SOURCE: China ACM

China ACM

February 11, 2011 08:50 ET

China ACM Reports Second Quarter FY-2011 Results; Revenue Rises 32% to Record $34.5 Million

Q2-11 Non-GAAP Adjusted Net Income Available to Common Shareholders Up 14.5% YOY to $4.9 Million or $0.27 Adjusted EPS

Teleconference Begins Today at 10 a.m. Eastern, 7 a.m. Pacific

BEIJING--(Marketwire - February 11, 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 Fiscal Year 2011 second quarter ended December 31, 2010. The Company will host a conference call to discuss the results today at 10:00 a.m. Eastern, 7:00 a.m. Pacific; details are provided below.

Second Quarter FY 2011 Financial Highlights

--  Revenue increased 32% year over year to $34.5 million
--  Gross margin expanded to 19.4% sequentially vs.13.3% in Q1-11
--  Non-GAAP adjusted net income available to common shareholders up 14.5%
    YOY to $4.9 million
--  Non-GAAP adjusted fully diluted EPS to common shareholders of $0.27
--  GAAP net income available to common shareholders of $3.2 million,
    decreased from $7.6 million YOY primarily on $4.8 million higher non-
    cash net expense for the change in fair value of warrants
--  Quarter end backlog at record $66.7 million, up 15% sequentially from
    Q1-11
--  Adjusted EBITDA of $7.1 million, up 21.4% YOY.

Second Quarter FY 2011 Results Summary

China ACM reported second quarter Fiscal Year 2011 non-GAAP adjusted net income available to common shareholders increased 14.5 percent to $4.9 million on 32 percent higher revenue of $34.5 million. The non-GAAP adjusted net income available to common shareholders is before the non-cash change in fair value of warrants, option and equity-based compensation.

Concrete Sales revenue at fixed plants in Beijing increased by 29 percent year over year to a record $26.2 million with a gross margin of 12.9 percent; this gross margin compares with 9.2 percent a year ago, and 7.2 percent in Q1-11. Q2-11 and current contracts include projects for highways, schools, military officer apartments, hotels, subway lines, sewage treatment plants, technology business parks, retail buildings, residential complexes, and hospitals.

Second quarter Manufacturing Services revenue nearly doubled, increasing 94 percent year over year to a record $7.1 million with a 31 percent gross margin. Technical Services revenue decreased by two percent, year over year, to $1.2 million with a 92.2 percent gross margin.

The Company did not renew the lease on its Tianshun Concrete Sales fixed plant, which expired at the end of November, as it had become inefficient with aging equipment and had been posting negative gross margins.

The Company's second quarter blended gross margin was 19.4 percent, compared with 20.0 percent in the year-earlier quarter, and reflects a temporary increase in the number of portable plant HSR projects in transition due to project completions and a number of project start-ups that generate lower margins during the wind-down and start-up phases. While some of these projects have experienced longer than normal transition times, all contracts remain on schedule for fulfillment by original completion dates.

Management Commentary

Mr. Xianfu Han, Chairman and Chief Executive Officer of China ACM, commented, "We produced strong growth across the board in the second fiscal quarter highlighted by record quarterly revenue, rising margins, over $7 million in Adjusted EBITDA and solidly higher Adjusted Net Income. During the quarter, we announced new high speed rail (HSR) contracts worth $11.9 million, and have been finalizing new HSR contracts for our recently acquired portable plants which we expect to announce shortly."

"We also announced a letter of intent for a strategic alliance with a division of China State Construction Engineering Corporation ("China Construction" or "CSCEC") (Shanghai SE: 601668) that provides for the two organizations to jointly bid on major new projects, finance the capital costs of new projects on which we both work and share intellectual property. Subsequent to that November 18 announcement, we expanded that strategic alliance with yet another CSCEC owned company. We are continuing to build such relationships with key State Owned Enterprise (SOE) primary contractor clients for HSR and other infrastructure projects. This reflects our growing stature in China's massive infrastructure industry, and reinforces barriers to entry and provides greater pricing power." With $38 billion in annual revenue, CSCEC is ranked number 187 in the Fortune Global 500 list of companies.

