of the Public Company Accounting
Oversight Board (“PCAOB”) amendments to AU Section 411, "The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles." The Company
does not expect the adoption of SFAS 162 will have a material impact on its
consolidated results of operations or consolidated financial
position.
  In May
2008, the FASB issued SFAS 163, “Accounting for Financial Guarantee
Insurance Contracts, an interpretation of FASB Statement No. 60.” The
scope of SFAS 163 is limited to financial guarantee insurance (and reinsurance)
contracts issued by enterprises included within the scope of FASB Statement No.
60. Accordingly, SFAS 163 does not apply to financial guarantee contracts issued
by enterprises excluded from the scope of FASB Statement No. 60 or to some
insurance contracts that seem similar to financial guarantee insurance contracts
issued by insurance enterprises (such as mortgage guaranty insurance or credit
insurance on trade receivables). SFAS 163 also does not apply to financial
guarantee insurance contracts that are derivative instruments included within
the scope of SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities.” The Company does not expect the
adoption of SFAS 163 will have a material impact on its consolidated results of
operations or consolidated financial position.
  - 21
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 On May 9,
2008, the FASB issued FASB Staff Position APB 14-1 ("FSP APB 14-1"), "Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)." FSP APB 14-1 clarifies that convertible debt instruments
that may be settled in cash upon conversion (including partial cash settlement)
are not addressed by paragraph 12 of APB 14, "Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants." Additionally, FSP APB 14-1
specifies that issuers of such instruments should separately account for the
liability and equity components in a manner that will reflect the entity's
nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. FSP APB14-1 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. The Company is currently evaluating the impact that FSP APB 14-1
will have on its consolidated results of operations or consolidated financial
position.
 
 On June
16, 2008, the FASB issued FASB Staff Position EITF 03-6-1 (“FSP EITF 03-6-1”),
“Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities,” to address the question of whether instruments granted in
share-based payment transactions are participating securities prior to vesting.
FSP EITF 03-6-1 indicates that unvested share-based payment awards that contain
rights to dividend payments should be included in earnings per share
calculations. The guidance will be effective for fiscal years beginning after
December 15, 2008. The Company is currently evaluating the requirements of FSP
EITF 03-6-1 and the impact that its adoption will have on the consolidated
results of operations or consolidated financial position.
 
 In June
2008, the FASB issued EITF 07-5, “Determining whether an Instrument
(or Embedded Feature) is indexed to an Entity’s Own Stock.” EITF 07-5 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early
application is permitted under certain cirumstances. Paragraph 11(a) of SFAS 133
“Accounting for Derivatives
and Hedging Activities,” 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. EITF 07-5
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 SFAS 133 paragraph 11(a) scope exception. This standard
triggers liability accounting on all options and warrants exercisable at strike
prices denominated in any currency other than the functional currency of the
operating entity in the PRC (Renminbi). The Company has evaluated the impact of
the adoption of EITF 07-5 on the accounting for related warrants transactions,
and has determined that the adoption of EITF 07-5 would result in liability
accounting.
 
 - 22
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 In June
2008, FASB issued EITF 08-4, “Transition Guidance for Conforming
Changes to Issue No. 98-5.” The objective of EITF 08-4 is to provide
transition guidance for conforming changes made to EITF 98-5, “Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios,” that result from EITF 00-27 “Application of Issue No. 98-5 to
Certain Convertible Instruments,” and SFAS 150, “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity.” EITF
08-4 is effective for financial statements issued for fiscal years ending after
December 15, 2008. Early application is permitted.  The Company is
currently evaluating the impact of adoption of EITF 08-4 on the accounting for
the convertible notes and related warrants transactions.
 
 On
October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active,” which
clarifies the application of SFAS 157 in a market that is not active and
provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for that financial asset is not
active. FSP 157-3 became effective on October 10, 2008, and its adoption did not
have a material impact on the Company’s consolidated results of operations or
consolidated financial position for the six months ended December 31,
2008.
 
 Note
3 – Supplemental disclosure of cash flow information
 
 During
the six months ended December 31, 2008 and 2007, the Company paid in cash
interest in the amount of $443,786 and $151,669, respectively.
 
 There
were no cash payments for income taxes for the six months ended December 31,
2008 and 2007.
 
 Non-cash
transactions
 
 As of
December 31, 2008, the Company assigned accounts receivables totaling
approximately $3,600,000 as payment to suppliers whose balances were included in
accounts payable.  Balances of accounts receivable and accounts
payable reported on the consolidated balance sheets are net of the
assignments.
 
 - 23
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 As of
December 31, 2007, the Company assigned accounts receivables totaling
approximately $605,000 to the suppliers as an offset of the liability owed
recorded under accounts payable. Balances of accounts receivable and payables
reported on the consolidated balance sheets are net of the
assignments.
 
 As of
December 31, 2008, the accretion of the discount on redeemable preferred stock
amounted to approximately $300,000, and has been included in the consolidated
statements of shareholders’ equity.
 
 Note
4 – Marketable securities
 
 All
securities are available for sale and therefore are carried at fair value with
unrealized gains and losses reported as accumulated other comprehensive income
in shareholders’ equity. Realized gains and losses on marketable securities are
included in other income or expense in the period 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.
 
 For the
six months ended December 31, 2008 and 2007, there were no realized gains or
losses from the sale of marketable securities. Unrealized losses totaling
$19,217 were recorded as other comprehensive loss for the six months ended
December 31, 2008, and unrealized gains in the amount of $23,443 were recorded
as other comprehensive income for the six months ended December 31,
2007.
 
 Note
5 – Accounts receivable
 
 Accounts
receivable are generated from concrete products sold, vehicle rental services
provided to other non-related 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 80% of the Company’s receivables are due within a
year by contract and are classified as current assets on the consolidated
balance sheets. For certain large construction projects that can take several
years to complete, the Company provides extended payment terms to the general
contractors. These contractors are usually large state-owned builders with good
credit ratings. At the end of each period, the Company evaluates the structure
and collectability of accounts receivable and for these receivables that are
past due or not being paid according to payment terms, the Company takes
appropriate actions including seeking legal resolution in a court of law, for
its collection efforts.
  - 24
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)




As of
December 31, 2008 and June 30, 2008, accounts receivable and allowance for
doubtful accounts consisted of the following:


December
                                  31,
      2008
                                  (Unaudited)
                                
                                
                                June
      30,
                                  2008Accounts
      receivable, current
                                
                                $
                                12,193,538
                                
                                
                                $
                                9,590,410Less:  allowance
      for doubtful accounts, current
                                
                                
                                (273,787
                                )
                                
                                
                                (224,924
                                )Net
      accounts receivable, current
                                
                                
                                11,919,751
                                
                                
                                
                                9,365,486Accounts
      receivable, non-current
                                
                                
                                6,565,751
                                
                                
                                
                                5,164,067Less:  allowance
      for doubtful accounts, non-current
                                
                                
                                (508,462
                                )
                                
                                
                                (411,061
                                )Net
      accounts receivable, non-current
                                
                                
                                6,057,289
                                
                                
                                
                                4,753,006Total
      accounts receivable, net
                                
                                $
                                17,977,040
                                
                                
                                $
                                14,118,492
 
 Note
6 – Plant and equipment
 
 Plant and
equipment consist of the following:
 
 December
      31,
                            2008
                            (Unaudited)
                          
                          
                          June
      30,
                            2008Transportation
      equipment
                          
                          $
                          20,286,866
                          
                          
                          $
                          20,286,866Plant
      machinery
                          
                          
                          2,332,204
                          
                          
                          
                          1,894,585Office
      equipment
                          
                          
                          55,681
                          
                          
                          
                          43,057Construction-
      in-progress
                          
                          
                          -
                          
                          
                          
                          295,033Total
                          
                          
                          22,674,751
                          
                          
                          
                          22,519,541Less:
      accumulated depreciation
                          
                          
                          (6,894,623
                          )
                          
                          
                          (5,789,321
                          )Plant
      and equipment, net
                          
                          $
                          15,780,128
                          
                          
                          $
                          16,730,220
 
 Construction-in-progress
represents labor costs, materials, and capitalized interest incurred in
connection with the construction of a new mixer station inside the current plant
facility in Beijing. No depreciation is provided for construction in progress
until it is completed and placed into service. Maintenance, repairs and minor
renewals are charged to expense as incurred. Major additions and betterment to
property and equipment are capitalized. Construction of the new plant was
completed and transferred to fixed assets in August, 2008.
 
