UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





(MARK
ONE)


FORM
10-K





[ ]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
fiscal year ended _______________________________________________


OR





[X]
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
transition period from January 1, 2009 to September 30, 2009





Commission
file number: 333-87293


CHINA
AMERICA HOLDINGS, INC.


(Exact
name of registrant as specified in its charter)





Florida
            
            82-0326560(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)





333 E.
Huhua Road, Huating Economic & Development Area, Jiading District, Shanghai,
China201811


(Address
of principal executive
offices)                                                                                                                                                     (Zip
Code)





Registrant's
telephone number, including area code: 86-21-59974046





Securities
registered pursuant to Section 12(b) of the Act:





Title
      of each class
            
            Name
      of each exchange on which registeredNone
            
            Not
      applicable





Securities
registered pursuant to Section 12(g) of the Act:





common
stock, par value $0.001 per share


(Title
of class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes [  ] No [X]





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [  ]  No [X]





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes [X] No [  ]





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes [ ] No [
]





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company:





Large
      accelerated filer
            [ ]
            
            Accelerated
      filer
            [
       ]Non-accelerated
      filer (Do not check if smaller reporting company)
            [ ]
            
            Smaller
      reporting company
            [X]





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes [ ] No [X]





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked prices of such common equity, as of the last
business day of the registrant's most recently completed second fiscal quarter:
$8,148,647 on June 30, 2008.





Indicated
the number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date: 151,810,792 shares of common stock are
issued and outstanding as of January 11, 2009.





DOCUMENTS
INCORPORATED BY REFERENCE





None.





TABLE OF
CONTENTS





Part
      I
            
            Page No.Item
      1.
            Business.
            1Item 1A.
            Risk Factors.
            7Item 1B.
            Unresolved Staff Comments.
            11Item 2.
            Properties.
            12Item 3.
            Legal Proceedings.
            12Item 4.
            Submission of Matters to a Vote of Security Holders.
            12Part IIItem 5.
            Market for Registrant's Common Equity, Related Stockholder Matters
      and Issuer Purchases Of Equity Securities.
            12Item 6.
            Selected Financial Data.
            13Item 7.
            Management's Discussion and Analysis of Financial Condition and
      Results of Operation.
            13Item 7A.
            Quantitative and Qualitative Disclosures About Market Risk.
            23Item 8.
            Financial Statements and Supplementary Data.
            23Item 9.
            Changes In and Disagreements With Accountants on Accounting and
      Financial Disclosure.
            23Item 9A(T).
            Controls and Procedures.
            23Item 9B.
            Other Information.
            24Part IIIItem 10.
            Directors, Executive Officers and Corporate Governance.
            24Item 11.
            Executive Compensation.
            25Item 12.
            Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters.
            28Item 13.
            Certain Relationships and Related Transactions, and Director
      Independence.
            29Item 14.
            Principal Accountant Fees and Services.
            30Part IVItem 15.
            Exhibits, Financial Statement Schedules.
            31





CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION





This
report contains forward-looking statements. These forward-looking statements are
subject to known and unknown risks, uncertainties and other factors which may
cause actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. These forward-looking statements were based on
various factors and were derived utilizing numerous assumptions and other
factors that could cause our actual results to differ materially from those in
the forward-looking statements. These factors include, but are not limited
to:





•
            our
      ability to raise sufficient capital to satisfy our
      obligations,•
            continuing
      operating losses and lack of profitable operations,•
            pricing
      pressure which has decreased our gross margins,•
            the
      risk of doing business in the People's Republic of China
      ("PRC"),•
            our
      ability to raise capital as needed,•
            risks
      associated with the lack of experience of our sole officer with U.S.
      public companies,•
            volatility
      in raw material costs,•
            restrictions
      on currency exchange,•
            dependence
      on key personnel,•
            difference
      in legal protections under Chinese and U.S. laws,•
            enhanced
      government regulation,•
            compliance
      with environmental laws,•
            limited
      insurance coverage,•
            market
      overhang from outstanding warrants and options,•
            absence
      of corporate governance protections, and•
            the
      impact of the penny stock rules on the trading in our common
      stock.





Most of
these factors are difficult to predict accurately and are generally beyond our
control. You should consider the areas of risk described in connection with any
forward-looking statements that may be made herein. Readers are cautioned not to
place undue reliance on these forward-looking statements and readers should
carefully review this report in its entirety including the risks described in
"Item 1A. - Risk Factors."  Except for our ongoing obligations to
disclose material information under the Federal securities laws, we undertake no
obligation to release publicly any revisions to any forward-looking statements,
to report events or to report the occurrence of unanticipated events. These
forward-looking statements speak only as of the date of this report, and you
should not rely on these statements without also considering the risks and
uncertainties associated with these statements and our business.





OTHER
PERTINENT INFORMATION





Our web
sites are www.chinaamericaholdings.com and www.china-aohong.com. The information
which appears on our web sites is not part of this report.


- i
-


INDEX OF
CERTAIN DEFINED TERMS USED IN THIS REPORT





“China
America” “we,” “us,” “ours,” and similar terms refers to China America Holdings,
Inc., a Florida corporation formerly known as Sense Holdings, Inc., and our
subsidiaries;





“China
Chemical” refers to China Chemical Group, Inc., a Florida corporation and a
wholly owned subsidiary of China America;





“AoHong”
refers to Shanghai AoHong Industry Co., Ltd., a Chinese limited liability
company which is a majority owned subsidiary of China America, together with
AoHong’s wholly owned subsidiaries Shanghai Binghong Trading Co., Ltd., a
Chinese limited liability company, and Shanghai Wuling Environmental Material
Co., Ltd., a Chinese limited liability company, and AoHong (Tianjin) Chemical
Co., Ltd. a Chinese company (“AoHong Tianjin”);





"Sense
Technologies" refers to Sense Technologies, Inc., a Florida corporation and a
wholly-owned subsidiary of China America;





"Micro
Sensor" refers to Micro Sensor Technologies, Inc., a Florida corporation and a
wholly-owned subsidiary of China America;





"Mengda"
refers to Shanghai Mengda Chemical Co., Ltd., a Chinese company which is
AoHong's joint venture partner in Mengjin. Mengda is owned by unrelated third
parties;





"Mengjin"
refers to Shanghai Mengjin Chemical Co., Ltd., a Chinese joint venture between
Aohong and Mengda;





"Big
Tree" refers to Big Tree Toys, Inc., a Florida corporation formerly known as Big
Tree Group Corp., and





"Jieyang
Big Tree" refers to Jieyang Big Tree Toy Enterprise Co, Ltd., a Chinese limited
liability company and wholly-owned subsidiary of Big Tree





In
addition, in this report  “2008” refers to the year ended December
31,  2008 and “2009” refers to the nine months transition period
ending September 30, 2009, and “2010” refers to the fiscal year ending September
30, 2010, unless the context otherwise specifically provides,.





- ii
-


PART
I





ITEM
1.                      BUSINESS.





Overview





We sell
and distribute assorted chemicals in China through our AoHong subsidiary and its
subsidiary companies. The majority of our revenues are generated through the
sale and distribution of liquid coolants. While our products can be employed in
a variety of applications, we primarily sell and distribute refrigerants for use
in air conditioning systems. We also sell and distribute chemical products used
in the application of fire extinguishing agents, aerosol sprays, insecticides,
and tetrahydrothiophene (“THT”).





Our main
product group is liquid coolants which are employed primarily as refrigerants in
air conditioning systems. AoHong's operations are comprised of three basic
functions:





•
            Distribution
      of bulk quantities of liquid coolants directly to customers who in turn
      resell the product•
            Repackaging
      bulk quantities of liquid coolants into smaller packaging for resale and
      distribution;•
            Custom
      mixing of various raw materials in accordance with customer specifications
      into a new product;





Our
customers include manufacturers and retailers of air conditioning systems,
refrigerators, automobiles, coolants, pharmaceuticals and chemicals. In 2009,
approximately 65% of our net revenues were from the distribution of bulk
quantities, approximately 30% of our net revenues were derived from our
repackaging business, approximately 5% of our net revenues were generated from
the sale of custom made chemical compounds. Approximately 80% of our products
are utilized domestically while the balance is typically exported.





AoHong
distributes products within China to 16 provinces and districts including
Liaoning, Jilin, Beijing, Xinjiang, Shanxi, Chongqing, Sichuan, Jiangsu,
Zhejiang, Anhui, Guangdong, Hainan, Hong Kong and Taiwan. AoHong exports to
countries such as Russia and Thailand.





A
significant portion of our volume, approximately 21%, and 32% in 2009 and 2008,
respectively, are derived from automobile, refrigerator manufacturers and air
conditioning manufacturers; as such, historically we have witnessed a seasonal
surge in demand for refrigerant products from March to July. AoHong utilizes a
purchase order system for orders; generally we enter into supply agreements with
major customers, which outline annual demand. Typically we deliver product
within 15 to 30 days from the time an order is placed. We generally offer
customers terms of net 60 days to net 90 days.





Two
customers, Shanghai 3F New Materials Co., Ltd., Hangzhou Fuming Refrigeration
Co., Ltd., and Shandong Huafu Chemical Co., Ltd., represent 18% and 13%,
respectively, of our net revenues respectively in
2009.





Product
Offerings





The
following are a list of the major products we sell:





PRODUCT
            
            STRUCTURAL
      FORMULA
            
            APPLICATIONR12
            
            CC12F2
            
            Refrigerant,
      fire extinguishing agent, insecticide and spray, etc.R22
      Difluorochloro Methane
            
            CHCLF2
            
            Compressor
      for industrial and residential air conditioning systems; insecticides,
      painting spray and fire extinguishing agentR134A
            
            CH2FCF3
            
            Refrigerant,
      common in automobile air conditioners and refrigeratorsR410A
            
            CH2F2/CF3CHF2
            
            Refrigerant,
      substitute for R22THT
      (Scentinel)
            
            (CH2)4S
      C4H8S
            
            Clear,
      colorless liquid with a strong unpleasant odor. Due to its smell,
      tetrahydrothiophene is occasionally used as an odorant in natural
      gas





During
the 2009 transition period, R22, R134A, and R22-1 represented approximately 43%,
22%, and 20% of our net revenues, respectively. The chemicals, R22, R134A, and
R22-1 are coolants which are generally used as refrigerants in a variety of air
conditioning systems.





AoHong
focuses on the sale and distribution of environmentally friendly products.
AoHong seeks to emerge as a leader in the sale and distribution of
environmentally friendly coolants within China. Approximately 22% and 21%,
respectively, of  our net revenues for the 2009 transition period and
during fiscal 2008, respectively were derived from environmentally friendly
products.


- 1
-


Environmentally
friendly products we offer include the following:





PRODUCT
            
            STRUCTURAL
      FORMULA
            
            APPLICATIONR134A
            
            CH2FCF3
            
            Refrigerant,
      common in automobile air conditioners and refrigeratorsR600A
            
            CH3(CH3)
      CHCH3
            
            RefrigerantR404A
            
            CF3CHF2/CH3CF3/CF3CH2F
            
            Refrigerant,
      substitute for R22R407C
            
            CH2F2/CF3CHF2/CF3CH2F
            
            Refrigerant,
      substitute for R22R410A
            
            CH2F2/CF3CHF2
            
            Refrigerant,
      substitute for R22R142B
            
            CCIF2CH3
            
            Refrigerant





Sales
and Marketing





We employ
nine full time and two part-time sales persons.  One part-time sales person
is dedicated to covering the Shandong Province and the other
part-time sales person dedicated to covering the Sichuan Province. These
two sales persons travel frequently to these provinces. Our full time sales
persons are compensated with base salary and commission, and part-time sales
persons are hired on a contractual basis under a commission only compensation
structure. Our sales persons earn a sales commission based on net profit
generated in excess of a predetermined benchmark. The base salary, profit
benchmark and commission percentage vary across products. We also market and
promote our products through a variety of venues, including industry trade
shows, online advertising, marketing literature, and referrals.





Suppliers
and Availability of Raw Materials





We
purchase products from a variety of sources, including:





Supplier
            
            ProductJiangSu
      MeiLan Chemical Co., Ltd.
            
            R22,
      R142bChevron
      Phillips Chemical (China) Co., Ltd.
            
            R6001,
      THT (Tetrahydrothiophene)Sinochem
      Modern Environmental Protection Chemicals (Xi’an) Co.,
Ltd.
            
            R134ADaikin
      Chemical International Trading(Shanghai) Co., Ltd.
            
            R
      404, R407C, R410A





During
the 2009 transition period, approximately 70% of the coolant products we sold
and distributed were supplied by JiangSu MeiLan Chemical Co., Ltd. as compared
to approximately 80% of the supply in fiscal 2008. Also in 2009, approximately
12% and 10% of the coolant products we sold were supplied by Sinochem Taichang
Chemical Industry Park and Sinochem Modern Environmental Protection Chemicals
(Xi’an) Co., Ltd., respectively.  We have had a relationship with
these companies since 2003. We are also a supplier of liquid coolants
manufactured by Chevron Phillips Chemical (China) Co., Ltd., (since 2003) and
Daikin Chemical International Trading (Shanghai) Co., Ltd. (since
2005).





We
generally inventory a one month supply of liquid coolants. We utilize disposable
steel cylinders to store various gases or liquids purchased in bulk quantities.
These cylinders come in 30 pound and 50 pound capacity and meet the standards of
European and U.S. markets. Generally 90% of our net revenues are generated from
current customers.  We can estimate customer demand and maintain
inventory levels in accordance with the anticipated orders from these customers.
Utilizing our warehouse space, we generally increase our inventory levels during
our off-peak season which enables us to offer shorter delivery times and in some
cases better pricing during our peak selling season. Terms offered by our
suppliers are generally net 60 days.





We
believe we will have access to sufficient quantities of the coolant
products we sell and distribute to meet our needs for the foreseeable
future.  We have not experienced shortages of raw material in
2009.





Competition





The
market for the sale of liquid coolants in China is very competitive. There are
approximately 13 coolant distributors operating within China, of which we
estimate approximately four or five are large companies and the remaining eight
to nine are smaller companies. Our principal competitors include:





Competitors
            
            BackgroundZhejiang
      Ju Hua Co., Ltd.
            
            Manufacturer
      for R22, R134aShandong
      Dongyue Chemical Co., Ltd.
            
            Manufacturer
      for R22, R134aBeijing
      Jinxing Jiaye Chemical Co., Ltd.
            
            Packaging
      company





We
believe we differentiate our company from our competitors through our ability to
accommodate a variety of orders in the form of repacking, combining, or
distributing products and our warehouse capacity enables us to meet customer
demand on short notice.


- 2
-


Discontinuation
of Biometrics segment





Beginning
in January 2007, our management began seeking a suitable target for a business
combination in an effort to increase our revenues. In June 2007, we acquired a
56.08% interest in AoHong. In the fourth quarter of 2008, we decided to
discontinue our Biometrics segment which accounted for less than 1% of our
consolidated net revenues in 2007. Until our acquisition of AoHong, our
Biometrics segment represented all of our operations.





In
January 2009, we sold our historical operations related to the Biometrics
segment to the Pearl Group Advisors, Inc. pursuant to an asset purchase
agreement. Pearl Group Advisors, Inc. was wholly owned by Mr. Dore S. Perler,
then a member of our Board of Directors and corporate secretary and our former
Chief Executive Officer. The assets Biometric segment assets that were sold
included customer and supplier lists, business records, trademarks and other
intellectual property and manufacturers and vendors’ warranty claims. The
consideration received by us in connection with the sale of these assets
included the assumption of liabilities, if any, by Pearl Group Advisors, Inc.
related to the Biometrics segment and the termination of Mr. Perler’s May 1,
2007 employment agreement with us. In connection with the termination of Mr.
Perler’s May 1, 2007 employment agreement in January 2009, we paid Mr. Perler
the sum of $75,000.





In 2008,
the Biometric segment is reported on our financial statements as a discontinued
operation and prior periods have been restated in our financial statements and
related footnotes to conform to this presentation.  We believe that
the disposition of the Biometric segment assets, the termination of Mr. Perler’s
employment agreement and the consolidation of our U.S. offices and operations in
China will serve to reduce our general operating expenses in future
periods.





Discontinuation
of Toy Distribution Segment





In April
2008, we discontinued our Toy Distribution segment.  In August 2007,
we acquired a 60% interest in Big Tree which together with its subsidiary
Jieyang Big Tree was a development stage company based in China that intended to
operate in the toy business. We acquired the 60% interest in Big Tree from CDI
China, Inc., a wholly owned subsidiary of China Direct Industries, Inc. Under
the terms of the agreement, we paid CDI China, Inc. $400,000 and issued
10,000,000 shares of our common stock. At the time of the transaction, China
Direct, Inc. owned approximately 17% of our common stock.  The value
of the 10,000,000 shares issued was valued at our par value.





We did
not report any revenues from Big Tree during 2008 and its assets were limited to
a loan due from a related party, which was made prior to our acquisition of Big
Tree. We found that we were unable to obtain appropriate financial information
pertaining to Jieyang Big Tree for the purposes of consolidating those results
with us in accordance with generally accepted accounting principles. On April
30, 2008, we entered into an agreement with Mr. Wei Lin and China Direct
Industries, Inc. pursuant to which we transferred all of our rights, title and
interest in and to 60% of the stock of Big Tree to Mr. Lin in exchange for
53,654 shares of the common stock of China Direct Industries, Inc. owned by Mr.
Lin. These shares had a fair market value of approximately $445,328 on the date
of the agreement. As a result of this transaction, we no longer own any interest
in Big Tree or its wholly owned subsidiary, Jieyang Big Tree. Following this
transaction we do not intend to pursue any other business opportunities in the
toy industry.





Intellectual
Property





We do not
claim any intellectual property rights with respect to the name AoHong.  We
have obtained the rights to the domain names www.chinaamericaholdings.com,
www.china-aohong.com and www.caah.us. As with telephone numbers, we do not have
and cannot acquire any property rights in an Internet address. We do not expect
to lose the ability to use these Internet addresses; however, there can be no
assurance in this regard and the loss of either of these addresses could
materially adversely affect our future business financial condition and results
of operations.





Government
Regulations





Our
operations must conform to Industrial Chemical Control Law (ICCL) of People’s
Republic of China, The Management Regulation of Chemical Industry Environmental
Protection and rules for private (non-state owned) companies doing business in
China, and Regulations on the Safety Administration of Dangerous Chemicals. We
are also subject to registration and inspection by The Ministry of China
Chemical Industry with respect to the distribution of chemical products in
China.  We are licensed by the Shanghai Government for the
distribution of chemical products. The applied regulations associated with
inspection including Principles for Gas Cylinder Safety Supervision, Safety
Inspection Regulations for Gas Cylinders, and Regulations on Safety Supervision
over Special Equipment.





As the
Chinese government fills its pledge to gradually phase out ozone depletion
containment, we believe our product offerings will be in compliance with the
regulations that favor environmentally friendly products. These regulations
are issued by State Ministry of Environmental Protection, National
Development and Reform Commission, Ministry of Commerce, General Administration
of Customs, and General Administration of Quality Supervision, and Quarantine.
In general, we believe our operations conform to Production Safety Law of
People’s Republic of China that specifies the mandatory measures to ensure
production safety and emergency management and rescue. We also need to conform
to Labor Law of the People's Republic of China.


- 3
-


AoHong
holds various certifications related to its operations, including:





•
            Environmental
      Management System ISO14001: 2004 certificate;•
            ISO9001:2000
      quality system certificate;•
            OQS
      Certificate that conforms to ISO/TS 16949 (international quality
      management certificate for the automotive industry);•
            Gas
      Cylinder Filling Certificate; and•
            Operating
      License for Hazardous Chemicals.





Doing
Business in the PRC





Despite
efforts to develop the legal system over the past several decades, including but
not limited to legislation dealing with economic matters such as foreign
investment, corporate organization and governance, commerce, taxation and trade,
the PRC continues to lack a comprehensive system of laws. Further, the laws that
do exist in the PRC are often vague, ambiguous and difficult to enforce, which
could negatively affect our ability to do business in China and compete with
other companies in our industry.