"Looking ahead, the Chinese concrete industry is consolidating through attrition of marginal players and increased regulatory requirements favoring companies that can achieve scale and meet increasingly stringent environmental standards. We see tremendous strategic growth opportunities, both near and long term, and we are actively pursuing them. In recent months, we have secured over $12 million in bank financing at an average 5.9 percent annual rate of interest. Securing a prime commercial bank loan in China is an important rite of passage for any company that is not a major State Owned Enterprise."

"With GDP running at about nine percent, the Chinese economy remains the world's growth engine. The country's accelerating trend toward modernization, and urbanization, fuels the growth of our infrastructure business for many years to come. I am confident that we are on track for accelerated growth and record financial performance in the second half of the fiscal year," Mr. Han concluded.

Commenting on the quarter's results and outlook for the balance of Fiscal Year 2011, China ACM President and Chief Financial Officer Jeremy Goodwin, stated, "While we produced solid growth in the second quarter, with the blended gross margin at 19.4 percent, we expect meaningful margin improvements in the current quarter and second half of the fiscal year as we move beyond the transition phase of a number of HSR projects underway. We have six new HSR plants coming on line. We are bidding and winning increasingly longer term HSR manufacturing contracts to minimize project transition time. I am confident we will expand HSR margins in the second half to our customary levels approaching the 40 percent range."

"Further, the third and subsequent quarters' margins will benefit by our mid-second quarter termination of one leased Concrete Sales fixed plant that had been underperforming. We plan to redeploy those resources into high-margin portable plants to support contracts in the Beijing area or for new HSR business in outlying provinces. Additionally, Concrete Sales margins will benefit from capturing the current, full quarter's 25 percent average price increase, announced midway through the second fiscal quarter, against costs that increased 20 percent at that time."

"Our diversified backlog has grown to a record $66.7 million while the new business pipeline is a healthy $28.4 million. With recently established strategic alliances with CSCEC, and others in process, our new business development is becoming more efficient, and leveraged, as we begin jointly bidding projects along with major SOE contractors, some of whom will fund capital expenditures for certain projects," Mr. Goodwin said. "Our balance sheet is strong with $3.2 million in cash, $36.0 million in working capital and no long term debt. Our accounts receivable is primarily composed of large, highly creditworthy state owned enterprises."

"Also in the second fiscal quarter, we launched our new corporate website featuring major upgrades to content to provide greater transparency for our shareholders and clients," he added. "At the end of December 2010, we engaged Friedman LLP as our independent auditor. They assisted in the preparation of this second quarter's unaudited report. In the months ahead, we target geographic expansion, joint ventures, strategic alliances and will evaluate acquisitions -- all of which increases our requirement for Friedman's world class financial management and reporting expertise."

Backlog

China ACM reported that its December 31, 2010 backlog, or bids in house, increased by 15% sequentially from September 30, 2010 to a record $66.7 million. 83% of the Dec. 31 backlog is contracted with Government State Owned Enterprise contractors and 17% is contracted with private sector developers. The backlog is comprised of $43.9 million in contracted unfilled orders for its Concrete Sales segment, and $22.8 million in contracted unfilled order for its Manufacturing Services segment. Based on its historical experience, the Company's estimated time to convert these contracted orders into recognized revenues averages between four and 12 months for Concrete Sales, and six to 24 months for Manufacturing Services, depending on the scope of the projects.

The Company's new business pipeline, or bids outstanding, which is a measure of the value of bids it has submitted for Concrete Sales and Manufacturing Services business, was $2.5 million and $25.9 million, respectively, or $28.4 million total.