 Depreciation
expense for the six months ended December 31, 2008 and 2007 amounted to
$1,071,362 and $544,359, respectively. Depreciation expense for the three months
ended December 31, 2008 and 2007 amounted to $536,237 and $261,417,
respectively.
  - 25
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 Note
7 – Short term loans
 
 Short
term loans represent amounts due to various banks, finance companies, unrelated
companies with existing business relationships with the Company, and the
Company’s employees, that are due on demand or within one year. These loans are
renewable. As of December 31, 2008 and June 30, 2008, the outstanding balances
on these loans were $4,899,047 and $4,271,222, respectively, and these loans
consisted of the following:
 
 December
      31,
                                          
                                          
                                          June
      30,2008
                                          
                                          
                                          2008(Unaudited)Loan
      from Huaxia Bank, effective interest rate of 7.56% per annum, due November
      16, 2008, guaranteed by the Company’s shareholder, Mr. Han Xianfu, fully
      paid as of December 31, 2008.
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          2,918,000Loan
      from Beijing International Trust Co, Ltd. interest rate of 15% per annum,
      due July 15, 2009, guaranteed by Rayland Credit Guarantee Co.
      Ltd.
                                          
                                          
                                          4,401,000
                                          
                                          
                                          
                                          -Loan
      from Beijing Hengxin Huaxing Auto Accessories Company, unrelated entity,
      non-interest bearing, fully paid as of December 31, 2008.
                                          
                                          
                                          -
                                          
                                          
                                          
                                          379,340Loan
      from Beijing Hongda Huaxin Wujinjidian Company, unrelated company,
      non-interest bearing, fully paid as of December 31, 2008.
                                          
                                          
                                          -
                                          
                                          
                                          
                                          204,260Loan
      from Beijing Sigi Qingbaosan Cement Company, unrelated company,
      non-interest bearing, fully paid as of December 31, 2008.
                                          
                                          
                                          -
                                          
                                          
                                          
                                          116,720Loan
      from Xia Hua Qing, unrelated individual, non-interest bearing, fully paid
      as of December 31, 2008.
                                          
                                          
                                          -
                                          
                                          
                                          
                                          128,392Loan
      from various employees, effective interest rate of 20% per annum, due upon
      demand, unsecured.
                                          
                                          
                                          498,047
                                          
                                          
                                          
                                          524,510Total
      short term loans
                                          
                                          $
                                          4,899,047
                                          
                                          
                                          $
                                          4,271,222
  - 26
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 Interest
expense on short-term loans for the six months ended December 31, 2008 and 2007
amounted to $443,786 and $147,569, respectively.  Interest expense on
these short-term loans amounted to $215,975 and $63,029 for the three months
ended December 31, 2008 and 2007, respectively.
 
 Note
8 – Related party transactions
 
 Other payables –
shareholder
 
 Beginning
in July 2007, Mr. He
Weili, a 38.10% shareholder, leased an office space to the Company. For
the six months ended December 31, 2008 and 2007, the Company recorded rent
expense from the shareholder in the amount of approximately $87,000 and $51,000,
respectively. For the three months ended December 31, 2008 and 2007, the Company
recorded rent expense from the shareholder in the amount of $43,000 and $41,000,
respectively.  As of December 31, 2008 and June 30, 2008,
approximately $87,000 and $43,000, respectively, remained unpaid, and is
included as other payables - shareholder.
 
 The Company’s
shareholders Mr. Han Xianfu and Mr. He Weili, who have 57.15% and 38.10%
of ownership 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 on demand.
 
 Total
other payables - shareholders are as follows:
 
 December
      31, 2008
                          
                          
                          June
      30, 2008(Unaudited)Han
      Xianfu, shareholder
                          
                          $
                          450,550
                          
                          
                          $
                          450,550He
      Weili, shareholder
                          
                          
                          387,091
                          
                          
                          
                          429,752Total
      other payable – shareholder
                          
                          $
                          837,641
                          
                          
                          $
                          880,302
 
 Other
receivable
 
 Other
receivable includes monies advanced to an entity that was in part formerly owned
by Mr. He Weili.  Prior to the reverse acquisition (Note 1), the
Company and this related entity were engaged in joint contracts, business
licenses, and other partnership agreements. Pursuant to the reverse acquisition,
the Company and this related entity began separate operations and the process of
obtaining separate contracts, business licenses, and other partnership
agreements were initiated. To date, the Company and this related entity is
finalizing the aforementioned process of obtaining separate contracts, business
licenses, and agreements.
 
 - 27
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 Due to
the relationship of the two companies, certain monies were exchanged as part of
their joint contracts.  During the six months ended December 31, 2008,
the Company advanced approximately $11,565,000 to this entity, and approximately
$11,177,000 was repaid.  As of December 31, 2008, approximately
$656,000 was due from this entity, and the Company’s management expects the full
amount will be collected in the near term.  Once the joint contracts
are finalized and segregated, management does not expect any further
advances.
 
 Note
9 – Taxes payable
 
 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 was granted
income tax exemption from January 1, 2003 to December 31, 2007. Beginning on
January 1, 2008, the Company and its subsidiaries were subject to an EIT rate of
25%.For the six months ended December 31, 2008, the provision
for income taxes amounted to $1,575,230.  For the six months ended
December 31, 2007, the Company did not provide for any income taxes due to the
income tax exemption.  The estimated tax savings due to this tax
exemption for the six months ended December 31, 2007, amounted to $816,413.If the income
tax had been applied, for the six months ended December 31, 2007, the basic and
diluted earnings per share would have decreased by $0.08 per share.
 
 Taxes
payable consisted of the following:
 
 December
      31,
                        2008
                        (Unaudited)
                      
                      
                      June
      30, 2008Income
      taxes payable
                      
                      $
                      2,657,087
                      
                      
                      $
                      1,072,747Other
                      
                      
                      15,964
                      
                      
                      
                      490Total
      taxes payable
                      
                      $
                      2,673,051
                      
                      
                      $
                      1,073,237
 
 The
Company did not make any income tax payments during the six months ended
December 31, 2008 and 2007.
  - 28
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 Note
10 – Shareholders’ equity
 
 On June
11, 2008, the Company completed an offering (the “Offering”) on the sale of
875,000 of investment units for a total of $7,000,000, each unit consisting of
one share of the Company’s Series A convertible preferred stock, $0.001 par
value per share, and one (1) five year warrant to purchase two shares of Common
Stock (the “Warrants”). Each preferred share is convertible into four shares of
common stock.  Additionally, each holder is entitled to cumulative
dividends equal to 9% annually, payable in cash, irrespective of the
profitability of the Company.
 
 The
Company received net proceeds of approximately $5,223,291 with $930,000 in an
escrow and after payment of certain fees and expenses.  $497,500 was
paid to Maxim Group LLC (“Maxim”) who served as the placement agent for the
transaction, $9,500 was paid to American Stock Transfer & Trust Company as a
transfer agent fee, $60,000 was paid to the attorney, and $45,000 was paid for a
finance fee for the purchasers in connection with the transaction. These
offering costs approximating $612,000 were charged to additional paid-in
capital.
 
 The
Company also issued to the placement agent a warrant to purchase an aggregate of
245,000 shares of common stock with an exercise price of $2.40 per share with a
life of five years. The warrants are exercisable on a cashless basis, in whole
or in part, at an exercise price equal to $2.40 per share. The Company may call
the warrants for redemption at any time after the warrants become exercisable
(i) at a price of $.01 per warrant; (ii) upon not less than 30 days’ prior
written notice of redemption to each warrant holder; and (iii) if, and only if,
the last sale price of the common stock equals or exceeds $5.00 per share, for
any twenty (20) trading days within a thirty (30) consecutive trading day period
ending on the third business day prior to the notice of redemption to warrant
holders.
 
