China Advanced (NASDAQ:CADC)

Third Quarter 2013 Financial results

• Revenue reduced 61.7% from the prior year the same quarter to $7.2 million
• Gross margin at 0.81%
• Net loss of $8.8 million or EPS of $(0.49) vs. last years loss of $(0.24)

Guidance Update

During the third quarter ended June 30, 2013, the management expects the Company to earn revenue of between $13 million and $15 million, recognize net loss of between $8 million and $9 million, and EPS of between $(0.45) and $(0.50) based on weighted average shares of 17.83 million.

In addition, the Company updates its full year guidance for the fiscal year ending June 30, 2013, and currently expects to earn revenue of between $72 million and $75 million, recognize net loss of $25 million to $ 27 million, and EPS of $(1.40) to $(1.51) based on weighted average shares of 17.83 million.

Second Quarter FY 2013

• Revenue of $21.6 million, compared to $42.6 million during the same period in 2011, a decrease of $21 million, or 49%.
• Gross profit was $3.2 million, as compared to $7.5 million, during the same period in 2011,
• Net loss of approximately $3.5 million, as compared to net income of approximately $0.4 million for the three months ended December 31, 2011, a decrease of $3.9 million.
• Earnings (Loss) per share: basic and diluted is (0.20) as compared to the same period in 2011 of $0.02

Mr. Xianfu Han, Chairman and Chief Executive Officer of China ACM, commented, "We experienced year-over-year decrease in revenue for the second quarter of fiscal year 2013. Amid the impact from adverse weather, such decrease was principally attributed to lower sales of concrete products due to the slowing down of the housing market and infrastructure developments. In order to curtail future losses, we will continue our efforts to improve the collection of account receivables, optimize our plant network, and enhance our client base for the rest of the year."

Guidance Update

Due to recent significant fog in Beijing which has adversely affected production at our plants and operation of our transportation vehicles, as well as continuing delays of high speed rail construction projects in China, during the third quarter ended March 31, 2013, the management expects the Company to earn revenue of between $4.5 million and $6.5 million, recognize net loss of between $7.5 million and $9.5 million, and EPS of between $(0.42) and $(0.53) based on weighted average shares of 17.83 million.

In addition, the Company updates its full year guidance for the fiscal year ending June 30, 2013, and currently expects to earn revenue of between $87 million and $90 million, recognize net loss of $16 million to $19 million, and EPS of $(0.9) to $(1.1) based on weighted average shares of 17.83 million.

First Quarter FY 2013 Financial Highlights

• Revenue reduced 31% year over year to $30.8 million
• Gross margin at 23.8%
• Net loss of $5.4 million or EPS of ($0.30) vs. last years $0.17.
• Guidance for second quarter of fiscal year 2013 - For the second quarter of fiscal year 2013, the Company expects to earn revenue of between $37 million and $42 million, net income (loss) to be between $(2.5 million) and $0.5 million, and EPS between $(0.14) and $0.03, respectively.
• Update of full year guidance for fiscal year 2013 - For the entire year of fiscal year 2013, the Company expects to earn revenue of between $137 million and $148 million, net income (loss) to be between $(2.5 million) and $2.5 million, and EPS between $(0.14) to $0.14, respectively.

Mr. Xianfu Han, Chairman and Chief Executive Officer of China ACM, commented, "Although we experienced a year-over-year decrease in revenue growth for the first quarter of FY 2013, such decrease was principally due to the suspension of some portable plants. In order to curtail future losses, we will continue our efforts to improve the collection of account receivables, expand our plant network, and increase our client base for the rest of the year. We are cautiously optimistic that we will be able to reduce our losses during the next quarter and the rest of the year."

The Second Quarter and Full Year Guidance Fiscal Year 2013:

For the second quarter ended December 31, 2012, management expects to earn revenue of between $37 million and $42 million, recognize net income (loss) of between $(2.5 million) and $0.5 million, and EPS of between $(0.14) and $0.03 based on weighted average shares of 17.83 million.

For the fiscal year ending June 30, 2013, the Company updates the full year guidance as follows: The Company expects to earn revenue of between $137 million and $148 million, recognize net income (loss) of $(2.5 million) to $2.5 million, and EPS of $(0.14) to $0.14 based on weighted average shares of 17.83 million. 

