UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




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


ACT OF
1934




For the
Fiscal Year EndedJune 30,
2010




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)1515
      Broadway 11/FNew
      York, New York
            10036(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 RegisteredCommon Stock, Par Value
    $0.001
              
              NASDAQ Global
  Market




Securities
registered pursuant to Section 12(g) of the Act: None.




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes  ̈No x




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  ̈No x




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 past 90 days. Yes xNo  ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K 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. x




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




Large
      accelerated filer  ̈
            Accelerated
      filer  ̈
            Non-accelerated
      filer  ̈
            Smaller
      reporting
              company
      x




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




Yes  ̈ No x




As of
September 24, 2010 there were 17,572,104 shares of the Registrant’s common stock
outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE




None.





TABLE
OF CONTENTS




PageItem
      1.
              Business
              4Item
      2.
              Properties
              30Item
      3.
              Legal
      Proceedings
              31Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              31Item
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              31Item
      6.
              Selected
      Financial Data
              32Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              32Item
      7A.
              Quantitative
      and Qualitative Disclosure of Market Risk
              48Item
      8.
              Financial
      Statements and Supplementary Data
              48Item
      9.
              Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
              48Item
      9A(T).
              Controls
      and Procedures
              48Item
      9B.
              Other
      Information
              50Item
      10.
              Directors,
      Executive Officers and Corporate Governance
              50Item
      11.
              Executive
      Compensation
              57Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              59Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              60Item
      14.
              Principal
      Accountant Fees and Services
              61Item
      15.
              Exhibits,
      Financial Statements and Schedules
              62


2


INTRODUCTORY
NOTE





In this
report, unless indicated otherwise, references to





·
            “China,” “Chinese” and “PRC,” are
      references to the People’s Republic of
  China;


·
            “BVI” are references to the
      British Virgin Islands


·
            “China Advanced,” “China-ACM,”
      “the Company,” “we,” “us,” or “our,” are references to the combined
      business of China Advanced Construction Materials, Group, Inc. and its
      wholly-owned subsidiaries, BVI-ACM and China-ACMH, as well as Xin Ao, but
      do not include the stockholders of China
  Advanced;


·
            “BVI-ACM” are references to Xin
      Ao Construction Materials,
Inc.


·
            “China-ACMH” are references to
      Beijing Ao Hang Construction Materials Technology Co.,
      Ltd.;


·
            “Xin Ao” are references to
      Beijing Xin Ao Concrete
Group;


·
            “RMB” are references to the
      Renminbi, the legal currency of China;
  and


·
            “U.S. dollars,” “dollars” and “$”
      refer to the legal currency of the United
  States.





SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





In
addition to historical information, this report contains forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. You can identify such forward-looking statements by
terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,”
“intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,”
“would” and similar expressions intended to identify forward-looking statements.
Forward-looking statements reflect our current views with respect to future
events and are based on assumptions and subject to risks and uncertainties.
Given these uncertainties, you should not place undue reliance on these
forward-looking statements. These forward-looking statements include, among
other things, statements relating to:





·
            our expectations regarding the
      market for our concrete products and
  services;


·
            our expectations regarding the
      continued growth of the concrete
  industry;


·
            our beliefs regarding the
      competitiveness of our
products;


·
            our expectations regarding the
      expansion of our manufacturing
capacity;


·
            our expectations with respect to
      increased revenue growth and our ability to achieve profitability
      resulting from increases in our production
  volumes;


·
            our future business development,
      results of operations and financial
  condition;


·
            competition from other
      manufacturers of concrete
products;


·
            the loss of any member of our
      management team;


·
            our ability to integrate acquired
      subsidiaries and operations into existing
    operations;


·
            market conditions affecting our
      equity capital;


·
            our ability to successfully
      implement our selective acquisition
  strategy;


·
            changes in general economic
      conditions; and


·
            changes in accounting rules or
      the application of such
rules.




Also,
forward-looking statements represent our estimates and assumptions only as of
the date of this report. You should read this report and the documents that we
reference in this report, or that we filed as exhibits to the registration
statement of which this report is a part, completely and with the understanding
that our actual future results may be materially different from what we
expect.




Except as
required by law, we assume no obligation to update any forward-looking
statements publicly, or to update the reasons actual results could differ
materially from those anticipated in any forward-looking statements, even if new
information becomes available in the future.


3


PART
I




Item
1. Business





Overview
of Our Business


OUR BUSINESS




Overview




We are a
holding company whose primary business operations are conducted through our
wholly-owned subsidiaries BVI-ACM and China-ACMH, and our variable interest
entity XinAo. The Company engages in the production of advanced construction
materials for large scale infrastructure, commercial and, residential,
developments. The Company is primarily focused on engineering, producing,
servicing, delivering and pumping a comprehensive range of advanced ready-mix
concrete materials for highly technical, large scale, and
environmentally-friendly construction projects. We are committed to conducting
our operations with an emphasis on the extensive use of recycled waste
materials, extending product life, the efficient production of our concrete
materials with minimal energy usage, dust and air pollution, and innovative
products, methods and practices.





We
conduct our operations through our network of five ready-mixed concrete plants
throughout Beijing and sixteen portable concrete plants located in various
provinces throughout China. We own one concrete plant and its related equipment,
and we lease four additional plants. In addition, we have technical and
preferred procurement agreements with five independently owned concrete mixture
stations, pursuant to which we are paid by percentages of cost savings for
technical support provided to clients and of sales price for projects we refer
to other stations due to the geographical location of our owned and leased
plants. Our manufacturing services are used primarily for our national high
speed railway projects; almost all of our general contractors on the high speed
railway projects supply the needed raw materials, which results in higher gross
margins for us and reduces our upfront capital investments needed to purchase
raw materials. We also produce ready-mix concrete at portable plants, which can
be dismantled and moved to new sites for new projects. Our management believes
that we have the ability to capture a greater share of the Beijing market and
further expand our footprint in China via expanding relationships and
networking, signing new contracts, and continually developing market-leading
innovative and eco-friendly ready-mix concrete products.





Our
Corporate Structure





We own
all of the issued and outstanding capital stock of Xin Ao Construction
Materials, Inc., or BVI-ACM, a British Virgin Islands corporation, which in turn
owns 100% of the outstanding capital stock of Beijing Ao Hang Construction
Materials Technology Co., Ltd., or 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 Group Co., Ltd., or Xin Ao,
a company incorporated under the laws of China, and its two shareholders, in
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
report.


4








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.





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.





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. Through China-ACMH and its variable interest entity Xin Ao, we are
engaged in producing general ready-mixed concrete, customized mechanical
refining concrete, and some other concrete-related products which are mainly
sold in China.





5


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





Business
Segment Information




In the
year ended June 30, 2010, our operations were comprised of four reportable
segments: selling concrete, manufacturing concrete, providing technical support
services and others, which include mixer rental, sales of materials and
marketing cooperation.




For
financial information relating to our business segments, see Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and Note 18 of the Consolidated Financial Statements appearing
elsewhere in this annual report.




Concrete
Sales Business





Our
concrete sales business segment is comprised of the formulation, production and
delivery of the Company’s line of C10-C100 concrete mixtures primarily through
our current fixed plant network of 5 ready mix concrete batching plants in
Beijing. For this segment of our business, we procure all of our own raw
materials, mix them according to our measured mixing formula, ship the final
product in mounted transit mixers to the destination work site, and, for more
sophisticated structures, will pump the mixture and set it into structural frame
moulds as per structural design parameters. The process of delivering and
setting the ready mix concrete mixture cannot exceed 90 minutes due to the
chemistry of the concrete mixture which hardens thereafter. The deliverable
radius of a concrete mixture from any one of our 5 ready mix plants in Beijing
is approximately 25 kilometers. Traffic conditions are a consideration which
affect the timing and shipment of our concrete mixtures. Since the 2008
Olympics, there are alternating license plate traffic restrictions on many
traffic routes in Beijing to ease traffic congestion and associated exhaust
pollution. Due to the large amounts of working capital required for the
acquisition of raw materials associated for this business segment, a supply
shortage or degradation of supplier accounts payable credit terms would pose a
potential risk to our business.





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.





Manufacturing
Services Business





Our
manufacturing services business segment is comprised of the formulation,
production and delivery of project-specific concrete mixtures primarily through
our current portable plant network of 16 rapid assembly and deployment batching
plants, located in various provinces throughout China. Our clients will purchase
and provide the raw materials in volume on a separate account which we will then
proportion and mix according to our formulation for a given project’s
specifications. At present, our manufacturing services business segment is
primarily dedicated to various high speed rail projects in China which demand
very high quality standards on a time sensitive work schedule. Our high speed
rail clients are primarily state-owned conglomerate construction contractors
whose business practices follow closely with government policy.





Technical
Services Business





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


6


Other
Services





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





Our
Industry





According
to Global Insight, a leading provider of global economic and financial
intelligence, the global construction market has experienced a decrease over the
past 2 years, and a slow recovery expected only after 2011. Despite the global
construction market problems, however, the Chinese construction market has
maintained a double digit increase over the past 10 years, which makes it one of
the most dynamic markets in the world.




China is
among 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 Industrial Ceramics, Vol. 27, February 2007, “total
revenues for the Chinese construction materials market in 2006 was approximately
$171.5 billion,” and “it 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, profits by
companies in the construction materials market in China during the first five
months of 2009 were approximately $6.16 billion, representing an increase of
13.7% over the same period in 2008. The “Year 2009 First Five Months
Construction Material Industry Sector Analysis” is provided by the National
Development and Reform Commission (NDRC). The Chinese version of this
information is publicly available on NDRC’s website at http://yxj.ndrc.gov.cn/gjyx/cyyxdt/t20090722_292050.htm.





Construction
Demand in China





According
to the evaluation by Research Institute of Investment, National Development and
Research Commission, China’s November 2008 economic stimulus package, valued at
RMB 4 trillion (approximately US$593 billion), has had a material impact on the
construction industry, contributing to growth in the construction industry of
approximately RMB 594 billion in 2009. According to data prepared by the
National Bureau of Statistics of China, from January to April 2009, urban fixed
assets investment reached RMB3.7 trillion, up 30.5 percent year by year. Driven
by a series of policies on keeping growth and expanding domestic demand, we
believe that the construction industry in China will continue to
grow.





The
stimulus package has been and is expected to be used to finance programs, during
2009 and 2010 in 10 major areas, such as low-income housing, rural
infrastructure, water, electricity, transportation, the environment,
technological innovation and rebuilding disaster struck areas. The economic
stimulus package also focuses on infrastructure projects such as new railways,
roads, and airports. According to the Ministry of Railways, China doubled its
investment in railways to about RMB 600 billion (approximately US$87.8 billion)
for 2009 and 2010. Part of the new funds will go to building 5,148 km of new
lines, including five passenger-only high-speed lines. The ministry also plans
to start 70 other new projects, which will cost an estimated RMB 1.5 trillion
(approximately US$219.6 billion). By 2012 China is expected to have 110,000 km
of rail lines, including 13,000 km of passenger routes, of which, many will be
high-speed railways allowing trains to run between 200 and 350 km an hour.
(Chinese version available at http://www.concrete365.com/news/2009/7-20/H142630705.htm).


7


According
to a report published by the Freedonia Group in May 2010, Construction
expenditures in China are expected to rise 9.1 percent per annum in real terms
and are expected to reach $1.7 Trillion by 2014.





It is
anticipated that increases will be bolstered by a growing domestic economy,
ongoing industrialization, rebounding foreign investment funding, continuing
efforts to expand and upgrade physical infrastructure, rising income levels, and
further population and household growth. These and other trends are presented in
Construction Outlook in China, a new study from the Beijing office of The
Freedonia Group, Inc., a Cleveland-based industry research firm.





The
Freedonia Group expects that non-building construction will be the fastest
growing sector, advancing by an estimated 10.0 percent annually in real terms
through 2014. Government spending initiatives are the predominant drivers of
non-building construction activity. Growth will benefit from state-led efforts
to expand and upgrade China’s transportation infrastructure. Utilities
construction will also contribute to non-building construction spending gains,
as the government continues to increase power generation capacity and improve
electricity transmission networks.





Residential
building is the largest market for construction services in China, accounting
for 37 percent of total construction spending in 2009. Residential building
construction expenditures are expected to increase at an annual pace of 8.4
percent through 2014, primarily supported by rising personal income levels.
Government efforts to improve living conditions for low-income earners
(including the construction of affordable and low-rent houses in urban areas and
subsidies for alterations of dilapidated farmhouses in rural areas) are also
expected to bolster residential building construction spending. However,
expected deceleration in the overall economy and household formation may
constrain residential building construction activity to some
extent.





Non-residential
building construction expenditures are forecast to rise 9.0 percent per year
through 2014. Growth is expected to be driven by rebounding local and foreign
investment in the manufacturing sector, following the sharp moderations
associated with the global economic downturn of 2008 and 2009. Government
efforts to improve public services such as health care and education may also
spur gains.





The
Chinese Construction industry accounted for approximately 20% of the nominal
gross domestic product (GDP), contributing RMB 6,114 billion in 2008. The
government stimulus package has helped to fuel growth in construction and
infrastructure development. 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, is
expected to result in annual cement consumption of over one million metric
tons.





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





In the
last four months of 2009, the country's cement output rose 13 percent from the
same period of 2008. The year to year growth was 3.1 percentage points larger
than that of a year ago. “Demand for cement in China is forecast to rise 6.0
percent annually through 2012 to 1.8 billion metric tons. Growth will be driven
by rising, but decelerating, construction expenditures in China. Further
advances in cement manufacturing technology are also expected to help stimulate
sales by improving the quality of the product. Blended cements are expected to
account for about 90 percent of total sales in 2012, reflecting the versatility
of these types across a range of construction applications, as well as their
performance and/or price benefits over other types of cement. Regional cement
markets reflect differences in construction expenditures, which in turn are
driven by local trends in demographics, industrial output and economic activity.
Central and Eastern China are expected to remain the largest cement market in
China through 2012, fueled by increases in regional construction expenditures.
However, the cement markets in Northwest and Southwest China are expected to
grow at a faster pace, benefiting from the government’s Great Western
Development strategy, which aims to promote investment in these areas.
Consumption of cement in Central and Northern China is also expected to perform
above the national average, supported by high levels of transportation
infrastructure construction and booming urban markets in Beijing and Tianjin.”
(from Business Wire).


8


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 amounted to approximately 44% of
global demand in 2008 and is expected to be greater than current combined
consumption of India and the U.S. by 2010. 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.




As a
result of the government stimulus package, the demand for cement and concrete is
expected to be significantly increased in China in the following several
years.





Demand
for Ready-Mixed Concrete




Construction
contractors are expected to continue to represent the largest market for cement,
accounting for an estimated one-third of total demand in 2012. Economic
downturns or reductions in government funding of infrastructure projects could
significantly reduce our revenues. However, we believe that the ready-mix
concrete market could exhibit the strongest growth in the cement industry, and
could possibly have near double-digit gains through 2012. Gains are expected to
benefit from government regulations banning on-site concrete and mortar mixing.
Demand for cement used in concrete products is expected to be driven by the
increasing popularity of precast concrete with many construction contractors. In
addition, the phase-out of clay bricks will heighten demand for concrete blocks.
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 percent, Recognizing the significant environmental impact created from
the large-scale construction activities undertaken in the past few decades,
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.





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 risk to us. For the year ended
      June 30, 2010, the Company did not have any customer account for over 10%
      of sales. For the year ended June 30, 2010, two customers accounted for
      approximately 8.4% of the Company’s sales and 3.8% of the Company’s
      account receivables as of June 30,
2010.





·
            Experienced
      Management. We
      believe that our management’s technological knowledge and business
      relationships gives us the ability to secure major infrastructure
      projects, which provides us with leverage to potentially 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. As a result of our relationships with
      these universities and institute, we believe that we have realized an
      advantage over many of our competitors by gaining access to a wide array
      of resources and
knowledge.


9


Our
Growth Strategy





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




·
            Capacity
      Expansion via Building New Plants. We added seven portable
      stations during the fiscal year 2010 in order to meet the requirements of
      existing contracts and anticipated demand. We plan to add more portable
      stations in 2011 and 2012 as part of our long-term expansion plans due to
      very attractive margins and high return on
    investment.





·
            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 leverage 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 five ready-mixed concrete
plants throughout Beijing and sixteen portable plants located in various
provinces throughout China. We own one concrete plant and its related equipment,
and we lease four additional plants in Beijing. In addition, we have technical
and preferred procurement agreements with five independently owned concrete
mixture stations, pursuant to which we are paid by percentages of cost savings
for technical support provided to clients and of sales price for projects we
refer to other stations due to the geographical location of our owned and leased
plants. Three of these technically serviced plants are in Beijing, one in
Datong, Shanxi and one in Mianyang, Sichuan.





Our
manufacturing services are used primarily for our national high speed railway
projects; almost all of our general contractors on the high speed railway
projects supply the needed raw materials, which results in higher gross margins
for us and reduces our upfront capital investments needed to purchase raw
materials.





We also
produce ready-mix concrete at portable plants, which can be dismantled and moved
to new sites for new projects. The portable plants can be dismantled and moved
to new sites in less than a few weeks. The plants are currently located between
railway stations and each of these plants is directly tied to contracts we have
recently won and are expected to operate near capacity. Almost all our general
contractors supply raw materials resulting in higher gross margins for the
Company and reduce upfront capital investment on raw material purchase. The one
time start up cost for each plant and associated equipment is approximately $3
million with cost optimization initiatives underway to bring the average cost
down below $2.5 million per plant. Each plant is capable of generating
approximately $2 million in revenue per year, with very attractive margins and
high return on investment.


10


We are
led by a well-rounded management team that, in only eight 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, 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 a range of C10
to C100 concrete materials and specialize in an array of specialized ready-mixed
concretes tailored to each project’s technical specifications and environmental
standards. Our High Speed Rail clients require our concrete products be held to
100 year strength and survivability standard as tested by the local Ministry of
Construction authority.





We
specialize in “ready-mixed concrete”, a concrete mixture made at our facility
with complete computerized operating systems. Such concrete 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.




The
ready-mixed concrete sector in the concrete market is growing at a 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 concrete mixing and
improving the quality of concrete 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 concrete mixtures.





We are
building a comprehensive 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





Our
Customers





For
fiscal year 2010 which ended on June 30, 2010, we had one customer, whose
sales accounted for more than 5% of our total sales. Five customers accounted
for approximately 16 % and 32% of the Company’s sales for the years ended
June 30, 2010 and 2009, respectively. The total accounts receivable from these
customers amounted to $3,165,034 and $3,624,793 as of June 30, 2010 and
2009.


11


Developing
New Relationships





Our
business will be damaged if project contracts with the Chinese government, for
which we may act as a sub-contractor are cancelled. Our sales strategy balances
these risks focusing 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. Our
top five suppliers accounted for approximately 27% and 44% of the Company’s
purchases for the years ended June 30, 2010 and 2009 respectively. The total
accounts payable to these suppliers amounted to $950,814 and $2,551,604 as of
June 30, 2010 and 2009, respectively.





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 and projects.





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 development expense increased to
$121,762 in the fiscal year 2010, and no significant research and development
expense for the year ended June 30, 2009.





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 expect to 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.




12





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:




·
            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




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 Association was established by the Company
Chairman and Vice-Chairman who 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 plants’ 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 of 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





·
            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.


13


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 aggregate.


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.
Lightweight aggregate concrete prepared using the above pretreatment method,
will dry quicker under pumping pressure, and maintain consistency. 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 about by cement heat of
hydration in large-scale concrete pours.





Polycarboxylate
Series High Performance Water Reducing Agent Compositing Technique





The
research and production of water reducing admixture would improve performance
while lowering pollution and environmental impact. Super plasticizer
Polycarboxylate series which reduces water requirements is an attractive
additive in that it enables high strength concrete, super-strength concrete,
high fluidity and super plasticizer concrete, and self-defense concrete. The
water reduction of Polycarboxylate may reach 20% to 25%, which is higher than
the Naphthaline water reducing agent, which is the current industry standard.
The cost of the water reducing agent is competitve, and it may be used to
prepare high strength and high performance concrete instead of
Naphthaline.


14


Application
of Reused Water in Concrete





The
re-use of waste water of a concrete plant to mix concrete is significant as it
can reduce production costs, minimize fresh water use and represent an efficient
approach to address industrial waste. 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. Our future success depends on our ability to
establish and maintain a competitive position in the marketplace.




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 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 we
do. In addition, we compete with a number of state-owned enterprises, which have
significantly greater financial resources than we do and which may have a
competitive advantage over us.





There are
approximately 163 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
currently own the following intellectual property rights:





C100
High Performance Concrete: Patent #2007102011320


Lightweight
Pre-Processing Method and Device: Patent#200710201131.6


Compound
mineral mixture with: Patent
#200710107881.7


Lightweight
Aggregate Pressure Pre-Heating Equipment: Utility Model#
ZL200720200683.0





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, closed storage of
sand and gravel, as well as reduction of noise and dust pollution on production
sites and encouragement of the 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.





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 concretes, and Level III producers are
licensed to produce concrete with strength level C60 and below. We are a Level
II concrete producer.


15


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. In the past, we have not been rejected by any of these
three regulators for approval.





Our
Labor Force




As of
June 30, 2010, we employed 734 full-time employees. The following table sets
forth the number of our full-time employees by function as of June 30,
2010.




Employees/Independent
      Contractors and their Functions
                  
                  As
      of
                    June
      30, 2010Management
      & Administrative Staff
                  
                  
                  252
                  
                  
                  
                  21
                  %Sales
                  
                  
                  24
                  
                  
                  
                  2
                  %Technical
      & Engineering Staff
                  
                  
                  47
                  
                  
                  
                  4
                  %Production
      Staff
                  
                  
                  354
                  
                  
                  
                  29
                  %Equipment
      & Maintenance
                  
                  
                  44
                  
                  
                  
                  4
                  %Drivers
      & Heavy Equipment Operators
                  
                  
                  13
                  
                  
                  
                  1
                  %SubTotal
                  
                  
                  734
                  
                  
                  
                  61
                  %Independent
      Contractors
                  
                  
                  482
                  
                  
                  
                  39
                  %Total
                  
                  
                  1,216
                  
                  
                  
                  100
                  %





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.





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.


16


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 report, 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 fiscal year
2011.





Our plans
to build additional plants and to maintain and continually upgrade our internal
control and management systems in line with our growing scale will require
significant capital expenditures in fiscal year 2011. 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.





Five
customer orders consisted of 16% of the net sales of the Company for the fiscal
year ended June 30, 2010, and the loss of any of these customers can result in a
depressive effect on our net profit.





Our
Company focuses on large projects for large Chinese customers. Five customers
accounted for approximately 16 % and 32% of the Company’s sales for the years
ended June 30, 2010 and 2009, respectively. The total accounts receivable from
these customers amounted to $3,165,034 and $3,624,793 as of June 30, 2010 and
2009. Should we lose any of these customers in the future and are unable to
obtain additional customers, our revenues will decrease.





Our
business is subject to the risk of supplier concentration.





Our top
five suppliers provide approximately 31% of the sourcing of the raw materials
for our concrete production business. As a result of this concentration in our
supply chain, our business and operations would be negatively affected if any of
our key suppliers were to experience significant disruption affecting the price,
quality, availability or timely delivery of their products. The partial or
complete loss of one of these suppliers, or a significant adverse change in our
relationship with any of these suppliers, could result in lost revenue, added
costs and distribution delays that could harm our business and customer
relationships. In addition, concentration in our supply chain can exacerbate our
exposure to risks associated with the termination by key suppliers of our
distribution agreements or any adverse change in the terms of such agreements,
which could have an adverse impact on our revenues and
profitability.





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 expand new production facilities during the next few 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 may 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


18


·
            failure to execute our expansion
      plan effectively.





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;





·
            changes in applicable laws and
      regulations; and


19


·
            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 sub-contractor 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 state-owned and large private PRC-based
manufacturers and distributors that produce and sell products similar to ours.
We compete primarily on the basis of quality, technological innovation and
price. Essentially all of the contracts on which we bid are awarded through a
competitive bid process, with awards generally being made to the lowest bidder,
though other factors such as shorter schedules or prior experience with the
customer are often just as important. Within our markets, we compete with many
national, regional and local state-owned and private construction firms. Some of
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.


20


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 or acquire up to ten new production facilities during the next one to
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. To acquire 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 operate an acquired concrete plant for concrete sales, we may 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, where
corruption may occur. 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 prevent
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.


21


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 30.1% of our outstanding voting
securities and our Vice-Chairman, Weili He, owns approximately 20.1% of our
outstanding voting securities as of June 30, 2010 in a fully diluted share base.
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 may
require additional cash resources due to changed business conditions or other
future developments, including any investments or acquisitions we may decide to
pursue. If our 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:




·
            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 for the year ending June 30, 2010, in accordance with the
Sarbanes-Oxley Act of 2002.





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. We were subject to management attestation report
for the fiscal year ended June 30, 2010, and a report of our management for the
2010 fiscal year is included under Item 9A of this annual report certifying the
effectiveness of our internal controls over financial reporting. Under current
law, the auditor attestation will not be required as long as our filing status
remains as a smaller reporting company. However, due to expected continued
growth of our Company, we anticipate that we will no longer be a smaller
reporting company in the future years. Accordingly, while our management has
determined that our internal controls over financial reporting were effective as
of June 30, 2010, if we are unable to scale our financial reporting and
accounting systems to our growth, we may not be able to maintain the
effectiveness of those controls and, therefore, we can provide no assurance that
our management will be able to certify the effectiveness of our internal
controls or that we will receive a positive attestation from our independent
auditors in the future. 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, which could
adversely affect the price of our common stock.


22


We
have limited insurance coverage for our operations in China.




The
insurance industry in China is still at an early stage of development. Insurance
companies in China offer limited insurance products. We have determined that the
risks of disruption or liability from our business, the loss or damage to our
property, including our facilities, equipment and office furniture, the cost of
insuring for these risks, and the difficulties associated with acquiring such
insurance on commercially reasonable terms make it impractical for us to have
such insurance. As a result, we do not have any business liability, disruption,
litigation or property insurance coverage for our operations in China except for
insurance on some company owned vehicles. Any uninsured occurrence of loss or
damage to property, or litigation or business disruption may result in the
incurrence of substantial costs and the diversion of resources, which could have
an adverse effect on our operating results.





We
are not current in our payment of social insurance and housing accumulation fund
for our employees and such shortfall may expose us to relevant administrative
penalties.





The PRC
laws and regulations require all employers in China to fully contribute their
own portion of the social insurance premium and housing accumulation fund for
their employees within a certain period of time. Failure to do so may expose the
employers to make rectification for the accrued premium and fund by the relevant
labor authority. Also, an administrative fine may be imposed on the employers as
well as the key management members. Xin Ao has failed to fully contribute the
social insurance premium and housing accumulation fund. Therefore, they may be
subject to the administrative punishment as mentioned above.