 The value
of the warrants issued to the placement agent was calculated as $169,345 using
the 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.
  - 29
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 Following
is a summary of the status of warrants outstanding:
 
 Outstanding
      WarrantsExercise
      Price
                          
                          Number
                          
                          Average
                            Remaining
                            Contractual
      Life$2.40
                          
                          1,750,000
                          
                          4.32
      years$2.40
                          
                          245,000
                          
                          4.32
      yearsTotal
                          
                          1,995,000
 
 Following
is a summary of the warrants activity:
 
 Outstanding
      as of June 30, 2007
                    
                    
                    -Granted
                    
                    
                    1,995,000Forfeited
                    
                    
                    -Exercised
                    
                    
                    -Outstanding
      as of June 30, 2008
                    
                    
                    1,995,000Granted
                    
                    
                    -Forfeited
                    
                    
                    -Exercised
                    
                    
                    -Outstanding
      as of December 31, 2008
                    
                    
                    1,995,000
 
 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 twelve months 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.
 
 - 30
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 
 Additionally,
the Company's officers, directors and majority shareholders, Han Xianfu and He
Weili, entered into a Lock-Up Agreement with the investors whereby both Han
Xianfu and He Weili agreed they will not, offer, pledge, sell or otherwise
dispose of any shares of the Company’s common stock or any securities
convertible into or exercisable or exchangeable for common stock during the
period beginning on and including the date of the final closing of the Offering
through and including the earlier of (i) two (2) years after the final closing
of the Offering, (ii) the voluntary conversion of all outstanding shares of
preferred stock, (iii) the mandatory conversion of all outstanding shares of the
Company’s preferred stock, or (iv) the sale of the Company.
 
 Pursuant
to an escrow agreement signed between the Company, Maxim and the investors on
June 11, 2008, the Company placed a total of $930,000 in an escrow account with
the Company’s legal counsel, $630,000 of which will be used for the payment of
dividends on the preferred stock which the Company shall be obligated to
replenish each year prior to the year’s end, and $300,000 of which will be used
for the payment of investor relation fees. As of December 31, 2008, restricted
cash balance amounted to $881,484.
 
 Pursuant
to the Make Good Escrow agreement, signed between the Company, American Stock
Transfer Trust Company, the shareholders Han Xianfu and He Weili, and the
investors on June 11, 2008, the shareholders agreed to transfer a total of
3,500,000 shares of common stock into the name of the escrow agent if the
Company fails to meet certain performance thresholds: (1) $5,200,000 of net
income (calculated on a pre-tax basis solely with respect to 2008) for 2008; (2)
$9,000,000 of net income for 2009; (3) net income equal or greater than the
Company's net income for 2009, for 2010. The Company has determined that the
threshold for the period ended December 31, 2008 has been met.
 
 Note
11 – Contribution receivable
 
 On July
8, 2005, Xin Ao’s board of directors passed a resolution to increase the
registered capital from $3,630,000 (RMB30 million) to $12,100,000 (RMB100
million). The increase in registered capital of $8,470,000 (RMB70 million) was
funded by the undistributed profits as of June 30, 2005. 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.
 
 - 31
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (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 December 31, 2008, a contribution
receivable in the amount of $1,210,000 remains unpaid.
 
 Contribution
receivable consisted of the following:
 
 Xin
      Ao
                
                
                CHINA-AC
                  MH
                
                
                BVI-ACM
                
                
                TotalBalance,
      June 30, 2007
                
                $
                8,470,000
                
                
                $
                5,000,000
                
                
                $
                100
                
                
                $
                13,470,100Less:
      contribution received
                
                
                (7,260,000
                )
                
                
                (5,000,000
                )
                
                
                (100
                )
                
                
                (12,260,100
                )Balance,
      June 30, 2008
                
                $
                1,210,000
                
                
                $
                -
                
                
                $
                -
                
                
                $
                1,210,000Less:
      contribution received
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Balance,
      December 31, 2008 (unaudited)
                
                $
                1,210,000
                
                
                $
                -
                
                
                $
                -
                
                
                $
                1,210,000
 
 Note
12 – Reserves and dividends
 
 The laws
and regulations of the PRC require that before foreign invested enterprise can
legally distribute profits, it must first satisfy all tax liabilities, provide
for losses in previous years, and make allocations, in proportions determined at
the discretion of the board of directors, after the statutory reserves. The
statutory reserves include the surplus reserve fund and the common welfare
fund.
 
 The
Company is required to transfer 10% of its net income, as determined in
accordance with the PRC accounting rules and regulations, to a statutory surplus
reserve fund until such reserve balance reaches 50% of the Company’s registered
capital.
 
 The
transfer to this reserve must be made before distribution of any dividends to
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.
 
 - 32
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 Note
13 – Earnings per share
 
 The
following is a reconciliation of the basic and diluted earnings per share
computation for the six months ended December 31, 2008 and 2007:
 
 Basic
      earning per share
                                                
                                                2008
                                                
                                                
                                                2007Net
      income available to common shareholders
                                                
                                                $
                                                3,485,709
                                                
                                                
                                                $
                                                2,478,715Weighted
      average shares outstanding-Basic
                                                
                                                
                                                10,525,000
                                                
                                                
                                                
                                                8,809,583Earnings
      per share-Basic
                                                
                                                $
                                                0.33
                                                
                                                
                                                $
                                                0.28Diluted
      earning per shareNet
      income available to common shareholders
                                                
                                                $
                                                3,485,709
                                                
                                                
                                                $
                                                2,478,715Add:
      Dividends on preferred stock
                                                
                                                
                                                317,590
                                                
                                                
                                                
                                                -Add:
      Accretion on preferred stock
                                                
                                                
                                                300,482
                                                
                                                
                                                
                                                -Net
      income for diluted EPS
                                                
                                                $
                                                4,103,781
                                                
                                                
                                                $
                                                2,478,715Weighted
      average shares outstanding-Basic
                                                
                                                
                                                10,525,000
                                                
                                                
                                                
                                                8,809,583Warrants
                                                
                                                
                                                195,410
                                                
                                                
                                                
                                                -Preferred
      stock
                                                
                                                
                                                3,500,000
                                                
                                                
                                                
                                                -Weighted
      shares outstanding-Diluted
                                                
                                                
                                                14,220,410
                                                
                                                
                                                
                                                8,809,583Earning
      per share-Diluted
                                                
                                                $
                                                0.29
                                                
                                                
                                                $
                                                0.28
  - 33
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
  The
following is a reconciliation of the basic and diluted earnings per share
computation for the three months ended December 31, 2008 and 2007:
 Basic
      earning per share
                                  
                                  2008
                                  
                                  
                                  2007Net
      income available to common shareholders
                                  
                                  $
                                  2,335,966
                                  
                                  
                                  $
                                  1,486,230Weighted
      average shares outstanding-Basic
                                  
                                  
                                  10,525,000
                                  
                                  
                                  
                                  8,809,583Earnings
      per share-Basic
                                  
                                  $
                                  0.22
                                  
                                  
                                  $
                                  0.17Diluted
      earning per shareNet
      income available to common shareholders
                                  
                                  $
                                  2,335,966
                                  
                                  
                                  $
                                  1,486,230Add:
      Dividends on preferred stock
                                  
                                  
                                  158,795
                                  
                                  
                                  
                                  -Add:
      Accretion on preferred stock
                                  
                                  
                                  150,241
                                  
                                  
                                  
                                  -Net
      income for diluted EPS
                                  
                                  $
                                  2,645,002
                                  
                                  
                                  $
                                  1,486,230Weighted
      average shares outstanding-Basic
                                  
                                  
                                  10,525,000
                                  
                                  
                                  
                                  8,809,583Warrants
                                  
                                  
                                  195,410
                                  
                                  
                                  
                                  -Preferred
      stock
                                  
                                  
                                  3,500,000
                                  
                                  
                                  
                                  -Weighted
      shares outstanding-Diluted
                                  
                                  
                                  14,220,410
                                  
                                  
                                  
                                  8,809,583Earning
      per share-Diluted
                                  
                                  $
                                  0.19
                                  
                                  
                                  $
                                  0.17
 
 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 December 31, 2008, none of the preferred stock had been
converted. Dividends on the preferred stock and accretion of the initial
discount from the redemption value of the preferred stock, both of which are
charged to retained earnings, are subtracted from net income to determine net
income available to common shareholders for the purposes of computing basic
earnings per share. In calculating diluted earnings per share, the convertible
preferred stock is treated as common stock equivalents on an as-converted basis,
on which basis the weighted average common shares outstanding for the period
ended September 30, 2008, were 3,500,000. The dividends and accretion on the
preferred stock are added back to the net income available to common
shareholders for calculating diluted earnings per share, as if the preferred
stock were converted at the beginning of the period.  For the six
months ended December 31, 2008, 3,794,590 warrants at an exercise price of $2.40
per share were included in the diluted EPS calculation, which under the treasury
stock method resulted in an additional 195,410 shares of common
stock.
 
