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Leading linen yarn producer adds bleaching capability

21
Jul '10
China Linen Textile Industry, Ltd., a China-based company engaged in the production and sale of linen yarn and various types of linen fabric, announced that it has expanded its linen yarn production capacity and added the capability to bleach linen fabric by entering into a Fixed Asset Lease Agreement with Lanxi Tianqianfang Linen Co., Ltd. (the "Lessor").

We believe the leased facility, which includes a building with an area of 23,358 square feet, a spinning production line with 3,000 spindles, bleaching machines and other equipment, will increase the Company's annual capacity by approximately 620 tons of linen yarn, or 39%, and 2.1 million meters of linen fabric, or about 26%, which is expected to add approximately $4.9 million in revenue, $1.5 million in gross profit and $1.2 million in net income over the next twelve months.

The bleaching factory, with annual capacity to bleach 10 million meters of linen fabric, is expected to generate approximately $1.5 million in additional net income over the next twelve months. China Linen has commenced operation at the leased facility and expects to generate approximately $1.4 million in net income in the second half of 2010 from its new facility.

"We are pleased to sign this lease agreement which enables us to address our short-term capacity constraints while providing an option to acquire the facility," stated Mr. Gao Ren, chairman and president of China Linen. "We have seen an increase in demand from domestic and international customers this year, and this lease agreement enables us to fulfill more of those orders and improve our 2010 financial performance. In addition, we believe the bleaching facility will add a downstream vertical component to our value chain and further increase our gross margin. We plan to pursue more orders with the goal of full utilization of the leased facility and increasing our profit further for 2010 and 2011."

The lease term is for a period of twelve months, which commenced on July 1, 2010. China Linen intends to acquire all of the equity of the Lessor at some future date pursuant to a non-binding Company Acquisition Intent Agreement entered into between China Linen and the Lessor on April 26, 2010.

In the event the Lessor arranges to transfer or sell the Facility to a third party during the term, or within the six-month period following the term, China Linen will have a right of first refusal to enter into such arrangements to acquire the facility under the same terms and conditions as were negotiated by the third party.

China Linen Textile Industry Ltd


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