Our
operations may incur substantial liabilities to comply with environmental laws
and regulations.





Our
concrete manufacturing operations are subject to laws and regulations relating
to the release or disposal of materials into the environment or otherwise
relating to environmental protection. Applicable law required that we obtain an
environmental impact report and environmental approval from the environmental
protection administration prior to obtaining the business license and
construction enterprise qualification certificate for Xin Ao. However, the local
administration of industry and commerce and the Beijing Municipal Construction
Commission did not require Xin Ao to provide the environmental impact report and
environmental approval, and Xin Ao has not received any notice of non-compliance
nor has any fine or other penalty been assessed. However, the environmental
protection administration may in the future require that Xin Ao provide the
applicable report and apply for the required environment approval. Our failure
to have complied with the applicable laws regarding delivery of the report may
result in the assessment of administrative, civil and criminal penalties, the
incurrence of investigatory or remedial obligations and the imposition of
injunctive relief. Resolution of these matters may require considerable
management time and expense. In addition, changes in environmental laws and
regulations occur frequently and any changes that result in more stringent or
costly manufacturing, storage, transport, disposal or cleanup requirements could
require us to make significant expenditures to reach and maintain compliance and
may otherwise have a material adverse effect on our industry in general and on
our own results of operations, competitive position or financial
condition.




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:


23





·
            the higher level of government
      involvement;





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





·
            the rapid growth
      rate;





·
            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.


24


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.




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.





Failure
to comply with PRC regulations relating to the establishment of offshore special
purpose companies by PRC residents may subject our PRC resident stockholders to
personal liability, 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.


25


In
October 2005, the PRC State Administration of Foreign Exchange, or 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,
generally referred to as Circular 75, which required PRC residents to register
with the competent local SAFE branch before establishing or acquiring control
over an offshore special purpose company, or SPV; under Notice 75, a “special
purpose company” refers to an offshore entity established or controlled,
directly or indirectly, by PRC residents for the purpose of seeking offshore
equity financing on the strength of the domestic assets or interests owned by
such PRC residents in onshore companies. Internal implementing guidelines issued
by SAFE, which became public in June 2007 (known as Notice 106), expanded the
reach of Circular 75 by (1) purporting to cover the establishment or acquisition
of control by PRC residents of offshore entities which merely acquire "control"
over domestic companies or assets, even in the absence of legal ownership; (2)
adding requirements relating to the source of the PRC resident's funds used to
establish or acquire the offshore entity; (3) covering the use of existing
offshore entities for offshore financings; (4) purporting to cover situations in
which an offshore SPV establishes a new subsidiary in China or acquires an
unrelated company or unrelated assets in China; and (5) making the domestic
affiliate of the SPV responsible for the accuracy of certain documents which
must be filed in connection with any such registration, notably, the business
plan which describes the overseas financing and the use of proceeds. Amendments
to registrations made under Circular 75 are required in connection with any
increase or decrease of capital, transfer of shares, mergers and acquisitions,
equity investment or creation of any security interest in any assets located in
China to guarantee offshore obligations, and Notice 106 makes the offshore SPV
jointly responsible for these filings. In the case of an SPV which was
established, and which acquired a related domestic company or assets, before the
implementation date of Circular 75, a retroactive SAFE registration was required
to have been completed before March 31, 2006; this date was subsequently
extended indefinitely by Notice 106, which also required that the registrant
establish that all foreign exchange transactions undertaken by the SPV and its
affiliates were in compliance with applicable laws and regulations. Failure to
comply with the requirements of Circular 75, as applied by SAFE in accordance
with Notice 106, may result in fines and other penalties under PRC laws for
evasion of applicable foreign exchange restrictions. Any such failure could also
result in the SPV's subsidiaries being impeded or prevented from distributing
their profits and the proceeds from any reduction in capital, share transfer or
liquidation to the SPV, or from engaging in other transfers of funds into or out
of China.





We have
asked our stockholders, who are PRC residents as defined in Circular 75 and
Notice 106, to register with the relevant branch of SAFE, as currently required,
in connection with their equity interests in us and our acquisitions of equity
interests in our PRC subsidiaries. Our PRC Residents stockholders, Mr. Han and
Mr. He have obtained the SAFE registration on September 29, 2007. However, we
cannot provide any assurances that they have made all necessary amendments to
their registration to fully comply with, all applicable registrations or
approvals required by Circular 75 and Notice 106. Moreover, because of
uncertainty over how Circular 75 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 Circular 75 and Notice 106 by our PRC resident
beneficial holders.




In
addition, such PRC residents may not always be able to complete the necessary
registration procedures required by Circular 75 and Notice 106. 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 Circular 75 and Notice 106, 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.


26


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, fluctuations in the exchange rate
between the U.S. dollar and the RMB will affect our balance sheet and our
earnings per share in U.S. dollars. 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 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.




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 costs on to our customers, our profitability and operating
results will suffer.





Under
the New Enterprise Income Tax, or EIT, Law, we may be classified as a "resident
enterprise" of China. Such classification will likely result in unfavorable tax
consequences to us and our non-PRC stockholders.




China
passed the New EIT Law and its implementing rules, both of which became
effective on January 1, 2008. Under the New EIT Law, an enterprise established
outside of China with “de facto management bodies” within China is considered a
“resident enterprise,” meaning that it can be treated in a manner similar to a
Chinese enterprise for enterprise income tax purposes. The implementing rules of
the New EIT Law define de facto management as “substantial and overall
management and control over the production and operations, personnel,
accounting, and properties” of the enterprise. In addition, a recent circular
issued by the State Administration of Taxation on April 22, 2009 regarding the
standards used to classify certain Chinese-invested enterprises controlled by
Chinese enterprises or Chinese group enterprises and established outside of
China as “resident enterprises” clarified that dividends and other income paid
by such "resident enterprises" will be considered to be PRC source income,
subject to PRC withholding tax, currently at a rate of 10%, when recognized by
non-PRC enterprise shareholders. This recent circular also subjects such
"resident enterprises" to various reporting requirements with the PRC tax
authorities.


27


In
addition, the recent circular mentioned above sets out criteria for determining
whether “de facto management bodies” are located in China for overseas
incorporated, domestically controlled enterprises. However, as this circular
only applies to enterprises established outside of China that are controlled by
PRC enterprises or groups of PRC enterprises, it remains unclear how the tax
authorities will determine the location of “de facto management bodies” for
overseas incorporated enterprises that are controlled by individual PRC
residents like us and some of our subsidiaries.




Therefore,
although substantially all of our management is currently located in the PRC, it
remains unclear whether the PRC tax authorities would require or permit our
overseas registered entities to be treated as PRC resident enterprises. We do
not currently consider our company to be a PRC resident enterprise. However, if
the PRC tax authorities determine that we are a “resident enterprise” for PRC
enterprise income tax purposes, a number of unfavorable PRC tax consequences
could follow. First, we may be subject to the enterprise income tax at a rate of
25% on our worldwide taxable income as well as PRC enterprise income tax
reporting obligations. In our case, this would mean that income such as interest
on offering proceeds and non-China source income would be subject to PRC
enterprise income tax at a rate of 25%. Second, although under the New EIT Law
and its implementing rules dividends paid to us from our PRC subsidiaries would
qualify as “tax-exempt income,” we cannot guarantee that such dividends will not
be subject to a 10% withholding tax, as the PRC foreign exchange control
authorities, which enforce the withholding tax, have not yet issued guidance
with respect to the processing of outbound remittances to entities that are
treated as resident enterprises for PRC enterprise income tax purposes. Finally,
it is possible that future guidance issued with respect to the new “resident
enterprise” classification could result in a situation in which a 10%
withholding tax is imposed on dividends we pay to our non-PRC stockholders and
with respect to gains derived by our non-PRC stockholders from transferring our
shares.





Dividends
declared and paid from pre-January 1, 2008 distributable profits are
grandfathered under the New EIT Law and are not subject to withholding
tax.




We
may be subject to fines and legal sanctions if we or our Chinese employees fail
to comply with PRC regulations relating to employee stock options granted by
overseas listed companies to PRC citizens.





On
December 25, 2006, the People's Bank of China issued the Administration Measures
on Individual Foreign Exchange Control, and its Implementation Rules were issued
by the State Administration of Foreign Exchange (“SAFE”) on January 5, 2007.
Both took effect on February 1, 2007. Under these regulations, all foreign
exchange matters involved in an employee stock holding plan, stock option plan
or similar plan in which PRC citizens’ participation requires approval from the
SAFE or its authorized branch. On March 28, 2007, the SAFE issued the
Application Procedure for Foreign Exchange Administration for Domestic
Individuals Participating in Employee Stock Holding Plans or Stock Option Plans
of Overseas Listed Companies, or Notice 78. Under Notice 78, PRC individuals who
participate in an employee stock option holding plan or a stock option plan of
an overseas listed company are required, through a PRC domestic agent or PRC
subsidiary of the overseas listed company, to register with the SAFE and
complete certain other procedures. We and our Chinese employees who have been
granted shares or stock options pursuant to our share incentive plan are subject
to Notice 78. However, in practice, there are significant uncertainties with
regard to the interpretation and implementation of Notice 78. We are committed
to complying with the requirements of Notice 78. However, we cannot provide any
assurance that we or our Chinese employees will be able to qualify for or obtain
any registration required by Notice 78. In particular, if we and/or our Chinese
employees fail to comply with the provisions of Notice 78, we and/or our Chinese
employees may be subject to fines and legal sanctions imposed by the SAFE or
other PRC government authorities, as a result of which our business operations
and employee option plans could be materially and adversely
affected.





The
discontinuation, reduction or delay of any of the preferential tax treatments
currently available to us in the PRC could materially and adversely affect our
business, financial condition and results of operations.


28


Prior to
January 1, 2008, under the old enterprises income tax law, Xin Ao was subject to
a 33% income tax rate, which was subject to certain tax holidays and
preferential tax rates. Under the new enterprise income tax law effective
January 1, 2008, or the New EIT Law, both foreign-invested enterprises and
domestic enterprises are subject to a unified 25% income tax rate. Under the New
EIT Law, preferential tax treatments will be granted to enterprises that conduct
business in certain encouraged sectors and to enterprises that qualify as “high
and new technology enterprises”, a status reassessed every three years. In
addition, an enterprise is entitled to a 0% value-added tax rate if it uses
recycled raw materials to manufacture its products. Xin Ao was recognized as a
high and new technology enterprise in 2009 and is entitled to a 15% preferential
income tax rate for the three-year period ending 2011. In addition, Xin Ao uses
recycled raw materials to manufacture its products and was entitled to a 0%
value-added tax rate from June 2009 to June 2010. However, we cannot assure you
that Xin Ao will be able to maintain its status as “high and new technology
enterprises” and/or as an enterprise for value-added tax exemption. If Xin Ao
fails to continue to qualify or fails to receive an updated approvals, our
income tax and value-added tax expenses would increase, which would have a
material adverse effect on our net income and results of
operations.





RISKS
RELATED TO THE MARKET FOR OUR COMMON STOCK




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.


29


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 five year term beginning on October 1, 2008, with the option to extend
following expiration. Annual rent on the property is approximately
$192,000.





We
entered into three different five-year operating lease agreements during the
fourth quarter of 2009. We also entered into one four-year operating lease
agreement during the second quarter of 2010.The lease payments for the first
three manufacture plants are with different unrelated parties for a total
monthly payment of $176,000. The lease payment for the fourth manufacture plant
is also with an unrelated party for a total monthly payment of $34,314. Some
lease payments have been pre-paid by transferring the Company’s long-term
accounts receivable to the leasers at approximately the fair market value of the
future lease payments as the Company believes that a lump-sum pre-payments from
aging receivable in exchange for agreeing to no increase in the future lease
will benefit its future operation.


30


We have
an extensive fleet of 119 transit mounted concrete mixers, 18 pump trucks, and
we have access to additional 55 concrete mixer and 3 pump truck vehicles for
lease in Beijing and 31 transit mounted concrete mixers and 5 pump trucks at our
portable stations depending on specific project requirements. We also anticipate
delivery of 40 additional transit mounted concrete mixers and 5 additional pump
trucks to our fleet in Beijing. More than half of the 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.
Details of our current legal proceedings are disclosed under item 1.
Litigation.





Item
4. [Removed and Reserved]





PART
II




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





Market
Information





Our
common stock has been quoted on the OTC Bulletin Board since May 19, 2008, and
began trading on the NASDAQ Global Market in November 2009 under the symbol
“CADC”. Prior to that date, there was no active market for our common stock. The
following table sets forth the quarterly high and low sales prices of a share of
our common stock as reported by the NASDAQ Global Market for the periods
indicated. The quotations listed below reflect inter-dealer prices, without
retail mark-ups, mark-downs or commissions and may not necessarily represent
actual transactions.





Year
                                    
                                    Quarter Ending
                                    
                                    High
                                    
                                    Low2010
                                    
                                    September
      30 (as of September 24)
                                    
                                    $
                                    4.15
                                    
                                    
                                    $
                                    3.03June
      30
                                    
                                    $
                                    5.62
                                    
                                    
                                    $
                                    3.25March
      31
                                    
                                    $
                                    7.48
                                    
                                    
                                    $
                                    4.452009
                                    
                                    December
      31
                                    
                                    $
                                    7.90
                                    
                                    
                                    $
                                    4.36September
      30
                                    
                                    $
                                    6.90
                                    
                                    
                                    $
                                    2.50June
      30
                                    
                                    $
                                    3.90
                                    
                                    
                                    $
                                    1.71March
      31
                                    
                                    $
                                    2.75
                                    
                                    
                                    $
                                    1.012008
                                    
                                    December
      31
                                    
                                    $
                                    2.75
                                    
                                    
                                    $
                                    2.74September
      30
                                    
                                    $
                                    2.60
                                    
                                    
                                    $
                                    2.60June
      30 (from May 19)
                                    
                                    $
                                    2.30
                                    
                                    
                                    $
                                    0.30




As of
September 24, 2010, there were 416 stockholders of record of our common
stock.





Dividends





We have
never paid dividends on our common stock. While any future dividends will be
determined by our directors after consideration of the earnings, financial
condition, and other relevant factors, it is currently expected that available
cash resources will be utilized in connection with our ongoing
operations.





Section
15(g) of the Securities Exchange Act of 1934 — The Penny Stock
Rules





Our
shares are covered by Section 15(g) of the Securities Exchange Act of 1934 as
amended, that imposes additional sales practice requirements on broker/dealers
who sell such securities to persons other than established customers and
accredited investors (generally institutions with assets in excess of
$5,000,000, or individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 jointly with their spouses). For
transactions covered by this Section 15(g), the broker/dealer must make a
special suitability determination for the purchase and have received the
purchaser’s written agreement to the transaction prior to the sale.
Consequently, Section 15(g) may affect the ability of broker/dealers to sell our
securities and also may affect your ability to sell your shares in the secondary
market.


31


Item
6. Selected Financial Data




Not
Applicable.




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





Use
of Non-GAAP Financial Measures




The
Company makes reference to Non-GAAP financial measures in portions of
“Management’s Discussion of Financial Condition and Results of Operations”.
Management believes that investors may find it useful to review our financial
results that exclude the aggregate non-cash expenses of $3,652,427 for the year
ended June 30, 2010 on option and stock-based compensation along with preferred
stock discount accretion and change in fair value of warrant, shown in the below
chart, due to the adoption of a Financial Accounting Standards Board’s (“FASB”)
ASC 815 (EITF 07-05) accounting standard as discussed in the section “Derivative
Liability” below.




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




Year Ended June 30,2010
                        
                        
                        2009
                        
                        
                        Increase
                          (Decrease)Net Income -GAAP
                        
                        $
                        13,006,395
                        
                        
                        $
                        12,068,489
                        
                        
                        $
                        937,906Subtract:Dividends
      and accretion on redeemable convertible preferred stock
                        
                        $
                        (955,557
                        )
                        
                        $
                        (1,229,473
                        )
                        
                        $
                        (273,916
                        )Net
      Income available to Common shareholders -GAAP
                        
                        $
                        12,050,838
                        
                        
                        $
                        10,839,016
                        
                        
                        $
                        1,211,822Add
      Back:Change
      in fair value of warrants
                        
                        $
                        2,488,959
                        
                        
                        $
                        -
                        
                        
                        $
                        2,488,959Add
      Back:Change
      in Option and Equity Based Compensation
                        
                        $
                        595,888
                        
                        
                        $
                        107,477
                        
                        
                        $
                        488,411Add
      Back:Accretion
      of Discount on Redeemable Preferred Stock
                        
                        $
                        567,580
                        
                        
                        $
                        600,968
                        
                        
                        $
                        (33,388
                        )Adjusted
      Net Income available to Common shareholders -non-GAAP
                        
                        $
                        15,703,265
                        
                        
                        $
                        11,547,461
                        
                        
                        $
                        4,155,804Basic
      earnings per share - GAAP
                        
                        $
                        0.90
                        
                        
                        $
                        1.03
                        
                        
                        $
                        (0.13
                        )Add
      back:Change
      in fair value of warrant
                        
                        $
                        0.18
                        
                        
                        $
                        -
                        
                        
                        $
                        0.18Add
      back:Change
      in Option and Equity-Based Compensation
                        
                        $
                        0.04
                        
                        
                        $
                        0.01
                        
                        
                        $
                        0.03Add
      back:Accretion
      of Discount on Redeemable Preferred Stock
                        
                        $
                        0.04
                        
                        
                        $
                        0.06
                        
                        
                        $
                        (0.02
                        )Adjusted
      basic earnings per share Non-GAAP
                        
                        $
                        1.16
                        
                        
                        $
                        1.10
                        
                        
                        $
                        0.06Diluted
      earnings per share-GAAP
                        
                        $
                        0.79
                        
                        
                        $
                        0.86
                        
                        
                        $
                        (0.07
                        )Add
      back:Change
      in fair value of warrant
                        
                        $
                        0.15
                        (a)
                        
                        $
                        -
                        
                        
                        $
                        0.15Add
      back:Change
      in Option and Equity-Based Compensation
                        
                        $
                        0.04
                        (b)
                        
                        $
                        0.01
                        
                        
                        $
                        0.03Adjusted diluted earnings per
      share - Non-GAAP
                        
                        $
                        0.98
                        
                        
                        $
                        0.87
                        
                        
                        $
                        0.11Subtract:Cash
      Dividends Paid on Redeemable Preferred Stock
                        
                        $
                        0.03
                        
                        
                        $
                        0.05
                        
                        
                        $
                        (0.02
                        )Adjusted
      diluted earnings per share available to common - Non-GAAP
                        
                        $
                        0.95
                        
                        
                        $
                        0.82
                        
                        
                        $
                        0.13Weighted
      average number of sharesBasic
                        
                        
                        13,456,134
                        
                        
                        
                        10,526,719Diluted
                        
                        
                        16,521,296
                        
                        
                        
                        14,032,479


32


(a) The
Company adopted the provisions of FASB accounting standard ASC 815 (EITF 07-05),
which provides standards with respect to determining whether an instrument (or
embedded feature) is indexed to an entity’s own stock. As a result of adopting
this accounting standard, warrants previously treated as equity pursuant to the
derivative treatment exemption are no longer afforded equity treatment because
the warrants have a downward ratchet provision on the exercise price. As a
result, the warrants are not considered indexed to the Company’s own stock, and
as such, all future changes in the fair value of these warrants will be
recognized currently in earnings until such time as the warrants are exercised
or expired. Effective July 1, 2009, the Company reclassified the fair value of
these warrants from equity to liability, as if these warrants were treated as a
derivative liability since their issuance in June 2008. The Company recognized a
$2,488,959 loss from the change in fair value for the year ended June 30,
2010.





(b) The
Company records stock-based compensation expense pursuant to FASB’s accounting
standard regarding stock compensation which requires companies to measure
compensation cost for stock-based employee compensation plans at fair value at
the grant date and recognize the expense over the employee's requisite service
period. Under ASC Topic 718, the Company’s expected volatility assumption is
based on the historical volatility of Company’s stock or the expected volatility
of similar entities. The expected life assumption is primarily based on
historical exercise patterns and employee post-vesting termination behavior. The
risk-free interest rate for the expected term of the option is based on the U.S.
Treasury yield curve in effect at the time of grant. For the year ended June 30,
2010, the Company recognized $268,150 of restricted stock as compensation
expense. For the year ended June 30, 2010 and 2009, the Company recognized
$327,738 and $107,477, respectively, as compensation expenses for its stock
option plan.


33


Overview





We are a
holding company whose primary business operations are conducted through our
wholly-owned subsidiaries BVI-ACM and China-ACMH, and our variable interest
entity, Xin Ao. The Company engages in the production of advanced construction
materials for large scale commercial, residential, and infrastructure
developments. We are primarily focused on producing and supplying a wide range
of advanced ready-mix concrete materials for highly technical, large scale, and
environmentally-friendly construction projects.





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





During
the year ended June 30, 2010, we, together with our subsidiaries and variable
interest entities-supported materials, services and our high speed railway
projects through our network of five ready-mixed concrete plants throughout
Beijing and sixteen portable plants located in various provinces throughout
China. We own one concrete plant and its related equipment, and we lease four
additional plants in Beijing. In addition, we have technical and preferred
procurement agreements with five independently owned concrete mixture stations,
pursuant to which we are paid by percentages of cost savings for technical
support provided to clients and of sales price for projects we refer to other
stations due to the geographical location of our owned and leased plants. Three
of the technically serviced plants are located in Beijing, one in Datong,
Shaanxi and one in Mianyang, Sichuan. Our manufacturing services are used
primarily for our national high speed railway projects; almost all of our
general contract contractors on the high speed railway projects supply the
needed raw materials, which results in higher gross margins for us and reduces
our upfront capital investments needed to purchase raw materials. We also
produce ready-mix concrete at portable plants, which can be dismantled and moved
to new sites for new projects. Our management believes that we have the ability
to capture a greater share of the Beijing market and further expand our
footprint in China via expanding relationships and networking, signing new
contracts, and continually developing market-leading innovative and eco-friendly
ready-mix concrete products. Based on reports from the National Development and
Reform Commission, or NDRC, we anticipate that our market share will further
expand due to the announced $586 billion infrastructure stimulus packages by the
Chinese government in 2008, which will focus primary on transportation related
projects such as railway, highway, and transportation related infrastructure.
Additionally, the Ministry of Rail has announced its plans to invest $120.75
Billion (RMB823.5 Billion) in 70 new projects upgrading rail infrastructure in
calendar 2010 which together with future planned rail infrastructure investment
will total $730 Billion (RMB5 Trillion) by 2020.





Principal
Factors Affecting Our Financial Performance




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




·
            Large Scale Contractor
      Relationships. We have contracts with major construction
      contractors which are constructing key infrastructure, commercial and
      residential projects. Our sales efforts focus on large-scale projects and
      large customers which place large recurring orders and present less credit
      risk to us. For the year ended June 30, 2010, the Company did not have any
      customer account for over 10% of sales. For the year ended June 30, 2010,
      two customers accounted for approximately 8.4% of the Company’s sales and
      3.8% of the Company’s account receivables as of June 30, 2010,
      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.


34


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





PRC
Taxation





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





Xin Ao
has been using recycled raw materials in its production since its inception
which entitled us to an income tax exemption from January 1, 2003 through
December 31, 2007 and an income tax reduction from 25% to 15% from January 1,
2009 through December 31, 2011 as granted by the State Administration of
Taxation, PRC. The renewal certificate was awarded based on the company's
involvement in producing high-tech products, its research and development, as
well as its technical services.





On March
16, 2007, the National People’s Congress of the PRC passed the new enterprise
income tax law, or EIT Law, which took effect as of January 1, 2008. Under the
new EIT Law, an enterprise established outside of the PRC with “de facto
management bodies” within the PRC is considered a resident enterprise and will
normally be subject to the enterprise income tax at the rate of 25% on its
global income. The new EIT Law, however, does not define the term “de facto
management bodies.” If the PRC tax authorities subsequently determine that we
should be classified as a resident enterprise, then our global income will be
subject to PRC income tax at a tax rate of 25.0%. In addition, under the new EIT
Law, dividends from our PRC subsidiaries to us will be subject to a withholding
tax. The rate of the withholding tax has not yet been finalized, pending
promulgation of implementing regulations. Furthermore, the ultimate tax rate
will be determined by treaty between the PRC and the tax residence of the holder
of the PRC subsidiary. The new EIT Law imposes a unified income tax rate of 25%
on all domestic-invested enterprises and FIEs, such as our PRC operating
subsidiaries, unless they qualify under certain limited exceptions, but the EIT
Law permits companies to continue to enjoy their existing preferential tax
treatments until such treatments expire in accordance with their current terms.
Because the Company’s operating subsidiary, Xin Ao’s use of recycled raw
materials in its production since its inception entitled the Company to an
income tax exemption from January 1, 2003, through to December 31, 2007 and an
income tax reduction from 25% to 15% from January 1, 2009 to December 31, 2011
as granted by the State Administration of Taxation of the PRC. The income tax
exemption granted to the Company was eliminated after December 31, 2007.
Beginning January 1, 2008, the new Chinese EIT law replaced the existing laws
for Domestic Enterprises, or DES, and FIEs. Effective January 1, 2009, the
China-ACM new reduced EIT rate of 15% replaced the existing rates of 25%
currently applicable to both DES and FIEs.





All of
the Company’s concrete products that are sold in the PRC are subject to a
Chinese VAT at the rate of 6% of the gross sales price. Due to the fact that the
Company uses recycled raw materials to manufacture its products, the State
Administration of Taxation has granted the Company VAT tax exemption from August
2005 to August 2009 and a two year extension on the VAT tax exemption from June
2009 to June 2011.





Derivative
Liability





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


35


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





The
conversion option does not need to be separated from the redeemable convertible
preferred stock and accounted for as derivative liability because it contains a
residual equity interest, which on dissolution and liquidation of the Company,
entitle the preferred stockholders to liquidation value and accumulated
dividends, and rank equal with the common shareholders on an as if converted
basis. This FASB accounting standard provides that if the instrument has a
residual equity interest, it “should” be considered to be an equity instrument
and if the preferred stock is considered to be an equity instrument, then the
embedded conversion option would not be separated because its risks and rewards
are clearly and closely related to that of redeemable convertible preferred
stock.





