China America Holdings Inc

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

03/02/09

CAAH daily

0.04

0.03

0.02

0.01

China America Holdings Inc.

0.00

333 E. Huhua Rd. Huating Economic & Development Area, Jiading Disctrict Shanghai, China, 201811

volume

Š BigCharts.com

1

Phone: 86.21.5997.4046 Fax: 86.21.5997.4148 E-mail: info@chinaamericaholdings.com Website: www.chinaamericaholdings.com

0.5

Millions

1.5

0

09

Feb

MARKET DATA

Share Statistics

3-Mar-09

Symbol Exchange Current Price Price target Rating Outstanding fully diluted Market Cap. Average 3M Volume

shares

2007

2008E

2009E 2010E 39.4

43.6

CAAH

Revenues, $ Mn.

16.3

37.1

OTC BB

Gross margin

14.07%

9.99%

$0.025

Operating margin

-4.24%

4.16%

7.50%

7.81%

$0.13

Net margin

-6.87%

0.61%

4.93%

5.48%

Speculative Buy

EPS, $

(0.012)

0.003

0.014

0.017

12.14% 12.37%

135.8 Million $3.40 Million

P/E

n/m

7.19

1.42

1.19

106,377

P/S

0.17

0.07

0.07

0.06

Source: Yahoo Finance, Analyst Estimates

Background China America Holdings Inc. (CAAH), through its 56%-owned Chinese subsidiary, Shanghai AoHong Industry Company Limited, processes, distributes and imports/exports environmentally friendly fluoro products, fire extinguishing agents and refrigerants and liquid coolant products used in automobiles, air conditioning systems and refrigeration units. The Company supplies many well-known multi-national companies in the Shanghai market, including Chevron Phillips Chemical Co. Ltd.; Jiangsu MeiLan Chemical Co. Ltd.; Sinochem Modern Environmental Protection Chemicals Co. Ltd.; and Daikin Fluorochemicals Co. Ltd. CAAH sells its products primarily in the United States and Asia.

The Company’s AoHong subsidiary has commenced manufacturing steel cylinder refrigerant products on a new production line developed through a joint venture with Shanghai Ronghua High-Pressure Vessel Co. Ltd. In addition, CAAH has just completed construction of a new 8,000-square-foot factory that will produce environmentally friendly products. In late 2007, AoHong received China America Holdings Inc. (OTCBB: CAAH)

1

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

DOT-39 certification for non-refillable steel cylinder tanks from the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration. DOT-39 is the standard for non-refillable cylinders, used for packaging compressed gases, refrigerants and fluorine chemicals. DOT-39 certification enables AoHong to export non-refillable steel cylinders to the U.S. market.

In 2008, the Company signed a contract valued at approximately $8.6 million with Shanghai 3F New Materials Co. Ltd. to supply it with refrigerant R22. Shanghai 3F uses R22 as a raw material for producing a synthetic fluoropolymer, Polytetrafluoroethylene (Teflon), which is utilized as a lubricant and non-sticking coating. CAAH also signed a $2.5 million agreement with China FAW Group Corp., a pioneer of China’s auto industry, to supply it with refrigerant R134A, which is used in the air conditioning systems of manufactured automobiles. China FAW has joint ventures with Volkswagen, Mazda and Toyota, and produces more than 7 million vehicles per year.

Investment Highlights Distributor of fluorochemical and refrigeration products With the acquisition of a 56.08% membership interests in Shanghai AoHong, CAAH entered the China market for air conditioning and refrigeration products. AoHong specializes in the processing, distribution, and import/ export of refrigerant and coolant products used in automobiles, air conditioning systems, refrigeration units and fire extinguishing agents. Its products are distributed in 16 Chinese provinces and districts. In addition, the Company is actively exploring markets outside China and has sales in Thailand and the Middle East, with plans to export to the U.S., Latin America and the Caribbean.

Robust revenue growth We expect AoHong’s annual revenues to increase from $16.2 million in 2007 to approximately $37 million in 2008. AoHong is growing its business by escalating manufacturing capacity, developing innovative products and establishing a market presence and strategic partnerships in the Americas. As a result, we expect the Company’s revenues to rise to $39 million in 2009 and $43 million in 2010.

