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China ACM Reports Second Quarter Fiscal Year 2014 Results, Provides Quarterly Guidance for the Third Quarter of Fiscal Year 2014, and Updates the Full Year Guidance for Fiscal Year 2014

February 12, 2014

Newsfile Corp.

New York, New York--(Newsfile Corp. - February 12, 2014) - China Advanced Construction Materials Group, Inc. (NASDAQ: CADC) ("China ACM" or the "Company"), a provider of ready-mix concrete and related technical services in China, on February 12, 2013, has announced its financial results for the second quarter ended December 31, 2013.

Second Quarter Fiscal Year 2014 Financial Highlights

•Revenue decreased 45% year over year to $11.8 million•Gross margin at 12.7%•Net loss available to common shareholders of $5.7 million or loss per share of $3.83$29.4 million in working capital at December 31, 2013

Second Quarter Fiscal Year 2014 Results

Revenue. For the three months ended December 31, 2013, we generated total revenue of approximately $11.8 million compared to approximately $21.6 million during the three months ended December 31, 2012, a decrease of approximately $9.7 million or 45%. Such decrease is due to a reduction in sales generated from the concrete division for the three months ended December 31, 2013. Our concrete sales revenue was approximately $11.4 million for the three months ended December 31, 2013, a decrease of approximately $7.7 million, or 40% compared to the three months ended December 31, 2012. The decrease in revenues attributable to concrete sales was principally due to the decreased sales in the areas in which we operate. Operations at one of our concrete producing plants were suspended until late 2013 due to the China International Garden Expo and a temporary suspension order imposed by the Beijing government for industrial activities in the area. In addition, China's central government continues to impose restrictions on the purchase of residential apartments in order to regulate housing prices in China, and China's economic growth has been decelerating since 2012, which has caused an adverse impact on the construction industry in China.

During the three months ended December 31, 2013, we continued to supply concrete products to three railway projects in China through our portable plants, specifically our projects located in Anhui Province. These three projects contributed approximately $0.4 million to our total revenue for the three months ended December 31, 2013, a decrease of approximately $2.1 million, or 82%, compared to the three months ended December 31, 2012. The decrease in revenues attributable to our manufacturing services segment was principally due to the suspension of operations of a number of our portable plants during the three months ended December 31, 2013.

Cost of Revenue. For the three months ended December 31, 2013, we generated total cost of revenue of approximately $10.3 million compared to approximately $18.4 million for the three months ended December 31, 2012, a decrease of approximately $8.1 million, or 44%. The decrease in cost of revenue was primarily due to the overall decrease in production from our fixed concrete plants in the Beijing area and decreased production from manufacturing services compared to the three months ended December 31, 2012.

The cost of revenue on concrete decreased by approximately $6.8 million, or 41%, for the three months ended December 31, 2013, as compared to the three months ended December 31, 2012. Such decrease was due to a decrease in our concrete production volume.

Cost of revenue with respect to our manufacturing services was primarily due to our manufacturing services, which decreased by approximately $1.3 million, or 77%, during the three months ended December 31, 2013, as compared to the same period last year.

Gross Profit. Total gross profit was approximately $1.5 million for the three months ended December 31, 2013, as compared to approximately $3.2 million for the three months ended December 31, 2012. Our gross profit for sale of concrete was approximately $1.4 million, or 13% of revenue, for the three months ended December 31, 2013, compared to approximately $2.3 million, or 12% of revenue for the three months ended December 31, 2012, a decrease of approximately $0.9 million. The decrease in gross profit for concrete sales for the three months ended December 31, 2013, compared with the three months ended December 31, 2012, reflects lower production volume.

Our gross profit with respect to our manufacturing services was approximately $0.08 million, or 17% for the three months ended December 31, 2013, a decrease of $0.8 million from $0.9 million during the three months ended December 31, 2012, while the gross profit margin decreased from 34% for the three months ended December 31, 2012 to 17% for the three months ended December 31, 2013. Such decrease was principally due to the decrease in revenue form manufacturing services for three months ended December 31, 2013, as a result of the decrease in the number of portable plants and lower production rates at our plant.