Business
Segments and Periods Presented





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





Sales of
                                      concrete
                                    
                                    
                                    Manufacturing
                                      services
                                    
                                    
                                    Technical
                                      services
                                    
                                    
                                    Others
                                    
                                    
                                    Corporate
                                    
                                    
                                    TotalJune 30, 2010Net
      sales
                                    
                                    $
                                    70,579,631
                                    
                                    
                                    $
                                    15,654,659
                                    
                                    
                                    $
                                    4,889,460
                                    
                                    
                                    $
                                    1,917,097
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    93,040,847Depreciation
                                    
                                    
                                    (1,032,221
                                    )
                                    
                                    
                                    (1,693,581
                                    )
                                    
                                    
                                    (5,232
                                    )
                                    
                                    
                                    (151,456
                                    )
                                    
                                    
                                    (42,126
                                    )
                                    
                                    
                                    (2,924,616
                                    )Segment
      Profit
                                    
                                    
                                    5,686,379
                                    
                                    
                                    
                                    7,311,730
                                    
                                    
                                    
                                    4,543,163
                                    
                                    
                                    
                                    1,408,789
                                    
                                    
                                    
                                    (5,053,494
                                    )
                                    
                                    
                                    13,896,567Other
      income (expenses)
                                    
                                    
                                    3,942,679
                                    
                                    
                                    
                                    939,472
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (2,582,939
                                    )
                                    
                                    
                                    2,299,212Interest
      income
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    9,001
                                    
                                    
                                    
                                    9,001Interest
      expenses
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (23,834
                                    )
                                    
                                    
                                    (23,834
                                    )Capital
      expenditure
                                    
                                    
                                    (409,564
                                    )
                                    
                                    
                                    (6,727,104
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (41,061
                                    )
                                    
                                    
                                    (7,177,729
                                    )Total
      assets as of June 30, 2010
                                    
                                    $
                                    69,101,360
                                    
                                    
                                    $
                                    15,326,776
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    1,183,304
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    85,611,440June
      30, 2009Net
      sales
                                    
                                    $
                                    28,118,492
                                    
                                    
                                    $
                                    7,053,728
                                    
                                    
                                    $
                                    1,924,089
                                    
                                    
                                    $
                                    2,618,493
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    39,714,802Depreciation
                                    
                                    
                                    (1,537,366
                                    )
                                    
                                    
                                    (404,449
                                    )
                                    
                                    
                                    (5,084
                                    )
                                    
                                    
                                    (237,563
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (2,184,462
                                    )Segment
      Profit
                                    
                                    
                                    7,249,594
                                    
                                    
                                    
                                    4,232,395
                                    
                                    
                                    
                                    1,762,193
                                    
                                    
                                    
                                    1,653,732
                                    
                                    
                                    
                                    (1,418,948
                                    )
                                    
                                    
                                    13,478,966Other
      income (expenses)
                                    
                                    
                                    1,686,066
                                    
                                    
                                    
                                    423,224
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (602,020
                                    )
                                    
                                    
                                    1,507,270Interest
      income
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Interest
      expenses
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (802,650
                                    )
                                    
                                    
                                    (802,650
                                    )Capital
      expenditure
                                    
                                    
                                    (4,219
                                    )
                                    
                                    
                                    (7,381,443
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (53,000
                                    )
                                    
                                    
                                    (7,438,622
                                    )Total
      assets as of June 30, 2009
                                    
                                    $
                                    41,905,192
                                    
                                    
                                    $
                                    10,512,222
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    3,902,359
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    56,319,733


36


Concrete
Sales Business





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





Manufacturing
Services Business





Our
manufacturing services business segment is comprised of the formulation,
production and delivery of project-specific concrete mixtures primarily through
our current portable plant network of 16 rapid assembly and deployment batching
plants, located in various provinces throughout China. Our clients will purchase
and provide the raw materials in volume on a separate account which we will then
proportion and mix according to our formulation for a given project’s
specifications. At present, our manufacturing services business segment is
primarily dedicated to various high speed rail projects in China which demand
very high quality standards on a time sensitive work schedule.





Technical
Services Business





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





Other
Services





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





Consolidated
Results of Operations




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





Years EndedJune 30,2010
                  
                  
                  2009Increase
                  
                  
                  Percentage
                    IncreaseTotal
      revenue
                  
                  $
                  93,040,847
                  
                  
                  $
                  39,714,802
                  
                  
                  $
                  53,326,045
                  
                  
                  
                  134
                  %Total
      cost of revenue
                  
                  
                  73,704,701
                  
                  
                  
                  24,518,042
                  
                  
                  
                  49,186,659
                  
                  
                  
                  201
                  %Gross
      profit
                  
                  
                  19,336,146
                  
                  
                  
                  15,196,760
                  
                  
                  
                  4,139,386
                  
                  
                  
                  27
                  %Selling,
      general and administrative expenses
                  
                  
                  5,439,579
                  
                  
                  
                  1,717,794
                  
                  
                  
                  3,721,785
                  
                  
                  
                  217
                  %Other
      income, net
                  
                  
                  2,284,379
                  
                  
                  
                  704,620
                  
                  
                  
                  1,579,759
                  
                  
                  
                  224
                  %Income
      before provision for income taxes
                  
                  
                  16,180,946
                  
                  
                  
                  14,183,586
                  
                  
                  
                  1,997,360
                  
                  
                  
                  14
                  %Income
      taxes expense
                  
                  
                  3,174,551
                  
                  
                  
                  2,115,097
                  
                  
                  
                  1,059,454
                  
                  
                  
                  50
                  %Net
      income
                  
                  
                  13,006,395
                  
                  
                  
                  12,068,489
                  
                  
                  
                  937,906
                  
                  
                  
                  8
                  %Dividends
      and accretion on redeemable preferred
                  
                  
                  955,557
                  
                  
                  
                  1,229,473
                  
                  
                  
                  (273,916)
                  
                  
                  
                  (22)
                  %Net
      income available to Common shareholders
                  
                  $
                  12,050,838
                  
                  
                  $
                  10,839,016
                  
                  
                  $
                  1,211,822
                  
                  
                  
                  11
                  %


37


Comparison
of the years Ended June 30, 2010 and 2009





Revenue.
Our revenue is generated from sales of our advanced ready-mix concrete products,
manufacturing services, technical consulting services, and others. For the year
ended June 30, 2010, we generated revenue of $93,040,847 compared to $39,714,802
during the same period of 2009, an increase of $53,326,045 or 134%. We increased
our production volumes in and outside of Beijing this fiscal year compared to
our last fiscal year.





As a
result, our concrete sales revenue was $70,579,631 for the year ended June 30,
2010, an increase of $42,461,139 or 151%, despite a decrease in unit sale price,
compared to the year ended June 30, 2009. The increase in revenues attributable
to concrete sales was principally due to addition of two new fixed
plants.





During
the year ended June 30, 2010, we continued to supply concrete products to
thirteen railway projects throughout China through our portable plants,
specifically the projects located in Shaanxi Province, Jiangsu Province, Hebei
Province, Guangxi Province, Zhejiang Province, Guangdong Province, Liaoning
Province, and Beijing. These thirteen projects contributed $15,654,659 to our
total revenue for the year ended June 30, 2010, an increase of $8,600,931 or
122%, compared to the year ended June 30, 2009. The increase in revenues
attributable to our manufacturing services was principally due to addition of
seven new portable plants to service a growing business pipeline. For these
railway projects, the general contractors generally supplied their own raw
materials while we provided manufacturing and transportation
services.





In
addition, revenue generated through our technical consulting services was
$4,889,460 during the year ended June 30, 2010, an increase of $2,965,371 or
154% compared to the same fiscal quarter in 2009. During the year ended June 30,
2010, we also rented our mixer trucks to mixture stations which generated mixer
rental revenues of $1,208,618, a decrease of $1,409,875 or 54%, as we
experienced greater overall fleet capacity utilization as the business expands
and we also generated marketing cooperation revenue of $422,356. We anticipate
our overall sales revenue will continue to grow due to the Chinese government’s
announcement of a 4 trillion Yuan (USD$586 billion) stimulus package in November
2008 as well as the Chinese government’s railroad project plans, which are
expected to cost a total of $730 billion through 2020 and the 12th 5 Year
Plan installment which will be announced during our First Half FY
2011.





We
anticipate that we will be a direct beneficiary of transportation and
infrastructure build-out from China’s stimulus package. In addition, we plan to
continue expanding our business into new geographical markets by leveraging our
strong relationships with major contractors throughout China.





Cost of
Sales. Cost of
Sales, which consists of direct labor, rentals, depreciation, other overhead and
raw materials, including inbound freight charges, was $73,704,701 for the year
ended June 30, 2010, as compared to $24,518,042 for the year ended June 30,
2009, an increase of $49,186,659, or 201%. The increase of cost of revenue was
due to overall increase in production from our five fixed concrete plants in the
Beijing area and increased production on manufacturing and technical services as
well as other services compared to the same period in 2009. The increase in cost
of sales was also due to the addition of seven new portable plants, the
increases in crude oil prices which increased the costs of raw materials and
transportation during this quarter compared to the same period last year. We are
uncertain whether crude oil prices will maintain at the current level in the
near future.





The cost
of sales on concrete increased $43,966,822 this fiscal year compared to our
prior fiscal year. Such increase was due to an increase in our concrete
production as a result of additional plants we added in Beijing during the
second fiscal quarter leading to a larger base of raw material purchases
supporting a higher overall volume of traditional concrete sales, as well as the
increase in crude oil prices as indicated above as compared to the same period
last year.


38


Cost of
sales with respect to our manufacturing services increased $5,493,152 during the
fiscal year ended June 30, 2010, as compared to the same period last year. Such
increase was due to the increase in total operational capacity and a decrease in
the utilization rate for the four new portable plants we added to our operations
in the third fiscal quarter, as well as an increase in transportation costs. Our
production and utilization rates were below average during the extended holiday
period associated with Chinese New Year but quickly ramped up again for the
third and fourth fiscal quarters. The primary reason for the Cost of Sales
increase is due to the decline in selling price of Beijing Concrete Sales which
contributes a disproportionate amount 75% to our topline. Beijing Concrete Sales
showed an average gross margin of 28% in FY 2009 due to the Olympics which would
have meant approximately $13M in additional gross profit this year. But because
our average gross margin narrowed to 8.5% so it made our COGS appear
larger percentage wise.




Gross
Profit. Our gross profit is equal to the difference between our revenue
and cost of sales. Gross profit was $19,336,146 for the fiscal year ended June
30, 2010, as compared to $15,196,760 for the year ended June 30, 2009. Our gross
profit for sale of concrete was $5,955,497, or 8.4% of revenue, for the year
ended June 30, 2010, compared to $7,461,180, or 27% of revenue, for the same
period last year, a decrease of $1,505,683. The lower gross margin for concrete
sales for the year ended June 30, 2010, compared with the same period in 2009,
reflects exceptionally high demand, and much higher industry prices, for
capacity constrained premium concrete blends within unusually tight and
convergent project timelines for many large Beijing Olympic era projects
completed in the first half of calendar 2009 with the last installment of
Olympic-era projects, namely the Beijing South Railway Station which was
completed by the 4th fiscal
quarter of 2009.





The
decrease in gross profit margin with respect to sales of concrete compared to
the same period last year was also due to the increase in costs of raw materials
and transportation as a result of the increase in the price of crude oil,
municipal traffic restrictions, the lower utilization rate of our newly leased
plants due to the extended holiday period associated with Chinese New Year along
with the diversion of (out of 119 national total) 21 of 54 Beijing transit
mixers and (out of 18 national total) 3 of 7 Beijing pump trucks to support
portable plants. Despite the drop from 27% in FY 2009, our gross margin with
respect to our sales of concrete showed steady improvement in Q4-2010 to 10.35%
up from 9.3% in Q3-2010, 9.1% in Q2-2010 and 3.7% in Q1-2010 compared to an
industry average of 5% as we focused on higher quality sales.





Our gross
profit with respect to our manufacturing services was $7,393,252, or 47%, for
the year ended June 30, 2010, an increase of $3,107,779 from 2009. Such increase
was principally due to the diversion of Beijing based truck fleet to support our
portable plants, which was offset by an increase of fixed costs incurred as a
result of the addition of new portable plants before they commenced production,
as well as the increase in costs of transportation this fiscal year compared to
last fiscal year.





Our gross
profit margin with respect to technical services was $4,568,625, or 93%, for the
year ended June 30, 2010, compared to $1,776,671, or 92%, for the same period
last year, an increase of $2,791,954 or 157% from 2009.





Our gross
margins with respect to mixer rentals and marketing cooperation were $1,057,162
and $315,162, respectively; and their margin rates were 87% and 75%,
respectively during the year ended June 30, 2010. We plan to continue expanding
our manufacturing and technical services, which produce the highest scalable
gross profits among our revenue sectors.


39


Selling, General
and Administrative Expenses. Selling, general and administrative expenses
consist of sales commissions, advertising and marketing costs, office rent and
expenses, costs associated with staff and support personnel who manage our
business activities, and professional and legal fees paid to third parties. We
incurred selling, general and administrative expenses of $5,439,579 for the year
ended June 30, 2010, an increase of $3,721,785, or 217%, as compared to
$1,717,794 for the year ended June 30, 2009. The increase was principally due to
an increase in employment, salary and benefit and lease expenses resulting from
higher production and a larger base of operations during the year, and
professional and consulting expenses from being a public company and resulting
from our overall production expansion during the year. Although accounts
receivable have increased in proportion with revenues, they have not grown as
quickly as revenues. Meanwhile collection days have improved to 97 average
turnover days for the year ended June 30, 2010 as compared to 118 average
turnover days for the year ended June 30, 2009, with a disproportionate impact
coming from Beijing concrete sales accounts receivable inclusive of raw material
unit sales costs with 113 average turnover days in the year ending June 30, 2010
as compared to manufacturing service accounts receivable which do not include
raw materials unit sales costs with 48 average turnover days in the year ended
June 30, 2010.





Other Income
(Expense), net. Our other income (expense) consists of valued added tax
exemption from the PRC government, interest income (expense), change in fair
value of warrants, and other non-operating income (expense). We incurred net
other income of $2,284,379 for the year ended June 30, 2010, as compared to net
other income of $704,620 for the year ended June 30, 2009, an increase of
$1,579,759 or 224%. The increase in net other income was primarily due to a
decrease in other non-operating expenses and interest expenses. We also
experienced an increase in other subsidy income to $4,881,152 for the year ended
June 30, 2010, as compared to $2,109,290 in the same period of 2009, an increase
of $2,771,862 or 131%. Due to the fact that we use recycled raw materials to
manufacture our products, the State Administration of Taxation granted us VAT
tax exemption from August 2005 to August 2009, and thereafter a two year
extension on the VAT tax exemption from June 2009 to June 2010. The VAT tax
collected during the aforementioned period from our customers is retained by the
Company and recorded as other subsidy income. In addition, we had interest
expense of $23,834 for the year ended June 30, 2010, as compared to $802,650 for
the year ended June 30, 2009, a decrease of $778,816. The decrease was due to a
short-term loan payoff of $4,699,119 (RMB 30 million) to Beijing International
Trust & Investment Co.





Provision for
Income Taxes. Provision for income taxes amounted to $3,174,551 and $
2,115,097 for the years ended June 30, 2010 and 2009, respectively. We have used
recycled raw materials in our concrete production since our inception, which
entitled us to an income tax exemption from January 1, 2003 through December 31,
2007, and an income tax rate reduction from January 1, 2009 to December 31,
2011, as granted by the State Administration of Taxation, PRC. From January 1,
2008 through December 31, 2008, we were subject to a 25% income tax rate. Since
January 1, 2009, we have been subject to a 15% income tax rate. Accordingly, our
total income taxes incurred for the fiscal year ended December 31, 2009
comprised of a 15% income tax rate compared to a 25% income tax rate for the
same period last year. The new tax rate was granted to the Company in June 2009,
and the provision for income taxes provision was retro-actively applied to the
beginning of the calendar year 2009 in the fourth year ended June 30, 2009. In
the past, XinAo has paid the corporate income tax on behalf of China-ACMH, and
there could be a potential liability for additional taxes for China-ACMH, though
at present the Company is unable to determine the extent of any such liability,
if any.




Net (Loss)
Income. We
recognized net income of $13,006,395 for the year ended June 30, 2010, as
compared to net income of $12,068,489 for the same period in 2009, an increase
of $937,906. Such increase in net income was attributable to a yearly increase
in our plant production capacity across our plant network including the addition
of two new fixed plants in Beijing and seven portable plants across the country,
increased fleet support to our plant network, higher gross profits on our
thirteen railway projects, technical services and marketing cooperation, all of
which were offset by an increase in production costs for newly launched fixed
plants new portable plants not yet in operation, selling, general, and
administrative expense on an increased labor base of a larger scale operations,
as well as an accounts receivable provision for doubtful accounts of $456,085 of
which $278,536 is attributable to quality assurance deposits, a non-cash charge
of $2,488,959 related to changes in the fair value of our outstanding warrants,
a non-cash accretion of discount on the Redeemable Convertible Preferred of
$567,980 and a non-cash charge of $595,888 related to stock and option-based
compensation. As discussed below, on July 1, 2009, we adopted an accounting
standard pursuant to which the warrants issued in connection with our June 11,
2008 private placement were re-classed from equity to derivative warrant
liabilities and marked to fair market value. Our management believes that our
profits may increase during the next 12 months as we continue to expand into
service sectors that generate higher gross margins and because we are a direct
beneficiary of Chinese government’s stimulus package on infrastructure projects.
We also plan to lease or build new plants in order to increase our accessibility
to construction sites located in Beijing, expand into other geographical areas,
as well as vertically integrate our operations across the supply chain, which we
believe will lower our costs and provide greater profitability.





40





Dividends and
accretion on redeemable preferred stock. The decrease in dividends and
accretion on redeemable convertible preferred stock of $273,916 for the year
ended June 30, 2010, as compared to the same period of 2009, was due to
conversions of our redeemable preferred stockholders into common, thereby
proportionately lowering the amount in respect to the offering in June 2008. The
decrease in dividends and accretion on redeemable convertible preferred included
preferred dividend expense of $387,977 and $628,505 for the year ended June 30,
2010 and 2009, respectively; and accretion of a discount on the preferred stock
of $567,580 and $600,968 for the year ended June 30, 2010 and 2009,
respectively.




Net Income
available to Common shareholders. Excluding the effect from non-cash
charges related to changes in fair market of warrants, accretion of discount on
redeemable preferred stock and stock and option-based compensation, our net
income available to Common shareholders would be $15,703,265 for the year ended
June 30, 2010, an increase of $4,155,804 or 36%,as compared to net income after
cash dividends paid of $11,547,461 for the same period in 2009. See the section
“Use of Non-GAAP Financial Measures” above for a discussion regarding the
presentation of net income excluding non-cash gain (loss).





Liquidity
and Capital Resources




As of
June 30, 2010, we had cash and cash equivalents of $3,300,820 and restricted
cash of $57,580. The following table provides detailed information about our net
cash flow for financial statement periods presented in this report:




Summary of Cash Flow StatementsFor the years endedJune 30,2010
                                  
                                  2009Net
      cash (used in) provided by operating activities
                                  
                                  $
                                  (192,516)
                                  
                                  
                                  $
                                  3,361,128Net
      cash used in investing activities
                                  
                                  
                                  (7,099,316
                                  )
                                  
                                  
                                  (1,771,915
                                  )Net
      cash provided by financing activities
                                  
                                  
                                  6,936,571
                                  
                                  
                                  
                                  136,572Effect
      of foreign currency translation on cash and cash
    equivalents
                                  
                                  
                                  21,276
                                  
                                  
                                  
                                  (1,475
                                  )Net
      (decrease) increase in cash and cash equivalent
                                  
                                  $
                                  (333,985)
                                  
                                  
                                  $
                                  1,724,310





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





Net Cash Provided
by Operating Activities. Net cash used in operating activities totaled
$192,516 for the year ended June 30, 2010, as compared to net cash provided in
operating activities of $3,361,128 for the year ended June 30, 2009. The
decrease in net cash provided by operating activities was primarily due to an
increase of accounts receivable and decrease in taxes payable which were
partially offset by an increase in our cash flows from increased sales
activities and a decrease of other receivables during the year ended June 30,
2010. We expect our cash flow from operating activities to improve as the
construction industry in Beijing increases its activity, we win a larger
proportion of manufacturing services revenues and we strengthen our efforts to
negotiate more favorable terms with our suppliers and customers.




Net Cash Used In
Investing Activities. Net cash used in investing activities was
$7,099,316 for the year ended June 30, 2010, as compared to $1,771,915 for the
year ended June 30, 2009. The cash was principally used to purchase new
production equipment, a larger truck fleet and office equipment during the year
ended June 30, 2010 to support a growing network of fixed and portable
plants.





41





Net Cash Provided
by Financing Activities. Net cash provided by financing activities
totaled $6,936,571 for the year ended June 30, 2010, as compared to net cash
provided by financing activities of $136,572 for the year ended June 30, 2009.
The increase in cash provided by financing activities was due to net proceeds of
our July 2009 common stock offering totaled $1,497,242, net proceeds from our
March 1, 2010 underwritten common stock offering of $9,619,852, and proceeds
from options and warrant exercises of $758,851 offset by a short-term loan
payoff of $4,699,119 (RMB 30 million) to Beijing International Trust &
Investment Co. and preferred dividends paid of $543,631. The net proceeds from
the common stock offering have been and will be used for purchasing plant
equipment, concrete mixers and pump trucks, working capital and general
corporate purposes.





Cash. As of June 30, 2010, we had
cash of $3,300,820 as compared to $3,634,805 as of June 30, 2009. This decrease
is due primarily to property, plant and equipment purchases and advances on
equipment amounting to $7,177,729.





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





Loan
Facilities





We had a
total of $0 and $4,512,200 outstanding on loans and credit facilities as of June
30, 2010 and June 30, 2009 respectively. The loans consisted of the
following:





June 30, 2010
                                
                                
                                June 30, 2009Loan from Beijing International Trust Co, Ltd. interest rate
      of 15% per annum, due July 15, 2009, guaranteed by Rayland Credit
      Guarantee Co. Ltd. (paid in full in July 2009)
                                
                                $
                                
                                
                                
                                $
                                4,395,000Loan
      from various employees, effective interest rate of 20% per annum, due upon
      demand, unsecured.
                                
                                
                                
                                
                                
                                
                                117,200Total short term loans
                                
                                $
                                0
                                
                                
                                $
                                4,512,200





Total
interest expense on short-term loans for the year ended June 30, 2010 and 2009
amounted to $23,834 and $802,804, respectively.





Obligations
Under Material Contracts





Below is
a table setting forth our contractual obligations as of June 30,
2010:





Payment due in year ended June 30,Total
                                  
                                  
                                  2011
                                  
                                  
                                  2012
                                  
                                  
                                  2013
                                  
                                  
                                  2014
                                  
                                  
                                  2015
                                  
                                  
                                  ThereafterLong
      term debt obligationsCapital
      commitmentOperating
      lease obligations
                                  
                                  $
                                  2,889,254
                                  
                                  
                                  $
                                  601,442
                                  
                                  
                                  $
                                  934,972
                                  
                                  
                                  $
                                  934,972
                                  
                                  
                                  $
                                  417,868
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Purchase
      obligationsTotal
                                  
                                  $
                                  2,889,254
                                  
                                  
                                  $
                                  601,442
                                  
                                  
                                  $
                                  934,972
                                  
                                  
                                  $
                                  934,972
                                  
                                  
                                  $
                                  417,868
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -




42





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, or FIN
46(R), variable interest entities, or VIEs, are generally entities that lack
sufficient equity to finance their activities without additional financial
support from other parties or whose equity holders lack adequate decision making
ability. All VIEs with which the Company is involved must be evaluated to
determine the primary beneficiary of the risks and rewards of the VIE. The
primary beneficiary is required to consolidate the VIE for financial reporting
purposes. In connection with the adoption of FIN 46(R), the Company concludes
that Xin Ao is a VIE and China ACM is the primary beneficiary. Under FIN 46(R)
transition rules, the financial statements of Xin Ao are then consolidated into
the Company’s consolidated financial statements.





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





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




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





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





·
            Delivery has occurred or services
      have been rendered;





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





·
            Collectability of payment is
      reasonably assured.





43





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





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





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





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





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





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





Value added
tax. Enterprises or individuals who sell commodities, engage in repair
and maintenance or import and export goods in the PRC are subject to a VAT. The
standard VAT rate is 6% of gross sales for the Company’s industry. A credit is
available whereby VAT paid on the purchases of raw materials used in the
production of the Company’s finished products can be used to offset the VAT due
on sales of finished products. Due to the fact that the Company uses recycled
raw materials to manufacture its products, the State Administration of Taxation
has granted the Company VAT Tax Exemption from August 2005 through to August
2009 and a two year tax (VAT) credit extension from August 2009 through August
2011. For the years ended June 30, 2010 and 2009, $4,881,152 and $2,109,290
respectively, was recognized as other subsidy income from VAT taxes
collected.





Recently
Issued Accounting Pronouncements





In June
2009, the FASB issued an accounting standard amending the accounting and
disclosure requirements for transfers of financial assets. This accounting
standard requires greater transparency and additional disclosures for transfers
of financial assets and the entity’s continuing involvement with them and
changes the requirements for derecognizing financial assets. In addition, it
eliminates the concept of a qualifying special-purpose entity (“QSPE”). This
accounting standard is effective for financial statements issued for fiscal
years beginning after November 15, 2009. The Company is currently evaluating the
impact of this ASU, however, the Company does not expect the adoption of this
ASU to have a material impact on its consolidated financial
statements.





44





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





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





In
October 2009, the FASB issued an ASU regarding accounting for own-share lending
arrangements in contemplation of convertible debt issuance or other financing.
This ASU requires that at the date of issuance of the shares in a share-lending
arrangement entered into in contemplation of a convertible debt offering or
other financing, the shares issued shall be measured at fair value and be
recognized as an issuance cost, with an offset to additional paid-in capital.
Further, loaned shares are excluded from basic and diluted earnings per share
unless default of the share-lending arrangement occurs, at which time the loaned
shares would be included in the basic and diluted earnings-per-share
calculation. The adoption of this guidance did not have a material impact on the
Company’s consolidated financial statements.





In
November 2009, the FASB issued an ASU regarding accounting for stock dividends,
including distributions to shareholders with components of stock and cash. This
ASU clarifies that the stock portion of a distribution to shareholders that
contains components of cash and stock and allows shareholders to select their
preferred form of the distribution (with a limit on the amount of cash that will
be distributed in total) should be considered a stock dividend and included in
EPS calculations as a share issuance. The adoption of this guidance did not have
a material impact on the Company’s consolidated financial
statements.





