UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K/A




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




For the
Fiscal Year EndedJune 30,
2008




OR




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




Commission
file number333-141568




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC.


(Exact
name of registrant as specified in its charter)




Delaware
            20-8468508(State or other Jurisdiction of Incorporation or
            (I.R.S. Employer Identification No.)Organization)Yingu Plaza, 9 Beisihuanxi Road, Suite 1708Haidian District, Beijing 100080 PRC
            n/a(Address of Principal Executive Offices)
            (zip code)




Registrant's
telephone number, including area code:+86 10 82525361




Securities
registered pursuant to Section 12(b) of the Act:




Title of Each Class
                
                Name of Each Exchange On Which RegisteredN/A
                
                N/A




Securities
registered pursuant to Section 12(g) of the Act:




Common
Stock, Par Value $0.001




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 the Securities Act.


Yes ̈   Nox




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes ̈   Nox




Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the last 90 days. Yesx  
 No ̈




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ̈













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




Large
accelerated filer ̈        Accelerated filer ̈




Non-accelerated
filer ̈        Smaller reporting
companyx




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ̈   Nox




The
aggregate market value of Common Stock held by non-affiliates of the Registrant
on September 26, 2008 was $4,460,085 based on a $2.60 closing price for the
Common Stock on September 26, 2008. For purposes of this computation, all
executive officers and directors have been deemed to be affiliates. Such
determination should not be deemed to be an admission that such executive
officers and directors are, in fact, affiliates of the Registrant.




Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock as of the latest practicable date.




10,525,000 Shares as of
December 31, 2008




DOCUMENTS
INCORPORATED BY REFERENCE




None.


2




TABLE
OF CONTENTS




PageItem
      1.
              Business
              4Item
      2.
              Properties
              27Item
      3.
              Legal
      Proceedings
              27Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              28Item
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              28Item
      6.
              Selected
      Financial Data
              28Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              28Item
      7A.
              Quantitative
      and Qualitative Disclosure of Market Risk
              38Item
      8.
              Financial
      Statements and Supplementary Data
              41Item
      9.
              Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
              71Item
      9A(T).
              Controls
      and Procedures
              71Item
      9B.
              Other
      Information
              74Item
      10.
              Directors,
      Executive Officers and Corporate Governance
              74Item
      11.
              Executive
      Compensation
              75Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              77Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              79Item
      14.
              Principal
      Accountant Fees and Services
              82Item
      15.
              Exhibits,
      Financial Statements and Schedules
              82




3




PART
I




Item
1.        Business




Our
Corporate Structure





We own
all of the issued and outstanding capital stock of BVI-ACM, which in turn owns
100% of the outstanding capital stock of China-ACMH. On November 28, 2007,
China-ACMH entered into a series of contractual agreements with Xin Ao and its
two shareholders, pursuant to which China-ACMH effectively took 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.





The
following chart reflects our organizational structure as of the date of this
prospectus.











Our
Corporate History




China
Advanced Construction Materials Group, Inc. was founded as an unincorporated
business on September 1, 2005, under the name TJS Wood Flooring, Inc., and
became a C corporate in the State of Delaware on February 15, 2007. On April 29,
2008, we changed our name to China Advanced Construction Materials Group, Inc.
in connection with a reverse acquisition transaction with BVI-ACM as described
below.





Background
and History of BVI-ACM and China-ACMH





BVI-ACM
was established on October 9, 2007, under the laws of British Virgin Islands.
The majority shareholders of BVI-ACM are Chinese citizens who own 100% of Xin
Ao, a limited liability company formed under laws of China. BVI-ACM was
established as a “special purpose vehicle” for foreign fund raising for Xin Ao.
China State Administration of Foreign Exchange, or 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 matter under the “Circular 106” in the PRC. On September 29, 2007,
BVI-ACM was approved by local Chinese SAFE as a “special purpose vehicle”
offshore company.





On
November 23, 2007, BVI-ACM established a subsidiary, China-ACMH, in China as a
wholly owned foreign limited liability company with registered capital of $5
million.





BVI-ACM,
through its 100% owned China-ACMH and its variable interest entity Xin Ao, is
engaged in producing general ready-mixed concrete, customized mechanical
refining concrete, and some other concrete-related products which are mainly
sold in China.





Xin Ao,
licensed by Beijing Administration of Industry & Commerce, PRC, was
established on June 28, 2002 with an initial capital contribution of
approximately $3,630,000 (RMB30 million) and owned by Beijing Shang Di Xing Da
Mixed Soil Ltd Co. (“Shang Di”) with 79% of ownership and Beijing Heng Xin Ao
Tong Trading Ltd. (“Heng Xin”) with 21% of ownership. On September 17, 2004,
Shang Di transferred its 79% ownership in Xin Ao to Beijing Boya Fangyuan
Investment Management Co. (“Boya Fangyuan”) and Heng Xin transferred its 21%
ownership to Beijing Jia Shi Long Teng Technology Development Co. (“Jia Shi Long
Teng”). The transfers were approved at Xin Ao’s shareholder
meeting.


4




On July
8, 2005, the Board of Directors of Xin Ao made a decision to increase its
registered capital from approximately $3,630,000 (RMB30 million) to $12,100,000
(RMB100 million) through the use of Xin Ao’s undistributed profits. The
percentage of the shareholders did not change and the registered capital
contributed by Boya Fangyuan had increased from approximately $2.9 million
(RMB23.7 million) to $9.6 million (RMB79 million) and by Jia Shi Long Teng had
increased from approximately $762,300 (RMB6.3 million) to $2.5 million (RMB21
million). On the same day, Xin Ao had an ownership change with Boya Fangyuan
transferring 50% of its 79% ownership, which was approximately $6.05 million
(RMB50 million) of registered capital to Mr. Han Xianfu and Jia Shi Long Teng
transferring 1% of its 21% interest to Mr. Han Xianfu. In December 2005, Jia Shi
Long Teng transferred its remaining 20% ownership in Xin Ao to Boya Fangyuan. On
August 27, 2007, Boya Fangyuan transferred its 9% to Mr. Han Xianfu and 40% to
Mr. He Weili.




As
discussed above, on November 28, 2007, China-ACMH entered a series of
contractual arrangements with Xin Ao and its shareholders pursuant to which
China-ACMH effectively assumes control 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.





Through
China-ACMH, BVI-ACM operates and controls Xin Ao. The reasons that 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, are that (i) new PRC laws effective as of September 8,
2006, governing share exchanges with foreign entities, 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.





Acquisition
of BVI-ACM and Related Financing





On April
29, 2008, we completed a reverse acquisition transaction with BVI-ACM whereby we
issued to the stockholders of BVI-ACM 8,809,583 shares of our common stock in
exchange for all of the issued and outstanding capital stock of BVI-ACM. BVI-ACM
thereby became our wholly owned subsidiary and the former stockholders of
BVI-ACM became our controlling stockholders.




Upon the
closing of the reverse acquisition, Brandi Iannelli, our former President, Chief
Executive Officer, Chief Financial Officer, Principal Accounting Officer, and
Chairman and Frank Iannelli, our former Secretary, Treasurer and Director
resigned from their respective positions. Xianfu Han, Weili He and Xiangsheng
“Norman” Xu were appointed to the board of directors at the closing of the
reverse acquisition. In addition, our executive officers were replaced by the
BVI-ACM executive officers upon the closing of the reverse acquisition as
indicated in more detail below.




For
accounting purposes, the share exchange transaction was treated as a reverse
acquisition with BVI-ACM as the acquirer and TJS Wood Flooring, Inc. as the
acquired party. When we refer in this prospectus to business and financial
information for periods prior to the consummation of the reverse acquisition, we
are referring to the business and financial information of BVI-ACM on a
consolidated basis unless the context suggests otherwise.





Thereafter
on June 11, 2008, we completed a private placement pursuant to which we sold to
27 accredited investors 875,000 investment units, or Units, for a total of
$7,000,000 in gross proceeds. Each Unit consists of one share of the Company’s
Series A Convertible Preferred Stock, each share of which is convertible into
four shares of our common stock, and a common stock purchase warrant for the
purchase of two shares of our common stock at an exercise price equal to $2.40
per share. After the payment of certain fees and expenses in connection with the
private placement and after $930,000 was placed into an escrow account pursuant
to an agreement with the investors in the private placement, the net proceeds to
the Company was $5,223,291. The fees and expenses incurred in connection with
the private placement amounted to an aggregate of $846,709, which included
placement agent fees of $488,470 paid to Maxim Group LLC, dealer fees of 53,760
paid to Monarch Bay Associates, legal fees of $158,583, consultant fees of
$110,103 paid to All Star Capital Inc., and other ancillary fees in connection
with the private placement of $35,523.




5




In
connection with the private placement, we agreed to file a registration
statement on Form S-1 within 60 days after the closing of the private placement
and have it declared effective within 120 days after its closing to register (i)
100% of the shares of our common stock underlying the Series A Convertible
Preferred Stock; (ii) 100% of the shares of our common stock underlying the
warrants sold to the investors as well as the warrants issued to the placement
agent; (iii) the 3,500,000 shares of Common Stock which may be transferred to
the Investors pursuant to a Make Good Escrow Agreement (as discussed below); and
(iv) 100% of the Warrants purchased in the private placement. In the event of a
full review of the Registration Statement by the SEC, the deadline for
effectiveness will be extended by 30 days.




If a
registration statement covering the registration of the shares described above
is not declared effective by the effectiveness deadline, the Company will be
obligated to pay to each investor in the private placement, as liquidated
damages, a cash payment equal to 1.5% of the aggregate amount invested by such
investor for every 30-day period, calculated pro rata, until the registration
statement has been filed or declared effective. The total cash payment made by
the Company pursuant to such registration obligation will not exceed $420,000,
or 6% of the gross proceeds of the private placement.





If a
registration statement covering the Warrants purchased in the private placement
is not declared effective by the effectiveness deadline, the Company will be
obligated to pay to each investor, as liquidated damages, a cash payment equal
to 2% of the aggregate amount invested by such investor in the private placement
for every 30-day period, calculated pro rata, until the registration statement
has been declared effective. The total cash payments for such registration
obligation shall not exceed $1,050,000, or 15% of the gross proceeds of the
private placement.





If the
Commission limits the amount of securities to be registered for resale pursuant
to Rule 415 under the Securities Act, then the Company shall be entitled to
exclude such disallowed securities and shall not be subject to liquidated
damages in connection with the filing and effectiveness of the additional
registration statement registering the disallowed securities.





The
following table indicates the total possible profit the investors in the private
placement could recognize from the sale of the shares underlying the Series A
Convertible Preferred Stock:





Shares of
                  Common
                  Stock
                  Underlying
                  Series A
                  Convertible
                  Preferred
                  Stock
                  purchased by
                  the investors
                
                
                Market Price
                  of Common
                  Stock on the
                  date of sale of
                  the Series A
                  Preferred
                  Stock (1)
                
                
                Conversion
                  Price (2)
                
                
                Shares of
                  Common
                  Stock
                  Multiplied by
                  the Market
                  Price
                
                
                Shares of
                  Common
                  Stock
                  Multiplied by
                  the Conversion
                  Price
                
                
                Discount to
                  Selling
                  Shareholders3,500,000
                
                
                $
                1.33
                
                
                $
                2.00
                
                
                $
                4,655,000
                
                
                $
                7,000,000
                
                
                $
                0.00




(1) At
the time of the sale of the Series A Convertible Preferred Stock, our common
stock had been quoted on the OTC Bulletin Board for approximately three weeks,
during which time there were no trades in our common stock. Accordingly, the
market price of our common stock at the time of the private placement is
determined by valuing the shares of common stock underlying the Series A
Convertible Preferred Stock by allocating the purchase price paid by the
investors in a cash transaction between a willing buyer and a willing seller to
the underlying common stock, the 9% dividend coupon discounted to present, and
the value of warrants issued to investors derived by CRR binomial model with the
assumptions including an expiration date of June 11, 2012, 75% expected
volatility, dividend yield of 0% and 3.49% risk free rate.





(2) The
determination to set the price to convert each share of Series A Convertible
Preferred Stock into four shares of common stock at $8.00, or $2.00 per share of
common stock, was based on arms-length negotiations between the Company and the
investors in the private placement.




The
following table indicates the total possible profit the investors in the private
placement could recognize from the sale of the shares underlying the
warrants:





Shares of
                  Common Stock
                  Underlying
                  Warrants
                  purchased by
                  investors
                
                
                Market Price
                  on the date of
                  sale of the
                  Warrants (1)
                
                
                Exercise Price
                  (2)
                
                
                Shares of
                  Common Stock
                  Multiplied by
                  the Market
                  Price
                
                
                Shares of
                  Common Stock
                  Multiplied by
                  the Exercise
                  Price
                
                
                Discount to
                  selling
                  shareholders1,750,000
                
                
                $
                1.33
                
                
                $
                2.40
                
                
                $
                2,327,500
                
                
                $
                4,200,000
                
                
                $
                0.00




(1) At
the time of the sale of the Series A Convertible Preferred Stock, our common
stock had been quoted on the OTC Bulletin Board for approximately three weeks,
during which time there were no trades in our common stock. Accordingly, the
market price of our common stock at the time of the private placement is
determined by valuing the shares of common stock underlying the Series A
Convertible Preferred Stock by allocating the purchase price paid by the
investors in a cash transaction between a willing buyer and a willing seller to
the underlying common stock, the 9% dividend coupon discounted to present, and
the value of warrants issued to investors derived by CRR binomial model with the
assumptions including an expiration date of June 11, 2012, 75% expected
volatility, dividend yield of 0% and 3.49% risk free rate.


6




(2) The
determination to set the price to exercise each warrant into two shares of
common stock at $4.80, or $2.40 per share, was based on arms-length negotiations
between the Company and the investors in the private placement.




OUR
BUSINESS




Overview




We are a
producer of advanced ready mix concrete materials in Beijing, China. We are
committed to conducting our operations with an emphasis on the extensive use of
recycled waste materials, the efficient production of our concrete materials
with minimal energy usage, dust and air pollution, and innovative products,
methods and practices.




We are
able to meet the stringent environmental and technical needs of a rapidly
growing market. The types of projects that we provide concrete for include large
express railways, bridges, tunnels, skyscrapers, dams, and nuclear reactor
infrastructure projects that many competitors are not able to produce due to
technical difficulties, resource and information limitations. Recent projects
for which we have acted as a leading concrete and structural materials provider
include the new CCTV broadcasting site in Beijing, the Beijing-Tianjin Intercity
Rail/Beijing South Railway Station, the Beijing Olympic Park Conference Center,
Financial Street F2 Office Building, DongGuan Bridge Project, and MaJuQiao
Residential Project.




Our
Industry





China is
the world’s largest construction materials producers, ranking first in the
world’s annual output of cement, flat glass, building ceramic and ceramic
sanitary ware. According to the Industrial Ceramics, Vol. 27, February 2007,
total revenues for the Chinese construction materials market in 2006 was
approximately $171.5 billion.” and that “[i]t is estimated that the total
production value will reach $294.8 billion by 2011, an average annual growth
rate of 11.4%. (Industrial Ceramics, Vol. 27, February 2007,” page 142). This
information is publicly available at www.technagroup.it/sample_IC.pdf . According to the National Development
and Reform Commission, or NDRC, total revenues for the industry during the first
five months of 2008 was approximately $112.8 billion, representing an increase
of 33.4% over the same period in 2007. Also according to the NDRC, profits by
companies in the construction materials market in China during the first five
months of 2008 were approximately $5.26 billion, representing an increase of
43.6% over the same period in 2007”, is the “Year 2008 First Five Months
Construction Material Industry Sector Analysis” provided by the National
Development and Reform Commission (NDRC). The Chinese version of this
information is publicly available on NDRC’s website athttp://yxj.ndrc.gov.cn/gjyx/jc/t20080714_223974.htm
..





As
China’s economy continues to develop, it is expected that increased construction
will be required to accommodate growth in the education, culture, social welfare
and business sectors. China has been referred to by many observers as "the
world's largest construction site".





Construction
Demand in China





Concrete
product producers will remain the largest market for cement in China, accounting
for approximately 40% of all cement consumption in 2010. The government’s
continued efforts to modernize the country’s infrastructure is exemplified by
such massive projects as the South-North Water Diversion — designed to redirect
water to the northern plains from Central and South China. This project,
scheduled for completion in 2050, will result in annual cement consumption of
over one million metric tons alone.





China
accounts for half of all new building activity in the world and rapid expansion
is expected to continue to 2030 as up to 400 million citizens are expected to
move into urban areas.





China’s
Cement & Concrete Demand





Residential
and non-residential buildings in China are increasingly requiring much more
concrete due to, among other reasons, the short supply of wood. China is
currently the largest consumption market of cement worldwide at over $200
billion annually. China’s cement consumption will amount to approximately 44% of
global demand in 2008 and will be greater than current combined consumption of
India and the U.S. by 2010. According to the National Development and Reform
Commission, companies in the construction materials market in China recognized a
92.6% increase in profits from 2005 to 2006. The government’s continued efforts
to modernize the country’s infrastructure is exemplified by such projects as the
South-North Water Diversion. At the present rate, it is presumed that China will
continue to be an important player in the global construction materials
marketplace for at least the next two decades.




7




According
to custom statistics included in theChina Cement Industry Research
Report 2007-2008 prepared by Research and Markets, in 2007 total exports
of cement from China was 33.01 million tons, valued at approximately $1.15
billion. The primary importers of Chinese cement include Europe, the United
States and the United Arab Emirates, which imported 9.743 million tons, 5.315
million tons and 3.39 million tons in 2007, respectively. These three markets
accounted for 55.9% of total cement exports from China.





Demand
for Ready-Mixed Concrete




We
anticipate that cement demand in the ready-mixed concrete market will realize
the strongest gains of any market category through 2010, with an annual increase
of 11.2%. Recognizing the environmental devastation created from the massive
construction activities undertaken in the past few decades, and the thousands
more in the foreseeable future, China’s government implemented Decree #341 in
2004 which bans onsite concrete production in over 200 major cities across China
in order to reduce environmental damage from onsite cement mixing and improve
the quality of concrete used in construction.




Competitive
Market for Ready-Mixed Materials in China




China’s
concrete market is considered highly competitive, with over 100,000 providers.
Global Information Inc. reports that ready-mix concrete companies will benefit
from an extremely favorable outlook in China, where large-scale construction
projects will require significant amounts of ready-mixed concrete. In the
Beijing concrete market, for example, no competitor has greater than a 10%
market share.





We
currently have 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 innovative and eco-friendly ready mix
products.




Sources:China Society of Structural
Materials, Real Wealth Report, BCC Research, Freedonia Group China
Concrete http://www.chinahnt.com, Company Estimates





Our
Competitive Strengths





We
believe that the following competitive strengths enable us to compete
effectively and to capitalize on the growth of the market for construction
materials in China:





·
            Large Scale
      Contractor Relationships. We have contracts
      with major construction contractors which are constructing key
      infrastructure, commercial and residential projects. Our sales efforts
      focus on large-scale projects and large customers which place large
      recurring orders and present less credit risks to us. For the the
      year ended June 30, 2008, our top ten customers’ sales accounted
      for 58.21% of total sales; the largest three customers accounted for
      16.9%, 8.6% and 6.2% of total sales,
  respectively.




·
            Experienced
      Management. Management’s technological 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.


8


·
            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. As a result of our relationships with these universities and
      institute, we have realized an advantage over many of our competitors by
      gaining access to a wide array of resources and
  knowledge.





Our
Growth Strategy





We are
committed to enhancing profitability and cash flows through the following
strategies:




·
            Capacity
      Expansion via Building New Plants. We plan to add up to three
      additional plants within the next six to eighteen months in order to meet
      the requirements of existing contracts and anticipated demand. We plan to
      add three more mixer stations in 2009 and 2010 as part of our long-term
      expansion plans.




·
            Mergers and
      Acquisitions. We intend to capitalize on the challenges that
      smaller companies are encountering in our industry by acquiring
      complementary companies at favorable prices. We believe that buying rather
      than building capacity is an option that may be attractive to us if
      replacement costs are higher than purchase prices. We are currently
      looking into acquiring smaller concrete manufacturers in China as part of
      our expansion plans; further information will be reported when key details
      have been confirmed. No Letters-of-Intent have been entered into or
      specific targets identified at this
time.




·
            Vertical
      Integration. We plan to acquire smaller companies within the
      construction industry, develop more material recycling centers, and hire
      additional highly qualified employees. In order to accomplish this, we may
      be required to offer additional equity or debt securities. Certain of the
      companies we may seek to acquire are suppliers of the raw materials we
      purchase to manufacture our products. If we do acquire such companies we
      will have greater control over our raw material
  costs.




·
            Supply
      Chain Efficiencies and Scale. We intend to streamline our supply
      chain process and leveraging our economies of
  scale.




·
            New Product
      Offering. We plan to produce a lightweight aggregate concrete for
      use in projects and to expand product offerings to include pre-cast
      concrete.





Our
Operations





We
provide materials and services through our network of seven ready-mixed concrete
plants throughout Beijing. We own all of the production equipment, as well as
fifty-four concrete mixers and eight pump trucks at one of our plants, though we
do not own the land use rights or the factory buildings, which we lease from the
owner, Beijing SanTaiSan Chemical Trading & Logistics Co. At two of our
plants, we lease all of the production equipment, mixers, pump trucks and
factory buildings from the plant owners. At the remaining four plants, which are
independently operated, we perform work through technical services and preferred
procurement agreements.




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. For year
ended June 30, 2008 and 2007, we produced approximately 699,550 cubic meters and
588,100 cubic meters, respectively, of ready mix concrete.


9




We also
have an extensive fleet of 54 concrete mixers, eight pump trucks, and have
access to an additional 10-20 rental vehicles if needed for certain larger
projects. All vehicles are equipped with GPS and tracking devices from the
plants central dispatch center in order to optimize capacity utilization,
production and delivery schedules.





We are
led by a well-rounded management team that, in only five years, has built a
fast-growing, highly-profitable concrete company. Our success has been achieved
by consistently delivering quality products and services backed by a team of
dedicated managers and employees. Collectively, the management team has
extensive experience in engineering, operations, construction materials and
working in the concrete industry. Through the Company’s extensive relationships
with R&D institutions and industry associations, we have access to a large
pool of experienced managers and knowledgeable advisors.





Products
and Services





As
architectural designs have become more complex, challenging, and modern in
scope, the need for technology driven companies, such us, to provide high-end
specialty concrete mixtures has been rapidly accelerating. Increasing demand for
state-of-the-art cement mixtures has spurred our technological innovation and
our ability to provide advanced mixtures of building materials that meet project
specific engineering and environmental specifications. We produce C15 to C100
range of concrete materials and specialize in an array of specialized
ready-mixed concretes tailored to each project’s technical specifications and
environmental standards.