As a U.S.
based company doing business in China, we seek to comply with all PRC laws,
rules and regulations and pronouncements, and endeavor to obtain all necessary
approvals from applicable PRC regulatory agencies such as the MOFCOM, the State
Assets Supervision and Administration Commission (“SASAC”), the State
Administration for Taxation, the State Administration for Industry and Commerce,
the China Securities Regulatory Commission (“CSRC”), and the State
Administration of Foreign Exchange (“SAFE”).





Employees





At
January 11, 2010 we had a total of 62 employees as follows:





Management
            7Accounting
            6Administration
            11Warehouse
      and delivery
            7Lab
            4Production
            17Sales
            9Purchase
            1Total
            62





We
believe that relations with our employees are good. As of January 11, 2010, all
our employees were located in China, each full-time employee is a member of a
local trade union. Labor relations have remained positive and we have not had
any employee strikes or major labor disputes. Unlike trade unions in western
countries, trade unions in most parts of China are organizations mobilized
jointly by the government and the management of the company.





We are
required to contribute a portion of our Chinese employees' total salaries to the
Chinese government's social insurance funds, including medical insurance,
unemployment insurance and job injuries insurance, and a housing assistance
fund, in accordance with relevant regulations. We expect the amount of our
contribution to the government's social insurance funds to increase in the
future as we expand our workforce and operations.





Consultants





We rely
on the services of consultants, some of which are affiliates, to assist us in
various areas of our business In August 2009 we entered into a consulting and
management agreement with China Direct Investments, Inc., a subsidiary of China
Direct Industries, Inc. The agreement is for a term of 24 months from October 1,
2009 to September 30, 2011. The agreement may be extended for an additional 12
months upon mutual agreement of the parties. We engage the services of the
consultant as our representative in the United States. The provided services
include but not limited to general business consulting, management of
professional resources, coordination of preparation and filing of public
disclosures, assistance in financial management and the implementation of
internal controls, managing investor road show/investment conferences, assisting
in the implementation of acquisition deals, etc.  Under the term of
the agreement, we will issue China Direct Investments, Inc. a total of
64,000,000 shares of our common stock. 8,000,000 shares are payable by the
ending of each quarter ending December 31, March 31, June 30, and September 30
starting October 1, 2009 and will be fair valued using the average stock price
over the quarter the services were earned. This agreement also provides for the
payment of discretionary award fees to be paid to the consultant and/or its
designees. Upon the mutual agreement of the parties, the fees can be paid either
in cash or marketable securities.




- 4
-


Prior to
the August 2009 agreement, in April 2009 we had entered into a one year
consulting and management agreement with China Direct Investments, Inc. Under
the terms of the April 2009 agreement, we issued China Direct Investments, Inc.
a total of 20,000,000 shares of our common stock valued at $400,000. Of these
shares, 5,000,000 shares are payable at the end of each calendar quarter of
2009. This agreement also provides for the payment of discretionary award fees
to be paid to the consultant and/or its designees. Upon the mutual agreement of
the parties, the fees can be paid either in cash or marketable
securities.  No discretionary awards were made.





In
January 2008 we entered into a two month agreement with SPC Consultants LLC
pursuant to which it agreed to arrange for the release of our press releases and
engage other financial public relations firms to publicize our company. As
compensation for these services, we paid SPC Consultants LLC $100,000 and China
Direct Investments, Inc. transferred 1,100,000 shares of our common stock valued
at $110,000 originally issued to that company as compensation for consulting
services to SPC Consultants as additional compensation to it reported as
consulting expense – related party.





Our
History





We were
organized in Idaho on February 5, 1968 under the name Century Silver Mines, Inc.
Originally, we developed mining properties, but by 1998 we had ceased those
operations. Sense Technologies was organized under the laws of the State of
Florida on July 13, 1998. Sense Technologies was formed for the purpose of
engaging in developing and marketing biometric devices for use in employee
identification and security-related products.





In
January 1999, we acquired all of the outstanding shares of Sense Technologies
for a purchase price consisting of 4,026,700 of our shares of common stock
issued to the former shareholders of Sense Technologies. At the time of the
acquisition, Century Silver Mines had no operations and Sense Technologies was
developing its proprietary biometric security systems. Immediately following the
acquisition, the former shareholders of Sense Technologies owned approximately
93% of our outstanding shares. In June 1999, we changed our corporate domicile
from Idaho to Florida and changed our name to Sense Holdings, Inc.





On May
31, 2001, we acquired all of the outstanding shares of Micro Sensor from UTEK
Corporation and UT-Battelle LLC, the shareholders of Micro Sensor, in a
stock-for-stock exchange, for total consideration of 2,000,000 shares of our
common stock. Pursuant to the stock-for stock transfer, UTEK received 1,850,000
shares of our common stock and UT-Battelle LLC received 150,000 shares of our
common stock.





On June
27, 2007 we acquired a 56.08% interest in AoHong in exchange for our commitment
to contribute $3,380,000. In addition, we issued Mr. Aihua Hu, a member of
AoHong’s board and its CEO, 12,500,000 shares of our common stock valued at
$1,187,500 as additional consideration.  Our commitment to AoHong
requires us to provide an aggregate of $3,380,000 between September 2007 and
June 2009 as follows: $800,000 before September 30, 2007, $400,000 before June
30, 2008, $600,000 before December 31, 2008 and the remaining balance due of
$1,580,000 by June 27, 2009. We used $1,200,000 from a unit offering completed
in 2007 to satisfy our commitments due through June 30, 2008. Subsequently, we
tendered $400,000 in August 2008 which represented a portion of the December
2008 commitment. As of January 11, 2010 we owe $1,780,000 to the minority owners
of AoHong, who include Mr. Aihua Hu and his wife.  Mr. Hu and Mrs. Ye
have orally agreed to extend the due date to on or before November 20,
2010.





AoHong
was established in February 2000 as Shanghai AoHong Industry Co., Ltd. by Mr.
Aihua Hu, its CEO, and his wife Mrs. Ying Ye. On July 5, 2007 AoHong changed its
name to Shanghai AoHong Chemical Co., Ltd. AoHong has three wholly owned
subsidiaries; Shanghai Binghong Trading Co., Ltd. which was established in March
2002 Shanghai Wuling Environmental Material Co., Ltd. which was established in
January 2005, and AoHong Tianjin Chemical Co., Ltd. which was established in
November 2008.





On August
29, 2007, the Shanghai Foreign Investment Commission issued the Certificate of
Approval for the establishment of the Sino-U.S. joint-venture between our
company and AoHong. The registered capital of this joint venture is $8,210,024,
of which an aggregate of $3,380,000 is being contributed by us. In September
2007 following our remittance of the initial investment of $800,000 to the joint
venture, the Shanghai Industrial & Commercial Administration Bureau issued
the certificate of approval to the joint venture. AoHong received a renewed
business license on November 29, 2007.





In
November 2007, we changed the name of our company to China America Holdings,
Inc. to better reflect our business and operations at that time.





On August
31, 2007, we acquired a 60% interest in Big Tree, which together with its
subsidiary Jieyang Big Tree, was a development stage company based in China that
intended to operate in the toy business. We acquired the 60% interest in Big
Tree from CDI China, Inc., a wholly owned subsidiary of China Direct Industries,
Inc. Under the terms of the agreement, we paid CDI China, Inc. $400,000 and
issued 10,000,000 shares of our common stock. At the time of the transaction,
China Direct Industries, Inc. owned approximately 17% of our common stock; the
value of the 10,000,000 shares issued was valued at our par
value.


- 5
-


Big Tree
was incorporated in the State of Florida on November 20, 2006 and its wholly
owned subsidiary Jieyang Big Tree was established on January 22, 2007 as a
wholly foreign owned entity (WFOE) in China. China Direct Industries, Inc.
acquired 60% of Big Tree in February 2007 in exchange for shares of its common
stock and a commitment to provide a $1 million working capital loan subject to
the satisfaction of certain revenue milestones by Big Tree, which milestones
were not met by the time we acquired the company. China Direct Industries, Inc.
no longer has the obligation to provide such funds.





In 2008
we discontinued our Toy Distribution segment. We did not report any revenues
from Big Tree during 2007 or 2008 and its assets were limited to a loan due from
a related party, which was made prior to our acquisition of Big Tree. We found
that we were unable to obtain appropriate financial information pertaining to
Jieyang Big Tree for the purposes of consolidating those results with our
financial statements in accordance with generally accepted accounting
principles.





On April
30, 2008, we entered into an agreement with Mr. Wei Lin and China Direct
Industries, Inc. pursuant to which we transferred all of our rights, title and
interest in and to 60% of the stock of Big Tree to Mr. Lin in exchange for
53,654 shares of the common stock of China Direct Industries, Inc. owned by Mr.
Lin. These shares had a fair market value of approximately $445,328 on the date
of the agreement. As a result of this transaction, we no longer own any interest
in Big Tree or its wholly owned subsidiary, Jieyang Big Tree. Following this
transaction we do not intend to pursue any other business opportunities in the
toy industry.





In the
fourth quarter of 2008, we decided to discontinue our Biometrics segment and in
January 2009, we sold our historical operations related to the Biometrics
segment to Mr. Perler as described earlier in this section.





- 6
-





ITEM
1A.                                RISK
FACTORS





An
investment in our common stock involves a significant degree of risk. You should
not invest in our common stock unless you can afford to lose your entire
investment. You should consider carefully the following risk factors and other
information in this annual report before deciding to invest in our common
stock.  If any of the following risks and uncertainties develop into
actual events, our business, financial condition or results of operations could
be materially adversely affected and you could lose your entire investment in
our company.





RISKS
RELATED TO OUR COMPANY





WE
WILL NEED TO RAISE CAPITAL TO SATISFY VARIOUS OBLIGATIONS.





We have
approximately $2.2 million of short term obligations coming due during fiscal
2010 and we do not have sufficient capital to pay these
obligations.  Under the acquisition agreement with AoHong, we were
required to provide an aggregate of $3,380,000 of capital between September 2007
and June 2009.  As of January 11, 2010, $1,780,000 of this amount
remains due to Mr. Aihua Hu, a member of our Board of Directors and AoHong’s
CEO, and his wife Mrs. Ying Ye, who are the minority owners of
AoHong.  Mr. Hu and Mrs. Ye have orally agreed to extend the payment
date of this balance to on or before November 2, 2010.  In addition,
we owe China Direct Industries, Inc. $400,000 during a promissory note which is
due on June 30, 2010.  We will be required to raise additional capital
to fund these obligations. We do not have any commitments to provide this
additional capital and we cannot assure you that funds are available to us upon
terms acceptable to us, if at all. Currently, our only sources of working
capital are funds generated from our operations and the proceeds of the exercise
of any of our outstanding warrants.  Our cash generated from
operations is necessary to fund our ongoing business and there are also no
assurances that any of our outstanding warrants will be exercised on a cash
basis, if at all. If we do not raise funds as needed, our ability to satisfy our
obligations is in jeopardy. In this event, you could lose all of your investment
in our company.





WE
ANTICIPATE THAT WE WILL CONTINUE TO INCUR OPERATING LOSSES AND THERE ARE NO
ASSURANCES THAT WE WILL REPORT PROFITABLE OPERATIONS IN FUTURE
PERIODS.





We have
incurred substantial operating and net losses since our inception through
September 30, 2009. For the 2009 transition period, we reported net losses of
$453,819, and at September 30, 2009, we had an accumulated deficit of
approximately $17,650,606. While AoHong's operations were historically
profitable, there are no assurances we will be able to increase our operating
margins, lower our raw material costs, and/or reduce our operating expenses so
that to provide profits in future periods.   If we are not
successful in our efforts to return to profitable operations, we will need to
raise additional capital to fund not only our commitments but for our operating
needs as well. If we do not raise additional working capital as necessary, we
could be forced to cease our operations.





OUR
REVENUES DECLINED BECAUSE OF PRICING PRESSURE WHICH RESULTED IN A REDUCE GROSS
MARGIN.  IF WE ARE UNABLE TO INCREASE OUR MARGINS WE MAY CONTINUE TO
REPORT LOSSES IN FUTURE PERIODS.





During
the 2009 transition period we experienced competitive pricing pressure causing
us to lower our prices on average approximately 25%.  This led to
reduced margins, an operating loss for the 2009 transition period compared
positive operating income for both the comparable nine month period of 2008 as
well as for the 12 months ended December 31, 2008.  If we are unable
to increase of margins or cut operating costs we may continue to report losses
in future periods.





WE
MAY NOT BE ABLE TO RAISE ADDITIONAL FINANCING WHEN NECESSARY WHICH WILL
ADVERSELY IMPACT OUR ABILITY TO EXECUTE OUR GROWTH STRATEGY AND FUND OUR ONGOING
OPERATIONS.





Historically,
our operations have been financed primarily through the issuance of equity.
Capital is typically needed not only to fund our ongoing operations and to pay
our existing obligations, but capital will be necessary to fund our anticipated
growth. Our future capital requirements, however, depend on a number of factors,
including our ability to internally grow our revenues, manage our business and
control our expenses. We need to raise additional capital to satisfy our
obligations to AoHong, to fund our ongoing operations, pay our existing
obligations and for future growth of our company.  We cannot assure
you that additional working capital is available to us in the future upon terms
acceptable to us. If we do not raise funds as needed, our ability to provide for
current working capital needs and obligations to AoHong, grow our company, and
continue our existing business and operations is in jeopardy. In this event, you
could lose all of your investment in our company.


- 7
-


OUR SOLE EXECUTIVE OFFICER WHO SERVES
AS OUR CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER DOES NOT HAVE ANY
EXPERIENCE WITH U.S. PUBLIC COMPANIES.





In
January 2009, we appointed Mr. Shaoyin Wang as our President, Chief Executive
Officer and Chief Financial Officer. Mr. Wang is located in China and does not
have any experience in managing a U.S. public company. In addition, Mr. Wang is
not an accounting professional and does not have any experience in the
application of U.S. generally accepted accounting principles or the rules and
regulations of the SEC. While we believe that Mr. Wang’s professional experience
will benefit our Chinese operations, we cannot assure you that his lack of
experience with U.S. public companies will not result in greater professional
and consulting expenses as we increase our reliance on third parties to assist
us in meeting our reporting obligations under Federal securities laws which will
adversely impact our results of operations in future periods.





VOLATILITY
IN RAW MATERIAL COSTS IMPACTS OUR OPERATING COSTS AND ADDS VARIABILITY TO
EARNINGS.





During
2008, our raw material costs were higher overall than in 2007 as a result
of shortages of supply and a disruption in supplies due to transportation and
manufacturing restrictions imposed by the PRC as a result of the 2008
Beijing Olympics. While we had anticipated that these increases were temporary
and our raw material costs would decrease to historic levels, during the 2009
transition period, our raw material costs did not return to previous
levels. . When these costs increase, we are not always able to immediately raise
selling prices and, ultimately, our ability to pass on underlying cost increases
is greatly dependent on market conditions. Accordingly, our margins for the 2009
transition period declined.  There are no assurances our raw material
costs will decline and competitive conditions may prevent us from increasing our
sales prices in fiscal 2010.  In addition, any future increases in
these costs could further negatively impact our results of
operations.





RESTRICTIONS
ON CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO RECEIVE AND USE OUR REVENUES
EFFECTIVELY. WE MAY NOT HAVE READY ACCESS TO CASH ON DEPOSIT IN BANKS IN THE
PRC.





Because
substantially all of our revenues are in the form of RMB, any future
restrictions on currency exchanges may limit our ability to use revenue
generated in RMB to fund any future business activities outside China or to make
dividend or other payments in U.S. Dollars. Although the Chinese government
introduced regulations in 1996 to allow greater convertibility of the RMB for
current account transactions, significant restrictions still remain, including
primarily the restriction that foreign-invested enterprises may only buy, sell
or remit foreign currencies, after providing valid commercial documents, at
those banks authorized to conduct foreign exchange business. In addition,
conversion of RMB for capital account items, including direct investment and
loans, is subject to government approval in China, and companies are required to
open and maintain separate foreign exchange accounts for capital account items.
At September 30, 2009, our PRC subsidiary had approximately $1.7 million on
deposit in banks, which represented approximately 99% of our cash. We cannot be
certain that we could have ready access to that cash should we wish to transfer
it to bank accounts outside the PRC nor can we be certain that the Chinese
regulatory authorities will not impose more stringent restrictions on the
convertibility of the RMB, especially with respect to foreign exchange
transactions.





WE
ARE DEPENDENT ON CERTAIN KEY PERSONNEL AND THE LOSS OF THESE KEY PERSONNEL COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.





Our
success is, to a certain extent, attributable to the management, sales and
marketing, and operational expertise of Aihua Hu, Chief Executive Officer and a
minority owner of Aohong, and Huayan Zhi, Chief Financial Officer of Aohong, who
perform key functions in the operation of AoHong. All of these individuals are
located in China and we do not exercise any day-to-day supervision over their
activities. While we are a party to an employment agreement with Mr. Hu, we are
not a party to any employment or similar agreement with individualisms. Zhi and
there are no assurances that either of these individuals will remain employed by
AoHong or devote sufficient time and attention to the operations of that
subsidiary. The loss of either of these individuals could have a material
adverse effect upon our business, financial condition, and results of
operations.





CERTAIN
AGREEMENTS TO WHICH WE ARE A PARTY AND WHICH ARE MATERIAL TO OUR OPERATIONS LACK
VARIOUS LEGAL PROTECTIONS WHICH ARE CUSTOMARILY CONTAINED IN SIMILAR CONTRACTS
PREPARED IN THE UNITED STATES.





Our
subsidiaries include AoHong which was organized under the laws of the PRC and
all of its business and operations are conducted in China. We are a party to
certain contracts related to those operations. While these contracts contain the
basic business terms of the agreements between the parties, these contracts do
not contain certain provisions which are customarily contained in similar
contracts prepared in the U.S., such as representations and warranties of the
parties, confidentiality and non-compete clauses, provisions outlining events of
defaults, and termination and jurisdictional clauses. Because these contracts
omit these types of clauses, notwithstanding the differences in Chinese and U.S.
laws we may not have the same legal protections as we would if the contracts
contained these additional provisions. We anticipate that AoHong will likely
enter into contracts in the future which will likewise omit these types of legal
protections. While we have not been subject to any adverse consequences as a
result of the omission of these types of clauses, and we consider the contracts
to which we are a party to contain all the material terms of our business
arrangements with the other party, future events may occur which lead to a
dispute under agreements which could have been avoided if the contracts were
prepared in conformity with U.S. standards. Contractual disputes which may arise
from this lack of legal protection will divert management's time from the
operation of our business and require us to expend funds attempting to settle a
possible dispute. This possible diversion of management time will limit the time
our management would otherwise devote to the operation of our business, and the
diversion of capital could limit the funds we have available to pay our ongoing
operating expenses.


- 8
-


AOHONG'S
OPERATIONS ARE SUBJECT TO GOVERNMENT REGULATION. IF IT FAILS TO COMPLY WITH THE
APPLICABLE REGULATIONS, ITS ABILITY TO OPERATE IN FUTURE PERIODS COULD BE IN
JEOPARDY.





AoHong is
subject to various state and local regulations related to the distribution of
chemicals. It is also licensed by the Shandong Bureau of Quality and Technical
Supervision to distribute chemicals. While AoHong is in substantial compliance
with all provisions of those registrations, inspections and licenses and have no
reason to believe that they will not be renewed as required, any non-renewal by
these governmental authorities could result in the cessation of its business
activities which would have a material adverse effect on our results of
operations in future periods.





COMPLIANCE
WITH ENVIRONMENTAL REGULATIONS CAN BE EXPENSIVE, AND NONCOMPLIANCE WITH THESE
REGULATIONS MAY RESULT IN ADVERSE PUBLICITY AND POTENTIALLY SIGNIFICANT MONETARY
DAMAGES AND FINES.