 Note
14 – Employee pension and equity incentive plans
 
 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, for the six months
ended December 31, 2008 and 2007 were de minimis.
  - 34
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 Stock
options
 
 On
October 3, 2008, 50,000 options were granted and the fair value of these options
was estimated on the date of the grant using the CRR binomial model with the
following weighted-average assumptions:
  Expected
                      
                      
                      Expected
                      
                      
                      Dividend
                      
                      
                      Risk Free
                      
                      
                      Grant DateTerm
                      
                      
                      Volatility
                      
                      
                      Yield
                      
                      
                      Interest Rate
                      
                      
                      Fair ValueDirector
                      
                      
                      5.31
                      
                      
                      
                      101
                      %
                      
                      
                      0
                      %
                      
                      
                      1.41
                      %
                      
                      $
                      2.90
 On
December 1, 2008, 200,000 options were granted and the fair value of these
options was estimated on the date of the grant using the Cox-Ross-Rubinstein
(“CRR”) binomial model with the following weighted-average
assumptions:
 
 Expected
                            
                            
                            Expected
                            
                            
                            Dividend
                            
                            
                            Risk Free
                            
                            
                            Grant DateTerm
                            
                            
                            Volatility
                            
                            
                            Yield
                            
                            
                            Interest Rate
                            
                            
                            Fair
      ValueCurrent
      officer
                            
                            
                            6.25
                            
                            
                            
                            72.9
                            %
                            
                            
                            0
                            %
                            
                            
                            1.16
                            %
                            
                            $
                            3.00
 
 As of
December 31, 2008, none of the options held by the director and the officer were
vested.
 
 The
following is a summary of the option activity:
 
 Number
      of optionsOutstanding
      as of June 30, 2007
                                              
                                              
                                              -Granted
                                              
                                              
                                              -Forfeited
                                              
                                              
                                              -Exercised
                                              
                                              
                                              -Outstanding
      as of June 30, 2008
                                              
                                              
                                              -Granted
                                              
                                              
                                              250,000Forfeited
                                              
                                              
                                              -Exercised
                                              
                                              
                                              -Outstanding
      as of December 31, 2008
                                              
                                              
                                              250,000
  Following
is a summary of the status of options outstanding at December 31,
2008:
 
 Outstanding options
                                                                                                      
                                                                                                      Exercisable optionsAverage
                                                                                                        Exercise price
                                                                                                      
                                                                                                      Number
                                                                                                      
                                                                                                      Average
                                                                                                        remaining
                                                                                                        contractual life
                                                                                                        (years)
                                                                                                      
                                                                                                      Average
                                                                                                        Exercise
                                                                                                        price
                                                                                                      
                                                                                                      Number
                                                                                                      
                                                                                                      Weighted
                                                                                                        average
                                                                                                        exercise
                                                                                                        price$
                                                                                                      2.90
                                                                                                      
                                                                                                      
                                                                                                      50,000
                                                                                                      
                                                                                                      
                                                                                                      9.76
                                                                                                      
                                                                                                      $
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      $
                                                                                                      -3.00
                                                                                                      
                                                                                                      
                                                                                                      50,000
                                                                                                      
                                                                                                      
                                                                                                      9.92
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      -3.50
                                                                                                      
                                                                                                      
                                                                                                      50,000
                                                                                                      
                                                                                                      
                                                                                                      9.92
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      -4.50
                                                                                                      
                                                                                                      
                                                                                                      50,000
                                                                                                      
                                                                                                      
                                                                                                      9.92
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      -$
                                                                                                      3.58
                                                                                                      
                                                                                                      
                                                                                                      250,000
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      $
                                                                                                      -
  - 35
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 As of
December 31, 2008, there was approximately $393,000 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 and six months ended December 31, 2008, the Company recognized
approximately $26,000 as compensation expense for its stock option
plan.  For the three and six months ended December 31, 2007, there was
no such compensation expense for the Company’s stock options.
 
 Note
15 – Operating leases
 
 The
Company entered into a lease agreement for a manufacturing plant with an
unrelated party from October 1, 2007 to September 30, 2010 with monthly payment
of $14,426.  Further, the Company agreed to lease office space from
the Company’s shareholder, Mr. He Weili, from July 2007 to June 2009 with annual
payment of $197,245. Total operating lease expense for the six months ended
December 31, 2008 and 2007 was $185,179 and $141,901, respectively, and is
included in selling, general, and administrative expenses. Future minimum annual
lease payments under noncancellable operating leases with a term of one year or
more consist of the following:
  Years
      ending June 30,
                        
                        Amount2009
                        
                        $
                        278,8292010
                        
                        
                        197,1242011
                        
                        
                        49,281Thereafter
                        
                        
                        -
 
 Note
16 – 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.
  - 36
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)




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 December 31, 2008, the
Company has not received the payment from Boda, and management has estimated
that the collectability of the receivable is deemed low.  Therefore,
the consolidated financial statements do not reflect this amount.
 
 Yunwei Zhang vs. Beijing
Xin’Ao Concrete Co., Ltd. (Beijing District Court, PRC)
 
 In May
2006, an action against Xin Ao and Beijing Shangdi Xinda Company was filed by
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 December 31, 2008, the Company has paid approximately
$35,000.
  Registration
Rights
  In
connection with the private placement on June 11, 2008, the Company agreed to
file a registration statement to register the warrants and common stock issuable
upon conversion of the preferred stock and exercise of the warrants, as defined.
In accordance with FSP EITF 00-19-2, registration rights penalties should be
accounted for under SFAS 5, “Accounting for
Contingencies,” in that it should be recorded when it is probable that
penalties will be incurred and it can be reasonably estimated. If at the time of
issuance it appears that any penalties are probable, they should be accrued as
part of the allocation of the initial proceeds received. The Company determined
that it was not probable at inception on June 11, 2008.  However, as
of December 31, 2008, management determined penalties are “probable” and
therefore, accrued $52,500 in the accompanying consolidated financial
statements. The Company will continually re-assess whether the payment of any
additional penalties is probable and, if it becomes probable that penalties will
be incurred, the additional estimated amount of those penalties will be
accrued.
  - 37
-
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 (UNAUDITED)
 Note
17 – Subsequent Events
 
 On
January 15, 2009, the Company entered into a one year contract agreement with
Agoracom Investor Relations Corp. which will provide retail and individual
investor relation services for the Company. In connection with the services, the
Company will pay $6,750 per month, payable quarterly, in advance through the
Company’s Investor Relation escrow account.
 
 - 38
-




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




The
following discussion and analysis of the results of operations and financial
condition of China Advanced Construction Materials Group, Inc. (“China ACM”) for
the six months ended December 31, 2008 and 2007, should be read in conjunction
with the selected consolidated financial data, China ACM’s consolidated
financial statements, and the notes to those financial statements that are
included elsewhere in this Form 10-Q. Our discussion includes forward-looking
statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations and intentions. Actual results and
the timing of events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those
set forth under the Risk Factors and Business sections in this Form 10-Q. We use
words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,”
“ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and
similar expressions to identify forward-looking statements.




Overview




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




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




Together
with our subsidiaries, we are an advanced ready-mix concrete provider in the
Beijing area with an estimated market share of 6.8% in the open tendered
ready-mix concrete market in Beijing. Our management believes that we have the
ability to capture a much greater share of the Beijing market and further expand
our footprint in China via expanding relationships and networking, signing new
contracts, and continually developing market-leading innovative and eco-friendly
ready-mix concrete products. Our market share will further expand due to the
recently announced infrastructure stimulus packages by the Chinese government.
The $586 billion stimulus packages will focus primary on transportation related
projects such as railway, highway, and transportation related infrastructure.
Our market share will continue to expand and our relationships with major
contractors will deepen as a result of the government’s stimulus
packages.