We
specialize in “ready-mixed concrete”, a concrete mixture made at our facility.
Such concrete is the most common form of concrete, and accounts for nearly
three-fourths of all concrete produced. Ready-mixed concrete is mixed on demand
and is shipped to worksites by concrete mixer trucks.




This
sector in the concrete market is growing at an immensely fast rate, largely due
to the Chinese government’s implementation of Decree #341 in 2004. This law bans
on-site concrete production in over 200 cities across China, with the goal of
reducing environmental damages from onsite cement mixing and improves the
quality of cement used in construction. The use of ready-mix concrete minimizes
worksite noise, dirt and congestion, and most additives used in ready-mix
concrete are environmentally safe. Our goal is to continue to use at least 30%
recyclable components in our mixtures.





We are
building a product portfolio that serves the diverse needs of our developing
customer base and its unique construction and infrastructure projects. While we
mainly specialize in ready-mix concrete formulations from controlled
low-strength material to high-strength concrete, each specifically formulated to
meet the individual needs of each project, we provide both industry standard and
highly innovative products, including:





Common Industry Mixtures
              (Customized to Project)
            
            Industry Leading Mixtures
              Highly Technical Blends·
            Ready-mixed Concrete Blends: C10 to C100
            
            ·
            Compound Admixture Concrete·
            Controlled Low-Strength Material (CLSM)
            
            ·
            Lightweight Aggregate Concrete·
            High-Strength Concrete with Customized Fibers
            
            ·
            Energy-saving Phase change thermostat concrete·
            Soil Cement, Unique Foundation Concrete
            
            ·
            C100 High Performance Concrete




10




Our Customers





For the
fiscal year 2008 which ended on June 30, 2008, we had one customer, China
Railway Construction, Beijing South Station Branch, whose sales accounted for
more than 10% of our total sales. Our top ten customers, identified in the table
below, accounted for 58.21% of our total sales for fiscal year ended June 30,
2008.





No.
                
                Customer Name
                
                % of Total
                  Sales1
                
                China Railway Construction Group,
      Beijing South Station Branch
                
                
                16.89
                %2
                
                China
      Railway Construction Group, He Xie Jia Yuan Branch
                
                
                8.62
                %3
                
                China
      Construction Group, Bureau 8, Xia Hong Men Residential Project
      R6R
                
                
                6.24
                %4
                
                Beijing
      Chong Jia Engineering Co., Ltd. - Jing Yu Chi Phase II
                
                
                5.79
                %5
                
                Beijing
      Great Wall Eng. Mo Shi Chang Residential
                
                
                5.71
                %6
                
                Beijing
      Xing Wang Bridge Construction Co., Ltd. - South Airport Jing Cheng
      Highway
                
                
                4.34
                %7
                
                China
      Construction Group, Bureau 5, Zhong Hai Zi Yu Gong Guan
                
                
                2.90
                %8
                
                China
      Railway Construction Group, Bureau 6, Beijing Railway Construction, South
      Station Expansion Project
                
                
                2.74
                %9
                
                Beijing
      Tianrun Construction, Finance Street E7,E8
                
                
                2.60
                %10
                
                Guangdong
      Hang Jian Branch 3
                
                
                2.38
                %Total
                
                
                58.21
                %





Recent
notable projects and clients include:





Client
                        Project Description
                        
                        Contract ValueChina State
      Construction Engineering Corp.
                        Construction
      of new CCTV site
                        
                        $
                        3,966,114Beijing
      Railway Construction Company Ltd.
                        Construction
      of Beijing-Tianjin Intercity Rail
                        
                        $
                        6,492,000Beijing
      Railway Construction Company Ltd.
                        Construction
      of Beijing South Railway Station (project ongoing)
                        
                        $
                        4,293,113China
      State Construction Engineering Corp.
                        Construction
      of Beijing Olympic Park Conference Center
                        
                        $
                        1,402,236





We were
also the exclusive concrete supplier to a recent 50,000 cubic meter U.S. Embassy
Project, which satisfied both the U.S. and the international ASTM standards. The
project was completed in 2007 with total project sales & services revenue of
$400,000.




Developing New
Relationships





Our sales
strategy focuses on building new long-term cooperative relationships with some
of China’s top construction companies in order to benefit from their reputations
and to enter new markets. Our sales representatives are actively building
relationships with the Chinese government, general contractors, architects,
engineers, and other potential sources of new business in our target markets.
Our sales efforts are further supported by our executive officers and
engineering personnel, who have substantial experience in the design,
formulation and implementation of advanced construction and concrete materials
projects.




Our
Suppliers





We rely
on third party suppliers of the raw materials to manufacture our products. The
main components of our products include cement, fly ash, slag powder, admixture,
sand and gravel. Our primary suppliers of each are:


11




Raw Material
            
            SuppliersCement
            
            Beijing
      Jinyu Group Co., Ltd. Cement Branch and Beijing Xingang Cement Making Co.,
      Ltd.Fly
      ash
            
            Beijing
      Kunhaijiang Construction Material Supply Station and Beijing Xingda
      Huanqiu Industry Trade Co., Ltd.Slag
      powder
            
            Chengde
      Jinyunda Trade Co., Ltd. and  Tangshan Xintai Environmental Protected
      Construction Material Co., Ltd.Admixture
            
            Xika(China)
      Construction Material Co., Ltd. and Beijing Jiankai Waijiaji Co.,
      Ltd.Sand
            
            Sanhe
      Qibaihu Jianmin ShiliaochangGravel
            
            Sanhe
      Huangtuzhuang Xinda Shiliaochang and  Sanhe Duanjialingzhen Lingtong
      Shiliaocheng





We
believe we are not dependent on any of these suppliers and will be able to
replace them, if necessary, without material difficulties.





Sales
and Marketing




Our
marketing efforts are geared towards advancing China-ACMH as the supplier of
choice for building China’s most modern and challenging projects. The Company is
constantly seeking ways to raise its profile and leverage additional publicity.
To this end, the Company plans to expand its presence at leading construction
industry events and in periodicals to build on its successful reputation. The
primary goal when expanding into new markets is to reinforce the sales effort by
promoting positive testimonials and success stories from the Company’s strong
base of high profile clients.





Research
and Development





Construction
materials companies are under extreme pressure to respond quickly to industry
demands with new designs and product innovations that support rapidly changing
technical demand and regulatory requirements. We devote a substantial amount of
attention to the research and development of advanced construction materials
that meet the demands of project specific needs while striving to lead the
industry in value, materials and processes. We have sophisticated in house
R&D and testing facilities, a highly technical onsite team, access to highly
specialized market research, cooperation with a leading research institution,
experienced management and advisory board, and close relationships with leading
concrete materials experts. Our research and development expense amounted to
$6,000 and $165,000 for the years ended June 30, 2008 and 2007,
respectively.





University Relationships
& Cooperation Agreements





We have
strong relationships with Tsinghua University and the Xi’an University of
Architecture and Technology. We have signed a ten-year cooperation agreement
with Xi’an University on June 10, 2007 pursuant to which we will pay
approximately $42,857 to Xi’an University per year and Xi’an University will set
up a technical research center to conduct scientific research for the Company
and work with the Company in the areas of technical development, engineering
design and human resource training according to the Company’s business
strategies and requirements. Xi’an University is a top university in the fields
of building and material science research and education and works with the
Company to follow the advancements of the cement and concrete industries
globally.





Beijing Concrete Institute
Partnership





The
Beijing Dongfang Jianyu Institute of Concrete Science & Technology, or
Beijing Concrete Institute, has 40 employees, with five senior research fellows,
and 15 mid-level researchers. The Institute and its staff have participated and
collaborated with national and local government agencies to establish the
following industry standards:


12




·
            Specification
      For Mix Proportion Design of Ordinary Concrete
  JGJ55-2000




·
            Code
      for Acceptance of Constructional Quality Of Concrete Structures GB
      50204-2002




·
            Applied
      Technical Specification of Mineral Admixtures In Concrete
      DBJ/T01-64-2002




·
            Ready-Mixed
      Concrete GB/T 14902-2003




·
            Practice
      Code for Application of Ready-Mixed Mortar DBJ
  01-99-2005




·
            Management
      Specification of Quality for Ready-Mixed
  Concrete




·
            Technical
      Requirement for Environmental Labeling Products Ready-Mixed Concrete
      HJ/T412-2007




·
            Technical
      Code for Application of Mineral Admixture GBJXX-XX (in the approval
      process)




·
            Standard
      For Inspection And Assessment of Strength Of Concrete GBJ107-XX (in
      discussion)




We have a
close association with the Beijing Concrete Institute and have been able to
incorporate many of these research findings into our operations, products, and
procedures. The Beijing Concrete Institute was established by our Chairman and
Vice Chairman, which currently maintain majority ownership. As such, we work
closely with the institute and, in return for sponsoring multiple research
initiatives, have been granted exclusive work space for the development of the
materials used for our existing plant’s regional projects.





We are
able to use the Research Findings & Technical Publication and Procedures of
the Beijing Concrete Institute in our business, which provides us with an
advantage over many of our competitors. Because our five year exclusive contract
with the institute, our competitors are unable to benefit from the same findings
for commercial use. Some of these findings include:




·
            Research
      on Compound Admixture HPC; 3rd Class Award for China Building Materials
      Science & Technology Progress.




·
            Research
      and Application of C100 HPC; 3rd Class Award for Beijing Science &
      Technology Progress.




·
            Research
      on pumping Light Aggregate Concrete; Innovation Award for China Building
      Materials Science & Technology.




·
            Research
      and Application of Green (nontoxic) HPC; First Prize for Beijing Science
      & Technology Progress.




·
            Construction
      Technology of HPC for the Capital International
  Airport




·
            Research
      on Production and Construction Technology of Phase Change Energy-saving
      Thermostat Concrete and Mortar




·
            Polycarboxylate
      Series High Performance Water Reducing Agent Compositing
      Technique




13




·
            State
      Swimming Center for Concrete Cracking Control
  Technology




In
addition, we are able to collaborate closely with the institute and its
executives who play a strong role recommending industry standards, advising on
major infrastructure developments, and creating and maintaining strong
connections with leading developers, construction companies, and governmental
officials.





Successful
Innovations





Some of
our more advanced products and processes developed through our relationships
with research institutes and universities include:





C100
High Performance Concrete





High
Strength Concrete is often defined as concrete with a compressive strength
greater than 6000 psi (41 MPa). The primary difference between
high-strength concrete and normal-strength concrete relates to the compressive
strength that refers to the maximum resistance of a concrete sample to applied
pressure. Manufacturing high-strength concrete involves making optimal use of
the basic ingredients that constitute normal-strength concrete.





Through
our collaborative efforts, we have developed a high performance concrete which
can be produced at an impermeable grade above P35, and can be used as
self-waterproofing concrete for structural engineering, as the water-cement
(W/C) ratio and carbonized shrinking is minimal and the structure is
close-grained.





Only a
limited number of firms in the Beijing area have the expertise to produce C100
High Performance Concrete.





Compound
Admixture Concrete





This
compound mineral mixture is a composite of coal powder, mineral powder and
mineral activators blended to specific proportions. This mixture improves
activity, filling, and super-additive effects of the concrete and also improves
the compatibility between cement and adding. The mixture is the sixth composite
of the concrete which adds water reducing admixture to produce a high quality
concrete.




Lightweight
Aggregate Concrete & Innovative Pumping Technology





This
procedure involves a pumping technology of lightweight aggregate. It is a
pretreatment method of lightweight aggregate. Setting appropriate times and
pressure, lightweight aggregate will reach an appropriate saturation state under
pressure once it is put into a custom designed sealed pressure vessel. After
preservation, a shell will be made. Lightweight aggregate concrete prepared
using the above pretreatment method, will dry quicker under pumping pressure,
and maintain saturation state. Accordingly, lightweight aggregate concrete will
be easily pumped which can shorten construction time.





Energy-saving
Technologies of Phase Change Thermostat Concrete





Energy
conservation concrete may adjust and reflect process temperature, and
temperature self-control may solve cracking brought by cement heat of hydration
in large-scale concrete.





Polycarboxylate
Series High Performance Water Reducing Agent Compositing Technique





The
research and production of water reducing admixture in the world tends to be
high performance and low polluting. Super plasticizer Polycarboxylate series
with high water reducing rates is an attractive admixture in that it prepares
high strength concrete, super-strength concrete, high fluidity and super
plasticizer concrete, and self-dense concrete. The water reducing rate of
Polycarboxylate series product may reach 20% to 25%, which is higher than the
Naphthaline series water reducing agent, which is the current industry standard.
The cost of the water reducing agent is well situated and it may be used to
prepare high strength and performance concrete instead of the Naphthaline series
water reducing agent.


14




Application
of Reused Water in Concrete





The
re-use of waste water of a concrete plant to mix concrete is significant as its
saves production costs, minimizes fresh water use and represents an efficient
approach to address industrial wastes. The practical application of this effort
is a further step towards the goal of minimal pollution and
emissions.





Our
Competition




Our
principal market, Beijing, has enjoyed stronger economic growth and a higher
demand for construction than other regions of China. As a result, we believe
that competitors will try to expand their sales and build up their distribution
networks in our principal market.




We
compete primarily on the basis of quality, technological innovation and price.
Our main comeptitors include Jiangong Shanggong Center, Jingo Group Concrete,
Zhuzong Shanggong Center and Zhonghang Konggang Concrete.





Essentially
all of the contracts on which we bid are awarded through a competitive bid
process, with awards generally being made to the lowest bidder, though other
factors such as shorter contract schedules or prior experience with the customer
are often just as important. Within our markets, we compete with many national,
regional and local construction firms. Some of these competitors have achieved
greater market penetration or have greater financial and other resources than
us.





There are
approximately 130 concrete mixture stations in the Beijing area. The concrete
production industry is highly segmented, with no single supplier having greater
than a 10% market share.




Intellectual
Property




We do not
have any patents or other registered intellectual property.




Properties




There is
no private land ownership in China. Individuals and companies are permitted to
acquire land use rights for specific purposes. We lease our 44,041 square meter
facility located at Jia 1, SanTaiShan, XiaoHongMen County, ChaoYang District,
Beijing, China, from Beijing SanTaiShan Chemical Trading & Logistics Co.,
who was granted land use rights from the PRC government. The lease provides for
a three year term beginning on October 1, 2007, with the option to extend
following expiration. Annual rent on the property is approximately
$139,000.




The
Company also has an extensive fleet of 54 concrete mixers, eight pump trucks,
and access to an additional 10-20 rental vehicles depending on specific project
requirements. All vehicles are equipped with GPS and tracking devices from the
plants central dispatch center in order to optimize capacity utilization,
production and delivery schedules.





Environmental
Matters




We are
required to comply with environmental protection laws and regulations
promulgated by the Ministry of Construction and the State Environmental
Protection Administration. Some specific environmental regulations apply to
sealed transportation of dust materials and final products, non-open storage of
sand and gravel, as well as reduction of noise and dust pollution on production
site and encouraged use of waste materials. The governmental regulatory
authorities conduct periodic inspections. We have met all the requirements in
the past inspections. We are one of ten companies in the industry that have been
awarded the honor of “Green Concrete Producer” by the PRC
government.


15




Regulation




The
company has been in compliance with all registrations and requirements for the
issuance and maintenance of all licenses and certificates required by the
applicable governing authorities, including the Ministry of Construction and the
Beijing Administration of Industry & Commerce. The Ministry of Construction
awards Level II and Level III qualifications to concrete producers in the PRC
construction industry, based on criteria such as production capacity, technical
qualification, registered capital and capital equipment, as well as performance
on past projects. Level II companies are licensed to produce concrete of all
strength levels as well as special concrete, and Level III producers are
licensed to produce concrete with strength level C60 and below. We are a Level
II concrete producer.





Additionally,
to make improvements at our currently existing plants, we do not need to apply
for regulatory approval. However, in order to build a new concrete plant, we
will need to (i) apply for a business license from the local Administration of
Industry and Commerce, (ii) receive environmental approval from the local
Environmental Protection Bureau in the relevant district area, and (iii) apply
for an Industry Qualification Certificate from the local Municipal Construction
Committee. The time estimated to receive each of these approvals is
approximately one month. We are quite confident that we can receive these
approvals. In the past, we have not been rejected by any of these three
regulators for approval.





Our
Employees




As of
June 30, 2008, we employed 226 full-time employees. The following table sets
forth the number of our full-time employees by function as of June 30,
2008




As of
                  June 30, 2008FunctionsExecutives
      Management & Sales
                
                
                34Technical
      & Engineering Staff
                
                
                24Production
      Staff
                
                
                33Administrative
      Staff
                
                
                34Drivers
      & Heavy Equipment Operators
                
                
                101Total
                
                
                226





As
required by applicable PRC law, we have entered into employment contracts with
all of our officers, managers and employees. We believe that we maintain a
satisfactory working relationship with our employees and we have not experienced
any significant labor disputes or any difficulty in recruiting staff for our
operations.




In
addition, we are required by PRC law to cover employees in China with various
types of social insurance and believe that we are in material compliance with
the relevant PRC laws.




Insurance




We
believe our insurance coverage is customary and standard of companies of
comparable size in comparable industries in China.




Litigation




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


16




REPORTS
TO SECURITY HOLDERS




We are
required to file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission and our filings
are available to the public over the internet at the Securities and Exchange
Commission’s website at http://www.sec.gov. The public may read and copy any
materials filed by us with the Securities and Exchange Commission at the
Securities and Exchange Commission’s Public Reference Room at 100 F Street N.E.
Washington D.C. 20549. The public may obtain information on the operation of the
Public Reference Room by calling the Securities and Exchange Commission at
1-800-732-0330. The SEC also maintains an Internet site that contains reports,
proxy and formation statements, and other information regarding issuers that
file electronically with the SEC, at http://www.sec.gov.




Item
1A.    Risk Factors





An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below, together with all of the other
information included in this prospectus, before making an investment decision.
If any of the following risks actually occurs, our business, financial condition
or results of operations could suffer. In that case, the trading price of our
common stock could decline, and you may lose all or part of your
investment.




RISKS
RELATED TO OUR BUSINESS




Our
plans to build additional plants and to improve and upgrade our internal control
and management system will require capital expenditures in 2008.





Our plans
to build additional plants and to improve and upgrade our internal control and
management system will require significant capital expenditures in 2008. We may
also need further funding for working capital, investments, potential
acquisitions and joint ventures and other corporate requirements. We cannot
assure you that cash generated from our operations will be sufficient to fund
these development plans, or that our actual capital expenditures and investments
will not significantly exceed our current planned amounts. If either of these
conditions arises, we may have to seek external financing to satisfy our capital
needs. Our ability to obtain external financing at reasonable costs is subject
to a variety of uncertainties. Failure to obtain sufficient external funds for
our development plans could adversely affect our business, financial condition
and operating performance.





Three
customer orders consisted of 31.75% of the net sales of the Company for the
fiscal year ended June 30, 2008, and the loss of any of these three customers
can result in a depressive effect on our net profit.





Our
Company focuses on large projects for large Chinese customers. In this regard,
during the fiscal year ended June 30, 2008, three Chinese customers orders
consisted of 31.75% of the net sales of the Company. Should we lose any of these
three customers in the future and are unable to obtain additional customers, our
revenues will decrease.





We
may experience major accidents in the course of our operations, which may cause
significant property damage and personal injuries.





Significant
industry-related accidents and natural disasters may cause interruptions to
various parts of our operations, or could result in property or environmental
damage, increase in operating expenses or loss of revenue. The occurrence of
such accidents and the resulting consequences may not be covered adequately, or
at all, by the insurance policies we carry. In accordance with customary
practice in China, we do not carry any business interruption insurance or third
party liability insurance for personal injury or environmental damage arising
from accidents on our property or relating to our operations other than our
automobiles. Losses or payments incurred may have a material adverse effect on
our operating performance if such losses or payments are not fully
insured.


17




Our
planned expansion and technical improvement projects could be delayed or
adversely affected by, among other things, failures to receive regulatory
approvals, difficulties in obtaining sufficient financing, technical
difficulties, or human or other resource constraints.





We intend
to build up to three new production facilities during the next two years. The
costs projected for our planned expansion and technical improvement projects and
expansion may exceed those originally contemplated. Costs savings and other
economic benefits expected from these projects may not materialize as a result
of any such project delays, cost overruns or changes in market
circumstances.





To make
improvement at our currently existing plants, we do not need to apply for
regulatory approval. However, in order to build a new concrete plant, we will
need to (i) apply for a business license from the local Administration of
Industry and Commerce, (ii) apply for an Industry Qualification Certificate from
the local Municipal Construction Committee, and (iii) receive environmental
approval from the local Environmental Protection Bureau in the relevant district
area. There is no guarantee that we will be able to obtain these regulatory
approvals in a timely manner or at all.




Additionally,
in order to construct a new concrete plant, we will need to apply for a short
term loan from a local commercial bank to be used for working capital. Because
the lending policies of the local commercial banks are subject to change, there
is no guarantee that we will be able to obtain approval for such a loan with
conditions favorable to us in a timely manner or at all.




Failure
to obtain intended economic benefits from these new plants and technical
improvements projects, either due to cost overruns, our failure to obtain the
necessary regulatory approvals or our failure to obtain necessary loan financing
on terms favorable to us could adversely affect our business, financial
condition and operating performances.





We
cannot assure you that our growth strategy will be successful.





One
of our strategies is to grow through increasing the distribution and sales of
our products by penetrating existing markets in China and entering new
geographic markets in China. However, many obstacles to entering such new
markets exist including, but not limited to, competition from established
companies in such existing markets in the China. We cannot, therefore, assure
you that we will be able to successfully overcome such obstacles and establish
our products in any additional markets. Our inability to implement this growth
strategy successfully may have a negative impact on our growth, future financial
condition, results of operations or cash flows.





If
we fail to effectively manage our growth and expand our operations, our
business, financial condition, results of operations and prospects could be
adversely affected.





Our
future success depends on our ability to expand our business to address growth
in demand for our products and services. In order to maximize potential growth
in our current and potential markets, we believe that we must expand our
manufacturing and marketing operations. Our ability to accomplish these goals is
subject to significant risks and uncertainties, including:




·
            the
      need for additional funding to construct additional manufacturing
      facilities, which we may be unable to obtain on reasonable terms or at
      all;




·
            delays
      and cost overruns as a result of a number of factors, many of which may be
      beyond our control, such as problems with equipment vendors and
      manufacturing services provided by third-party manufacturers or
      subcontractors;




·
            our
      receipt of any necessary government approvals or permits that may be
      required to expand our operations in a timely manner or at
      all;




·
            diversion
      of significant management attention and other resources;
    and




·
            failure
      to execute our expansion plan
effectively.