Profit margin improvements During the first nine months of 2008, CAAH’s gross margins fell to 9.2% due to a temporary shortage of raw material resulting from business interruptions caused by the Beijing Olympics. Going forward, we expect the Company’s profit margins to recover as a result of lower materials purchasing costs since the Chinese government has lifted its restrictions on the transport of chemicals. Margins should also benefit from the disposal of the Company’s unprofitable Biometrics and Big Tree segments.

Enhanced manufacturing capacity supports growth prospects CAAH has begun manufacturing steel cylinder refrigerant products at a new joint-venture production line and has just completed construction of a new 8,000-squarefoot factory that will produce environmentally friendly products. CAAH was one of the first to recognize the China China America America Holdings Holdings Inc. Inc. (OTCBB: (OTCBB: CAAH) CAAH)

22

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

growing market for safe, non-toxic products, and is actively marketing its environmentally friendly products.

Approximately 37% of AoHong’s 2007 net revenues were derived from higher-margin, environmentally friendly products. In 2008, AoHong forecast sales of environmentally friendly products will be higher year-over-year.

Quality assurance standards increase the competitiveness of its offering In response to environmental issues such as ozone depletion and the need for better indoor air quality and protection of the limited resources, authorities are implementing stricter quality standards for refrigerants and fluorochemicals. CAAH has implemented ISO 9001:2000 Quality Assurance System requirements; Environmental Management System ISO 14001:2004 standards; TS 16949 certification (international quality management certificate for the automotive industry); and other certifications related to its operations.

In late 2007, AoHong received DOT-39 certification for non-refillable steel cylinder tanks from the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration. DOT-39 certification enables AoHong to export non-refillable steel cylinders to the U.S. market.

Established distribution network in China The Company distributes its products within 16 provinces and districts in China, including Liaoning, Jilin, Beijing, Xinjiang, Shangxi, Chongqing, Sichuan, Jiangshu, Zhejiang, Anhui, Guangdong, Hainan, Hong Kong and Taiwan; and exports to countries such as Russia and Thailand. Approximately 90% of CAAH’s customers have been in a business relationship with the Company for more than three years. Because of strong repeat business, CAAH is better able to estimate customer demand and maintain appropriate inventory levels. The Company has a total area of near 26,000 square meters (of which 9,000 square meters is for a workshop) and can maintain the needed inventory to accommodate a variety of orders during peak selling season and meet customer demand on short notice.

Significant China market opportunity China’s massive size and rapid modernization is creating one of the greatest investment opportunities in the world. The Chinese government is increasingly encouraging entrepreneurship; China’s National Bureau of Statistics reported 11.4% GDP growth in 2007, and China has become the world’s fourth-largest economy behind the U.S., Japan and Germany. Since its admission to the World Trade Organization (WTO) in 2001, China has become a global trading powerhouse with the European Union and the U.S. as its two largest trading partners.

China is the world leader in the air conditioning market. In 2006, the Chinese market for packaged air conditioning was estimated at $8.9 billion, a 10% increase from the previous year. In 2007, the Chinese air conditioning market was valued at $12 billion. The market value of China’s car air conditioner market was $525 million in 2007.

With car sales expected to reach 10 million by 2010, the car air conditioner market is expected to grow 15% annually through 20101.

1.www.researchandmarkets.com/reportinfo.asp?report_id=662068

China America Holdings Inc. (OTCBB: CAAH)

3

Analyst: Victor Sula, Ph.D. Initial Report January March15th, 4th, 2009

Business Model CAAH provides products for the global air conditioning and refrigeration industries. In June 2007, the Company acquired a 56.08% membership interest in Shanghai Aohong, a family-owned business that sells and distributes liquid coolants to manufacturers and retailers of refrigerators, automobiles, residential and commercial air conditioning systems, coolants, fluoroplastic, fluororubber, heat insulation, chemicals, pharmaceuticals, fire extinguishing agents and assorted aerosol sprays.

CAAH purchases supplies from a variety of sources, including Chevron Phillips Chemical (China) Co., Ltd., JiangSu MeiLan Chemical Co. Ltd., Daikin Chemical International Trading (Shanghai) Co. Ltd., and Sinochem Modern Environmental Protection Chemicals (Xi’An) Co. Ltd. The Company then repackages bulk quantities of liquid coolants into smaller packaging for resale and/or distribution directly to customers, who in turn resell the product. In addition, CAAH mixes various raw materials to customer specifications to create new products. For this purpose, the Company employs engineers who work with customers to derive proper mixtures.

