China America Holdings, Inc. (OTCBB: CAAH) is out of the coolant business and into the manufacturing and distributing of porcelain tiles business having announced on Thursday that they had entered into a definitive share exchange agreement with Best Alliance Worldwide Investments Limited to acquire a 100% equity stake in China Ziyang Technology Company, Limited for a combination of a convertible promissory note along with common stock valued at approximately $16 million.
In reality CAAH has been out of the coolant business for some time, having completed the sale of their 56.08% interest in their former subsidiary, Shanghai AoHong Chemical Co., Ltd., a Chinese limited liability to Glodenstone Development Limited for $3,508,340 payable by Glodenstone’s forgiveness of the $1,780,000 debt CAAH owed Glodenstone and the delivery to CAAH of Glodenstone’s promissory note in the principal amount of $1,728,340. That sale left CAAH without a source of revenue and in search of a viable business operation which they now believe to be Ziyang Technology Company, Limited, a Hong Kong Based holding company with a wholly owned subsidiary, Ziyang Ceramics Company, Limited, based in Zhucheng City, Shandong Province, China.
Investors responded positively to Thursday’s news as trading volume had already passed the 16.5 million mark by mid-day with share price jumping nearly 600% to hit 0.0279, a staggering figure considering they closed Wednesday at 0.0040 on miniscule trading volume.
What CAAH receives in this latest transaction is a porcelain tile business that has been around for more than four years with $7.7 million registered capital and had total assets of approximately $26.5 million as of March 31, 2011. According to CAAH’s announcement Ziyang Ceramics “operates its production and distribution facility on approximately 1.8 million square feet of land that includes facilities covering an area of 775,000 square feet. Ziyang Ceramics has 492 employees and operates two production lines which produce three main ceramic product types in more than 50 different size and color combinations. The company sells its products through a distribution network of more than 150 distributors across 10 provinces concentrating on major second and third tier cities.”
Business growth in Ziyang has been impressive with 2010 figures displaying top and bottom line growth in excess of 44% compared to 2009 and management has said they expect to grow their internal operations at a rate of at least 20% annually for the foreseeable future.
Mr. Shaoyin Wang, CEO of China America Holdings, said of the deal, “We are extremely pleased to have entered into this agreement to acquire Ziyang Ceramics. We have conducted substantial due diligence with the assistance of our business, legal and accounting advisors and are confident that this acquisition will enable our company to achieve sustainable long term growth for our shareholders. The management team at Ziyang Ceramics has demonstrated its ability to achieve consistent profitable growth over the past two years and we believe they have the right plan in a growing industry to accelerate that growth to become a leading player in this industry in China.”
Shareholders of CAAH have been waiting for something to fill the revenue void following the sale of the company’s interest in AoHong Chemical. While nearly half of that sale price will be in the form of Glodenstone’s debt forgiveness CAAH is still due to receive $1,728,340 by December 31, 2011. These funds could go a long way in growing Ziyang Ceramics which does not require the immediate level of capital that AoHong Chemical requires.
While those funds could go a long way in growing Ziyang Ceramics they will likely be going to China Direct to pay off promissory notes totaling $0.6 million on March 21, 2011 and an additional $0.4 million “for professional fees China Direct has paid on our behalf and interest that has accrued on the China Direct promissory notes.” These notes are due prior to January 2012 which could make the situation messy because CAAH has no financial resources to pay these obligations until they receive the money they are due from Glodenstone. CAAH has said they would expect China Direct, which owns approximately 34% of CAAH’s outstanding common stock, to extend the due dates until they receive the funds from Glodenstone but “China Direct has not committed to such an extension and there can be no assurances that China Direct will agree to one in the future.”
With the majority of what they are owed from Glodenstone going to China Direct that still leaves CAAH in a precarious financial situation. More should be revealed when CAAH files the 8-K regarding their most recent transaction. They anticipate doing this on July 7, 2011 and will include the audited financial statements of Ziyang Ceramics for the years ended December 31, 2010 and December 31, 2009 as well as the unaudited financial statements for the current three month period ended March 31, 2011.
Until that 8-K is filed CAAH could continue to see some volatility in their share price along with their trading volume, making them a difficult stock to predict but one to watch nonetheless.