Our
operations must conform to Industrial Chemical Control Law (ICCL) of People’s
Republic of China, the Management Regulation of Chemical Industry Environmental
Protection and rules for private (non-state owned) companies doing business in
China, Regulations on the Safety Administration of Dangerous Chemicals, and we
are subject to registration and inspection by The Ministry of China Chemical
Industry with respect to the distribution of chemical products in China. We are
also required to comply with all national and local regulations regarding
protection of the environment. If we fail to comply with present or future
environmental regulations, we may be required to pay substantial fines, suspend
production or cease operations. We use, generate and discharge toxic, volatile
and otherwise hazardous chemicals and wastes in our research and development and
manufacturing activities. Any failure by us to control the use of, or to
restrict adequately, the discharge of, hazardous substances could subject us to
potentially significant monetary damages and fines or suspensions in our
business operations.





WE
DO NOTHAVE VARIOUS BUSINESS INSURANCE COVERAGE WHICH IS COMMONLY CARRIED BY U.S.
COMPANIES





The
insurance industry in China is still at an early stage of development. Insurance
companies in China offer limited business insurance products. AoHong does not
have any business liability or disruption insurance
coverage.  Accordingly, any business disruption or natural disaster
may result in our incurring substantial costs and the diversion of our resources
which would materially adversely impact our operations in future
periods.





RISKS
RELATED TO DOING BUSINESS IN CHINA





SUBSTANTIALLY
ALL OF OUR ASSETS AND ALL OF OUR OPERATIONS ARE LOCATED IN THE PRC AND ARE
SUBJECT TO CHANGES RESULTING FROM THE POLITICAL AND ECONOMIC POLICIES OF THE
CHINESE GOVERNMENT.





Our
business operations could be restricted by the political environment in the PRC.
The PRC has operated as a socialist state since 1949 and is controlled by the
Communist Party of China. In recent years, however, the government has
introduced reforms aimed at creating a socialist market economy and policies
have been implemented to allow business enterprises greater autonomy in their
operations. Changes in the political leadership of the PRC may have a
significant effect on laws and policies related to the current economic reform
programs, other policies affecting business and the general political, economic
and social environment in the PRC, including the introduction of measures to
control inflation, changes in the rate or method of taxation, the imposition of
additional restrictions on currency conversion and remittances abroad, and
foreign investment. Moreover, economic reforms and growth in the PRC have been
more successful in certain provinces than in others, and the continuation or
increases of such disparities could affect the political or social stability of
the PRC.





Although
we believe that the economic reform and the macroeconomic measures adopted by
the Chinese government have had a positive effect on the economic development of
China, the future direction of these economic reforms is uncertain and the
uncertainty may decrease the attractiveness of our company as an investment,
which may in turn result in a decline in the trading price of our common
stock.





WE
CANNOT ASSURE YOU THAT THE CURRENT CHINESE POLICIES OF ECONOMIC REFORM WILL
CONTINUE. BECAUSE OF THIS UNCERTAINTY, THERE ARE SIGNIFICANT ECONOMIC RISKS
ASSOCIATED WITH DOING BUSINESS IN CHINA.





Although
the majority of productive assets in China are owned by the Chinese government,
in the past several years the government has implemented economic reform
measures that emphasize decentralization and encourages private economic
activity. In keeping with these economic reform policies, the PRC has been
openly promoting business development in order to bring more business into the
PRC. Because these economic reform measures may be inconsistent or ineffective,
there are no assurances that:





•
            the
      Chinese government will continue its pursuit of economic reform
      policies;•
            the
      economic policies, even if pursued, will be successful;•
            economic
      policies will not be significantly altered from time to time;
      or•
            business
      operations in China will not become subject to the risk of
      nationalization.





- 9
-


We cannot
assure you that we will be able to capitalize on these economic reforms,
assuming the reforms continue. Because our business model is dependent upon the
continued economic reform and growth in China, any change in Chinese government
policy could materially adversely affect our ability to continue to implement
our business model. China’s economy has experienced significant growth in the
past decade, but such growth has been uneven across geographic and economic
sectors and has recently been slowing. Even if the Chinese government continues
its policies of economic reform, there are no assurances that economic growth in
that country will continue or that we will be able to take advantage of these
opportunities in a fashion that will provide financial benefit to
us.





THE
CHINESE GOVERNMENT EXERTS SUBSTANTIAL INFLUENCE OVER THE MANNER IN WHICH OUR
CHINESE SUBSIDIARIES MUST CONDUCT OUR BUSINESS ACTIVITIES.





The PRC
only recently has permitted provincial and local economic autonomy and private
economic activities. The government of the PRC has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy
through regulation and state ownership. Accordingly, government actions in the
future, including any decision not to continue to support recent economic
reforms and to return to a more centrally planned economy or regional or local
variations in the implementation of economic policies, could have a significant
effect on economic conditions in the PRC or particular regions of the PRC, and
could require us to divest ourselves of any interest we then hold in our Chinese
subsidiaries.





ANY
RECURRENCE OF SEVERE ACUTE RESPIRATORY SYNDROME, OR SARS, OR ANOTHER WIDESPREAD
PUBLIC HEALTH PROBLEM, COULD INTERRUPT OUR OPERATIONS





A renewed
outbreak of SARS or another widespread public health problem in China could have
a negative effect on our operations. Our operations may be impacted by a number
of health-related factors, including the following:





•
            quarantines
      or closures of some of our offices which would severely disrupt our
      operations;•
            the
      sickness or death of our key management and employees;
  or•
            a
      general slowdown in the Chinese
economy.





An
occurrence of any of the foregoing events or other unforeseen consequences of
public health problems could result in a loss of revenues in future periods and
could impact our ability to conduct the operations of our Chinese subsidiaries
as they are presently conducted. If we were unable to continue the
operations of our Chinese subsidiaries as they are now conducted, our revenues
in future periods would decline and our ability to continue as a going concern
could be in jeopardy. If we were unable to continue as a going concern, you
could lose your entire investment in our company.





RESTRICTIONS
ON CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO RECEIVE AND USE OUR REVENUES
EFFECTIVELY. WE MAY NOT HAVE READY ACCESS TO CASH ON DEPOSIT IN BANKS IN THE
PRC.





Because a
substantial portion of our revenues are in the form of Renminbi (RMB), the main
currency used in China, any future restrictions on currency exchanges may limit
our ability to use revenue generated in RMB to fund any future business
activities outside China or to make dividend or other payments in U.S.
Dollars. Although the Chinese government introduced regulations in 1996 to allow
greater convertibility of the RMB for current account transactions, significant
restrictions still remain, including primarily the restriction that
foreign-invested enterprises may only buy, sell or remit foreign currencies,
after providing valid commercial documents, at those banks authorized to conduct
foreign exchange business. In addition, conversion of RMB for capital account
items, including direct investment and loans, is subject to government approval
in China, and companies are required to open and maintain separate foreign
exchange accounts for capital account items. At September 30, 2009 our PRC
subsidiaries had approximately $1.7 million on deposit in banks in China, which
represented approximately 99% of our cash. We cannot be certain that we could
have ready access to that cash should we wish to transfer it to bank accounts
outside the PRC nor can we be certain that the Chinese regulatory authorities
will not impose more stringent restrictions on the convertibility of the RMB,
especially with respect to foreign exchange transactions.





WE
MAY BE UNABLE TO ENFORCE OUR RIGHTS DUE TO POLICIES REGARDING THE REGULATION OF
FOREIGN INVESTMENTS IN CHINA.





The PRC’s
legal system is a civil law system based on written statutes in which decided
legal cases have little value as precedent, unlike the common law system
prevalent in the United States. The PRC does not have a well-developed,
consolidated body of laws governing foreign investment enterprises. As a result,
the administration of laws and regulations by government agencies may be subject
to considerable discretion and variation, and may be subject to influence by
external forces unrelated to the legal merits of a particular matter. China’s
regulations and policies with respect to foreign investments are evolving.
Definitive regulations and policies with respect to such matters as the
permissible percentage of foreign investment and permissible rates of equity
returns have not yet been published. Statements regarding these evolving
policies have been conflicting and any such policies, as administered, are
likely to be subject to broad interpretation and discretion and to be modified,
perhaps on a case-by-case basis. The uncertainties regarding such regulations
and policies present risks which may affect our ability to achieve our stated
business objectives. If we are unable to enforce any legal rights we may have
under our contracts or otherwise, our ability to compete with other companies in
our industry could be limited which could result in a loss of revenue in future
periods which could have a material adverse effect on our business, financial
condition and results of operations.


- 10
-


FAILURE
TO COMPLY WITH THE UNITED STATES FOREIGN CORRUPT PRACTICES ACT COULD SUBJECT US
TO PENALTIES AND OTHER ADVERSE CONSEQUENCES.





We are
subject to the United States Foreign Corrupt Practices Act which generally
prohibits United States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining
business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent
practices occur from time-to-time in the PRC. We can make no assurance, however,
that our employees or other agents will not engage in such conduct for which we
might be held responsible. If our employees or other agents are found to have
engaged in such practices, we could suffer severe penalties and other
consequences that may have a material adverse effect on our business, financial
condition and results of operations.





RISKS
RELATED TO OUR COMMON STOCK





THE
EXERCISE OF OUTSTANDING WARRANTS AND OPTIONS WILL BE DILUTIVE TO OUR EXISTING
SHAREHOLDERS.





At December
31, 2009, we had 151,810,792 shares of our common stock issued and outstanding
and the following securities which are convertible or exercisable into shares of
our common stock were outstanding:





•
            61,350,113
      shares of our common stock issuable upon the exercise of common stock
      purchase warrants with exercise prices ranging from $0.10 to $0.55 per
      share with a weighted average exercise price of $0.14;
      and•
            8,900,000
      shares of our common stock issuable upon exercise of outstanding options
      with exercise prices ranging from $0.07 to $0.20 with a weighted average
      exercise price of $0.096.





The
exercise of these warrants or options may materially adversely affect the market
price of our common stock and will have a dilutive effect on our existing
shareholders.





WE
HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN THE
ABSENCE OF WHICH, SHAREHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST
INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR
MATTERS.





Recent
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in
the adoption of various corporate governance measures designed to promote the
integrity of the corporate management and the securities markets. Some of these
measures have been adopted in response to legal requirements. Others have been
adopted by companies in response to the requirements of national securities
exchanges, such as the NYSE or the Nasdaq Stock Market, on which their
securities are listed. Among the corporate governance measures that are required
under the rules of national securities exchanges are those that address board of
directors' independence, audit committee oversight, and the adoption of a code
of ethics. Although we have adopted a Code of Ethics and Business Conduct, we
have not yet adopted any of these other corporate governance measures and, since
our securities are not yet listed on a national securities exchange, we are not
required to do so. We have not adopted corporate governance measures such as an
audit or other independent committees of our Board of Directors nor have we
adopted a related persons transaction policy. If we expand our board membership
in future periods to include independent directors, we may seek to establish an
audit and other committees of our Board of Directors. It is possible that if we
were to adopt some or all of these corporate governance measures, shareholders
would benefit from somewhat greater assurances that internal corporate decisions
were being made by disinterested directors and that policies had been
implemented to define responsible conduct. Prospective investors should bear in
mind our current lack of corporate governance measures in formulating their
investment decisions.





BECAUSE
OUR STOCK CURRENTLY TRADES BELOW $5.00 PER SHARE, AND IS QUOTED ON THE OTC
BULLETIN BOARD, OUR STOCK IS CONSIDERED A "PENNY STOCK" WHICH CAN ADVERSELY
AFFECT ITS LIQUIDITY.





As the
trading price of our common stock is less than $5.00 per share, our common stock
is considered a “penny stock”, and trading in our common stock is subject to the
requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under this
rule, broker/dealers who recommend low-priced securities to persons other than
established customers and accredited investors must satisfy special sales
practice requirements. The broker/dealer must make an individualized written
suitability determination for the purchaser and receive the purchaser's written
consent prior to the transaction.





SEC
regulations also require additional disclosure in connection with any trades
involving a "penny stock," including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and its
associated risks. These requirements severely limit the liquidity of securities
in the secondary market because few broker or dealers are likely to undertake
these compliance activities. In addition to the applicability of the penny stock
rules, other risks associated with trading in penny stocks could also be price
fluctuations and the lack of a liquid market.





ITEM
1B.                      UNRESOLVED
STAFF COMMENTS.





Not
applicable to a smaller reporting company.


- 11
-


ITEM
2.                      PROPERTIES.





Our
principal offices are located in the Huating Economic & Development Area,
Jiading District, Shanghai. We own a 218,000 square foot facility which includes
98,100 square feet of workshop and office space, 33,790 square feet of warehouse
and 115.7 cubic meters of storage tanks.





We have
land use rights pursuant to an agreement with the Chinese government. The land
use rights are valued at approximately $87,763 (RMB 600,082). Under the terms of
the land use rights agreement, we have these rights to use land until November
3, 2053.





We leased
a warehouse from People’s Inn at Shanghai with an annual cost of approximately
$3,512 (RMB 24,000). The lease expired on September 30, 2009.





In
February 2009, AoHong Tianjin obtained the land use right for approximately
253,350 square feet of land located in Ji County Economic Development Park for
approximately $751,394 which will be the location of a new production base and
distribution facility for AoHong Tianjin. Under the terms of the land use rights
agreement, we have these rights to use land until February 22,
2059.





ITEM
3.                      LEGAL
PROCEEDINGS.





We are
not a party to any pending legal proceedings and, to our knowledge, none of our
officers, directors or principal shareholders are party to any legal proceeding
in which they have an interest adverse to us.





ITEM
4.                      SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.





None





PART
II





ITEM
5.                      MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES





Our
common stock is quoted on the OTCBB under the symbol CAAH. The reported high and
low sales prices for the common stock as reported on the OTCBB are shown below
for the periods indicated. The quotations reflect inter-dealer prices, without
retail mark-up, markdown or commission, and may not represent actual
transactions.





High
            
            
            Low2008First
      quarter ended March 31, 2008
            
            $
            0.12
            
            
            $
            0.06Second
      quarter ended June 30, 2008
            
            
            0.76
            
            
            
            0.04Third
      quarter ended September 30, 2008
            
            
            0.06
            
            
            
            0.03Fourth
      quarter ended December 31, 2008
            
            
            0.03
            
            
            
            0.012009First
      quarter ended March 31, 2009
            
            
            0.04
            
            
            
            0.01Second
      quarter ended June 30, 2009
            
            
            0.03
            
            
            
            0.01Nine
      months transition period ended September 30, 2009
            
            
            0.02
            
            
            
            0.012010First
      quarter ended December 31, 2009
            
            $
            0.03
            
            
            $
            0.01





On
January 11, 2010, the last sale price of our common stock as reported on the
OTCBB was $0.01. As of January 11, 2010, there were approximately 914 record
owners of our common stock.





Dividend
Policy





We have
never paid cash dividends on our common stock. Payment of dividends will be
within the sole discretion of our Board of Directors and will depend, among
other factors, upon our earnings, capital requirements and our operating and
financial condition. In addition under Florida law, we may declare and pay
dividends on our capital stock either out of our surplus, as defined in the
relevant Florida statutes, or if there is no such surplus, out of our net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. If, however, the capital of our company, computed in
accordance with the relevant Florida statutes, has been diminished by
depreciation in the value of our property, or by losses, or otherwise, to an
amount less than the aggregate amount of the capital represented by the issued
and outstanding stock of all classes having a preference upon the distribution
of assets, we are prohibited from declaring and paying out of such net profits
any dividends upon any shares of our capital stock until the deficiency in the
amount of capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets shall have been
repaired.


- 12
-





Securities
Authorized For Issuance Under Equity Compensation Plans





The
following table sets forth securities authorized for issuance under equity
compensation plans, including individual compensation arrangements, by us under
our equity compensation plans approved by our shareholders any compensation
plans not previously approved by our shareholders as of September 30,
2009.





Plan
      category
            
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights (a)
            
            
            Weighted
      average exercise price of outstanding options, warrants and rights
      (b)
            
            
            Number
      of securities remaining available for future issuance under Equity
      compensation Plans (excluding securities reflected in column (a)
      (c)Plans
      approved by our shareholders1999
      Stock Option Plan
            
            
            650,000
            
            
            $
            0.12
            
            
            
            500,0002001
      Equity Compensation Plan
            
            
            250,000
            
            
            $
            0.08
            
            
            
            403,8402005
      Equity Compensation Plan
            
            
            1,000,000
            
            
            $
            0.08
            
            
            
            723,000Plans
      not approved by shareholders (1)
            
            
            6,000,000
            
            
            $
            0.08
            
            
            
            n/a





(1)           Includes
options to purchase 1,000,000 shares of our common stock at $0.20 per share
granted to Mr. Hu in June 2007 under the terms of his employment agreement, as
well as options to purchase 5,000,000 shares our common stock at $0.07 per share
granted to Mr. Dore Perler in August 2007.





A
description of each of these plans is contained later in this report under Part
III, Item 11. “Executive Compensation - Stock Option Plans.”





Recent
Sales of Unregistered Securities





None.





ITEM 6.
SELECTED FINANCIAL DATA.





Not
applicable to a smaller reporting company.





ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.





The
following discussion and analysis of our consolidated financial condition and
results of operations for the nine months transition period ended September 30,
2009 and the nine months ended September 30, 2008 (unaudited)  should
be read in conjunction with the consolidated financial statements, including
footnotes, and other information presented elsewhere in this Form 10-K. Our
audited consolidated financial statements have been reclassified to recognize
discontinued operations.





Change
in Fiscal Year End





Effective
September 7, 2009, we changed our fiscal year end from December 31 to
September 30. We have defined various periods that are covered in this report as
follows:





•
            “2009
      transition period” — January 1, 2009 through September 30,
      2009.•
            “first
      nine months of 2008” — January 1, 2008 through September 30,
      2008.•
            “fiscal
      2010” — October 1, 2009 through September 30,
2010.•
            “fiscal
      2008” — January 1, 2008 through December 31, 2008.•
            “fiscal
      2007” — January 1, 2007 through December 31, 2007.•
            “fiscal
      2006” — January 1, 2006 through December 31,
  2006.




- 13
-


OVERVIEW
OF OUR PERFORMANCE AND OPERATIONS





Our
Business





We sell
and distribute assorted chemicals in China. The majority of our revenues are
generated through the sale and distribution of liquid coolants. While our
products can be employed in a variety of applications, we primarily sell and
distribute refrigerants for use in air conditioning systems. We also sell and
distribute chemical products used in the application of fire extinguishing
agents, aerosol sprays, insecticides, and tetrahydrothiophene
(“THT”).





All of
our operations are conducted in China through our AoHong subsidiary. AoHong
sells and distributes assorted chemicals. Our main product group is liquid
coolants which are employed primarily as refrigerants in air conditioning
systems. AoHong's operations are comprised of three basic
functions:





•
            Distribution
      of bulk quantities of liquid coolants directly to customers who in turn
      resell the product;•
            Repackaging
      bulk quantities of liquid coolants into smaller packaging for resale and
      distribution;•
            Custom
      mixing of various raw materials in accordance with customer specifications
      into a new product;





Our
customers include manufacturers and retailers of air conditioning systems,
refrigerators, automobiles, coolants, pharmaceuticals and chemicals. In the 2009
transition period, approximately 65% of our net revenues were from the
distribution of bulk quantities, approximately 30% of our net revenues were
derived from our repackaging business, and approximately 5% of our net revenues
were generated from the sale of custom made chemical compounds. Approximately
80% of our products are utilized domestically while the balance is typically
exported.





AoHong
distributes products within China to 16 provinces and districts including
Liaoning, Jilin, Beijing, Xinjiang, Shanxi, Chongqing, Sichuan, Jiangsu,
Zhejiang, Anhui, Guangdong, Hainan, Hong Kong and Taiwan. AoHong exports to
countries such as Russia and Thailand. In November 2008, we created AoHong
Tianjin to expand our distribution channels to the Beijing region.