In 2007, AoHong partnered with Shanghai Mengda Chemical Co. Ltd. to form Shanghai Mengjin Chemical Co. Ltd. Under the terms of this joint venture, AoHong owns a 60% interest and Mengda owns a 40% interest.

Mengjin distributes environmentally friendly refrigeration lubricants in China, including two ozone-friendly refrigeration lubricants manufactured by a subsidiary of Lubrizol Corporation.

Environmental issues such as ozone depletion, poor quality indoor air and depletion of natural resources have required government authorities to impose strict quality standards on refrigerants and fluorochemicals. CAAH has implemented ISO 9001:2000 Quality Assurance System requirements; Environmental Management System ISO 14001:2004; TS 16949 (international quality management certificate for the automotive industry); and well as other certifications related to its operations.

The Company distributes its products within 16 Chinese provinces and districts, including Liaoning, Jilin, Beijing, Xinjiang, Shangxi, Chongqing, Sichuan, Jiangshu, Zhejiang, Anhui, Guangdong, Hainan, Hong Kong and Taiwan. It also exports to countries such as Russia and Thailand. Approximately 90% of CAAH’s customers have business relationships with the Company longer than three years. Because of strong recurring sales, CAAH is better able to estimate customer demand and maintain appropriate inventory levels. With total space of nearly 26,000 square meters, the Company can maintain sufficient inventory to accommodate a variety of orders during peak selling season and meet customer demand on short notice.

Chinese Market for CAAH products

Source: Company’s Web site.

China America Nanometrics Inc. Holdings (NASDAQ: Inc. NANO) (OTCBB: CAAH)

4

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

Corporate Strategy The Company’s strategy combines organic growth with complementary acquisitions, with the goal of capitalizing on China’s rapid economic growth. The Company also intends to expand into new markets such as the U.S., Latin America and the Caribbean. CAAH plans to invest in a robust marketing campaign that will help grow the customer base, support distribution channels and drive further adoption of the Company’s products.

Overall, CAAH’s strategy aims to: • • • •

Improve its capital position and operating cash flow; Acquire growing businesses with substantial opportunities for growth; Enter markets that are underserved by the competition; Establish effective marketing channels for its products through a network of distributors and retailers in selected markets; • Seek strategic partnerships and relationships with multi-national companies; • Develop advertising campaigns using professional advertising in TV, radio, print and over the Internet; and • Build a seasoned team of professional engineers.

Products HFC-134a HFC-134a is a substitute for CFC-12 in refrigeration, polymer foaming and aerosol production, which is widely used in automobile air-conditioning, home applications, small fixed refrigerators, medium-temperature refrigerators in supermarkets and industrial refrigerators.

HFC-134a can also be used as a carrier for pharmaceutical inhalation, and in aerosol production because of its extreme limited toxicity and flammability.

R22 Chlorodifluoromethane is a colorless, non-toxic, non-flammable and transparent liquefied gas. It has excellent thermal and chemical properties, and does not corrode metals. It is used pure or in mixture for refrigeration (medium-high temperatures), a raw material for Polytetrafluoroethylene, and as an intermediate for Halon 1211 production. It is also a blowing agent for extruded polystyrene and polyurethane foams.

R-410a Refrigerant R-410A is used to replace R22 and R502. R-410A air conditioning and heat pumps are today’s “state of the art” systems, and utilize the most advanced technology available for efficient, reliable operation. The heart of every air conditioner or heat pump is the compressor, and newer systems are specifically designed to use R-410A refrigerant.

China America Holdings Inc. (OTCBB: CAAH)

5

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

R-407C R-407C is used in the majority of comfort cooling applications. While similar to R-22 in many of its physical properties, is an azeotropic mixture of HFCs, which does impose certain application restrictions and handling and equipment design requirements. R-407C was developed to replace R-22 in air conditioning and heat pump applications, and is now the most commonly used refrigerant fluid for new systems.

R-404A R-404A is a “nearly-azeotropic” HFC replacement blend, which is used as an alternative to R502 in new equipment. It can also be used in some systems operating with R502 such as commercial refrigeration equipment, food industry factories and refrigerated transports.

R404A can be used within all the same working temperatures and pressures characteristic of R502.