- 39
-


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




Principal
Factors Affecting Our Financial Performance




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




Large Scale Contractor
Relationships. We have contracts with major construction contractors
which are constructing key infrastructure, commercial and residential projects.
Our sales efforts focus on large-scale projects and large customers which place
large recurring orders and present less credit risks to us. In the six months
ended December 31, 2008, our top ten customers’ sales accounted for 79.5% of all
sales revenue; the largest three of these customers accounted for sales of
15.7%, 11.2%, and 9.7%, respectively.




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




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




PRC
Taxation




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




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




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




- 40
-


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
                  
                  
                  Six
      Months EndedDecember 31,
                  
                  
                  December 31,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)RevenueSales
      of concrete
                  
                  $
                  7,969,878
                  
                  
                  $
                  7,068,849
                  
                  
                  $
                  9,837,565
                  
                  
                  $
                  13,050,518Manufacturing
      services
                  
                  
                  2,070,996
                  
                  
                  
                  -
                  
                  
                  
                  3,996,539
                  
                  
                  
                  -Technical
      services
                  
                  
                  423,330
                  
                  
                  
                  -
                  
                  
                  
                  1,040,127
                  
                  
                  
                  -Mixer
      rental
                  
                  
                  339,767
                  
                  
                  
                  -
                  
                  
                  
                  996,581
                  
                  
                  
                  -Marketing
      cooperation
                  
                  
                  24,230
                  
                  
                  
                  -
                  
                  
                  
                  94,135
                  
                  
                  
                  -Total
      revenue
                  
                  
                  10,828,201
                  
                  
                  
                  7,068,849
                  
                  
                  
                  15,964,947
                  
                  
                  
                  13,050,518Cost
      of revenueCost
      of concrete sales
                  
                  
                  5,993,897
                  
                  
                  
                  5,599,431
                  
                  
                  
                  7,554,204
                  
                  
                  
                  10,550,302Manufacturing
      services
                  
                  
                  795,880
                  
                  
                  
                  -
                  
                  
                  
                  1,293,088
                  
                  
                  
                  -Technical
      services
                  
                  
                  29,781
                  
                  
                  
                  -
                  
                  
                  
                  97,683
                  
                  
                  
                  -Mixer
      rental
                  
                  
                  44,998
                  
                  
                  
                  -
                  
                  
                  
                  337,043
                  
                  
                  
                  -Marketing
      cooperation
                  
                  
                  7,837
                  
                  
                  
                  -
                  
                  
                  
                  38,707
                  
                  
                  
                  -Total
      cost of revenue
                  
                  
                  6,872,393
                  
                  
                  
                  5,599,431
                  
                  
                  
                  9,320,725
                  
                  
                  
                  10,550,302Gross
      profit
                  
                  
                  3,955,808
                  
                  
                  
                  1,469,418
                  
                  
                  
                  6,644,222
                  
                  
                  
                  2,500,216Selling,
      general and administrative expenses
                  
                  
                  612,371
                  
                  
                  
                  330,291
                  
                  
                  
                  1,269,480
                  
                  
                  
                  629,266Other
      (expense) income, net
                  
                  
                  301,968
                  
                  
                  
                  347,103
                  
                  
                  
                  304,329
                  
                  
                  
                  607,765Income
      before provision for income taxes
                  
                  
                  3,645,405
                  
                  
                  
                  1,486,230
                  
                  
                  
                  5,679,071
                  
                  
                  
                  2,478,715Income
      taxes
                  
                  
                  1,000,403
                  
                  
                  
                  -
                  
                  
                  
                  1,575,230
                  
                  
                  
                  -Net
      income
                  
                  
                  2,645,002
                  
                  
                  
                  1,486,230
                  
                  
                  
                  4,103,841
                  
                  
                  
                  2,478,715Dividends
      and accretion on redeemable preferred
                  
                  
                  309,036
                  
                  
                  
                  -
                  
                  
                  
                  618,132
                  
                  
                  
                  -Net
      income available to common shareholders
                  
                  $
                  2,335,966
                  
                  
                  $
                  1,486,230
                  
                  
                  $
                  3,485,709
                  
                  
                  $
                  2,478,715




- 41
-




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




Three Months Ended
                            
                            
                            Six Months EndedDecember 31,
                            
                            
                            December 31,2008
                            
                            
                            2007
                            
                            
                            2008
                            
                            
                            2007(Unaudited)
                            
                            
                            (Unaudited)
                            
                            
                            (Unaudited)
                            
                            
                            (Unaudited)RevenueSales
      of concrete
                            
                            
                            73.6
                            %
                            
                            
                            100.0
                            %
                            
                            
                            61.6
                            %
                            
                            
                            100.0
                            %Manufacturing
      services
                            
                            
                            19.1
                            %
                            
                            
                            -
                            
                            
                            
                            25.0
                            %
                            
                            
                            -Technical
      services
                            
                            
                            3.9
                            %
                            
                            
                            -
                            
                            
                            
                            6.5
                            %
                            
                            
                            -Mixer
      rental
                            
                            
                            3.1
                            %
                            
                            
                            -
                            
                            
                            
                            6.2
                            %
                            
                            
                            -Marketing
      cooperation
                            
                            
                            0.3
                            %
                            
                            
                            -
                            
                            
                            
                            0.7
                            %
                            
                            
                            -Total
      revenue
                            
                            
                            100.0
                            %
                            
                            
                            100.0
                            %
                            
                            
                            100.0
                            %
                            
                            
                            100.0
                            %Cost
      of revenueCost
      of sales
                            
                            
                            55.4
                            %
                            
                            
                            79.2
                            %
                            
                            
                            47.3
                            %
                            
                            
                            80.8
                            %Manufacturing
      services
                            
                            
                            7.4
                            %
                            
                            
                            -
                            
                            
                            
                            8.1
                            %
                            
                            
                            -Technical
      services
                            
                            
                            0.3
                            %
                            
                            
                            -
                            
                            
                            
                            0.6
                            %
                            
                            
                            -Mixer
      rental
                            
                            
                            0.4
                            %
                            
                            
                            -
                            
                            
                            
                            2.1
                            %
                            
                            
                            -Marketing
      cooperation
                            
                            
                            0.1
                            %
                            
                            
                            -
                            
                            
                            
                            0.2
                            %
                            
                            
                            -Total
      cost of revenue
                            
                            
                            63.6
                            %
                            
                            
                            79.2
                            %
                            
                            
                            58.4
                            %
                            
                            
                            80.8
                            %Gross
      profit
                            
                            
                            36.4
                            %
                            
                            
                            20.8
                            %
                            
                            
                            41.6
                            %
                            
                            
                            19.2
                            %Selling,
      general and administrative expenses
                            
                            
                            5.7
                            %
                            
                            
                            4.7
                            %
                            
                            
                            8.0
                            %
                            
                            
                            4.8
                            %Other
      (expense) income, net
                            
                            
                            2.8
                            %
                            
                            
                            4.9
                            %
                            
                            
                            1.9
                            %
                            
                            
                            4.7
                            %Income
      before provision for income taxes
                            
                            
                            33.6
                            %
                            
                            
                            21.0
                            %
                            
                            
                            35.6
                            %
                            
                            
                            19.1
                            %Income
      taxes
                            
                            
                            9.2
                            %
                            
                            
                            0.0
                            %
                            
                            
                            9.9
                            %
                            
                            
                            0.0
                            %Net
      income
                            
                            
                            24.4
                            %
                            
                            
                            21.0
                            %
                            
                            
                            25.7
                            %
                            
                            
                            19.1
                            %Dividends
      and accretion on redeemable preferred
                            
                            
                            2.9
                            %
                            
                            
                            0.0
                            %
                            
                            
                            3.9
                            %
                            
                            
                            0.0
                            %Net
      income available to common shareholders
                            