18




To
accommodate our growth, we will need to implement a variety of new and upgraded
operational and financial systems, procedures, and controls, including
improvements to our accounting and other internal management systems, by
dedicating additional resources to our reporting and accounting function, and
improvements to our record keeping and contract tracking system. We will also
need to recruit more personnel and train and manage our growing employee base.
Furthermore, our management will be required to maintain and expand our
relationships with our existing customers and find new customers for our
services. There is no guarantee that our management can succeed in maintaining
and expanding these relationships.





If we
encounter any of the risks described above, or if we are otherwise unable to
establish or successfully operate additional capacity or increase our output, we
may be unable to grow our business and revenues, reduce our operating costs,
maintain our competitiveness or improve our profitability and, consequently, our
business, financial condition, results of operations, and prospects will be
adversely affected.




If
we are unable to accurately estimate the overall risks or costs associated with
a project on which we are bidding on, we may achieve a profit lower than
anticipated or even incur a loss on the contract.




Substantially
all of our revenues and contract backlog are typically derived from fixed unit
price contracts. Fixed unit price contracts require us to perform the contract
for a fixed unit price irrespective of our actual costs. As a result, we realize
a profit on these contracts only if we successfully estimate our costs and then
successfully control actual costs and avoid cost overruns. If our cost estimates
for a contract are inaccurate, or if we do not execute the contract within our
cost estimates, then cost overruns may cause the contract not to be as
profitable as we expected, or may cause us to incur losses. This, in turn, could
negatively affect our cash flow, earnings and financial position.





The costs
incurred and gross profit realized on those contracts can vary, sometimes
substantially, from the original projections due to a variety of factors,
including, but not limited to:




·
            onsite
      conditions that differ from those assumed in the original
    bid;




·
            delays
      caused by weather conditions;




·
            later
      contract start dates than expected when we bid the
    contract;




·
            contract
      modifications creating unanticipated costs not covered by change
      orders;




·
            changes
      in availability, proximity and costs of materials, including steel,
      concrete, aggregate and other construction materials (such as stone,
      gravel and sand), as well as fuel and lubricants for our
      equipment;




·
            availability
      and skill level of workers in the geographic location of a
      project;




·
            our
      suppliers’ or subcontractors’ failure to
  perform;




·
            fraud
      or theft committed by our
employees;




·
            mechanical
      problems with our machinery or
equipment;




·
            citations
      issued by governmental authorities




·
            difficulties
      in obtaining required governmental permits or
  approvals;




19




·
            changes
      in applicable laws and regulations;
and




·
            claims
      or demands from third parties alleging damages arising from our work or
      from the project of which our work is
part.





Economic
downturns or reductions in government funding of infrastructure projects could
significantly reduce our revenues.





Our
business is highly dependent on the amount of infrastructure work funded by
various governmental entities, which, in turn, depends on the overall condition
of the economy, the need for new or replacement infrastructure, the priorities
placed on various projects funded by governmental entities and national or local
government spending levels. Decreases in government funding of infrastructure
projects could decrease the number of civil construction contracts available and
limit our ability to obtain new contracts, which could reduce our revenues and
profits.





Our
business will be damaged if project contracts with the Chinese government, for
which we may act as a subcontractor are cancelled;





We do not
enter into any contracts directly with the Chinese government. For contracts
that are funded by the Chinese government, we place bids and enter into
subcontracts with the private entity prime contractor. A sudden cancellation of
a prime contract, and in turn our subcontract, could cause our equipment and
work crews to remain idle for a significant period of time until other
comparable work becomes available. This idle time could have a material adverse
effect on our business and results of operations.





Our
industry is highly competitive, with numerous larger companies with greater
resources competing with us, and our failure to compete effectively could reduce
the number of new contracts awarded to us or adversely affect our margins on
contracts awarded.





Our
competition includes a number of PRC-based manufacturers and distributors that
produce and sell products similar to ours. We compete primarily on the basis of
quality, technological innovation and price. Our main competitors include
Jiangong Shanggong Center, Jinyu Group Concrete, Zhuzong Shanggong Center and
Zhonghang Konggang Concrete. Essentially all of the contracts on which we bid
are awarded through a competitive bid process, with awards generally being made
to the lowest bidder, though other factors such as shorter contract schedules or
prior experience with the customer are often just as important. Within our
markets, we compete with many national, regional and local construction firms.
Some of these competitors have achieved greater market penetration or have
greater financial and other resources than us. In addition, there are a number
of larger national companies in our industry that could potentially establish a
presence in our markets and compete with us for contracts. As a result, we may
need to accept lower contract margins in order to compete against these
competitors. If we are unable to compete successfully in our markets, our
relative market share and profits could be reduced.





We
could face increased competition in our principal market.





Our
principal market, Beijing, has enjoyed stronger economic growth and a higher
demand for construction than other regions of China. As a result, we believe
that competitors will try to expand their sales and build up their distribution
networks in our principal market. We anticipate that this trend will continue
and likely accelerate. Increased competition may have a material adverse effect
on our financial condition and results of operations.





Our
dependence on subcontractors and suppliers of materials could increase our costs
and impair our ability to compete on contracts on a timely basis or at all,
which would adversely affect our profits and cash flow.





We rely
on third-party subcontractors to perform some of the work on many of our
contracts. We do not bid on contracts unless we have the necessary
subcontractors committed for the anticipated scope of the contract and at prices
that we have included in our bid. Therefore, to the extent that we cannot obtain
third-party subcontractors, our profits and cash flow will suffer.





Risk
factor to address the risks relating to receiving regulatory approvals and
obtaining sufficient financing.




Our
planned expansion and technical improvement projects could be delayed or
adversely affected by, among other things, failures to receive regulatory
approvals, difficulties in obtaining sufficient financing, technical
difficulties, or human or other resource constraints.





We intend
to build up to three new production facilities during the next two years. The
costs projected for our planned expansion and technical improvement projects and
expansion may exceed those originally contemplated. Costs savings and other
economic benefits expected from these projects may not materialize as a result
of any such project delays, cost overruns or changes in market
circumstances.


20




To make
improvement at our currently existing plants, we do not need to apply for
regulatory approval. However, in order to build a new concrete plant, we will
need to (i) apply for a business license from the local Administration of
Industry and Commerce, (ii) apply for an Industry Qualification Certificate from
the local Municipal Construction Committee, and (iii) receive environmental
approval from the local Environmental Protection Bureau in the relevant district
area. There is no guarantee that we will be able to obtain these regulatory
approvals in a timely manner or at all.




Additionally,
in order to construct a new concrete plant, we will need to apply for a short
term loan from a local commercial bank to be used for working capital. Because
the lending policies of the local commercial banks are subject to change, there
is no guarantee that we will be able to obtain approval for such a loan with
conditions favorable to us in a timely manner or at all.




Failure
to obtain intended economic benefits from these new plants and technical
improvements projects, either due to cost overruns, our failure to obtain the
necessary regulatory approvals or our failure to obtain necessary loan financing
on terms favorable to us could adversely affect our business, financial
condition and operating performances.




We
may be exposed to liabilities under the Foreign Corrupt Practices Act, and any
determination that we violated the Foreign Corrupt Practices Act could have a
material adverse effect on our business.





We are
subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that
prohibit improper payments or offers of payments to foreign governments and
their officials and political parties by U.S. persons and issuers as defined by
the statute for the purpose of obtaining or retaining business. We have
operations, agreements with third parties and make sales in China, which may
experience corruption. Our activities in China create the risk of unauthorized
payments or offers of payments by one of the employees, consultants, sales
agents or distributors of our Company, even though these parties are not always
subject to our control. It is our policy to implement safeguards to discourage
these practices by our employees. However, our existing safeguards and any
future improvements may prove to be less than effective, and the employees,
consultants, sales agents or distributors of our Company may engage in conduct
for which we might be held responsible. Violations of the FCPA may result in
severe criminal or civil sanctions, and we may be subject to other liabilities,
which could negatively affect our business, operating results and financial
condition. In addition, the government may seek to hold our Company liable for
successor liability FCPA violations committed by companies in which we invest or
that we acquire.





We
depend heavily on key personnel, and turnover of key employees and senior
management could harm our business.




Our
future business and results of operations depend in significant part upon the
continued contributions of our key technical and senior management personnel,
including Xianfu Han, our Chairman and Chief Executive Officer and Weili He, our
Vice-Chairman and Chief Operating Officer. They also depend in significant part
upon our ability to attract and retain additional qualified management,
technical, operational and support personnel for our operations. If we lose a
key employee, if a key employee fails to perform in his or her current position,
or if we are not able to attract and retain skilled employees as needed, our
business could suffer. Significant turnover in our senior management could
significantly deplete the institutional knowledge held by our existing senior
management team. We depend on the skills and abilities of these key employees in
managing the reclamation, technical, and marketing aspects of our business, any
part of which could be harmed by turnover in the future.




Certain
of our existing stockholders have substantial influence over our company, and
their interests may not be aligned with the interests of our other
stockholders.




Our
Chairman, Xianfu Han, owns approximately 50.22% of our outstanding voting
securities and our Vice-Chairman, Weili He, owns approximately 33.48% of our
outstanding voting securities. As a result, each have significant influence over
our business, including decisions regarding mergers, consolidations,
liquidations and the sale of all or substantially all of our assets, election of
directors and other significant corporate actions. This concentration of
ownership may also have the effect of discouraging, delaying or preventing a
future change of control, which could deprive our stockholders of an opportunity
to receive a premium for their shares as part of a sale of our company and might
reduce the price of our shares.




We
may require additional capital and we may not be able to obtain it on acceptable
terms or at all.





We
believe that our current cash and cash flow from operations will be sufficient
to meet our present cash needs. We may, however, require additional cash
resources due to changed business conditions or other future developments,
including any investments or acquisitions we may decide to pursue. If these
resources are insufficient to satisfy our cash requirements, we may seek to sell
additional equity or debt securities or obtain additional credit facilities. The
sale of additional equity securities could result in dilution to our
stockholders. The incurrence of indebtedness would result in increased debt
service obligations and could require us to agree to operating and financing
covenants that would restrict our operations. Our ability to obtain additional
capital on acceptable terms is subject to a variety of uncertainties,
including:


21




·
            investors’
      perception of, and demand for, securities of Chinese-based companies
      involved in construction supply or concrete
  industries;





·
            conditions
      of the U.S. and other capital markets in which we may seek to raise
      funds;





·
            our
      future results of operations, financial condition and cash flows;
      and





·
            economic,
      political and other conditions in
China.





Financing
may not be available in amounts or on terms acceptable to us, if at all. Any
failure by us to raise additional funds on terms favorable to us, or at all,
could have a material adverse effect on our business, financial condition and
results of operations.





We
may be exposed to potential risks relating to our internal controls over
financial reporting and our ability to have those controls attested to by our
independent auditors.





As
directed by Section 404 of the Sarbanes-Oxley Act of 2002 or SOX 404, the SEC
adopted rules requiring public companies to include a report of management on
the company’s internal controls over financial reporting in their annual
reports, including Form 10-K. In addition, the independent registered public
accounting firm auditing a company’s financial statements must also attest to
and report on management’s assessment of the effectiveness of the company’s
internal controls over financial reporting as well as the operating
effectiveness of the company’s internal controls. We were not subject to these
requirements for the fiscal year ended June 30, 2007, accordingly we have not
evaluated our internal control systems in order to allow our management to
report on, and our independent auditors to attest to, our internal controls as
required by these requirements of SOX 404. Under current law, we will be subject
to these requirements beginning with our annual report for the fiscal year
ending June 30, 2009, although the auditor attestation will not be required
until our annual report for the fiscal year ending June 30, 2010. We can provide
no assurance that we will comply with all of the requirements imposed thereby.
There can be no positive assurance that we will receive a positive attestation
from our independent auditors. In the event we identify significant deficiencies
or material weaknesses in our internal controls that we cannot remediate in a
timely manner or we are unable to receive a positive attestation from our
independent auditors with respect to our internal controls, investors and others
may lose confidence in the reliability of our financial statements.




RISKS
RELATED TO DOING BUSINESS IN CHINA




Adverse
changes in political and economic policies of the PRC government could impede
the overall economic growth of China, which could reduce the demand for our
products and damage our business.





We
conduct all of our operations and generate all of our revenue in China.
Accordingly, our business, financial condition, results of operations and
prospects are affected significantly by economic, political and legal
developments in China. The PRC economy differs from the economies of most
developed countries in many respects, including:




·
            the
      higher level of government
involvement;




·
            the
      early stage of development of the market-oriented sector of the
      economy;




·
            the
      rapid growth rate;




22




·
            the
      higher level of control over foreign exchange;
  and




·
            the
      allocation of resources.





As the
PRC economy has been transitioning from a planned economy to a more
market-oriented economy, the PRC government has implemented various measures to
encourage economic growth and guide the allocation of resources. While these
measures may benefit the overall PRC economy, they may also have a negative
effect on us.





Although
the PRC government has in recent years implemented measures emphasizing the
utilization of market forces for economic reform, the PRC government continues
to exercise significant control over economic growth in China through the
allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and imposing policies that impact
particular industries or companies in different ways.





Any
adverse change in the economic conditions or government policies in China could
have a material adverse effect on the overall economic growth and the level of
new construction investments and expenditures in China, which in turn could lead
to a reduction in demand for our services and consequently have a material
adverse effect on our business and prospects.





Uncertainties
with respect to the PRC legal system could limit the legal protections available
to you and us.




We
conduct substantially all of our business through our operating subsidiary in
the PRC. Our operating subsidiaries are generally subject to laws and
regulations applicable to foreign investments in China and, in particular, laws
applicable to foreign-invested enterprises. The PRC legal system is based on
written statutes, and prior court decisions may be cited for reference but have
limited precedential value. Since 1979, a series of new PRC laws and regulations
have significantly enhanced the protections afforded to various forms of foreign
investments in China. However, since the PRC legal system continues to rapidly
evolve, the interpretations of many laws, regulations and rules are not always
uniform and enforcement of these laws, regulations and rules involve
uncertainties, which may limit legal protections available to you and us. In
addition, any litigation in China may be protracted and result in substantial
costs and diversion of resources and management attention. In addition, all of
our executive officers and all of our directors are residents of China and not
of the United States, and substantially all the assets of these persons are
located outside the United States. As a result, it could be difficult for
investors to affect service of process in the United States or to enforce a
judgment obtained in the United States against our Chinese operations and
subsidiaries.




The
PRC government exerts substantial influence over the manner in which we must
conduct our business activities.




The PRC
government has exercised and continues to exercise substantial control over
virtually every sector of the Chinese economy through regulation and state
ownership. Our ability to operate in China may be harmed by changes in its laws
and regulations, including those relating to taxation, import and export
tariffs, environmental regulations, land use rights, property and other matters.
We believe that our operations in China are in material compliance with all
applicable legal and regulatory requirements. However, the central or local
governments of the jurisdictions in which we operate may impose new, stricter
regulations or interpretations of existing regulations that would require
additional expenditures and efforts on our part to ensure our compliance with
such regulations or interpretations.




Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof and could require us to divest ourselves of any
interest we then hold in Chinese properties or joint ventures.




23




A
slowdown or other adverse developments in the PRC economy may materially and
adversely affect our customers, demand for our services and our
business.




We are a
holding company. All of our operations are conducted in the PRC and all of our
revenues are generated from sales in the PRC. Although the PRC economy has grown
significantly in recent years, we cannot assure you that such growth will
continue. A slowdown in overall economic growth, an economic downturn or
recession or other adverse economic developments in the PRC may materially
reduce the demand for new construction projects and adversely affect our
business.





Restrictions on currency exchange
may limit our ability to receive and use our sales revenue
effectively.




Most of
our sales revenue and expenses are denominated in RMB. Under PRC law, the RMB is
currently convertible under the “current account,” which includes dividends and
trade and service-related foreign exchange transactions, but not under the
“capital account,” which includes foreign direct investment and loans.
Currently, our PRC operating subsidiary may purchase foreign currencies for
settlement of current account transactions, including payments of dividends to
us, without the approval of the State Administration of Foreign Exchange, or
SAFE, by complying with certain procedural requirements. However, the relevant
PRC government authorities may limit or eliminate our ability to purchase
foreign currencies in the future. Since a significant amount of our future
revenue will be denominated in RMB, any existing and future restrictions on
currency exchange may limit our ability to utilize revenue generated in RMB to
fund our business activities outside China that are denominated in foreign
currencies.





Foreign
exchange transactions by PRC operating subsidiaries under the capital account
continue to be subject to significant foreign exchange controls and require the
approval of or need to register with PRC government authorities, including SAFE.
In particular, if our PRC operating subsidiaries borrow foreign currency through
loans from us or other foreign lenders, these loans must be registered with
SAFE, and if we finance the subsidiaries by means of additional capital
contributions, these capital contributions must be approved by certain
government authorities, including the Ministry of Commerce, or MOFCOM, or their
respective local counterparts. These limitations could affect their ability to
obtain foreign exchange through debt or equity financing.





PRC
regulations relating to the establishment of offshore special purpose companies
by PRC residents, if applied to us, may subject our PRC resident stockholders to
personal liability and limit our ability to acquire PRC companies or to inject
capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to
distribute profits to us or otherwise materially adversely affect
us.





In
October 2005, SAFE issued the Notice on Relevant Issues in the Foreign Exchange
Control over Financing and Return Investment Through Special Purpose Companies
by Residents Inside China, or the SAFE Notice. The SAFE Notice requires PRC
residents to register with the appropriate local SAFE branch before using assets
or equity interests in their PRC entities to capitalize offshore special purpose
companies, or SPVs, or to raise capital overseas. A SAFE registration must be
amended by a PRC resident if the SPV undergoes a significant event, such as a
change in share capital, share transfer, merger, acquisition, spin-off
transaction or use of assets in China to guarantee offshore obligations.
Moreover, if the SPV was established and owned the onshore assets or equity
interests before the implementation of the SAFE Notice, a retroactive SAFE
registration is required to have been completed before March 31, 2006. Our PRC
resident shareholders have filed their SAFE registration with the local SAFE
branch which has indicated to us that the registrations comply with applicable
laws. However, we cannot provide any assurances that their existing registration
have fully complied with, and they have made necessary amendments to their
registration to fully comply with, all applicable registrations or approvals
required by this SAFE Notice.




24




Moreover,
because of uncertainty over how the SAFE Notice will be interpreted and
implemented, and how or whether SAFE will apply it to us, we cannot predict how
it will affect our business operations or future strategies. For example, our
present and prospective PRC subsidiaries’ ability to conduct foreign exchange
activities, such as the remittance of dividends and foreign currency-denominated
borrowings, may be subject to compliance with the SAFE Notice by our PRC
resident beneficial holders. In addition, such PRC residents may not always be
able to complete the necessary registration procedures required by the SAFE
Notice. We also have little control over either our present or prospective
direct or indirect stockholders or the outcome of such registration procedures.
A failure by our PRC resident beneficial holders or future PRC resident
stockholders to comply with the SAFE Notice, if SAFE requires it, could subject
these PRC resident beneficial holders to fines or legal sanctions, restrict our
overseas or cross-border investment activities, limit our subsidiaries’ ability
to make distributions or pay dividends or affect our ownership structure, which
could adversely affect our business and prospects.





We
may be unable to complete a business combination transaction efficiently or on
favorable terms due to complicated merger and acquisition regulations
implemented on September 8, 2006.




The
recent PRC Regulation on Mergers and Acquisitions of Domestic Companies by
Foreign Investors also governs the approval process by which a PRC company may
participate in an acquisition of its assets or its equity interests. Depending
on the structure of the transaction, the new regulation will require the Chinese
parties to make a series of applications and supplemental applications to the
government agencies. In some instances, the application process may require the
presentation of economic data concerning a transaction, including appraisals of
the target business and evaluations of the acquirer, which are designed to allow
the government to assess the transaction. Government approvals will have
expiration dates by which a transaction must be completed and reported to the
government agencies. Compliance with the new regulations is likely to be more
time consuming and expensive than in the past and the government can now exert
more control over the combination of two businesses. Accordingly, due to the new
regulation, our ability to engage in business combination transactions has
become significantly more complicated, time consuming and expensive, and we may
not be able to negotiate a transaction that is acceptable to our stockholders or
sufficiently protect their interests in a transaction.




The new
regulation allows PRC government agencies to assess the economic terms of a
business combination transaction. Parties to a business combination transaction
may have to submit to MOFCOM and the other government agencies an appraisal
report, an evaluation report and the acquisition agreement, all of which form
part of the application for approval, depending on the structure of the
transaction. The regulations also prohibit a transaction at an acquisition price
obviously lower than the appraised value of the Chinese business or assets and
in certain transaction structures, require that consideration must be paid
within defined periods, generally not in excess of a year  . The
regulation also limits our ability to negotiate various terms of the
acquisition, including aspects of the initial consideration, contingent
consideration, holdback provisions, indemnification provisions and provisions
relating to the assumption and allocation of assets and liabilities. Transaction
structures involving trusts, nominees and similar entities are prohibited.
Therefore, such regulation may impede our ability to negotiate and complete a
business combination transaction on financial terms that satisfy our investors
and protect our stockholders’ economic interests.




Fluctuations
in exchange rates could adversely affect our business and the value of our
securities.




The value
of our common stock will be indirectly affected by the foreign exchange rate
between U.S. dollars and RMB and between those currencies and other currencies
in which our sales may be denominated. Because substantially all of our earnings
and cash assets are denominated in RMB and the net proceeds from this offering
will be denominated in U.S. dollars, fluctuations in the exchange rate between
the U.S. dollar and the RMB will affect the relative purchasing power of these
proceeds, our balance sheet and our earnings per share in U.S. dollars following
this offering. In addition, appreciation or depreciation in the value of the RMB
relative to the U.S. dollar would affect our financial results reported in U.S.
dollar terms without giving effect to any underlying change in our business or
results of operations. Fluctuations in the exchange rate will also affect the
relative value of any dividend we issue after this offering that will be
exchanged into U.S. dollars and earnings from, and the value of, any U.S.
dollar-denominated investments we make in the future.


25




Since
July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the
People’s Bank of China regularly intervenes in the foreign exchange market to
prevent significant short-term fluctuations in the exchange rate, the RMB may
appreciate or depreciate significantly in value against the U.S. dollar in the
medium to long term. Moreover, it is possible that in the future PRC authorities
may lift restrictions on fluctuations in the RMB exchange rate and lessen
intervention in the foreign exchange market.