R-600a Refrigerant R-600a, or isobutane, may replace other refrigerants to reduce the impact on the environment. It has zero ozone depletion and modest global warming potential. R-600a was used in most refrigerators up until the 1940s and is finding new use today in home refrigerators and freezers in Europe, especially in Germany, where more than 90% of refrigerators are manufactured using R-600a as refrigerant.

Industry Outlook China’s massive size and rapid modernization is creating one of the greatest investment opportunities of the 21st century. The Chinese government is increasingly encouraging entrepreneurship: China’s National Bureau of Statistics reported 11.4% GDP growth in 2007. China’s economy grew to$3.43 trillion and ranked as the world’s fourth-largest economy behind the U.S., Japan and Germany. Since its admission to the World Trade Organization (WTO) in 2001, China has become a global trading powerhouse. Total foreign trade hit a new high of $2.17 trillion in 2007, up 23.5% from the prior year and resulting in a record surplus of $262.2 billion, according to China’s General Administration of Customs.

Commercial air conditioning and refrigeration equipment Commercial air conditioning and refrigeration are indispensable for health and comfort, economic vitality and worker productivity worldwide. In 2007, the world market for air conditioning was valued at $62 billion, up from $55 billion in 2006. Asia Pacific is the largest market, with total sales of $28 billion in 20072. According to Freedonia Group, world demand for commercial refrigeration equipment is projected to rise 4.5% per year (including price increases) through 2012 to $29.5 billion, with developing nations expected to register the strongest gains. The majority of commercial refrigeration equipment output originates in the U.S., Western Europe and Japan. China has been posting the strongest annual output gains and this trend is expected to continue due both to rising domestic demand and increasing exports3.

2. www.ehpn.de/en/aktuell/kat3/akt377.html 3. www.the-infoshop.com/study/fd75921-refrigeration.html

China America Holdings Inc. (OTCBB: CAAH)

6

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

Since the mid-1980s, commercial refrigeration and air conditioning systems have undergone a transition from using ozone depleting compounds, including chlorofluorocarbons (CFCs), to low and no-ozone depleting compounds, such as hydrochlorofluorocarbons (HCFCs) and hydrofluorocarbons (HFCs). CFCs are considered 100% ozone depleting. For the last 50 years, most air conditioners and many refrigeration systems have used R-22 refrigerant or Freon. These HCFCs are considered only 5% ozone depleting and less a danger to the earth’s ozone layer. However, clean air laws mandate units using R-22 cannot be produced after 2010. R-134a and certain other blends are replacing chlorinated compounds. One popular 50/50 blend of R-32 and R-125 is now being increasingly substituted for R-22 is R410A, often marketed under the trade name Puron. Another blend containing R-32, R-125 and R-134a, with a higher critical temperature and lower global warming potential, is R-407C4.

Chinese air conditioning market China is the world leader in the air conditioning market. In 2006, the Chinese market for packaged air conditioning was estimated at $8.9 billion, a 10% increase from the previous year. In 2007, the Chinese air conditioning market was valued at $12 billion.

Minisplits have remained the dominant product type in the Chinese market and account for 97% of the total packaged market in volume terms. In 2006, sales within the minisplit market reached $8.9 billion, up 9.2% from 2005. The market for central plant air conditioning was valued at $1,924 million in 2006, and up 19% from 2005. In 2006, 105,400 U.S.-style ducted splits were sold in China. Demand for these units is forecast to grow 7% annually through 2011. Chiller sales totaled 82,816 units in 2006, confirming China as the largest chiller market in Asia5.

After its accession to the World Trade Organization in 2001, China’s automotive industry has posted impressive growth, with sales crossing 8.7 million units in 2007. China is the now the second-largest automotive market after Japan and world’s third-largest automotive market. In the last five to seven years, China’s car purchases have grown 50% annually6. Due to rapid economic growth and a high car retention rate, the car air conditioner market is poised for additional growth. The market value of China’s car air conditioner market was CNY 3.5 billion ($525 million) in 2007. With car sales expected to reach 10 million by 2010, the car air conditioner market is expected to expand 15% annually between 2007 and 20107.

According to China’s Refrigeration Air Conditioner Industrial Association, 9.1 million air conditioning compressors were produced in China in 2007. The output of car air-conditioning compressor increased to 6.93 million in 2007 from 1.29 million in 2001, with annual growth of 34.4%. The supply of car air conditioners is expected to reach 13.8 million by 2010.