Fourth Quarter 2012 Results

• For the three months ended June 30, 2012, we generated revenue of $39.1 million, compared to $49.3 million during the same period in 2011, a decrease of $10.2 million.
• Net Income (loss) available to Common shareholders. We recognized net loss of approximately $5.6 million for the three months ended June 30, 2012, as compared to net income of approximately $7.0 million for the three months ended June 30, 2011, a decrease of $12.6 million.
• Loss per share for the three months ended June 30, 2012 was $0.31 vs earnings of $0.38 in prior year quarter.

On August 23, 2012, China Advanced Construction Materials Group, Inc. (the “Company”) received a letter from The Nasdaq Stock Market ("NASDAQ") notifying the Company of its failure to maintain a minimum closing bid price of $1.00 over the then preceding 30 consecutive trading days for its common stock as required by NASDAQ Listing Rule 5550(a)(1) (the "Bid Price Rule"). The letter stated that the Company has 180 days (or until February 19, 2013) to demonstrate compliance by maintaining a minimum closing bid price of at least $1.00 for a minimum of 10 consecutive trading days. The Company intends to monitor the bid price of its common stock and consider available options to resolve the deficiency and regain compliance with the Bid Price Rule by February 19, 2013.

Item 1.02 Termination of a Material Definitive Agreement.

On October 24, 2011, China Advanced Construction Materials Group, Inc., a Delaware corporation (the “Company”), 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 entered into an Agreement and Plan of Merger, dated October 24, 2011 (the “Merger Agreement”), pursuant to which Merger Sub was to merge with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Novel Gain. The Company filed a Current Report on Form 8-K, dated October 24, 2011, reporting its entry into the Merger Agreement under Item 1.01 and providing a description of the material terms thereof and a copy of the Merger Agreement as an exhibit thereto.

On July 9, 2012, the Board of Directors of the Company, acting on the unanimous recommendation of the Special Committee of the Board of Directors, determined to terminate the merger agreement based on the determination by all parties that the conditions to consummate the Merger cannot be satisfied, and the Company and the other parties to the Merger Agreement entered into the Termination of Agreement and Merger Agreement to terminate the Merger Agreement pursuant to Section 8.1(a) thereto. The termination takes effect immediately, and no fees are payable by the Company or the other parties in connection therewith.

 

		For the three months ended						For the six months ended
		December 31,						December 31,
		2011			2010			2011			2010
REVENUE
Sales of concrete	$	39,981,717		$	26,205,792		$	80,066,756		$	51,526,739
Manufacturing services		2,578,178			7,108,447			7,078,146			11,580,224
Technical services		-			1,207,396			-			2,366,456
Other		-			4,311			-			9,609
Total revenue		42,559,895			34,525,946			87,144,902			65,483,028
COST OF REVENUE
Concrete		32,675,610			22,835,629			62,813,134			46,344,312
Manufacturing services		2,350,816			4,913,916			6,043,753			8,131,041
Technical services		-			94,291			-			200,301
Total cost of revenue		35,026,426			27,843,836			68,856,887			54,675,654
GROSS PROFIT		7,533,469			6,682,110			18,288,015			10,807,374
PROVISION FOR DOUBTFUL ACCOUNTS		3,359,502			509,639			10,361,042			676,697
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		5,276,670			2,122,579			7,986,110			4,149,310
INCOME (LOSS) FROM OPERATIONS		(1,102,703	)		4,049,892			(59,137	)		5,981,367
OTHER INCOME (EXPENSE), NET
Other subsidy income		2,553,633			1,998,855			5,239,023			3,786,418
Non-operating income (expense), net		15,296			(357,201	)		(38,909	)		(187,974	)
Change in fair value of warrants liability		(396,974	)		(1,414,408	)		(201,498	)		(1,260,150	)
Interest income		112,807			157,220			335,451			162,149
Interest expense		(400,039	)		(224,136	)		(699,215	)		(237,042	)
TOTAL OTHER INCOME, NET		1,884,723			160,330			4,634,852			2,263,401
INCOME BEFORE PROVISION FOR INCOME TAXES		782,020			4,210,222			4,575,715			8,244,768
PROVISION FOR INCOME TAXES		337,376			978,233			1,039,005			1,704,459
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	444,644		$	3,231,989		$	3,536,710		$	6,540,309
COMPREHENSIVE INCOME:
Net Income		444,644			3,231,989			3,536,710			6,540,309
Foreign currency translation adjustment		501,972			693,572			1,438,568			1,763,754
COMPREHENSIVE INCOME	$	946,616		$	3,925,561		$	4,975,278		$	8,304,063
EARNINGS PER COMMON SHARE ALLOCATED TO COMMON SHAREHOLDERS
Weighted average number of shares:
Basic		17,815,900			17,651,620			17,810,986			17,585,082
Diluted		17,838,400			18,202,555			17,833,486			18,067,924
Earnings per share:
Basic	$	0.02		$	0.18		$	0.20		$	0.37
Diluted	$	0.02		$	0.18		$	0.20		$	0.36