Very
limited hedging transactions are available in China to reduce our exposure to
exchange rate fluctuations. To date, we have not entered into any hedging
transactions in an effort to reduce our exposure to foreign currency exchange
risk. While we may enter into hedging transactions in the future, the
availability and effectiveness of these transactions may be limited, and we may
not be able to successfully hedge our exposure at all. In addition, our foreign
currency exchange losses may be magnified by PRC exchange control regulations
that restrict our ability to convert RMB into foreign currencies.





Currently,
some of our raw materials and major equipment are imported. In the event that
the U.S. dollars appreciate against RMB, our costs will increase. If we cannot
pass the resulting cost increases on to our customers, our profitability and
operating results will suffer.





RISKS
RELATED TO THE MARKET FOR OUR STOCK GENERALLY




Our
shares of common stock are very thinly traded, and there can be no assurance
that there will be an active market for our shares of common stock in the
future.





Our
shares of common stock are very thinly traded, and the price if traded may not
reflect our value. There can be no assurance that there will be an active market
for our shares of common stock in the future. The market liquidity will be
dependent on the perception of our operating business and any steps that our
management might take to bring us to the awareness of investors. There can be no
assurance given that there will be any awareness generated. Consequently,
investors may not be able to liquidate their investment or liquidate it at a
price that reflects the value of the business. If a more active market should
develop, the price may be highly volatile. Because there may be a low price for
our shares of common stock, many brokerage firms may not be willing to effect
transactions in the securities. Even if an investor finds a broker willing to
effect a transaction in the shares of our common stock, the combination of
brokerage commissions, transfer fees, taxes, if any, and any other selling costs
may exceed the selling price. Further, many lending institutions will not permit
the use of such shares of common stock as collateral for any loans.





We
do not intend to pay dividends on shares of our common stock for the foreseeable
future, but if we intend to do so our holding company structure may limit the
payment of dividends to our stockholders.





We have
no direct business operations, other than our ownership of our subsidiaries.
While we have no current intention of paying dividends, should we decide in the
future to do so, as a holding company, our ability to pay dividends and meet
other obligations depends upon the receipt of dividends or other payments from
our operating subsidiaries and other holdings and investments. In addition, our
operating subsidiaries, from time to time, may be subject to restrictions on
their ability to make distributions to us, including as a result of restrictive
covenants in loan agreements, restrictions on the conversion of local currency
into U.S. dollars or other hard currency and other regulatory restrictions as
discussed below. If future dividends are paid in RMB, fluctuations in the
exchange rate for the conversion of RMB into U.S. dollars may reduce the amount
received by U.S. stockholders upon conversion of the dividend payment into U.S.
dollars.




Chinese
regulations currently permit the payment of dividends only out of accumulated
profits as determined in accordance with Chinese accounting standards and
regulations. Our subsidiaries in China are also required to set aside a portion
of their after tax profits according to Chinese accounting standards and
regulations to fund certain reserve funds. Currently, our subsidiaries in China
are the only sources of revenues or investment holdings for the payment of
dividends. If they do not accumulate sufficient profits under Chinese accounting
standards and regulations to first fund certain reserve funds as required by
Chinese accounting standards, we will be unable to pay any
dividends.


26




We
may be subject to penny stock regulations and restrictions and you may have
difficulty selling shares of our common stock.





The SEC
has adopted regulations which generally define so-called “penny stocks” to be an
equity security that has a market price less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exemptions. If our common
stock becomes a “penny stock”, we may become subject to Rule 15g-9 under the
Exchange Act, or the “Penny Stock Rule”. This rule imposes additional sales
practice requirements on broker-dealers that sell such securities to persons
other than established customers and “accredited investors” (generally,
individuals with a net worth in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses). For transactions covered by
Rule 15g-9, a broker-dealer must make a special suitability determination for
the purchaser and have received the purchaser’s written consent to the
transaction prior to sale. As a result, this rule may affect the ability of
broker-dealers to sell our securities and may affect the ability of purchasers
to sell any of our securities in the secondary market.





For any
transaction involving a penny stock, unless exempt, the rules require delivery,
prior to any transaction in a penny stock, of a disclosure schedule prepared by
the SEC relating to the penny stock market. Disclosure is also required to be
made about sales commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in
penny stock.





There can
be no assurance that our common stock will qualify for exemption from the Penny
Stock Rule. In any event, even if our common stock were exempt from the Penny
Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the SEC the authority to restrict any person from participating in a
distribution of penny stock, if the SEC finds that such a restriction would be
in the public interest.




Item
1B.     Unresolved Staff Comments




Not
applicable.




Item
2.        Properties




There is
no private land ownership in China. Individuals and companies are permitted to
acquire land use rights for specific purposes. We lease our 44,041 square meter
facility located at Jia 1, SanTaiShan, XiaoHongMen County, ChaoYang District,
Beijing, China, from Beijing SanTaiShan Chemical Trading & Logistics Co.,
who was granted land use rights from the PRC government. The lease provides for
a three year term beginning on October 1, 2007, with the option to extend
following expiration. Annual rent on the property is approximately
$139,000.




The
Company also has an extensive fleet of 54 concrete mixers, eight pump trucks,
and access to an additional 10-20 rental vehicles depending on specific project
requirements. All vehicles are equipped with GPS and tracking devices from the
plants central dispatch center in order to optimize capacity utilization,
production and delivery schedules.





Item
3.        Legal Proceedings





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




27




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




None.




PART
II




Item
5.        Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities





Our
common stock has been quoted on the OTC Bulletin Board since May 19, 2008 under
the symbol CADC. Prior to that date, there was no active market for our common
stock. The following table sets forth the high and low bid prices for our common
stock for the periods indicated, as reported by the OTC Bulletin Board. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.





High
                  
                  
                  LowFiscal
      Year 2008Fourth
      Quarter: 4/1/08 to 6/30/08
                  
                  $
                  2.30
                  
                  
                  $
                  .30





The last
reported sales price of our common stock on the OTC Bulletin Board on December
31, 2008, was $2.75 per share. As of December 31, 2008, there were
approximately 52 stockholders of record of our common stock.





We have
not declared or paid any cash dividends on our common stock and do not
anticipate declaring or paying any cash dividends in the foreseeable future. We
currently expect to retain future earnings, if any, for the development of our
business. Dividends may be paid on our common stock only if and when declared by
our board of directors.




Item
6.        Selected Financial
Data




As a
“smaller reporting company”, we are not required to provide the information
required by this Item.




Item
7.        Management’s Discussion and
Analysis of Financial Condition and Results of Operations




The
following discussion and analysis of the results of operations and financial
condition of China Advanced Construction Materials Group, Inc. (“China ACM”) for
the fiscal years ended June 30, 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-K. 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, Special Note Regarding Forward-Looking
Statements and Business sections in this Form 10-K. 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.


28





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.





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. For year
ended June 30, 2008 and 2007, we produced approximately 699,550 cubic meters and
588,100 cubic meters, respectively, of ready mix concrete. In 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 fiscal year
ended June 30, 2008, our top ten customers’ sales accounted for 58.2% of all
sales; three of these customers accounted for sales of 16.89%, 8.62%, and 6.24%,
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.


29





PRC
Taxation





Our
subsidiary China-ACMH is governed by the Income Tax Law of the People’s Republic
of China concerning Foreign Investment Enterprises 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.




Results
of Operations




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




Years Ended June 30,2008
                  
                  
                  2007Sales
      revenue
                  
                  $
                  27,565,044
                  
                  
                  $
                  21,082,534Cost
      of sales
                  
                  
                  20,799,398
                  
                  
                  
                  16,393,134Gross
      profit
                  
                  
                  6,765,646
                  
                  
                  
                  4,689,400Selling,
      general and administrative expenses
                  
                  
                  1,946,541
                  
                  
                  
                  1,273,415Other
      income, net
                  
                  
                  1,139,047
                  
                  
                  
                  482,068Income
      before income taxes
                  
                  
                  6,176,566
                  
                  
                  
                  3,898,053Income
      taxes
                  
                  
                  1,012,382
                  
                  
                  
                  -Net
      income
                  
                  
                  5,164,184
                  
                  
                  
                  3,898,053Dividends
      and accretion on redeemable preferred stock
                  
                  
                  33,387
                  
                  
                  
                  -Net
      income available to common shareholders
                  
                  $
                  5,130,797
                  
                  
                  $
                  3,898,053




30




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




Years Ended June 30,2008
                          
                          2007As
      a percentage of RevenueSales
      revenue
                          
                          
                          100
                          %
                          100
                          %Cost
      of sales
                          
                          
                          75.46
                          %
                          77.76
                          %Gross
      profit
                          
                          
                          24.54
                          %
                          22.24
                          %Selling,
      general and administrative expenses
                          
                          
                          7.06
                          %
                          6.04
                          %Other
      income, net
                          
                          
                          4.13
                          %
                          2.29
                          %Income
      before income taxes
                          
                          
                          22.41
                          %
                          18.49
                          %Income
      taxes
                          
                          
                          3.67
                          %
                          -Net
      income
                          
                          
                          18.73
                          %
                          18.49
                          %Dividends
      and accretion on redeemable preferred stock
                          
                          
                          -
                          %
                          -
                          %Net
      income available to common shareholders
                          
                          
                          18.6
                          %
                          18.5
                          %





Comparison
of Years Ended June 30, 2008 and 2007





Sales
Revenue. Our sales revenue is generated from sales of our advanced
ready-mix concrete products, marketing cooperation and technical consulting
services. For the year ended June 30, 2008 as compared to the year ended June
30, 2007, the Company generated revenues of $27,565,044 and $21,082,534,
respectively, reflecting an increase of 30.75%. Of which approximately 21.63% is
attributable to increased sales, with the rest being due to the exchange rate
effect of appreciating RMB against USD. The average price of our products
remained relatively stable from 2007 to 2008 while the sales volume increased in
2008, which contributed to the increased sales revenue. The increased volume in
2008 was due to the fact that we were awarded new projects and that some
existing projects accelerated during the year, with the most prominent ones
being Beijing south railway station, HeXie Garden residential project,
XiaoHongMen New Village, JinYuChi Office & Hotel project. During fiscal year
2008, we also entered technical consulting and marketing cooperation agreements
with several independently owned mixture stations, which generated revenue of
$1,128,508. We believe our sales will continue to grow as we leverage on our
existing infrastructure, begin to target accretive acquisition of existing
ready-mixed plants, as well as expand into other geographical
markets.





Cost of
Sales. Cost of
Sales, which consists of raw materials including inbound freight charge, direct
labor, rentals, depreciation and other overheads was $20,799,398 for the year
ended June 30, 2008 as compared to $16,393,134 for the year ended June 30, 2007,
an increase of 26.88%, which is approximately in line with the increase in
sales.




Gross
Profit. Our gross profit is equal to the difference between our sales
revenue and our cost of sales. Gross profit was $6,765,646 for the year ended
June 30, 2008 as compared to $4,689,400 for the year ended June 30, 2007,
representing gross margins of approximately 24.54% and 22.24%, respectively. The
44.28% increase in gross profit is mostly attributable to increased sales as
well as higher gross margin on technical service and marketing cooperation
contracts we entered during 2008. We believe that this trend will continue
because our sales will continue to grow while gross margin will remain
relatively stable at current level.


31





Selling, General
and Administrative Expenses. Selling, general and administrative expenses
consist of sales commissions, advertising and marketing costs, office rent and
expenses, costs associated with staff and support personnel who manage our
business activities, and professional and legal fees paid to third parties. The
company incurred selling, general and administrative expenses of $1,946,541 for
the year ended June 30, 2008, an increase of 52.86%, as compared to $1,273,415
for the year ended June 30, 2007. The increase is primarily due to cash and
non-cash expenses associated with the reverse merger of BVI-ACM and the
preferred stock offering, totaling $420,159 and including fees paid to attorneys
and consultants and non-cash charges related warrants issued for services.
Excluding these one-time charges, we have managed to keep our selling, general
and administrative expenses at approximately the same level as prior year
measured by percentage of total revenue.





Research and
Development Costs. Research and development costs consist of amounts
spent on developing new products and enhancing our existing products.  Research and
development costs totaled $6,000 for the year ended June 30, 2008, as compared
to $165,000 for the year ended June 30, 2007. The decrease was mainly because we
had less new product development projects in 2008.





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 $1,357,461 for the
year ended June 30, 2008 as compared to $482,068 for the year ended June 30,
2007, an increase of $875,397. The increase in net other income is partly due to
receiving of value added tax exemption from the government, which increased
25.4% and is in line with the increase in concrete sales as this tax credit is
related to gross sales price of our concrete products. We had other expenses of
$228,731 for the year ended June 30, 2008 as compared to $782,884 for the year
ended June 30, 2007, a decrease of $554,153. The decrease in other expenses is
mainly due to lower interest expense in 2008. We further paid down our
short-term bank loans and incurred less new borrowings for the year ended June
30, 2008 which resulted in lower interest expense and financial leverage as
compared to the same period last year.




Provision for
Income Taxes. Provision for income taxes amounted to $1,012,382 and $0
for the years ended June 30, 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 $5,164,184 for the year ended June 30, 2008
as compared to $3,898,053 for the year ended June 30, 2007, an increase of 32%.
Excluding exchange rate effect, the increase in net income is attributable to
increased sales as more projects being awarded to us and the acceleration of
some existing projects, lower interest expenses as we paid down short-term bank
loans, as well as increased government value added tax exemption in line with
increased sales. Our net margin increased from 18.5% for the year ended June 30,
2007 to 18.6% for the year ended June 30, 2008 due to the 25% income tax the
Company began to be subject to starting January 1, 2008, partly offset by higher
margin we realized on technical service and marketing cooperation contracts
entered during the year. Our management believes that our profits will continue
to increase as we 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 $33,387 compared to the year
ended June 30, 2007 is due to our redeemable preferred stock offering in June
2008.




Liquidity
and Capital Resources




As of
June 30, 2008, we had cash and cash equivalents of $1,910,495 and restricted
cash of $913,092. The following table provides detailed information about our
net cash flow for all financial statement periods presented in this Form
10-K:


32





Years Ended June30,2008
                  
                  
                  2007Net
      cash provided by operating activities
                  
                  $
                  5,110,924
                  
                  
                  $
                  2,833,576Net
      cash used in investing activities
                  
                  
                  (8,701,026
                  )
                  
                  
                  (241,004
                  )Net
      cash provided by (used in) financing activities
                  
                  
                  4,376,507
                  
                  
                  
                  (1,608,605
                  )Effect
      of foreign currency translation on cash and cash equivalents
                  
                  
                  (300,793
                  )
                  
                  
                  37,094Net
      cash Flow
                  
                  $
                  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 Years Ended June 30, 2008 and 2007





Net Cash Provided
By Operating Activities. We generated positive cash flow from operating
activities for both years ended June 30, 2008 and 2007. Specifically, net
cash provided by operating activities totaled $5,110,924 for the year ended June
30, 2008 as compared to $2,833,576 for the year ended June 30, 2007. The
increase in cash provided by operating activities was primarily due to the
increase in net income, deferred cash payment of income taxes and collection of
receivables, partially offset by increase in prepayments to vendors and
suppliers’ demand for payables. We expect our cash flow from operating
activities to continue to be strong as our projected net income continues to
increase 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
$8,701,026for the
year ended June 30, 2008 and $241,004 for the year ended June 30, 2007. The cash
was primarily used for the purchase of concrete mixers and pump
trucks.





Net Cash Provided
By/Used in Financing Activities. Net cash provided by financing
activities totaled $4,376,507for the year ended June
30, 2008 as compared to net cash used in financing activities of $1,608,605 for
the year ended June 30, 2007. The reason for the increase in cash provided by
financing activities was due to issuance of $7 million preferred stock and
$873,020 non-interest bearing advances from current shareholders, partially
offset by pay down of short-term bank loans and we no long had capital lease
payment obligation in 2008.





On June
11, 2008, the Company completed a private placement, pursuant to which we issued
875,000 shares of redeemable preferred stock, each convertible into four shares
of common stock at $2.00 per share, and five-year warrants to purchase 1,750,000
shares of common stock at an exercise price of $2.40 per share, for aggregate
gross proceeds of $7,000,000. Although there is no fixed redemption requirement,
the entire amount of $7,000,000 could become redeemable at end of two years from
closing. After the payment of certain fees and expenses in connection with the
private placement, the net proceeds to the Company was $5,223,291 with $930,000
in an escrow account for future dividends and investor relation payments. In
connection with this private placement, we incurred placement agent fee and
expense of approximately $497,500, and issued the placement agent five-year
warrant to purchase an aggregate of 245,000 shares of common stock at an
exercise price of $2.40 per share. In addition, we incurred other professional
fees and expenses totaling approximately $114,500. Pursuant to escrow agreement
entered during the financing with investors, the Company also placed a total of
$930,000 in an escrow account with the Company’s legal counsel for restricted
use of dividend payment and investor relation activities. The net proceeds from
the above financing will be used, in part, for building plant and purchasing
concrete mixers and pump trucks.





Cash.  As of June 30,
2008, we had cash of $1,910,495, as compared to $1,424,883 as of June 30, 2007.
This increase was due primarily to increase in net income, collection of
receivables, issuance of preferred stock and advances from current shareholders,
partially offset by suppliers’ demand for payment, repayment of short-term bank
loans and purchase of capital assets.


33





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 $4,271,222 and $5,876,735 outstanding on loans and credit facilities as
of June 30, 2008 and 2007, respectively. The loans consisted of the
following:





June 30,
                
                
                June 30,2008
                
                
                2007Loan
      from Huaxia Bank, with effective annual interest rate of 8.59%, due August
      10, 2008, guaranteed by Company’s shareholder Mr. Han
    Xianfu.
                
                $
                2,918,000
                
                
                $
                -Loan
      from Huaxia Bank, with effective annual interest rate of 6.7275%, due July
      11, 2007, guaranteed by an unrelated company.
                
                
                -
                
                
                
                2,630,000Loan
      from Beijing Rural Commercial Bank, with effective annual interest rate of
      7.956%, due on August 20, 2007, guaranteed by a financing company in
      exchange for a fee of 2.5% of the face amount of the loan.
                
                
                -
                
                
                
                3,024,500Loan
      from unrelated company Beijing Hengxin Huaxing Auto Accessories Company,
      with no interest, due upon demand, unsecured.
                
                
                379,340
                
                
                
                -Loan
      from unrelated company Beijing Hongda Huaxin Wujinjidian Company, with no
      interest, due upon demand, unsecured.
                
                
                204,260
                
                
                
                -Loan
      from unrelated company, Beijing Sigi Qingbaosan Cement Company, with no
      interest, due upon demand, unsecured
                
                
                116,720
                
                
                
                -Loan
      from unrelated individual Xia Hua Qing, with no interest, due on demand,
      no guarantee or collateral required.
                
                
                128,392
                
                
                
                -Loan
      from various employees, with effective annual interest rate of 20%, due
      upon demand, unsecured.
                
                
                524,510
                
                
                
                222,235Total
      short term loans
                
                $
                4,271,222
                
                
                $
                5,876,735





Total
interest expense on short term loans for the twelve months ended June 30, 2008
and 2007 amounted to $310,875 and $682,688, respectively.


34





Obligations
Under Material Contracts





Below is
a table setting forth our contractual obligations as of June 30,
2008:




Payment due by periodTotal
                
                
                Less than 1 year
                
                
                1-3 years
                
                
                3-5 years
                
                
                More than
                  5 yearsLong
      term debt obligations
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                
                -
                
                
                
                -Capital
      commitment
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Operating
      lease obligations
                
                
                618,025
                
                
                
                372,293
                
                
                
                245,732
                
                
                
                -
                
                
                
                -Purchase
      obligations
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
                
                $
                618,025
                
                
                $
                372,293
                
                
                $
                245,732
                
                
                
                -
                
                
                
                -





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.





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





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


35





Use of
estimates: The Company has identified all accounting estimates that could
be material to the financial statements, including key factors and significant
assumptions underlying those estimates, and the Company believes the estimates
are reasonable in the circumstances. The Company determined the value of
warrants convertible from the redeemable convertible preferred using the CRR
binomial model. The volatility of the Company’s common stock was estimated by
management based on the historical volatility of a similar US public company due
to limited trading history of the common stock. The risk-free interest rate was
based on 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.




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 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·
            Collectibility
      of payment is reasonably assured.





The
Company sells its products mainly 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 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 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 thru 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 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 September 30, 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.


36





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 receivables. The bifurcation between current and
noncurrent 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 years ended June 30, 2008 and 2007,
$1,586,192 and $1,264,952, respectively, was recognized as other subsidy income
from VAT taxes collected.





Recently
Issued Accounting Pronouncements





SFAS No.
157, “Fair Value Measurements.” defines fair value, establishes a three-level
valuation hierarchy for disclosures of fair value measurement and enhances
disclosures requirements for fair value measures. The carrying amounts reported
in the balance sheets for receivables and payables qualified as financial
instruments and are a reasonable estimate of fair value because of the short
period of time between the origination of such instruments and their expected
realization and their current market rate of interest. The three levels are
defined as follow:





·
                Level
      1 – inputs to the valuation methodology are quoted prices
      (unadjusted) for identical assets or liabilities in active
      markets.·
                Level
      2 – inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the assets or liability, either directly or indirectly, for
      substantially the full term of the financial
  instruments.·
                Level
      3 – inputs to the valuation methodology are unobservable and significant
      to the fair value.





The
provisions of SFAS No. 157 are effective for financial statements issued for
fiscal years beginning after November 15, 2007.The Company is currently
evaluating the impact on its consolidated financial position or result of
operations.





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 is currently
evaluating the impact, if any, that the adoption of SFAS 159 will have on its
consolidated results of operations and its financial position.





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 not
determined the effect that the application of SFAS 160 will have on its
consolidated financial statements.


37





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. The Company is currently evaluating the impact
that EITF 07-5 will have on its consolidated financial position or result of
operations.





In June
2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
Changes to Issue No. 98-5 (“EITF No. 08-4”)”. The objective of EITF No.08-4
is to provide transition guidance for conforming changes made to EITF No. 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios”, that result from EITF No. 00-27
“Application of Issue No. 98-5 to Certain Convertible Instruments”, and SFAS No.
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 No. 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 quarter ended September 30,
2008.





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
7A.     Quantitative and Qualitative Disclosures About
Market Risk




Interest Rate
Risk




At times
when we have short-term loans outstanding, we are exposed to interest rate risk
due primarily to our short-term bank loans. Although the interest rates for our
short-term loans are typically fixed for the terms of the loans, the terms are
typically twelve months and interest rates are subject to change upon renewal.
Since July 20, 2007, the People’s Bank of China has increased the interest rate
of Renminbi bank loans with a term of six months or less by 0.2% and loans with
a term of six to 12 months by 0.3%. The new interest rates are approximately
6.0% and 6.8% for Renminbi bank loans with a term six months or less and loans
with a term of six to 12 months, respectively. The change in interest rates has
no impact on our bank loans secured before July 28, 2007. We monitor
interest rates in conjunction with our cash requirements to determine the
appropriate level of debt balances relative to other sources of
funds.