Discontinued
Operations





We never
generated any significant revenues from these operations. Beginning in January
2007 our management began seeking a suitable target for a business combination
in an effort to increase our revenues. In June 2007 we acquired a 56.08%
interest in AoHong. In August 2007, we created a Toy Distribution segment when
we acquired a 60% interest in Big Tree. We did not report any revenues from Big
Tree during 2008. We found that we were unable to obtain appropriate financial
information pertaining to Jieyang Big Tree for the purposes of consolidating
those results with our financial statements in accordance with generally
accepted accounting principles. This segment never commenced operations and we
discontinued the segment in April 2008.  In 2008 we also discontinued
our Biometrics segment, prior to then, revenues from AoHong represented in
excess of 99% of our consolidated net revenues for the first nine months 2008
and fiscal 2008. In January 2009 we sold our historical operations related to
the Biometrics segment to our former CEO and AoHong’s operations now represent
all of our business and operations.





Our
Performance





During
the 2009 transition period we experienced a slowdown in revenue growth that
began in the first quarter of the 2009 transition period. Revenues in the 2009
transition period decreased approximately 15% compared to the first nine months
in 2008.  This decrease is primarily attributable to a weakness in
prices, overall gross demand has increased as we experienced more unit sales of
our coolant products, but overall average decrease in price of approximately 25%
caused our revenues to decrease.  We do not anticipate these price
decreases to be permanent.  Through sales efforts during the 2009
transition period, we are seeking to expand our geographical customer base into
regions outside of Shanghai.  We expect to see results of these
efforts during the upcoming fiscal year. While revenues decreased in the 2009
transition period from the comparable period in 2008, we have maintained
significantly higher levels of revenue as compared to the first nine months of
fiscal 2007 when net revenues were approximately $8.0 million.





Historically
we have sought to diversify our business through our biometrics and toy
distribution segments.  With the disposition of the biometrics segment
in January 2009, we were now able to place complete focus on chemical
manufacturing and distribution.  During fiscal 2008 we experienced
200% growth in net revenues compared to fiscal 2007 due to our acquisition of
Aohong and during the 2009 transition period we aimed to continue upon this
historical growth; however, the global economic slowdown adversely affected our
growth trajectory.





Our
Outlook





We
believe that demand for industrial chemicals and environmentally friendly
coolants will increase as worldwide economic activity increases and domestic
consumption increases as the domestic Chinese market rebounds as a result of the
November 2008 China domestic stimulus program and a rebound in the worldwide
economy.  Additionally, we believe that the demand for environmentally
friendly coolants will increase as consumer demand for socially responsible
business increase and as the Chinese government continues to emphasize “green”
policies.  Despite our optimism in some of these businesses, we
continue to work to identify strategies to maximize our
potential.


- 14
-


RESULTS
OF OPERATIONS





2009
TRANSITION PERIOD ENDED SEPTEMBER 30, 2009 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2008 (UNAUDITED), AND TWELVE MONTHS ENDED SEPTEMBER 31,
2008





For
      the Year EndedPercentages
      shown as a percent of Net Revenue
            
            For
      the Nine Months Ended September 30,
            
            
            December
      31,2009
            
            
            2008
            
            
            2008UnauditedDollar
            
            
            Percent
            
            
            Dollar
            
            
            Percent
            
            
            Dollar
            
            
            PercentNet
      Revenue
            
            $
            22,883,725
            
            
            
            100.0
            %
            
            $
            27,069,776
            
            
            
            100.0
            %
            
            $
            34,967,512
            
            
            
            100.0
            %Cost
      of revenues
            
            
            20,967,658
            
            
            
            91.6
            %
            
            
            24,606,462
            
            
            
            90.9
            %
            
            
            32,279,091
            
            
            
            92.3
            %Gross
      profit
            
            
            1,916,067
            
            
            
            8.4
            %
            
            
            2,463,314
            
            
            
            9.1
            %
            
            
            2,688,421
            
            
            
            7.7
            %Operating
      Expenses
            
            
            2,035,387
            
            
            
            8.9
            %
            
            
            1,475,232
            
            
            
            5.4
            %
            
            
            1,828,692
            
            
            
            5.2
            %(Loss)
      income from operations
            
            
            (119,320
            )
            
            
            -0.5
            %
            
            
            988,082
            
            
            
            3.7
            %
            
            
            859,729
            
            
            
            2.5
            %Other
      expense
            
            
            (68,617
            )
            
            
            -0.3
            %
            
            
            (77,506
            )
            
            
            -0.3
            %
            
            
            (396,648
            )
            
            
            -1.2
            %(Loss)
      income before discontinued operations and  income
      taxes
            
            
            (187,937
            )
            
            
            -0.8
            %
            
            
            910,576
            
            
            
            3.4
            %
            
            
            463,081
            
            
            
            1.3
            %Loss
      from discontinued operations
            
            
            (75,375
            )
            
            
            -0.3
            %
            
            
            (139,515
            )
            
            
            -0.5
            %
            
            
            (232,825
            )
            
            
            -0.7
            %(Loss)
      income before income taxes
            
            
            (263,312
            )
            
            
            -1.2
            %
            
            
            771,061
            
            
            
            2.8
            %
            
            
            230,256
            
            
            
            0.6
            %Provision
      for income taxes
            
            
            (98,739
            )
            
            
            -0.4
            %
            
            
            (369,084
            )
            
            
            -1.4
            %
            
            
            (354,616
            )
            
            
            1.0
            %Net
      (loss) income
            
            
            (362,051
            )
            
            
            -1.6
            %
            
            
            401,977
            
            
            
            1.5
            %
            
            
            (124,360
            )
            
            
            -0.4
            %Less:
      Income attributable to noncontrolling interest
            
            
            91,768
            
            
            
            0.4
            %
            
            
            501,023
            
            
            
            1.9
            %
            
            
            436,798
            
            
            
            1.3
            %Income
      attributable to China America Holdings., Inc.
            
            $
            (453,819
            )
            
            
            -2.0
            %
            
            $
            (99,046
            )
            
            
            -0.4
            %
            
            $
            (561,158
            )
            
            
            -1.7
            %





Net Revenues. During the 2009
transition period, net revenues decreased 15% as compared to the first nine
months of fiscal 2008.  Unit sales of the chemicals we manufacture and
distribute increased, but lower prices as a competitive pricing pressure caused
our overall revenue to decrease during the period.





Our
subsidiary, AoHong generates all of our net revenues from the sale and
distribution of assorted liquid coolants which are utilized in a variety of
applications, and repackaging bulk quantities of liquid coolants into smaller
packaging for resale and distribution. During the 2009 transition period, and
first nine month and twelve months of fiscal 2009, our revenues were generated
by the following activities:





For
      the Nine months ended September 30,
            
            
            For
      the Year Ended December 31,2009
            
            
            2008
            
            
            2008Distribution
      of bulk quantities of liquid coolants directly to customers who in turn
      resell the product
            
            
            65
            %
            
            
            70
            %
            
            
            51
            %Sales
      of liquid coolants which had been purchased in bulk and repackaged into
      smaller qualities for resale
            
            
            30
            %
            
            
            15
            %
            
            
            40
            %Custom
      mixing of various raw materials in accordance with customer specifications
      into a new product
            
            
            5
            %
            
            
            15
            %
            
            
            9
            %Total
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100
            %





Our
customers include manufacturers of automobiles, refrigerators and air
conditioners as well as distributors of coolants. During 2009 transition period
and first nine months of 2008, a significant portion of our volume,
approximately 21% and 32% , respectively, were derived from manufacturers,
including automobile, air conditioners and refrigerator manufacturers, As a
result, historically AoHong has witnessed a seasonal surge in demand for
refrigerant products from March to July.





The
Chinese government announced a $586 billion domestic economic stimulus program
in November 2008 designed to support domestic economic activity. The two-year
program includes spending for housing, infrastructure, agriculture, health care
and social welfare. In addition to previously announced tax rebates, the program
includes a tax deduction for corporate capital expenditures. While we cannot
directly attribute specific sales to the impact of this program, we believe we
have seen a benefit to our company as the overall Chinese economy begins to
recover partially as a result from this stimulus program. The tax rebates on
export sales have indirectly helped us as our customers have been hurt by
tariffs and can take advantage of the rebates, which could translate to more
business for us.  We expect a rebound in the Chinese economy to
continue into the upcoming fiscal year and allow us to regain previous sales
levels and allow prices to return to previous levels.


- 15
-


Cost of sales. Cost of sales
for the 2009 transition period decreased 15% as compared to the first nine
months of fiscal 2008.  Cost of sales includes the cost of raw
material, and applied manufacturing overhead for repackaging and custom
mixing.  During the 2009 transition period, our cost of sales as a
percentage of net revenues was approximately 92% an increase of approximately 1%
over the first nine months of fiscal 2008, and relatively consistent with the
twelve months of fiscal 2008.  The 1% increase over the same period in
fiscal 2008 is primarily due to competitive pricing pressure on our net
revenues.  Further, we expected costs of sales to decrease during the
2009 transition period as the prior year cost of sales increased due to a
temporary shortage of raw materials resulting from business interruptions due to
the 2008 Beijing Olympics and Paralympics.  Instead, cost of sales
remained comparably higher along with prior year as depreciation expense applied
to the cost of sales increased 50% resulting from new fixed asset installations
of mixing and storage containers.  We expect the new equipment to lead
to efficiencies in our manufacturing and storage operations and expect cost of
sales to decrease as a percentage of net revenues.





Gross profit and gross
margin. Our gross profit decreased 22% during the 2009 transition
period as compared to the first nine months of fiscal 2008. The decrease in our
gross margin was attributable to the decrease in our selling price per unit. The
drop of selling price is the result of competition in the Chinese domestic
market that became particularly intense during the second half of 2008 and
continued through the global economic crisis when exports plunged and drove most
coolants suppliers to flood the domestic market.  We expect these
competitive pricing pressures to subside as the export market
rebounds.





Operating expenses. Total
operating expenses increased 38% during the 2009 transition period as compared
to the first nine months of fiscal 2008. Included in this change are the
following:





•
            Selling
      expenses which consists of shipping and freight and other selling expenses
      were approximately 3% of net revenues for the 2009 transition period as
      compared to approximately 2% for the first nine months of 2008. The
      increase in selling expenses as a percentage of sales was attributable to
      a 65% increase in travel as our sales force has expanded their sales area
      focus outside of Shanghai in response to increased competition in the area
      and to satisfy demand in other regions;•
            Consulting
      and investor relations expense (including related party consulting
      expense) increased approximately 20% for the 2009 transition period
      compared to the same period in fiscal 2008 which is attributable to an
      increase in stock-based consulting expense. During the 2009 transition
      period, we issued an aggregate of 15,000,000 shares of common stock valued
      at $289,000 to China Direct Investments, Inc. as compensation under the
      April 2009 agreement.  We also paid $28,966 to multiple third
      party consultants in China for legal and accounting
    services.•
            Compensation
      and related taxes increased by approximately 66% during the 2009
      transition period compared to the same period in fiscal
      2008.  This increase was mainly due to a grant of an option to
      purchase 1,000,000 shares of our common stock valued at $80,195 which were
      granted to Mr. Aihua Hu under the terms of his June 2007 employment
      agreement.  While this expense was not recorded until the
      current 2009 transition period, we have determined that this accounting
      error was not material to our financial statements, did not necessitate a
      restatement of prior periods, and was appropriately expensed in the
      current period; also salaries and employee benefits increased 17% during
      the 2009 transition period compared to the same period in fiscal 2008 due
      to increases necessary to retain our trained staff.•
            General
      and administrative expenses increased approximately 75% during the 2009
      transition period compared to the same period in fiscal
      2008.  The approximately $280,000 increase is primarily due to
      an approximately $347,000 increase in bad debt expense compared to a
      recovery of bad debt in the prior period.  We recorded $176,000
      in bad debt expense during the 2009 transition period, the impact of the
      current period expense is magnified as compared to a $171,000 recovery of
      bad debt recorded during the first nine months of fiscal
      2008.  In the prior period we recorded a one-time bad debt
      recovery of $171,292 related to the collection of accounts receivables
      previously written off.  We estimate bad debt expense primarily
      based on age of outstanding receivables.  As a result of the
      current period bad debt analysis including an aging of customers’
      outstanding balance and consideration of qualitative factors related to
      the impact of the global economic crisis, we increased our allowance for
      bad debt to $175,701.  This increase in general and
      administrative expense was partially offset by an approximately $54,000
      decrease in non-sales related travel, meals, and
      entertainment.





We expect
operating expenses to remain consistent as a percentage of net revenues during
the upcoming fiscal year.





Total other (expenses).Total
other expense decreased approximately 11% during the 2009 transition period
compared to the same period in fiscal 2008. Included in this change is a
decrease in interest expense of $21,581 relating to debt obligations of AoHong
due to lower interest rates on outstanding notes payable and decrease in
realized loss on sale of marketable equity securities of $45,008 related to a
one-time transaction during the 2008 period partially offset by an increase in
loss on disposition of property and equipment of $63,453 as we disposed of this
equipment at a price less than book value.  Also, we had other income
of $34,698 during the 2009 transition period made up primarily of forgiveness of
a $20,000 loan from a former member of our Board of Directors, Mr. Dore
Perler.





Discontinued operations.Loss
from discontinued operations results from the discontinuation of our Biometric
segment in January 2009 and our sale of Big Tree in April 2008. We do not expect
to incur additional expenses from discontinued operations in the upcoming fiscal
2010.





Provision for income
taxes


- 16
-




Net (loss) income





Net loss attributable to China
America Holdings, Inc.Net loss attributable to China America Holdings
increased $354,773 as a result of attributing 49% of net income derived from
Aohong in the amounts of $91,768 and $501,023 for the 2009 transition period and
first nine months of fiscal 2008, respectively, to the noncontrolling interest
holders and absorbing 100% of the corporate expenses resulting from the
responsibilities of being a public entity.





Unrealized Foreign currency
translation gain and Comprehensive loss.The functional currency of our
subsidiary operating in the PRC is the Chinese Yuan or Renminbi (“RMB”). The
financial statements of our subsidiary is translated to U.S. dollars using
period end rates of exchange for assets and liabilities, and average rates of
exchange (for the period) for revenues, costs, and expenses. As a result of
these translations, which are a non-cash adjustment, we reported an
unrealized foreign currency translation gain of $22,253 for the 2009
transition period and $403,604 for the first nine months of fiscal 2008. This
non-cash gain had the effect of reducing our reported comprehensive loss.During the 2009
transition period total comprehensive loss was $339,798 and comprehensive loss
attributable to China America Holdings, Inc. was $441,340 compared to the first
nine months of fiscal 2008 with total comprehensive income of $647,854 and
comprehensive loss attributable to China America Holdings, Inc. of
$51,171.





LIQUIDITY
AND CAPITAL RESOURCES





Liquidity
is the ability of a company to generate adequate amounts of cash to meet its
needs for cash.  . The following table provides selected financial
information from our balance sheets at September 30, 2009 and December 31,
2008:





September
      30, 2009
            
            
            December
      31, 2008
            
            
            Increase
      (Decrease)
            
            
            %Working
      capital
            
            $
            2,878,476
            
            
            $
            4,204,267
            
            
            $
            (1,325,791
            )
            
            
            -31.5
            %Cash
            
            
            1,721,231
            
            
            
            2,228,455
            
            
            
            (507,224
            )
            
            
            -22.8
            %Total
      current assets
            
            
            8,095,099
            
            
            
            9,284,550
            
            
            
            (1,189,451
            )
            
            
            -12.8
            %Total
      assets
            
            
            13,879,789
            
            
            
            13,714,052
            
            
            
            165,737
            
            
            
            1.2
            %Total
      current liabilities
            
            
            5,216,623
            
            
            
            5,080,283
            
            
            
            136,340
            
            
            
            2.7
            %Total
      liabilities
            
            $
            5,216,623
            
            
            $
            5,080,283
            
            
            $
            136,340
            
            
            
            2.7
            %





At
September 31, 2009 and December 31, 2008 our cash is located in the following
geographic areas:





Country
            
            September
      30, 2009
            
            
            December
      31, 2008China
            
            $
            1,721,002
            
            
            
            99.99
            %
            
            $
            2,135,998
            
            
            
            95.85
            %United
      States
            
            
            229
            
            
            
            0.01
            %
            
            
            92,457
            
            
            
            4.15
            %Total
      cash and cash equivalents
            
            $
            1,721,231
            
            
            
            100.00
            %
            
            $
            2,228,455
            
            
            
            100.00
            %





Cash on
deposit in China is subject to the regulations of the PRC which restricts the
transfer of cash from that country, except under certain specific circumstances.
Accordingly, such funds may not be readily available to us to satisfy
obligations which have been incurred outside the PRC.





The
following table provides selected information on the changes in our assets and
liabilities at September 30, 2009 from December 31, 2008:





September
      30, 2009
            
            
            December
      31, 2008
            
            
            Increase
      (Decrease)
            
            
            %Accounts
      receivable, net
            
            $
            2,782,814
            
            
            $
            3,778,096
            
            
            $
            (995,282
            )
            
            
            -26
            %Notes
      receivable
            
            
            829,890
            
            
            
            1,104,343
            
            
            
            (274,453
            )
            
            
            -25
            %Inventories,
      net
            
            
            2,165,567
            
            
            
            1,719,796
            
            
            
            445,771
            
            
            
            26
            %Advances
      on purchases
            
            
            112,974
            
            
            
            405,674
            
            
            
            (292,700
            )
            
            
            -72
            %Prepaid
      expense and other
            
            
            439,486
            
            
            
            48,186
            
            
            
            391,300
            
            
            
            812
            %Restrictied
      cash
            
            
            877,501
            
            
            
            175,075
            
            
            
            702,426
            
            
            
            401
            %Property
      and equipment, net and land use rights
            
            
            4,877,939
            
            
            
            3,478,903
            
            
            
            1,399,036
            
            
            
            40
            %Deposit
      on land use rights
            
            
            -
            
            
            
            744,303
            
            
            
            (744,303
            )
            
            
            -100
            %Other
      assets
            
            
            29,250
            
            
            
            31,221
            
            
            
            (1,971
            )
            
            
            -6
            %Notes
      payable
            
            
            3,436,290
            
            
            
            3,002,982
            
            
            
            433,308
            
            
            
            14
            %Accounts
      payable and accrued expenses
            
            
            893,391
            
            
            
            957,190
            
            
            
            (63,799
            )
            
            
            -7
            %Advances
      from customers
            
            
            199,905
            
            
            
            424,320
            
            
            
            (224,415
            )
            
            
            -53
            %Taxes
      payable
            
            
            458,570
            
            
            
            487,223
            
            
            
            (28,653
            )
            
            
            -6
            %Due
      to related parties
            
            $
            228,467
            
            
            $
            208,568
            
            
            $
            19,899
            
            
            
            10
            %





- 17
-


Our
working capital decreased $1,325,791 to $2,878,476 at September 30, 2009 from
working capital of $4,204,267 at December 31, 2008. This decrease in working
capital is primarily attributable to a decrease in cash of $507,224, a decrease
in accounts receivable and notes receivable of $1,269,735, a decrease in advance
on purchases of $292,700, and an increase in notes payable of $433,308 offset by
an increase in inventories of $445,771, a decrease in advances from customers,
an increase in prepaid expenses of $391,300, and a decrease in accounts payable
and taxes payable of $92,452.





At
September 30, 2009, our accounts receivable were $2,782,814 which is net of an
allowance for doubtful accounts of $175,701. We believe that our collection
remains strong and that our reserve for bad debts reflects the risk of
nonpayment by our customers.  Our days sales outstanding decreased to
39 days during the 2009 transition period compared to 44 days for the first nine
months of fiscal 2008.





At each
of September 30, 2009 and December 31, 2008, notes receivable represented
amounts due from customers for the purchase of finished goods. These obligations
are similar to accounts receivable.  The balance at September 30, 2009
represents amounts which were due between October 2009  and December
2010. Based upon historical experience with these customers, AoHong anticipates
that the balance of these notes receivable will be paid in accordance with each
of their respective terms.





At
September 30, 2009, inventories increased 26% from December 31, 2008; this
increase is primarily attributable to build-up of inventory during the summer
months to satisfy higher demand of coolants in the summer with inventory levels
decreasing during the winter months.





At
September 30, 2009, advances on purchases decreased approximately 72% from
December 31, 2008.  Advances on purchases represent prepayments for
products which have not been shipped to us.  The decrease is primarily
attributable to timing differences in orders places in the ordinary course of
business.





