SOURCE: China ACM

China ACM

November 14, 2011 08:00 ET

China ACM Reports First Quarter Fiscal Year 2012 Results; Revenue up 44% to $44.6 Million

BEIJING, CHINA--(Marketwire - Nov 14, 2011) - China Advanced Construction Materials Group, Inc. (NASDAQ: CADC) ("China ACM"), a leading provider of ready-mix concrete and related technical services in China, today announced its financial results for the first quarter of fiscal year 2012 ended September 30, 2011.

First Quarter FY 2012 Financial Highlights

  • Revenue increased 44% year-over-year to $44.6 million
  • Gross margin at 24.1%
  • Non-GAAP adjusted net income available to common shareholders of $2.9 million
  • Non-GAAP adjusted fully diluted EPS to common shareholders of $0.17
  • GAAP net income available to common shareholders of $3.1 million or $0.17 EPS

Management Commentary

Mr. Xianfu Han, Chairman and Chief Executive Officer of China ACM, commented, "We experienced another quarter of revenue growth for China ACM. During the first quarter, volumes at our Beijing fixed plants increased as we expanded our customer base in our home market."

"However, in light of ongoing quality inspections at high-speed rail construction sites across the country, and the recent government suspension of new and ongoing high-speed rail projects, we experienced lower volumes at several of our manufacturing services division plants in the quarter. As a result, we continue to focus on managing our cost structure in anticipation of lower volumes from our portable plant network for the foreseeable future."

China ACM President and Chief Financial Officer Jeremy Goodwin commented, "We are filing our Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 today. This report is being filed in the new SEC mandated XBRL format, which is meant to be more investor friendly and accessible and is also being made available in the investor relations portion of our website at www.china-acm.com."

First Quarter FY 2012 Results

Revenue. Our revenue is primarily generated from sales of our advanced ready-mix concrete products and manufacturing services. For the three months ended September 30, 2011, we generated revenue of $44.6 million, compared to $31.0 million during the same period in 2010, an increase of $13.6 million, or 44%. The increase in our revenue is due primarily to our increased revenue in our Beijing market for the three months ended September 30, 2011 compared to the same period in 2010.

Our concrete sales revenue was $40.1 million for the three months ended September 30, 2011, an increase of $14.8 million, or 58%. The increase in revenues was principally due to higher average selling prices coupled with higher volumes as a result of a broader client base.

Revenue from our manufacturing services segment was $4.5 million for the three months ended September 30, 2011, which was flat as compared to the three months ended September 30, 2010. The lack of revenue growth, despite a higher number of portable plants in service, was due to lower production levels in a number of the Company's portable plants as a result of the ongoing quality inspections at high-speed rail construction sites across the country and the recent government suspension of new and ongoing high-speed rail projects.

Gross Profit. Gross profit was $10.8 million for the three months ended September 30, 2011, as compared to $4.1 million for the three months ended September 30, 2010. Our gross profit for the sale of concrete was $9.9 million, or 24.8% of revenue, for the three months ended September 30, 2011, as compared to $1.8 million, or 7.2% of revenue, for the same period last year. The increased gross profit margin reflects higher demand and higher prices for our concrete products in Beijing as compared to the same period last year.

Our gross profit with respect to our Manufacturing services segment was $0.8 million, or 17.9% of revenue, for the three months ended September 30, 2011, as compared to $1.3 million, or 28.1% of revenue, for the same period last year. The decrease in gross profit margin was principally the result of an increase in fixed costs due to slowing production rates at plants impacted by the ongoing quality inspections and the suspension of work on certain high-speed rail projects.

Provision for Doubtful Accounts. We incurred a provision for doubtful accounts of $7.0 million for the three months ended September 30, 2011, an increase of approximately $6.8 million, compared to $0.2 million for the same period last year. The increased provision was the result of a change in the accounting estimate for default rates on doubtful accounts within one year based on industry comparable estimates.