38




Credit
Risk





The
Company is exposed to credit risk from its cash in bank and fixed deposits and
bills and accounts receivable. The credit risk on cash in bank and fixed
deposits is limited because the counterparties are recognized financial
institutions. Bills and accounts receivable are subjected to credit evaluations.
An allowance has been made for estimated irrecoverable amounts which has been
determined by reference to past default experience and the current economic
environment.





Foreign
Exchange Risk




The value
of the Renminbi against the U.S. dollar and other currencies is affected by,
among other things, changes in China’s political and economic conditions. Since
July 2005, the Renminbi has no longer been pegged to the U.S. Dollar. Although
the People’s Bank of China regularly intervenes in the foreign exchange market
to prevent significant short-term fluctuations in the exchange rate, the
Renminbi may appreciate or depreciate significantly in value against the U.S.
dollar in the medium to long term. Moreover, it is possible that in the future,
PRC authorities may lift restrictions on fluctuations in the Renminbi exchange
rate and lessen intervention in the foreign exchange market.





Because
substantially all of our earnings and cash assets are denominated in Renminbi,
but our reporting currency is the U.S. dollar, fluctuations in the exchange rate
between the U.S. dollar and the Renminbi will affect our balance sheet and our
earnings per share in U.S. dollars. In addition, appreciation or depreciation in
the value of the Renminbi relative to the U.S. dollar would affect our financial
results reported in U.S. dollar terms without giving effect to any underlying
change in our business or results of operations. Fluctuations in the exchange
rate will also affect the relative value of any dividend we issue in the future
that will be exchanged into U.S. dollars and earnings from, and the value of,
any U.S. dollar-denominated investments we make in the future.




Very
limited hedging transactions are available in China to reduce our exposure to
exchange rate fluctuations. To date, we have not entered into any hedging
transactions in an effort to reduce our exposure to foreign currency exchange
risk. While we may enter into hedging transactions in the future, the
availability and effectiveness of these transactions may be limited, and we may
not be able to successfully hedge our exposure at all. In addition, our foreign
currency exchange losses may be magnified by PRC exchange control regulations
that restrict our ability to convert Renminbi into foreign
currencies.





Most of
the transactions of the Company are settled in Renminbi and U.S. dollars. In the
opinion of the directors, the Company is not exposed to significant foreign
currency risk.




Inflation




Inflationary
factors, such as increases in the cost of raw materials and overhead costs,
could impair our operating results. Although we do not believe that inflation
has had a material impact on our financial position or results of operations to
date, a high rate of inflation in the future may have an adverse effect on our
ability to maintain current levels of gross margin and selling, general and
administrative expenses as a percentage of sales revenue if the selling prices
of our products do not increase with these increased costs.





Company’s
Operations are Substantially in China





Substantially
all of our operations are conducted in China and are subject to various
political, economic, and other risks and uncertainties inherent in conducting
business in China. Among other risks, the Group’s operations are subject to the
risks of restrictions on transfer of funds; export duties, quotas, and
embargoes; domestic and international customs and tariffs; changing taxation
policies; foreign exchange restrictions; and political conditions and
governmental regulations. Additional information regarding such risks can be
found under the heading “Risk Factors” located elsewhere in this
prospectus.


39




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders


of China
Advanced Construction Materials Group, Inc. and Subsidiaries





We have
audited the accompanying consolidated balance sheets of China Advanced
Construction Materials Group, Inc. and Subsidiaries as of June 30, 2008 and
2007, and the related consolidated statements of income and other comprehensive
income, shareholders’ equity, and cash flows for each of the years in the
two-year period ended June 30, 2008. China Advanced Construction Materials
Group, Inc. and Subsidiaries’ management is responsible for these financial
statements. Our responsibility is to express an opinion on these financial
statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of China Advanced Construction
Materials Group, Inc. and Subsidiaries as of June 30, 2008 and 2007, and the
results of its operations and its cash flows for each of the years in the
two-year period ended June 30, 2008 in conformity with accounting principles
generally accepted in the United States of America.





/S/ Moore
Stephens Wurth Frazer and Torbet, LLP





Walnut,
California





September
26, 2008


Except
for paragraph 1 of Note 2, as to which the date is December 31,
2008




40




Item
8.        Financial Statements and
Supplementary Data


CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
BALANCE SHEETS
 AS OF
JUNE 30, 2008 AND 2007
 
 ASSETS
 
 2008
                                                                                                      
                                                                                                      
                                                                                                      2007RESTATEDCURRENT
      ASSETS:Cash
                                                                                                      
                                                                                                      $
                                                                                                      1,910,495
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      1,424,883Restricted
      cash
                                                                                                      
                                                                                                      
                                                                                                      913,092
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -Investments
                                                                                                      
                                                                                                      
                                                                                                      61,767
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      69,209Accounts
      receivable, net of allowance for doubtful accounts of $224,924
      and $53,038, respectively
                                                                                                      
                                                                                                      
                                                                                                      9,365,486
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      12,388,484Inventories
                                                                                                      
                                                                                                      
                                                                                                      237,836
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      416,420Other
      receivables
                                                                                                      
                                                                                                      
                                                                                                      505,968
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,227,622Prepayment
                                                                                                      
                                                                                                      
                                                                                                      3,240,394
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      512,874Total
      current assets
                                                                                                      
                                                                                                      
                                                                                                      16,235,038
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      16,039,492PLANT
      AND EQUIPMENT, net
                                                                                                      
                                                                                                      
                                                                                                      16,730,220
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      7,894,876OTHER
      ASSETS:Accounts
      receivable (non-current), net of allowance for doubtful accounts
      of $411,061 and $96,929, respectively
                                                                                                      
                                                                                                      
                                                                                                      4,753,006
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      2,243,566Total
      other assets
                                                                                                      
                                                                                                      
                                                                                                      4,753,006
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      2,243,566Total
      assets
                                                                                                      
                                                                                                      $
                                                                                                      37,718,264
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      26,177,934LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                                                                                                      
                                                                                                      $
                                                                                                      6,293,553
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      8,453,884Customer
      deposits
                                                                                                      
                                                                                                      
                                                                                                      165,434
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -Short
      term loans
                                                                                                      
                                                                                                      
                                                                                                      4,271,222
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      5,876,735Other
      payables
                                                                                                      
                                                                                                      
                                                                                                      254,259
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      142,330Other
      payables - shareholder
                                                                                                      
                                                                                                      
                                                                                                      880,302
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -Accrued
      liabilities
                                                                                                      
                                                                                                      
                                                                                                      145,207
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      208,093Taxes
      payable
                                                                                                      
                                                                                                      
                                                                                                      1,073,237
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      661Current
      portion of contribution payable
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      750,000Total
      current liabilities
                                                                                                      
                                                                                                      
                                                                                                      13,083,214
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      15,431,703Contribution
      payable
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      4,250,000Total
      liabilities
                                                                                                      
                                                                                                      
                                                                                                      13,083,214
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      19,681,703COMMITMENTS
      AND CONTINGENCIES
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -REDEEMABLE
      PREFERRED STOCK ($0.001 par value, 875,000 and 0 shares issued) net
      of discount of $1,168,548 and $0 at June 30, 2008 and 2007,
      respectively
                                                                                                      
                                                                                                      
                                                                                                      5,831,452
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -SHAREHOLDERS'
      EQUITY:Preferred
      stock $0.001 par value, 1,000,000 shares authorized, 875,000
      redeemable preferred shares issued and outstanding in 2008, and
      reported in liabilities above
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -Common
      Stock, $0.001 par value, 74,000,000 shares authorized, 10,525,000 and
      8,809,583 shares issued and outstanding, respectively
                                                                                                      
                                                                                                      
                                                                                                      10,525
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      8,810Paid-in-capital
                                                                                                      
                                                                                                      
                                                                                                      12,722,260
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      12,091,290Contribution
      receivable
                                                                                                      
                                                                                                      
                                                                                                      (1,210,000
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (13,470,100
                                                                                                      )Deferred
      Compensation
                                                                                                      
                                                                                                      
                                                                                                      (27,708
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      -Retained
      earnings
                                                                                                      
                                                                                                      
                                                                                                      3,257,276
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6,309,675Statutory
      reserves
                                                                                                      
                                                                                                      
                                                                                                      1,452,779
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      896,634Accumulated
      other comprehensive income
                                                                                                      
                                                                                                      
                                                                                                      2,598,466
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      659,922Total
      shareholders' equity
                                                                                                      
                                                                                                      
                                                                                                      18,803,598
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6,496,231Total
      liabilities, redeemable preferred stock and shareholders'
      equity
                                                                                                      
                                                                                                      $
                                                                                                      37,718,264
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      26,177,934
 
 See
report of independent registered public accounting firm.
 The
accompanying notes are an integral part of these consolidated financial
statements.
  41
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 FOR THE
YEARS ENDED JUNE 30, 2008 AND 2007
 
 2008
                                                    
                                                    
                                                    2007RESTATEDREVENUE
                                                    
                                                    $
                                                    27,565,044
                                                    
                                                    
                                                    $
                                                    21,082,534COST
      OF SALES
                                                    
                                                    
                                                    20,799,398
                                                    
                                                    
                                                    
                                                    16,393,134GROSS
      PROFIT
                                                    
                                                    
                                                    6,765,646
                                                    
                                                    
                                                    
                                                    4,689,400SELLING,
      GENERAL AND  ADMINISTRATIVE EXPENSES
                                                    
                                                    
                                                    1,946,541
                                                    
                                                    
                                                    
                                                    1,273,415INCOME
      FROM OPERATIONS
                                                    
                                                    
                                                    4,819,105
                                                    
                                                    
                                                    
                                                    3,415,985OTHER
      INCOME, NETOther
      subsidy income
                                                    
                                                    
                                                    1,586,192
                                                    
                                                    
                                                    
                                                    1,264,952Non-operating
      (expense) income, net
                                                    
                                                    
                                                    (79,312
                                                    )
                                                    
                                                    
                                                    14,494Interest
      expense, net
                                                    
                                                    
                                                    (149,419
                                                    )
                                                    
                                                    
                                                    (797,378
                                                    )TOTAL
      OTHER INCOME, NET
                                                    
                                                    
                                                    1,357,461
                                                    
                                                    
                                                    
                                                    482,068INCOME
      BEFORE PROVISION FOR INCOME TAXES
                                                    
                                                    
                                                    6,176,566
                                                    
                                                    
                                                    
                                                    3,898,053PROVISION
      FOR INCOME TAXES
                                                    
                                                    
                                                    1,012,382
                                                    
                                                    
                                                    
                                                    -NET
      INCOME
                                                    
                                                    
                                                    5,164,184
                                                    
                                                    
                                                    
                                                    3,898,053DIVIDENDS
      AND ACCRETION ON REDEEMABLE PREFERRED STOCK
                                                    
                                                    
                                                    33,387
                                                    
                                                    
                                                    
                                                    -NET
      INCOME AVAILABLE TO COMMON SHAREHOLDERS
                                                    
                                                    
                                                    5,130,797
                                                    
                                                    
                                                    
                                                    3,898,053RECONCILIATION
      OF COMPREHENSIVE INCOME:Net
      income
                                                    
                                                    
                                                    5,164,184
                                                    
                                                    
                                                    
                                                    3,898,053Unrealized
      (loss) gain from marketable securities
                                                    
                                                    
                                                    (12,482
                                                    )
                                                    
                                                    
                                                    8,523Foreign
      currency translation adjustment
                                                    
                                                    
                                                    1,951,026
                                                    
                                                    
                                                    
                                                    461,570COMPREHENSIVE
      INCOME
                                                    
                                                    $
                                                    7,102,728
                                                    
                                                    
                                                    $
                                                    4,368,146EARNING
      PER COMMON SHARE ALLOCATED TO COMMON SHAREHOLDERSBasicWeighted
      average common outstanding shares
                                                    
                                                    
                                                    9,064,359
                                                    
                                                    
                                                    
                                                    8,809,583Earning
      per share
                                                    
                                                    $
                                                    0.57
                                                    
                                                    
                                                    $
                                                    0.44DilutedWeighted
      average common outstanding shares
                                                    
                                                    
                                                    9,255,616
                                                    
                                                    
                                                    
                                                    8,809,583Earning
      per share
                                                    
                                                    $
                                                    0.56
                                                    
                                                    
                                                    $
                                                    0.44
 
 See
report of independent registered public accounting firm.
 The
accompanying notes are an integral part of these consolidated financial
statements.
  42
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
 
 Series A Preferred Stock
                                                                                              
                                                                                              
                                                                                              Common stock
                                                                                              
                                                                                              
                                                                                              Additional
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              Retained earnings
                                                                                              
                                                                                              
                                                                                              AccumulatedNumber
                                                                                              
                                                                                              
                                                                                              Par
                                                                                              
                                                                                              
                                                                                              Number
                                                                                              
                                                                                              
                                                                                              Par
                                                                                              
                                                                                              
                                                                                              Paid-in
                                                                                              
                                                                                              
                                                                                              Contribution
                                                                                              
                                                                                              
                                                                                              Deferred
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              Statutory
                                                                                              
                                                                                              
                                                                                              other comprehensiveof shares
                                                                                              
                                                                                              
                                                                                              amount
                                                                                              
                                                                                              
                                                                                              of shares
                                                                                              
                                                                                              
                                                                                              amount
                                                                                              
                                                                                              
                                                                                              capital
                                                                                              
                                                                                              
                                                                                              receivable
                                                                                              
                                                                                              
                                                                                              Compensation
                                                                                              
                                                                                              
                                                                                              Unrestricted
                                                                                              
                                                                                              
                                                                                              reserves
                                                                                              
                                                                                              
                                                                                              income
                                                                                              
                                                                                              
                                                                                              TotalBALANCE,
      June 30, 2006
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              $
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              8,809,583
                                                                                              
                                                                                              
                                                                                              $
                                                                                              8,810
                                                                                              
                                                                                              
                                                                                              $
                                                                                              12,091,290
                                                                                              
                                                                                              
                                                                                              $
                                                                                              (13,470,100
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              -
                                                                                              
                                                                                              
                                                                                              $
                                                                                              2,801,427
                                                                                              
                                                                                              
                                                                                              $
                                                                                              506,829
                                                                                              
                                                                                              
                                                                                              $
                                                                                              189,829
                                                                                              
                                                                                              
                                                                                              $
                                                                                              2,128,085-Adjustment
      to statutory reserve
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              (389,805
                                                                                              )
                                                                                              
                                                                                              
                                                                                              389,805
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              -Net
      income
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              3,898,053
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              3,898,053Unrealized
      gain on marketable securities
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              8,523
                                                                                              
                                                                                              
                                                                                              
                                                                                              8,523Foreign
      currency translation gain
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              461,570
                                                                                              
                                                                                              
                                                                                              
                                                                                              461,570-BALANCE,
      June 30, 2007
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              $
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              8,809,583
                                                                                              
                                                                                              
                                                                                              $
                                                                                              8,810
                                                                                              
                                                                                              
                                                                                              $
                                                                                              12,091,290
                                                                                              
                                                                                              
                                                                                              $
                                                                                              (13,470,100
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              -
                                                                                              
                                                                                              
                                                                                              $
                                                                                              6,309,675
                                                                                              
                                                                                              
                                                                                              $
                                                                                              896,634
                                                                                              
                                                                                              
                                                                                              $
                                                                                              659,922
                                                                                              
                                                                                              
                                                                                              $
                                                                                              6,496,231Shares
      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 issuance of redeemable preferred
      stock
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              169,345
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              169,345Contribution
      receivable offset with distribution owed
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              7,260,000
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              (7,627,051
                                                                                              )
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              367,051
                                                                                              
                                                                                              
                                                                                              
                                                                                              -Capital
      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
                                                                                              )Adjustment
      to statutory reserve
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              (556,145
                                                                                              )
                                                                                              
                                                                                              
                                                                                              556,145
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              -Net
      income
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              5,164,184
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              5,164,184Unrealized
      loss on marketable securities
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              (12,482
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (12,482
                                                                                              )Foreign
      currency translation gain
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              1,583,975
                                                                                              
                                                                                              
                                                                                              
                                                                                              1,583,975-BALANCE,
      June 30, 2008 - Restaed
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              $
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              10,525,000
                                                                                              
                                                                                              
                                                                                              $
                                                                                              10,525
                                                                                              
                                                                                              
                                                                                              $
                                                                                              12,722,260
                                                                                              
                                                                                              
                                                                                              $
                                                                                              (1,210,000
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (27,708
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              3,257,276
                                                                                              
                                                                                              
                                                                                              $
                                                                                              1,452,779
                                                                                              
                                                                                              
                                                                                              $
                                                                                              2,598,466
                                                                                              
                                                                                              
                                                                                              $
                                                                                              18,803,598
  See
report of independent registered public accounting firm.
 The
accompanying notes are an integral part of these consolidated financial
statements.
  43
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR THE
YEARS ENDED JUNE 30, 2008 AND 2007
 
 2008
                                                                          
                                                                          
                                                                          2007RESTATEDCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                                                                          
                                                                          $
                                                                          5,164,184
                                                                          
                                                                          
                                                                          $
                                                                          3,898,053Adjustments
      to reconcile net income to cash provided by operating
      activities:Depreciation
                                                                          
                                                                          
                                                                          1,178,745
                                                                          
                                                                          
                                                                          
                                                                          1,091,740Amortization
      of discount on capital lease
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          121,834Loss
      on disposal of equipment
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          7,638Bad
      debt expense, net of recovery
                                                                          
                                                                          
                                                                          443,171
                                                                          
                                                                          
                                                                          
                                                                          -Amortization
      of deferred compensation expense
                                                                          
                                                                          
                                                                          5,542
                                                                          
                                                                          
                                                                          
                                                                          -Changes
      in operating assets and liabilitiesAccounts
      receivable
                                                                          
                                                                          
                                                                          (4,831,494
                                                                          )
                                                                          
                                                                          
                                                                          (11,539,141
                                                                          )Inventories
                                                                          
                                                                          
                                                                          211,569
                                                                          
                                                                          
                                                                          
                                                                          (141,789
                                                                          )Other
      receivables
                                                                          
                                                                          
                                                                          1,109,454
                                                                          
                                                                          
                                                                          
                                                                          345,625Other
      receivables - shareholders
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          96,068Prepayment
                                                                          
                                                                          
                                                                          (2,523,568
                                                                          )
                                                                          
                                                                          
                                                                          (498,652
                                                                          )Accounts
      payable
                                                                          
                                                                          
                                                                          3,157,464
                                                                          
                                                                          
                                                                          
                                                                          10,056,683Customer
      deposits
                                                                          
                                                                          
                                                                          156,125
                                                                          
                                                                          
                                                                          
                                                                          -Other
      payables
                                                                          
                                                                          
                                                                          108,430
                                                                          
                                                                          
                                                                          
                                                                          (474,761
                                                                          )Accrued
      liabilities
                                                                          
                                                                          
                                                                          (80,851
                                                                          )
                                                                          
                                                                          
                                                                          (130,365
                                                                          )Taxes
      payable
                                                                          
                                                                          
                                                                          1,012,153
                                                                          
                                                                          
                                                                          
                                                                          643Net
      cash provided by operating activities
                                                                          
                                                                          
                                                                          5,110,924
                                                                          
                                                                          
                                                                          
                                                                          2,833,576CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquisition
      of property, plant, and equipment
                                                                          
                                                                          
                                                                          (8,701,026
                                                                          )
                                                                          
                                                                          
                                                                          (241,004
                                                                          )Net
      cash used in investing activities
                                                                          
                                                                          
                                                                          (8,701,026
                                                                          )
                                                                          
                                                                          
                                                                          (241,004
                                                                          )CASH
      FLOWS FROM FINANCING ACTIVITIES:Borrowings
      under short term loans
                                                                          
                                                                          
                                                                          3,925,075
                                                                          
                                                                          
                                                                          
                                                                          481,763Principal
      payments under short term loans
                                                                          
                                                                          
                                                                          (5,906,096
                                                                          )
                                                                          
                                                                          
                                                                          -Restricted
      cash
                                                                          
                                                                          
                                                                          (913,092
                                                                          )
                                                                          
                                                                          
                                                                          -Proceeds
      from issuance of redeemable preferred stock
                                                                          
                                                                          
                                                                          6,397,500
                                                                          
                                                                          
                                                                          
                                                                          -Proceeds
      from capital contribution
                                                                          
                                                                          
                                                                          100
                                                                          
                                                                          
                                                                          
                                                                          -Proceeds
      from advances by shareholder
                                                                          
                                                                          
                                                                          873,020
                                                                          
                                                                          
                                                                          
                                                                          -Payments
      on capital lease obligations
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (2,090,368
                                                                          )Net
      cash provided by (used in) financing activities
                                                                          
                                                                          
                                                                          4,376,507
                                                                          
                                                                          
                                                                          
                                                                          (1,608,605
                                                                          )EFFECTS
      OF EXCHANGE RATE CHANGE IN CASH
                                                                          
                                                                          
                                                                          (300,793
                                                                          )
                                                                          
                                                                          
                                                                          37,094INCREASE
      IN CASH
                                                                          
                                                                          
                                                                          485,612
                                                                          
                                                                          
                                                                          
                                                                          1,021,061CASH,
      beginning of year
                                                                          
                                                                          
                                                                          1,424,883
                                                                          
                                                                          
                                                                          
                                                                          403,822CASH,
      end of year
                                                                          
                                                                          $
                                                                          1,910,495
                                                                          
                                                                          
                                                                          $
                                                                          1,424,883
 
 See
report of independent registered public accounting firm.
 The
accompanying notes are an integral part of these consolidated financial
statements.
  44
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 Note
1 - Organization and description of business
 
 China
Advanced Construction Materials Group, Inc. (“China ACM” or the “Company”) was
founded as an unincorporated business 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 entered into and closed 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 83.90% 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 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 the “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 PRC as a
wholly-owned foreign limited liability company 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-mixed 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.
 
 See
report of independent registered public accounting firm.
 
 45
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 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. 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 firing of key personnel. In order to
      ensure Xin Ao’s normal operation, China-ACMH agrees 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
      operation between Xin Ao and any other third parties. As a counter
      guarantee, Xin Ao agrees 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 authorize 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.
  The term
of these agreements is for ten (10) years and shall terminate automatically upon
expiration, and may be extended only if China-ACMH gives its written consent of
the extension before the expiration. The parties shall, 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 shall not 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.
  See
report of independent registered public accounting firm.
 