At
September 30, 2009, prepaid expenses and other current assets increased
approximately 812% from December 31, 2008.  These amounts consist
primarily of deposits made on construction in progress of our Tianjin facility
and other prepaid expenses such as insurance and deposits for marketing and
sales meeting facilities.  The increase is primarily attributable to
an approximately $393,000 increase in deposits on construction of manufacturing
facilities in Tianjin City.





Notes
payable at September 30, 2009 was approximately 14% higher than notes payable at
December 31, 2008.  Included in notes payable at September 30, 2009
was:





•
            $2,193,752
      due by AoHong to banks for bank acceptance notes which are similar to
      factored receivables in that AoHong assigned the receivable from its
      customer to a bank and received cash in an amount equal to the full amount
      of the receivable.  Associated to these notes are restricted
      cash of $877,501which remains on deposit at the bank to secure the
      advance, the bank acceptance payable is satisfied by AoHong at the time
      its customer pays the receivable, if the customer does not pay the
      receivable, AoHong is still liable for the payable to the
      bank;•
            $817,538
      due to Commercial Bank of China with maturities on January 20, 2010 and
      February 25, 2010 with interest rates at 5.103% the proceeds from these
      loans were used for inventory purchases and will be repaid with the
      receivables related to the sale of inventory.•
            $25,000
      attributable to our Biometrics segment and represents the remaining
      principal amount due under notes issued by us in a 2003 private placement,
      this amount is due on demand with an interest rate of 10% per annum,
      and•
            $400,000
      due to China Direct Industries, Inc. on June 30, 2010 with an interest
      rate of 4% per annum.





At
September 30, 2009, accounts payable and accrued expenses decreased 7% from
December 31, 2008.  This decrease is primarily due to timing
differences of payments made against payables and new orders placed during the
ordinary course of business.





At
September 30, 2009, advances from customers decreased 53% from December 31,
2008.  Advances from customers represent deposits on orders we require
before we shipped goods to our customers, this decrease is mainly due to a
decrease is orders we have experienced toward the end of the 2009 transition
period.





At
September 30, 2009, taxes payable decreased 6% from December 31,
2008.  This decrease is primarily due to the smaller provision for
income tax during the current period due to lower net income in
AoHong.





Due to
related parties at September 30, 2009 represents amounts loaned to AoHong by Mr.
Aihua Hu, its Chief Executive Officer and a member of our Board of Directors,
and members of his family for working capital purposes. These loans, which were
primarily made during the three months ended June 30, 2007, do not bear any
interest and are due on demand.


- 18
-


Historically,
we have financed our growth and cash requirements through equity investments and
debt and equity financing. We do not currently have any material commitments for
capital expenditures other than that which will be necessary to complete the new
manufacturing facility in Tianjin City described below.  However, as
described elsewhere herein, we have approximately $2.2 million of short term
obligations which become due within the next 12 months.  Currently,
our cash is not sufficient for all of our capital needs and we will need to
raise additional capital to satisfy these obligations. Given the current
uncertainties in the capital markets, there can be no assurance that we can
raise capital on suitable terms, if at all. There are also no assurances that
any of our outstanding warrants will be exercised on a cash basis, if at all. If
we are unable to satisfy our contractual commitments to AoHong, our operations
in future periods could be adversely impacted and we could lose all of our
investment in AoHong. In addition, if we are unable to satisfy the China Direct
Industries, Inc. note, it could declare a default and would be entitled to
pursue collection of the obligation. If we are unable to obtain the financing
necessary to pay the obligations as they become due and support our operations,
we may be unable to continue as a going concern. In that event, we may be forced
to cease operations and our shareholders could lose their entire investment in
our company.





Cash
Flow Activities





During
the 2009 transition period, net cash provided by operating activities from
continued operations amounted to $1,188,097.We used cash to fund our net loss
from continued operations of $362,051 as well as for an increase in
inventory of $441,279, a decrease in advances from customer of $225,283, and a
reduction in accounts payable and accrued expenses of $65,821. These uses of
cash were offset by net non-cash adjustments to net loss of $877,282, decreases
in accounts receivable of $828,158, a decrease in advances on purchases, and a
decrease in notes receivable of $276,935.





For the
first nine months of September 30, 2008, net cash used in operating activities
amounted to $971,438. We used cash to fund our net loss of $401,977 as well as
for an increase in inventories of $1,353,039 and advances on purchases of
$912,120, and a decrease in accounts payable and accrued expenses of $110,397.
Cash used was offset cash provided by a decrease in accounts receivable of
$165,058, by decreases of $245,239 in other assets, an increase in taxes payable
of $502,654, and an increase in advances from customers of $56,510 as well as an
net add-back of $141,172 for non cash expenses including stock-based
compensation of $10,400, contributed services of $110,000, and depreciation and
amortization of $221,061, from the non-cash impact of the change in allowance
for doubtful accounts of $199,385.





During
the 2009 transition period, net cash used in investing activities $1,369,560 and
was attributable to the purchase of property and equipment of $971,184, which
included the acquisition of manufacturing equipment for our Shanghai facility,
and $393,095 in prepaid construction for the Tianjin facility.  The
deposit on land use rights of $745,574 was reclassified as an actual purchase of
land use rights as we obtained such rights during the current
period.





During
the first nine months of fiscal 2008, net cash used in investing activities was
$1,607,759 and was attributable to the purchase of property and equipment of
$1,637,013, which included the acquisition of manufacturing equipment for our
newly completed facility, offset by proceeds from the sale of marketable equity
securities of $29,254.





During
the 2009 transition period, net cash used in financing activities was
$255,270.  We received net proceeds of $426,744 from notes payable and
$19,483 from related party advances, which were offset by an increase in
restricted cash of $701,497.





During
the first nine months of fiscal 2008, net cash provided by financing activities
was $1,741,718.  We received net proceeds of $1,784,811 from notes
payable and $15,276 from related party advances, which were partially offset by
an increase in restricted cash of $58,369.





As a
result of the above, net cash decreased by $507,224 during the 2009 transition
period, which included $4,884 which was the effect of the exchange rate on our
cash, as compared to a net cash decrease of $921,727 during the first nine
months of 2008.





Contractual
Obligations





Under the
terms of our purchase agreement with AoHong, we are required to contribute an
additional $1,780,000 to its registered capital, which was originally due by
June 27, 2009.  As described elsewhere herein, we did not pay the
amount when due and the minority owners of AoHong have orally agreed to extend
the due date of this amount to on or before November 20, 2010. In addition, a
$400,000 note payable to China Direct Industries, Inc. was originally due on
December 31, 2008 and was extended to June 30, 2010. We will be required to
raise additional capital to fund the remaining balance of the obligation to
AoHong’s minority owners and to satisfy the note due to China Direct Industries,
Inc..





In
November 2008, we created Aohong Tianjin to expand our distribution channels to
northern China. AoHong Tianjin agreed to acquire land use rights for
approximately 253,350 square feet of land located in Ji County Economic
Development Park for approximately $751,364. We plan to
continue construction of a manufacturing distribution facility for AoHong
Tianjin and complete the project during fiscal 2010 dependent upon obtaining
sufficient funding. The cost of the project is estimated at approximately $2.9
million and we anticipate will be funded by current operations and bank loans.
The amount due to land use rights as of December 31, 2008 was $7,061 which has
been paid in February 2009. Aohong Tianjin currently does not have any new
loans.


- 19
-


The
following tables summarize our contractual obligations as of September 30, 2009,
and the effect these obligations are expected to have on our liquidity and cash
flows in future periods.





Payments
      due by PeriodTotal
            
            
            Less
      than 1 year
            
            
            1-3
      Year
            
            
            3-5
      Year
            
            
            5
      Years +Contractual
      Obligations:Bank
      and other indebtedness (1)
            
            $
            3,436,290
            
            
            $
            3,436,290
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Aohong
      capital commitment
            
            
            1,780,000
            
            
            
            1,780,000
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      contractual Obligations:
            
            $
            5,216,290
            
            
            $
            5,216,290
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -





(1)    Bank
      indebtedness consists of short term bank
loans.





Off
Balance Sheet Arrangements





Under SEC
regulations, we are required to disclose our off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to investors. An off-balance sheet arrangement means a transaction,
agreement or contractual arrangement to which any entity that is not
consolidated with us is a party, under which we have:





•
            Any
      obligation under certain guarantee contracts;•
            Any
      retained or contingent interest in assets transferred to an unconsolidated
      entity or similar arrangement that serves as credit, liquidity or market
      risk support to that entity for such assets;•
            Any
      obligation under a contract that would be accounted for as a derivative
      instrument, except that it is both indexed to our stock and classified in
      shareholder's equity in our statement of financial position;
      and•
            Any
      obligation arising out of a material variable interest held by us in an
      unconsolidated entity that provides financing, liquidity, market risk or
      credit risk support to us, or engages in leasing, hedging or research and
      development services with us.





As of the
date of this report, we do not have any off-balance sheet arrangements that we
are required to disclose pursuant to these regulations. In the ordinary course
of business, we enter into operating lease commitments, purchase commitments and
other contractual obligations. These transactions are recognized in our
financial statements in accordance with generally accepted accounting principles
in the United States.





Critical
Accounting Policies





Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We
continually evaluate our estimates, including those related to bad debts,
inventories, recovery of long-lived assets, income taxes, and the valuation of
equity transactions. We base our estimates on historical experience and on
various other assumptions that we believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Any future changes to these estimates and assumptions could cause
a material change to our reported amounts of revenues, expenses, assets and
liabilities. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting policies
affect our more significant judgments and estimates used in the preparation of
the financial statements.





Inventories





Inventories
are stated at the lower of average cost or market price and consist of raw
materials and finished goods.  An allowance is established when
management determines that certain inventories may not be saleable. If inventory
costs exceed expected market value due to obsolescence or quantities in excess
of expected demand, we will record reserves for the difference between the cost
and the market value. These reserves are recorded based on
estimates.  We review inventory quantities on hand and on order and
record, on a quarterly basis, a provision for excess and obsolete inventory, if
necessary. If the results of the review determine that a write-down is
necessary, we recognize a loss in the period in which the loss is identified,
whether or not the inventory is retained. Our inventory reserves establish a new
cost basis for inventory and are not reversed until we sell or dispose of the
related inventory. Such provisions are established based on historical usage,
adjusted for known changes in demands for such products, or the estimated
forecast of product demand and production requirements.


- 20
-


Property
and Equipment





Property
and equipment are stated at cost less accumulated depreciation. Depreciation is
computed using straight-line method over the estimated useful lives of the
assets. The estimated useful lives of the assets are as follows:





Useful
      LifeBuilding
      and building improvements
            
            
            20
            
            YearsManufacturing
      equipment
            
            
            10
            
            YearsOffice
      equipment and furniture
            
            
            5 -
      7
            
            YearsVehicle
            
            
            5
            
            Years





The cost
of repairs and maintenance is expensed as incurred; major replacements and
improvements are capitalized. When assets are retired or disposed of, the cost
and accumulated depreciation are removed from the accounts, and any resulting
gains or losses are included in income in the year of disposition.





Included
in property and equipment is construction-in-progress which consists of a
factory under construction for a facility in Tianjin acquired by Aohong Tianjin
and includes the initial costs of construction. No provision for depreciation is
made on construction-in-progress until such time as the relevant assets are
completed and ready for their intended use.





We
examine the possibility of decreases in the value of fixed assets when events or
changes in circumstances reflect the fact that their recorded value may not be
recoverable. We recognize an impairment loss when the sum of expected
undiscounted future cash flows is less than the carrying amount of the asset.
The amount of impairment is measured as the difference between the asset’s
estimated fair value and its book value.





Revenue
Recognition





In
general, we record revenue when persuasive evidence of an arrangement exists,
services have been rendered or product delivery has occurred, the sales price to
the customer is fixed or determinable, and collectability is reasonably
assured.





The
following policies reflect specific criteria for recognizing
revenues:





•
            We
      generate revenue from the sale of our products and records revenues from
      the sale of products when the goods are shipped, title passes, and
      collectability is reasonably assured;•
            Revenue
      from periodic maintenance agreements is generally recognized ratably over
      the respective maintenance periods provided no significant obligations
      remain and collectability of the related receivable is probable;
      and•
            Revenue
      from the performance of services is recognized upon completion of the
      service.





Recent
Accounting Pronouncements





EITF
Issue No. 07-5 (ASC 815), "Determining Whether an Instrument (or embedded
Feature) is Indexed to an Entity's Own Stock" (EITF 07-5) was issued in June
2008 to clarify how to determine whether certain instruments or features were
indexed to an entity's own stock under EITF Issue No. 01-6 (ASC 815), "The
Meaning of "Indexed to a Company's Own Stock" (EITF 01-6) (ASC 815),. EITF
07-5(ASC 815), applies to any freestanding financial instrument (or embedded
feature) that has all of the characteristics of a derivative as defined in FAS
133, for purposes of determining whether that instrument (or embedded feature)
qualifies for the first part of the paragraph 11(a) scope exception. It is also
applicable to any freestanding financial instrument (e.g., gross physically
settled warrants) that is potentially settled in an entity's own stock,
regardless of whether it has all of the characteristics of a derivative as
defined in FAS 133 (ASC 815), for purposes of determining whether to apply EITF
00-19 (ASC 815). EITF 07-5(ASC 815) does not apply to share-based payment awards
within the scope of FAS 123(R), Share-Based Payment (FAS 123(R) (ASC 718)).
However, an equity-linked financial instrument issued to investors to establish
a market-based measure of the fair value of employee stock options is not within
the scope of FAS 123(R) and therefore is subject to EITF 07-5(ASC
815).





In
January 2009, the FASB issued FSP EITF 99-20-1 (ASC 325), to amend the
impairment guidance in EITF Issue No. 99-20 (ASC 325) in order to achieve
more consistent determination of whether an other-than-temporary impairment
(“OTTI”) has occurred. This FSP amended EITF 99-20 (ASC 325) to more
closely align the OTTI guidance therein to the guidance in Statement
No. 115 (ASC 320, 10-35-31). Retrospective application to a prior interim
or annual period is prohibited. The guidance in this FSP was considered in the
assessment of OTTI for various securities at December 31,
2008.








In
June 2009, the FASB approved the “FASB Accounting Standards Codification”
(the “Codification”) as the single source of authoritative nongovernmental U.S.
GAAP to be launched on July 1, 2009.  The Codification does not change
current U.S. GAAP, but is intended to simplify user access to all authoritative
U.S. GAAP by providing all the authoritative literature related to a particular
topic in one place.  All existing accounting standard documents will be
superseded and all other accounting literature not included in the Codification
will be considered non-authoritative. The Codification is effective for interim
and annual periods ending after September 15, 2009.


- 21
-





In
August 2009, the FASB issued the FASB Accounting Standards Update No.
2009-04“Accounting for
Redeemable Equity Instruments - Amendment to Section
480-10-S99”  which represents an update to section 480-10-S99,
distinguishing liabilities from equity, per EITF Topic D-98,Classification and
Measurement of Redeemable Securities .  The Company does not expect
the adoption of this update to have a material impact on its consolidated
financial position, results of operations or cash flows.





In August 2009, the FASB issued the FASB Accounting Standards Update No.
2009-05“Fair Value
Measurement and Disclosures Topic 820 – Measuring Liabilities at Fair
Value” , which provides amendments to subtopic 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities.  This update provides clarification that in circumstances in
which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the following techniques: 1. A valuation technique that uses: a. The
quoted price of the identical liability when traded as an asset b. Quoted prices
for similar liabilities or similar liabilities when traded as assets. 2. Another
valuation technique that is consistent with the principles of topic 820; two
examples would be an income approach, such as a present value technique, or a
market approach, such as a technique that is based on the amount at the
measurement date that the reporting entity would pay to transfer the identical
liability or would receive to enter into the identical liability.





The amendments in this update also clarify that when estimating the fair value
of a liability, a reporting entity is not required to include a separate input
or adjustment to other inputs relating to the existence of a restriction that
prevents the transfer of the liability. The amendments in this update also
clarify that both a quoted price in an active market for the identical liability
when traded as an asset in an active market when no adjustments to the quoted
price of the asset are required are Level 1 fair value measurements.  The
Company does not expect the adoption of this update to have a material impact on
its consolidated financial position, results of operations or cash
flows.





In
September 2009, the FASB issued the FASB Accounting Standards Update No.
2009-08“Earnings Per Share –
Amendments to Section 260-10-S99”, which represents technical corrections
to topic 260-10-S99, Earnings per share, based on EITF Topic D-53,Computation of Earnings
Per Share for a Period that includes a Redemption or an Induced Conversion of a
Portion of a Class of Preferred Stock  and EITF Topic
D-42,The Effect of
the Calculation of Earnings per Share for the Redemption or Induced Conversion
of Preferred Stock . The Company does not expect the adoption of this
update to have a material impact on its consolidated financial position, results
of operations or cash flows.





In
September 2009, the FASB issued the FASB Accounting Standards Update No.
2009-09“Accounting for
Investments-Equity Method and Joint Ventures and Accounting for Equity-Based
Payments to Non-Employees” .  This update represents a correction to
Section 323-10-S99-4,Accounting by an
Investor for Stock-Based Compensation Granted to Employees of an Equity Method
Investee . Additionally, it adds observer commentAccounting Recognition
for Certain Transactions Involving Equity Instruments Granted to Other Than
Employees  to the Codification. The Company does not expect the
adoption to have a material impact on its consolidated financial position,
results of operations or cash flows.





In
September 2009, the FASB issued the FASB Accounting Standards Update No.
2009-12“Fair Value
Measurements and Disclosures Topic 820 – Investment in Certain Entities That
Calculate Net Assets Value Per Share (or Its Equivalent)” , which
provides amendments to Subtopic 820-10, Fair Value Measurements and
Disclosures-Overall, for the fair value measurement of investments in certain
entities that calculate net asset value per share (or its equivalent). The
amendments in this update permit, as a practical expedient, a reporting entity
to measure the fair value of an investment that is within the scope of the
amendments in this update on the basis of the net asset value per share of the
investment (or its equivalent) if the net asset value of the investment (or its
equivalent) is calculated in a manner consistent with the measurement principles
of Topic 946 as of the reporting entity’s measurement date, including
measurement of all or substantially all of the underlying investments of the
investee in accordance with Topic 820. The amendments in this update also
require disclosures by major category of investment about the attributes of
investments within the scope of the amendments in this update, such as the
nature of any restrictions on the investor’s ability to redeem its investments
at the measurement date, any unfunded commitments (for example, a contractual
commitment by the investor to invest a specified amount of additional capital at
a future date to fund investments that will be make by the investee), and the
investment strategies of the investees. The major category of investment is
required to be determined on the basis of the nature and risks of the investment
in a manner consistent with the guidance for major security types in U.S. GAAP
on investments in debt and equity securities in paragraph 320-10-50-1B. The
disclosures are required for all investments within the scope of the amendments
in this update regardless of whether the fair value of the investment is
measured using the practical expedient. The Company does not expect the adoption
to have a material impact on its consolidated financial position, results of
operations or cash flows.





A variety
of proposed or otherwise potential accounting standards are currently under
study by standard setting organizations and various regulatory agencies. Due to
the tentative and preliminary nature of those proposed standards, management has
not determined whether implementation of such proposed standards would be
material to our consolidated financial statements.


- 22
-


Cautionary
Note Regarding Forward-Looking Information and Factors That May Affect Future
Results





This
report contains forward-looking statements. The Securities and Exchange
Commission encourages companies to disclose forward-looking information so that
investors can better understand a company’s future prospects and make informed
investment decisions. This report and other written and oral statements that we
make from time to time contain such forward-looking statements that set out
anticipated results based on management’s plans and assumptions regarding future
events or performance. We have tried, wherever possible, to identify such
statements by using words such as “anticipate,” “estimate,” “expect,” “project,”
“intend,” “plan,” “believe,” “will” and similar expressions in connection with
any discussion of future operating or financial performance. In particular,
these include statements relating to future actions, future performance or
results of current and anticipated sales efforts, expenses, the outcome of
contingencies, such as legal proceedings, and financial results. A list of
factors that could cause our actual results of operations and financial
condition to differ materially is discussed in greater detail under Item 1A
– “Risk Factors” appearing elsewhere in this report.