Selling, General and Administrative Expenses. We incurred selling, general and administrative expenses of $2.7 million for the three months ended September 30, 2011, an increase of $0.7 million, as compared to $2.0 million for the three months ended September 30, 2010. The increase was principally due to an increase in employment, occupancy, and professional expenses resulting from a larger base of operations as compared to the prior year's quarter.

Adjusted Net Income available to Common shareholders. Excluding the effect from non-cash charges related to changes in fair market value of warrants, accretion of discount on redeemable preferred stock and share-based compensation, our adjusted net income available to common shareholders was $2.9 million for the three months ended September 30, 2011, a decrease of 12% as compared to the same period in 2010. See the attached section "Use of Non-GAAP Financial Measures" for an explanation regarding the presentation of net income excluding non-cash items.

Balance Sheet Overview

China ACM had working capital of $52.2 million at September 30, 2011, including $9.3 million in cash, equivalents and short term investments and $4.3 million in total debt. Shareholders' equity was $87.2 million compared with $83.1 million on June 30, 2011. The total number of shares outstanding as of November 14, 2011 is 17,821,054 million.

Entry Into Merger Agreement with Novel Gain Holdings Limited and CACMG Acquisition, Inc.

As announced on October 24, 2011, China ACM has entered into a definitive agreement and plan of merger with Novel Gain Holdings Limited, a British Virgin Islands company ("Novel Gain"), CACMG Acquisition, Inc., a Delaware corporation and a wholly owned, direct subsidiary of Novel Gain ("Merger Sub"), Mr. Xianfu Han and Mr. Weili He, pursuant to which Merger Sub will merge with and into the Company with the Company continuing as the surviving corporation and a wholly owned subsidiary of Novel Gain. Mr. Han is the Company's Chief Executive Officer and the Chairman of the Company's Board of Directors and beneficially owns approximately 32.5% of the Company's outstanding shares of common stock, $0.001 par value per share (the "Company Common Stock"). Mr. He is the Company's Chief Operating Officer and Vice-Chairman of the Company's Board of Directors and beneficially owns approximately 17.0% of the outstanding Company Common Stock. In connection with the proposed merger, the Company will prepare and mail a proxy statement to its stockholders. In addition, certain participants in the proposed transaction will prepare and mail to the Company's stockholders a Schedule 13E-3 transaction statement. These documents will be filed with, or furnished to, the SEC.

With the proposed transaction, the Company will not host a conference call to discuss financial results for the first quarter of fiscal year 2012.

About China ACM

China ACM is a leading producer of advanced, certified eco-friendly ready-mix concrete (RMC) and related technical services for large scale, high-speed rail (HSR) and other complex infrastructure projects. Leveraging its proprietary technology and value-add engineering services model, the Company has won work on numerous high profile projects including the 30,000 km China HSR expansion, the Olympic Stadium Bird's Nest, Beijing South Railway Station, Beijing International Airport, National Centre for Performing Arts, CCTV Headquarters, Beijing Yintai Building and U.S. and French embassies.

Founded in 2002, Beijing-based China ACM provides its materials and services through its network of fixed ready-mix concrete plants covering the Beijing metropolitan area. It also has technical consulting services and preferred procurement agreements with other independently-owned plants across China. Additionally, the Company owns numerous portable plants deployed in various provinces across China primarily to major high speed rail projects. More information about the Company is available at www.china-acm.com.

Use of Non-GAAP Financial Measures

The Company makes reference to Non-GAAP financial measures in portions of "Management's Discussion of Financial Condition and Results of Operations". Management believes that investors may find it useful to review our financial results that exclude the non-cash expenses of $46,268 stock-based compensation and a gain of $195,476 in change of fair value of warrants liability, 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.