 46
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 Through
China-ACMH, BVI-ACM operates and controls Xin Ao through the Contractual
Arrangements. BVI-ACM utilized the Contractual Arrangements to gain control 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.
 
 Through
this series of Contractual Arrangements, China-ACMH provides exclusive technical
consulting services to Xin Ao for an annual fee equal to Xin Ao’s yearly net
income.  China-ACMH effectively took over management of daily business
activities of Xin Ao and has the right to appoint all executives, senior
management and members of the board of directors of Xin Ao. China-ACMH
guarantees all of Xin Ao’s business activities with any third parties and in
return is guaranteed all of Xin Ao’s assets. In addition, shareholders of Xin Ao
pledged their shares in Xin Ao as collateral for the annual fees due to the
Company and granted China-ACMH the exclusive right and option to acquire all of
their equity interests in Xin Ao.
 
 Note
2 – Summary of significant accounting policies
 
 Restatement
 
 The
Company previously accounted for its Series A Convertible Preferred Stock, which
was issued in a private placement on June 11, 2008 and which is redeemable on
June 11, 2010 if not previously converted by the holders, as a
liability.  The offering costs were deferred and were being amortized
over the period to redemption.  Because the preferred stock does not
meet the definition of a liability in Statement of Financial Accounting
Standards No. 150 “Accounting for  Certain Financial Instruments with
Characteristics of both Liabilities and Equity”, the Company has revised its
accounting to account for the preferred stock as an equity instrument, rather
than as a liability.  The offering costs, which were previously
deferred, have been charged to additional paid-in capital.  Dividends
accrued on the preferred stock and periodic accretion of the initial carrying
value of the preferred stock to its redemption value, which were previously
recognized as interest expense, have been charged to retained earnings. Because
the preferred stock is required to be redeemed by the Company if not previously
converted by the holders, it has been classified outside of Shareholders’
Equity, in accordance with EITF Topic D-98.
 
 The
restatement had no effect on the Company’s consolidated financial statements as
of and for the year ended June 30, 2007.  The Company’s consolidated
financial statements as of and for the year ended June 30, 2008 have been
restated as follows:
 
 See
report of independent registered public accounting firm.
 
 47
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 YearEnded
                        June30,
                        2008Net
      income and net income available to common shareholders, as previously
      reported
                      
                      $
                      4,945,770Amortization
      of deferred offering costs
                      
                      
                      185,027Dividends
      and accretion on preferred stock
                      
                      
                      33,387Net
      income, as restated
                      
                      
                      5,164,184Dividends
      and accretion on preferred stock
                      
                      
                      33,387Net
      income available to common shareholders, as restated
                      
                      
                      5,130,797Earnings
      per share – basic, as previously reported
                      
                      
                      0.55Earnings
      per share – basic, as restated
                      
                      
                      0.57Earnings
      per share – diluted, as previously reported
                      
                      
                      0.35Earnings
      per share – diluted, as restated
                      
                      
                      0.56Balance
      Sheet data:
                      
                      June
      30,
                        2008Deferred
      financing costs, as previously reported
                      
                      $
                      586,818Deferred
      financing costs, as restated
                      
                      
                      -Total
      assets, as previously reported
                      
                      
                      38,305,082Total
      assets, as restated
                      
                      
                      37,718,264Shareholders’
      equity, as previously reported
                      
                      
                      19,390,416Shareholders’
      equity, as restated
                      
                      
                      18,803,598Total
      liabilities and shareholders’ equity, as previously
    reported
                      
                      
                      38,305,082Total
      liabilities, redeemable preferred stock and shareholders’ equity, as
      restated
                      
                      
                      37,718,264
 
 See
report of independent registered public accounting firm.
 
 48
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 Basis of
presentation
 
 The
Company’s accounting policies used in the preparation of the accompanying
consolidated financial statements conform to accounting principles generally
accepted in the United States of America ("US GAAP") and have been consistently
applied.
 
 Principles of
consolidation
 
 The
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.
46R (“FIN 46R”), 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 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 to Paragraph 5 of FIN 46(R), the Company
determined Xin Ao is a variable interest entity subject to consolidation under
the Interpretation and the Company is the primary beneficiary. Accordingly, the
financial statements of Xin Ao are included in the consolidated financial
statements of the Company.
 
 Company reporting year
end
 
 For US
financial statement reporting purposes beginning from 2006, the Company has
adopted June 30 as its fiscal year end.
 
 Foreign currency
translation
 
 The
reporting currency of the Company is the US dollar. The functional currency of
China ACM and BVI-ACM is the US dollar. China-ACMH and Xin Ao use their local
currency Chinese Renminbi (“RMB”) as their functional currency. According to
Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency
Translation,” 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 statement of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheets.
 
 See
report of independent registered public accounting firm.
 
 49
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 Accumulated
other comprehensive income in the consolidated statement of shareholders’ equity
amounted to $ 2,598,466 and $659,922 as of June 30, 2008 and 2007, respectively.
Asset and liability accounts at June 30, 2008 and 2007 were translated at 6.85
RMB and 7.60 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 years ended June 30, 2008 and 2007
were 7.26 RMB and 7.81 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. No material transaction
gain or loss for the years ended June 30, 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:
 
 ·
              Persuasive
      evidence of an arrangement exists (the Company considers its sales
      contracts 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
 ·
              Collectibility
      of payment is reasonably assured.
 
 The
Company sells its products mainly 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 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 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.
 
 See
report of independent registered public accounting firm.
 
 50
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
  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.
 
 Shipping and
handling
 
 Shipping
and handling costs related to costs of the raw materials purchased is 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 carrying value of accounts receivable and related allowance
for doubtful accounts. Actual results could be materially different from those
estimates.
 
 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 amount 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.
 
 Concentration of
risk
 
 ·
              Cash
      - Cash includes cash on hand and demand deposits in accounts maintained
      with state owned banks within the People’s Republic of China. The Company
      considers all highly liquid instruments purchased with original maturities
      of three months or less, and money market account, to be cash equivalents.
      Total cash in these banks at June 30, 2008 and 2007 amounted to $1,795,388
      and $1,424,883, respectively, of which no deposits were covered by
      insurance. Also, as of June 30, 2008, the Company held $913,092 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. The Company has not experienced, nor dose it
      anticipate, nonperformance by the
institutions.
 
 See
report of independent registered public accounting firm.
 
 51
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 ·
              Major
      customers and suppliers - For the year ended June 30, 2008, one customer
      accounted for approximately 17% of the Company's sales and 16% of the
      Company’s accounts receivable as of June 30, 2008. For the year ended June
      30, 2007, three customers accounted for approximately 40% of the Company's
      sales, and approximately 47% of the Company’s accounts receivable as of
      June 30, 2007. For the year ended June 30, 2008, one supplier accounted
      for approximately 26% of the Company’s purchases to this supplier as of
      June 30, 2008. For the year ended June 30, 2007, four suppliers accounted
      for approximately 90% of the Company's purchases. These four suppliers
      represent approximately 21% of the Company's total accounts payable
      balance as of June 30, 2007.
 
 ·
              Political
      and economic risks - The Company's operations are carried out in the PRC.
      Accordingly, the Company's business, financial condition, and results of
      operations may be influenced by the political, economic, and legal
      environments in the PRC, and by the general state of the PRC's economy.
      The Company's operations in the PRC are subject to specific considerations
      and significant risks not typically associated with companies in North
      America and Western Europe. These include risks associated with, among
      others, the political, economic, and legal environments, and foreign
      currency exchange. The Company's results may be adversely affected by
      changes in governmental policies with respect to laws and regulations,
      anti-inflationary measures, currency conversion and remittance abroad, and
      rates and methods of taxation, among
others.
 
 Restricted
Cash
 
 The
Company restricted cash totaled $913,092 and $0 as of June 30, 2008 and 2007,
respectively. 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 miscellaneous professional fees (see Note 11). Restricted cash
is classified in current assets as of June 30, 2008, based on the time period
funds are expected to be used.
 
 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 June 30, 2008, the Company determined no
reserves were necessary.
 
 See
report of independent registered public accounting firm.
 
 52
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 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 asset 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 statement
of income.
 
 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 to reduce the related assets to
their net realizable value. The Company believes no impairment exists at June
30, 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. 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 receivables. The bifurcation between current and
noncurrent portions of accounts receivable is based on management’s estimate and
predicated on historical collection experience.
 
 See
report of independent registered public accounting firm.
 
 53
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 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 we are 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.
 
 In
accordance with APB 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 FAS 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 United States, the Company did not have
any provision for income taxes including any deferred income taxes, as of and
for the years ended June 30, 2008 and 2007.
 
 See
report of independent registered public accounting firm.
 
 54
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 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 likely 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 affect on the
Company’s financial statements.  There are no deferred tax amounts as
of June 30, 2008 and 2007.
 
 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 entitles the
Company to an income tax exemption from January 1, 2003, through December 31,
2007, as granted by the State Administration of Taxation of the PRC. 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 income tax exemption granted to the Company
was eliminated after December 31, 2007. The Company is currently evaluating the
effect of the new EIT law will have on its financial position.
 
 PRC law
requires that before a foreign invested enterprise can legally distribute
profits to its partners, 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 and 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 years ended June 30, 2008 and 2007:
 
 See
report of independent registered public accounting firm.
 
 55
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 2008
                        
                        
                        2007U.S.
      statutory rates
                        
                        
                        34.0
                        %
                        
                        
                        34.0
                        %Foreign
      income not recognized in U.S.
                        
                        
                        (34.0
                        )
                        
                        
                        (34.0
                        )China
      income taxes
                        
                        
                        25.0
                        
                        
                        
                        33.0China
      income tax exemption
                        
                        
                        (9.3
                        )
                        
                        
                        (33.0
                        )Effective
      income tax rates
                        
                        
                        15.7
                        %
                        
                        
                        -
                        %
 
 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. The Company does not
have any intangible assets. Therefore, there were no deferred tax assets or
liabilities during the years ended June 30, 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 period ended June 30, 2008 and 2007.
 
 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 years ended June 30, 2008 and 2007, $1,586,192 and $1,264,952,
respectively, was recognized as other subsidy income from VAT taxes
collected.
 
 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 approximately $6,000 and $165,000 for the years ended June 30, 2008
and 2007, respectively.
   
 56
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 Earnings per share
  Basic
earnings per common share is computed on the basis of the weighted average
number of common shares outstanding during the period.  Diluted
earnings per share is computed on the basis of the weighted average number of
common shares and dilutive securities (such as warrants and convertible
preferred stock) outstanding. Dilutive securities having an anti-dilutive effect
on diluted earnings per share are excluded from the calculation.
 
 Comprehensive
income
 
 SFAS No.
130 (“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.
 
 Recently issued accounting
pronouncements
 
 SFAS No.
157, “Fair Value Measurements.” defines fair value, establishes a three-level
valuation hierarchy for disclosures of fair value measurement and enhances
disclosures requirements for fair value measures. The carrying amounts reported
in the balance sheets for receivables and payables qualified as financial
instruments and are a reasonable estimate of fair value because of the short
period of time between the origination of such instruments and their expected
realization and their current market rate of interest. The three levels are
defined as follow:
 
 ·
 
 ·
 
 ·
 
 The
provisions of SFAS No. 157 are effective for financial statements issued for
fiscal years beginning after November 15, 2007.The Company is currently
evaluating the impact on its consolidated financial position or result of
operations.
  
 57
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 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 is currently
evaluating the impact, if any, that the adoption of SFAS 159 will have on its
consolidated results of operations and its financial position.
 
 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 not
determined the effect that the application of SFAS 160 will have 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.
  
 58
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 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. The Company is currently evaluating the impact
that EITF 07-5 will have on its consolidated financial position or result of
operations.
 
 In June
2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
Changes to Issue No. 98-5 (“EITF No. 08-4”)”. The objective of EITF No.08-4
is to provide transition guidance for conforming changes made to EITF No. 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios”, that result from EITF No. 00-27
“Application of Issue No. 98-5 to Certain Convertible Instruments”, and SFAS No.
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 No. 08-4.
 
 Note
3 - Supplemental disclosure of cash flow information
 
 During
the years ended June 30, 2008 and 2007, the Company paid interest totaling
$310,875 and $811,661, respectively.
 
 Non-cash transactions in
2008
 The
Company assigned accounts receivables totaling $13,769 as payment to holders of
amounts due whose balances were included in other payables.
 
 The
Company assigned accounts receivables totaling $6,069,802 as payment to
suppliers whose balances were included in accounts payable.
 
 The
company transferred $7,260,000 in undistributed profits to reduce amounts owed
to the Company and included in contributed receivable. See Note 11.
 
 Non-cash transactions in
2007
 
 The
Company assigned accounts receivables totaling $13,776,694 and other receivables
totaling $1,337,371 as payment to suppliers whose balances were included in
accounts payable.
  
 59
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 
 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 are included in other income
(expense) and, when applicable, are reported as a reclassification adjustment in
other comprehensive income. Gains and losses on the sale of securities are
determined using the specific-identification method.
 
 There
were no realized gains or losses from the sale of marketable securities for the
years ended June 30, 2008 and 2007. The Company determines cost on the specific
identification method. Unrealized gains (losses) totaling ($12,482) and $8,523
were recorded as other comprehensive income for the years ended June 30, 2008
and 2007, respectively.
 
 Note
5 – Accounts receivable, trade
 
 Accounts
receivable, trade, are generated from concrete products sold and technological
consulting services provided to clients. The payment terms are defined in
contracts. Over 80% of our receivables are due within a year by contract and are
classified as current assets on the balance sheet. For some large construction
projects that take years to complete, we may provide extended payment terms to
the general contractors. These contractors are usually large state-owned
builders with good credit rating. Sales and accounting departments together
evaluate at each period end the aging, structure and collectibility of accounts
receivable and for these receivables that are past due or not being paid
according to payment terms, we will take actions including sending out past due
notice, strengthening collections efforts, lowering the client's credit rating,
seeking legal resolution in a court of law, and increasing allowance for bad
debt.
 
 Accounts
receivable and allowance for doubtful accounts consist of the
following:
 
 June
      30,
                    2008
                  
                  
                  June
      30,
                    2007Accounts
      receivable, current
                  
                  $
                  9,590,410
                  
                  
                  $
                  12,441,522Less:
      allowance for doubtful accounts, current
                  
                  
                  (224,924
                  )
                  
                  
                  (53,038
                  )Net
      accounts receivable, current
                  
                  
                  9,365,486
                  
                  
                  
                  12,388,484Accounts
      receivable, non-current
                  
                  
                  5,164,067
                  
                  
                  
                  2,340,495Less:
      allowance for doubtful accounts, non-current
                  
                  
                  (411,061
                  )
                  
                  
                  (96,929
                  )Net
      accounts receivable, non-current
                  
                  
                  4,753,006
                  
                  
                  
                  2,243,566Total
      accounts receivable, net
                  
                  $
                  14,118,492
                  
                  
                  $
                  14,632,050
  
 60
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 Note
6 – Plant and equipment
 
 Plant and
equipment consist of the following:
 
 June
      30, 2008
                    
                    
                    June
      30, 2007Transportation
      equipment
                    
                    $
                    13,298,674
                    
                    
                    $
                    4,293,503Capital
      lease equipment
                    
                    
                    6,988,192
                    
                    
                    
                    5,795,553Plant
      machinery
                    
                    
                    1,894,585
                    
                    
                    
                    1,661,569Office
      equipment
                    
                    
                    43,057
                    
                    
                    
                    37,861Construction-
      in-progress
                    
                    
                    295,033
                    
                    
                    
                    198,565Total
                    
                    
                    22,519,541
                    
                    
                    
                    11,987,051Less:
      accumulated depreciation
                    
                    
                    (5,789,321
                    )
                    
                    
                    (4,092,175
                    )Plant
      and equipments, net
                    
                    $
                    16,730,220
                    
                    
                    $
                    7,894,876
 
 In March
2004, The Company leased 37 concrete mixing trucks under non cancelable capital
lease agreements. As of June 30, 2008 and 2007, all capital lease obligations
were fully paid. The amount of transportation equipment capitalized under such
agreements and related accumulated depreciation are included in the table
above.
 
 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. The Company expects that
the construction of the new plant will be completed by December 2008. As of June
30, 2008 and 2007, $16,248 and 14,663, respectively, of interest was capitalized
into construction in progress.
 
 Depreciation
expense for the years ended June 30, 2008 and 2007 amounted to $1,178,745 and
$1,091,740, respectively. Accumulated depreciation on leased equipment amounted
to approximately $ 2,710,836 and $1,894,791, respectively.
 
 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 June 30, 2008 and 2007, the outstanding balances on these loans
were $4,271,222 and $5,876,735, respectively, and these loans consisted of the
following:
  
 61
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 June
      30,
                                          
                                          
                                          June
      30,2008
                                          
                                          
                                          2007Loan
      from Huaxia Bank, with effective annual interest rate of 7.866%, due
      August 10, 2008, guaranteed by Company’s shareholder Mr. Han
      Xianfu.
                                          
                                          $
                                          2,918,000
                                          
                                          
                                          $
                                          -Loan
      from Huaxia Bank, with effective annual interest rate of 6.7275%, due July
      11, 2007, guaranteed by an unrelated company.
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2,630,000Loan
      from Beijing Rural Commercial Bank, with effective annual interest rate of
      7.956%, due on August 20, 2007, guaranteed by a financing company in
      exchange for a fee of 2.5% of the face amount of the loan.
                                          
                                          
                                          -
                                          
                                          
                                          
                                          3,024,500Loan
      from unrelated company Beijing Hengxin Huaxing Auto Accessories Company,
      with no interest, due upon demand, unsecured.
                                          
                                          
                                          379,340
                                          
                                          
                                          
                                          -Loan
      from unrelated company Beijing Hongda Huaxin Wujinjidian Company, with no
      interest, due upon demand, unsecured.
                                          
                                          
                                          204,260
                                          
                                          
                                          
                                          -Loan
      from unrelated company, Beijing Sigi Qingbaosan Cement Company, with no
      interest, due upon demand, unsecured.
                                          
                                          
                                          116,720
                                          
                                          
                                          
                                          -Loan
      from unrelated individual Xia Hua Qing, with no interest, due on demand,
      no guarantee or collateral required.
                                          
                                          
                                          128,392
                                          
                                          
                                          
                                          -Loan
      from various employees, with effective annual interest rate of 20%, due
      upon demand, unsecured.
                                          
                                          
                                          524,510
                                          
                                          
                                          
                                          222,235Total
      short term loans
                                          
                                          $
                                          4,271,222
                                          
                                          
                                          $
                                          5,876,735
 
 Total
interest expense on short-term loans for the years ended June 30, 2008 and 2007
amounted to $310,875 and $682,688, respectively.
 
   62
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 Note
8– Other payables – shareholder
 
 Beginning
in July 2007, one of the Company’s shareholders, leased an office to the
Company. For the year ended June 30, 2008, the Company recorded rent expense of
$162,827, of which $129,402 remained unpaid as of June 30, 2008 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 interest in BVI-ACM, respectively, together loaned $750,900 to
BVI-ACM on March 12, 2008 for cash flow purposes. This is a non-interest bearing
loan, unsecured, and is payable on demand.
 
 Total
other payables - shareholders are as follows:
 
 June
      30, 2008
                  
                  
                  June
      30, 2007Han
      Xianfu, shareholder
                  
                  $
                  450,550
                  
                  
                  $
                  -He
      Weili, shareholder
                  
                  
                  429,752
                  
                  
                  
                  -Total
      other payable – shareholder
                  
                  $
                  880,302
                  
                  
                  $
                  -
 
 Note
9– Taxes payable
 
 Corporate income
taxes
 
 Companies
established before March 16, 2007 will continue to enjoy tax holiday treatment
approved by local government for a grace period of either for the next 5 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 years ended June 30, 2008 and 2007, the provision
for income taxes amounted to $1,012,382 and $0, respectively.  The
estimated tax savings due to this tax exemption for the years ending June 30,
2008 and 2007 amounted to $832,255 and $1,286,358, respectively.If the income
tax had been applied, for the year ended June 30, 2008, the basic and diluted
earnings per share will decrease by $0.10 and $0.09, respectively. For the year
ended June 30, 2007, the basic and diluted earnings per share will decrease by
$0.14.
 
 Taxes
payable consisted of the following:
 
 June
      30, 2008
                      
                      
                      June
      30, 2007Income
      taxes payable
                      
                      $
                      1,072,747
                      
                      
                      $
                      -Other
                      
                      
                      490
                      
                      
                      
                      661Total
      taxes payable
                      
                      $
                      1,073,237
                      
                      
                      $
                      661
  
 63
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 The
Company did not make any income tax payments during the years ended June 30, 2008 and
2007.
 
 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, whether or not the Company has
profits.
 
 The
Company received net proceeds of $5,223,291with $930,000 in an escrow and after
payment of certain fees and expenses. From the offering. $497,500 was paid to
Maxim Group LLC (“Maxim”) who served as the placement agent for the transaction,
$60,000 was paid to the attorney, and $45,000 was paid for a finance fee for the
purchasers in connection with the transaction.  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 value of the warrants issued to the placement agent was
calculated as $169,345 using the CRR Binomial Model. The fair value of these
warrants of $169,345, together with the cash expenses of the offering of
$602,500, were charged to additional paid-in capital.
 
 The
carrying value of the mandatorily redeemable preferred stock was $5,831,452, net
of outstanding discount of $1,168,548 at June 30, 2008.
 
 The
warrants will be 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.
  
 64
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 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 US public company due
to limited trading history of the common stock. The risk-free interest rate was
based on Treasury Constant Maturity Rates published by the U.S. Federal Reserve
for periods applicable to the expected life of the warrants. The expected
dividend yield was based on the Company’s current and expected dividend policy
and the expected term is equal to the contractual life of the
warrants.
 
 Following
is a summary of the status of warrants outstanding:
 
 Outstanding
      Warrants
                            
                            Exercisable
      WarrantsExercise
                              Price
                            
                            
                            Number
                            
                            Average
                              Remaining
                              Contractual
                              Life
                            
                            Average
                              Exercise
                              Price
                            
                            
                            Number$2.40
                            
                            
                            
                            1,750,000
                            
                            4.95
      years
                            
                            $
                            2.40
                            
                            
                            
                            1,750,000$2.40
                            
                            
                            
                            245,000
                            
                            4.95
      years
                            
                            $
                            2.40
                            
                            
                            
                            245,000Total
                            
                            
                            
                            1,995,000
                            
                            
                            
                            
                            
                            
                            
                            
                            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
                    
                    
                    1,995,000
 
 Additionally,
the Company's officers, directors and majority shareholders, Xianfu Han and
Weili He, entered into a Lock-Up Agreement with the investors whereby both
Xianfu Han and Weili He agreed they will not, offer, pledge, sell or otherwise
dispose of any shares of 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 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.
   