We
caution that the factors described in Item 1A of this report and
other factors could cause our actual results of operations and financial
condition to differ materially from those expressed in any forward-looking
statements we make and that investors should not place undue reliance on any
such forward-looking statements. Further, any forward-looking statement speaks
only as of the date on which such statement is made, and we undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of anticipated or unanticipated events or circumstances. New factors
emerge from time to time, and it is not possible for us to predict all of such
factors. Further, we cannot assess the impact of each such factor on our results
of operations or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements.





ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.





Not
applicable to a smaller reporting company.





ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.










ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.





None.





ITEM
9A(T). CONTROLS AND PROCEDURES.





Disclosure
Controls and Procedures





Under the
supervision and with the participation of our management, including our Chief
Executive Officer who also serves as Chief Financial Officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) under the Securities
Exchange Act of 1934, as amended, as of the end of the period covered by this
report (the "Evaluation Date"). Based on this evaluation, our Chief Executive
Officer concluded as of the Evaluation Date that our disclosure controls and
procedures were effective such that the information relating to China America,
including our consolidating subsidiaries, required to be disclosed in our SEC
reports (i) is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms and (ii) is accumulated and
communicated to our management, including our Chief Executive Officer, to allow
timely decisions regarding required disclosure.





Our
management, including our Chief Executive Officer, does not expect that our
disclosure controls and procedures or our internal controls will prevent all
error and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their costs. Due to the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within our company have been detected.





Management
Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934, as amended). Our management assessed the
effectiveness of our internal control over financial reporting as of September
30, 2009. In making this assessment, our management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO")
in Internal Control-Integrated Framework. Our management has concluded that, as
of September 30, 2009, our internal control over financial reporting is
effective based on these criteria.


- 23
-


This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting. Our
management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this annual report.





Changes
in Internal Control over Financial Reporting





There
have been no changes in our internal control over financial reporting during our
fourth fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





ITEM 9B.
OTHER INFORMATION.





None.





PART
III





ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.





Directors
and Executive Officers





The
following individuals serve as our executive officers and members of our Board
of Directors:





Name
            
            Age
            
            PositionsShaoyin
      Wang
            
            48
            
            Chairman
      of the Board, Chief Executive Officer, President and Chief Financial
      OfficerAihua
      Hu
            
            48
            
            Chief
      Executive Officer, AoHong and
Director





Shaoyin Wang. Mr. Wang
has served as our Chief Executive Officer, President, Chief Financial Officer
and Chairman of the Board of Directors since January 2009. From June 2006 until
November 2008 he was the Director of the Information Department of Shanghai
Mingjia Real Estate Development Co., Ltd. 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, Mr. Wang travelled in Auckland, 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. Mr. Wang received a Bachelor’s Degree in Computer Science
from Shanghai University in 1984.





Aihua
Hu.  Mr. Hu has served as CEO of AoHong since co-founding
the company in February 2000 and has been a member of our Board of Directors
since September 2009. 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 located in Shanghai. As Vice General Manager
Mr. Hu was responsible for sales and business development. From September
1982 to May 1993, Mr. Hu worked for Shanghai Chemical Light Industry Co.,
Ltd. responsible for sales and marketing.  Mr. Hu is a minority
member of AoHong.





There are
no family relationships between any of the executive officers and directors,
except as set forth above. Each director is elected at our annual meeting of
shareholders and holds office until the next annual meeting of shareholders, or
until his successor is elected and qualified.





Key
Employees





Following
is biographical information on those persons whom we consider key employees of
our company:





Ms. Limin Yang Ms. Yang has
served as the Chief Financial Officer of AoHong  since February 2009
and was the Director of the Accounting Department of the company from November
2005 to February 2009. Prior to joining AoHong, Ms. Yang was the Accounting
Manager for Shanghai Farun Environmentally-Sound Materials Co., Ltd. from May
2003 to October 2005. Ms. Yang started her career as the Director of Accounting
Department for Shanghai Lixin Gas Co., Ltd. from March 1998 to April 2003. Ms.
Yang obtained the Associate Degree in Accounting from Shanghai University of
Finance & Economics in July 1998 and the Bachelor Degree in Foreign Trade
and Economics from Fudan University in July 2004.





Compliance
with Section 16(a) of The Exchange Act





During
the 2009 transition period we were not subject to Section 16(a) of the
Securities Exchange Act of 1934, and, therefore, our directors and executive
officers, and persons who own more than 10% of our common stock were not
required to file with the SEC reports disclosing their initial ownership and
changes in their ownership of our common stock.


- 24
-





Code of Business Conduct and
Ethics





We have
adopted a Code of Business Conduct and Ethics to provide guiding principles to
all of our employees. Our Code of Business Conduct and Ethics does not cover
every issue that may arise, but it sets out basic principles to guide our
employees and provides that all of our employees must conduct themselves
accordingly and seek to avoid even the appearance of improper behavior. Any
employee which violates our Code of Business Conduct and Ethics will be subject
to disciplinary action, up to an including termination of his or her
employment.





We will
provide a copy, without charge, to any person desiring a copy of the Code of
Business Conduct and Ethics, by written request to 333 E. Huhua Road, Huating
Economic & Development Area, Jiading District, Shanghai, China 201811,
Attention: Corporate Secretary.





Committees
of the Board of Directors





Our Board
of Directors has not established any committees, including an Audit Committee, a
Compensation Committee or a Nominating Committee, any committee performing a
similar function. The functions of those committees are being undertaken by the
entire board as a whole. Because we do not have any independent directors, our
Board of Directors believes that the establishment of committees of the Board
would not provide any benefits to our company and could be considered more form
than substance.





We do not
have a policy regarding the consideration of any director candidates which may
be recommended by our shareholders, including the minimum qualifications for
director candidates, nor has our Board of Directors established a process for
identifying and evaluating director nominees. We have not adopted a policy
regarding the handling of any potential recommendation of director candidates by
our shareholders, including the procedures to be followed. Our Board has not
considered or adopted any of these policies as we have never received a
recommendation from any stockholder for any candidate to serve on our Board of
Directors. Given our relative size and lack of directors and officers insurance
coverage, we do not anticipate that any of our shareholders will make such a
recommendation in the near future. While there have been no nominations of
additional directors proposed, in the event such a proposal is made, all members
of our Board will participate in the consideration of director
nominees.





None of
our directors is an “audit committee financial expert” within the meaning of
Item 407(d)(5)(ii) of Regulation S-K. In general, an “audit committee financial
expert” is an individual member of the audit committee or Board of Directors
who:





•
            understands
      generally accepted accounting principles and financial
      statements,•
            is
      able to assess the general application of such principles in connection
      with accounting for estimates, accruals and reserves,•
            has
      experience preparing, auditing, analyzing or evaluating financial
      statements comparable to the breadth and complexity to our financial
      statements,•
            understands
      internal controls over financial reporting, and•
            understands
      audit committee functions





While we
would prefer that one or more of our directors be an audit committee financial
expert, the individuals whom we have been able to attract to our Board do not
have the requisite professional backgrounds. As with most small companies until
we further develop our business, achieve a stronger revenue base and have
sufficient working capital to purchase directors and officers insurance, we do
not have any immediate prospects to attract independent directors including an
audit committee financial expert. Our securities are not quoted on an exchange
that has requirements that a majority of our Board members be independent and we
are not currently otherwise subject to any law, rule or regulation requiring
that all or any portion of our Board of Directors include “independent”
directors, nor are we required to establish or maintain an Audit Committee or
other committee of our Board of Directors.





ITEM
11.  EXECUTIVE COMPENSATION





Summary
Compensation Table





The
following table summarizes all compensation recorded in 2009 for:





•
            our
      principal executive officer or other individual serving in a similar
      capacity,•
            our
      two most highly compensated executive officers other than our principal
      executive officer who made in excess of $100,000 in 2009 and who were
      serving as executive officers at September 30, 2009 as that term is
      defined under Rule 3b-7 of the Securities Exchange Act of 1934,
      and•
            up
      to two additional individuals for whom disclosure would have been required
      but for the fact that the individual was not serving as an executive
      officer at September 30, 2009.




- 25
-


For
definitional purposes in this annual report these individuals are sometimes
referred to as the “named executive officers”. The value attributable to any
option awards is computed at the fair value on grant date and expensed over the
vesting period of the award.





Name
      and principal position
            Year
            
            Salary
            
            
            Bonus
            
            
            Stock
      Awards
            
            
            Option
      Awards
            
            
            Non-Equity
      Incentive Plan Compensation
            
            
            Nonqualified
      Deferred Compensation Earnings
            
            
            All
      Other Compensation
            
            
            Total(a)
            (b)
            
            (c)
            
            
            (d)
            
            
            (e)
            
            
            (f)
            
            
            (g)
            
            
            (h)
            
            
            (i)
            
            
            (j)Shaoyin
      Wang(1)
            2009
            
            $
            $6,570
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            6,5702008
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Aihua
      Hu
            2009
            
            
            10,520
            
            
            
            2,630
            
            
            
            -
            
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            13,1502008
            
            
            16,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            16,000





(1)           
Shaoyin Wang did not receive any compensation from us in 2008 as his employment
with us as our Chief Executive Officer began in January 2009.





Mr. Wang’s
Compensation Arrangement





We are
not a party to a written employment or similar agreement with Mr. Wang.
Upon joining our company in January 2009 as our chief executive officer and
director, we agreed to pay him $8,760 (RMB 60,000) per year for serving in these
positions.  The amount of compensation payable to Mr. Wang was
determined by the Board of Directors in its sole discretion and may be changed
at any time.  Mr. Wang is one of the two members of the Board of
Directors and as such has the ability to materially influence the amount of
compensation payable to him by us.





Outstanding
Equity Awards at Year End





The
following table provides information concerning unexercised options, stock that
has not vested and equity incentive plan awards for each named executive officer
outstanding as of December 31, 2008:





OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR ENDOPTION
      AWARDS
            
            STOCK
      AWARDSName
      (a)
            
            Number
      of Securities Underlying Unexercised Options (#) Exercisable
      (b)
            
            
            Number
      of Securities Underlying Unexercised Options (#) Unexercisable
      (c)
            
            
            Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned Options (#) (d)
            
            
            Option
      Exercise Price ($) (e)
            
            Option
      Expiration Date (f)
            
            Number
      of Shares or Units of Stock That Have Not Vested (#) (g)
            
            
            Market
      Value of Shares or Units of Stock That Have Not Vested ($)
    (h)
            
            
            Equity
      Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
      that Have Not Vested (#) (i)
            
            
            Equity
      Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
      Other Rights That Have Not Vested (#) (j)Shaoyin
      Wang
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            -
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Aihua
      Hu
            
            
            1,000,000
            
            
            
            -
            
            
            
            -
            
            
            
            .020
            
            7/27/12
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -





Incentive
and Non-Qualified Stock Option Plan





We
currently have three incentive plans, our 1999 Stock Option Plan, our 2001
Equity Compensation Plan and our 2005 Equity Compensation Plan. Following are
descriptions of these plans:




- 26
-


1999
Stock Option Plan





On July
19, 1999, the Board of Directors and shareholders adopted our 1999 Stock Option
Plan. We reserved 1,500,000 shares of common stock for issuance upon exercise of
options granted from time to time under the 1999 Stock Option Plan. The 1999
Stock Option Plan is intended to assist us in securing and retaining key
employees, directors and consultants by allowing them to participate in our
ownership and growth through the grant of incentive and non-qualified options.
Under the stock option plan we may grant incentive stock options only to key
employees and employee directors, or we may grant non-qualified options to our
employees, officers, directors and consultants. Our Board of Directors currently
administers the 1999 Stock Option Plan.





Subject
to the provisions of the stock option plan, the Board will determine who will
receive options, the number of shares of common stock that may be purchased
under the options, the time and manner of exercise of options and exercise
prices. The term of options granted under the stock option plan may not exceed
10 years or five years for an incentive stock option granted to an optionee
owning more than 10% of our voting stock. The exercise price for incentive stock
options will be equal to or greater than 100% of the fair market value of the
shares of the common stock at the time granted. However, the incentive stock
options granted to a 10% holder of our voting stock are exercisable at a price
equal to or greater than 110% of the fair market value of the common stock on
the date of the grant. The exercise price for non-qualified options will be set
by the Board, in its discretion, but in no event can the exercise price be less
than 75% of the fair market value of the shares of common stock on the date of
grant. The exercise price may be payable in cash or, with the approval of the
Board, by delivery of shares or by a combination of cash and shares. Shares of
common stock received upon exercise of options will be subject to restrictions
on sale or transfer. As of December 31, 2009 we have outstanding options to
purchase 650,000 shares under the 1999 Stock Option Plan and there are 500,000
shares remaining available for grant under the 1999 Stock Option
Plan.





2001
Equity Compensation Plan





On
November 28, 2001, the Board of Directors adopted our 2001 Equity Compensation
Plan, and on November 28, the 2001 Equity Compensation Plan was ratified by
holders of a majority of our outstanding common stock. We have reserved
2,000,000 shares of common stock for issuance as stock grants and upon exercise
of options granted from time to time under the 2001 Equity Compensation Plan.
The 2001 Equity Compensation Plan is intended to assist us in securing and
retaining key employees, directors and consultants by allowing them to
participate in our ownership and growth through the grant of incentive and
non-qualified options, as well as direct stock grants.





Under the
2001 Equity Compensation Plan, we may grant incentive stock options only to key
employees and employee directors. We may grant non-qualified options and issue
direct stock awards to our employees, officers, directors and consultants. Our
Board of Directors currently administers the 2001 Equity Compensation
Plan.





Subject
to the provisions of the 2001 Equity Compensation Plan, the Board will determine
who shall receive options or grants, the number of shares of common stock that
may be purchased under the options, the time and manner of exercise of options
and exercise prices. The term of options granted under the stock option plan may
not exceed 10 years or five years for an incentive stock option granted to an
optionee owning more than 10% of our voting stock. The exercise price for
incentive stock options will be equal to or greater than 100% of the fair market
value of the shares of the common stock at the time granted. However, the
incentive stock options granted to a 10% holder of our voting stock are
exercisable at a price equal to or greater than 110% of the fair market value of
the common stock on the date of the grant. The exercise price for non-qualified
options will be set by the Board, in its discretion, but in no event shall the
exercise price be less than the par value for our common stock. The exercise
price may be payable in cash or, with the approval of the Board, by delivery of
shares or by a combination of cash and shares. The Board may also direct the
issuance of shares of our common stock as awards under the 2001 Compensation
Plan. Absent registration under the Securities Act of 1933 or the availability
of an applicable exemption there from, shares of common stock received as stock
grants and upon exercise of options will be subject to restrictions on sale or
transfer. As of December 31, 2009, we have outstanding options to purchase
250,000 shares under the 2001 Equity Compensation Plan and there were 403,840
shares remaining for grant under the plan.


2005
Equity Compensation Plan





On June
16, 2005, the Board of Directors adopted our 2005 Equity Compensation Plan, and
on June 16, 2005, the 2005 Equity Compensation Plan was ratified by holders of a
majority of our outstanding common stock. We have reserved 5,000,000 shares of
common stock for issuance as stock grants and upon exercise of options granted
from time to time under the 2005 Equity Compensation Plan. The 2005 Equity
Compensation Plan is intended to assist us in securing and retaining key
employees, directors and consultants by allowing them to participate in our
ownership and growth through the grant of incentive and non-qualified options,
as well as direct stock grants. Under the 2005 Equity Compensation Plan we may
grant incentive stock options only to key employees and employee directors. We
may grant non-qualified options and issue direct stock awards to our employees,
officers, directors and consultants. Our Board of Directors currently
administers the 2005 Equity Compensation Plan.


- 27
-


Subject
to the provisions of the 2005 Equity Compensation Plan, the Board will determine
who shall receive options or grants, the number of shares of common stock that
may be purchased under the options, the time and manner of exercise of options
and exercise prices. The term of options granted under the stock option plan may
not exceed 10 years or five years for an incentive stock option granted to an
optionee owning more than 10% of our voting stock. The exercise price for
incentive stock options will be equal to or greater than 100% of the fair market
value of the shares of the common stock at the time granted. However, the
incentive stock options granted to a 10% holder of our voting stock are
exercisable at a price equal to or greater than 110% of the fair market value of
the common stock on the date of the grant. The exercise price for non-qualified
options will be set by the Board, in its discretion, but in no event can the
exercise price be less than the par value for our common stock The exercise
price may be payable in cash or, with the approval of the Board, by delivery of
shares or by a combination of cash and shares. The Board may also direct the
issuance of shares of our common stock as awards under the 2005 Equity
Compensation Plan. Absent registration under the Securities Act or the
availability of an applicable exemption there from, shares of common stock
received as stock grants and upon exercise of options will be subject to
restrictions on sale or transfer. As of December 31, 2009 we have outstanding
options to purchase 1,000,000 shares under the 2005 Equity Compensation Plan and
there remain 723,000 shares available under the plan.





Director
Compensation





We have
not established standard compensation arrangements for our directors and the
compensation, if any, payable to each individual for their service on our Board
is determined from time to time by our Board of Directors based upon the amount
of time expended by each of the directors on our behalf.  The
following table provides information on compensation paid to our directors
during the nine months ended September 30, 2009.





Director
      CompensationName
              
              
              
              
              (a)
            
            Fees
      earned or paid in cash ($)
              
              (b)
            
            
            Stock
      awards ($)
              
              
              
              (c)
            
            
            Option
      awards ($)
              
              
              
              (d)
            
            
            Non-equity
      incentive plan compensation ($)
              
              (e)
            
            
            Nonqualified
      deferred compensation earnings ($)
              
              (f)
            
            
            All
      other compensation ($)
              
              
              (g)
            
            
            Total
      ($)
              
              
              
              
              (h)Shaoyin
      Wang
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Dore
      Scott Perler (1)
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0





(1)           Mr.
Perler served as a member of our Board of Directors from July 1998 to September
2009.  In April 2009, we entered into a consulting agreement with Mr.
Perler expiring on December 31, 2009 to serve as a member of our Board of
Directors and corporate Secretary. Under the terms of this agreement, we agreed
to pay Mr. Perler a total of 1,000,000 shares of our common stock valued at
$20,000 to serve in these positions.




ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.





At January
11, 2010 we had 151,810,792 shares of common stock issued and outstanding. The
following table sets forth information known to us as of January 11, 2010
relating to the beneficial ownership of shares of our common stock
by:





•
            each
      person who is known by us to be the beneficial owner of more than 5% of
      our outstanding common stock;•
            each
      director;•
            each
      named executive officer; and•
            all
      named executive officers and directors as a
  group.





Unless
otherwise indicated, the business address of each person listed is in care of
333 E. Huhua Road Huating
Economic & Development Area, Jiading District, Shanghai, China 201811.





The
percentages in the table have been calculated on the basis of treating as
outstanding for a particular person, all shares of our common stock outstanding
on that date and all shares of our common stock issuable to that holder in the
event of exercise of outstanding options, warrants, rights or conversion
privileges owned by that person at that date which are exercisable within 60
days of that date. Except as otherwise indicated, the persons listed below have
sole voting and investment power with respect to all shares of our common stock
owned by them, except to the extent that power may be shared with a
spouse.