Provision for doubtful accounts. We incurred provision for doubtful accounts of $5.1 million for the three months ended December 31, 2013, an increase of approximately $4.6 million, as compared to $0.5 million for the three months ended December 31, 2012. In accordance with our allowance for doubtful accounts policy, at the end of each quarter, we conduct an aging analysis of each customer's arrears to determine whether the allowance for doubtful accounts is adequate. The provision is 15% for accounts receivable past due more than 180 days but less than one year, 60% for accounts receivable past due from one to two years and 75% for accounts receivable past due beyond two years. The allowance for doubtful accounts increased to approximately $40.5 million at December 31, 2013, as compared to approximately $36.5 million at June 30, 2013, as a result of tightening monetary policy by the Chinese government causing a shortage in cash and declining business of certain of our customers.

Selling, General and Administrative Expenses. We incurred selling, general and administrative expenses of approximately $2.7 million for the three months ended December 31, 2013, an increase of approximately $0.2 million, or 11%, as compared to approximately $2.5 million for the three months ended December 31, 2012. The increase was principally due to a $0.1 million increase in meals and entertainment expenses and a $0.1 million increase in office expenses.

Research and development expenses. Research and development expenses for the three months ended December 31, 2013 was $0.2 million, a decrease of approximately $0.1 million, or 13%, as compared to approximately $0.3 million for the three months ended December 31, 2012. The Company's research and development expenditure was maintained at a certain percentage of revenue. The $0.1 million decrease was mainly due to lower research and development expenditures resulting from decreased revenue.

(Income) Loss realized from disposal of property, plant and equipment. For the three months ended December 31, 2013, we incurred an approximately $4,000 loss realized from the disposal of property, plant and equipment. During the three months ended December 31, 2012, we incurred a $0.2 million loss realized from the disposal of property, plant and equipment.

Net loss available to Common shareholders. We recognized a net loss of approximately $5.7 million for the three months ended December 31, 2013, as compared to net loss of approximately $3.5 million for the three months ended December 31, 2012, an increase of $2.2 million. Such increase in net loss was primarily due to the decrease in gross profits of our concrete sales and manufacturing services, and the increase in provision of doubtful accounts, offset by the decrease in loss from termination of lease.

Balance Sheet Overview

China ACM had working capital of $29.4 million at December 31, 2013, including $2.4 million in cash and equivalents, $11.9 million in restricted cash, $24.9 million in short term investment, $47.8 million in accounts and notes receivable, $29.5 million in prepayments and advances, $5.7 million in other receivables and $100.2 million in current liabilities. Shareholders' equity was $45.9 million compared with $56.7 million at June 30, 2013. The total number of shares outstanding as of February 6, 2014 was approximately 1.5 million.

Third Quarter Fiscal Year 2014 and Updated Fiscal Year 2014 Guidance

For the third quarter ending March 31, 2014, management expects net sales of $7.5 to $8.5 million, net loss of $2 to $3 million, and EPS of $(1.35) to $(2.02) based on 1,486,871 weighted average shares.

For the fiscal year ended June 30, 2014, due to the uncertainties in some projects and the collection of accounts receivables, management expects net sales of $49 million to $51 million, net loss of $9 million to $15 million, and an EPS of $(6.05) to $(10.09) based on 1,486,871 weighted average shares.

Conference call

The Company will host a conference call with a live webcast and a full Q&A session on February 13, 2014, at 8:00 a.m., Eastern Time, to discuss financial results for the second quarter of Fiscal Year 2014.

Individuals interested in participating in the conference call may do so by dialing 877-407-8031 from the United States, or +1 201-689-8031 from outside the United States, and referencing conference ID number 13576033.

A replay of the call will remain available until: March 13, 2014 at 11:59 PM.

To access the replay, please dial either of the following numbers:

USA: 877-660-6853

International: +1 201-612-7415

About China ACM

China ACM is a producer of advanced, certified eco-friendly ready-mix concrete and provider of 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 many 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.

More information about the Company is available at http://www.ir-site.com/cadc/index.asp.