 65
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
  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 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 determined that the
threshold for the year ended June 30, 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, 000,000) to $12,100,000 (RMB100,
000,000). The increase in registered capital of $8,470,000 (RMB70,000,000) was
funded by the undistributed profits as of June 30, 2005. Since Xin Ao did not
have sufficient undistributed profits from June 30, 2005, based on the PRC
government regulation, all companies need to record its capital in accordance
with the business license, 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.
 
 At the
inception of BVI-ACM, BVI-ACM issued 10,000 shares of common stock to its
founding shareholders. The shares were issued at par value or $0.01 per
share.
 
 On
November 23, 2007, BVI-ACM established a 100% subsidiary, Beijing Ao Hang
Construction Material Technology Co., Ltd. (“China-ACMH”), in PRC as a wholly
owned foreign limited liability company with registered capital of $5 million.
According to the laws of PRC, BVI-ACM is required to pay 15% of $5 million by
February 22, 2008 and the remaining balance by November 22, 2009.
 
 On March
30, 2008, Xin Ao’s board of directors approved to transfer $7,260,000 from
undistributed retained earnings into registered capital. Concurrently,
China-ACMH made a payment of $5 million and BVI-ACM made a payment of $100. As
of June 30, 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
      at 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
      at June 30, 2008
                      
                      $
                      1,210,000
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      1,210,000
 
   66
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 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
shareholders. For the years ended June 30, 2008 and 2007, the Company
transferred $556,145 and $389,805 to this reserve in accordance with PRC
accounting rules and regulations.
 
 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 a foreign invested enterprise.
Approval by the Chinese government must be obtained before distributions of
these amounts can be returned to the shareholders.
 
   67
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 Note
13 – Earnings Per Share
 
 The
following demonstrates calculation of the differences between basic and diluted
earnings per common share for the years ended June 30, 2008 and
2007:
 
 2008
                                          
                                          
                                          2007Basic
      earning per shareNet
      income available to common shareholders
                                          
                                          $
                                          5,130,797
                                          
                                          
                                          $
                                          3,898,053Weighted
      average shares outstanding-Basic
                                          
                                          
                                          9,064,359
                                          
                                          
                                          
                                          8,809,583Earnings
      per share-Basic
                                          
                                          $
                                          0.57
                                          
                                          
                                          $
                                          0.44Diluted
      earning per shareNet
      income available to common shareholders
                                          
                                          $
                                          5,130,797
                                          
                                          
                                          $
                                          3,898,053Add:
      Accretion on preferred stock
                                          
                                          
                                          33,387
                                          
                                          
                                          
                                          -Net
      income for diluted EPS
                                          
                                          $
                                          5,164,184
                                          
                                          
                                          $
                                          3,898,053Weighted
      shares outstanding-Basic
                                          
                                          
                                          9,064,359
                                          
                                          
                                          
                                          8,809,583Convertible
      preferred stock
                                          
                                          
                                          191,257
                                          
                                          
                                          
                                          -Weighted
      average shares outstanding-Diluted
                                          
                                          
                                          9,255,616
                                          
                                          
                                          
                                          8,809,583Earning
      per share-Diluted
                                          
                                          $
                                          0.56
                                          
                                          
                                          
                                          0.44
 
 On June
11, 2008, the Company issued 875,000 shares of preferred stock, each of which
can be converted into four shares of common stock. The convertible preferred
stock is mandatorily redeemable for cash at the end of two years if not yet
converted. As of June 30, 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.  The
weighted average common shares outstanding for the period ended June 30, 2008,
based on the June 11, 2008 issuance date of the preferred, were
191,257.  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  Warrants to purchase 1,995,000 shares
of common stock at $2.40 per share, issued on June 11, 2008, were outstanding at
June 30,  2008 but were not included in the computation of diluted EPS
because the exercise price was greater than the average market price of the
common shares during the period.
  
 68
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 Note
14 – Employee pension
 
 The
Company offers a discretionary pension fund, a defined contribution plan, to
qualified employees. The pension includes two parts: the first to be paid by the
Company is 20% of the employee’s actual salary in the prior year. The other
part, paid by the employee, is 8% of the actual salary. The Company made $42,273
and $4,537 in contributions of employment benefits, including pension for the
years ended June 30, 2008 and 2007, respectively.
 
 Note
15 – Operating leases
 
 The
Company leases manufacturing plant, office space, and employee dorms from
related and unrelated parties. Total operating lease expense for the years ended
June 30, 2008 and 2007 was $309,840 and $147,646, respectively, and is included
in selling, general, and administrative expenses. Future minimum lease payments
under noncancellable operating leases with a term of one year or more consist of
the following:
   Year
      ended June 30,
                        
                        Amount2009
                        
                        $
                        372,2932010
                        
                        
                        196,5862011
                        
                        
                        49,1462012
                        
                        
                        -2013
                        
                        
                        -Thereafter
                        
                        
                        -
 
 Note
16 – Commitments and contingencies
 
 Litigation
 
 From time
to time, the Company becomes involved in various lawsuits and legal proceedings
which arise in the ordinary course of business.
  Following
is the summary of the current litigation as of June 30, 2008:
  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 (RMB2 million) for the cement supplied by
Xin Ao between March 2005 and June 2005 and compensatory damages of
approximately $23,500 (RMB171 thousand) 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 June 30, 2008, the Company
has not received the damage payment from Boda, and management has estimated that
the collectability of the receivable is deemed low, therefore, the Company wrote
off the amount from its book.
  
 69
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30,
2008
 
 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
(“Shangdi”) Yunwei Zhang in Beijing District Court seeking payment of
approximately $112,000 (RMB814 thousand 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.
Xinao is responsible for approximately $39,000 (approximately RMB 273,000) for
the damages.
 
 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. In
accordance with FSP EITF 00-19-2, registration rights penalties should be
accounted for under FAS 5 (i.e., 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 they were not “probable” at inception on June 11, 2008 and that any
penalties are not “probable” at fiscal year end June 30, 2008. Accordingly, no
accrual for any penalties has been made. The Company will continually re-assess
whether the payment of any penalties is “probable” and, if it becomes “probable”
that penalties will be incurred, the estimated amount of those penalties will be
accrued.
 
 Note
17 – Subsequent Events
 
 Short-term loan
repayment
 
 The
Company repaid the bank loan in the amount of approximately $2.9 million (RMB20
million) to Huaxia Bank on August 10, 2008, in accordance with the terms and
conditions established by the loan agreement.
  On
October 3, 2008, the Company entered into a one year director agreement with Mr.
Jeremy Goodwin in connection with his services as a member of the board of
directors, subject to a third party background check. The agreement
provided a stock option to purchase a total of 50,000 shares of
the Company's common stock at an exercise price of $2.90 per share. Each
quarter 12,500 options vest and become exercisable.
 
 On
December 1, 2008, the Company entered into a three year agreement with a Company
Executive. In connection with his services, the Company issued a total of
200,000 shares 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 Employment Term of the Executive.
 
 70


Item
9.        Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure




Prior to
our reverse acquisition transaction with BVI-ACM, our independent registered
public accounting firm was Li & Company, PC, while BVI-ACM’s independent
registered public accounting firm was Moore Stephens Wurth Frazer and Torbet,
LLP, or Moore Stephens. On May 1, 2008, concurrent with the change in control
transaction discussed above, our board of directors approved the dismissal of Li
& Company, as our independent auditor, effective immediately. Concurrent
with the decision to dismiss Li & Company as our independent auditor, our
board of directors elected to continue the existing relationship of BVI-ACM with
Moore Stephens and appointed Moors Stephens as our independent
auditor.




Li &
Company’s reports on the our financial statements as of and for the fiscal years
ended December 31, 2007 and 2006, did not contain an adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles, except that its report for the fiscal
year ended December 31, 2007 contained a going concern qualification as to our
ability to continue.





In
connection with the audits of the fiscal years ended December 31, 2007 and 2006,
and during the subsequent interim period through March 31, 2008, there were (1)
no disagreements with Li & Company on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements, if not resolved to the satisfaction of Li & Company,
would have caused Li & Company to make reference to the subject matter of
the disagreements in connection with its reports, and (2) no events of the type
listed in paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation
S-K.





During
the fiscal years ended June 30, 2007 and 2006 and through the date hereof,
neither us nor anyone acting on our behalf consulted Moore Stephens with respect
to (i) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on our financial statements, and neither a written report was provided
to us or oral advice was provided that Moore Stephens concluded was an important
factor considered by us in reaching a decision as to the accounting, auditing or
financial reporting issue; or (ii) any matter that was the subject of a
disagreement or reportable events set forth in Item 304(a)(1)(iv) and (v),
respectively, of Regulation S-K.





We
provided Li & Company with a copy of this disclosure on May 1, 2008,
providing Li & Company with the opportunity to furnish us with a letter
addressed to the SEC stating whether it agrees with the statement made by us
herein in response to Item 304(a) of Regulation S-K and, if not, stating the
respect in which it does not agree. A letter from Li & Company dated May 1,
2008 was filed by us as Exhibit 16.1 to our current report on Form 8-K on May 5,
2008.




Item
9A(T). Controls and Procedures




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


71




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
June 30, 2008, the year 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. 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 annual report.




Management's Report on Internal
Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act.  Our management is also required to
assess and report on the effectiveness of our internal control over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002
(“Section 404”).   Management assessed the effectiveness of our
internal control over financial reporting as of June 30, 2008.  In
making this assessment, we used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control - Integrated Framework.  During our assessment of the
effectiveness of internal control over financial reporting as of June 30, 2008,
management identified significant deficiencies related to the
following:





1.  Accounting and Finance
Personnel Weaknesses - US GAAP expertise - 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. The accounting skills and understanding necessary to fulfill the
requirements of U.S. GAAP-based reporting, including the skills of subsidiary
financial statements consolidation, are inadequate and were inadequately
supervised. The lack of sufficient and adequately trained accounting and finance
personnel resulted in an ineffective segregation of duties relative to key
financial reporting functions.




2.  Lack of internal audit
function - 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.





3.  Lack of Internal Audit
System - The Company lacked an internal audit department, which was
ineffective in preventing and detecting control lapses and errors in the
accounting of certain key areas like revenue recognition, purchase approvals,
inter-company transactions, cash receipt and cash disbursement authorizations,
inventory safeguard and proper accumulation for cost of products, in accordance
with the appropriate costing method used by the company.





During
most of fiscal year ended June 30, 2008, our internal accounting staff was
primarily engaged in ensuring compliance with PRC accounting and reporting
requirements for our operating subsidiaries and was not required to meet or
apply U.S. GAAP requirements.  As a result, our current accounting
department responsible for financial reporting of the Company, on a consolidated
basis, is relatively new to U.S. GAAP and the related internal control
procedures required of U.S. public companies.  Although our accounting
staff is professional and experienced in accounting requirements and procedures
generally accepted in the PRC, management has determined that they require
additional training and assistance in U.S. GAAP matters.  Management
has determined that our internal audit function is also significantly deficient
due to insufficient qualified resources to perform internal audit
functions.  Finally, management determined that the lack of an Audit
Committee of the board of directors of the Company also contributes to
insufficient oversight of our accounting and audit functions.


72





In order
to correct the foregoing deficiencies, we have taken the following remediation
measures:




1.  Hiring
additional accounting and operations personnel and engaging outside contractors
with technical accounting expertise, as needed, and reorganizing the accounting
and finance department to ensure that accounting personnel with adequate
experience, skills and knowledge relating to complex, non-routine transactions
are directly involved in the review and accounting evaluation of our complex,
non-routine transactions.




2.  Involving
both internal accounting and operations personnel and outside contractors with
technical accounting expertise, as needed, early in the evaluation of a complex,
non-routine transaction to obtain additional guidance as to the application of
generally accepted accounting principles to such a proposed
transaction.




3.  Requiring
senior accounting personnel and the principal accounting officer to review
complex, non-routine transactions to evaluate and approve the accounting
treatment for such transactions.




4.  Interviewing
prospective new Directors for our Board, including a member who is appropriately
credentialed as a financial expert with a goal to establish both an Audit and
Compensation committee as well as sufficient independent Directors.




5.
Evaluating the internal audit function in relation to the Company’s financial
resources and requirements.




We
believe that the foregoing steps will remediate the significant deficiency
identified above, and we will continue to monitor the effectiveness of these
steps and make any changes that our management deems appropriate.





A
material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis.  A significant deficiency is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting that is less severe than a material weakness, yet important enough to
merit attention by those responsible for oversight of the company's financial
reporting.




Our
management is not aware of any material weaknesses in our internal control over
financial reporting, and nothing has come to the attention of management that
causes them to believe that any material inaccuracies or errors exist in our
financial statements as of June 30, 2008.  The reportable conditions
and other areas of our internal control over financial reporting identified by
us as needing improvement have not resulted in a material restatement of our
financial statements.  Nor are we aware of any instance where such
reportable conditions or other identified areas of weakness have resulted in a
material misstatement or omission in any report we have filed with or submitted
to the Commission.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate.





Auditor
Attestation





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this annual report.


73





Changes
in Internal Controls over Financial Reporting




Except as
described above, there were no changes in our internal controls over financial
reporting during fiscal year 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.




Item
9B.     Other Information




None.




PART
III




Item
10.      Directors, Executive Officers and Corporate
Governance




The
following individuals serve as the directors and executive officers of our
company as of the date of this amended annual report. All directors of our
company hold office until the next annual meeting of our shareholders or until
their successors have been elected and qualified. The executive officers of our
company are appointed by our board of directors and hold office until their
death, resignation or removal from office.





Name
            
            Age
            
            PositionXianfu Han
            
            50
            
            Chairman, Chief Executive Officer and DirectorWeili He
            
            52
            
            Chief Operating Officer, Vice Chairman and DirectorXiangsheng Xu
            
            47
            
            President, DirectorChin Hsiao
            
            45
            
            Chief Financial OfficerJeremy Goodwin
            
            35
            
            Director





Xianfu Han. Mr. Han became our
Chairman and Chief Executive Officer on April 29, 2008. From January 2003 to
present, Mr. Han has worked with Xin Ao as Chairman of the Board of Directors.
His main responsibilities include daily board leadership and strategy
initiatives. Since November 2002, Mr. Han has been Chairman at Beijing Tsinghua
University Management School’s Weilun Club. His responsibilities involve daily
management work. From January 2001 to March 2007, Mr. Han acted as Executive
Vice Chairman of the Beijing Concrete Association. His primary functions
involved public relations and communication with various governmental and
agencies. Mr. Han is a senior engineer with over 25 years of management
experience in the building material industry. He contributed to the draft of the
"Local Standard of Mineral Admixtures" regulations and was responsible for the
"Research and Application of Green High Performance Concrete" published by the
Ministry of Construction.




Mr. Han
graduated in 1995 from the Tsinghua University executive MBA program. Mr. Han
received his Bachelor degree in engineering management in 1992 from Northern
China University of Technology.




Weili He. Mr. He became our
Vice-Chairman and Chief Operating Officer on April 29, 2008. From August 2007 to
present, Mr. He has worked as Vice Chairman of the Board of Directors of Xin Ao.
His primary responsibility is large client development. From January 2003 to
August 2007, Mr. He worked as Chairman of the Board of Directors of Beijing
Xinhang Construction Materials Co., Ltd. His primary responsibilities included
strategic planning. Since 2007, Mr. He has served as a Vice Chairman of the
Beijing Concrete Association. His primary functions include market research. Mr.
He has extensive construction and concrete engineering experience in China and
Japan on numerous high profile projects. His primary expertise is plant
management and operations. Mr. He received a bachelor’s degree in law from Party
School of the Central Committee of C.P.C.




Xiangsheng (Norman) Xu. Mr. Xu
became our President and Director on April 29, 2008. From March 2006 to present,
Mr. Xu has served as Chief Executive Officer of Xin Ao. His primary
responsibilities include corporate strategy, general management and daily
operations. From February 2003 to February 2006, Mr. Xu worked at the
Enterprises Institute at State Development and Research Center under the State
Council and was in charge of the New Enterprises Development program. Since May
2007, Mr. Xu has served as an independent director of Guangxi Shunshine Real
Estate Development Co., Ltd.


74





Mr. Xu
received his MBA degree from Renmin University in Beijing, China and has been a
researcher within the Institute of Corporate Culture at Beijing
University.





Chin Hsiao. Mr. Hsiao became
our Chief Financial Officer on of December 1, 2008. Prior to his appointment
with us, Chin Hsiao served as Controller of Milligan and Company, LLC from 2000
to 2008, where he managed the overall accounting and financial reporting
functions as well as the company’s internal control processes. From 1997 to
1999, he served as Finance Manager for J&J Snack Foods Corporation where he
was responsible for financial reporting and SEC schedule preparation. From 1995
to 1997, he served as Accounting Supervisor of RCN Corporation and as the Senior
Operation Analyst at ARAMARK Corporation from 1992 to 1995. Mr. Hsiao has over
15 years of experience in corporate finance and management.





Mr. Hsiao
received his B.S. degree from Drexel University in Philadelphia, and he is also
a certified public accountant in the U.S.





Jeremy Goodwin. Mr. Goodwin
became a member of our Board of Directors as of October 6, 2008. He has
extensive experience in finance advising multi-national and Asian companies on
key corporate initiatives such as M&A, debt and equity financing,
restructuring, privatization and business expansion. Since 2006, Mr. Goodwin has
been Managing Partner of 3G Capital Partners, a corporate finance advisory firm,
and was a Vice President of Global Capital Group Enterprises, from 2002 to 2005
where he and his team advised Changzhou Xingrong Copper on its $20 million sale
to Mueller Industries, Inc. From 1999 to 2001, Mr. Goodwin was with the ING
Beijing Investment arm of Baring Private Equity Partners in Hong Kong. In
addition, from 1997 to 1998, Mr. Goodwin worked at ABN Amro in Beijing, where he
assisted notable clients such as Royal Dutch Shell Oil and Beijing Capital
International Airport with its listing on the Hong Kong stock
exchange.





Mr.
Goodwin began his career at Mees Pierson Investment Finance S.A., a Geneva based
investment fund private placement firm. He earned a Bachelor of Science degree
from Cornell University and is fluent in Mandarin.





Committees
and Meetings





The board
of directors is currently composed of 3 people. All board action requires the
approval of a majority of the directors in attendance at a meeting at which a
quorum is present. We intend to increase the size of our board of directors in
fiscal year 2009.




We
currently do not have standing audit, nominating or compensation committees. Our
entire board of directors handles the functions that would otherwise be handled
by each of the committees. We intend, however, to establish an audit committee,
a nominating committee and a compensation committee of the board of directors as
soon as practicable. We envision that the audit committee will be primarily
responsible for reviewing the services performed by our independent auditors,
evaluating our accounting policies and our system of internal controls. The
nominating committee would be primarily responsible for nominating directors and
setting policies and procedures for the nomination of directors. The nominating
committee would also be responsible for overseeing the creation and
implementation of our corporate governance policies and procedures. The
compensation committee will be primarily responsible for reviewing and approving
our salary and benefit policies (including equity plans), including compensation
of executive officers.




Upon the
establishment of an audit committee, the board will determine whether any of the
directors qualify as an audit committee financial expert.





Family
Relationships





There are
no family relationship among any of our officers or directors.





Involvement
in Certain Legal Proceedings




To the
best of our knowledge, none of our directors or executive officers has been
convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, or has been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws, except for matters that were dismissed without
sanction or settlement. Except as set forth in our discussion below in “Certain
Relationships and Related Transactions,” none of our directors, director
nominees or executive officers has been involved in any transactions with us or
any of our directors, executive officers, affiliates or associates which are
required to be disclosed pursuant to the rules and regulations of the
SEC.





Code
of Business Conduct and Ethics





We
currently do not have a code of ethics that applies to our officers, employees
and directors, including our Chief Executive Officer and senior
executives.




Item
11.      Executive Compensation




Summary
Compensation Table— Fiscal Years Ended June 30, 2008 and 2007





The
following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to the named persons for services
rendered in all capacities during the noted periods. No other executive officers
received total annual salary and bonus compensation in excess of $100,000 during
the fiscal years ended June 30, 2008 and 2007.




Name and
                        Principal
                        Position (1)
                      
                      Year
                        Ended
                        June 30
                      
                      Salary
                        ($)
                      
                      Bonus ($)
                      
                      Stock
                        Awards
                        ($)
                      
                      Option
                        Awards
                        ($)
                      
                      Non-Equity
                        Incentive Plan
                        Compensation
                        Earnings
                        ($)
                      
                      Non-
                        Qualified
                        Deferred
                        Compensation
                        Earnings
                        ($)
                      
                      All Other
                        Compensation
                        ($)
                      
                      Total
                        ($)Brandi
      Iannelli,
                      
                      
                      2007
                      
                      0
                      
                      
                      0
                      
                      0
                      
                      
                      0
                      
                      0
                      
                      
                      0
                      
                      0
                      
                      
                      0CEO,
      CFO and Director (2)
                      
                      
                      2008
                      
                      0
                      
                      
                      0
                      
                      0
                      
                      
                      0
                      
                      0
                      
                      
                      0
                      
                      0
                      
                      
                      0Xianfu
      Han,
                      
                      
                      2007
                      
                      0
                      
                      
                      0
                      
                      0
                      
                      
                      0
                      
                      0
                      
                      
                      0
                      
                      0
                      
                      
                      0Chairman
      and CEO (3)
                      
                      
                      2008
                      
                      110,719
                      
                      
                      67,620
                      
                      0
                      
                      
                      0
                      
                      0
                      
                      
                      0
                      
                      0
                      
                      
                      178,339





(1)
              While
      our president, Xiangsheng Xu, and our chief operating officer, Weili He
      each have employment agreements which provide for compensation in excess
      of $100,000, neither individual received actual compensation during the
      fiscal years ended June 30, 2008 or 2007 in excess of
      $100,000.
 (2)
                On
      April 29, 2008, we acquired BVI-ACM in a reverse acquisition transaction
      that was structured as a share exchange and in connection with that
      transaction, Brandi Iannelli tendered her resignation as a director and
      from all offices she held in our Company effective
      immediately.
 (3)
              In
      connection with the reverse acquisition of BVI-ACM on April 29, 2008, Mr.
      Han was elected as our Chairman and Chief Executive Officer effective
      immediately.


75




Employment
Agreements





In
connection with the reverse acquisition of BVI-ACM on April 29, 2008, Mr. Han
was elected as our Chairman and Chief Executive Officer effective immediately.
On May 1, 2008, we entered into a three year Employment Agreement with Mr. Han
pursuant to which he will receive an annual salary of $140,000 for service as
our Chief Executive Officer.