In
December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of
Financial Assets. This Accounting Standards Update amends the FASB Accounting
Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140.The amendments
in this Accounting Standards Update improve financial reporting by eliminating
the exceptions for qualifying special-purpose entities from the consolidation
guidance and the exception that permitted sale accounting for certain mortgage
securitizations when a transferor has not surrendered control over the
transferred financial assets. In addition, the amendments require enhanced
disclosures about the risks that a transferor continues to be exposed to because
of its continuing involvement in transferred financial assets. Comparability and
consistency in accounting for transferred financial assets will also be improved
through clarifications of the requirements for isolation and limitations on
portions of financial assets that are eligible for sale accounting. The adoption
of this ASU did not have a material impact on its consolidated financial
statements.





45





In
December, 2009, FASB issued ASU No. 2009-17, Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities. This Accounting
Standards Update amends the FASB Accounting Standards Codification for the
issuance of FASB Statement No. 167, Amendments to FASB Interpretation
No. 46(R). The amendments in this Accounting Standards Update replace the
quantitative-based risks and rewards calculation for determining which reporting
entity, if any, has a controlling financial interest in a variable interest
entity with an approach focused on identifying which reporting entity has the
power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the
entity. An approach that is expected to be primarily qualitative will be more
effective for identifying which reporting entity has a controlling financial
interest in a variable interest entity. The amendments in this Update also
require additional disclosures about a reporting entity’s involvement in
variable interest entities, which will enhance the information provided to users
of financial statements. The adoption of this ASU did not have a material impact
on its consolidated financial statements.





In
January 2010, FASB issued ASU No. 2010-01– Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings
Per Share). The adoption of this ASU did not have a material impact on its
consolidated financial statements.





In
January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect accounting and reporting by an entity that exchanges
a group of assets that constitutes a business or nonprofit activity for an
equity interest in another entity. The amendments in this update are effective
beginning in the period that an entity adopts SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.”
The amendments in this update should be applied retrospectively to the first
period that an entity adopted SFAS No. 160. The adoption of this ASU did not
have a material impact on its consolidated financial statements.





In
January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair
Value Measurements. This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers. 2) Activity in Level 3 fair value measurements. In
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), a reporting entity should present separately information about
purchases, sales, issuances, and settlements (that is, on a gross basis rather
than as one net number). This update provides amendments to Subtopic 820-10 that
clarifies existing disclosures as follows: 1) Level of disaggregation. A
reporting entity should provide fair value measurement disclosures for each
class of assets and liabilities. A class is often a subset of assets or
liabilities within a line item in the statement of financial position. A
reporting entity needs to use judgment in determining the appropriate classes of
assets and liabilities. 2) Disclosures about inputs and valuation techniques. A
reporting entity should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements. Those disclosures are required for fair value measurements that
fall in either Level 2 or Level 3. The adoption of this guidance did not have a
material impact on the Company’s consolidated financial statements.





In
February 2010, FASB issued ASU No. 2010-9 –Amendments to Certain Recognition and
Disclosure Requirements. This update addresses certain implementation issues
related to an entity’s requirement to perform and disclose subsequent-events
procedures, removes the requirement that public companies disclose the date of
their financial statements in both issued and revised financial statements.
According to the FASB, the revised statements include those that have been
changed to correct an error or conform to a retrospective application of U.S.
GAAP. The adoption of this ASU did not have a material impact on the Company’s
consolidated financial statements.





46





In March
2010, FASB issued ASU No. 2010-10 –Amendments for Certain Investment Funds. This
update defers the effective date of the amendments to the consolidation
requirements made by FASB Statement 167 to a reporting entity’s interest in
certain types of entities. The deferral will mainly impact the evaluation of
reporting enterprises’ interests in mutual funds, private equity funds, hedge
funds, real estate investment entities that measure their investment at fair
value, real estate investment trusts, and venture capital funds. The ASU also
clarifies guidance in Statement 167 that addresses whether fee arrangements
represent a variable interest for all service providers and decision makers. The
adoption of this ASU did not have a material impact on its consolidated
financial statements.





In March
2010, FASB issued ASU No. 2010-11 –Scope Exception Related to Embedded Credit
Derivatives. Embedded credit-derivative features related only to the transfer of
credit risk in the form of subordination of one financial instrument to another
are not subject to potential bifurcation and separate accounting as clarified by
recently issued FASB guidance. Other embedded credit-derivative features are
required to be analyzed to determine whether they must be accounted for
separately. This update provides guidance on whether embedded credit-derivative
features in financial instruments issued by structures such as collateralized
debt obligations (CDOs) and synthetic CDOs are subject to bifurcation and
separate accounting. The guidance is effective at the beginning of a company’s
first fiscal quarter beginning after June 15, 2010. The Company does not expect
the adoption of this ASU to have a material impact on the Company’s consolidated
financial statements.





In April
2010, the FASB issued ASU No. 2010-13, Compensation – Stock Compensation: Effect
of Denominating the Exercise Price of a Share-Based Payment Award in the
Currency of the Market in Which the Underlying Equity Security Trades. ASU
2010-13 clarifies that a share-based payment award with an exercise price
denominated in the currency of a market in which a substantial portion of the
entity’s equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore,
such an award should not be classified as a liability if it otherwise qualifies
as equity. ASU 2010-13 is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2010, with early adoption
permitted. The Company is currently evaluating the potential impact of this
standard.





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.





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.
In a response to a slowdown in the rate of growth of the Chinese economy and the
global economic slowdown, The Chinese central bank cut rates five times in year
2008. The new interest rates are approximately 5.31% for Renminbi bank loans
with a term of 12 months. The change in interest rates has minimum impact on our
bank loans. The Company also paid off its short term bank loan balance with
Beijing International Trust Co, Ltd. in July 2009 for approximately $4.4 million
dollars.





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 have been
determined by reference to past default experience and the current economic
environment.





47





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.





Item
7A. Quantitative and Qualitative Disclosures About Market Risk





Not
Applicable.





Item
8. Financial Statements and Supplementary Data





The full
text of our audited consolidated financial statements as of June 30, 2010 and
2009 begins on page F-1 of this Report.




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




None.





Item
9A(T). Controls and Procedures




Disclosure
Controls and Procedures





We
maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Exchange Act) that are designed to ensure that information that would be
required to be disclosed in Exchange Act reports is recorded, processed,
summarized and reported within the time period specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our
management, including to our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.





48





As
required by Rule 13a-15 under the Exchange Act, our management, including our
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of our disclosure controls and procedures as of June
30, 2010. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that as of June 30, 2010, and as of the date that
the evaluation of the effectiveness of our disclosure controls and procedures
was completed, our disclosure controls and procedures were effective to satisfy
the objectives for which they are intended.




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 Exchange Act. The Exchange Act defines internal control over financial
reporting as a process designed by, or under the supervision of, our principal
executive and principal financial officers and effected by our board of
directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America and includes those
policies and procedures that:





·
            Pertain to the maintenance of
      records that in reasonable detail accurately and fairly reflect the
      transactions and dispositions of the assets of the
      Company;





·
            Provide reasonable assurance that
      transactions are recorded as necessary to permit preparation of financial
      statements in accordance with accounting principles generally accepted in
      the United States of America, and that our receipts and expenditures are
      being made only in accordance with authorizations of our management and
      directors; and;





·
            Provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use
      or disposition of our assets that could have a material effect on our
      financial statements.





All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, 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 or procedures may deteriorate.




Management
assessed the effectiveness of our internal control over financial reporting as
of June 30, 2010. In making this assessment, management used the framework set
forth in the report entitled Internal Control - Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.
The COSO framework summarizes each of the components of a company’s internal
control system, including (i) the control environment, (ii) risk assessment,
(iii) control activities, (iv) information and communication, and (v)
monitoring. Based on our assessment we determined that, as of June 30, 2010, our
internal control over financial reporting is effective based on those
criteria.





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 SEC that permit the Company
to provide only management’s report in this annual report.




Changes
in Internal Controls over Financial Reporting





As of
June 30, 2010, our management determined that our internal controls over
financial reporting were effective. Over the past year, our management has
progressively implemented appropriate measures to remedy all material weaknesses
and significant deficiencies with respect to the Company’s internal controls.
Specifically, we have (i) hired a cross-border Chief Financial Officer, (ii)
retained an external consultant to review and cross-check the accounting of
certain equity transactions and the preparation of our financial statements, and
(iii) more fully integrated our operating and accounting systems to reduce the
possibility of human error, while also performing ongoing manual cross-checks
and verifications per contract to maintain the accuracy of software based
cost-accounting systems.





49





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 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 DirectorJeremy
      Goodwin
                
                36
                
                President,
      Chief Financial Officer, DirectorDenis
      Slavich
                
                69
                
                DirectorShaojian
      (Sean) Wang
                
                45
                
                DirectorLarry
      Goldman
                
                53
                
                DirectorJing
      Liu
                
                37
                
                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 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 has not held any other public company directorships during
the past five years




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 Associations. 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. Mr. He has not held any other public
company directorships during the past five years.





50





Jeremy Goodwin. Mr. Goodwin
was appointed President of our Company on January 25, 2010 and Chief Financial
Officer on February 15, 2010. Mr. Goodwin has also been 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. During the past five years, Mr. Goodwin has served as a
member of the board of directors of Sino Greenland Corporation (OTCBB: SGLA) for
1 year.





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.





Denis SlavichDenis Slavich
became a member of our Board of Directors on August 11, 2009. Mr. Slavich has
extensive experience in the areas of engineering, management and finance,
including his service from 1971 to 1991 in various executive positions at
Bechtel Corporation, Inc. including Sr. VP, CFO, and director, Sr. VP and
manager of the International Power Division and project manager for Bechtel’s
operations at the Lawrence Livermore National Laboratory. From 1995 to 1996, Mr.
Slavich served as the CFO for Morrison Kundsen Corporation, an Idaho-based
construction company. From 1998 to 2000 Mr. Slavich was the CFO and director of
KMR Power Corporation and was responsible for the development of an
international IPP company that developed projects in Columbia as well as other
areas. From 2000 until 2002, he served as Vice President and CFO of BigMachines
Inc., a software company. Mr. Slavich also served as acting President for
Kellogg Development Corporation, a division of M.W. Kellogg, during 1997. From
1991 to 1995, Mr. Slavich was also a Vice President of Marketing for Fluor
Daniel. Since 2001, Mr. Slavich has served as the Chairman, and since 2008 as
CEO, for Leading Edge Technologies in Dubai, UAE, a company engaged in the
development of water desalinization technologies. He is also currently an
advisor and board member for a number of additional firms, including Synthesis
Energy Systems, Inc. (Nasdaq: SYMX), for which he serves as the chairman of the
audit committee of the board of directors. Mr. Slavich received his Ph.D. from
Massachusetts Institute of Technology, his M.B.A. from the University of
Pittsburgh and his B.S. in Electrical Engineering from the University of
California at Berkeley.





Mr.
Slavich serves as a member of our Audit Committee and Nominating and Governance
Committee.





Shaojian (Sean) Wang. Sean
Wang became a member of our Board of Directors on August 11, 2009. Mr. Wang has
over 20 years of management and finance experience working with both U.S. and
China-based companies. Since June 2008, Mr. Wang has served as executive
director and CFO of SOHO China, Ltd., a developer of commercial buildings in
central Beijing, and is responsible for financial and fiscal management of the
company’s operations. From April 2006 to June 2008, Mr. Wang served as President
and COO for Hurray! Holding Co., Ltd., a provider of wireless value added
services and music and music-related products to mobile users in China. From May
2004 to March 2006, Mr. Wang served as COO and CFO for Opta Corporation, a
California- based electronics company. Mr. Wang holds an MBA from the Carlson
School of Management at the University of Minnesota, a Bachelor of Science
degree from the Chinese Exchange Student Program, Economics from Hamline
University in Minnesota and a degree in National Economic Management from
Beijing University in China. Mr. Wang is fluent in both English and Mandarin
Chinese.





Mr. Wang
serves as a member of our Compensation Committee and as chairman of our
Nominating and Governance Committee.





51





Larry Goldman. Larry Goldman
became a member of our Board of Directors on August 11, 2009. Mr. Goldman is a
Certified Public Accountant, with over 30 years of auditing, consulting and
technical SEC reporting experience. Mr. Goldman served from May 2006 to October
2007, as Acting CFO, and currently as a financial consultant, for Lightbridge
Corporation (Nasdaq: LTBR), a nuclear fuels development company. Prior to
joining Lightbridge Corporation, Mr. Goldman served as the CFO and VP of Finance
for WinWin Gaming, Inc. (OTCBB: WNWN), a multi-media developer and publisher of
sports, lottery and other games. Prior to joining WinWin in October 2004, Mr.
Goldman was a partner at Livingston Wachtell & Co., LLP and had been with
that firm for the previous 19 years. Mr. Goldman is also an independent director
and audit committee chairman for Winner Medical Group Inc. (Nasdaq: WWIN), a
China based manufacturer of medical disposable products and surgical dressings,
Wonder Auto Tech, Inc. (Nasdaq: WATG), a leading manufacturer of automotive
electrics, suspension products and engine accessories in China, China Integrated
Energy, Inc. (Nasdaq: CBEH) , a bio-diesel company in China, and China Gengsheng
Minerals, Inc. (NYSE Amex: CHGS), a developer and manufacturer of high- tech
industrial material products. Mr. Goldman has extensive experience in both
auditing and consulting with Chinese public companies, working in the Asian
marketplace since 2000, and he frequently travels to China. He currently
provides various CFO consulting and SEC reporting support to a number of other
Chinese companies listed in the United States. Mr. Goldman holds a Bachelor of
Science degree in Accounting from the State University of New York at Oswego and
a Masters of Science degree in Taxation from Pace University.





Mr.
Goldman serves as the chairman of our Audit Committee and is a member of our
Compensation Committee.





Jing Liu.On February 7, 2010,
the Board of Directors of the China Advanced Construction Materials Group, Inc.
(the “Company”) appointed Jing Liu to fill a vacancy on the Board of
Directors.





Ms. Liu
has extensive experience in finance and banking. From 2007 to 2009, Ms. Liu
served on the board of directors of Guotai Asset Management Limited. During
2009, Ms. Liu served as a member of the board of directors of Southwest
Securities Corporation. From 2005 to 2009, Ms. Liu served in various capacities,
including General Manager of the Strategic Development and Equity Capital
Departments, with China Jianyin Investment Limited, a state-owned investment
company in the People’s Republic of China. From 1997 to 2005, Ms. Liu served as
the Deputy Senior Manager of the Investment Banking Department at China
Construction Bank. Ms. Liu holds a B.A. in investment management and an M.A. in
finance from Dongbei University of Finance, and a Ph.D. in finance from the
Chinese Academy of Social Sciences. In addition, Ms. Liu has passed both the
Charter Financial Analyst and Financial Risk Manager exams.





Ms. Liu
serves as chairman of our Compensation Committee, and is a member of our Audit
Committee, and Nominating and Governance Committee.





CORPORATE
GOVERNANCE





Our
current corporate governance practices and policies are designed to promote
stockholder value and we are committed to the highest standards of corporate
ethics and diligent compliance with financial accounting and reporting rules.
Our Board provides independent leadership in the exercise of its
responsibilities. Our management oversees a system of internal controls and
compliance with corporate policies and applicable laws and regulations, and our
employees operate in a climate of responsibility, candor and
integrity.





Corporate
Governance Guidelines




We and
our Board are committed to high standards of corporate governance as an
important component in building and maintaining stockholder value. To this end,
we regularly review our corporate governance policies and practices to ensure
that they are consistent with the high standards of other companies. We also
closely monitor guidance issued or proposed by the SEC and the provisions of the
Sarbanes-Oxley Act, as well as the emerging best practices of other companies.
The current corporate governance guidelines are available on the Company’s
website www.China-ACM.com.
Printed copies of our corporate governance guidelines may be obtained, without
charge, by contacting the Corporate Secretary, China Advanced Construction
Materials Group, Inc., Yingu Plaza, 9 Beisihuanxi Road, Suite 1708, Haidian
District, Beijing 100080 PRC.





52





The
Board and Committees of the Board





The
Company is governed by the Board that currently consists of seven members as
identified above. On August 7, 2009, the Board established three committees: the
Audit Committee, the Compensation Committee and the Nominating and Governance
Committee. Each of these committees are comprised entirely of independent
directors. From time to time, the Board may establish other committees. The
Board has adopted a written charter for each of the committees which may be
obtained, without charge, by contacting the Corporate Secretary, China Advanced
Construction Materials Group, Inc., Yingu Plaza, 9 Beisihuanxi Road, Suite 1708,
Haidian District, Beijing 100080 PRC or through our website at
www.China-ACM.com.





Prior to
establishing the committees of the Board of Directors, our entire Board of
Directors handled the functions that would otherwise be handled by each of the
committees.





Governance
Structure




Currently,
our Chief Executive Officer is also our Chairman. The Board of Directors
believes that, at this time, having a combined Chief Executive Officer and
Chairman is the appropriate leadership structure for the Company. In making this
determination, the Board of Directors considered, among other matters, Mr. Han’s
experience and tenure of having been Chairman and Chief Executive Officer since
2008, and felt that his experience, knowledge, and personality allowed him to
serve ably as both Chairman and Chief Executive Officer. Among the benefits of a
combined Chief Executive Officer/Chairman considered by the Board of Directors
is that such structure promotes clearer leadership and direction for our Company
and allows for a single, focused chain of command to execute our strategic
initiatives and business plans.




The
Board’s Role in Risk Oversight




The Board
oversees that the assets of the Company are properly safeguarded, that the
appropriate financial and other controls are maintained, and that the Company’s
business is conducted wisely and in compliance with applicable laws and
regulations and proper governance. Included in these responsibilities is the
Board of Directors’ oversight of the various risks facing the Company. In this
regard, the Board seeks to understand and oversee critical business risks. The
Board does not view risk in isolation. Risks are considered in virtually every
business decision and as part of the Company’s business strategy. The Board
recognizes that it is neither possible nor prudent to eliminate all risk.
Indeed, purposeful and appropriate risk-taking is essential for the Company to
be competitive on a global basis and to achieve its objectives.




While the
Board oversees risk management, Company management is charged with managing
risk. The Company has robust internal processes and a strong internal control
environment to identify and manage risks and to communicate with the Board. The
Board and the Audit Committee monitor and evaluate the effectiveness of the
internal controls and the risk management program at least annually. The Board
implements its risk oversight function both as a whole and through Committees.
Much of the work is delegated to various Committees, which meet regularly and
report back to the full Board. All Committees play significant roles in carrying
out the risk oversight function. In particular:




·
            The
      Audit Committee oversees risks related to the Company’s financial
      statements, the financial reporting process, accounting and legal matters.
      The Audit Committee oversees the internal audit function and the Company’s
      ethics programs, including the Codes of Business Conduct. The Audit
      Committee members meet separately with representatives of the independent
      auditing firm; and




·
            The
      Compensation Committee evaluates the risks and rewards associated with the
      Company’s compensation philosophy and programs. The Compensation Committee
      reviews and approves compensation programs with features that mitigate
      risk without diminishing the incentive nature of the compensation.
      Management discusses with the Compensation Committee the procedures that
      have been put in place to identify and mitigate potential risks in
      compensation.




53





Independent
Directors





Our Board
has determined that the majority of the Board is comprised of “independent
directors” within the meaning of applicable Nasdaq listing standards relating to
Board composition and Section 301 of the Sarbanes-Oxley Act of 2002. Our
independent directors are Ms. Liu and Messrs. Slavich, Wang and
Goldman.





Audit
Committee





Our audit
committee consists of Ms. Liu and Messrs. Goldman and Slavich, each of whom is
“independent” as that term is defined under the Nasdaq listing standards. The
audit committee oversees our accounting and financial reporting processes and
the audits of the financial statements of our company. Mr. Goldman serves as our
audit committee financial expert as that term is defined by the applicable SEC
rules. The audit committee is responsible for, among other things:





•
            selecting our independent
      auditors and pre-approving all auditing and non-auditing services
      permitted to be performed by our independent
    auditors;





•
            reviewing with our independent
      auditors any audit problems or difficulties and management’s
      response;





•
            reviewing and approving all
      proposed related-party transactions, as defined in Item 404 of Regulation
      S-K under the Securities Act of 1933, as
  amended;





•
            discussing the annual audited
      financial statements with management and our independent
      auditors;





•
            reviewing major issues as to the
      adequacy of our internal controls and any special audit steps adopted in
      light of significant internal control
  deficiencies;





•
            annually reviewing and
      reassessing the adequacy of our audit committee
      charter;





•
            meeting separately and
      periodically with management and our internal and independent auditors;
      and





•
            reporting to the full board of
      directors; and





•
            such other matters that are
      specifically delegated to our audit committee by our board of directors
      from time to time.





Compensation
Committee





Our
compensation committee consists of Ms. Liu and Messrs. Goldman and Wang, each of
whom is “independent” as that term is defined under the Nasdaq listing
standards. Our compensation committee assists the board in reviewing and
approving the compensation structure of our directors and executive officers,
including all forms of compensation to be provided to our directors and
executive officers. Our chief executive officer may not be present at any
committee meeting during which his compensation is deliberated. The compensation
committee is responsible for, among other things:





•
            approving and overseeing the
      compensation package for our executive
  officers;





•
            reviewing and making
      recommendations to the board with respect to the compensation of our
      directors;





54





•
            reviewing and approving corporate
      goals and objectives relevant to the compensation of our chief executive
      officer, evaluating the performance of our chief executive officer in
      light of those goals and objectives, and setting the compensation level of
      our chief executive officer based on this evaluation;
      and





•
            reviewing periodically and making
      recommendations to the board regarding any long-term incentive
      compensation or equity plans, programs or similar arrangements, annual
      bonuses, employee pension and welfare benefit
  plans.





The
compensation committee has sole authority to retain and terminate outside
counsel, compensation consultants retained to assist the compensation committee
in determining the compensation of the Chief Executive Officer or senior
executive officers, or other experts or consultants, as it deems appropriate,
including sole authority to approve the firms' fees and other retention terms.
The compensation committee may also form and delegate authority to subcommittees
and may delegate authority to one or more designated members of the compensation
committee. The compensation committee may from time to time seek recommendations
from the executive officers of the Company regarding matters under the purview
of the compensation committee, though the authority to act on such
recommendations rests solely with the compensation committee.





Governance
and Nominating Committee





Our
governance and nominating committee consists of Ms. Liu and Messrs. Slavich and
Wang, each of whom is “independent” as that term is defined under the Nasdaq
listing standards. The governance and nominating committee assists the board of
directors in identifying individuals qualified to become our directors and in
determining the composition of the board and its committees. The governance and
nominating committee is responsible for, among other things:





•
            identifying and recommending to
      the board nominees for election or re-election to the board, or for
      appointment to fill any
vacancy;





•
            reviewing annually with the board
      the current composition of the board in light of the characteristics of
      independence, age, skills, experience and availability of service to
      us;





•
            identifying and recommending to
      the board the directors to serve as members of the board’s committees;
      and





•
            monitoring compliance with our
      code of business conduct and
ethics.





Director
Qualifications





Directors
are responsible for overseeing the Company’s business consistent with their
fiduciary duty to shareowners. This significant responsibility requires
highly-skilled individuals with various qualities, attributes and professional
experience. The Board believes that there are general requirements for service
on the Company’s Board of Directors that are applicable to all directors and
that there are other skills and experience that should be represented on the
Board as a whole but not necessarily by each director. The Board and the
Governance and Nominating Committee of the Board consider the qualifications of
directors and director candidates individually and in the broader context of the
Board’s overall composition and the Company’s current and future
needs.




Qualifications for All
Directors




In its
assessment of each potential candidate, including those recommended by
shareowners, the Governance and Nominating Committee considers the nominee’s
judgment, integrity, experience, independence, understanding of the Company’s
business or other related industries and such other factors the Governance and
Nominating Committee determines are pertinent in light of the current needs of
the Board. The Governance and Nominating Committee also takes into account the
ability of a director to devote the time and effort necessary to fulfill his or
her responsibilities to the Company.





55





The Board
and the Governance and Nominating Committee require that each director be a
recognized person of high integrity with a proven record of success in his or
her field. Each director must demonstrate innovative thinking, familiarity with
and respect for corporate governance requirements and practices, an appreciation
of multiple cultures and a commitment to sustainability and to dealing
responsibly with social issues. In addition to the qualifications required of
all directors, the Board assesses intangible qualities including the
individual’s ability to ask difficult questions and, simultaneously, to work
collegially.





The Board
does not have a specific diversity policy, but considers diversity of race,
ethnicity, gender, age, cultural background and professional experiences in
evaluating candidates for Board membership. Diversity is important because a
variety of points of view contribute to a more effective decision-making
process.




Qualifications, Attributes, Skills and
Experience to be Represented on the Board as a Whole





The Board
has identified particular qualifications, attributes, skills and experience that
are important to be represented on the Board as a whole, in light of the
Company’s current needs and business priorities. The Company’s services are
performed in areas of future growth located outside of the United States.
Accordingly, the Board believes that international experience or specific
knowledge of key geographic growth areas and diversity of professional
experiences should be represented on the Board. In addition, the Company’s
business is multifaceted and involves complex financial transactions. Therefore,
the Board believes that the Board should include some directors with a high
level of financial literacy and some directors who possess relevant business
experience as a Chief Executive Officer or President. Our business involves
complex technologies in a highly specialized industry. Therefore, the Board
believes that extensive knowledge of the Company’s business and industry should
be represented on the Board. The Company’s business also requires compliance
with a variety of regulatory requirements and relationships with various
governmental entities. Therefore, the Board believes that governmental,
political or diplomatic expertise should be represented on the
Board.




Summary of Qualifications of Current
Directors




Set forth
below is a narrative disclosure that summarizes some of the specific
qualifications, attributes, skills and experiences of our directors. For more
detailed information, please refer to the biographical information for each
director set forth above.




Xianfu Han. Mr. Han has
extensive senior management experience in the industry in which we operate,
having served as our Chief Executive Officer and Chairman since September 2008
and as the Chairman of Xin Ao since 2003. Mr Han has over 25 years of management
experience in the building material industry, and has worked extensively with
various governmental agencies on behalf of our industry in Beijing.




Weili He. Mr. He has extensive
experience in the concrete and construction industry, and as specific expertise
in strategic planning and plant management and operation,




Jeremy Goodwin. Mr. Goodwin
brings to the Board a high level of financial literacy and sophistication, and
extensive financial and capital markets experience, including M&A, debt and
equity financings, restructuring and business expansion. In addition, Mr.
Goodwin has worked extensively on multi-national transactions.




Denis Slavich.Mr. Slavich
brings to the Board almost 35 years of experience in the areas of engineering,
management and finance. Mr. Slavich has served in both chief executive and chief
financial officer positions, and has a high level of financial literacy and
sophistication.