FY 2011 Second Quarter Results

Revenue. We generated second quarter Fiscal Year 2011 revenue of $34.5 million compared to $26.2 million during the same period of Fiscal Year 2010, an increase of $8.3 million, or 32%.

Our concrete sales revenue was $26.2 million for the second quarter ended December 31, 2010, an increase of $5.9 million or 29%. The increase in revenues attributable to concrete sales was principally due to higher prices and organic growth to include a broader client base.

During the second quarter ended December 31, 2010, we continued to supply concrete products to ten railway projects throughout China through our portable plants, specifically the projects located in Shaanxi Province, Hebei Province, Guangxi Province, Zhejiang Province, Guangdong Province, Liaoning Province, and Anhui Province. These ten projects contributed $7.1 million to our total revenue for the quarter, an increase of $3.4 million, or 94%, compared with the year-ago quarter.

In addition, revenue generated through our technical consulting services was $1.2 million during the second quarter ended December 31, 2010, a decrease of 2% as compared to the same fiscal quarter in 2009.

Gross Profit was $6.7 million for the second quarter ended December 31, 2010, as compared to $5.2 for the second quarter ended December 31, 2009. Our gross profit for sale of concrete was $3.4 million, or 13% of revenue, for the quarter, compared to $1.9 million, or 9% of revenue, for the same period last year, an increase of $1.5 million. The higher gross margin for concrete sales for the second quarter ended December 31, 2010, compared with the same period in 2009, reflects higher demand and higher prices for our concrete products in Beijing as compared to the same period last year. More specifically, on November 15, 2010 we announced a 25% average price increase across our various concrete grade sales to keep in line with an average raw material cost increase of 19.8%.

Selling, General and Administrative expenses were $2.6 million for the three months ended December 31, 2010, an increase of $1.4 million or 128%, as compared to $1.2 million for the three months ended December 31, 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.

Net Income available to Common shareholders. Excluding the effect from non-cash charges related to changes in fair market of warrants, and stock and option-based compensation, our net income available to Common shareholders would be $4.9 million for the three months ended December 31, 2010, an increase of $0.6 million or 14.5%, as compared to net income after cash dividends paid of $4.3 million for the same period in 2009.

Six Month Results ended December 31, 2010

For the six months ended December 31, 2010, net revenues increased by 43% to $65.5 million from $45.6 million in the corresponding period of fiscal year 2010. Gross profit increased 27% in the first six months of fiscal year 2011 to $10.8 million from approximately $8.5 million in the year-ago period. Gross margin was 16.5% in the first half of fiscal year 2011. Adjusted EBITDA grew by $2.5 million, or 26%, to $12.0 million from $9.6 million in the year-earlier period. Net income attributable to common shareholders for the first six months of 2011, was $6.5 million, with diluted net earnings per share of $0.36. During the 2011 fiscal six months period, the Company recognized a non-cash expense on the fair value of its warrants and options of $1.3 million and a non-cash stock-based compensation expense of $0.5 million. Non-GAAP adjusted net income attributable to common shareholders for the first six months of FY 2011 increased by $1.5 million to $8.3 million, with non-GAAP diluted net earnings per share of $0.46.

Balance Sheet Overview

China ACM had working capital of $36.0 million at December 31, 2010, including $3.2 million in cash and no long term debt. Shareholders' equity was $70.3 million compared with $61.2 million on June 30, 2010. The total number of shares outstanding as of February 11, 2011 is 17,739,387.

Conference Call

The Company will host a corresponding conference call with a live webcast and a full Q&A session today at 10:00 a.m. Eastern time/7:00 a.m. Pacific time, to discuss these results and answer questions.

Individuals interested in participating in the conference call may do so by dialing 877-477-1461 from the United States, or 973-409-9694 from outside the United States and referencing conference ID #41693975. Those interested in listening to the conference call live via the Internet may do so by visiting the Investor Relations section of the Company's Web site at www.china-acm.com.