Three Months Ended September 30,
2011 2010 Increase
(Decrease)
Net Income available to Common shareholders - GAAP $ 3,092,066 $ 3,308,321 $ (216,255 )
Add Back:
Change in fair value of warrants (a) $ (195,476 ) $ (154,258 ) $ (41,218 )
Add Back:
Change in Equity-Based Compensation (b) $ 46,268 $ 178,302 $ (132,034 )
Adjusted Net Income available to Common shareholders -Non-GAAP $ 2,942,858 $ 3,332,365 $ (389,507 )
Basic earnings per share - GAAP $ 0.17 $ 0.19 $ (0.02 )
Add back:
Change in fair value of warrant $ (0.01 ) $ (0.01 ) $ (0.00 )
Add back:
Change in Equity-Based Compensation $ 0.01 $ 0.01 $ (0.00 )
Adjusted basic earnings per share Non-GAAP $ 0.17 $ 0.19 $ (0.02 )
Diluted earnings per share-GAAP $ 0.17 $ 0.18 $ (0.01 )
Add back:
Change in fair value of warrant $ (0.01 ) $ (0.01 ) $ (0.00 )
Add back:
Change in Equity-Based Compensation $ 0.01 $ 0.01 $ (0.00 )
Adjusted diluted earnings per share Non-GAAP $ 0.17 $ 0.18 $ (0.01 )
Weighted average number of shares
Basic 17,806,072 17,518,544 287,528
Diluted 17,828,572 18,022,815 (194,243 )

(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 down-round 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 $195,476 and $154,258 gain from the change in fair value for the three months ended September 30, 2011 and 2010, respectively.

(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. For the three months ended September 30, 2011 and 2010, the Company recognized $46,268 and $178,302 as compensation expense for its restricted stock grants, respectively.

Safe Harbor Statement
This press release may include certain statements that are not descriptions of historical facts, but are forward-looking statements. Such statements include, among others, those concerning our expected financial results in fiscal year 2012 and our ability to deliver such results, expected growth in industry demand and our business, our expected financial performance and strategic and operational plans, our future operating results, the degree of market adoption of our product and service offerings, market competition, dependence on strategic partners, and the Company's ability to manage its business effectively in a rapidly evolving market, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. Forward-looking statements can be identified by the use of forward-looking terminology such as 'will,' 'believes,' 'expects' or similar expressions. Such information is based upon expectations of our management that were reasonable when made but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond our control and based upon premises with respect to future business decisions, which are subject to change. We do not undertake to update the forward-looking statements contained in this press release. For a description of the risks and uncertainties that may cause actual results to differ from the forward-looking statements contained in this press release, see our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission ('SEC'), and our subsequent SEC filings. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system at http://www.sec.gov.

CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, June 30,
ASSETS 2011 2011
CURRENT ASSETS:
Cash $ 3,231,634 $ 1,610,699
Restricted cash 1,126,080 928,200
Accounts receivable, net of allowance for doubtful accounts of $12,712,880 and $5,627,049, respectively 100,666,920 84,793,355
Inventories 2,211,207 1,474,728
Investment 5,036,080 12,221,300
Other receivables 2,423,219 2,226,803
Prepayments 3,987,967 5,089,935
Total current assets 118,683,107 108,345,020
PROPERTY, PLANT AND EQUIPMENT, net 28,558,313 29,279,440
OTHER ASSETS:
Advances on equipment purchases 4,559,060 4,509,505
Prepayments 2,278,793 2,702,409
Total other assets 6,837,853 7,211,914
Total assets $ 154,079,273 $ 144,836,374
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term loans, banks $ 4,316,640 $ 15,470,000
Accounts payable 55,257,948 41,320,769
Customer deposits 575,494 391,550
Other payables 2,675,317 488,022
Other payables - shareholders 802,859 790,592
Accrued liabilities 1,685,472 1,921,582
Taxes payable 1,179,393 747,165
Total current liabilities 66,493,123 61,129,680
OTHER LIABILITIES
Warrants liability 423,181 618,657
Total liabilities 66,916,304 61,748,337
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 1,000,000 shares authorized; no shares issued or outstanding - -
Common stock, $0.001 par value, 74,000,000 shares authorized, 17,806,887 and 17,794,387 shares issued and outstanding as of September 30, 2011 and June 30, 2011, respectively 17,807 17,795
Additional paid-in capital 35,027,281 34,981,023
Retained earnings 38,010,078 35,240,851
Statutory reserves 6,571,196 6,248,357
Accumulated other comprehensive income 7,536,607 6,600,011
Total shareholders' equity 87,162,969 83,088,037
Total liabilities and shareholders' equity $ 154,079,273 $ 144,836,374
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
For the three months ended
September 30,
2011 2010
REVENUE
Sales of concrete $ 40,085,039 $ 25,320,947
Manufacturing services 4,499,968 4,471,777
Technical services - 1,159,060
Other - 5,298
Total revenue 44,585,007 30,957,082
COST OF REVENUE
Concrete 30,137,524 23,508,683
Manufacturing services 3,692,937 3,217,125
Technical services - 106,010
Total cost of revenue 33,830,461 26,831,818
GROSS PROFIT 10,754,546 4,125,264
PROVISION FOR DOUBTFUL ACCOUNTS 7,001,540 167,058
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,709,440 2,026,730
INCOME FROM OPERATIONS 1,043,566 1,931,476
OTHER INCOME (EXPENSE), NET
Other subsidy income 2,685,390 1,787,563
Non-operating (expense), net (54,205 ) 169,227
Change in fair value of warrants liability 195,476 154,258
Interest income 222,644 4,929
Interest expense (299,176 ) (12,906 )
TOTAL OTHER INCOME (EXPENSE), NET 2,750,129 2,103,071
INCOME BEFORE PROVISION FOR INCOME TAXES 3,793,695 4,034,547
PROVISION FOR INCOME TAXES 701,629 726,226
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 3,092,066 $ 3,308,321
COMPREHENSIVE INCOME:
Net Income 3,092,066 3,308,321
Foreign currency translation adjustment 936,596 1,070,182
COMPREHENSIVE INCOME $ 4,028,662 $ 4,378,503
EARNINGS PER COMMON SHARE ALLOCATED TO COMMON SHAREHOLDERS
Weighted average number of shares:
Basic 17,806,072 17,518,544
Diluted 17,828,572 18,022,815
Earnings per share:
Basic $ 0.17 $ 0.19
Diluted $ 0.17 $ 0.18

CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months ended
September 30,
2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,092,066 $ 3,308,321
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation 1,082,560 862,140
Stock-based compensation expense 46,268 178,302
Deferred tax provision - 128,261
Provision for doubtful accounts 7,001,540 167,058
Change in fair value of warrants liability (195,476 ) (154,258 )
Loss realized from disposal of property, plant, and equipment 3,989 -
Changes in operating assets and liabilities
Accounts receivable (21,817,592 ) (15,630,594 )
Notes receivable (77,950 ) -
Inventories (717,970 ) 454,016
Other receivables (171,396 ) (181,162 )
Prepayments 1,154,199 (844,255 )
Long term prepayment 451,864 428,676
Accounts payable 13,440,000 7,967,380
Customer deposits 179,067 660,301
Other payables 2,175,686 32,377
Accrued liabilities (255,984 ) 211,575
Taxes payable 422,662 617,851
Net cash provided by (used in) operating activities 5,813,533 (1,794,011 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of property, plant, and equipment 6,236 648,496
Purchases of property, plant and equipment (53,240 ) (58,252 )
Proceeds from sale of investments 7,296,120 -
Net cash provided by investing activities 7,249,116 590,244
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term loan 795,090 10,485,440
Payments for short term loan (12,082,250 ) -
Rent payment to shareholder 11,792 43,725
Restricted cash (187,080 ) 57,580
Net cash (used in) provided by financing activities (11,462,448 ) 10,586,745
EFFECT OF EXCHANGE RATE CHANGE ON CASH 20,734 34,723
NET INCREASE IN CASH 1,620,935 9,417,701
CASH, beginning of period 1,610,699 3,300,820
CASH, end of period $ 3,231,634 $ 12,718,521

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