4. http://en.wikipedia.org/wiki/Refrigerant 5. www.bsria.co.uk/news/1970/ 6. www.researchandmarkets.com/reportinfo.asp?report_id=342765 7. www.researchandmarkets.com/reportinfo.asp?report_id=662068

China America Holdings Inc. (OTCBB: CAAH)

7

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

Car Air-Conditioning Compressor Output in China, 2001-2008 (million)

Source: www.researchinchina.com/Htmls/Report/2008/5591.html

China household refrigeration industry China has become one of the world’s largest refrigerants markets. After experiencing rapid growth in 2006, the output of domestic refrigerators rose 7.8% in the first half of 2007. Output of domestic household air conditioners grew 13.5% in the first six months of 2007 and strongly rebounded following declines in 20068.

Output of Chinese Refrigerators

Output of Chinese Household Air Conditioners

Source: National Bureau of Statistics

8. www.researchinchina.com/Htmls/Report/2008/5201.html

China America Holdings Inc. (OTCBB: CAAH)

8

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

Financial Analysis Revenue The Company began generating meaningful revenues in the second half of 2007 with the acquisition of AoHong.

AoHong generates revenues from the sale and distribution of liquid coolants, which are utilized in a variety of applications and repackaged into smaller quantities for or resale and distribution.

During the first nine months of 2008, AoHong’s revenues reached $27.1 million, including: • 14.5% from the sales of liquid coolants purchased in bulk and repackaged into smaller qualities for resale; • 15.3% from custom mixing of various raw materials to customer specifications into a new product; and • 70.2% from distribution of bulk quantities of liquid coolants directly to customers who in turn resell the product.

AoHong customers include manufacturers of automobiles, refrigerators and air conditioners, as well as retail distributors of coolants in China. In addition, 10% to 15% of AoHong’s customers are located in the Middle East and Thailand.

Revenue by quarter, $ Mn

Source: SEC Filings

Income statement During the first nine months of 2008, CAAH’s gross margins fell to 9.2% from 16.1% for the same period of 2007.

The gross margin decline was caused by a shortage of raw material resulting from business interruptions due to the Beijing Olympics. From July 2008 through September 2008, China restricted the transport of chemicals. Due to these restrictions, some manufacturers suspended production. Declining raw material supplies caused a spike in materials costs during the period. The Company anticipates gross margins will return to historical levels in 2009.

China America Holdings Inc. (OTCBB: CAAH)

9

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

Income statement, $

Net revenues Cost of sales Gross profit Total operating expenses, including Selling expenses Consulting & investor relations expense Compensation and related taxes General and administrative Income from operations Other expenses Minority interest Income before income taxes Provision for income taxes Net income Diluted EPS

Q3 2007

Q3 2008

% Chg

9 months 2007

9 months 2008

% Chg

7,897,814 6,663,440 1,234,374 1,444,106 158,825 313,830 538,744 432,707 (209,732) (8,284) (311,553) (529,569) 0 (529,569) (0.01)

10,143,922 9,463,667 680,255 496,194 214,548 10,045 101,244 170,357 184,061 (23,880) (111,338) 48,843 (48,321) 522 0.00

28.4% 42.0% -44.9% -65.6% 35.1% -96.8% -81.2% -60.6% n/m n/m n/m n/m n/m n/m n/m

7,949,374 6,666,370 1,283,004 2,146,551 158,825 675,990 739,374 572,362 (863,547) (8,022) (311,553) (1,183,122) 0 (1,183,122) (0.02)

27,108,829 24,610,691 2,498,138 1,695,483 634,883 300,066 301,810 458,724 802,655 (31,594) (501,023) 270,038 (369,084) (99,046) (0.00)

241.0% 269.2% 94.7% -21.0% 299.7% -55.6% -59.2% -19.9% n/m n/m n/m n/m n/m n/m n/m

15.6% -2.7%

6.7% 1.8%

-8.9% 4.5%

16.1% -10.9%

9.2% 3.0%

-6.9% 13.8%

Gross margin Operating margin

Source: SEC Filings

For the nine months ended September 30, 2008, total operating expenses decreased approximately 21.0% as compared to the nine months ended September 30, 2007, mainly due to: • a decrease in consulting and investor relation expense attributable to a reduction in stock-based consulting expense; • a decline in compensation and related taxes expenses mainly related to the disposition of the Biometrics segment; and • a reduction in general and administrative expenses mainly related to bad debt recovery of an accounts receivables previously written off.