56




Sean Wang.Mr. Wang has over
20 years of management and finance experience working with both U.S. and
China-based companies, and has a high level of financial literacy and
sophistication.




Larry Goldman. Mr. Goldman has
extensive experience in both auditing and consulting with Chinese public
companies, working in the Asian marketplace for over 10 years. Mr. Goldman
serves as the audit committee chairman of four other public companies and has a
high level of financial literacy and sophistication, and extensive knowledge of
U.S. GAAP.




Jing Liu. Ms. Liu brings to
the Board extensive experience in finance and banking, particularly within the
PRC. Ms. Liu has passed both the Charter Financial Analyst and Financial Risk
Manager exams, and has a high level of financial literacy and
sophistication.




Family
Relationships





There is
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 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 2009





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, 2010 and 2009.




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
                                                  ($)Xianfu
      Han
                                                
                                                
                                                2009
                                                
                                                140,000
                                                
                                                
                                                -
                                                
                                                -
                                                
                                                
                                                -
                                                
                                                -
                                                
                                                
                                                -
                                                
                                                -
                                                
                                                
                                                140,000Chairman
      and CEO (2)
                                                
                                                
                                                2010
                                                
                                                140,000
                                                
                                                
                                                -
                                                
                                                -
                                                
                                                
                                                -
                                                
                                                -
                                                
                                                
                                                -
                                                
                                                -
                                                
                                                
                                                140,000Weili
      He,
                                                
                                                
                                                2009
                                                
                                                109,342
                                                
                                                
                                                -
                                                
                                                -
                                                
                                                
                                                -
                                                
                                                -
                                                
                                                
                                                -
                                                
                                                -
                                                
                                                
                                                109,342Vice
      Chairman and COO
                                                
                                                
                                                2010
                                                
                                                109,342
                                                
                                                
                                                -
                                                
                                                -
                                                
                                                
                                                -
                                                
                                                -
                                                
                                                
                                                -
                                                
                                                -
                                                
                                                
                                                109,342





(1)
            While
      our president and chief financial officer, Jeremy Goodwin has an
      employment agreements which provide for compensation in excess of
      $100,000, his actual paid salary through the fiscal years ended June 30,
      2009 or 2010 respectively were not in excess of
  $100,000.





57




(2)
            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.




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.




Outstanding
Equity Awards at Fiscal Year End





None.





Compensation
of Directors





During
the 2009 and 2010 fiscal years, only one member of our board of directors
received any compensation solely for service as a director during fiscal year
2009.





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 August
11, 2009, each of Messrs. Slavich, Wang and Goldman entered into director
agreements with the Company pursuant to which each will receive, annually, a fee
of $25,000 in cash and 10,000 restricted shares of the Company’s common stock,
which shall vest in four equal quarterly installments.





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.





58




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 August 26, 2010, 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.





Name & Address of
                                
                                Office, If Any
                                
                                Amount and Nature of
                                
                                
                                Percent ofBeneficial Owner
                                
                                
                                
                                Beneficial Ownership
                                
                                
                                Class (1) (2)Officers and DirectorsXianfu
      Han (3)
                                
                                Chairman
      and CEO
                                
                                
                                5,285,750
                                
                                
                                
                                30.1
                                %Weile
      He (4)
                                
                                Vice
      Chairman
                                  and
      COO
                                
                                
                                3,523,833
                                
                                
                                
                                20.1
                                %Jeremy
      Goodwin*
                                
                                President
      and CFO
                                
                                
                                12,500
                                
                                
                                
                                -Sean
      Wang*
                                
                                Director
                                
                                
                                7,500
                                
                                
                                
                                -Denis
      Slavich*
                                
                                Director
                                
                                
                                7,500
                                
                                
                                
                                -Larry
      Goldman*
                                
                                Director
                                
                                
                                7,500
                                
                                
                                
                                -Jing
      Liu*
                                
                                Director
                                
                                
                                2,500
                                
                                
                                
                                -All
      officers and directors as a group (7 persons named above)
                                
                                
                                
                                
                                8,847,083
                                
                                
                                
                                50.2
                                %5%
      Security HoldersXianfu
      Han (3)
                                
                                Chairman
      and CEO
                                
                                
                                5,285,750
                                
                                
                                
                                30.1
                                %Weile
      He (4)
                                
                                Vice
      Chairman
                                  and
      COO
                                
                                
                                3,523,833
                                
                                
                                
                                20.1
                                %*Less
      than 1%





59




(1)
            As
      of the close of business on September 24, 2010, there were 17,572,104
      shares of our common stock
outstanding.





(2)
            In
      determining beneficial ownership of the common stock, the number of shares
      shown includes shares which the beneficial owner may acquire within 60
      days of August 20, 2010 upon exercise of convertible securities, warrants
      or options. In accordance with Rule 13d-3 in determining the percentage of
      common stock owned by a person on August 20, 2010 (a) the numerator is the
      number of shares of the class beneficially owned by such person, including
      shares which the beneficial owner may acquire within 60 days upon
      conversion or exercise of the warrants and other convertible securities,
      and (b) the denominator is the sum of (i) the total shares of that class
      outstanding on August 20, 2010, and (ii) the total number of shares that
      the beneficial owner may acquire upon conversion or exercise of other
      securities. Unless otherwise stated, each beneficial owner has sole power
      to vote and dispose of the shares.





(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 3,000,000
      shares of the Company’s common stock owned by Mr. Han were placed into
      escrow, with AST appointed as the escrow agent. The 3,000,000 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
      3,000,000 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 2,000,000
      shares of the Company’s common stock owned by Mr. He were placed into
      escrow, with AST appointed as the escrow agent. The 2,000,000 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
      2,000,000 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.





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





Transactions
with Related Persons





Since the
beginning of the last fiscal year, there have not been any transaction, nor is
there any currently proposed transaction, in which we were or are to be a
participant and the amount involved exceeded or exceeds $120,000, and in which
any related person had or will have a direct or indirect material interest
(other than compensation described under “Executive Compensation”).





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





We are in
the process of finalizing 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.





60




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.





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,
2010 and for fiscal year ended June 30, 2009 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, 2010
                                      
                                      
                                      June 30, 2009Audit
      Fees
                                      
                                      $
                                      100,000
                                      
                                      
                                      $
                                      100,000Interim
      Financial Review Fees
                                      
                                      
                                      60,000
                                      
                                      
                                      
                                      60,000Tax
      Fees
                                      
                                      
                                      11,000
                                      
                                      
                                      
                                      -All
      Other Fees
                                      
                                      
                                      61,090
                                      
                                      
                                      
                                      14,835Total
                                      
                                      $
                                      232,090
                                      
                                      
                                      $
                                      174,835




61




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




Exhibit
                            
                            
                            
                            FiledIndex
                            
                            Description
      of Document
                            
                            Herewith
                            
                            Incorporated
      by Reference To:3.1
                            
                            Articles
      of Incorporation of the Registrant as filed with the Secretary of State of
      Delawareon
      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.








62




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,
      2008.10.7
                      
                      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,
      2008.10.10
                      
                      2009
      Equity Incentive Plan
                      
                      
                      
                      Exhibit
      10.1 to the Registrant’s Current Report on Form 8-K filed on June 25,
      2009.10.11
                      
                      Form
      of Subscription Agreement with Chinese Investors
                      
                      
                      
                      Exhibit
      10.1 to the Registrant’s Current Report on Form 8-K filed on August 3,
      2009.10.12
                      
                      Director
      Agreement, dated August 15, 2009, between the Company and Denis
      Slavich.
                      
                      
                      
                      Exhibit
      10.1 to the Registrant’s Current Report on Form 8-K filed on August 17,
      2009.10.13
                      
                      Director
      Agreement, dated August 15, 2009, between the Company and Sean
      Wang.
                      
                      
                      
                      Exhibit
      10.2 to the Registrant’s Current Report on Form 8-K filed on August 17,
      2009.10.14
                      
                      Director
      Agreement, dated August 15, 2009, between the Company and Larry
      Goldman.
                      
                      
                      
                      Exhibit
      10.3 to the Registrant’s Current Report on Form 8-K filed on August 17,
      2009.23.1
                      
                      Consent
      of Frazer Frost, LLP




63




31.1
                
                Rule
      13a-14(a)/15d-14(a) Certification — Principal Executive
      Officer
                
                ü31.2
                
                Rule
      13a-14(a)/15d-14(a) Certification — Principal Financial
      Officer
                
                ü32.1
                
                Certification
      of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                
                ü32.2
                
                Certification
      of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                
                ü




64








AUDITED
FINANCIAL STATEMENTS





CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC.





JUNE
30, 2010 AND 2009





TABLE
OF CONTENTS





PageReport
      of Independent Registered Public Accounting Firm
                    
                    F-2Consolidated
      Balance Sheets
                    
                    F-3Consolidated
      Statements of Income and Other Comprehensive Income
                    
                    F-4Consolidated
      Statement of Shareholder’s Equity
                    
                    F-5Consolidated
      Statements of Cash Flows
                    
                    F-6Notes
      to Consolidated Financial Statements
                    
                    F-7




F-1




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and
 Stockholders
of China Advanced Construction Materials Group, Inc
  We have
audited the accompanying consolidated balance sheets of China Advanced
Construction Materials Group, Inc. and subsidiaries as of June 30, 2010 and
2009, 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, 2010. China Advanced Construction Materials
Group, Inc’s 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. as of June 30, 2010 and 2009, and the results of its
operations and its cash flows for each of the years in the two- year period
ended June 30, 2010 in conformity with accounting principles generally accepted
in the United States of America.
  /S/
Frazer Frost, LLP
  Brea,
California
 September
28, 2010




F-2




CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 AS OF
JUNE 30, 2010 AND 2009
 
 2010
                                                            
                                                            
                                                            2009ASSETSCURRENT
      ASSETS:Cash
                                                            
                                                            $
                                                            3,300,820
                                                            
                                                            
                                                            $
                                                            3,634,805Restricted
      cash
                                                            
                                                            
                                                            57,580
                                                            
                                                            
                                                            
                                                            453,192Marketable
      securities
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            71,880Notes
      receivable
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            10,799Accounts
      receivable, net of allowance for doubtful accounts of $456,085 and
      $120,986, respectively
                                                            
                                                            
                                                            36,072,691
                                                            
                                                            
                                                            
                                                            11,815,402Inventories
                                                            
                                                            
                                                            2,164,769
                                                            
                                                            
                                                            
                                                            1,216,014Other
      receivables
                                                            
                                                            
                                                            1,416,653
                                                            
                                                            
                                                            
                                                            3,845,186Prepayments
                                                            
                                                            
                                                            2,821,687
                                                            
                                                            
                                                            
                                                            4,255,326Total
      current assets
                                                            
                                                            
                                                            45,834,200
                                                            
                                                            
                                                            
                                                            25,302,604PLANT
      AND EQUIPMENT, net
                                                            
                                                            
                                                            26,488,354
                                                            
                                                            
                                                            
                                                            22,089,717OTHER
      ASSETS:Accounts
      receivable (non-current), net of allowance for doubtful accounts of $4,607
      and $328,563 respectively
                                                            
                                                            
                                                            364,371
                                                            
                                                            
                                                            
                                                            4,132,706Deferred
      tax assets
                                                            
                                                            
                                                            127,741
                                                            
                                                            
                                                            
                                                            -Advances
      on equipment purchases
                                                            
                                                            
                                                            8,382,383
                                                            
                                                            
                                                            
                                                            -Long
      term prepayments
                                                            
                                                            
                                                            4,414,391
                                                            
                                                            
                                                            
                                                            4,794,746Total
      other assets
                                                            
                                                            
                                                            13,288,886
                                                            
                                                            
                                                            
                                                            8,927,452Total
      assets
                                                            
                                                            $
                                                            85,611,440
                                                            
                                                            
                                                            $
                                                            56,319,773LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIES:Short
      term loans
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            4,512,200Accounts
      payable
                                                            
                                                            
                                                            16,473,080
                                                            
                                                            
                                                            
                                                            10,722,741Customer
      deposits
                                                            
                                                            
                                                            711,219
                                                            
                                                            
                                                            
                                                            -Other
      payables
                                                            
                                                            
                                                            329,136
                                                            
                                                            
                                                            
                                                            352,880Other
      payables - shareholders
                                                            
                                                            
                                                            772,644
                                                            
                                                            
                                                            
                                                            806,946Accrued
      liabilities
                                                            
                                                            
                                                            1,652,751
                                                            
                                                            
                                                            
                                                            593,057Taxes
      payable
                                                            
                                                            
                                                            1,569,914
                                                            
                                                            
                                                            
                                                            3,048,179Total
      current liabilities
                                                            
                                                            
                                                            21,508,744
                                                            
                                                            
                                                            
                                                            20,036,003OTHER
      LIABILITIESWarrants
      liabilities
                                                            
                                                            
                                                            2,920,520
                                                            
                                                            
                                                            
                                                            -Total
      liabilities
                                                            
                                                            
                                                            24,429,264
                                                            
                                                            
                                                            
                                                            20,036,003COMMITMENTS
      AND CONTINGENCIES (Note 19)REDEEMABLE
      CONVERTIBLE PREFERRED STOCK ($0.001 par value, no share outstanding as of
      June 30, 2010 and 851,125 shares issued and outstanding as of June 30,
      2009), net of discount for the amount of $0 and $567,581 as of June 30,
      2010 and 2009, respectively
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            6,241,419SHAREHOLDERS'
      EQUITY:Preferred
      stock $0.001 par value, 1,000,000 shares authorized, no
    shareoutstanding
      as of June 30, 2010 and 851,125 issued and outstandingas
      of June 30, 2009, and classified outside shareholders' equity (see
      above),liquidation
      preference of $8.00 per share and accrued dividends as ofJune
      30, 2010 and 2009
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -Common
      stock, $0.001 par value, 74,000,000 shares authorized, 17,467,104 and
      10,595,500 shares issued and outstanding as of June 30, 2010 and 2009,
      respectively
                                                            
                                                            
                                                            17,467
                                                            
                                                            
                                                            
                                                            10,596Paid-in-capital
                                                            
                                                            
                                                            33,720,762
                                                            
                                                            
                                                            
                                                            12,987,417Contribution
      receivable
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (1,210,000
                                                            )Retained
      earnings
                                                            
                                                            
                                                            19,912,444
                                                            
                                                            
                                                            
                                                            12,783,892Statutory
      reserves
                                                            
                                                            
                                                            4,511,520
                                                            
                                                            
                                                            
                                                            2,765,179Accumulated
      other comprehensive income
                                                            
                                                            
                                                            3,019,983
                                                            
                                                            
                                                            
                                                            2,705,267Total
      shareholders' equity
                                                            
                                                            
                                                            61,182,176
                                                            
                                                            
                                                            
                                                            30,042,351Total
      liabilities, redeemable preferred stock and shareholders'
      equity
                                                            
                                                            $
                                                            85,611,440
                                                            
                                                            
                                                            $
                                                            56,319,773
 
 See
report of independent registered public accounting firm. The accompanying notes
are an integral part of these consolidated financial
statements.
  F-3
 
 CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 FOR THE
YEARS ENDED JUNE 30, 2010 AND 2009
 
 2010
                    
                    
                    2009REVENUESales
      of concrete
                    
                    $
                    70,579,631
                    
                    
                    $
                    28,118,492Manufacturing
      services
                    
                    
                    15,654,659
                    
                    
                    
                    7,053,728Technical
      services
                    
                    
                    4,889,460
                    
                    
                    
                    1,924,089Mixer
      rental
                    
                    
                    1,208,618
                    
                    
                    
                    2,618,493Others
                    
                    
                    708,479
                    
                    
                    
                    -Total
      revenue
                    
                    
                    93,040,847
                    
                    
                    
                    39,714,802COST
      OF REVENUEConcrete
                    
                    
                    64,624,134
                    
                    
                    
                    20,657,312Manufacturing
      services
                    
                    
                    8,261,407
                    
                    
                    
                    2,768,255Technical
      services
                    
                    
                    320,835
                    
                    
                    
                    147,418Mixer
      rental
                    
                    
                    151,456
                    
                    
                    
                    945,057Others
                    
                    
                    346,869
                    
                    
                    
                    -Total
      cost of revenue
                    
                    
                    73,704,701
                    
                    
                    
                    24,518,042GROSS
      PROFIT
                    
                    
                    19,336,146
                    
                    
                    
                    15,196,760SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
                    
                    
                    5,439,579
                    
                    
                    
                    1,717,794INCOME
      FROM OPERATIONS
                    
                    
                    13,896,567
                    
                    
                    
                    13,478,966OTHER
      (EXPENSE) INCOME, NETOther
      subsidy income
                    
                    
                    4,881,152
                    
                    
                    
                    2,109,290Realized
      gain from sales of marketable securities
                    
                    
                    27,079
                    
                    
                    
                    -Non-operating
      (expense) income, net
                    
                    
                    (120,060
                    )
                    
                    
                    (602,020
                    )Change
      in fair value of warrant liability
                    
                    
                    (2,488,959
                    )
                    
                    
                    -Interest
      income
                    
                    
                    9,001
                    
                    
                    
                    -Interest
      expense
                    
                    
                    (23,834
                    )
                    
                    
                    (802,650
                    )TOTAL
      OTHER INCOME, NET
                    
                    
                    2,284,379
                    
                    
                    
                    704,620INCOME
      BEFORE PROVISION FOR INCOME TAXES
                    
                    
                    16,180,946
                    
                    
                    
                    14,183,586PROVISION
      FOR INCOME TAXES
                    
                    
                    3,174,551
                    
                    
                    
                    2,115,097NET
      INCOME
                    
                    
                    13,006,395
                    
                    
                    
                    12,068,489DIVIDENDS
      AND ACCRETION ON REDEEMABLE CONVERTIBLE PREFERRED STOCK
                    
                    
                    (955,557
                    )
                    
                    
                    (1,229,473
                    )NET
      INCOME AVAILABLE TO COMMON SHAREHOLDERS
                    
                    
                    12,050,838
                    
                    
                    
                    10,839,016RECONCILIATION
      OF COMPREHENSIVE INCOME:Net
      Income
                    
                    
                    13,006,395
                    
                    
                    
                    12,068,489Unrealized
      loss from marketable securities
                    
                    
                    -
                    
                    
                    
                    20,605Foreign
      currency translation adjustment
                    
                    
                    335,321
                    
                    
                    
                    86,196COMPREHENSIVE
      INCOME
                    
                    $
                    13,341,716
                    
                    
                    $
                    12,175,290EARNINGS
      PER COMMON SHARE ALLOCATED TO COMMON SHAREHOLDERSWeighted
      average number of shares:Basic
                    
                    
                    13,456,134
                    
                    
                    
                    10,526,719Diluted
                    
                    
                    16,521,296
                    
                    
                    
                    14,032,479Earnings
      per share:Basic
                    
                    $
                    0.90
                    
                    
                    $
                    1.03Diluted
                    
                    $
                    0.79
                    
                    
                    $
                    0.86
 
 See
report of independent registered public accounting firm. The accompanying notes
are an integral part of these consolidated financial
statements.
  F-4
  CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND
SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
 
 Common stock
                      
                      
                      Additional
                      
                      
                      
                      
                      
                      
                      
                      
                      Retained earnings
                      
                      
                      AccumulatedNumber
                      
                      
                      Par
                      
                      
                      Paid-in
                      
                      
                      Contribution
                      
                      
                      Deferred
                      
                      
                      
                      
                      
                      Statutory
                      
                      
                      other
                        comprehensiveof shares
                      
                      
                      amount
                      
                      
                      capital
                      
                      
                      receivable
                      
                      
                      Compensation
                      
                      
                      Unrestricted
                      
                      
                      reserves
                      
                      
                      income
                      
                      
                      TotalBALANCE,
      June 30, 2008
                      
                      
                      10,525,000
                      
                      
                      $
                      10,525
                      
                      
                      $
                      12,722,260
                      
                      
                      $
                      (1,210,000
                      )
                      
                      $
                      (27,708
                      )
                      
                      $
                      3,257,276
                      
                      
                      $
                      1,452,779
                      
                      
                      $
                      2,598,466
                      
                      
                      $
                      18,803,598Dividends
      on redeemable preferred stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (628,505
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (628,505
                      )Accretion
      of discount on redeemable preferred stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (600,968
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (600,968
                      )Stock
      based compensation
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      107,477
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      107,477Forfeited
      stock compensation
                      
                      
                      (25,000
                      )
                      
                      
                      (25
                      )
                      
                      
                      (33,225
                      )
                      
                      
                      
                      
                      
                      
                      27,708
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (5,542
                      )Preferred
      stock converted to common stock
                      
                      
                      95,500
                      
                      
                      
                      96
                      
                      
                      
                      190,905
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      191,001Net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      12,068,489
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      12,068,489Adjustment
      to statutory reserve
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,312,400
                      )
                      
                      
                      1,312,400
                      
                      
                      
                      
                      
                      
                      
                      -Unrealized
      gain on marketable securities
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      20,605
                      
                      
                      
                      20,605Foreign
      currency translation gain
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      86,196
                      
                      
                      
                      86,196BALANCE,
      June 30, 2009
                      
                      
                      10,595,500
                      
                      
                      $
                      10,596
                      
                      
                      $
                      12,987,417
                      
                      
                      $
                      (1,210,000
                      )
                      
                      $
                      -
                      
                      
                      $
                      12,783,892
                      
                      
                      $
                      2,765,179
                      
                      
                      $
                      2,705,267
                      
                      
                      $
                      30,042,351Cumulative
      effect of reclassification of warrants
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,371,280
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,965,945
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (3,337,225
                      )BALANCE,
      June 30, 2009, as adjusted
                      
                      
                      10,595,500
                      
                      
                      $
                      10,596
                      
                      
                      $
                      11,616,137
                      
                      
                      $
                      (1,210,000
                      )
                      
                      $
                      -
                      
                      
                      $
                      10,817,947
                      
                      
                      $
                      2,765,179
                      
                      
                      $
                      2,705,267
                      
                      
                      $
                      26,705,126Dividends
      on redeemable preferred stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (387,977
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (387,977
                      )Accretion
      of discount on redeemable preferred stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (567,580
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (567,580
                      )Stock
      based compensation
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      595,888
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      595,888Issuance
      of Common Stock for cash at $2.3, net of offering cost
                      
                      
                      650,988
                      
                      
                      
                      651
                      
                      
                      
                      1,496,591
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,497,242Issuance
      of Common Stock for cash at $4.6, net of offering cost
                      
                      
                      2,300,000
                      
                      
                      
                      2,300
                      
                      
                      
                      9,617,552
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      9,619,852Conversion
      of redeemable preferred stock into common stock
                      
                      
                      3,367,000
                      
                      
                      
                      3,367
                      
                      
                      
                      6,730,632
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      6,733,999Conversion
      of warrants into common stock
                      
                      
                      480,286
                      
                      
                      
                      480
                      
                      
                      
                      3,476,535
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      3,477,015Option
      exercised
                      
                      
                      73,330
                      
                      
                      
                      73
                      
                      
                      
                      187,427
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      187,500Dividends
      paid to shareholders and contributed as share capital
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,210,000
                      
                      
                      
                      
                      
                      
                      
                      (1,210,000
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -Net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      13,006,395
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      13,006,395Adjustment
      to statutory reserve
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,746,341
                      )
                      
                      
                      1,746,341
                      
                      
                      
                      
                      
                      
                      
                      -Gain
      realized on marketable securities
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (20,605
                      )
                      
                      
                      (20,605
                      )Foreign
      currency translation gain
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      335,321
                      
                      
                      
                      335,321BALANCE,
      June 30, 2010
                      
                      
                      17,467,104
                      
                      
                      $
                      17,467
                      
                      
                      $
                      33,720,762
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      19,912,444
                      
                      
                      $
                      4,511,520
                      
                      
                      $
                      3,019,983
                      
                      
                      $
                      61,182,176
 
 See
report of independent registered public accounting firm. The accompanying notes
are an integral part of these consolidated financial
statements.
  F-5
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR THE
YEARS ENDED JUNE 30, 2010 AND 2009
 
 2010
                  
                  
                  2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                  
                  $
                  13,006,395
                  
                  
                  
                  12,068,489Adjustments
      to reconcile net income to cash provided by (used in) operating
      activities:Depreciation
                  
                  
                  2,924,616
                  
                  
                  
                  2,184,462Stock-based
      compensation expense
                  
                  
                  595,888
                  
                  
                  
                  107,477Bad
      debt expense
                  
                  
                  8,651
                  
                  
                  
                  (189,052
                  )Change
      in fair value of warrants
                  
                  
                  2,488,959
                  
                  
                  
                  -Realized
      gain on sale of marketable securities
                  
                  
                  (27,079
                  )
                  
                  
                  -Changes
      in operating assets and liabilitiesNote
      receivable
                  
                  
                  10,811
                  
                  
                  
                  -Accounts
      receivable
                  
                  
                  (28,605,681
                  )
                  
                  
                  (13,681,007
                  )Inventories
                  
                  
                  (938,086
                  )
                  
                  
                  (977,200
                  )Other
      receivables
                  
                  
                  2,439,020
                  
                  
                  
                  (3,347,936
                  )Prepayments
                  
                  
                  1,450,571
                  
                  
                  
                  419,258Deferred
      tax assets
                  
                  
                  (127,194
                  )
                  
                  
                  -Long
      term prepayments
                  
                  
                  370,275
                  
                  
                  
                  179,463Accounts
      payable
                  
                  
                  5,633,766
                  
                  
                  
                  4,403,314Customer
      deposits
                  
                  
                  708,177
                  
                  
                  
                  (166,114
                  )Other
      payables
                  
                  
                  148,264
                  
                  
                  
                  97,849Accrued
      liabilities
                  
                  
                  1,208,647
                  
                  
                  
                  291,597Taxes
      payable
                  
                  
                  (1,488,516
                  )
                  
                  
                  1,970,528Net
      cash (used in) provided by operating activities
                  
                  
                  (192,516
                  )
                  
                  
                  3,361,128CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from sale of marketable securities
                  
                  
                  78,413
                  
                  
                  
                  -Advanced
      for equipment purchase
                  
                  
                  (4,495,436
                  )
                  
                  
                  -Purchase
      of property, plant and equipment
                  
                  
                  (2,682,293
                  )
                  
                  
                  (1,771,915
                  )Net
      cash used in investing activities
                  
                  
                  (7,099,316
                  )
                  
                  
                  (1,771,915
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from short term loan
                  
                  
                  190,670
                  
                  
                  
                  8,247,950Payments
      of short term loan
                  
                  
                  (4,699,119
                  )
                  
                  
                  (8,024,538
                  )Payment
      to shareholder for rent
                  
                  
                  (207,906
                  )
                  
                  
                  (73,889
                  )Restricted
      cash
                  
                  
                  395,612
                  
                  
                  
                  459,900Payment
      to redeem preferred stock
                  
                  
                  (75,000
                  )
                  
                  
                  -Proceeds
      from issuance of options
                  
                  
                  187,500
                  
                  
                  
                  -Proceeds
      from issuance of warrants
                  
                  
                  571,351
                  
                  
                  
                  -Proceeds
      from issuance of common stock, net of offering costs
                  
                  
                  11,117,094
                  
                  
                  
                  -Preferred
      dividends paid
                  
                  
                  (543,631
                  )
                  
                  
                  (472,851
                  )Net
      cash provided by financing activities
                  
                  
                  6,936,571
                  
                  
                  
                  136,572EFFECTS
      OF EXCHANGE RATE CHANGE IN CASH
                  
                  
                  21,276
                  
                  
                  
                  (1,475
                  )NET
      (DECREASE) INCREASE IN CASH
                  
                  
                  (333,985
                  )
                  
                  
                  1,724,310CASH,
      beginning of year
                  
                  
                  3,634,805
                  
                  
                  
                  1,910,495CASH,
      end of year
                  
                  $
                  3,300,820
                  
                  
                  
                  3,634,805SUPPLEMENTAL
      DISCLOSURE OF NON-CASH TRANSACTIONSAdvances
      on equipment purchase offset by Accounts Payable
                  
                  $
                  (628,946
                  )
                  
                  $
                  -Advances
      on equipment purchase paid by transferring of Accounts
      Receivable
                  
                  $
                  (4,113,869
                  )
                  
                  $
                  -Fixed
      assets additions paid by transferring of Accounts
    Receivable
                  
                  $
                  (4,168,188
                  )
                  
                  $
                  (5,703,245
                  )Accretion
      of discount on redeemable preferred stock
                  
                  $
                  567,580
                  
                  
                  $
                  600,968
 
 See
report of independent registered public accounting firm. The accompanying notes
are an integral part of these consolidated financial statements.
  F-6




CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
1 – Organization and description of business
 
 China
Advanced Construction Materials Group, Inc. (“China ACM” or the “Company”) was
incorporated in the State of Delaware on February 15, 2007. The Company, through
its 100% owned subsidiaries and its variable interest entities (“VIEs”), is
engaged in producing general ready-mix concrete, customized mechanical refining
concrete, and other concrete-related products that are mainly sold in the
People’s Republic of China (“PRC”).
 