                            $
                            21.5
                            %
                            
                            $
                            21.0
                            %
                            
                            $
                            21.8
                            %
                            
                            $
                            19.1
                            %




- 42
-


Comparison
of Three Months Ended December 31, 2008 and 2007




Revenue.
Our revenue is generated from sales of our advanced ready-mix concrete products,
manufacturing services, technical consulting, marketing cooperation services,
and mixer rental. For the three months ended December 31, 2008, we generated
revenue of $10,828,201, a 53.2% or $3,759,352 increase from revenue of
$7,068,849 during the same period of 2007. For the Olympic Games held in August
in Beijing, our primary area of operation, all construction within the 5th ring
expressway surrounding the city was halted and delayed until after the Olympics.
Our sales revenue increased as the construction industry in Beijing returned
back to full scale following the Olympics. As a result of that, we generated
concrete revenue of $7,969,878 for the quarter ended December 31, 2008, an
increase of $901,029 in revenue or 12.7% compared to the same period last
year.  During the quarter, we continued to supply concrete products to
three railway projects located outside Beijing area through our portable plants,
specifically the Suzhou and Danyang sections of the Beijing-Shanghai high-speed
railway project and the East Datong-Gudian connection railway project. These
three projects contributed $2,070,996 to our total revenue for the quarter. For
these railway projects, the general contractors supplied their own raw materials
and we provided manufacturing and transportation services. Additionally,
technical consulting services generated revenue of $423,330 for the quarter
ended December 31, 2008. During the quarter, we generated revenues of $339,767
from our mixer truck rental and reached marketing cooperation agreements with
several concrete producers where we were paid a minimum of RMB 5 per cubic meter
for projects we refer to them due to restriction of our station’s geographical
location generating revenue of $24,230. We believe our sales revenue will
continue to grow as Chinese government announced its 4 trillion Yuan (USD$590
billion) stimulus package in November 2008. We will be the direct beneficiary of
transport and infrastructure build-out from China’s stimulus package. Also, we
will continue to expand our business into additional geographical markets due to
our strong relationship with major contractors in China.




Cost of
Revenue. Cost of
Revenue, which consists of direct labor, rentals, depreciation, other overheads
and raw materials including inbound freight charge, was $6,872,393 for the three
months ended December 31, 2008 as compared to $5,599,431 for the three months
ended December 31, 2007, an increase of $1,272,962 or 22.7%.  The
increase on cost of revenue is due primarily to increase in revenue of 53.2%
compared to the same period in 2007. The percentage of cost of revenue has
decreased significantly compared to the percentage of increase in revenue. As
previously mentioned, we continue to work on the three railway projects during
the quarter, cost of which didn’t include raw material because the general
contractors supplied it themselves. During the quarter, we have continued to
enter concrete technical and marketing cooperation service contracts which have
lower cost of revenue and higher gross margins and to engage in mixer rental
while we didn’t have such revenues for the same period in 2007.




Gross
Profit. Our gross profit is equal to the difference between our revenue
and cost of revenue. Overall gross profit was $3,955,808 for the three months
ended December 31, 2008 as compared to $1,469,418 for the three months ended
December 31, 2007, representing gross margin of approximately 36.5% and 20.8%,
respectively. The gross profit for sale of concrete was $1,975,981 or 24.8% for
the quarter compared to $1,469,418 or 20.8% for the same period last year, an
increase of $506,563 or 4.0%. The gross profit on our manufacturing services was
$1,275,116 or 61.6% for the quarter. The higher gross margin reflects the fact
that cost of the three railway projects did not include raw materials that were
supplied by clients themselves. The higher gross margin is also attributable to
more profitable technical service and marketing cooperation contracts we
performed and mixer rental during the quarter.  We will continue to
expand manufacturing and technical services throughout our market areas because
these services produce the highest gross profits among our revenue
sectors.




Selling, General
and Administrative Expenses. Selling, general and administrative expenses
consist of sales commissions, advertising and marketing costs, office rent and
expenses, costs associated with staff and support personnel who manage our
business activities, and professional and legal fees paid to third parties. The
company incurred selling, general and administrative expenses of $612,371 for
the three months ended December 31, 2008, an increase of $282,080 or 85.4%, as
compared to $330,291 for the three months ended December 31, 2007. The increase
is primarily due to increased legal fees, auditing and accounting expenses,
investor relation and other professional expenses after the reverse merger and
financing, as well as additional bad debt expense recognized during the quarter.
Salaries for employees also increased an average of 35% as a result of
conforming to new Chinese Labor Law that became effective on January 1,
2008.




- 43
-




Other Income
(Expenses). ). Our
other income (expenses) consists of valued added tax exemption from the
government, financial income (expenses) and other non-operating income
(expenses). We had net other income of $301,968 for the three months ended
December 31, 2008 as compared to net other income of $347,103 for the three
months ended December 31, 2007, a decrease in net other income of $45,135. The
decrease in net other income is partly due to receiving of value added tax
exemption from the government  offset by increase in interest expense
and other non-operating expense. We had interest expenses of $217,570 for the
three months ended December 31, 2008 as compared to $63,029 for the three months
ended December 31, 2007, an increase of $154,542. The increase is contributing
to higher interest expense on short-term loans for the three months ended
December 31, 2008, and financial leverage as compared to the same period last
year.




Provision for
Income Taxes. Provision for income taxes amounted to $1,000,403 and $0
for the three months ended December 31, 2008 and 2007, respectively. The Company
has been using recycled raw materials in its production since its inception
which entitled us to an income tax exemption from January 1, 2003 through
December 31, 2007 as granted by the State Administration of Taxation, PRC.
Starting January 1, 2008, the Company is subject to 25% income tax.




Net
Income. We generated net income of $2,645,002 for the three months ended
December 31, 2008 as compared to $1,486,230 for the three months ended December
31, 2007, an increase of $1,158,772 or 78%. The increase in net income is
attributable to higher overall gross revenue, higher gross profit on the three
railway projects, technical service and marketing cooperation contracts, and
rent income of mixer trucks as well as appreciating of RMB against USD as all of
our revenues were generated in PRC, partially offset by higher general and
administrative expenses and interest expenses after the reverse merger and
financing in addition to the 25% income tax that we became subject to this year.
Our net margin increased from 21.0% for the three months ended December 31, 2007
to 24.4% for the three months ended December 31, 2008 due to higher margin we
realized on the three railway projects on a lower cost-of-revenue basis as the
general contractors supplied raw materials themselves as well as greater
profitability from the rent of mixer trucks and technical service and marketing
cooperation contracts performed during the quarter. Our management believes that
our profits will continue to increase as we are the direct beneficiary of
Chinese government’s stimulus package on infrastructure projects. We also lease
or build new plants to increase the customer reach to construction sites located
in Beijing, expand into other geographical areas, as well as vertically
integrate our operations across the supply chain, which will further lower our
costs and provide even greater profitability.




Dividends and accretion on redeemable
preferred stock.  The increase of $309,036 compared to the
three months ended December 31, 2007 is due to our redeemable preferred stock
offering in June 2008.  It included preferred dividend expense of
$158,795 and accretion of discount on the preferred stock of
$150,241.




- 44
-




Comparison of Six Months Ended
December 31, 2008 and 2007




Revenue.
Our revenue is generated from sales of our advanced ready-mix concrete products,
manufacturing services, technical consulting, marketing cooperation services,
and mixer rental. For the six months ended December 31, 2008, we generated
revenue of $15,964,947 compared to $13,050,518 during the same period of 2007,
an increase of $2,914,429 or 22.3%. During the six months surrounding the
Olympic Games held in August in Beijing, our primary area of operation, all
construction within the 5th ring expressway surrounding the city was halted and
delayed until after the Olympics. In anticipation of this work stoppage and in
an attempt to counter any adverse effect such an event could have on our
operations, we focused efforts during this time to expanding the geographic area
of our operations, providing technical consulting services to other companies
and renting our equipment to other companies. Our sales revenue increased as the
construction industry in Beijing returned back to full scale following the
Olympics. As a result of that, our concrete revenue decreased $3,212,953 or 24.6
% compared to the same
period last year. The decrease in concrete revenue is due to the Olympics events
as previously discussed.  During the six months period ended December
31, 2008, we continued to supply concrete products to six railway projects
located outside Beijing area through our portable plants, specifically the
Suzhou and Danyang sections of the Beijing-Shanghai high-speed railway project
and the East Datong-Gudian connection railway project. These six projects
contributed $3,996,539 to our total revenue for the six months ended December
31, 2008. For these railway projects, the general contractors supplied their own
raw materials and we provided manufacturing and transportation services.
Additionally, technical consulting services generated revenue of $1,040,127
during the six months. During the six month period ended December 31, 2008, we
also rented our mixer trucks to mixture stations located outside the 5th ring
expressway of Beijing, which generated revenues of $996,581 and reached
marketing cooperation agreements with several concrete producers where we were
paid a minimum of RMB 5 per cubic meter for projects we refer to them due to
restriction of our station’s geographical location generating revenue of
$94,135. We believe our sales revenue will continue to grow as Chinese
government announced its 4 trillion Yuan (USD$590 billion) stimulus package in
November 2008. We will be the direct beneficiary of transport and infrastructure
build-out from China’s stimulus package. Also, we will continue to expand our
business into additional geographical markets due to our strong relationship
with major contractors in China.