Net loss for the nine months ended September 30, 2008, fell to $99,046 from a net loss of $1,183,122 for the nine months ended September 30, 2007.

Operating segments Since the Company disposed of its Biometrics and Big Tree segments in FY 2008, operating results of AoHong are indicative of the Company’s future performance. Considering only AoHong’s results, CAAH would have been profitable in the first nine months of 2008.

China America Holdings Inc. (OTCBB: CAAH)

10

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

AoHong’s operating results, $ 9 months 2008 27,069,776 24,606,462 2,463,314 918,925 1,544,389

Net revenues Cost of sales Gross profit Operating expenses Operating income

639,740

Net income

9.1% 5.7% 2.4%

Gross profit margin Operating margin Net Margin Source: SEC Filings

Liquidity and capital requirements At September 30, 2008, CAAH had cash and marketable securities of $1.3 million as compared to $2.0 million at December 31, 2007. This decline is attributable to increases in accounts and notes receivable, inventories and prepaid expenses to finance future growth. In addition, the Company used $1.6 million to acquire equipment for its newly completed operating facility.

Balance sheet, $ 31-Dec-07

31-Mar-08

2,012,480 8,107,182

1,192,280 7,806,754

1,142,782 10,774,474

1,304,091 10,356,013

437,511 1,928,137 801,462 11,274,292

0 2,918,461 637,149 11,362,364

698,507 3,365,975 111,182 14,950,138

525,156 3,475,684 111,351 14,468,204

Current liabilities, including Debt Minority Interest Shareholders’ equity

3,052,580 1,665,667 4,378,042 3,843,670

2,931,520 25,000 4,675,149 3,755,695

5,910,054 3,193,020 4,859,383 4,180,701

5,482,928 3,559,892 4,970,035 4,015,241

Net Working Capital

5,054,602

4,875,234

4,864,420

4,873,085

Cash and securities Total Current Assets Restricted cash Property and equipment, net Other Assets Total Assets

30-Jun-08

30-Sep-08

Source: SEC Filings To date, the Company has financed its growth through issuance of equity and debt securities. While the Company’s operations are close to breakeven in 2009, under the terms of its purchase agreement with AoHong, CAHH is required to contribute an additional $1,780,000 to registered capital, including an additional $200,000 on or before December 31, 2008, and the remaining $1.58 million on or before June 27, 2009. In addition, the Company must repay a $400,000 note to China Direct Inc., which was due on December 31, 2008.

China America Holdings Inc. (OTCBB: CAAH)

11

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

CAAH’s lacks sufficient cash for all of its capital needs. While AoHong has historically reported profitable operations, under Chinese law the Company is not able to use funds from that company to pay operating expenses in the U.S. As a result, the Company will require additional capital to continue operations.

Valuation Outlook The Company has disposed of its Biometrics and Big Tree segments and acquired a refrigerants distribution business which can leverage its strong position in the Chinese market. As a result of asset restructuring, CAAH retains a 56% ownership in Shanghai AoHong Industry Co. This business generates annual sales of $35 million-$40 million and net income of $2 million-$3 million per year.

AoHong is growing its business by escalating manufacturing capacity, developing innovative products, and establishing a market presence and strategic partnerships in the Americas. It has recently commenced manufacturing steel cylinder refrigerant products on a new production line and completed construction of a new 8,000-square-foot factory dedicated to environmentally friendly products. Aohong has obtained DOT-39 certification enabling it to export non-refillable steel cylinder tanks to the U.S. market.

Financial outlook 2008E

2009E

2010E

16.3 2.3 (0.7) (1.1) (0.012)

37.1 3.7 1.5 0.2 0.003

39.4 4.8 3.0 1.9 0.014

43.6 5.4 3.4 2.4 0.017

14.1% -4.2% -6.9%

10.0% 4.2% 0.6%

12.1% 7.5% 4.9%

12.4% 7.8% 5.5%

2007 Net revenues, $ Mn Gross profit, $ Mn Operating profit, $ Mn Net income, $ Mn Diluted EPS, $ Gross Margin Operating Margin Net Margin

Source: Analyst estimates

We expect CAAH’s revenues to rise to $44 million in 2o10, resulting in net income of $2.4 million. We think the Company’s profit margins will recover in 2009 as material costs decline in response to the lifting of the ban on the transport of chemicals and the disposition of the unprofitable Biometrics and Big Tree segments.