GeoTeam® Note: 2011 vs. 2010 Adjusted EPS of $0.00 vs. $0.10

Full Year:

Fourth Quarter:

Cost of revenue, which consists of direct labor, rentals, depreciation, other overhead and raw materials, including inbound freight charges, was approximately $35 million for the three months ended December 31, 2011, as compared to approximately $27.8 million for the three months ended December 31, 2010, an increase of approximately $7.2 million, or 26%. The increase of cost of revenue was due to the overall increase in production from our fixed concrete plants in the Beijing area compared to the three months ended December 31, 2010. The increase in cost of revenue was also due to the increase of inflation in China, as well as increases in labor and crude oil prices, which increased the costs of raw materials and transportation during this quarter compared to the prior fiscal year. We are uncertain whether crude oil prices or raw material prices will maintain at the current level in the near future. We intend to adjust our concrete prices to keep pace with changes in raw material pricing, particularly the price of cement.

Provision for doubtful accounts was approximately $3.4 million for the three months ended December 31, 2011, an increase of approximately $2.8 million, compared to approximately $0.5 million for the three months ended December 31, 2010. We have experienced delays in payment on our projects from China’s Ministry of Railways, or MOR. Following the arrest of its head on corruption charges, the MOR conducted payment chain audits; in addition, the MOR was under pressure to repay its debts incurred during the years of expansion. As a result, the MOR has delayed payments to construction companies, including us. Furthermore, the government tightened its monetary policy in order to regulate inflation, which in turn led to delayed payment on our housing construction projects. We expect longer collection period on accounts receivable and higher probability of uncollectable accounts receivable, and therefore have changed the accounting estimate on allowance for doubtful accounts within one year from our historical default rate of 2% to 5% based on peers’ comparable rate in the domestic construction industry during the three months ended December 31, 2011. The allowance for doubtful accounts increased to approximately $16 million at December 31, 2011, compared to approximately $5.6 million at June 30, 2011. The new estimate of peers’ comparable rate on allowance for doubtful accounts increased provision for doubtful accounts for approximately $2.9 million compared to the previous estimate of historical default rates. If the new accounting estimate on allowance for doubtful accounts was adopted at June 30, 2011 or December 31, 2010, the provision for doubtful accounts would have been increased approximately $2.5 million and $ 1.8 million for the year ended June 30, 2011 and the three months ended December 31, 2010, respectively.

NEW YORK, Jan. 19, 2012 (GLOBE NEWSWIRE) -- Mr. Ephraim Fields of Echo Lake Capital today announced he had issued the following letter to the Board of Directors of China Advanced Construction Materials Group, Inc. (Nasdaq:CADC).

• Believes $2.65 offer is grossly inadequate
• Encourages Board and shareholders to reject the buyout offer
• Doubts offer representing only 54% of book value is in best interests of shareholders
• Believes liquidation value significantly greater than current buyout offer
• Demands Board explain why shareholders would not be better served if company were liquidated

To the Board of Directors:

We are writing to (i) encourage all CADC shareholders to vote against the Chairman's proposed buyout of CADC at $2.65 per share (the "Offer") and (ii) encourage CADC's Board of Directors (the "Board") to reassess its actions and reject the Offer. Full letter.