Cost of
Revenue. Cost of
Revenue, which consists of direct labor, rentals, depreciation, other overheads
and raw materials including inbound freight charge, was $9,320,725 for the six
months ended December 31, 2008 as compared to $10,550,302 for the six months
ended December 31, 2007, a decrease of 11.7% or $1,229,577.  The
decrease on cost of revenue is due to increase in revenue of 22.3% offset by
decrease in cost of revenue for manufacture and technical services compared to
the same period in 2007. The cost of revenue has decreased significantly
compared to the percentage of increase in revenue. As previously mentioned, we
continue to work on the six railway projects for the six months ended December
31, 2008, cost of which didn’t include raw material because the general
contractors supplied it themselves. We continue to enter concrete technical and
marketing cooperation service contracts which have higher gross margins and to
engage in mixer rental during the quarter, while we didn’t have such revenues
for the same period in 2007.




Gross
Profit. Our gross profit is equal to the difference between our revenue
and cost of revenue. Gross profit was $6,644,222 for the six months ended
December 31, 2008 as compared to $2,500,216 for the six months ended December
31, 2007, representing gross margin of approximately 41.6% and 19.2%,
respectively. The gross profit for sale of concrete was $2,283,361 or 23.2% for
the quarter compared to $2,500,216 or 19.2% for the same period last year, a
decrease of $216,855 or 4.5%. Again, the minor decrease on gross profit for
concrete sale for the six months ended on December 31, 2008 compared to 2007 is
due primarily to the affect of Olympic events discussed previously. The gross
profit on our manufacturing services was $2,703,451 or 67.6% for the six months
ended December 31, 2008. The higher gross margin reflects the fact that cost of
the six railway projects did not include raw materials that were supplied by
clients themselves. The higher gross margin is also attributable to more
profitable technical service and marketing cooperation contracts we performed
and mixer rental during the quarter.  The Company will continue to
expand its manufacture and technical services because these services produce the
highest gross profits among our revenue sectors.




Selling, General
and Administrative Expenses. Selling, general and administrative expenses
consist of sales commissions, advertising and marketing costs, office rent and
expenses, costs associated with staff and support personnel who manage our
business activities, and professional and legal fees paid to third parties. The
company incurred selling, general and administrative expenses of $1,269,480 for
the six months ended December 31, 2008, an increase of 101.7% or $640,214, as
compared to $629,266 for the six months ended December 31, 2007. The increase is
primarily due to increased legal fees, auditing and accounting expenses,
investor relation and other professional expenses after the reverse merger and
financing, as well as additional bad debt expense recognized during the six
months ended December 31, 2008. Salaries for employees also increased an average
of 35% as a result of conforming to new Chinese Labor Law that became effective
on January 1, 2008.




- 45
-


Other Income
(Expenses). ). Our
other income (expenses) consists of valued added tax exemption from the
government, financial income (expenses) and other non-operating income
(expenses). We had net other income of $304,329 for the six months ended
December 31, 2008 as compared to net other income of $607,765 for the six months
ended December 31, 2007, a decrease in net other income of $303,436 or 49.9%.
The decrease in net other income is partly due to receiving of value added tax
exemption from the government offset by increase in other non-operating expense
and interest expense. We had interest expenses of $446,344 for the six months
ended December 31, 2008 as compared to $147,569 for the six months ended
December 31, 2007, an increase of $298,775. The increase is contributing to
higher interest expense on short-term loans for the six months ended December
31, 2008, and financial leverage as compared to the same period last
year.




Provision for
Income Taxes. Provision for income taxes amounted to $1,575,230 and $0
for the six months ended December 31, 2008 and 2007, respectively. The Company
has been using recycled raw materials in its production since its inception
which entitled us to an income tax exemption from January 1, 2003 through
December 31, 2007 as granted by the State Administration of Taxation, PRC.
Starting January 1, 2008, the Company is subject to 25% income tax.




Net
Income. We had net income of $4,103,841 for the six months ended December
31, 2008 as compared to $2,478,715 for the six months ended December 31, 2007,
an increase of 65.6% or $1,625,126. The increase in net income is attributable
to higher gross profit on the six railway projects, technical service and
marketing cooperation contracts, and rent income of mixer trucks as well as
appreciating of RMB against USD as all of our revenues were generated in PRC,
partially offset by higher general and administrative expenses and interest
expenses after the reverse merger and financing in addition to the 25% income
tax that we became subject to this year. Our net margin increased from 19.1% for
the six months ended December 31, 2007 to 25.7% for the six months ended
December 31, 2008 due to higher margin we realized on the six railway projects
on a lower cost-of-revenue basis as the general contractors supplied raw
materials themselves as well as greater profitability from the rent of mixer
trucks and technical service and marketing cooperation contracts performed
during the quarter. Our management believes that our profits will continue to
increase as we are the direct beneficiary of Chinese government’s stimulus
package on infrastructure projects. We also lease or build new plants to
increase the customer reach to construction sites located in Beijing, expand
into other geographical areas, as well as vertically integrate our operations
across the supply chain, which will further lower our costs and provide even
greater profitability.




Dividends and accretion on redeemable
preferred stock.  The increase of $618,132 compared to the six
months ended December 31, 2007 is due to our redeemable preferred stock offering
in June 2008.  It included preferred dividend expense of $317,650 and
accretion of discount on the preferred stock of $300,482.




Liquidity
and Capital Resources




As of
December 31, 2008, we had cash and cash equivalents of $3,225,178 and restricted
cash of $881,484. The following table provides detailed information about our
net cash flow for financial statement periods presented in this Form
10-Q:




- 46
-




Summary of Cash Flow Statements




Six
      Months ended
                                                    
                                                    
                                                    Year EndedDecember
      31,
                                                    
                                                    
                                                    June 30,(Unaudited)
                                                    
                                                    
                                                    (Unaudited)2008
                                                    
                                                    
                                                    2007
                                                    
                                                    
                                                    2008
                                                    
                                                    
                                                    2007Net
      cash (used in) provided by operating activities
                                                    
                                                    $
                                                    1,063,412
                                                    
                                                    
                                                    $
                                                    1,508,450
                                                    
                                                    
                                                    $
                                                    5,110,924
                                                    
                                                    
                                                    $
                                                    2,833,576Net
      cash provided by (used in)  investing activities
                                                    
                                                    
                                                    (31,666
                                                    )
                                                    
                                                    
                                                    (11,385
                                                    )
                                                    
                                                    
                                                    (8,701,026
                                                    )
                                                    
                                                    
                                                    (241,004
                                                    )Net
      cash provided by (used in) financing activities
                                                    
                                                    
                                                    275,412
                                                    
                                                    
                                                    
                                                    (2,386,752
                                                    )
                                                    
                                                    
                                                    4,376,507
                                                    
                                                    
                                                    
                                                    (1,608,605
                                                    )Effect
      of foreign currency translation on cash and cash
    equivalents
                                                    
                                                    
                                                    7,525
                                                    
                                                    
                                                    
                                                    2,391
                                                    
                                                    
                                                    
                                                    (300,793
                                                    )
                                                    
                                                    
                                                    37,094Net
      (decrease) increase in cash and cash equivalent
                                                    
                                                    $
                                                    1,314,683
                                                    
                                                    
                                                    $
                                                    (887,296
                                                    )
                                                    
                                                    $
                                                    485,612
                                                    
                                                    
                                                    $
                                                    1,021,061




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 Six Months Ended December 31, 2008 and 2007




Net Cash Used
in/Provided by Operating Activities. Net cash provided by operating
activities totaled $1,063,412 for the six months ended December 31, 2008 as to
net cash provided by operating activities of $1,508,450 for the six months ended
December 31, 2007. The decrease in net cash from operating activities was
primarily due to increases in accounts receivable, other receivable, and
inventory of raw materials, partially offset by deferred payment of cash on tax
, accounts payable and other payable during the six months ended December 31,
2008. We expect our cash flow from operating activities to improve as the
construction industry in Beijing accelerates following the Olympic Games and we
strengthen our efforts to negotiate better terms with our suppliers and
customers.