Upon
termination of Mr. Han’s employment because of death, disability or for cause,
the Company will pay or provide to Mr. Han or his estate, as the case may be (i)
any unpaid base salary and any accrued vacation through the date of termination;
(ii) any unpaid annual bonus accrued with respect to the fiscal year ending on
or preceding the date of termination; (iii) reimbursement for any unreimbursed
expenses properly incurred through the date of termination; and (iv) all other
payments or benefits to which Mr. Han may be entitled under the terms of any
applicable employee benefit plan, program or arrangement.





Upon the
termination of Mr. Han’s employment by the Company without cause, the Company
will pay or provide to Mr. Han (i) all amounts due as if Mr. Han’s employment
were terminated because of death, disability or for cause, and (ii) subject to
Mr. Han’s execution (and non-revocation) of a general release of claims against
the Company and its affiliates in a form reasonably requested by the Company,
(a) continued payment of his base salary for two months after termination,
payable in accordance with the regular payroll practices of the Company, but off
the payroll; and (b) payment of his cost of continued medical coverage for two
(2) months after termination (subject to his co-payment of the costs in the same
proportion as such costs were shared immediately prior to the date of
termination).  Payments provided under this Section 6(d) shall be in lieu
of any termination or severance payments or benefits for which Mr. Han may be
eligible under any of the plans, policies or programs of the
Company.


76




Outstanding
Equity Awards at Fiscal Year End





None of
our executive officers received any equity awards, including, options,
restricted stock or other equity incentives during the fiscal year ended June
30, 2008.





Compensation
of Directors





During
the 2007 and 2008 fiscal years, no member of our board of directors received any
compensation solely for service as a director.





On
October 3, 2008, we entered into a one year director agreement with Mr. Goodwin
in connection with his service as a member of our board of directors. The
Agreement provides for a monthly fee of $3,500 and stock options to purchase an
aggregate of 50,000 shares of our 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 a
Company's Executive. In connection with his services, the company issued a total
of 200,000 shares 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
Employment Term of the Executive.





Compensation
Committee Interlocks and Insider Participation




During
the last fiscal year we did not have a standing Compensation Committee. The
Board was responsible for the functions that would otherwise be handled by the
compensation committee.




Indemnification
of Directors and Executive Officers and Limitation of Liability





The
General Corporation Law of Delaware, Section 102(b)(7) provides that directors,
officers, employees or agents of Delaware corporations are entitled, under
certain circumstances, to be indemnified against expenses (including attorneys’
fees) and other liabilities actually and reasonably incurred by them in
connection with any suit brought against them in their capacity as a director,
officer, employee or agent, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful. This statute provides
that directors, officers, employees and agents may also be indemnified against
expenses (including attorneys’ fees) actually and reasonably incurred by them in
connection with a derivative suit brought against them in their capacity as a
director, if they acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification may be made without court approval if such person was adjudged
liable to the corporation





At the
present time, there is no pending litigation or proceeding involving a director,
officer, employee or other agent of ours in which indemnification would be
required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.




Item
12.      Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters




The
following table sets forth, as of September 29, 2008, certain information with
respect to the beneficial ownership of our common shares by each shareholder
known by us to be the beneficial owner of more than 5% of our common shares, as
well as by each of our current directors and executive officers as a group. Each
person has sole voting and investment power with respect to the shares of common
stock, except as otherwise indicated. Beneficial ownership is determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934 and
does not necessarily bear on the economic incidents of ownership or the rights
to transfer the shares described below. Unless otherwise indicated,
(a) each stockholder has sole voting power and dispositive power with
respect to the indicated shares and (b) the address of each stockholder who
is a director or executive officer is c/o Yingu Plaza, #1708, 9 Beisihuanxi
Road, Haidian District, Beijing 100080, China.


77





Number of Shares
                        Beneficially Owned(1)
                      
                      Percentage(2)Name
      and Address of Beneficial OwnerExecutive
      Officers and DirectorsXianfu
      Han (3)
                        Chairman
      and CEO
                      
                      
                      5,285,750
                      
                      50.22
                      %Weile
      He(4)
                        Vice-Chairman
      and COO
                      
                      
                      3,523,833
                      
                      33.48
                      %Xiangsheng
      Xu
                        President
      and Director
                      
                      
                      0
                      
                      0
                      %All
      officers and directors as a group (3 people)
                      
                      
                      8,809,583
                      
                      83.30
                      %Over
      5% Beneficial OwnersXianfu
      Han (3)
                        Yingu
      Plaza 9
                        Beishuanxi
      Road
                        Suite
      1708, Haidan District
                        Beijing
      100080
                        PRC
                      
                      
                      5,285,750
                      
                      50.22
                      %Weile
      He(4)
                        Yingu
      Plaza 9
                        Beishuanxi
      Road
                        Suite
      1708, Haidan District
                        Beijing
      100080
                        PRC
                      
                      
                      3,523,833
                      
                      33.48
                      %Professional
      Offshore Opportunity Fund LTD (5)
                      
                      
                      1,875,000
                      
                      15.12
                      %Whitebox
      Intermarket Partners LP (6)
                      
                      
                      750,000
                      
                      6.65
                      %





(1)
            Under
      rules adopted by the Securities and Exchange Commission, a person is
      deemed to be a beneficial owner of securities with respect to which the
      person has or shares: (a) voting power, which includes the power to
      vote or direct the vote of the security, or (b) investment power,
      which includes the power to dispose of or to direct the disposition of the
      security. Unless otherwise indicated below, the persons named in the table
      above have sole voting and investment power with respect to all shares
      beneficially owned.





(2)
            As
      of September 29, 2008, there were 10,525,000 shares of our common stock
      outstanding.




(3)
            On
      June 11, 2008, Mr. Han entered into a Securities Escrow Agreement by and
      among the investors to the private placement that closed on June 11, 2008
      and American Stock Transfer & Trust Company, or AST, whereby 2,100,000
      shares of the Company’s common stock owned by Mr. Han were placed into
      escrow, with AST appointed as the escrow agent. The 2,100,000 shares were
      thereafter transferred into the name of AST and are to be held in escrow
      and released to Mr. Han if the Company does, or to the investors if the
      Company does not, meet certain performance milestones described in the
      Securities Escrow Agreement. Mr. Han maintains voting power over all
      2,100,000 shares until such time as any such shares are transferred to the
      investors, at which time, such transferred shares will be beneficially
      owned by such investors.




(4)
            On
      June 11, 2008, Mr. He entered into a Securities Escrow Agreement by and
      among the investors to the private placement that closed on June 11, 2008
      and American Stock Transfer & Trust Company, or AST, whereby 1,400,000
      shares of the Company’s common stock owned by Mr. He were placed into
      escrow, with AST appointed as the escrow agent. The 1,400,000 shares were
      thereafter transferred into the name of AST and are to be held in escrow
      and released to Mr. He if the Company does, or to the investors if the
      Company does not, meet certain performance milestones described in the
      Securities Escrow Agreement. Mr. He maintains voting power over all
      1,400,000 shares until such time as any such shares are transferred to the
      investors, at which time, such transferred shares will be beneficially
      owned by such investors.




(5)
            Includes
      625,000 shares of common stock that are exercisable upon exercise of
      common stock purchase warrants. Howard Berger and Mark Swickle have voting
      and investment power over the securities held by Professional Offshore
      Opportunity Fund LTD.




78





(6)
            Includes
      250,000 shares of common stock that are exercisable upon exercise of
      common stock purchase warrants. Andrew J. Redleaf is the managing member
      the general partner of Whitebox Intermarket Partners LP and has voting and
      investment power over the securities held by Whitebox Intermarket Partners
      LP.




Item
13.      Certain Relationships and Related
Transactions, and Director Independence




Transactions
with Related Persons




The
following includes a summary of transactions since the beginning of the 2006
fiscal year, or any currently proposed transaction, in which we were or are to
be a participant and the amount involved exceeded or exceeds the lesser of
$120,000 or one percent of the average of our total assets at year-end for the
last three completed fiscal years, and in which any related person had or will
have a direct or indirect material interest (other than compensation described
under “Executive Compensation”). We believe the terms obtained or consideration
that we paid or received, as applicable, in connection with the transactions
described below were comparable to terms available or the amounts that would be
paid or received, as applicable, in arm’s-length transactions.





Reverse Acquisition
Transaction





On April
29, 2008 we consummated the transactions contemplated by a share exchange
agreement with the owners of all issued and outstanding capital stock of
BVI-ACM, which included our Chairman and CEO, Xianfu Han, and our Vice-Chairman
and COO, Weili He. Pursuant to the share exchange agreement, we acquired 100% of
the outstanding capital stock of BVI-ACM in exchange for 11,500,000 shares of
our common stock. As a result of this transaction, Mr. Han and Mr. He became the
beneficial owners of approximately 51.5% and 33.34% of our outstanding capital
stock, respectively.





Securities Escrow Agreement
in connection with the Private Placement





In
connection with the private placement that we closed on June 11, 2008, our
Chairman and CEO, Xianfu Han, our Vice-Chairman and COO, Weili He, the Company
and the investors in the private placement entered into a Make Good Agreement
whereby Mr. Han and Mr. He have agreed to transfer a total of 3,500,000 shares
of Common Stock to the investors on a pro rata basis in the event that the
Company does not meet certain performance targets for its fiscal years ending
June 30, 2008, June 30, 2009 and June 30, 2010. The performance target for the
Company's fiscal year ended June 30, 2008 is the achievement of pre-tax net
income of at least $5,200,000. This target has been met. The performance target
for the Company's fiscal year ended June 30, 2009 is the achievement of
after-tax net income of at least $9,000,000. The performance target for the
Company's fiscal year ended June 30, 2010 is the achievement of after-tax net
income equal to or greater than the Company’s after-tax net income for the
fiscal year ended June 30, 2009.





Beijing Concrete
Institute





We paid
the Beijing Concrete Institute fees of $165,404 and $213,430 for the years ended
June 30, 2007 and 2006, respectively. The Beijing Concrete Institute is 50%
owned by our Chairman and CEO, Xianfu Han and 45% by our Vice-Chairman and COO,
Weili He.





On
January 1, 2008, we entered into a 6 year contract with the Beijing Concrete
Institute with an expiration date of December 31, 2013, whereby we will
compensate the Beijing Concrete Institute based on research and development
projects they complete for us on an as-needed basis. The annual project-based
payment is capped at RMB 1,000,000 (approximately US $140,000) and in return we
will receive the exclusive right for technical procedures and findings as well
as training for our employees. As of March 31, we have not referred any
research and development projects, and have not provided any payment, to the
Beijing Concrete Institute.


79





Related Party
Loans





During
the years ended June 30, 2008 and 2007 we have received loans from a number of
our employees, the proceeds of which are used for working capital and general
corporate purposes. The principal amounts of the loans we received in each of
2008 and 2007 and 2006 are $375,693 and $222,235, respectively. The current
outstanding balances for these loans were $524,510 and $222,235 for the years
ended June 30, 2008 and 2007. The effective annual interest rate on the loans is
20%, and the loans mature at various times in 2007 and 2008. The employees from
whom we received loans were Xueying Ma, Xue Zhang, Ying Zhang, Changjun Guo,
Wenxiang Zhang, Jianguo Zhang, Li Geng, Junping Li, Xiangrong Mao, Fie Xia,
Weihong Liu, Fang Cao, Liangcai Chen, and Shixun Xu and none of the employee
held a management position at the company. No one individual loaned to us in
excess of $120,000 except for Fang Cao, who loaned the Company $145,900. All the
loans that matured have been extended and no principal have been paid on any of
the loans to date. We have paid $51,625 and $0 in interest for the years ended
June 30, 2008 and 2007, respectively.




On
October 1, 2007, the Company loaned to Beijing XinHang Construction Ltd, which
is owned by our Vice-Chairman and Chief Operating Officer, Mr. He. The term of
the loan was three months and carried an interest rate of 0.75%. As of December
31, 2007, total receivables from Beijing Xinhang Construction Ltd amounted to
$4,006,476. On March 18, 2008, the Company received the outstanding balance in
full.





Reorganization Related
Transactions





BVI-ACM
owns 100% of the issued and outstanding capital stock of China-ACMH. On November
28, 2007, China-ACMH entered into a series of contractual agreements with Xin Ao
and its two shareholders pursuant to which China-ACMH effectively assumed
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
which include the following:





·
                    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 an amount equal to Xin Ao’s yearly net
    income,·
                    Operating
      Agreement – through which China-ACMH has exclusive authority over all
      decision-making of ongoing major operations, including establishing
      compensation levels and hiring and firing of key personnel. In order to
      ensure Xin Ao’s normal operation, China-ACMH agrees 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
      operation between Xin Ao and any other third parties. As a counter
      guarantee, Xin Ao agrees 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.·
                    Equity
      Pledge Agreement – through which Xin Ao’s Shareholders have 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.·
                    Option
      Agreement – through which Xin Ao’s shareholders have granted China-ACMH
      the exclusive right and option to acquire all of their equity interests in
      Xin Ao The option agreement is intended to further reinforce China-ACMH’s
      rights to control and operate Xin Ao.·
                    Power
      of Attorney – signed by Xin Ao’s 100% shareholders Mr. Han Xianfu and Mr.
      He Weili, which authorize the individuals appointed by China-ACMH to
      exercise all of their respective voting rights as a shareholder at Xin
      Ao’s shareholder
meetings





The term
of these agreements is for ten (10) years and shall terminate automatically upon
expiration, and may be extended only if China-ACMH gives its written consent of
the extension prior to expiration. The parties shall, through negotiations,
determine the term of any extension. During the term of the agreements, Xin Ao
may not terminate the agreements except in the case of gross negligence, fraud
or other illegal acts or bankruptcy of China-ACMH. China-ACMH may terminate the
agreement at any time with a written notice to Xin Ao thirty days prior to such
termination. Additionally, without China-ACMH’s prior written consent, Xin Ao
may not 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.


80





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 consolidates Xin Ao’s
results, assets and liabilities in its financial statements.





Through
China-ACMH, BVI-ACM operates and controls Xin Ao through the contractual
arrangements discussed above. The reasons that BVI-ACM used these 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, are that (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.





Policies
and Procedures for Review, Approval or Ratification of Transactions with Related
Persons




We are in
the process of adopting a written related-person transactions policy that sets
forth our policies and procedures regarding the identification, review,
consideration and approval or  ratification of “related-persons
transactions.” For purposes of our policy only, a “related-person transaction”
will be a transaction, arrangement or relationship (or any series of similar
transactions, arrangements or relationships) in which we and any “related
person” are participants involving an amount that exceeds $50,000. Transactions
involving compensation for services provided to us as an employee, director,
consultant or similar capacity by a related person will not be covered by this
policy. A related person will be any executive officer, director or a holder of
more than five percent of our common stock, including any of their immediate
family members and any entity owned or controlled by such persons.




Under the
policy, we expect that where a transaction has been identified as a
related-person transaction, management must present information regarding the
proposed related-person transaction to our audit committee (or, where approval
by our audit committee would be inappropriate, to another independent body of
our board of directors) for consideration and approval or ratification. The
presentation will be expected to include a description of, among other things,
the material facts, and the direct and indirect interests of the related
persons, the benefits of the transaction to us and whether any alternative
transactions are available. To identify related-person transactions in advance,
we will rely on information supplied by our executive officers, directors and
certain significant stockholders. In considering related-person transactions,
our audit committee will take into account the relevant available facts and
circumstances including, but not limited to:




·
            the
      risks, costs and benefits to us;





·
            the
      impact on a director’s independence in the event the related person is a
      director, immediate family member of a director or an entity with which a
      director is affiliated;





·
            the
      terms of the transaction;





·
            the
      availability of other sources for comparable services or products;
      and





·
            the
      terms available to or from, as the case may be, unrelated third parties or
      to or from our employees generally.





In the
event a director has an interest in the proposed transaction, the director must
excuse himself or herself form the deliberations and approval. Our policy will
require that, in determining whether to approve, ratify or reject a
related-person transaction, our audit committee must consider, in light of known
circumstances, whether the transaction is in, or is not inconsistent with, the
best interests of our company and our stockholders, as our audit committee
determines in the good faith exercise of its discretion. We did not previously
have a formal policy concerning transactions with related
persons.


81





Promoters
and Certain Control Persons





We did
not have any promoters at any time during the past five fiscal
years.





Except as
set forth in our discussion above, none of our directors, director nominees or
executive officers has been involved in any transactions with us or any of our
directors, executive officers, affiliates or associates which are required to be
disclosed pursuant to the rules and regulations of the SEC.





Item
14.      Principal Accounting Fees and
Services





The
aggregate fees billed for the most recently completed fiscal year ended June 30,
2008 and for fiscal year ended June 30, 2007 for professional services rendered
by the principal accountant for the audit of our annual financial statements and
review of the financial statements included in our quarterly reports on Form
10-QSB and services that are normally provided by the accountant in connection
with statutory and regulatory filings or engagements for these fiscal periods
were as follows:




Years EndedJune 30, 2008
                  
                  
                  June 30, 2007Audit
      Fees
                  
                  $
                  100,000
                  
                  
                  $
                  110,000Audit
      Related Fees
                  
                  
                  0
                  
                  
                  
                  0Tax
      Fees
                  
                  
                  0
                  
                  
                  
                  0All
      Other Fees
                  
                  
                  0
                  
                  
                  
                  0Total
                  
                  $
                  100,000
                  
                  
                  $
                  110,000





Our board
of directors pre-approves all services provided by our independent auditors. All
of the above services and fees were reviewed and approved by the board of
directors either before or after the respective services were
rendered.





Our board
of directors has considered the nature and amount of fees billed by our
independent auditors and believes that the provision of services for activities
unrelated to the audit is compatible with maintaining our independent auditors’
independence.





PART
IV





Item
15.      Exhibits, Financial Statement
Schedules




(a)
            Financial
      Statements(1)
            Financial
      statements for our company are listed in the index under Item 8 of this
      document(2)
            All
      financial statement schedules are omitted because they are not applicable,
      not material or the required information is shown in the financial
      statements or notes thereto.(b)
            Exhibits




82




Exhibit
            
            
            
            FiledIndex
            
            Description of Document
            
            Herewith
            
            Incorporated by Reference To:2.1
            
            Share
      Exchange Agreement by and among TJS Wood Flooring, Inc.; Xin Ao
      Construction Materials, Inc.; and each of the equity owners of Xin Ao
      Construction Materials, Inc. Shareholders, dated April 29,
      2008
            
            
            
            Exhibit
      2.1 to the Registrant’s Current Report on Form 8-K filed on May 5,
      2008.3.1
            
            Articles
      of Incorporation of the Registrant as filed with the Secretary of State of
      Delaware on
      February 13, 2007, as amended to date.
            
            
            
            Exhibits
      3.1 and 3.1a to the Registrant’s Registration Statement on Form SB-2 filed
      on March 26, 2007.3.2
            
            Amended
      and Restated Bylaws of the registrant.
            
            
            
            Exhibit
      3.2 to the Registrant’s Registration Statement on Form SB-2 filed on March
      26, 2007.4.1
            
            Certificate
      of Designation for Series A Convertible Preferred Stock
            
            
            
            Exhibit
      4.1 to the Registrant’s Current Report on Form 8-K filed on June 13,
      2008.4.2
            
            Lock-Up
      Agreement amongst Registrant, Xianfu Han and Weili He dated June 11,
      2008
            
            
            
            Exhibit
      4.2 to the Registrant’s Current Report on Form 8-K filed on June 13,
      2008.10.1
            
            Employment
      Agreement with Xiangsheng Xu
            
            
            
            Exhibit
      10.1 to the Registrant’s Current Report on Form 8-K filed on May 5,
      2008.10.2
            
            Employment
      Agreement with Weili He
            
            
            
            Exhibit
      10.2 to the Registrant’s Current Report on Form 8-K filed on May 5,
      2008.10.3
            
            Employment
      Agreement with Xianfu Han
            
            
            
            Exhibit
      10.3 to the Registrant’s Current Report on Form 8-K filed on May 5,
      2008.10.4
            
            Employment
      Agreement with Alex Yao
            
            
            
            Exhibit
      10.1 to the Registrant’s Current Report on Form 8-K filed on May 7,
      2008.10.5
            
            Subscription
      Escrow Agreement between the Registrant, Maxim Group, LLC and American
      Stock Transfer & Trust Company as Escrow Agent dated June 11,
      2008.
            
            
            
            Exhibit
      10.1 to the Registrant’s Current Report on Form 8-K filed on June 13,
      2008.10.6
            
            Make
      Good Escrow Agreement by and among the Registrant, the Investors, the
      Investor Representative, Xianfu Han and Weili He, and American Stock
      Transfer & Trust Company as Escrow Agent, dated June 11,
      2008
            
            
            
            Exhibit
      10.2 to the Registrant’s Current Report on Form 8-K filed on June 13,
      2008.




83





10.7
              
              Form
      of Common Stock Purchase Warrant
              
              
              
              Exhibit
      10.3 to the Registrant’s Current Report on Form 8-K filed on June 13,
      2008.10.8
              
              Form
      of Placement Agent Stock Purchase Warrant
              
              
              
              Exhibit
      10.4 to the Registrant’s Current Report on Form 8-K filed on June 13,
      2008.10.9
              
              Escrow
      Agreement for IR and Dividends by and among the Registrant, the Investor
      Representative, Maxim Group, LLC and Anslow + Jaclin, LLP as Escrow
      Agent
              
              
              
              Exhibit
      10.5 to the Registrant’s Current Report on Form 8-K filed on June 13,
      2008.31.1
              
              Section
      302 Certification
              
              ü32.1
              
              Section
      906 Certification
              
              ü  84


SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on January 14, 2009.





CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC.





By:
                  /s/
      Xianfu HanXianfu
      Han
                    Prinicipal
      Executive Officer




By:
                  /s/
      Chin HsiaoChin
      Hsiao
                    Principal
      Financial and
                    Accounting
      Officer





In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.




Signature
            
            Title
            
            Date/s/ Xianfu Han
            
            Chief
      Executive Officer and Chairman of
            
            January
      14, 2009Xianfu
      Han
            
            the
      Board/s/Weili He
            
            Vice
      Chairman and Chief Operating Officer
            
            January
      14, 2009Weili
      He/s/Xiangsheng Xu
            
            President
      and Director
            
            January
      14, 2009Xiangsheng
      Xu/s/Chin Hsiao
            
            Principal
      Financial and Accounting Officer
            
            January
      14, 2009Chin
      Hsiao/s/Jeremy Goodwin
            
            Director
            
            January
      14, 2009Jeremy
      Goodwin





85