First Quarter 2012 Results

• 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 vs $0.19 in prior year
• 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."

As disclosed in the Current Report on Form 8-K filed on January 29, 2010 by China Advanced Construction Materials Group, Inc. (the “Company”), on January 25, 2010 (the “Effective Date”), the Board of Directors of the Company appointed Jeremy Goodwin as the Company’s President, effective immediately, and as the Company’s Chief Financial Officer, effective upon the departure of the Company’s then-current Chief Financial Officer

Fourth quarter and full year 2011 results

Fourth Quarter FY 2011 Financial Highlights

• Revenue increased 59% year over year to $49.3 million
• Gross margin at 21.9%
• Non-GAAP adjusted net income available to common shareholders of $5.3 million
• Non-GAAP adjusted fully diluted EPS to common shareholders of $0.30 vs $0.33 in 2010
• GAAP net income available to common shareholders of $7.0 million or $0.39 EPS

Fiscal Year 2011 Financial Highlights

• Revenue increased 48% year over year to $137.9 million
• Gross margin at 18.6%
• Non-GAAP adjusted net income available to common shareholders increased 2% YOY to $16.0 million
• Non-GAAP adjusted fully diluted EPS to common shareholders of $0.88 vs $0.95 in 2010
• Net income available to common shareholders rose 42% YOY to $17.1 million
• $47.2 million in working capital at June 30, 2011

Management Commentary

Mr. Xianfu Han, Chairman and Chief Executive Officer of China ACM, commented, "Fiscal Year 2011 was another year of growth and profitability for China ACM. During fiscal 2011, our volumes from our Beijing fixed plants increased as we expanded our customer base in that market. We also experienced increased volumes from our portable plant division that primarily services the build out of China's high-speed rail network."

"However, in light of the recent government suspension of new and ongoing high-speed rail projects, our near-term outlook for the manufacturing services division is uncertain. The government is conducting ongoing quality inspections at high-speed rail construction sites across the country, which has resulted in a slowdown in overall construction. As a result, we are focused on managing our cost structure in anticipation of lower volumes from our portable plant network for the foreseeable future."

BEIJING--(Marketwire -07/26/11)- China Advanced Construction Materials Group, Inc. (NASDAQ: CADC), a leading provider of ready-mix concrete and related technical services in China, today announced that its Board of Directors has received a preliminary, non-binding offer from its Chairman and Chief Executive Officer, Mr. Xianfu Han ("Mr. Han"), and Weili He, Vice Chairman and Chief Operating Officer, to acquire all of the outstanding shares of our common stock not currently owned by them in a going private transaction at a proposed price of $2.65 per share in cash. Messrs. Han and He currently beneficially own in the aggregate approximately 49.5% of our common stock.

Our Board of Directors is considering forming a special committee of independent directors (the "Special Committee") to consider any proposal that may be made by Messrs. Han and He and their affiliates, if any. If formed, the Special Committee will be authorized to retain independent legal and financial advisors to assist it. There can be no assurance that any proposal for a transaction will be made, that any agreement will be approved or executed or that any transaction will be consummated.

Third Quarter Results:

• Revenue increased 41% year over year to $23.1 million
• Gross margin at 17.5%
• Non-GAAP adjusted net income available to common shareholders of $2.4 million
• Non-GAAP adjusted fully diluted EPS to common shareholders of $0.13

"Despite having recently terminated one fixed Concrete plant lease, the third quarter 41 percent top line growth was solid and affirms that we have the right product in the right market," said Mr. Xianfu Han, Chairman and Chief Executive Officer of China ACM. "Both our revenue and our bottom line faced headwinds in the quarter with the leadership transition in China's Railway Ministry, slowing HSR business broadly. However, the same drivers of our long term growth remain intact, primarily our growing industry stature, strategic alliances, attrition of marginal concrete providers -- all fueled by China's generational urbanization and modernization.

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 vs. $0.29
• 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.

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.