A telephone replay will be available through February 25, 2011, by dialing 800-642-1687 from the United States, or 706-645-9291 from outside the United States, and entering conference ID #41693975. A webcast replay will be available for 90 days.

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 expense of $1,722,339 for the six months ended December 31, 2010 on option and stock-based compensation along with the change in fair value of warrants liability, shown in the below chart, due to the adoption of Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") 815, "Derivatives and Hedging," 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
                                        December 31,
                                                                Increase
                                     2010             2009     (Decrease)
                                         (Unaudited)

Net Income (Loss) -GAAP          $  3,231,989     $ 7,945,081  $(4,713,092)
 Subtract:
Dividends and accretion on
 redeemable convertible
 preferred stock                 $          -     $   318,835  $  (318,835)
                                 ------------     -----------  -----------
Net Income available to Common
 shareholders -GAAP              $  3,231,989     $ 7,626,246  $(4,394,257)
                                 ------------     -----------  -----------
 Add Back (Subtract):
  Change in fair value of
   warrants                      $  1,414,408     $(3,356,796)  $4,771,204
                                 ------------     -----------  -----------
 Add Back (Subtract):
  Change in Option and Equity
   Based Compensation            $    283,887     $    38,534  $   245,353
                                 ------------     -----------  -----------
Adjusted Net Income available to
 Common shareholders -non-GAAP   $  4,930,284     $ 4,307,984  $   622,300
                                 ------------     -----------  -----------

Basic earning per share - GAAP   $       0.18     $      0.62  $     (0.44)
 Add back (Subtract):
  Change in fair value of
   warrant                       $       0.08     $     (0.27) $      0.35
                                 ------------     -----------  -----------
 Add back (Subtract):
  Change in Option and
   Equity-Based Compensation     $       0.02     $      0.00  $      0.02
                                 ------------     -----------  -----------
Adjusted basic earning per share
 non-GAAP                        $       0.28     $      0.35  $     (0.07)
                                 ------------     -----------  -----------

Diluted earning per share-GAAP   $       0.18     $      0.50  $     (0.32)
 Add back (Subtract):
  Change in fair value of
   warrant                       $       0.08 (a) $     (0.21) $      0.29
                                 ------------     -----------  -----------
 Add back (Subtract):
  Change in Option and
   Equity-Based Compensation     $       0.01 (b) $      0.00  $     (0.01)
                                 ------------     -----------  -----------
Adjusted diluted earning per
 share non-GAAP                  $       0.27     $      0.29  $     (0.02)
                                 ------------     -----------  -----------

Weighted average number of
 shares
Basic                              17,651,620      12,377,182    5,274,438
                                 ============     ===========
Diluted                            18,202,555      15,955,516    2,247,039
                                 ============     ===========




                                       Six Months Ended
                                         December 31,
                                                                Increase
                                     2010             2009     (Decrease)
                                         (Unaudited)

Net Income (Loss) -GAAP          $  6,540,309     $  3,422,144 $ 3,118,165
 Subtract:
Dividends and accretion on
 redeemable convertible
 preferred stock                 $          -     $    659,699 $  (659,699)
                                 ------------     ------------ -----------
Net Income available to Common
 shareholders -GAAP              $  6,540,309     $  2,762,445 $ 3,777,864
                                 ------------     ------------ -----------
 Add Back (Subtract):
  Change in fair value of
   warrants                      $  1,260,150     $  3,916,645 $(2,656,495)
                                 ------------     ------------ -----------
 Add Back (Subtract):
  Change in Option and Equity
   Based Compensation            $    462,189     $    120,778 $   341,411
                                 ------------     ------------ -----------
Adjusted Net Income available to
 Common shareholders -non-GAAP   $  8,262,648     $  6,799,868 $ 1,462,780
                                 ------------ --- ------------ -----------