Net Cash Used In
Investing Activities.  Net cash used in investing activities was
$31,669for the six
months ended December 31, 2008 and $11,385 for the six months ended December 31,
2007. The cash was primarily used for purchase of new equipment and for
construction in progress.




Net Cash Provided
by/used in Financing Activities. Net cash provided by financing
activities totaled $275,412for the six months ended
December 31, 2008 as compared to net cash used in financing activities of
$2,386,752 for the six months ended December 31, 2007. The reason for the
increase in cash provided by financing activities was due to short-term loans of
$4,395,000 (RMB 30 million) from Beijing International Trust & Investment
Co., due July 15, 2009 and $2,930,000 (RMB 20 million) from Huaxia Bank, due
November 16, 2008, partially offset by repayment of short-term loans from Huaxia
Bank for $5,860,000 (RMB 40 million), from  and from employees and
unrelated companies for $860,266 (RMB 5,880,000) offset by dividend paid to our
preferred stock owners . The net proceeds from the loans will be used for
building plant, purchasing concrete mixers and pump trucks, working capital and
general corporate purposes.




Cash.  As of December
31, 2008, we had cash of $3,225,178, as compared to $537,587 as of December 31,
2007. This increase was due primarily to increase in net short-term
borrowings.




- 47
-




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




Loan
Facilities




We had a
total of $4,899,047 and $4,271,222 outstanding on loans and credit facilities as
of December 31 and June 30, 2008, respectively. The loans consisted of the
following:




December
      31,
                                    
                                    
                                    June
      30,2008
                                    
                                    
                                    2008(Unaudited)Loan
      from Huaxia Bank, with effective annual interest rate of 7.5555%, due
      November 16, 2008, guaranteed by the Company’s shareholder, Mr. Han
      Xianfu
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    2,918,000Loan
      from Beijing International Trust Co, Ltd. with effective annual interest
      rate of 15%, due July 15, 2009, guaranteed by Rayland Credit Guarantee Co.
      Ltd
                                    
                                    
                                    4,401,000
                                    
                                    
                                    
                                    -Loan
      from unrelated company Beijing Hengxin Huaxing Auto Accessories Company,
      with no interest, fully paid.
                                    
                                    
                                    -
                                    
                                    
                                    
                                    379,340Loan
      from unrelated company Beijing Hongda Huaxin Wujinjidian Company, with no
      interest, fully paid.
                                    
                                    
                                    -
                                    
                                    
                                    
                                    204,260Loan
      from unrelated company, Beijing Sigi Qingbaosan Cement Company, with no
      interest, fully paid.
                                    
                                    
                                    -
                                    
                                    
                                    
                                    116,720Loan
      from unrelated individual Xia Hua Qing, with no interest, fully
      paid.
                                    
                                    
                                    -
                                    
                                    
                                    
                                    128,392Loan
      from various employees, with effective annual interest rate of 20%, due
      upon demand, unsecured.
                                    
                                    
                                    498,047
                                    
                                    
                                    
                                    524,510Total
      short term loans
                                    
                                    $
                                    4,899,047
                                    
                                    
                                    $
                                    4,271,222




Total
interest expense on short-term loans for the six months ended December 31, 2008
and 2007 amounted to $443,786 and $147,569, respectively.




Obligations
Under Material Contracts




Below is
a table setting forth our contractual obligations as of December 31,
2008:




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




Seasonality




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




Critical
Accounting Policies and Estimates




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




- 48
-




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




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




·
            Delivery
      has occurred or services have been
rendered;




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




·
            Collectability
      of payment is reasonably assured.




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




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




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




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




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




Inventories.
Inventories consist of raw materials and are stated at the lower of cost or
market, using the weighted average cost method. The Company reviews its
inventory periodically for possible obsolescence. As of December 31, 2008, the
Company determined no reserves were necessary.




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




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




The
ultimate collection of the Company’s accounts receivable may take more than one
year, and any portion of accounts receivable expected to be collected in more
than one year is reflected as 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.




Value added
tax. Enterprises or individuals who sell commodities, engage in repair
and maintenance or import and export goods in the PRC are subject to a value
added tax (“VAT”). The standard VAT rate is 6% of gross sales for the Company’s
industry. A credit is available whereby VAT paid on the purchases of raw
materials used in the production of the Company’s finished products can be used
to offset the VAT due on sales of finished products. Due to the fact that the
Company uses recycled raw materials to manufacture its products, the State
Administration of Taxation has granted the Company VAT Tax Exemption from August
2005 through to August 2009. For the six months ended December 31, 2008 and
2007, $830,021 and $782,725, respectively, was recognized as other subsidy
income from VAT taxes collected.




Recently
issued accounting pronouncements




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




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




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




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




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




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




In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining
the Fair Value of a Financial Asset in a Market That Is Not Active” (FSP 157-3),
which clarifies the application of SFAS 157 when the market for a financial
asset is inactive. Specifically, FSP 157-3 clarifies how (1) management’s
internal assumptions should be considered in measuring fair value when
observable data are not present, (2) observable market information from an
inactive market should be taken into account, and (3) the use of broker quotes
or pricing services should be considered in assessing the relevance of
observable and unobservable data to measure fair value. FSP 157-3 became
effective on October 10, 2008, and its adoption did not have a material impact
on our financial position or results for the six months ended December 31,
2008.




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Off-Balance
Sheet Arrangements




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




Item 3. Quantitative and Qualitative
Disclosures About Market Risk





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





Item 4T.  Evaluation of Disclosure Controls and
Procedures





a)
 Evaluation of
Disclosure Controls.





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





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




As of
December 31, 2008, the quarter end period covered by this report, we carried out
an evaluation, under the supervision and with the participation of our
management, including our principal executive officer and our principal
accounting officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. The current staff in the accounting
department is relatively new and inexperienced, and needs substantial training
so as to meet with the higher demands of being a U.S. public company. Therefore,
the Company lacks qualified resources to perform the internal audit functions
properly.  In addition, the scope and effectiveness of the internal
audit function are yet to be developed.  Based on the foregoing, our
president and our chief financial officer concluded that our disclosure controls
and procedures were not effective as of the end of the period covered by this
quarterly report.





In order
to correct the foregoing deficiencies, the Company has hired an independent
director to focus on our internal controls and procedures.  The
Company has also established an internal audit department to assist the
independent director in developing internal audit functions and procedures. In
order to fully in compliance with the Sarbarnes Oxley Act of 2002, we have
interviewed several Big Four accounting firms to perform the SOX implementation
for the Company.




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





PART
II - OTHER INFORMATION




Item
1. Legal Proceedings.




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





Item
1A. Risk Factors





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




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




None.





Item
3. Defaults Upon Senior Securities.




None.




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




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





On
December 17, 2008, the majority shareholders approved by written consent the
appointment of Gene Hsiao to our Board of Directors as a member of compensation
committee and the appointment of Jeremy Goodwin as chairman of the audit
committee.




Item
5. Other Information.




None





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




(a)           Exhibits




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




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




(b)           Reports
of Form 8-K




On
October 10, 2008, the Company filed a Form 8-K with the SEC disclosing a new
director.





On
December 2, 2008, the Company filed a Form 8-K with the SEC disclosing a hiring
of a chief financial officer.





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SIGNATURES




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




CHINA
      ADVANCED CONSTRUCTION
                    MATERIALS
      GROUP, INC.RegistrantDated:  February
      12, 2009
                  By:
                  /s/
      Xianfu HanXianfu
      Han
                    Principal
      Executive OfficerDated:  February
      12, 2009
                  By:
                  /s/
      Chin HsiaoChin
      Hsiao
                    Principal
      Financial and Accounting
Officer





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