Fiscal 2011 First Quarter Ended Septermber

		2010				2009
REVENUE
Sales of concrete		$	25,320,947			$	14,886,757
Manufacturing services			4,471,777				2,805,614
Technical services			1,159,060				1,244,895
Others			5,298				543,870
Total revenue			30,957,082				19,481,136
COST OF REVENUE
Concrete			23,508,683				14,336,716
Manufacturing services			3,217,125				1,757,167
Technical services			106,010				54,483
Others			-				45,734
Total cost of revenue			26,831,818				16,194,100
GROSS PROFIT			4,125,264				3,287,036
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			2,193,788				895,031
INCOME FROM OPERATIONS			1,931,476				2,392,005
OTHER INCOME (EXPENSE), NET
Other subsidy income			1,787,563				966,772
Non-operating income (expense) , net			169,227				(49,203	)
Change in fair value of warrant liability			154,258				(7,273,441	)
Interest income			4,929				1,497
Interest expense			(12,906	)			(23,753	)
TOTAL OTHER INCOME (EXPENSE), NET			2,103,071				(6,378,128	)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES			4,034,547				(3,986,123	)
PROVISION FOR INCOME TAXES			726,226				536,814
NET INCOME (LOSS)			3,308,321				(4,522,937	)
DIVIDENDS AND ACCRETION ON REDEEMABLE CONVERTIBLE PREFERRED STOCK			-				340,864
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS			3,308,321				(4,863,801	)
RECONCILIATION OF COMPREHENSIVE INCOME:
Net Income (loss)			3,308,321				(4,522,937	)
Unrealized loss from marketable securities			-				(5,577	)
Foreign currency translation adjustment			1,070,182				(62,431	)
COMPREHENSIVE INCOME (LOSS)		$	4,378,503			$	(4,590,945	)
EARNINGS (LOSSES) PER COMMON SHARE ALLOCATED TO COMMON SHAREHOLDERS
Weighted average number of shares:
Basic			17,518,544				10,985,405
Diluted			18,022,815				10,985,405
Earnings (Losses) per share:
Basic		$	0.19			$	(0.44	)
Diluted		$	0.18			$	(0.44	)

Stock-based compensation expense

178,302

60,155

Fully Diluted Non-GAAP EPS was  $0.19 vs. $0.23

Commenting on the quarter's results and outlook for Fiscal Year 2011, China ACM President and Chief Financial Officer Jeremy Goodwin, said, "Operationally, the first quarter of Fiscal Year 2011 was highlighted by rapidly increasing sales, higher capacity and growing new business opportunities. The start up of an unusually high number of new long term HSR contracts is quite positive, so despite a dip in first quarter margins from portable plant redeployment and start ups, the outlook for the 2011 fiscal year is robust and on track. We generated $4.93 million in EBITDA and finished the quarter with $28.8 million in working capital.

"The first quarter reflected a large number of new HSR portable plant start ups in ramp-up stage as well as an unusually high number of plants in redeployment transition whose downtime was lengthened due to a client SOE contractor's local permit issue. While start dates were delayed, those newly contracted projects will require the same number of cubic meters of the Company's premium RMC to be delivered by the originally scheduled project completion date, so that full revenue is expected to be realized subsequently.

"Concrete Sales in the quarter were impacted by higher commodity raw materials costs that increased our overall cost of goods by about two percent. As many of our Concrete Sales fixed-price contracts signed prior to the material cost increase have ended or will soon be ending, the price raise we announced today averaging 25 percent across the range of our concrete sales products is expected to boost margins back to normal levels in our second quarter. Our Manufacturing Services portable plants are unaffected by raw material costs as the client provides the raw materials.

"Additionally, two of our high margin consulting contracts in the Technical Services business expired. This Segment has been trending higher in recent years but has been highly variable, and the Company will be selectively pursuing more such contracts in our target markets around the country to replace and grow this business.

"Driven by modernization and urbanization, our addressable markets, infrastructure, continue to accelerate in growth -- unaffected by China's import/export markets. According to the Investment Research Institute of China's State Development and Reform Commission, during the 12th 5-year plan from 2011-2015 the Chinese Government will invest $450 billion in railway plus another $460 billion in rural infrastructure which plays to our strength in commercial and industrial real estate, utilities, airports rail and subway stations.