- 28
-





Name
      of Beneficial Owner
            
            #
      of Shares and nature of Beneficially Owned
            
            
            %
      of ClassShaoyin
      Wang
            
            
            0
            
            
            
            -Aihua
      Hu (1)
            
            
            13,500,000
            
            
            
            8.89
            %All
      officers and directors as a group (two persons)
            
            
            13,500,000
            
            
            
            8.89
            %Huayan
      Zhi (2)
            
            
            6,500,000
            
            
            
            4.28
            %China
      Direct Industries, Inc.(3)
            
            
            28,610,000
            
            
            
            18.84
            %





(1)
            Mr.
      Hu is the chief executive officer of AoHong and a member of the Board of
      Directors. Mr. Hu’s holdings include 12,500,000 shares of our common stock
      which are presently outstanding and options to purchase 1,000,000 shares
      of our common stock at a price of $0.20 per share, these options expire on
      June 27, 2012.(2)
            Ms.
      Zhi was the Chief Financial Officer of AoHong until her retirement in
      February 2009.(3)
            The
      number of securities beneficially owned by China Direct Industries, Inc.
      includes: 22,110,000 shares of our common stock owned of record by its
      subsidiary China Direct Investments, Inc.; 4,000,000 shares of our common
      stock owned of record by CDI Shanghai Management Co.; and 2,500,000 shares
      owned of record by Capital One Resource Co., Ltd., all of which are
      subsidiaries of China Direct Industries, Inc. The securities beneficially
      owned by China Direct Industries, Inc. excludes 3,737,340 shares of our
      common stock issuable upon the exercise of an outstanding common stock
      purchase warrant with an exercise price of $0.12 per share owned of record
      by China Direct Investments, Inc. The ability of China Direct Industries,
      Inc. to exercise the warrants is limited in that the holder is not
      entitled to exercise the warrant if the effect of such exercise would be
      that the number of shares of common stock beneficially owned by the holder
      after giving effect to such exercise would be result in beneficial
      ownership by the holder and its affiliates of more than 4.99% of our then
      outstanding shares of common stock on such date, except during the 45 day
      period immediately prior to the expiration date of the warrant. James Wang
      Ph.D., has voting and dispositive control over securities held by China
      Direct, Inc. whose address is 431 Fairway Drive, Suite 200, Deerfield
      Beach, Florida 33441





ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.





From time
to time AoHong borrows funds from Aihua Hu, its chairman, and members of his
family for working capital purposes. At September 30, 2009 these amounts totaled
$83,818. These loans do not bear any interest and are due on
demand.





We have
entered into various agreements with subsidiaries of China Direct Industries,
Inc., a principal shareholder of our company, including:





In April
2009, we entered into a consulting and management agreement with China Direct
Investments, Inc., a wholly owned subsidiary of China Direct Industries, Inc.
The agreement is for a term of twelve months from January 1, 2009 to December
31, 2009. The agreement outlines various consulting services, which has been
provided by China Direct Investments, Inc. since July 1, 2008, including
coordination of preparation and filing of public disclosures, assistance in
financial management and the implementation of internal controls, managing
investor road show/investment conferences, assisting in the implementation of
acquisition deals, among other services agreed to by the
parties.  Under the terms of the agreement, we will issue China Direct
Industries, Inc. a total of 20,000,000 shares of our common stock valued at
$400,000. Of these shares, 5,000,000 shares are payable at the end of each
quarter of 2009. This agreement also provides for the payment of discretionary
award fees to be paid to the consultant and/or its designees. Upon the mutual
agreement of the parties, the fees can be paid either in cash or marketable
securities.





In August
2008 we borrowed $400,000 from China Direct Industries, Inc. under the terms of
a secured promissory note. We used the proceeds to fund our commitments to
AoHong and for working capital purposes. The note, which bears interest at 4%
per annum, was due June 30, 2009.  The due date of the note has been
extended to June 30, 2010.





In August
2009 we entered into a consulting and management agreement with China Direct
Investments, Inc., subsidiary of China Direct Industries, Inc. The agreement is
for a term of 24 months from October 1, 2009 to September 30, 2011. The
agreement may be extended for an additional 12 months upon mutual agreement of
the parties. We engage the services of the consultant as our representative in
the United States. The provided services include but not limited to general
business consulting, management of professional resources, coordination of
preparation and filing of public disclosures, assistance in financial management
and the implementation of internal controls, managing investor road
show/investment conferences, assisting in the implementation of acquisition
deals, etc.  Under the term of the agreement, we will issue China
Direct Investments, Inc. a total of 64,000,000 shares of our common stock.
8,000,000 shares are payable by the ending of each quarter ending December 31,
March 31, June 30, and September 30 starting October 1, 2009 and will be fair
valued using the average stock price over the quarter the services were earned.
This agreement also provides for the payment of discretionary award fees to be
paid to the consultant and/or its designees. Upon the mutual agreement of the
parties, the fees can be paid either in cash or marketable
securities.


- 29
-


In June
2009 we borrowed $20,000 from a company controlled by Mr. Dore Scott Perler,
then a member of our Board of Directors.  The principal and interest
of $450 are due on March 11, 2010.  We used these funds for general
working capital.  This loan was forgiven as of September 7, 2009 as part of
Mr. Perler's seperation with the Company.





Director
Independence





None of
our directors would be considered “independent” under Rule 5605 of the NASDAQ
Marketplace Rules.


Related
Person Transaction Policy





We do not
have a related person transaction policy.  Consequently, during the
nine months ended September 30, 2009 none of the aforedescribed related party
transactions were subject to review by our Board of Directors.





ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.





Sherb
& Co., LLP served as our independent registered public accounting firm for
the 2009 transition period and fiscal 2008. The following table shows the fees
that were billed for the audit and other services provided by such firm for the
2009 transition period and fiscal 2008.





2009
            
            
            2008Audit
      Fees
            
            $
            82,500
            
            
            $
            75,000Audit
      Related Fees
            
            
            0
            
            
            
            0Tax
      Fees
            
            
            0
            
            
            
            0All
      Other Fees
            
            
            0
            
            
            
            0Total
            
            $
            82,500
            
            
            $
            75,000





Audit
Fees -- This category includes the audit of our annual financial statements,
review of financial statements included in our quarterly reports and services
that are normally provided by the independent registered public accounting firm
in connection with engagements for those fiscal years. This category also
includes advice on audit and accounting matters that arose during, or as a
result of, the audit or the review of interim financial statements.





Audit-Related
Fees -- This category consists of assurance and related services by the
independent registered public accounting firm that are reasonably related to the
performance of the audit or review of our financial statements and are not
reported above under "Audit Fees." The services for the fees disclosed under
this category include consultation regarding our correspondence with the SEC and
other accounting consulting.





Tax Fees
-- This category consists of professional services rendered by our independent
registered public accounting firm for tax compliance and tax advice. The
services for the fees disclosed under this category include tax return
preparation and technical tax advice.





All Other
Fees -- This category consists of fees for other miscellaneous
items.





Our Board
of Directors has adopted a procedure for pre-approval of all fees charged by our
independent registered public accounting firm. Under the procedure, the Board
approves the engagement letter with respect to audit, tax and review services.
Other fees are subject to pre-approval by the Board, or, in the period between
meetings, by a designated member of Board. Any such approval by the designated
member is disclosed to the entire Board at the next meeting. The audit and tax
fees paid to the auditors with respect to 2008 and 2007 were pre-approved by the
entire Board of Directors.





- 30
-




PART
IV





ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.





The
following documents are filed as a part of this report or are incorporated by
reference to previous filings, if so indicated:





Exhibit
      No.
            
            DESCRIPTION2.1
            
            Agreement
      and Plan of Merger between Century Silver Mines, Inc. and Sense Holdings,
      Inc. (Incorporated by reference to Exhibit 2 to the registration statement
      on Form SB-2, SEC File No. 333-87293).2.2
            
            Membership
      Interest Purchase Agreement by and among Sense Holdings, Inc. and its
      wholly owned subsidiary China Chemical Group, Inc. and Shanghai AoHong
      Industry Co., Ltd. (Incorporated by reference to Exhibit 10.29 of the
      Current Report on Form 8-K filed on July 3, 2007).2.3
            
            Amendment
      to Membership Interest Purchase Agreement (Incorporated by reference to
      Exhibit 10.24 of the Registration Statement on Form SB-2 filed on October
      19, 2007, SEC File No. 333-146830)3.1(a)
            
            Articles
      of Incorporation of Sense Holdings, Inc. (Incorporated by reference to
      Exhibit 3.1(a) of the registration statement on Form SB-2 filed on
      September 17, 1999 (SEC File No. 333-87293)).3.1(b)
            
            Articles
      of Merger of Century Silver Mines, Inc. into Sense Holdings, Inc. (FL)
      (Incorporated by reference to Exhibit 3.1(b) of the registration statement
      on Form SB-2 filed on September 17, 1999 (SEC File No.
      333-87293)).3.1
      (c)
            
            Articles
      of Merger of Century Silver Mines, Inc. into Sense Holdings, Inc. (ID)
      (Incorporated by reference to Exhibit 3.1(c) of the registration statement
      on Form SB-2 filed on September 17, 1999 (SEC File No.
      333-87293)).3.1
      (d)
            
            Articles
      of Amendment to the Articles of Incorporation filed February 23, 2007
      (Incorporated by reference to Exhibit 3.1(d) to the Annual Report on Form
      10-KSB for the fiscal year ended December 31, 2006 filed on April 2, 2007
      (SEC File No. 333-86206)).3.1
      (e)
            
            Articles
      of Amendment to the Articles of Incorporation filed May 30, 2000
      (Incorporated by reference to Exhibit 3.1(d) of the registration statement
      on Form SB-2 filed on May 15, 2002 (SEC File No.
    333-86206)).3.1
      (f)
            
            Articles
      of Amendment to the Articles of Incorporation filed February 7, 2002
      ((Incorporated by reference to Exhibit 3.1(e) of the registration
      statement on Form SB-2 filed on May 15, 2002 (SEC File No.
      333-86206)).3.1
      (g)
            
            Articles
      of Amendment to the Articles of Incorporation filed July 13, 2007
      (Incorporated by reference to Exhibit 3.1(g) of the Registration Statement
      on Form SB-2 filed on October 19, 2007, (SEC File No.
      333-146830)).3.1(h)
            
            Articles
      of Amendment to the Articles of Incorporation filed November 8, 2007
      (Incorporated by reference to Exhibit 3.1(h) to the Quarterly Report on
      Form 10-Q for the period ended September 30, 2007 filed on November 14,
      2007 (SEC File No. 333-87293)).3.2
            
            Bylaws
      (Incorporated by reference to Exhibit 3.2 of the registration statement on
      Form SB-2 filed on December 3, 1999 (SEC File No.
    333-87293).4.1
            
            Trilogy
      Capital Partners, Inc. Warrant Agreement dated August 29, 2005
      (Incorporated by reference to the Quarterly Report on Form 10-QSB/A for
      the period ended September 30, 2005).4.2
            
            Form
      of $0.10 common stock purchase warrant (Incorporated by reference to
      Exhibit 4.2 of the Registration Statement on Form SB-2 filed on October
      19, 2007, SEC File No. 333-146830).4.3
            
            Form
      of $0.12 common stock purchase warrant (Incorporated by reference to
      Exhibit 10.1 of the Current Report on Form 8-K filed on September 9,
      2009).10.1
            +
            1999
      Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the
      registration statement on Form SB-2, SEC File No.
    333-87293).10.2
            +
            2001
      Equity Compensation Plan (Incorporated by reference to the registration
      statement on Form S-8, SEC File No.333-81306).10.3
            +
            2005
      Equity Compensation Plan (Incorporated by reference to the registration
      statement on Form S-8, SEC File No. 333-125905).10.4
            +
            Amendment
      No. 1 to the 2005 Equity Compensation Plan (Incorporated by reference to
      the registration statement on Form S-8, SEC File No.
      333-144412).




- 31
-




10.5
            
            Consulting
      and Management Agreement dated June 27, 2007 between Sense Holdings, Inc.
      and CDI Shanghai Management Co., Ltd. (Incorporated by reference to
      Exhibit 10.30 of the Current Report on Form 8-K filed on July 3,
      2007).10.6
            
            Stock
      Purchase Agreement dated August 24, 2007 by and between CDI China, Inc.,
      China Direct, Inc. and Sense Holdings, Inc. (Incorporated by reference to
      Exhibit 10.1 to the Current Report on Form 8-K filed on August 28,
      2007).10.7
            
            Form
      of subscription agreement (Incorporated by reference to Exhibit 10.1 to
      the Current Report on Form 8-K filed on August 31,
  2007).10.8
            
            Amendment
      to Stock Purchase Agreement dated as of August 31, 2007 by and between CDI
      China, Inc., China Direct, Inc. and Sense Holdings, Inc. (Incorporated by
      reference to Exhibit 10.1to the Current Report on Form 8-K filed on August
      31, 2007).10.9
            +
            Employment
      Agreement dated June 27, 2007 between Shanghai Aohong Chemical Co., Ltd.
      and Aihau Hu (Incorporated by reference to Exhibit 10.1 of the Current
      Report on Form 8-K filed on September 9, 2009).10.10
            
            Agreement
      dated April 30, 2008 among Wei Lin, China Direct, Inc. and China America
      Holdings, Inc. (Incorporated by reference to Exhibit 10.26 of the Current
      Report on Form 8-K filed on May 5, 2008).10.11
            
            Secured
      Promissory Note dated August 22, 2008 between China America Holdings, Inc.
      and China Direct Investments, Inc. (Incorporated by reference to Exhibit
      10.26 to the Quarterly Report on Form 10-Q for the period ended September
      30, 2008 filed on November 19, 2008).10.12
            +
            Termination
      Agreement dated January 19, 2009 between China America Holdings, Inc. and
      Dore Scott Perler. (Incorporated by reference to Exhibit 10.1 of the
      Current Report on Form 8-K filed on January 22, 2009).10.13
            
            Asset
      Purchase Agreement dated January 19, 2009 between China America Holdings,
      Inc. and Pearl Group Advisors, Inc. (Incorporated by reference to Exhibit
      10.2 of the Current Report on Form 8-K filed on January 22,
      2009).10.14
            +
            Consulting
      Agreement dated April 8, 2009 between China America Holdings, Inc. and
      Dore Perler (Incorporated by reference to Exhibit 10.31 to the Annual
      Report on Form 10-K for the year ended December 31,
  2008).10.15
            
            Consulting
      and Management Agreement dated April 8, 2009 with China Direct
      Investments, Inc. (Incorporated by reference to Exhibit 10.1 to the
      Quarterly Report on Form 10-Q for the period ended March 31,
      2009).10.16
            
            Unsecured
      Promissory Note dated June 12, 2009 to Pearl Advisors Group, Inc.
      (Incorporated by reference to Exhibit Nos. 10.33 to the Quarterly Report
      on Form 10-Q for the period ended June 30, 2009).10.17
            
            Letter
      agreement dated July 1, 2009 extending due date of China Direct
      Industries, Inc. note (Incorporated by reference to Exhibit Nos. 10.34 to
      the Quarterly Report on Form 10-Q for the period ended June 30,
      2009).14.1
            
            Code
      of Business Conduct and Ethics (Incorporated by reference to Exhibit 14.1
      to the Annual Report on Form 10-KSB for the fiscal year ended December 31,
      2004).21.1
            
            Subsidiaries
      of the Registrant *23.1
            
            Consent
      of Sherb & Co., LLP *31.1
            
            Section
      302 Certificate of Chief Executive Officer *31.2
            
            Section
      302 Certificate of Chief Financial Officer*32.1
            
            Section
      906 Certificate of Chief Executive Officer and Chief Financial
      Officer*





+
            
            Management
      contract or compensatory plan or arrangement.*
            
            Filed
      herewith.




- 32
-


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.





CHINA
      AMERICA HOLDINGS, INC.Date:
      January 13, 2010
            By:
            /s/
      Shaoyin WangShaoyin
      Wang, Chief Executive Officer, President and Chairman (Principal Executive
      Officer)





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Signature
            
            Title
            
            Date/s/
      Shaoyin Wang
            
            Chief
      Executive Officer, President and Chairman (Principal Executive
      Officer)
              Chief
      Financial Officer (Principal Financial and Accounting
    Officer)
            
            January
      13, 2010Shaoyin
      Wang/s/
      Aihua Hu
            
            Director
            
            January
      13, 2010Aihua
      Hu




- 33
-


CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES


FINANCIAL
STATEMENTS


FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2009 and YEAR ENDED DECEMBER 31,
2008


INDEX TO
AUDITED CONSOLIDATED FINANCIAL STATEMENTS





CONTENTS





Report
      of Independent Registered Public Accounting Firm
            
            F-2Consolidated
      Financial Statements:Consolidated
      Balance Sheets
            
            F-3Consolidated
      Statements of Operations
            
            F-4Consolidated
      Statement of Changes in Equity
            
            F-5Consolidated
      Statements of Cash Flows
            
            F-6Notes
      to Audited Consolidated Financial Statements
            
            F-7
      to F-21




F -
1


REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors


China
America Holdings, Inc. and Subsidiaries


Shanghai,
China





We have
audited the accompanying consolidated balance sheets of China America Holdings,
Inc. and Subsidiaries as of September 30, 2009 and December 31, 2008 and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for the period ended September 30, 2009 and the year ended
December 31, 2008.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purposes of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit includes examining on a test basis, evidence
supporting the amount and disclosures in the combined financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of China America Holdings, Inc.
and Subsidiaries as of September 30, 2009 and December 31, 2008, and the results
of their operations and their cash flows for the period ended September 30, 2009
and the year ended December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America.





/s/ Sherb & Co.,
LLP


Certified
Public Accountants





Boca
Raton, Florida


January
12, 2010


F -
2


CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS




September
      30,
              
              
              December
      31,2009
              
              
              2008ASSETSCURRENT
      ASSETS:Cash
              
              $
              1,721,231
              
              
              $
              2,228,455Accounts
      receivable, net
              
              
              2,782,814
              
              
              
              3,778,096Notes
      receivable
              
              
              829,890
              
              
              
              1,104,343Inventory
              
              
              2,165,567
              
              
              
              1,719,796Tax
      receivable
              
              
              43,137
              
              
              
              -Advance
      on purchases
              
              
              112,974
              
              
              
              405,674Prepaid
      expense and other current assets
              
              
              439,486
              
              
              
              48,186Total
      current assets
              
              
              8,095,099
              
              
              
              9,284,550LONG-TERM
      ASSETS:Restricted
      cash
              
              
              877,501
              
              
              
              175,075Property
      and equipment, net
              
              
              4,049,285
              
              
              
              3,394,157Land
      use rights, net
              
              
              828,654
              
              
              
              84,746Deposit
      on land use rights
              
              
              -
              
              
              
              744,303Other
      assets
              
              
              29,250
              
              
              
              31,221Total
      other assets
              
              
              5,784,690
              
              
              
              4,429,502Total
      assets
              
              $
              13,879,789
              
              
              $
              13,714,052LIABILITIES AND EQUITYCURRENT
      LIABILITIES:Notes
      payable
              
              $
              3,036,290
              
              
              $
              2,602,982Notes
      payable-related party
              
              
              400,000
              
              
              
              400,000Accounts
      payable and accrued expenses
              
              
              893,391
              
              
              
              957,190Advances
      from customers
              
              
              199,905
              
              
              
              424,320Taxes
      payables
              
              
              458,570
              
              
              
              487,223Due
      to related parties
              
              
              228,467
              
              
              
              208,568Total
      current liabilities
              
              
              5,216,623
              
              
              
              5,080,283EQUITY:China
      America Holdings, Inc. shareholders' equityCommon
      stock: $.001 par value, 500,000,000 shares authorized; 151,810,792 and
      135,810,792 shares issued and outstanding at September 30, 2009 and
      December 31, 2008
              
              
              151,811
              
              
              
              135,811Additional
      paid-in capital
              
              
              20,014,547
              
              
              
              19,661,352Statutory
      reserves
              
              
              704,321
              
              
              
              687,717Accumulated
      deficit
              
              
              (17,650,606
              )
              
              
              (17,180,183
              )Accumulated
      other comprehensive income
              
              
              428,109
              
              
              
              415,630Total
      China America Holdings, Inc. shareholders' equity
              
              
              3,648,182
              
              
              
              3,720,327Noncontrolling
      interest
              
              
              5,014,984
              
              
              
              4,913,442Total
      equity
              
              
              8,663,166
              
              
              
              8,633,769Total
      liabilities and equity
              
              $
              13,879,789
              
              
              $
              13,714,052


The
accompanying notes are an integral part of the financial
statements.