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, 2013. 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 2013  2013 


 

      


CURRENT ASSETS:

      


   Cash

$ 2,359,234 $ 3,949,939 


   Restricted cash

 11,879,607  6,491,175 


   Accounts and notes receivable, net of allowance for doubtful accounts of $40,539,962 and $36,469,156, respectively



47,752,209



59,696,331



   Inventories

 1,127,090  1,122,380 


   Short term investment

 24,938,336  5,168,000 


   Other receivables

 5,745,487  6,298,088 


   Other receivable from termination of lease, net

 2,316,536  8,932,029 


   Prepayments and advances

 29,476,275  27,827,638 


   Deferred tax assets

 4,042,060  3,987,738 


Total current assets

 129,636,834  123,473,318 


 

      


PROPERTY PLANT AND EQUIPMENT, net

 15,191,109  14,357,349 


 

      


OTHER ASSETS:

      


   Other receivable from termination of lease, net

 -  3,710,455 


   Advances on equipment purchases, net

 3,473,509  4,015,294 


   Deferred tax assets

 220,342  217,380 


Total other assets

 3,693,851  7,943,129 


 

      


Total assets

$ 148,521,794 $ 145,773,796 


 

      


LIABILITIES AND SHAREHOLDERS' EQUITY

      


 

      


CURRENT LIABILITIES:

      


   Short term loans, banks and bank guarantees

$ 47,767,660 $ 43,766,500 


   Short term loans - shareholders

 2,946,600  - 


   Short term loans - other

 327,400  - 


   Notes payable

 8,185,000  - 


   Accounts payable

 29,691,678  33,730,871 


   Customer deposits

 1,261,040  1,732,662 


   Other payables

 3,508,437  1,989,023 


   Other payables - shareholders

 844,064  757,328 


   Accrued liabilities

 1,123,920  988,598 


   Capital lease obligations - current

 4,517,735  2,448,883 


   Taxes payable

 26,713  107,013 


Total current liabilities

 100,200,247  85,520,878 


 

      


OTHER LIABILITIES

      


 Capital lease obligations - non current

 2,453,057  3,560,819 


Total liabilities

 102,653,304  89,081,697 


 

      


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, 1,486,871 shares issued and outstanding as of December 31, 2013 and June 30, 2013



1,487



1,487



   Additional paid-in-capital

 35,233,305  35,233,305 


   (Accumulated deficit) Retained earnings

 (6,121,786) 5,412,387 


   Statutory reserves

 6,248,357  6,248,357 


   Accumulated other comprehensive income

 10,507,127  9,796,563 


Total shareholders' equity

 45,868,490  56,692,099 


Total liabilities and shareholders' equity

$ 148,521,794 $  145,773,796 
       


CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

  For the three months ended  For the six months ended 
  December 31,  December 31, 
  2013  2012  2013  2012 


REVENUE

            


 Sales of concrete

$ 11,374,306 $ 19,060,488 $21,095,423 $ 47,937,396 


 Manufacturing services

 454,026  2,516,859  896,329  4,450,580 


Total revenue

 11,828,332  21,577,347  21,991,752  52,387,976 


 

            


COST OF REVENUE

            


 Concrete

 9,946,088  16,722,221  18,560,843  38,583,375 


 Manufacturing services

 374,612  1,659,550  785,755  3,276,077 


     Total cost of revenue

 10,320,700  18,381,771  19,346,598  41,859,452 


 

            


GROSS PROFIT

 1,507,632  3,195,576  2,645,154  10,528,524 


 

            


PROVISION FOR DOUBTFUL ACCOUNTS

 (5,055,600) (467,597) (8,105,021) (9,809,192)


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 (2,735,275) (2,457,328) (5,645,900) (5,646,942)


RESEARCH AND DEVELOPMENT EXPENSES

 (247,563) (284,912) (451,562) (573,792)


(LOSS) GAIN REALIZED FROM DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT

 (4,222) 173,589  (1,373,683) (170,836)


LOSS FROM TERMINATION OF LEASE

 -  (4,096,984) -  (4,096,984)


 

            


LOSS FROM OPERATIONS

 (6,535,028) (3,937,656) (12,931,012) (9,769,222)


 

            


OTHER (EXPENSE) INCOME, NET

            


 Subsidy income

 709,700  1,315,753  1,319,505  3,143,279 


 Non-operating (expense) income, net

 (59,312) (238,726) 72,934  (470,036)


 Change in fair value of warrant liability

 -  (21,446) -  101,651 


 Interest income

 837,828  30,627  1,184,081  58,061 


 Interest expense

 (651,977) (680,435) (1,179,681) (1,181,272)


TOTAL OTHER INCOME, NET

 836,239  405,773  1,396,839  1,651,683 


 