Basic earning per share - GAAP   $       0.37     $       0.24 $      0.13
 Add back (Subtract):
  Change in fair value of
   warrant                       $       0.07     $       0.34 $     (0.27)
                                 ------------     ------------ -----------
 Add back (Subtract):
  Change in Option and
   Equity-Based Compensation     $       0.03     $       0.01 $      0.02
                                 ------------     ------------ -----------
Adjusted basic earning per share
 non-GAAP                        $       0.47     $       0.59 $     (0.12)
                                 ------------     ------------ -----------

Diluted earning per share-GAAP   $       0.36     $       0.22 $      0.14
 Add back (Subtract):
  Change in fair value of
   warrant                       $       0.07 (a) $       0.25 $     (0.18)
                                 ------------     ------------ -----------
 Add back (Subtract):
  Change in Option and
   Equity-Based Compensation     $       0.03 (b) $       0.01 $      0.02
                                 ------------     ------------ -----------
Adjusted diluted earning per
 share non-GAAP                  $       0.46     $       0.48 $     (0.02)
                                 ------------     ------------ -----------

Weighted average number of
 shares
Basic                              17,585,082       11,681,294
                                 ============     ============
Diluted                            18,067,924       15,624,782
                                 ============     ============

(a) The Company adopted the provisions of FASB ASC 815, which provides guidance 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 $1,414,408 charge from the change in fair value for the three months ended December 31, 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 718, "Compensation-Stock Compensation," 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 six months ended December 31, 2010 and 2009, the Company recognized $462,189 and $57,382 of restricted stock as compensation expense. For the six months ended December 31, 2010 and 2009, the Company recognized $0 and $63,396, respectively, as compensation expenses for its stock option plan.

Forward-Looking Statements

This press release contains statements that are forward-looking in nature, including statements regarding the Company's competitive position and product and service offerings. These statements are based on current expectations on the date of this press release and involve a number of risks and uncertainties, which may cause actual results to differ significantly from such estimates. The risks include, but are not limited to, the degree of market adoption of the Company's 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. Certain of these and other risks are set forth in more detail in "Item 1A. Risk Factors" in China ACM's Annual Report on Form 10-K for the fiscal year ended June 30, 2010. China ACM does not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.

    CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                                (UNAUDITED)


                                                 December 31,    June 30,
ASSETS                                              2010          2010
                                                ------------- -------------
CURRENT ASSETS:
 Cash                                           $   3,153,149 $   3,300,820
 Restricted cash                                            -        57,580
 Accounts receivable, net of allowance for
  doubtful accounts of $1,159,148                  62,491,063    36,072,691
  and $456,085, respectively
 Inventories                                        2,443,336     2,164,769
 Investment                                        11,947,960             -
 Other receivables                                  3,607,624     1,416,653
 Prepayments                                        3,795,404     2,821,687
                                                ------------- -------------
  Total current assets                             87,438,536    45,834,200
                                                ------------- -------------

PROPERTY, PLANT AND EQUIPMENT, net                 28,707,245    26,488,354
                                                ------------- -------------

OTHER ASSETS:
 Accounts receivable, net of allowance for
  doubtful accounts of $0 and $4,607 respectively           -       364,371
 Deferred tax assets                                        -       127,741
 Advances on equipment purchases                    5,806,104     8,382,383
 Prepayments                                        3,655,754     4,414,391
                                                ------------- -------------
Total other assets                                  9,461,858    13,288,886
                                                ------------- -------------

Total assets                                    $ 125,607,639 $  85,611,440
                                                ============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
 Short term loans, banks                        $  14,367,800 $           -
 Accounts payable                                  30,336,112    16,473,080
 Customer deposits                                    857,323       711,219
 Other payables                                       387,318       329,136
 Other payables - shareholders                        767,370       772,644
 Accrued liabilities                                1,899,288     1,652,751
 Taxes payable                                      2,863,330     1,569,914
                                                ------------- -------------
Total current liabilities                          51,478,541    21,508,744