 In March
and April 2010, Xin Ao established five 100% owned subsidiaries in China for
consulting, concrete mixing and equipment rental services. They are Beijing Heng
Yuan Zheng Ke Technical Consulting Co., Ltd (“Heng Yuan Zheng Ke”), Beijing Hong
Sheng An Construction Materials Co., Ltd (“Hong Sheng An”), Beijing Heng Tai
Hong Sheng Construction Materials Co., Ltd (“Heng Tai”) and Da Tong Ao Hang Wei
Ye Machinery, Equipment Rental Co., Ltd (“Da Tong”) and Luan Xian Heng Xin
Technology Co., Ltd (Heng Xin). Total registered capital for
thesefivesubsidiaries is approximately $2.1 million (RMB 14 million) and the
purpose of these new subsidiaries is to support the Company’s future
growth.
 
 Note
2 – Summary of significant accounting policies
 
 Basis of
presentation
 
 The
Company’s accounting policies used in the preparation of the accompanying
consolidated financial statements conform to accounting principles generally
accepted in the United States of America ("US GAAP") and have been consistently
applied.
 
 Principles of
consolidation
 
 The
consolidated financial statements reflect the activities of the following
subsidiaries andVIEs. All material intercompany transactions have been
eliminated.
 
 Place incorporated
                              
                              Ownership
                                percentageBVI-ACM
                              
                              British
      Virgin Island
                              
                              
                              100
                              %China-ACMH
                              
                              Beijing,
      China
                              
                              
                              100
                              %Xin
      Ao
                              
                              Beijing,
      China
                              
                              VIEHeng
      Yuan Zheng Ke
                              
                              Beijing,
      China
                              
                              VIEHong
      Sheng An
                              
                              Beijing,
      China
                              
                              VIEHeng
      Tai
                              
                              Beijing,
      China
                              
                              VIEDa
      Tong
                              
                              Datong,
      China
                              
                              VIEHeng
      Xin
                              
                              Luanxian,
      China
                              
                              
                              VIE
 
 In
accordance with the interpretation of US GAAP, VIEs are generally entities that
lack sufficient equity to finance their activities without additional financial
support from other parties or whose equity holders lack adequate decision making
ability. All VIEs with which the Company is involved must be evaluated to
determine the primary beneficiary of the risks and rewards of the VIE. The
primary beneficiary is required to consolidate the VIE for financial reporting
purposes.
 
 ASC 810
addresses whether certain types of entities referred to as variable interest
entities (“VIEs”) should be consolidated in a company’s consolidated financial
statements.
 
 Based
upon a series of Contractual Arrangements, The Company determined that Xin Ao
and its subsidiariesareVIEs subject to consolidation and that the Company is the
primary beneficiary. Accordingly, the financial statements of Xin Ao and its
subsidiaries are consolidated into the financial statements of the
Company.
 F-7
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
    June 30, 2010
                              
                              
                              June 30, 2009Current
      assets
                              
                              $
                              44,161,471
                              
                              
                              $
                              24,769,527Property,
      plant and equipment
                              
                              
                              25,891,066
                              
                              
                              
                              22,089,717Other
      noncurrent assets
                              
                              
                              9,029,763
                              
                              
                              
                              8,927,452Total
      assets
                              
                              
                              79,082,300
                              
                              
                              
                              55,786,696Liabilities
                              
                              
                              (20,486,646
                              )
                              
                              
                              (19,062,845
                              )Intercompany
      payables*
                              
                              
                              (39,124,318
                              )
                              
                              
                              (20,554,895
                              )Total
      liabilities
                              
                              
                              (59,610,964
                              )
                              
                              
                              (39,617,740
                              )Net
      assets
                              
                              $
                              19,471,336
                              
                              
                              $
                              16,168,956
 
 *
Payables to China - ACMH and BVI-ACMH are eliminated upon
consolidation.
 
 Use of
estimates
 
 The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. The significant estimates made in the
preparation of the Company’s consolidated financial statements relate to the
assessment of the fair value of share-based payments and the collectability of
accounts receivable. Actual results could be materially different from those
estimates, upon which the carrying values were based.
 
 Foreign currency
translation
 
 The
reporting currency of the Company is the U.S. dollar. The functional currency of
China ACM and BVI-ACM is the U.S. dollar. China-ACMH and its VIEs use their
local currency Chinese Renminbi (“RMB”) as their functional currency. In
accordance with the FASB’s guidance on Foreign Currency Translation, the
Company’s results of operations and cash flows are translated at the average
exchange rates during the period, assets and liabilities are translated at the
exchange rates at the balance sheet dates, and equity is translated at
historical exchange rates. As a result, amounts related to assets and
liabilities reported on the consolidated statements of cash flows will not
necessarily agree with changes in the corresponding balances on the consolidated
balance sheets.
 
 Accumulated
other comprehensive income in the consolidated statements of shareholders’
equity amounted to $3,019,983 and $2,705,267 as of June 30, 2010 and 2009,
respectively. Asset and liability accounts at June 30, 2010 and 2009 were
translated at RMB 6.81 and RMB 6.83 to $1.00, respectively. The average
translation rates applied to the consolidated statements of income and cash
flows for years ended June 30, 2010 and 2009 were RMB 6.84 and RMB 6.83 to
$1.00, respectively.
 
 Translation
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred. Gains and losses from foreign currency
transactions are included in the results of operations. There were no material
transaction gains or losses for theyearsended June 30, 2010 and
2009.
 
 Revenue
recognition
 
 The
Company recognizes revenue in accordance with FASB issued accounting standards
regarding revenue recognition which specifies that revenue is realized or
realizable and earned when four criteria are met:
 
 Ÿ
                Persuasive
      evidence of an arrangement exists (the Company considers its sales
      contracts and technical service agreements to be pervasive evidence of an
      arrangement);
 
 Ÿ
                Delivery
      has occurred or services have been
rendered;
 
 Ÿ
                The
      seller’s price to the buyer is fixed or determinable;
  and
 
 Ÿ
                Collectability
      of payment is reasonably
assured.
 
 The
Company sells its concrete products and provides concrete technical services
primarily to major local construction companies. Sales agreements are signed
with each customer. The agreements list all terms and conditions with the
exception of delivery date and quantity, which are evidenced separately in
purchase orders. The purchase price of products is fixed in the agreement and
customers are not permitted to renegotiate after the contracts have been signed.
The agreements include a cancellation clause if the Company or customers breach
the contract terms specified in the agreement.
  F-8
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 The
Company does not sell products to customers on a consignment basis. There is no
right of return after the product has been injected into the location specified
by the contract and accepted by the customer. The Company recognizes revenue
when the goods and services are provided by the Company and are accepted by the
customer.
 
 Sales
revenue represents the invoiced value of goods, net of a value added tax
(“VAT”). All of the Company’s concrete products that are sold in the PRC are
subject to a Chinese VAT at the rate of 6% of the gross sales
price.
  Due to
the fact that the Company uses recycled raw materials to manufacture its
products, the State Administration of Taxation has granted the Company VAT tax
exemption from August 2005 to August 2009 and a two year extension on the VAT
tax exemption from June 2009 to June 2011. The VAT tax collected during the
aforementioned period from the Company’s customers is retained by the Company
and recorded as other subsidy income.
  The
Company also provides manufacturing services, technical consulting services and
strategic cooperation including market sharing and equipment rental with other
independently owned concrete companies. The Company signs a Technical Service
Agreement or Strategic Cooperation Agreement with each concrete company, which
specifies all terms and conditions including prices to be charged. Once concrete
products are produced by the concrete company and supplied to builders referred
by the Company or cost savings are realized by the use of technical solutions
provided by the Company, the Company has in effect rendered its service pursuant
to the agreements. The Company recognizes revenue and invoices the concrete
companies monthly for technical service and marketing cooperation on a
per-cubic-meter basis and for equipment rental on a per-mixer truck
basis.
 
 The
Company also earns income from the renting of certain of its vehicles to other
non-related concrete companies. The rental amounts are based on pre-determined
rental rates on a per cubic meter basis.
 
 Shipping and
handling
 
 Shipping
and handling costs related to costs of the raw materials purchased is included
in cost of revenues. Further, transportation costs incurred in the delivery of
the Company’s concrete products are also included in cost of
revenues.
 
 Contingencies
  From time
to time, the Company may be subject to proceedings, lawsuits and other claims.
The Company assesses the likelihood of any adverse judgments or outcomes of
these matters as well as potential ranges of probable losses. The Company
records a loss contingency when an unfavorable outcome and the amount of the
loss can be reasonably estimated. Legal expenses incurred related to loss
contingencies are classified as general and administrative expenses in the
period incurred. No significant legal expenses related to any potential
loss contingencies have been incurred during the years ended June 30, 2010 and
2009.
  Financial
instruments
 
 The
accounting standards regarding fair value of financial instruments and related
fair value measurements define fair value, establish a three-level valuation
hierarchy for disclosures of fair value measurement, and enhance disclosure
requirements for fair value measures.
 
 The three
levels are defined as follows:
 
 Ÿ
                Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.
 
 Ÿ
                Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.
 
 Ÿ
                Level
      3 inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.
 
 Marketable
securities, warrant liabilities, receivables and current liabilities qualify as
financial instruments. Marketable securities were determined using Level 1,
which are carried on the consolidated balance sheets at fair value, with fair
values determined by the financial institution who sold the securities. The
carrying amounts reported in the consolidated balance sheets for receivables and
current liabilities are reasonable estimates of fair values because of the short
period of time between the origination of such instruments and their expected
realization and their current market rates of interest.
  F-9
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 As
required by the accounting standard, financial assets and liabilities are
classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. The fair value of the warrants
was determined using the CRR Binomial Model, as level 2 inputs, and recorded the
change in earnings. As a result, the derivative liability is carried on the
balance sheet at its fair value.
  The
following table sets forth by level within the fair value hierarchy our
financial assets and liabilities that were accounted for at fair value on a
recurring basis as of June 30, 2010.
 
 CarryingValueat
                      June30,2010
                    
                    
                    Fair Value Measurement at
                      June 30, 2010Level1
                    
                    
                    Level2
                    
                    
                    Level3Derivative
      liability - warrants
                    
                    $
                    2,920,520
                    
                    
                    $
                    -
                    
                    
                    $
                    2,920,520
                    
                    
                    $
                    -
 
 Other
than the derivative liability - warrants carried at fair value, the Company did
not identify any other assets and liabilities that are required to be presented
on the consolidated balance sheet at fair value in accordance with the
accounting standard.
 
 Stock-based
compensation
 
 The
Company records stock-based compensation expense pursuant to accounting standard
regarding stock compensation which requires companies to measure compensation
cost for stock-based employee compensation plans at fair value at the grant date
and recognize the expense over the employee's requisite service period. Under
ASC Topic 718, the Company’s expected volatility assumption is based on the
historical volatility of Company’s stock or the expected volatility of similar
entities. The expected life assumption is primarily based on historical exercise
patterns and employee post-vesting termination behavior. The risk-free interest
rate for the expected term of the option is based on the U.S. Treasury yield
curve in effect at the time of grant.
 
 Stock-based
compensation expense is recognized based on awards expected to vest, and there
were no estimated forfeitures as the Company has a short history of issuing
options. This accounting standard requires forfeitures to be estimated at the
time of grant and revised in subsequent periods, if necessary, if actual
forfeitures differ from those estimates.
 
 The
Company estimates the fair value of the awards using the CRR binomial model.
Option pricing models, such as the CRR binomial model, require the input of
highly complex and subjective variables including the expected life of options
granted and the Company’s expected stock price volatility over a period equal to
or greater than the expected life of the options. Because changes in the
subjective assumptions can materially affect the estimated value of the
Company’s employee stock options, it is management’s opinion that the CRR
binomial model may not provide an accurate measure of the fair value of the
Company’s employee stock options. Although the fair value of employee stock
options is determined in accordance with the accounting standard aforementioned
using an option-pricing model, which value may not be indicative of the fair
value observed in a willing buyer/willing seller market
transaction.
 
 Concentration of
risk
 
 Cash -
Cash includes cash on hand and demand deposits in accounts maintained with state
owned banks within the PRC and US bank accounts. The Company considers all
highly liquid instruments purchased with original maturities of three months or
less, and money market accounts, to be cash equivalents. As of June 30, 2010 and
2009, the Company had deposits in excess of federally insured limits totaling
$2,340,854 and $3,634,805, respectively. Also, as of June 30, 2010 and 2009, the
Company held $57,580 and $453,192 in restricted cash in a corporate legal
counsel’s trust accountrespectively, in accordance with an agreement with
investors for the restricted use of preferred stock dividend and investor
relation related expenses. Nonperformance by these institutions could expose the
Company to losses not covered by insurance. Management reviews the financial
condition of these institutions on a periodic basis. The Company has not
incurred any losses on these accounts from nonperformance by the aforementioned
institutions.
 
 Major
customers –For the years ended June 30, 2010 and 2009, no customer was over 10%
of the company's total sales. As of June 30, 2010 and 2009, there was no
customer over 10% of the company’s account receivable balance.
  F-10
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 Major
suppliers – For the year ended June 30, 2010, one supplier accounted for 14% of
the company's total purchases. For the year ended June 30, 2009, no supplier
accounted for more than 10% of the company's total purchases. As of June 30,
2010, no supplier accounted for more than 10% of the Company’s accounts payable
balance. As of June 30, 2009, one supplier accounted for 16% of the Company’s
accounts payable balance.
 
 Political
and economic risks - The Company's operations are carried out in the PRC.
Accordingly, the Company's business, financial condition, and results of
operations may be influenced by the political, economic, and legal environments
in the PRC, and by the general state of the PRC's economy. The Company's
operations in the PRC are subject to specific considerations and significant
risks not typically associated with companies in North America and Western
Europe. These include risks associated with, among others, the political,
economic, and legal environments, and foreign currency exchange. The Company's
results may be adversely affected by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency conversion
and remittance abroad, and rates and methods of taxation, among
others.
 
 Restricted
cash
 
 Restricted
cash represents a portion of the proceeds received from the June 11, 2009,
Private Placement that was deposited in a trust account held by the Company’s
legal counsel for payment of dividends, investor relations fees, and other
professional fees.
 
 Accounts
receivable
 
 During
the normal course of business, the Company extends unsecured credit to its
customers. Management reviews its accounts receivable each reporting period to
determine if the allowance for doubtful accounts is adequate. An estimate for
doubtful accounts is recorded when collection of the full amount is no longer
probable. Known bad debts are written off against allowance for doubtful
accounts when identified. The Company’s reserves are consistent with its
historical experience and considered adequate by management.
 
 The
ultimate collection of the Company’s accounts receivable may take more than one
year, and any portion of accounts receivable expected to be collected in more
than one year is reflected as noncurrent, net of allowance for doubtful accounts
relating to that portion of the receivables. The bifurcation between current and
noncurrent portions of accounts receivable is based on management’s estimate and
predicated on historical collection experience.
 
 Inventories
 
 Inventories
consist of raw materials and are stated at the lower of cost or market, as
determined using the weighted average cost method. Management compares the cost
of inventories with the market value and an allowance is made for writing down
the inventory to its market value, if lower than cost. On an ongoing basis,
inventories are reviewed for potential write-down for estimated obsolescence or
unmarketable inventories equal to the difference between the costs of
inventories and the estimated net realizable value based upon forecasts for
future demand and market conditions. When inventories are written-down to the
lower of cost or market, it is not marked up subsequently based on changes in
underlying facts and circumstances. As of June 30, 2010 and 2009, the Company
determined no reserves for obsolescence were necessary.
 
 Prepayments and
advances
 
 The
Company advances monies to certain suppliers for raw materials, plant and
equipment, and factory rent. These advances are interest free and
unsecured.
 
 Plant and
equipment
 
 Plant and
equipment are stated at cost. Expenditures for maintenance and repairs are
charged to earnings as incurred while additions, renewals and betterments are
capitalized. Depreciation is provided over the estimated useful life of each
class of depreciable assets and is computed using the straight-line method with
5% residual value.
 
 The
estimated useful lives of assets are as follows:
 
 Useful LifeTransportation
      equipment
                      
                      10
      yearsPlant
      and machinery
                      
                      10
      yearsOffice
      equipment
                      
                      5
      years
  F-11
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the
consolidated statements of income.  Construction-in-progress
represents labor costs, materials, and capitalized interest incurred in
connection with the construction of a new mixer station inside the current plant
facility in and outside of Beijing. Interest incurred during construction is
capitalized into construction in progress. All other interest is expensed as
incurred. No depreciation is provided for construction in progress until it
is completed and placed into service. Maintenance, repairs and minor renewals
are charged to expense as incurred. Major additions and betterments to property
and equipment are capitalized. Interest incurred during construction is
capitalized into construction in progress. All other interest is expensed as
incurred. For the years ended June 30, 2010 and 2009, no material interest was
capitalized into construction in progress.
  The
Company recognizes an impairment loss when estimated cash flows estimated by
those assets are less than the carrying amounts of the asset. Based on
management review, the Company believes that there were no impairments as of
June 30, 2010 and 2009.
 
 Accounting for long-lived
assets
 
 Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. We assess
the recoverability of the assets based on the undiscounted future cash flow the
assets are expected to generate and recognize an impairment loss when estimated
undiscounted future cash flow expected to result from the use of the asset plus
net proceeds expected from disposition of the asset, if any, are less than the
carrying value of the asset. When we identify an impairment, we reduce the
carrying amount of the asset to its estimated fair value based on a discounted
cash flow approach or, when available and appropriate, to comparable market
values. As of June 30, 2010, management believes there was no
impairment.
 
 Redeemable convertible
preferred stock
 
 On June
11, 2008, the Company completed the sale to certain accredited investors of
875,000 investment units for gross proceeds of $7,000,000, each unit consisting
of one share of the Company’s Series A Convertible Preferred Stock and one
warrant to purchase two shares of the Company’s common stock. The preferred
stock pays annual dividends of 9% regardless of the Company’s profitability.
Each preferred share is convertible into four shares of common stock. The
Company received net proceeds of approximately $5.3 million after offering
expenses and net of $930,000 restricted cash which was required to be placed in
escrow. Upon the two year anniversary of the closing date, the Company is
required to redeem for cash the outstanding preferred stock, if not previously
converted by the holders, for $8.00 per share plus accrued but unpaid dividends.
Because the Company was required to redeem the preferred stock on June 11, 2010,
if it has not been previously converted by the holders, in accordance with the
accounting standard, the preferred stock is classified outside of shareholders’
equity. As of June 30, 2010, all redeemable convertible preferred stock has been
converted or redeemed. See Note 12 for detail.
 
 In
accordance with an accounting standard regarding debt with conversion and other
options, the Company allocated the proceeds received between the preferred stock
and the warrants. The resulting discount from the face amount of the preferred
stock is being amortized using the effective interest method over the period to
the required redemption date. After allocating a portion of the proceeds to the
warrants, the effective conversion price of the preferred stock was higher than
the market price at the date of issuance, and therefore, no beneficial
conversion feature was recorded. The dividends on the preferred stock, together
with the periodic accretion of the preferred stock to its redemption value, are
charged to retained earnings.
 
 Income
taxes
 
 The
Company accounts for income taxes in accordance with the accounting standards,
which requires the Company to use the assets and liability method of accounting
for income taxes. Under the assets and liability method, deferred income taxes
are recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences between
financial statement carrying amounts and the tax bases of existing assets and
liabilities. Under this accounting standard, the effect on deferred income taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is recognized if it is more likely than
not that some portion, or all of, a deferred tax asset will not be
realized.
  F-12
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  The
accounting standard defines uncertainty in income taxes and the evaluation of a
tax position is a two-step process. The first step is to determine whether it is
more likely than not that a tax position will be sustained upon examination,
including the resolution of any related appeals or litigation based on the
technical merits of that position. The second step is to measure a tax position
that meets the more-likely-than-not threshold to determine the amount of benefit
to be recognized in the financial statements. A tax position is measured at the
largest amount of benefit that is greater than 50 percent likelihood of being
realized upon ultimate settlement. Tax positions that previously failed to meet
the more-likely-than-not recognition threshold should be recognized in the first
subsequent period in which the threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not criteria should be
de-recognized in the first subsequent financial reporting period in which the
threshold is no longer met. The Company had no material deferred tax amounts as
of June 30, 2010 and2009 from its US operation, respectively. Penalties and
interest incurred related to underpayment of income tax are classified as income
tax expense in the period incurred.  No significant penalties or interest
relating to income taxes have been incurred for the years ended June 30, 2010
and 2009.  GAAP also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosures and
transition.
 
 The
Company’ VIE entities have cumulative undistributed earnings of approximately
$29.5 million and $14.8 million as of June 30, 2010 and 2009, respectively,
included in consolidated retained earnings and will continue to be indefinitely
reinvested in international operations.  Accordingly, no provision has been
made for U.S. deferred taxes related to future repatriation of these
earnings.
 
 China ACM
was organized in the United States and has incurred net operating losses of
$742,000 for income tax purposes for the year ended June 30, 2010, which
excludes $595,858 stock based compensation expenses and change in fair value of
warrant liabilities of $2,488,959. The cumulative net operating loss carry
forwards for United States income taxes amounted to $986,467.  The net
operating loss carry forwards may be available to reduce future years’ taxable
income. These carry forwards will expire, if not utilized, starting from 2027.
Management believes that the realization of the benefits from these losses
appears uncertain due to the Company’s limited operating history and continues
losses for United States income tax purposes. Accordingly, the Company has
provided a 100% valuation allowance on the deferred tax asset benefit to reduce
the asset to zero. The net change in the valuation allowance for the year ended
June 30, 2010 was an increase of approximately $252,280. Management reviews this
valuation allowance periodically and makes adjustments
accordingly.
 
 Chinese income
taxes
 
 China-ACMH
and VIEs are governed by the income tax laws of the PRC concerning FIEs, Foreign
Enterprises and various local income tax laws (the “Income Tax
Laws”).
 
 Xin Ao
use of recycled raw materials in its production since its inception entitled the
Company to an income tax exemption from January 1, 2003, through to March 31,
2007 and an income tax reduction from 25% to 15% from January 1, 2009 to
December 31, 2011 as granted by the State Administration of Taxation of the PRC.
Beginning January 1, 2009, the new Chinese Enterprise Income Tax (“EIT”) law
replaced the existing laws for Domestic Enterprises (“DEs”) and FIEs. Effective
January 1, 2009, the new reduced EIT rate of 15% replaced the existing rates of
25% currently applicable to both DEs and FIEs.
 
 PRC laws
require that before a FIE can legally distribute profits to its shareholders, it
must satisfy all tax liabilities, provide for losses in previous years, and make
allocations in proportions made at the discretion of the board of directors,
after the statutory reserve. The statutory reserve includes the surplus reserve
fund, the common welfare fund, and represents restricted retained earnings, see
note 14 for further discussion.
 
 The
Company adopted accounting policies in accordance with U.S. GAAP with regard to
provisions, reserves, inventory valuation method, and depreciation that are
consistent with requirements under Chinese income tax laws. The Company had
deferred tax assets of $127,741 and $0 as of June 30, 2010 and 2009 from its
Chinese operations, respectively.  The deferred tax asset balance was
acquired by the VIE entity’s (XinAo) operating station through the four-year
operating lease agreement (see Note 17), which says the leasor, as part of the
lease agreement, would transfer its own operating loss carry forward to VIE
entity to offset the net income from the station. The net operating loss carry
forward resulted in $668k of deferred tax assets on the VIE entity’s book and
the effective rental payment was therefore reduced by the same amount. As of
June 30, 2010, $540k of the deferred tax assets had been used to offset the tax
liability. The remaining amount, $128k, is expected to be applied against future
tax liability by the end of the calendar year 2010.
 
 The
deferred tax assets and allowance are as followed:
  F-13
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 China
      ACMDeferred
      tax assets, July 1, 2008
                    
                    $
                    -NOL
                    
                    
                    244,467Income
      tax rate
                    
                    
                    34
                    %Deferred
      tax assets
                    
                    
                    83,119Allowance
                    
                    
                    (83,119
                    )Deferred
      tax assets, June 30, 2009
                    
                    
                    -NOL
                    
                    
                    742,000Income
      tax rate
                    
                    
                    34
                    %Deferred
      tax assets
                    
                    
                    252,280Allowance
                    
                    
                    (252,280
                    )Deferred
      tax assets, June 30, 2010
                    
                    $
                    -XinAoDeferred
      tax assets, July 1, 2008
                    
                    $
                    -NOL
                    
                    
                    -Deferred
      tax assets, June 30, 2009
                    
                    
                    -NOL
      acquired from Xin Ao’s station through rental agreement
                    
                    
                    2,671,644Current
      year’s net income from the station
                    
                    
                    (2,160,680
                    )NOL
      as of June 30, 2010
                    
                    
                    510,964Tax
      rate for such station
                    
                    
                    25
                    %Deferred
      tax assets, June 30, 2010
                    
                    $
                    127,741
 
 The
Company classifies interest and penalties assessed due to underpayment of income
taxes as interest expense and other expenses, respectively. The Company incurred
no such expenses for the years ended June 30, 2010 and 2009,
respectively.
 
