China Linen acquires Lanxi; will expand two main product lines

China Linen Textile Industry Ltd, a China-based producer of linen yarn and fabric, announced that it has acquired a 100% equity interest in Lanxi Tianxianfang Linen Co., Ltd for approximately $6.7 million. The acquisition will expand the capacity of the Company's two main product lines and enable China Linen to meet its growing customer demand.

China Linen entered into a fixed asset lease agreement with Tianxianfang on July 1, 2010 and has been operating the facility since that date. The acquisition of Tianxianfang includes a 23,358 square foot office building, a spinning production line with 3,000 spindles, bleaching machines and other equipment.

The acquisition will increase the Company's line yarn production capacity by approximately 620 ton, or 39%, to 2,220 tons annually, and increase the linen fabric production capabilities by 2.1 million meters, or about 26%, to 10.2 million meters annually.

This acquisition is expected to add approximately $4.9 million in revenue and $1.2 million in net income annually, while maintaining gross margins of approximately 30%. In addition, the bleaching factory which was acquired as part of the transaction has an annual capacity of processing 10 million meters of linen fabric, and is expected to generate approximately $1.5 million in additional net income over the next twelve months.

Mr. Gao Ren, Chairman and President of China Linen, stated: "We are very excited to announce the acquisition of Tianxianfang, an important milestone in our goal to become a vertically integrated producer while expanding capacity. By adding a downstream component to our production cycle, we are complementing our core competency while protecting our margin profile. The acquisition will enable us to drive incremental growth by fulfilling more sizeable orders from both domestic and international customers, which we expect to further improve our financial and operational performance."