            


LOSS BEFORE PROVISION FOR INCOME TAXES

 (5,698,789) (3,531,883) (11,534,173) (8,117,539)


 

            


(BENEFIT) PROVISION FOR INCOME TAXES

 -  (23,831) -  775,336 


 

            


NET LOSS AVAILABLE TO COMMON SHAREHOLDERS

$ (5,698,789)$(3,508,052)$(11,534,173)$(8,892,875)


 

            


COMPREHENSIVE INCOME (LOSS):

            


 Net loss

$ (5,698,789)$(3,508,052)$(11,534,173)$(8,892,875)


 Foreign currency translation adjustment

 271,556  199,459  710,564  39,186 


 

            


COMPREHENSIVE LOSS

$ (5,427,233)$(3,308,593)$(10,823,609)$(8,853,689)


 

            


LOSS PER COMMON SHARE ALLOCATED TO COMMON SHAREHOLDERS

            


 Weighted average number of shares (*):

            


    Basic and diluted

 1,486,871  1,486,622  1,486,871  1,486,382 


 

            


    Loss per share:

            


    Basic and diluted (*)

$ (3.83)$(2.36)$(7.76)$ (5.98)
             


(*) Retrospectively restated shares for a 1-for-12 reverse split.

CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

  For the six months ended 
  December 31, 
  2013  2012 
       


CASH FLOWS FROM OPERATING ACTIVITIES:

      


   Net loss

$ (11,534,173)$ (8,892,875)


   Adjustments to reconcile net loss to cash provided by operating activities:

      


             Depreciation

 964,188  1,796,843 


             Stock-based compensation expense

 -  36,772 


             Provision for doubtful accounts

 8,105,021  9,809,192 


             Change in fair value of warrant liabilities

 -  (101,651)


             Loss realized from disposal of property, plant and equipment

 1,373,683  170,836 


             Imputed interest on other receivable from termination of leases

 (442,295) - 


             Loss from termination of lease

 -  4,096,984 


             Interest expense on capital lease

 257,945  - 


  Changes in operating assets and liabilities

      


             Accounts and notes receivable

 5,720,891  (11,943,556)


             Inventories

 10,515  933,013 


             Other receivables

 20,136  1,508,410 


             Other receivable from termination of lease

 11,063,600  - 


             Prepayments

 (2,425,283) (581,702)


             Long term prepayments

 -  (174,804)


             Accounts payable

 (4,471,203) 5,905,442 


             Customer deposits

 (492,200) (209,270)


             Other payables

 1,484,105  1,629,753 


             Accrued liabilities

 122,478  (303,787)


             Taxes payable

 (81,259) (68,013)


   Net cash provided by operating activities

 9,676,149  3,611,587 


 

      


CASH FLOWS FROM INVESTING ACTIVITIES:

      


   Acquisition of short-term investments, net

 (19,579,595) - 


   Proceeds from disposal of property, plant and equipment

 399,600  672,466 


   Purchase of property, plant and equipment

 (263,360) (266,362)


   Net cash (used in) provided by investing activities

 (19,443,355) 406,104 


 

      


CASH FLOWS FROM FINANCING ACTIVITIES:

      


   Proceeds from short term loans and bank guarantees

 38,559,900  20,267,250 


   Payments of short term loans and bank guarantees

 (35,175,740) (25,016,750)


   Proceeds from short term loan - shareholders

 2,928,600  - 


   Proceeds from short term loan - other

 325,400  - 


   Proceeds from short term borrowing

 -  3,768,496 


   Proceeds from notes payable

 8,135,000  - 


   Rent payable to shareholder

 86,736  (52,656)


   Principal payments on capital lease obligations

 (1,455,843) - 


   Restricted cash

 (5,267,631) 1,123,864 


   Net cash provided by financing activities

 8,136,422  90,204 


 

      


EFFECTS OF EXCHANGE RATE CHANGE IN CASH

 40,079  (15,539)


 

      


NET CHANGE IN CASH

 (1,590,705) 4,092,356 


 

      


CASH, beginning of period

 3,949,939  2,409,914 


 

      


CASH, end of period

$ 2,359,234 $ 6,502,270 
       


CONTACT:

China ACM Investor Relations

Phone: +86-10-82525361

E-mail: IR@china-acm.com




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