 Value Added
Tax
 
 Enterprises
or individuals, who sell commodities, engage in repair and maintenance, or
import and export goods in the PRC are subject to a value added tax. The
standard VAT rate is 6% of gross sales for the Company’s industry. A credit is
available whereby VAT paid on the purchases of raw materials used in the
production of the Company’s finished products can be used to offset the VAT due
on sales of finished products. Due to the fact that the Company uses recycled
raw materials to manufacture its products, the State Administration of Taxation
has granted the Company VAT exemption from August 2005 through to August 2009
and another two-year extension from June 2009 through June 2011.
 
 Research and development
costs
 
 Research
and development costs are expensed as incurred. The cost of materials and
equipment that are acquired or constructed for research and development
activities, and have alternative future uses, either in research and
development, marketing, or sales, are classified as property and equipment, and
depreciated over their estimated useful lives. Research and development expenses
for the year ended June 30, 2010 were $121,762. The Company did not incur
significant research and development expense for the year ended June 30,
2009.
 
 Earnings per
share
 
 The
Company reports earnings per share in accordance with the accounting standards,
which requires presentation of basic and diluted earnings per share in
conjunction with the disclosure of the methodology used in computing such
earnings per share. Basic earnings per share excludes dilution and is computed
by dividing income available to common shareholders by the weighted average
common shares outstanding during the period. Diluted earnings per share takes
into account the potential dilution that could occur if securities or other
contracts, such as warrants, options and convertible preferred stock, to issue
common stock were exercised and converted into common stock. Dilutive securities
having an anti-dilutive effect on diluted earnings per share are excluded from
the calculation.
 
 Comprehensive
income
 
 The
accounting standard for reporting and display of comprehensive income and its
components in its financial statementrequires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
providence as other financial statements. The accompanying consolidated
financial statements include the provision of this accounting standard, and
therefore, comprehensive income consists of net income, unrealized gains and
losses from marketable securities, and foreign currency translation
adjustments.
  F-14
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 Recently issued accounting
pronouncements
 
 In June
2009, the FASB issued an accounting standard amending the accounting and
disclosure requirements for transfers of financial assets. This accounting
standard requires greater transparency and additional disclosures for transfers
of financial assets and the entity’s continuing involvement with them and
changes the requirements for derecognizing financial assets. In addition, it
eliminates the concept of a qualifying special-purpose entity (“QSPE”). This
accounting standard is effective for financial statements issued for fiscal
years beginning after November 15, 2009. The Company is currently evaluating the
impact of this ASU; however, the Company does not expect the adoption of this
ASU to have a material impact on its consolidated financial
statements.
 
 In June
2009, the FASB also issued an accounting standard amending the accounting and
disclosure requirements for the consolidation of variable interest entities
(“VIEs”). The elimination of the concept of a QSPE, as discussed above, removes
the exception from applying the consolidation guidance within this accounting
standard. Further, this accounting standard requires a company to perform a
qualitative analysis when determining whether or not it must consolidate a VIE.
It also requires a company to continuously reassess whether it must consolidate
a VIE. Additionally, it requires enhanced disclosures about a company’s
involvement with VIEs and any significant change in risk exposure due to that
involvement, as well as how its involvement with VIEs impacts the company’s
financial statements. Finally, a company will be required to disclose
significant judgments and assumptions used to determine whether or not to
consolidate a VIE. This accounting standard is effective for financial
statements issued for fiscal years beginning after November 15, 2009. The
Company is currently evaluating the impact of this ASU; however, the Company
does not expect the adoption of this ASU to have a material impact on its
consolidated financial statements.
 
 In August
2009, the FASB issued an Accounting Standards Update (“ASU”) regarding measuring
liabilities at fair value. This ASU provides additional guidance clarifying the
measurement of liabilities at fair value in circumstances in which a quoted
price in an active market for the identical liability is not available; under
those circumstances, a reporting entity is required to measure fair value using
one or more of valuation techniques, as defined. The adoption of this guidance
did not have a material impact on the Company’s consolidated financial
statements.
 
 In
October 2009, the FASB issued an ASU regarding accounting for own-share lending
arrangements in contemplation of convertible debt issuance or other financing.
This ASU requires that at the date of issuance of the shares in a share-lending
arrangement entered into in contemplation of a convertible debt offering or
other financing, the shares issued shall be measured at fair value and be
recognized as an issuance cost, with an offset to additional paid-in capital.
Further, loaned shares are excluded from basic and diluted earnings per share
unless default of the share-lending arrangement occurs, at which time the loaned
shares would be included in the basic and diluted earnings-per-share
calculation. The adoption of this guidance did not have a material impact on the
Company’s consolidated financial statements.
 
 In
November 2009, the FASB issued an ASU regarding accounting for stock dividends,
including distributions to shareholders with components of stock and cash. This
ASU clarifies thatthe stock portion of a distribution to shareholders that
contains components of cash and stock and allows shareholders to select their
preferred form of the distribution (with a limit on the amount of cash that will
be distributed in total) should be considered a stock dividendand included in
EPS calculations as a share issuance. The adoption of this guidance did not have
a material impact on the Company’s consolidated financial
statements.
 
 In
December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of
Financial Assets. This Accounting Standards Update amends the FASB Accounting
Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140.The amendments
in this Accounting Standards Update improve financial reporting by eliminating
the exceptions for qualifying special-purpose entities from the consolidation
guidance and the exception that permitted sale accounting for certain mortgage
securitizations when a transferor has not surrendered control over the
transferred financial assets. In addition, the amendments require enhanced
disclosures about the risks that a transferor continues to be exposed to because
of its continuing involvement in transferred financial assets. Comparability and
consistency in accounting for transferred financial assets will also be improved
through clarifications of the requirements for isolation and limitations on
portions of financial assets that are eligible for sale accounting. The adoption
of this ASU did not have a material impact on its consolidated financial
statements.
  F-15
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 In
December, 2009, FASB issued ASU No. 2009-17,Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities. This Accounting
Standards Update amends the FASB Accounting Standards Codification for the
issuance of FASB Statement No. 167, Amendments to FASB Interpretation
No. 46(R). The amendments in this Accounting Standards Update replace the
quantitative-based risks and rewards calculation for determining which reporting
entity, if any, has a controlling financial interest in a variable interest
entity with an approach focused on identifying which reporting entity has the
power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the
entity. An approach that is expected to be primarily qualitative will be more
effective for identifying which reporting entity has a controlling financial
interest in a variable interest entity. The amendments in this Update also
require additional disclosures about a reporting entity’s involvement in
variable interest entities, which will enhance the information provided to users
of financial statements. The adoption of this ASU did not have a material impact
on its consolidated financial statements.
 
 In
January 2010, FASB issued ASU No. 2010-01– Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings
Per Share). The adoption of this ASU did not have a material impact on its
consolidated financial statements.
 
 In
January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect accounting and reporting by an entity that exchanges
a group of assets that constitutes a business or nonprofit activity for an
equity interest in another entity. The amendments in this update are effective
beginning in the period that an entity adopts SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.”
The amendments in this update should be applied retrospectively to the first
period that an entity adopted SFAS No. 160. The adoption of this ASU did not
have a material impact on its consolidated financial statements.
 
 In
January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair
Value Measurements. This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers. 2) Activity in Level 3 fair value measurements. In
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), a reporting entity should present separately information about
purchases, sales, issuances, and settlements (that is, on a gross basis rather
than as one net number). This update provides amendments to Subtopic 820-10 that
clarifies existing disclosures as follows: 1) Level of disaggregation. A
reporting entity should provide fair value measurement disclosures for each
class of assets and liabilities. A class is often a subset of assets or
liabilities within a line item in the statement of financial position. A
reporting entity needs to use judgment in determining the appropriate classes of
assets and liabilities. 2) Disclosures about inputs and valuation techniques. A
reporting entity should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements. Those disclosures are required for fair value measurements that
fall in either Level 2 or Level 3. The adoption of this guidance did not have a
material impact on the Company’s consolidated financial statements.
 
 In
February 2010, FASB issued ASU No. 2010-9 –Amendments to Certain Recognition and
Disclosure Requirements. This update addresses certain implementation issues
related to an entity’s requirement to perform and disclose subsequent-events
procedures, removes the requirement that public companies disclose the date of
their financial statements in both issued and revised financial statements.
According to the FASB, the revised statements include those that have been
changed to correct an error or conform to a retrospective application of U.S.
GAAP. The adoption of this ASU did not have a material impact on the Company’s
consolidated financial statements.
 
 In March
2010, FASB issued ASU No. 2010-10 –Amendments for Certain Investment Funds. This
update defers the effective date of the amendments to the consolidation
requirements made by FASB Statement 167 to a reporting entity’s interest in
certain types of entities. The deferral will mainly impact the evaluation of
reporting enterprises’ interests in mutual funds, private equity funds, hedge
funds, real estate investment entities that measure their investment at fair
value, real estate investment trusts, and venture capital funds. The ASU also
clarifies guidance in Statement 167 that addresses whether fee arrangements
represent a variable interest for all service providers and decision makers. The
adoption of this ASU did not have a material impact on its consolidated
financial statements.
  F-16
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 In March
2010, FASB issued ASU No. 2010-11 –Scope Exception Related to Embedded Credit
Derivatives. Embedded credit-derivative features related only to the transfer of
credit risk in the form of subordination of one financial instrument to another
are not subject to potential bifurcation and separate accounting as clarified by
recently issued FASB guidance. Other embedded credit-derivative features are
required to be analyzed to determine whether they must be accounted for
separately. This update provides guidance on whether embedded credit-derivative
features in financial instruments issued by structures such as collateralized
debt obligations (CDOs) and synthetic CDOs are subject to bifurcation and
separate accounting. The guidance is effective at the beginning of a company’s
first fiscal quarter beginning after June 15, 2010. The Company does not expect
the adoption of this ASU to have a material impact on the Company’s consolidated
financial statements.
 
 In April
2010, the FASB issued ASU No. 2010-13, Compensation – Stock Compensation: Effect
of Denominating the Exercise Price of a Share-Based Payment Award in the
Currency of the Market in Which the Underlying Equity Security Trades. ASU
2010-13 clarifies that a share-based payment award with an exercise price
denominated in the currency of a market in which a substantial portion of the
entity’s equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore,
such an award should not be classified as a liability if it otherwise qualifies
as equity. ASU 2010-13 is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2010, with early adoption
permitted. The Company is currently evaluating the potential impact of this
standard.
 
 Note
3 – Supplemental disclosure of cash flow information
 
 For the
years ended June 30, 2010 and 2009, the Company paid interest in the amount of
$119,122and $802,804, respectively.
 
 Cash
payments for income taxes for the years ended June 30, 2010 and 2009 were
$4,150,487and $152,350, respectively.
 
 Non-cash transactions in the
years ended June 30, 2010 and 2009
 
 For the
years ended June 30, 2010 and 2009, the accretion of the discount on redeemable
preferred stock amounted to approximately $567,580 and $600,968, respectively,
and hasbeen included in the consolidated statements of shareholders’
equity.
 
 For the
year ended June 30, 2010, 215,562 shares of warrants were converted into 242,221
shares of common stock by the exercise of such warrants on a cashless basis. For
the year ended June 30, 2009, no warrant was converted.
 
 For the
year ended June 30, 2010, 841,750 shares of redeemable convertible preferred
stock were converted into 3,367,000 shares of common stock on a cashless basis.
For the year ended June 30, 2009, 23,875 shares of redeemable convertible
preferred stock were converted into 95,500 shares of common stock on a cashless
basis.
 
 Note
4 – Marketable securities
 
 Marketable
securities are the mutual fund that XinAo purchased from CYJA Allianz Fund. All
securities are available for sale and therefore are carried at fair value with
unrealized gains and losses reported as accumulated other comprehensive income
in shareholders’ equity. Realized gains and losses on marketable securities are
included in other income or expense in the period they incurred, and when
applicable, are reported as a reclassification adjustment in other comprehensive
income. Gains and losses on the sale of marketable securities are determined
using the specific-identification method. On December 21, 2009, the Company sold
marketable securities at a total cash value of  $78,413 and a gain of
$27,079 was recorded as realized gain.
  F-17
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
5 – Accounts receivable
 
 Accounts
receivable are generated from concrete products sold, vehicle rental services
provided to other unrelated concrete companies, and technological consulting
services provided to the Company’s customers and other concrete companies with
which the Company conducts business. The payment terms are defined in the
respective contracts. Over 73% of the Company’s receivables are due within a
year by contract and are classified as current assets on the consolidated
balance sheets. For certain large construction projects that can take several
years to complete, the Company provides extended payment terms to the general
contractors. These contractors are usually large state-owned builders with good
credit ratings. At the end of each period, the Company evaluates the structure
and collectability of accounts receivable and for these receivables that are
past due or not being paid according to payment terms, the Company takes
appropriate actions including seeking legal resolution in a court of law, for
its collection efforts.
 
 As of
June 30, 2010 and 2009, accounts receivable and allowance for doubtful accounts
consisted of the following:
 2010
                    
                    
                    2009Accounts
      receivable, current
                    
                    $
                    36,528,776
                    
                    
                    $
                    11,936,388Less:
      allowance for doubtful accounts, current
                    
                    
                    (456,085
                    )
                    
                    
                    (120,986
                    )Net
      accounts receivable, current
                    
                    
                    36,072,691
                    
                    
                    
                    11,815,402Accounts
      receivable, non-current
                    
                    
                    368,978
                    
                    
                    
                    4,461,269Less:
      allowance for doubtful accounts, non-current
                    
                    
                    (4,607
                    )
                    
                    
                    (328,563
                    )Net
      accounts receivable, non-current
                    
                    
                    364,371
                    
                    
                    
                    4,132,706Total
      accounts receivable, net
                    
                    $
                    36,437,062
                    
                    
                    $
                    15,948,108
 
 The
following table consists of allowance for bad debts:
 
 Allowance
      for bad debts, current as July1, 2008
                    
                    $
                    224,924Recovery
      of accounts receivable
                    
                    
                    (104,863
                    )Effect
      of foreign currency translation
                    
                    
                    925Allowance
      for bad debt, current as June 30, 2009
                    
                    
                    120,986Reclassified
      from non-current
                    
                    
                    325,222Bad
      debt expense
                    
                    
                    7,786Effect
      of foreign currency translation
                    
                    
                    2,091Allowance
      for bad debt, current as June 30, 2010
                    
                    $
                    456,085
 
 Allowance
      for bad debts, non-current as July 1, 2008
                    
                    $
                    411,061Recovery
      of accounts receivable
                    
                    
                    (84,189
                    )Effect
      of foreign currency translation
                    
                    
                    1,691Allowance
      for bad debt, non-current as June 30, 2009
                    
                    
                    328,563Reclassified
      to current
                    
                    
                    (325,222
                    )Bad
      debt expense
                    
                    
                    865Effect
      of foreign currency translation
                    
                    
                    401Allowance
      for bad debt, non-current as June 30, 2010
                    
                    $
                    4,607
 
 Note
6 – Plant and equipment
 
 Plant and
equipment consist of the following as of June 30, 2010 and 2009:
 
 2010
                    
                    
                    2009Transportation
      equipment
                    
                    $
                    20,502,987
                    
                    
                    $
                    20,375,873Plant
      and machinery
                    
                    
                    13,615,455
                    
                    
                    
                    6,246,380Buildings
                    
                    
                    123,702
                    
                    
                    
                    -Office
      equipment
                    
                    
                    125,550
                    
                    
                    
                    95,556Construction-in-progress
                    
                    
                    3,089,785
                    
                    
                    
                    3,369,500Total
                    
                    
                    37,457,479
                    
                    
                    
                    30,087,309Less:
      accumulated depreciation
                    
                    
                    (10,969,125
                    )
                    
                    
                    (7,997,592
                    )Plant
      and equipment, net
                    
                    $
                    26,488,354
                    
                    
                    $
                    22,089,717
  F-18
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 Construction-in-progress
represents labor costs, materials, and capitalized interest incurred in
connection with the construction of a new mixer station inside and outside of
the current plant facility in Beijing. No depreciation is provided for
construction-in-progress until it is completed and placed into service. Most
construction-in-progress is related to assembling of portable machinery the
Company purchased with cash and in general the assembling process can be done in
less than three weeks. Therefore, no interest expense was capitalized as the
capitalized interest was not significant.
 
 Construction
of some of the new portable mixing stations was completed and approximately
$6.45 million was transferred to fixed assets during the year ended June 30,
2010.
 
 Depreciation
expense for the years ended June 30, 2010 and 2009 amounted to $2,924,616 and
$2,184,462 respectively.
 
 Note
7 – Prepayments (short-term and long-term)
 
 Short-term
prepayments are primarily comprised of short-term portion of the factory rental
prepayments the Company made (see Note 17 for more information on the factory
rental) and advances oninventory purchases. Short-term prepayments as of June
30, 2010 and 2009 consisted of the following:
 
 2010
                      
                      
                      2009Advances
      on inventory purchases
                      
                      $
                      691,364
                      
                      
                      $
                      2,431,401Current
      portion of rent prepayments
                      
                      
                      2,112,823
                      
                      
                      
                      1,823,925Others
                      
                      
                      17,500
                      
                      
                      
                      -Total
      short-term prepayments
                      
                      $
                      2,821,687
                      
                      
                      $
                      4,255,326
 
 Long-term
prepayments represents the long-term factory rental prepayments the Company has
made. As of June 30, 2010 and 2009, the Company prepaid $4,414,391 and
$4,794,746 long-term prepayment, respectively.
 
 Note
8 – Short term loans
 
 Short
term loans represent amounts due to banks and the Company’s employees that are
due within one year or on demand. As of June 30, 2010 and 2009, the outstanding
balances on these loans were $0 and $4,512,200, respectively, and these loans
consisted of the following:
 
 2010
                      
                      
                      2009Loan
      from Beijing International Trust Co, Ltd. interest rate of 15% per annum,
      due July 15, 2009, guaranteed by Rayland Credit Guarantee Co. Ltd., paid
      off in July 2009
                      
                      $
                      -
                      
                      
                      $
                      4,395,000Loan
      from anemployee, effective interest rate of 20% per annum, due upon
      demand, unsecured.
                      
                      
                      -
                      
                      
                      
                      117,200Total
      short term loans
                      
                      $
                      -
                      
                      
                      $
                      4,512,200
 
 Interest
expense on short-term loans for the years ended June 30, 2010 and 2009 amounted
to $23,834 and $802,804, respectively.
 
 Note
9 –Derivative liability
 
 Effective
July 1, 2009, the Company adopted a FASB accounting standard, which defines
determining whether an instrument (or embedded feature) is indexed to an
entity’s own stock. This accounting standard specifies that a contract that
would otherwise meet the definition of a derivative but is both (a) indexed to
the Company’s own stock and (b) classified in stockholders’ equity in the
statement of financial position would not be considered a derivative financial
instrument. This accounting standard provides a new two-step model to be applied
in determining whether a financial instrument or an embedded feature is indexed
to an issuer’s own stock and thus able to qualify for the scope
exception.
  F-19
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 As a
result of adopting this accounting standard, warrants previously treated as
equity pursuant to the derivative treatment exemption are no longer afforded
equity treatment because the warrants have downward ratchet provision on the
exercise price. As a result, the warrants are not considered indexed to the
Company’s own stock, and as such, all future changes in the fair value of these
warrants will be recognized currently in earnings until such time as the
warrants are exercised or expired.
 
 As such,
effective July 1, 2009, the Company reclassified the fair value of these
warrants from equity to liability, as if these warrants were treated as a
derivative liability since their issuance in June 2009. On July 1, 2009, the
Company reclassified from paid-in capital, as a cumulative effect adjustment,
$1,965,945 to beginning retained earnings and $3,337,225 to warrant liabilities
to recognize the fair value of such warrants. The fair value of the warrants was
$2,920,520 on June 30, 2010. The Company recognized a $2,488,959 loss from the
change in fair value for theyear ended June 30, 2010, respectively.
 
 These
common stock purchase warrants do not trade in an active securities market, and
as such, we estimate the fair value of these warrants using the CRR Binomial
Model using the following assumptions:
 
 June 30, 2010
                    
                    
                    July 1, 2009Annual
      dividend yield
                    
                    
                    -
                    
                    
                    
                    -Expected
      life (years)
                    
                    
                    3.00
                    
                    
                    
                    4.00Risk-free
      interest rate
                    
                    
                    0.98
                    %
                    
                    
                    2.07
                    %Expected
      volatility
                    
                    
                    80
                    %
                    
                    
                    75
                    %
 
 Expected
volatility is based on historical volatility of a similar U.S. public company
due to limited trading history of the Company’s common stock. The Company has no
reason to believe future volatility over the expected remaining life of these
warrants is likely to differ materially from historical volatility. The expected
life is based on the remaining term of the warrants. The risk-free interest rate
is based on U.S. Treasury securities according to the remaining term of the
warrants. The expected dividend yield was based on the Company’s current and
expected dividend policy.
 
 The
conversion option does not need to be separated from the redeemable convertible
preferred stock and accounted for as derivative liability because it has the
risks and rewards of an equity instrument and clearly and closely related to the
risks and rewards of the redeemable convertible preferred stock, which has been
accounted for as an equity instrument.
 
 The
redeemable convertible preferred stock contains residual equity interest, which
on dissolution and liquidation of the Company, entitle the preferred
stockholders to liquidation value and accumulated dividends, and rank equal with
the common shareholders on an as if converted basis. A host contract is
considered an equity instrument if it encompasses a residual interest in an
entity.
 
 Note
10– Related party transactions
 
 Other payables –
shareholders
 
 Beginning
in July 2007, Mr. He Weili, a 20.10% shareholder, leased office space to the
Company at approximately the current fair market value from July 2009 to June
2010 with annual payments of $172k. For the years ended June 30, 2010 and 2009,
the Company recorded rent expense from the shareholder in the amount of
approximately $173k for each year. As of June 30, 2010 and 2009, approximately
$22k and $56k, respectively, remained unpaid, and is included in other payables
- shareholders.
 
 The
Company’s 30.1% and 20.1% shareholders, Mr. Han Xianfu and Mr. He Weili,
respectively, together loaned $750,900 to BVI-ACM on March 12, 2008, for the
entity’s cash flow purposes. The loan is non-interest bearing, unsecured, and is
payable in cash on demand.
 
 Total
other payables - shareholders as of June 30, 2010 and 2009 is as
follows:
 
 2010
                      
                      
                      2009Han
      Xianfu, shareholder
                      
                      $
                      450,540
                      
                      
                      $
                      450,550He
      Weili, shareholder
                      
                      
                      322,104
                      
                      
                      
                      356,396Total
      other payable – shareholders
                      
                      $
                      772,644
                      
                      
                      $
                      806,946
  F-20
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 Other
receivable
 
 Monies
were advanced to an entity that was in part formerly owned by Mr. He Weili.
Prior to the reverse acquisition, the Company and this related entity were
engaged in joint contracts, business licenses, and other partnership agreements.
Pursuant to the reverse acquisition, the Company and this related entity began
separate operations and the process of obtaining separate contracts, business
licenses, and other partnership agreements were initiated. To date, the Company
and this related entity are finalizing the aforementioned process of obtaining
separate contracts, business licenses, and agreements.
 
 Due to
the relationship of the two companies, certain monies were exchanged as part of
their joint contracts. For the years ended June 30, 2010 and 2009, the Company
advanced approximately $6.75 million and $13 million to this entity, and the
whole amounts were fully repaid during the year. As of June 30, 2010 and 2009,
there is no outstanding balance due from the related party.
 
 As of
June 30, 2010, other receivables mainly includes advances to employees, monies
to another entity, receivables from insurance company, VAT tax refund and other
deposits paid.The Company paid VAT tax of approximately $536k during the year
ended June 30, 2010 whilewaiting for VAT tax exemption extension and the amount
paid is now due for a refund from the local tax authority. Monies advanced to
other entities, employees, and auction deposit amounted to $0.88 million as of
June 30, 2010.
 
 As of
June 30, 2009, other receivables consisted of receivables that were factored to
a trust company, employee advances, station advances, and bidding deposits. For
the fiscal year ended June 30, 2009, the Company had a factoring agreement with
a third party unrelated trust company wherein it transferred its receivables for
cash during the fourth quarter of 2009. As of June 30, 2009, the Company had not
collected $3.6 million from the trust company and recorded the uncollected
balances as other receivable. The Company received payment from the trust
company on its remaining balances in July 2009. Monies advanced to other
entities, employees, and auction deposit amounted to $0.28 million as of June
30, 2009.
 
 Note
11– Income taxes
 
 Corporate income taxes for
China
 
 Companies,
established before March 16, 2007, will continue to enjoy tax holiday treatment
approved by the local Chinese government for a grace period of either for the
next five years or until the tax holiday term is completed, whichever is sooner.
These companies will pay the standard tax rate when the grace period expires.
Xin Ao had received its tax holiday treatment until December 2007. During the
fourth quarter of the last year, Xin Ao has applied and received the Enterprise
High-Tech Certificate. The certificate was awarded based on Xin Ao’s involvement
in producing high-tech products, its research and development, as well as its
technical services. As a result of this certification, Xin Ao's effective income
tax rate for China has been reduced to 15% from 25%. The new tax rate will be
retroactive to January 1, 2009 and will be effective for three years, through
December 31, 2011.
 
 Xin Ao
was granted income tax exemption from January 1, 2003 to March 31, 2007.
Beginning on January 1, 2009, Xin Ao and its subsidiaries were subject to an EIT
rate of 25%. Xin Ao was granted a 10% tax deduction on 90% of the total sales
revenue by the local authority due to XinAo’s utilization of recycled raw
materials. Beginning on January 1, 2009, Xin Ao and its subsidiaries were
subject to an EIT rate of 15%. For the years ended June 30, 2010 and 2009, the
provision for income taxes amounted to $3,174,551 and $2,115,097, respectively.
 