"Our diversified backlog and new business pipeline are strong, near record levels at $58 million and $31 million respectively. Given our increasing capacity, they support the outlook for a record year," Mr. Goodwin concluded.

China ACM reported first quarter Fiscal Year 2011 non-GAAP adjusted net income available to common shareholders increased 35 percent, year over year, to $3.3 million on 59 percent higher revenue of $31.0 million. The non-GAAP adjusted net income available to common shareholders is before non-cash change in fair value of warrants, option and equity-based compensation.

First quarter Manufacturing Services revenue increased by 59 percent to a record $4.5 million year over year with a 28.1 percent gross margin. Technical Services revenue decreased by 7 percent to $1.2 million with a 91 percent gross margin. Concrete Sales revenue at our fixed plants in Beijing increased by 70 percent to $25.3 million with a gross margin of 7.2 percent.

The Company's first quarter blended gross margin was 13.3 percent, declining from 16.9 percent a year ago temporarily reflecting portable plant projects completion ramp down, relocation delays and new portable plant projects ramp up, higher seasonal concrete sales raw material costs as well as higher margin Technical Services contracts expiring.

Backlog

China ACM reported that, on September 30, its backlog, or bids in house, was $58 million, 82% of which is contracted with Government State Owned Enterprise contractors and 12% contracted with private sector developers. This is comprised of $33 million in contracted unfilled orders for its Concrete Sales segment, and $25 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 is between six and twelve months for Concrete Sales, and 12 to 30 months for Manufacturing Services depending on the scope of the project.

The Company's new business pipeline, or bids outstanding, which is a measure of the value of bids it has submitted for either Concrete Sales and Manufacturing Services business, was $16 million and $15 million, respectively, or $31 million total.

Market Opportunity

The China Ministry of Rail has announced its plans to invest $120.75 billion in 70 new projects upgrading rail infrastructure in calendar 2010 which together with future planned rail infrastructure investment will total $730 billion by 2020. China's State Development and Reform Commission recently announced plans to expand China's subway system to 6,100 KM investing $105 billion through 2020.

According to a recent article in The Journal of Commerce, infrastructure spending in Asia (not including Japan) could total roughly $1.4 trillion in the next two years, with China committing $585 billion or more. India is also projected to spend more than $500 billion by 2015. China is already at work on 12 major highway projects connecting rural areas to urban centers, which will give the country 53,000 miles of highways by 2020.

China is also in the midst of a $200 billion campaign to expand its railways and freight-handling facilities, and plans to build 97 new airports by 2020, including 10 with the capacity to handle more than 30 million passengers per year. All told, China is expected to account for more than 28 percent of global infrastructure spending totaling $70 trillion over the next two decades, reports CG/LA Infrastructure LLC, a Washington-based consulting firm for the construction industry.

We believe that our cash and revenues from ongoing operations in addition to closely managing our accounts payable and accounts 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.

"Securing over $10 million in low-interest debt financing enables China ACM to continue to capitalize on growing opportunities in China infrastructure," said Jeremy Goodwin, China ACM President and Chief Financial Officer. "As is customary practice for corporate loans of this nature in China, we anticipate renewing these loans annually following annual anniversary payback and renewal. Combined with growing cash flow and a strong balance sheet, we are well positioned for accelerated growth and financial performance."

Comparison of the years Ended June 30, 2010 and 2009

• Revenue of $93,040,847 compared to $39,714,802 during the same period of 2009, an increase of $53,326,045 or 134%.
  
• Cost of Sales  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.
  
• GAAP 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.
  
• GAAP EPS of $0.79 vs. $0.86.
  
• Company provided non-GAAP EPS of $0.95 vs $0.82.

GeoTeam® Note: We adjusted EPS by adding back non-cash charges, subtracting subsidy income and applying a tax rate of 25.0%.  This yields EPS 0.65 vs. 0.76. The company did not subtract subsidy income in its non-GAAP EPS calculation.

Added to the GeoSpecial list on 9/23/2009 @ $4.75.

    Catalyst: Appeared that EPS was about to go into second gear; Direct beneficiary from China stimulus package

    Peak performance: Reached a high of $8.50 on 10/20/2009

    Current road block: Dilution will hinder EPS growth despite sharp rise in revenue.  2011 growth is forecast to be only 16%, with most quarters under 10%.