OTHER LIABILITIES
 Warrants liability                                 3,805,755     2,920,520
                                                ------------- -------------
Total liabilities                                  55,284,296    24,429,264
                                                ------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:

 Common stock, $0.001 par value, 74,000,000
  shares authorized, 17,726,887 and 17,467,104
  shares issued and outstanding as of December
  31 and June 30, 2010, respectively                   17,727        17,467
 Paid-in-capital                                   34,557,606    33,720,762
 Retained earnings                                 25,563,396    19,912,444
 Statutory reserves                                 5,400,877     4,511,520
 Accumulated other comprehensive income             4,783,737     3,019,983
                                                ------------- -------------
Total shareholders' equity                         70,323,343    61,182,176
                                                ------------- -------------
Total liabilities and shareholders' equity      $ 125,607,639 $  85,611,440
                                                ============= =============



    CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
   CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                (UNAUDITED)


                    For the three months ended   For the six months ended
                           December 31,                December 31,
                        2010          2009          2010          2009
                    ------------  ------------  ------------  ------------
REVENUE
 Sales of concrete  $ 26,205,792  $ 20,316,502  $ 51,526,739  $ 35,203,259
 Manufacturing
  services             7,108,447     3,663,114    11,580,224     6,468,728
 Technical services    1,207,396     1,234,760     2,366,456     2,479,655
 Other                     4,311       949,936         9,609     1,493,806
                    ------------  ------------  ------------  ------------
  Total revenue       34,525,946    26,164,312    65,483,028    45,645,448
                    ------------  ------------  ------------  ------------

COST OF REVENUE
 Concrete             22,835,629    18,453,296    46,344,312    32,790,012
 Manufacturing
  services             4,913,916     2,063,646     8,131,041     3,820,813
 Technical services       94,291        81,516       200,301       135,999
 Other                         -       331,228             -       376,962
                    ------------  ------------  ------------  ------------
  Total cost of
   revenue            27,843,836    20,929,686    54,675,654    37,123,786
                    ------------  ------------  ------------  ------------

GROSS PROFIT           6,682,110     5,234,626    10,807,374     8,521,662

SELLING, GENERAL
 AND ADMINISTRATIVE
 EXPENSES              2,632,218     1,157,250     4,826,007     2,052,281
                    ------------  ------------  ------------  ------------

INCOME FROM
 OPERATIONS            4,049,892     4,077,376     5,981,367     6,469,381
                    ------------  ------------  ------------  ------------

OTHER INCOME
 (EXPENSE), NET
 Other subsidy
  income               1,998,855     1,323,515     3,786,418     2,290,287
 Realized gain from
  sales of
  marketable
  securities                   -        27,008             -        27,008
 Non-operating
  (expense), net        (357,201)      (29,325)     (187,974)      (78,528)
 Change in fair
  value of warrants
  liability           (1,414,408)    3,356,796    (1,260,150)   (3,916,645)
 Interest income         157,220         1,524       162,149         3,021
 Interest expense       (224,136)            -      (237,042)      (23,753)
                    ------------  ------------  ------------  ------------
TOTAL OTHER INCOME
 (EXPENSE), NET          160,330     4,679,518     2,263,401    (1,698,610)
                    ------------  ------------  ------------  ------------

INCOME BEFORE
 PROVISION FOR
 INCOME TAXES          4,210,222     8,756,894     8,244,768     4,770,771

PROVISION FOR
 INCOME TAXES            978,233       811,813     1,704,459     1,348,627
                    ------------  ------------  ------------  ------------

NET INCOME             3,231,989     7,945,081     6,540,309     3,422,144

DIVIDENDS AND
 ACCRETION ON
 REDEEMABLE
 CONVERTIBLE
 PREFERRED STOCK               -       318,835             -       659,699
                    ------------  ------------  ------------  ------------

NET INCOME
 AVAILABLE TO
 COMMON
 SHAREHOLDERS          3,231,989     7,626,246     6,540,309     2,762,445
                    ------------  ------------  ------------  ------------