 The
estimated tax savings for the years ended June 30, 2010 and 2009 amounted to
$1,961,136 and $1,694,677, respectively. The net effect on earnings per share
attributable to controlling interest had the income tax been applied would
decrease earnings per share from $0.90 to $0.75 for the year ended June 30,
2010, and $1.03 to $0.87 for the year ended June 30, 2009.
 
 The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for theyears ended June 30, 2010 and 2009:
 
 2010
                    
                    
                    
                    2009U.S.
      statutory rates
                    
                    
                    34
                    %
                    
                    
                    
                    34
                    %Foreign
      income not recognized in the U.S.
                    
                    
                    (34
                    )%
                    
                    
                    
                    (34
                    )%China
      income taxes
                    
                    
                    25
                    %
                    
                    
                    
                    25
                    %China
      income tax exemption
                    
                    
                    (10
                    )%
                    
                    
                    
                    (10
                    )%Other
                    
                    
                    4
                    %
                    (a)
                    
                    
                    -Effective
      income tax rates
                    
                    
                    19
                    %
                    
                    
                    
                    15
                    %
  F-21
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 (a)The 4%
represents expenses (such as change in fair value of warrants in the amount of
$2,488,959 and certain expenses in the amount of $1,385,471 incurred in the U.S.
entity) incurred by the Company that are not deductible for PRC income tax for
the year ended June 30, 2010.
 
 Taxes
      payable consisted of the following:2010
                        
                        
                        2009Income
      taxes payable
                        
                        $
                        1,536,610
                        
                        
                        $
                        3,039,905Other
      taxes payables
                        
                        
                        33,304
                        
                        
                        
                        8,274Total
      taxes payable
                        
                        $
                        1,569,914
                        
                        
                        $
                        3,048,179
 
 Note
12– Shareholders’ equity
 
 On June
11, 2008, the Company completed an offering (the “Offering”) on the sale of
875,000 of investment units for a total of $7,000,000, each unit consisting of
one share of the Company’s Series A Convertible Preferred Stock, $0.001 par
value per share, and one (1) five year warrant to purchase two shares of Common
Stock (the “Warrants”). Each preferred share is convertible into four shares of
common stock. Additionally, each holder is entitled to cumulative dividends
equal to 9% annually, payable in cash, irrespective of the profitability of the
Company.
 
 The
Company received net proceeds of approximately $5,223,291 with $930,000 in an
escrow and after payment of certain fees and expenses. $497,500 was paid to
Maxim Group LLC (“Maxim”) who served as the placement agent for the transaction,
$9,500 was paid to American Stock Transfer & Trust Company as a transfer
agent fee, $60,000 was paid to the attorney, and $45,000 was paid for a finance
fee for the purchasers in connection with the transaction. These offering costs
approximating $602,500 were charged topaid-in capital. The allocation of the
proceeds from the investment to a relative fair value basis resulted in the
allocation of $5,798,000 to the Series A Preferred and $1,202,000 to the
warrants.
 
 The
following is a summary of the Redeemable Convertible Preferred Stock issued and
redeemed net of discount at June 30, 2010 and 2009:
 
 2010
                      
                      
                      2009Numbers
      of Redeemable Convertible Preferred shares outstanding in the beginning of
      the fiscal year
                      
                      
                      851,125
                      
                      
                      
                      875,000Redeemable
      Convertible Preferred shares converted to Common share and redeemed during
      the fiscal year
                      
                      
                      (851,125
                      )
                      
                      
                      (23,875
                      )Current
      Redeemable Convertible Preferred shares outstanding
                      
                      
                      -
                      
                      
                      
                      851,125Per
      share conversion price from Redeemable Convertible Preferred shares to
      Common share
                      
                      $
                      8
                      
                      
                      $
                      8Current
      Redeemable Convertible Preferred Stock outstanding before
      discount
                      
                      $
                      -
                      
                      
                      $
                      6,809,000Discount
      on Redeemable Convertible Preferred shares outstanding
                      
                      $
                      -
                      
                      
                      $
                      (567,581
                      )Total
      Current Redeemable Convertible Preferred stocks net of
      discount
                      
                      $
                      -
                      
                      
                      $
                      6,241,419
 
 The
Company also issued to the placement agent a warrant to purchase an aggregate of
245,000 shares of common stock with an exercise price of $2.40 per share with a
term of five years. The warrants are exercisable on a cashless basis, in whole
or in part, at an exercise price equal to $2.40 per share. The Company may call
the warrants for redemption at any time after the warrants become exercisable
(i) at a price of $0.01 per warrant; (ii) upon not less than 30 days’ prior
written notice of redemption to each warrant holder; and (iii) if, and only if,
the last sale price of the common stock equals or exceeds $5.00 per share, for
any twenty (20) trading days within a thirty (30) consecutive trading day period
ending on the third business day prior to the notice of redemption to warrant
holders.
  F-22
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  The value
of the warrants issued to the placement agent was $169,345 calculated by using
the Cox-Ross-Rubinstein (“CRR”) Binomial Model. The fair value of these warrants
of $169,345 was recognized as offering expense and charged to additional paid-in
capital. The value of the warrants was determined using the CRR Binomial Model
using the following assumptions: volatility 75%; risk-free interest rate of
3.49% of the Investor Warrants, the Placement and Advisory Warrants; dividend
yield of 0%, and expected term of 5 years of the Investor Warrants and the
Placement and Advisory Warrants. The volatility of the Company’s common stock
was estimated by management based on the historical volatility of a similar U.S.
public company due to limited trading history of the Company’s common stock. The
risk-free interest rate was based on the Treasury Constant Maturity Rates
published by the U.S. Federal Reserve for periods applicable to the expected
life of the warrants. The expected dividend yield was based on the Company’s
current and expected dividend policy and the expected term is equal to the
contractual life of the warrants.
  Following
is a summary of the status of warrants outstanding:
 
 Outstanding Common Stocks Underlying WarrantsNumber
                    
                    Average Remaining
                      Contractual LifeUS$2.40
                    
                    
                    678,875
                    
                    2.94
      years
 
 Following
is a summary of the warrant activity:
 
 Number of Common
                      stock underlying
                      WarrantsOutstanding
      as of June 30, 2008
                    
                    
                    1,995,000Granted
                    
                    
                    -Forfeited
                    
                    
                    -Exercised
                    
                    
                    -Outstanding
      as of June 30, 2009
                    
                    
                    1,995,000Granted
                    
                    
                    -Forfeited
                    
                    
                    -Exercised
                    
                    
                    (637,250
                    )Outstanding
      as of June 30, 2010 (unaudited)
                    
                    
                    1,357,750
 
 In
connection with the private placement, the Company agreed to file a registration
statement to register the warrants and common stock issuable upon conversion of
the preferred stock and exercise of the warrants, as defined. The registration
statement was declared effective in January 2009; the Company incurred $140,000
in penalties for late registration and was paid based on the contract in
connection with the private placement.
 
 On July
16, 2009, the Company issued 650,988 shares of its common stock, at a price of
$2.30 per share, to its employees. The Company received net proceeds of
approximately $1.5 million.
 
 On March
1, 2010, the Company closed an offering of 2,000,000 shares of its common stock,
at a price of $4.6 per share, less 1% underwriting commission. The Company
received net proceeds of approximately $8.4 million after deducting a total of
$0.82 million underwriting commission, legal counsel, and other expenses
directly related to the offering. Also, the Company issued an additional 300,000
shares of common stock to cover over-allotments on March 22, 2010 and received
net proceeds of $1.2 million less $0.14 million underwriter commission and other
direct expenses.
 
 Employee Stock
Options
 
 On
October 3, 2008, the Company entered into a one-year agreement with one of the
Company’s board of directors. In connection with his services, the Company
issued an aggregate of 50,000 options of the Company’s common stock at an
exercise price of $2.90 per share. The options vest in equal quarterly
installments over the first year of the agreement. As of June 30, 2010, all of
the 50,000 options have been fully vested.
  F-23
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  On
December 1, 2008, the Company entered into a three-year agreement with the
Company’s previous Chief Financial Officer. In connection with his services, the
Company issued a total of 200,000 options of the Company’s common stock from the
option bonus pool. The option bonus pool consists of four equal tranches of
50,000 options, with the first tranche of 50,000 options carrying an exercise
price of $3.00, the second tranche of 50,000 options carrying an exercise price
of $3.50, the third tranche of 50,000 options carrying an exercise price of
$4.00, and the fourth tranche of 50,000 options carrying an exercise price of
$4.50. A quarter (25%) of each tranche of options will vest at the end of each
twelve-month period of the agreement. Upon termination of his service in the
third quarter, in addition to the 50,000 vested options per the vesting schedule
described above, the Company agreed to vest additional 50,000 shares of options
(12,500 shares from each tranche) immediately.
  In
January, 2010, the Company appointed a new CFO who is also the President of the
Company. In connection with his services, the Company granted 12,500 option
vesting on February 23, 2010 with an exercise price of $4.64, 35,000 share
options vesting on March 5, 2010 with an exercise price $5.38, 15,000 option
vesting on June 30, 2010contingent upon a performance condition and exercise
price at $5.38, and 50,000 options vesting on July 15, 2010 contingent upon a
performance condition and exercise price at $5.38. As of June 30, 2010, the
15,000 and 50,000 contingent options were forfeited due to failure to meet
performance condition.
 
 The
Company valued the stock options by the CRR binomial model with the following
assumptions:
 
 Expected
                    
                    
                    Expected
                    
                    
                    Dividend
                    
                    
                    Risk Free
                    
                    
                    Grant DateTerm
                    
                    
                    Volatility
                    
                    
                    Yield
                    
                    
                    Interest Rate
                    
                    
                    Fair ValueDirector
                    
                    
                    5.31
                    
                    
                    
                    75
                    %
                    
                    
                    0
                    %
                    
                    
                    1.41
                    %
                    
                    $
                    2.90CFO
      and president
                    
                    
                    5.50
                    
                    
                    
                    44
                    %
                    
                    
                    0
                    %
                    
                    
                    1.70
                    %
                    
                    $
                    5.95
 
 The
following is a summary of the option activity:
 Number of
                            options
                          
                          
                          Intrinsic ValueOutstanding
      as of June 30, 2008
                          
                          
                          -Granted
                          
                          
                          250,000Forfeited
                          
                          
                          -Exercised
                          
                          
                          -Outstanding
      as of June 30, 2009
                          
                          
                          250,000Granted
                          
                          
                          112,500Forfeited
                          
                          
                          (165,000
                          )Exercised
                          
                          
                          (100,000
                          )Outstanding
      as of June 30, 2010
                          
                          
                          97,500
                          
                          $
                          -
 
 Following
is a summary of the status of options outstanding at June 30, 2010:
 
 Outstanding options
                          
                          
                          Exercisable optionsAverage
                          
                          
                          
                          
                          
                          
                          
                          
                          Weightedremaining
                          
                          
                          Average
                          
                          
                          
                          
                          
                          averageAverage
                          
                          
                          
                          
                          contractual life
                          
                          
                          Exercise
                          
                          
                          
                          
                          
                          exerciseExercise price
                          
                          Number
                          
                          
                          (years)
                          
                          
                          price
                          
                          
                          Number
                          
                          
                          price$
                          2.90
                          
                          
                          50,000
                          
                          
                          
                          8.27
                          
                          
                          $
                          2.90
                          
                          
                          
                          50,000
                          
                          
                          $
                          2.90$
                          4.64
                          
                          
                          12,500
                          
                          
                          
                          9.76
                          
                          
                          
                          4.64
                          
                          
                          
                          12,500
                          
                          
                          
                          4.64$
                          5.38
                          
                          
                          35,000
                          
                          
                          
                          9.76
                          
                          
                          
                          5.38
                          
                          
                          
                          35,000
                          
                          
                          
                          5.38
  F-24
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 For the
years ended June 30, 2010 and 2009, the Company recognized approximately
$327,738 and $107,000, respectively, as compensation expenses for its stock
option plan.
 
 Restricted Stock
Awards
 
 Restricted
stocks awarded are measured based on the market price on the grant date. The
Company has awarded restricted shares of common stocks to the board of
directors, senior management, and consultant. The Company granted 100,000 shares
of restricted stock and recognized $268,150 of related compensation expense
during the year ended June 30, 2010. The Company did not grant restricted stock
during the year ended June 30, 2010. As of June 30, 2010, the Company had
unrecognized share-based compensation cost of $194,530 associated with these
awards. Following is a summary of the restricted stock awards for the year ended
June 30, 2010
 
 Nonvested
      as of June 30, 2009
                    
                    
                    -Granted
                    
                    
                    100,000Vested
                    
                    
                    37,500Nonvested
      as of June 30, 2010
                    
                    
                    62,500
 
 Note
13– Contribution receivable
 
 On July
8, 2005, Xin Ao’s board of directors passed a resolution to increase the
registered capital from $3,630,000 (RMB30 million) to $12,100,000 (RMB100
million). The increase in registered capital of $8,470,000 (RMB70 million) was
funded by the undistributed profits as of June 30, 2005. Based on the PRC
government’s regulations, all companies are required to record its capital in
accordance with the business license, and since Xin Ao did not have sufficient
undistributed profits as of June 30, 2005, the unfunded amount has been recorded
as contribution receivable. Since the capital should be contributed by the
shareholders of the Company, the contribution receivable was recorded as part of
the equity transaction.
 
 Further,
pursuant to BVI-ACM’s establishment of China-ACMH in November 2007, BVI-ACM was
required to pay 15% of $5,000,000 by February 22, 2009, and the remaining
balance by November 22, 2009, in accordance with the laws of the
PRC.
 
 On March
30, 2008, Xin Ao’s board of directors approved to transfer $7,260,000 from
undistributed retained earnings into registered capital of the Company.
Contemporaneously, China-ACMH made a payment of $5,000,000 and BVI-ACM made a
payment of $100 to the Company. On October 9, 2009, the Company has transferred
$1,210,000 (RMB10,000,000) from unrestricted retained earnings to registered
capital.
 
 Note
14– Reserves and dividends
 
 The laws
and regulations of the PRC require that before a foreign invested enterprise can
legally distribute profits, it must first satisfy all tax liabilities, provide
for losses in previous years, and make allocations, in proportions determined at
the discretion of the board of directors, after the statutory reserves. The
statutory reserves include the surplus reserve fund and the common welfare
fund.
 
 The
Company is required to transfer 10% of its net income, as determined in
accordance with the PRC accounting rules and regulations, to a statutory surplus
reserve fund until such reserve balance reaches 50% of the Company’s registered
capital. As of June 30, 2010, the Company is required to reserve $12 million to
the statutory reserves.
 
 The
transfer to this reserve must be made before distribution of any dividends to
the Company’s shareholders. The surplus reserve fund is non-distributable other
than during liquidation and can be used to fund previous years’ losses, if any,
and may be utilized for business expansion or converted into share capital by
issuing new shares to existing shareholders in proportion to their shareholding
or by increasing the par value of the shares currently held by them, provided
that the remaining reserve balance after such issue is not less than 25% of the
registered capital.
 
 The
Chinese government restricts distributions of registered capital and the
additional investment amounts required by foreign invested enterprises. Approval
by the Chinese government must be obtained before distributions of these amounts
can be returned to the shareholders.
  F-25
  CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
15–Earnings per share
 
 The
following is a reconciliation of the basic and diluted earnings per share
computation for the years ended June 30, 2010 and 2009:
 
 2010
                      
                      
                      2009Basic
      earnings per shareNet
      income available to common shareholders
                      
                      $
                      12,050,838
                      
                      
                      $
                      10,839,016Weighted
      average shares outstanding-Basic
                      
                      
                      13,456,134
                      
                      
                      
                      10,526,719Earnings
      per share-Basic
                      
                      $
                      0.90
                      
                      
                      $
                      1.03Diluted
      earnings per shareNet
      income available to common shareholders
                      
                      $
                      12,050,838
                      
                      
                      $
                      10,839,016Add:
      Dividends on preferred stock
                      
                      
                      387,977
                      
                      
                      
                      628,505Add:
      Accretion on preferred stock
                      
                      
                      567,580
                      
                      
                      
                      600,968Net
      income for diluted EPS
                      
                      $
                      13,006,395
                      
                      
                      $
                      12,068,489Weighted
      average shares outstanding-Basic
                      
                      
                      13,456,134
                      
                      
                      
                      10,526,719Restricted
      stock
                      
                      
                      37,500
                      
                      
                      
                      -Warrants
      and options
                      
                      
                      854,190
                      
                      
                      
                      14,671Preferred
      stock
                      
                      
                      2,173,472
                      
                      
                      
                      3,491,089Weighted
      shares outstanding-Diluted
                      
                      
                      16,521,296
                      
                      
                      
                      14,032,479Earnings
      per share-Diluted
                      
                      $
                      0.79
                      
                      
                      $
                      0.86
 
 On June
11, 2008, the Company issued 875,000 shares of preferred stock, each of which
can be converted into four shares of common stock. The convertible preferred
stock is mandatorily redeemable for cash at the end of two years if not yet
converted. As of June 30, 2010, 865,625 shares preferred stock had been
converted into 3,462,500 of common stock and 9,375 shares of preferred stock had
been redeemed for $75,000. Dividends on the preferred stock and accretion of the
initial discount from the redemption value of the preferred stock, both of which
are charged to retained earnings, are subtracted from net income to determine
net income available to common shareholders for the purposes of computing basic
earnings per share. In calculating diluted earnings per share, the convertible
preferred stock is treated as common stock equivalents on an as-converted basis.
The dividends and accretion on the preferred stock are added back to the net
income available to common shareholders for calculating diluted earnings per
share, as if the preferred stock were converted at the beginning of the period.
For the years ended June 30, 2010 and 2009, total dividend and accretion were
$955,557 and $1,229,473, respectively. For year ended June 30, 2010, 441,125
warrants were converted into 480,286 shares of common stock. For the year ended
June 30, 2010, 678,875 warrants at an exercise price of $2.40 per share were
included in the diluted EPS calculation, which under treasury stock method
resulted in an additional 831,709 shares of common stocks.
 
 Note
16– Employee pension
 
 The
Company offers a discretionary pension fund, a defined contribution plan, to
qualified employees. The pension includes two parts: the first to be paid by the
Company is 20% of the employee’s actual salary in the prior year. The other
part, paid by the employee, is 8% of the actual salary. The Company’s
contributions of employment benefits, including pension were approximately
$156,000 and $81,000 for the years ended June 30, 2010 and 2009,
respectively.
  F-26
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
17– Operating leases
 
 The
Company entered into a lease agreement for a manufacturing plant with an
unrelated party from October 1, 2008 to September 30, 2013 with annual payments
of $197k. Further, the Company agreed to lease office space from the Company’s
shareholder, Mr. He Weili, from July 2010 to June 2011 with annual payment of
$172k. The rent is valued at fair value from the main property
management.
 
 The
Company entered into three five-year and one four-year operating lease
agreements during the fourth quarter of 2009. The lease payments are for four
manufacturing plants with various unrelated parties for a total monthly payment
of $213k. Certain lease payments have been pre-paid by transferring the
Company’s long-term accounts receivable to the lessors as the Company believes
that a lump-sum pre-payment from aging receivable in exchange for agreeing to no
increase in the future lease will benefit its future operation.
 
 Total
operating lease expense for the years ended June 30, 2010 and 2009 was
$2,725,990 and $370,513, respectively, and is included in cost of revenue,
selling, general, and administrative expenses. Future annual lease payments, net
of rent prepayment made as of June 30, 2010,under non-cancelable operating
leases with a term of one year or more consist of the following:
 
 Years ending June 30,
                    
                    Amount2011
                    
                    $
                    601,4422012
                    
                    
                    934,9722013
                    
                    
                    934,9722014
                    
                    
                    417,8682015
                    
                    
                    -Thereafter,
                    
                    
                    -
 
 Note
18 — Business Segments
 
 The
Company’s operations are classified into four principal reportable segments that
provide different products or services. The Companyis engaged in the business of
selling concrete, manufacturing concrete, providing technical support services
and others, which include mixer rental, sales of materials and marketing
cooperation.  Separate segment is required because each business unit is
subject to different production and technology strategies.
 
 For the
year ended June 30, 2010:
 
 Sales of
                      concrete
                    
                    
                    Manufacturing
                      services
                    
                    
                    Technical
                      services
                    
                    
                    Mixer
                      rental
                    
                    
                    Others
                    
                    
                    Corporate
                    
                    
                    TotalNet
      sales
                    
                    $
                    70,579,631
                    
                    
                    $
                    15,654,659
                    
                    
                    $
                    4,889,460
                    
                    
                    $
                    1,208,618
                    
                    
                    $
                    708,479
                    
                    
                    $
                    -
                    
                    
                    $
                    93,040,847Depreciation
                    
                    
                    (1,032,221
                    )
                    
                    
                    (1,693,581
                    )
                    
                    
                    (5,232
                    )
                    
                    
                    (151,456
                    )
                    
                    
                    -
                    
                    
                    
                    (42,126
                    )
                    
                    
                    (2,924,616
                    )Segment
      profit
                    
                    
                    5,686,379
                    
                    
                    
                    7,311,730
                    
                    
                    
                    4,543,163
                    
                    
                    
                    1,050,880
                    
                    
                    
                    357,909
                    
                    
                    
                    (5,053,494
                    )
                    
                    
                    13,896,567Other
      income (expenses)
                    
                    
                    3,942,679
                    
                    
                    
                    939,472
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (2,582,939
                    )
                    
                    
                    2,299,212Interest
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    9,001
                    
                    
                    
                    9,001Interest
      expenses
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (23,834
                    )
                    
                    
                    (23,834
                    )Capital
      expenditure
                    
                    
                    (409,564
                    )
                    
                    
                    (6,727,104
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (41,061
                    )
                    
                    
                    (7,177,729
                    )Total
      assets as of June 30, 2010
                    
                    $
                    69,101,360
                    
                    
                    $
                    15,326,776
                    
                    
                    $
                    -
                    
                    
                    $
                    1,183,304
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    85,611,440
   F-27
 
 CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  For the
year ended June 30, 2009:
  Sales of
                      concrete
                    
                    
                    Manufacturing
                      services
                    
                    
                    Technical
                      services
                    
                    
                    Mixer
                      rental
                    
                    
                    Others
                    
                    Corporate
                    
                    
                    TotalNet
      sales
                    
                    $
                    28,118,492
                    
                    
                    $
                    7,053,728
                    
                    
                    $
                    1,924,089
                    
                    
                    $
                    2,618,493
                    
                    
                    $
                    -
                    
                    $
                    -
                    
                    
                    $
                    39,714,802Depreciation
                    
                    
                    (1,537,366
                    )
                    
                    
                    (404,449
                    )
                    
                    
                    (5,084
                    )
                    
                    
                    (237,563
                    )
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    (2,184,462
                    )Segment
      profit
                    
                    
                    7,249,594
                    
                    
                    
                    4,232,395
                    
                    
                    
                    1,762,193
                    
                    
                    
                    1,653,732
                    
                    
                    
                    -
                    
                    
                    (1,418,948
                    )
                    
                    
                    13,478,966Other
      income (expenses)
                    
                    
                    1,686,066
                    
                    
                    
                    423,224
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    (602,020
                    )
                    
                    
                    1,507,270Interest
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    -Interest
      expenses
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    (802,650
                    )
                    
                    
                    (802,650
                    )Capital
      expenditure
                    
                    
                    (4,219
                    )
                    
                    
                    (7,381,443
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    (53,000
                    )
                    
                    
                    (7,438,662
                    )Total
      assets as of June 30, 2009
                    
                    $
                    41,905,192
                    
                    
                    $
                    10,512,222
                    
                    
                    $
                    -
                    
                    
                    $
                    3,902,359
                    
                    
                    $
                    -
                    
                    $
                    -
                    
                    
                    $
                    56,319,773
 
 Note
19– Commitments and contingencies
 
 Litigation
 
 From time
to time, the Company is a party to various legal actions arising in the ordinary
course of business. The Company’s management does not expect the legal matters
involving the Company would have a material impact on the Company’s consolidated
financial position or results of operations.
 
 Following
is the summary of the current litigation:
 
 Beijing
XinAo Concrete Co., Ltd vs. Beijing Boda Guosheng Investment Co., Ltd. (Beijing
District Court, PRC)
 
 In August
2006, Xin Ao filed a lawsuit against Beijing Boda Guosheng Investment Co., Ltd
(“Boda”) seeking specific performance of Boda’s obligations under the sales
contract to pay approximately $294,600 (RMB 2,000,000) for the cement supplied
by Xin Ao between March 2005 and June 2005 and compensatory damages of
approximately $23,500 (RMB 171,000) to cover the interest incurred on the unpaid
balance. The Court ruled against Boda and ordered Boda to pay the amounts
requested by Xin Ao; however, Boda appealed the court’s rulings. In November
2007, the Appeals Court upheld the original verdict and again ordered Boda to
pay all the damages. Management does not believe that the ultimate outcome of
this case will have a material adverse effect on the Company’s consolidated
financial position or results of operations. As of June 30, 2010, the Company
has factored this amount to an unrelated third party trust companyand the trust
company has received the payment from Boda.
 
 Note
20– Subsequent Events
  The
Company has performed an evaluation of subsequent events through the date these
consolidated financial statements were issued to determine whether the
circumstances warranted recognition and disclosure of those events or
transactions in the consolidated financial statements as of June 30,
2010.
 On August
18, 2010, the Company acquired a $1,474,000 (RMB10,000,000) loan from Huaxia
Bank with interest rate of 5.841% per annum, due August 18, 2011, guaranteed by
Beijing Jinshengding Mineral Products Co., Ltd., Beijing Xinhang Construction
Material Group Co., Ltd. and Mr. Xianfu Han, the Company's
CEO.
  F-28




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 September 28, 2010





CHINA
ADVANCED CONSTRUCTION MATERIALS GROUP, INC.





By:
                        /s/
      Xianfu HanXianfu
      Han
                          Prinicipal
      Executive OfficerBy:
                        /s/
      Jeremy GoodwinJeremy
      Goodwin
                          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
                                        
                                        September 28, 2010Xianfu
      Han
                                        
                                        the
      Board/s/Weili
      He
                                        
                                        Vice
      Chairman and Chief Operating Officer
                                        
                                        September 28, 2010Weili
      He/s/Jeremy
      Goodwin
                                        
                                        President,
      Chief Financial Officer and Director
                                        
                                        September 28, 2010Jeremy
      Goodwin/s/Jing
      Liu
                                        
                                        Director
                                        
                                        September 28, 2010Jing
      Liu/s/Denis
      Slavich
                                        
                                        Director
                                        
                                        September 28, 2010Denis
      Slavich/s/Sean
      Wang
                                        
                                        Director
                                        
                                        September 28, 2010Sean
      Wang/s/Larry
      Goldman
                                        
                                        Director
                                        
                                        September 28, 2010Larry
      Goldman




65