    Removed from the GeoSpecial list

GeoSpecial CADC reported 2010 second quarter results yesterday. on a GAAP basis it looked like a stellar quarter. But a closer look at GeoCalculated non-GAAP results, after adjusting for non-operating items, revealed less impressive results.

2nd Quarter 2010 Financial Snapshot Ended December

Year Ends June	2nd Quarter 2010	2nd Quarter 2009	Period Change
GAAP Revenue	$20.31 million	$7.97 million	154.8%
GAAP EPS	$0.50	$0.19	163.2%
Company Supplied Non-GAAP EPS	$0.29	$0.19	52.6%
Geo Supplied Non-GAAP EPS a	$0.19	$0.16	18.8%

Source: PR Newswire (February 10, 2010)

Non-GAAP EPS Figures exclude certain non-operating gains and losses as well as certain non-cash items. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information . For a more complete explanation of the company's definition of non-GAAP please refer to its financial press releases. The GeoTeam® non-GAAP figures may, from time to time, differ from company supplied figures. We also applied a 25% tax rate.

Our non-GAAP EPS number differs from the company’s non-GAAP number as, in addition to subtracting a warrant gain, we also subtracted "other subsidy income." Doing this portrays a much different picture and highlights that net income growth did not nearly keep up pace with revenue growth.

Comments in its 10Q explained that margins had suffered due to increased oil prices..

"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 2008. The increase in cost of sales was also due to increases in crude oil prices which increased the costs of raw materials and transportation during this quarter compared to the same quarter last year. The cost of sales on concrete increased $12,459,399 this fiscal quarter compared to the same quarter last year. Such increase was due to an increase in our concrete production as a result of additional plants we added during this fiscal quarter, as well as the increase in crude oil prices as indicated above as compared to the same period last year. Cost of sales with respect to our manufacturing services increased $1,267,766 during the fiscal quarter ended December 31, 2009, as compared to the same quarter last year. Such increase was due to the increase in total operational capacity and a decrease in the utilization rate for the two new portable plants we added to our operations, as well as an increase in transportation costs."

The company did comment that it has seen  improvements in its efficiencies:

"Our production and utilization rate started picking up during the quarter as the celebration of National Day of PRC came to an end in the beginning of October. However, we are uncertain whether the crude oil prices will maintain at the current level in the near future."

The GeoTeam is faced with a difficult decision, especially as we are generally attempting to be more selective in our stock selection process. As the global economy continues to accelerate, we fear that the rise in commodity prices may continue, leaving us to ponder how this will impact CADC's future bottom line.

Overall, the earnings conference call was bullish, so we will keep CADC coded as a GeoSpecial, mainly due to its low fully adjusted trailing P/E of 6.76.  But it will not be one of our top portfolio choices until we attain a better grip on how CADC financial results will be impacted by a rise commodity prices. Also, the company is facing challenging EPS comparisons for its third and fourth quarters of $0.19 and $0.20, respectively.

**The GeoTeam assumed that the above targets utilized the company's current tax rate of 16%. In 2008 the company earned net income of $5,130,797 and EPS of $0.57.

**The GeoTeam® is attempting to verify the outstanding share count.

Source: SEC Form S-1/A ( January 2, 2009)

Financial Targets Adjusting for a standard tax rate of 36%:

 

Date	After-Tax Net Income Targets	Implied EPS Based on Current Fully Diluted Outstanding shares
June 30, 2008	$4,160,000	$0.29
June 30, 2009	$7,200,000	$0.51
June 30, 2010	Greater than $7,200,000	Greater than $0.51

Adjusting 2007 financials for a standard tax rate:

Net iincome: $4,104,6376
EPS:  $0.46

As part of a private placement transaction, China ACM entered into a Make Good Escrow Agreement whereby the company must achieve certain net income milestones

Net Income Milestones: (adjusted for certain transaction related charges).


1). Fiscal year ended June 30, 2008 $5.2 million

2). Fiscal year ended June 30, 2009 $9.0 million

Source: PR Newswire (June 16, 2008)