Comparative analysis The Company competes in the global fluorochemical and refrigerant market with established players like Alcoa Inc., Arkema SA, E.I. DuPont de Nemours & Co., Honeywell International Inc. and others. These chemical industry’s company trade at median P/S multiples of 0.51 times 2010 revenue and P/E multiples of 10.26 times 2010 EPS. China America Holdings Inc. (OTCBB: CAAH)

12

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

Peer comparison Company Name 12.01.09

Price Ticker per symbol Share, $

Mrkt.

Cap. $ Mn

Alcoa Inc. EI DuPont de Nemours & Co. Dow Chemical Co. Honeywell International Inc. 3M Co. Arkema SA Median

AA DD DOW HON MMM AKE.PA

8.4 24.57 10.88 33.44 52.39 13.28

6,720 22,170 10,060 24,380 36,330 726

China America Holdings Inc.

CAAH

0.02

2.7

P/E

P/S

2009E

2010E 2009E

n/m 11.99 10.36 10.68 12.53 6.78 10.68

12.92 10.41 9.14 10.10 11.62 6.39 10.26

0.37 0.74 0.21 0.72 1.63 0.14 0.55

2010E 0.32 0.69 0.21 0.73 1.61 0.13 0.51

Source: Yahoo Finance

CAAH trades at a sizable discount to its peer group based on P/E and P/S multiples. Despite the smaller size of the Company and greater risks associated with doing business in China, we believe CAHH deserved a higher multiple.

We value CAAH at 8.00 times 2010 EPS. Accordingly, we are initiating coverage of China America Holdings Inc. with a Speculative Buy rating and a $0.13 price target. However, we strongly advise investors to consider the risk factors mentioned below since a Company at this early development stage faces many challenges in attaining its production targets.

China America Holdings Inc. (OTCBB: CAAH)

13

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

Risks History of losses The Company has an accumulated deficit of $16.7 million. The acquisition of AoHong and disposal of Big Tree and Biometrics will likely allow CAAH to turn profitable and being reducing the accumulated deficit. However, as a result of China’s currency restrictions, profits from AoHong’s operations are not available to the Company to offset its cash needs in the U.S. As a result, CAAH will need to raise additional capital to fund its commitments and operating needs.

Ability to integrate AoHong and meet SEC reporting requirements In June 2007, the Company acquired a majority interest in AoHong. The original owners of AoHong retain a minority interest and are responsible for its day-to-day operations. While AoHong reported solid results for the first nine months of 2008, there is no assurance that CAAH’s efforts to integrate its operations with AoHong will be successful or that benefits of the acquisition will be fully realized. In addition, the Company must prove its ability to operate and report under SEC requirements.

Significant competition The market for liquid coolants in China is very competitive. There are approximately 13 coolant distributors operating within China, of which CAAH estimates approximately four or five are large companies and the remaining eight to nine are smaller companies. The Company believes it differentiates itself from its competitors by its ability to accommodate a variety of order sizes and meet customer demand on short notice.

Country risk Chinese operations are subject to the PRC legal system. Since 1979, many laws and regulations addressing economic matters have been promulgated in the PRC. Despite this, China does not have a comprehensive system of laws. In addition, enforcement of existing laws can be uncertain and sporadic, and implementation and interpretation inconsistent. The PRC judiciary is relatively inexperienced in enforcing these laws, resulting in a higher than usual degree of uncertainty in litigation outcome. Even where adequate laws exist, it may be difficult to obtain swift and equitable enforcement.

In the last 20 years, the protection afforded foreign investors in Chinese businesses has improved significantly.

However, there can be no assurance that changes in legislation or its interpretation will not adversely impact future business operations or prospects.