COMPREHENSIVE
 INCOME:
 Net Income            3,231,989     7,945,081     6,540,309     3,422,144
 Foreign currency
  translation
  adjustment             693,572       (17,663)    1,763,754       (80,094)
                    ------------  ------------  ------------  ------------

COMPREHENSIVE
 INCOME             $  3,925,561  $  7,927,418  $  8,304,063  $  3,342,050
                    ============  ============  ============  ============

EARNINGS PER COMMON
 SHARE ALLOCATED TO
 COMMON
 SHAREHOLDERS
 Weighted average
  number of shares:
  Basic               17,651,620    12,377,182    17,585,082    11,681,294
                    ============  ============  ============  ============
  Diluted             18,202,555    15,955,516    18,067,924    15,624,782
                    ============  ============  ============  ============

 Earnings per
  share:
  Basic             $       0.18  $       0.62  $       0.37  $       0.24
                    ============  ============  ============  ============
  Diluted           $       0.18  $       0.50  $       0.36  $       0.22
                    ============  ============  ============  ============



    CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (UNAUDITED)

                                                  For the six months ended
                                                        December 31,
                                                    2010          2009
                                                ------------  ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                                     $  6,540,309  $  3,422,144
 Adjustments to reconcile net income to cash
  provided by (used in) operating activities:
   Depreciation                                    1,819,065     1,387,883
   Stock-based compensation expense                  462,189       120,778
   Deferred tax provision                            129,354             -
   Provision for (recovery) of allowance for
    doubtful accounts                                676,697      (129,354)
   Change in fair value of warrants liability      1,260,150     3,916,645
   Loss realized from disposal of property,
    plant, and equipment                             252,727             -
   Realized gain on sale of marketable
    securities                                             -       (27,008)
  Changes in operating assets and liabilities
   Accounts receivable                           (25,411,159)  (19,737,549)
   Notes receivable                                        -        (3,502)
   Inventories                                      (217,625)     (664,483)
   Other receivables                              (2,135,501)    2,011,537
   Prepayments                                      (886,350)   (1,276,446)
   Long term prepayment                              864,656      (424,307)
   Accounts payable                               12,598,938    11,375,636
   Customer deposits                                 125,331       462,849
   Other payables                                     50,438        39,898
   Accrued liabilities                               202,793       896,045
   Taxes payable                                   1,234,213      (314,895)
                                                ------------  ------------
 Net cash (used in) provided by operating
  activities                                      (2,433,775)    1,055,871
                                                ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Proceeds from sale of marketable securities               -        78,207
 Advances on equipment purchase                            -       (80,462)
 Proceeds from disposal of property, plant, and
  equipment                                          742,242             -
 Purchase of property, plant and equipment          (890,859)     (258,580)
 Investment                                      (11,880,800)            -
                                                ------------  ------------
 Net cash used in investing activities           (12,029,417)     (260,835)
                                                ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from short term loan                    12,285,820       146,284
 Payments on short term loan                         (74,580)   (4,502,287)
 Rent payment to shareholder                          (5,775)     (141,060)
 Restricted cash                                      57,580       192,330
 Proceeds from warrants exercised                          -       386,100
 Proceeds from issuance of common stock, net of
  offering costs                                           -     1,497,242
 Preferred dividends paid                                  -      (304,781)
                                                ------------  ------------
 Net cash provided by (used in) financing
  activities                                      12,263,045    (2,726,172)
                                                ------------  ------------

EFFECT OF EXCHANGE RATE CHANGE ON CASH             2,052,476        (7,330)
                                                ------------  ------------

NET DECREASE IN CASH                                (147,671)   (1,938,466)

CASH, beginning of period                          3,300,820     3,634,805
                                                ------------  ------------

CASH, end of period                             $  3,153,149  $  1,696,339
                                                ============  ============

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