China America Holdings Inc. (OTCBB: CAAH)

14

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

Management Team Shaoyin Wang Chairman, Chief Executive Officer, President and Chief Financial Officer

Prior to joining the Company, Mr. Wang was the director of the Information Department of Shanghai Mingjia Real Estate Development Co. Ltd. from June 2006 to November 2008. From January 2004 to May 2006, Mr. Wang was the vice president of Shanghai Zhida Industrial Technology Development Co., Ltd. Mr. Wang was a marketing manager of Shanghai Yazheng Information Technology Co. Ltd. from October 2000 to December 2003. From 1994 to 2000, he traveled to New Zealand and received training in business administration at Auckland Institute of Technology. From November 1990 to August 1994, Mr. Wang was a marketing manager in the Shanghai Representative Office of Hongkong Yilong Technology Development Co. Ltd. Mr. Wang was a teacher at the Shanghai Police College from August 1984 to October 1990 and received a bachelor’s degree in computer science from Shanghai University in 1984.

Aihua Hu Chief Executive Officer, AoHong

Mr. Hu has served as CEO of AoHong since co-founding the company in February 2000. From May 1993 to April 2000, Mr. Hu served as vice general manager of Shanghai Lixin Gas Co. Ltd., an industrial gas and refrigerant manufacturer. In this role, he was responsible for sales and business development. From September 1982 to May 1993, Mr. Hu worked for Shanghai Chemical Light Industry Co. Ltd. in sales and marketing.

Huayan Zhi Chief Financial Officer, AoHong

Mrs. Zhi has served as CFO of AoHong since October 2002. She was an accountant at Singapore Liquan Information (Shanghai) Co. Ltd. from April 2001 to September 2002. From October 1993 to March 2001, Mrs. Zhi was an accountant and then director of the accounting department at Shanghai Lixin Gas Co. Ltd., a large industrial gas and refrigerant manufacturer. Mrs. Zhi was responsible for budget forecasting, financial analysis and other accounts payable and accounts receivable related issues. From November 1973 to September 1993, she was an accountant for Shanghai Hongkong Hardware Electric Co. Ltd.

China America Holdings Inc. (OTCBB: CAAH)

15

Analyst: Victor Sula, Ph.D. Initial Report March 4th, 2009

Disclaimer DO NOT BASE ANY INVESTMENT DECISION UPON ANY MATERIALS FOUND ON THIS REPORT. We are not registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission (the “SEC”) or with any state securities regulatory authority. We are neither licensed nor qualified to provide investment advice.

The information contained in our report should be viewed as commercial advertisement and is not intended to be investment advice. The report is not provided to any particular individual with a view toward their individual circumstances. The information contained in our report is not an offer to buy or sell securities.

We distribute opinions, comments and information free of charge exclusively to individuals who wish to receive them.

Our newsletter and website have been prepared for informational purposes only and are not intended to be used as a complete source of information on any particular company. An individual should never invest in the securities of any of the companies profiled based solely on information contained in our report.

Individuals should assume that all information contained in the report about profiled companies is not trustworthy unless verified by their own independent research.

Any individual who chooses to invest in any securities should do so with caution. Investing in securities is speculative and carries a high degree of risk; you may lose some or all of the money that is invested. Always research your own investments and consult with a registered investment advisor or licensed stock broker before investing.

The report is a service of BlueWave Advisors, LLC, a financial public relations firm that has been compensated by the companies profiled. All direct and third party compensation received has been disclosed within each individual profile in accordance with section 17(b) of the Securities Act of 1933. This compensation constitutes a conflict of interest as to our ability to remain objective in our communication regarding the profiled companies. BlueWave Advisors, LLC, and/or its affiliated will hold, buy, and sell securities in the companies profiled. When compensated in shares, all readers should be aware that is our policy to liquidate all shares immediately. We reserve the right to buy or sell the shares of any the companies mentioned in any materials we produce at any time. This compensation constitutes a conflict of interest as to our ability to remain objective in our communication regarding the profiled companies. BeaconEquity.com is a Web site wholly-owned by BlueWave Advisors, LLC. BlueWave Advisors, LLC has been compensated thirty thousand dollars from Pearl Group Advisors, a shareholder of CAAH, as a marketing budget to manage a comprehensive investor awareness program including the creation and distribution of this report as well as other investor relations efforts.

Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. Subscribers are cautioned not to place undue reliance upon these forward looking statements. These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC. You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements.

We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions. We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable.

To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information).

We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www. finra.org.

All decisions are made solely by the analyst and independent of outside parties or influence.

I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report.

Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

China America Holdings Inc. (OTCBB: CAAH)

16