F -
3


CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


Nine
      Months
              
              
              Nine
      Months
              
              
              Twelve
      MonthsEnded
              
              
              Ended
              
              
              EndedSeptember
      30,
              
              
              September
      30,
              
              
              December
      31,2009
              
              
              2008
              
              
              2008UnauditedNet
      revenues
              
              $
              22,883,725
              
              
              $
              27,069,776
              
              
              $
              34,967,512Cost
      of sales
              
              
              20,967,658
              
              
              
              24,606,462
              
              
              
              32,279,091Gross
      profit
              
              
              1,916,067
              
              
              
              2,463,314
              
              
              
              2,688,421Operating
      expenses:Selling
      expenses
              
              
              730,662
              
              
              
              634,883
              
              
              
              748,400Consulting
      and investor relations expense
              
              
              28,966
              
              
              
              155,420
              
              
              
              153,420Consulting
      expense-related party
              
              
              289,000
              
              
              
              110,000
              
              
              
              175,812Compensation
      and related taxes
              
              
              329,557
              
              
              
              198,310
              
              
              
              239,672General
      and administrative
              
              
              657,202
              
              
              
              376,619
              
              
              
              511,388Total
      operating expenses
              
              
              2,035,387
              
              
              
              1,475,232
              
              
              
              1,828,692Total
      operating (loss) income
              
              
              (119,320
              )
              
              
              988,082
              
              
              
              859,729Other
      income (expenses):Interest
      income
              
              
              5,352
              
              
              
              13,430
              
              
              
              15,962Interest
      expense
              
              
              (28,552
              )
              
              
              (50,133
              )
              
              
              (86,499
              )Interest
      expense-related party
              
              
              (11,967
              )
              
              
              (1,710
              )
              
              
              (5,742
              )Other
      income
              
              
              34,698
              
              
              
              -
              
              
              
              -Loss
      on disposition of property and equipment
              
              
              (63,453
              )
              
              
              -
              
              
              
              -Realized
      loss on sale of marketable equity securities
              
              
              -
              
              
              
              (45,008
              )
              
              
              (325,983
              )Foreign
      currency transaction gain (loss)
              
              
              (4,695
              )
              
              
              5,915
              
              
              
              5,614Total
      other expenses
              
              
              (68,617
              )
              
              
              (77,506
              )
              
              
              (396,648
              )Net
      (loss) income from continuing operations before income
    taxes
              
              
              (187,937
              )
              
              
              910,576
              
              
              
              463,081Discontinued
      operations:Gain
      from disposal of discontinued operations
              
              
              -
              
              
              
              45,912
              
              
              
              45,912Loss
      from discontinued operations
              
              
              (75,375
              )
              
              
              (185,427
              )
              
              
              (278,737
              )Total
      loss from discontinued operations
              
              
              (75,375
              )
              
              
              (139,515
              )
              
              
              (232,825
              )(Loss)
      Income before income taxes
              
              
              (263,312
              )
              
              
              771,061
              
              
              
              230,256Provision
      for income taxes
              
              
              (98,739
              )
              
              
              (369,084
              )
              
              
              (354,616
              )Net
      (loss) income
              
              
              (362,051
              )
              
              
              401,977
              
              
              
              (124,360
              )Less:
      Net income attributable to noncontrolling interest
              
              
              (91,768
              )
              
              
              (501,023
              )
              
              
              (436,798
              )Net
      (loss) income attributable to China America Holdings, Inc.
              
              $
              (453,819
              )
              
              $
              (99,046
              )
              
              $
              (561,158
              )Basic
      and diluted loss per common share:Net
      (loss) income from continuing operations
              
              $
              -
              
              
              $
              -
              
              
              $
              -Net
      (loss) income from discontinued operations
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss per common share
              
              $
              -
              
              
              $
              -
              
              
              $
              -Weighted
      average number of shares outstanding:Basic
      and diluted
              
              
              141,338,265
              
              
              
              135,798,967
              
              
              
              135,802,216Amounts
      attributable to China America Holdings, Inc.(Loss)
      income from continuing operations, net of tax
              
              $
              (378,444
              )
              
              $
              40,469
              
              
              $
              (328,333
              )Discontinued
      operations, net of tax
              
              
              (75,375
              )
              
              
              (139,515
              )
              
              
              (232,825
              )Net
      (loss) income
              
              $
              (453,819
              )
              
              $
              (99,046
              )
              
              $
              (561,158
              )
 
 The
accompanying notes are an integral part of the financial
statements.


F -
4


CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY





China
      America Holdings, Inc. ShareholdersAccumulatedCommon
      Stock, $.001 Par Value
              
              Additional
              
              
              
              
              
              OtherNumber
      of
              
              
              
              Paid-in
              
              Statutory
              
              Accumulated
              
              Comprehensive
              
              Noncontrolling
              
              Comprehensive
              
              TotalShares
              
              Amount
              
              Capital
              
              Reserves
              
              Deficit
              
              Income
              
              Interest
              
              Income
              
              EquityBalance,
      December 31, 2007
              
              
              135,700,792
              
              $
              135,701
              
              $
              19,541,062
              
              $
              628,017
              
              $
              (16,559,325
              )
              $
              98,215
              
              $
              4,378,042
              
              $
              -
              
              $
              8,221,712Common
      stock issued for services
              
              
              110,000
              
              
              110
              
              
              10,290
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              10,400Contributed
      services
              
              
              -
              
              
              -
              
              
              110,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              110,000Comprehensive
      income:Appropriation
      of statutory reserves
              
              
              -
              
              
              -
              
              
              -
              
              
              59,700
              
              
              (59,700
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Net
      loss for the year
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (561,158
              )
              
              -
              
              
              436,798
              
              
              (124,360
              )
              
              (124,360
              )Other
      comprehensive income, net of tax:Foreign
      currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              317,415
              
              
              98,602
              
              
              416,017
              
              
              416,017Other
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              416,017
              
              
              416,017Total
      comprehensive income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              291,657
              
              
              291,657Balance,
      December 31, 2008
              
              
              135,810,792
              
              
              135,811
              
              
              19,661,352
              
              
              687,717
              
              
              (17,180,183
              )
              
              415,630
              
              
              4,913,442
              
              
              -
              
              
              8,633,769Common
      stock issued for services
              
              
              16,000,000
              
              
              16,000
              
              
              273,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              289,000Option
      expense for Aihua Hu
              
              
              
              
              
              
              
              
              80,195
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              80,195Comprehensive
      loss:Appropriation
      of statutory reserves
              
              
              -
              
              
              -
              
              
              -
              
              
              16,604
              
              
              (16,604
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Net
      loss for the period
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (453,819
              )
              
              -
              
              
              91,768
              
              
              (362,051
              )
              
              (362,051
              )Other
      comprehensive income, net of tax:Foreign
      currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              12,479
              
              
              9,774
              
              
              22,253
              
              
              22,253Other
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              22,253
              
              
              22,253Total
      comprehensive loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              (339,798
              )
              
              (339,798
              )Balance,
      September 30, 2009
              
              
              151,810,792
              
              $
              151,811
              
              $
              20,014,547
              
              $
              704,321
              
              $
              (17,650,606
              )
              $
              428,109
              
              $
              5,014,984
              
              
              
              
              $
              8,663,166


The
accompanying notes are an integral part of the financial
statements.


F -
5


CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


Nine
      Months
              
              
              Nine
      Months
              
              
              Twelve
      MonthsEnded
              
              
              Ended
              
              
              EndedSeptember
      30,
              
              
              September
      30,
              
              
              December
      31,2009
              
              
              2008
              
              
              2008Cash
      flows from operating activities:
              
              
              
              
              UnauditedNet
      (loss) income
              
              $
              (362,051
              )
              
              $
              401,977
              
              
              $
              (124,360
              )Loss
      from discontinued operations
              
              
              (75,375
              )
              
              
              (139,515
              )
              
              
              (232,825
              )Adjustments
      to reconcile (loss) income from continuing operations to net cash provided
      by (used in) continuing operations:Depreciation
      and amortization
              
              
              269,059
              
              
              
              221,061
              
              
              
              312,156Allowance
      for doubtful accounts
              
              
              175,575
              
              
              
              (199,385
              )
              
              
              (196,353
              )Realized
      and unrealized loss on marketable equity securities
              
              
              -
              
              
              
              45,008
              
              
              
              325,983Loss
      on disposition of property and equipment
              
              
              63,453
              
              
              
              -
              
              
              
              -Gain
      on sale of discontinued operations
              
              
              -
              
              
              
              (45,912
              )
              
              
              (45,912
              )Common
      stock issued for services
              
              
              289,000
              
              
              
              10,400
              
              
              
              10,400Option
      compensation expense
              
              
              80,195
              
              
              
              -
              
              
              
              -Contributed
      services
              
              
              -
              
              
              
              110,000
              
              
              
              110,000Changes
      in assets and liabilities:Accounts
      receivable
              
              
              828,158
              
              
              
              165,058
              
              
              
              892,205Notes
      receivable
              
              
              276,935
              
              
              
              (221,972
              )
              
              
              (737,199
              )Inventory
              
              
              (441,279
              )
              
              
              (1,353,039
              )
              
              
              (537,636
              )Advances
      on purchase
              
              
              293,474
              
              
              
              (912,120
              )
              
              
              (34,294
              )Prepaid
      expenses and other current assets
              
              
              2,185
              
              
              
              (10,546
              )
              
              
              49,322Taxes
      receivable
              
              
              (43,106
              )
              
              
              -
              
              
              
              -Other
      assets
              
              
              2,042
              
              
              
              245,239
              
              
              
              240,921Accounts
      payable and accrued expenses
              
              
              (65,821
              )
              
              
              (110,397
              )
              
              
              (68,028
              )Taxes
      payable
              
              
              (29,814
              )
              
              
              502,654
              
              
              
              479,662Advances
      from customers
              
              
              (225,283
              )
              
              
              56,510
              
              
              
              316,228Deferred
      revenue
              
              
              -
              
              
              
              (15,489
              )
              
              
              -Net
      cash provided by (used in) continuing operations
              
              
              1,188,097
              
              
              
              (971,438
              )
              
              
              1,225,920Adjustments
      to reconcile loss from discontinued operations to net cash used in
      discontinued operations:Net
      liabilities from discontinued operations
              
              
              -
              
              
              
              -
              
              
              
              2,291Loss
      from discontinued operations
              
              
              (75,375
              )
              
              
              (139,515
              )
              
              
              (232,825
              )Net
      cash used in discontinued operations
              
              
              (75,375
              )
              
              
              (139,515
              )
              
              
              (230,534
              )Net
      cash provided by (used in) operating activities
              
              
              1,112,722
              
              
              
              (1,110,953
              )
              
              
              995,386Cash
      flows from investing activities:Proceeds
      from sale of marketable equity securities
              
              
              -
              
              
              
              29,254
              
              
              
              117,047Purchase
      of property and equipment
              
              
              (971,184
              )
              
              
              (1,637,013
              )
              
              
              (1,629,183
              )Prepaid
      expense-Deposit on TianJin construction
              
              
              (393,095
              )
              
              
              -
              
              
              
              -Purchase
      of Land use rights
              
              
              (750,855
              )
              
              
              -
              
              
              
              -Decrease
      (Increase) in deposit on land use rights
              
              
              745,574
              
              
              
              -
              
              
              
              (732,752
              )Net
      cash flows used in investing activities
              
              
              (1,369,560
              )
              
              
              (1,607,759
              )
              
              
              (2,244,888
              )Cash
      flows from financing activities:Proceeds
      from notes payable
              
              
              426,744
              
              
              
              1,784,811
              
              
              
              1,214,392Proceeds
      from (repayment of) related party advances
              
              
              19,483
              
              
              
              15,276
              
              
              
              (118,599
              )(Increase)
      decrease in restricted cash
              
              
              (701,497
              )
              
              
              (58,369
              )
              
              
              287,263Net
      cash flows (used in) provided by financing activities
              
              
              (255,270
              )
              
              
              1,741,718
              
              
              
              1,383,056Effect
      of exchange rate on cash
              
              
              4,884
              
              
              
              55,267
              
              
              
              82,421Net
      (decrease) increase in cash
              
              
              (507,224
              )
              
              
              (921,727
              )
              
              
              215,975Cash
      - beginning of year or period
              
              
              2,228,455
              
              
              
              2,012,480
              
              
              
              2,012,480Cash
      - end of year or period
              
              $
              1,721,231
              
              
              $
              1,090,753
              
              
              $
              2,228,455Supplemental
      disclosure of cash flow information:Cash
      paid for :Interest
              
              $
              28,552
              
              
              $
              21,950
              
              
              $
              86,499Income
      taxes
              
              $
              77
              
              
              $
              -
              
              
              $
              3,235
 The
accompanying notes are an integral part of the financial
statement.


F -
6
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER 30,
2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31,
2008





NOTE 1 -
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Organization





China
America Holding, Inc., formerly Sense Holdings, Inc., a Florida corporation and
its subsidiaries are referred to in this report as the “Company”, “we”, “us”,
“our”, or “China America Holdings”.  The Company was formed on July
13, 1998.  On June 27, 2007 we acquired a 56.08% interest in Shanghai
AoHong Chemical Co. Ltd. ("AoHong"), a Chinese limited liability company, from
Mr. Aihua Hu and his wife, Mrs. Ying Ye in exchange for a commitment to
contribute $3,380,000 to AoHong. Our commitment to AoHong originally required us
to provide an aggregate of $3,380,000 between September 2007 and June 2009 as
follows: $800,000 before September 30, 2007, $400,000 before June 30, 2008,
$600,000 before December 31, 2008 and the remaining balance due of $1,580,000 by
June 27, 2009. The Company used $1,200,000 from a unit offering completed in
2007 and a $400,000 in August 2008 from a related party note payable to
partially fulfill this obligation.  The minority owners have orally
agreed to extend the due date of the remaining balance of $1,780,000 to November
20, 2010.  We will be required to raise additional capital to fund the
remaining balance of the obligation. In addition, the Company issued Mr. Aihua
Hu, the minority owner and CEO AoHong, 12,500,000 shares of the Company’s common
stock valued at $1,187,500 as additional consideration.





AoHong
sells and distributes assorted liquid coolants which are utilized in a variety
of applications, primarily as refrigerants in air conditioning systems for
automobiles, residential and commercial air conditioning systems, refrigerators,
fire extinguishing agents and assorted aerosol sprays.





The
operations of AoHong are comprised of three basic functions:





•
            Repackaging
      bulk quantities of liquid coolants into smaller packaging for resale and
      distribution. Approximately 30% and approximately 15%, respectively, of
      its net revenues were generated from this activity for the year ended
      September 30, 2009 and 2008;•
            Custom
      mixing of various raw materials in accordance with customer specifications
      into a new product. AoHong employs two engineers who work with customers
      to derive proper mixture of chemicals. Approximately 5% and 15% of its net
      revenues were generated from this activity during the year ended September
      30, 2009 and 2008, respectively, and•
            Distribution
      of bulk quantities of liquid coolants directly to customers who in turn
      resell the product. Approximately 65% and approximately 70%, respectively,
      of its net revenues were generated from this activity during the year
      ended September 30, 2009 and 2008,
respectively.





Customers
of AoHong include manufacturers of automobiles, refrigerators and air
conditioners as well as distributors of coolants.





AoHong
was established in February 2000 as Shanghai AoHong Industry Co., Ltd. On July
5, 2007 AoHong changed its name to Shanghai AoHong Chemical Co., Ltd. AoHong has
two wholly-owned subsidiaries; Shanghai Binghong Trading Co., Ltd. which was
established in March 2002 and Shanghai Wuling Environmental Material Co., Ltd.
which was established in January 2005.





On August
31, 2007, the Company closed an acquisition of 60% of the issued and outstanding
common stock of Big Tree Toys, Inc, a Florida corporation ("Big Tree"), from CDI
China, Inc., a wholly-owned subsidiary of China Direct, Inc. (“China Direct”).
Big Tree was incorporated in the State of Florida on November 20, 2006 and its
wholly owned subsidiary Jieyang Big Tree Toy Enterprise Co., Ltd. ("Jieyang Big
Tree"), a Chinese limited liability company, was established on January 22, 2007
as a wholly foreign owned entity in China. China Direct acquired 60% of Big Tree
in February 2007 in exchange for shares of its common stock and a commitment to
provide a $1 million working capital loan subject to the satisfaction of certain
revenue milestones by Big Tree. Both Big Tree and Jieyang Big Tree were
development stage companies which had not yet commenced operations. On April 30,
2008, the Company entered into an Agreement with Wei Lin and China Direct
pursuant to which the Company transferred all its right, title and interest in
and to 60% of the stock of Big Tree to Mr. Lin in exchange for 53,654 shares of
the common stock of China Direct owned by Mr. Lin. As a result of this
transaction, the Company no longer owns any interest in Big Tree or its
wholly-owned subsidiary, Jieyang Big Tree (See Note 2).





In
November 2008, the Company created AoHong (Tianjin) Chemical Co., Ltd. a Chinese
limited liability company as a wholly owned subsidiary, (“AoHong Tianjin”), to
expand our distribution channels to the Beijing region.  AoHong
Tianjin will serve as a second production base in northern China.





F -
7
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2008 --
CONTINUED





Basis
of Presentation





Change
in Fiscal Year





Effective
September 7, 2009, we changed our fiscal year end from December 31 to
September 30. We have defined various periods that are covered in this report as
follows:





•
            “2009
      transition period” — January 1, 2009 through September 30,
      2009.•
            “first
      nine months of 2008” — January 1, 2008 through September 30,
      2008.•
            “fiscal
      2010” — October 1, 2009 through September 30,
2010.•
            “fiscal
      2008” — January 1, 2008 through December 31, 2008.•
            “fiscal
      2007”  — January 1, 2007 through December 31,
  2007.





The
consolidated financial statements include China America Holdings, Inc. and all
its subsidiaries, including those operating outside the United States of
America. The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
(“U.S. GAAP”).  Our year end during the calendar year 2008 and prior is
December 31st. In
this transition report, we have changed our year end to September 30, beginning
with September 30, 2009.  The year ended December 31, 2008 is
referred to as “fiscal 2008”, the nine month transition period ended September
30, 2009 is referred to as “2009 transition period”. Our consolidated statements
include the accounts of the Company and its controlled entities, including
wholly-owned and majority owned subsidiaries. All significant inter-company
account balances and transactions have been eliminated.  The financial
statements have been reclassified to reflect the impact of discontinued
operations.





Use
of Estimates





The
preparation of consolidated financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates for the 2009 transition period and
fiscal 2008 periods include provisions made for sales and the related allowance
for doubtful accounts, valuation of stock-based compensation, and the useful
lives of property and equipment and other long-term assets, and
 assumptions used in assessing impairment of long-term assets and valuation
of deferred tax assets.





Concentration
of Credit Risks





The
Company's operations are carried out in the PRC. Accordingly, the Company's
business, financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC's economy. The Company's operations in the PRC are subject to
specific considerations and significant risks not typically associated with
companies in North America. The Company's results may be adversely affected by
changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance abroad, and rates
and methods of taxation, among other things.





Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of cash and trade accounts receivable. The Company
places its cash with high credit quality financial institutions in the United
States and China. At September 30, 2009, the Company had deposits of $1,721,002
in banks in China. In China, there is no equivalent federal deposit insurance as
in United States; as such these amounts held in banks in China are not insured.
The Company has not experienced any losses in such bank accounts through
September 30, 2009. A significant portion of the Company's sales are credit
sales which are primarily to customers whose ability to pay is dependent upon
the industry economics prevailing in these areas; however, concentrations of
credit risk with respect to trade accounts receivables is limited due to
generally short payment terms.  The Company also performs ongoing
credit evaluations of its customers to help further reduce credit
risk.





At
September 30, 2009and December 31, 2008, our bank deposits by geographic
area were as follows:





Country
            
            September
      30, 2009
            
            
            December
      31, 2008China
            
            $
            1,721,002
            
            
            
            99.99
            %
            
            
            2,135,998
            
            
            
            95.85
            %United
      States
            
            
            229
            
            
            
            0.01
            %
            
            $
            92,457
            
            
            
            4.15
            %Total
      cash and cash equivalents
            
            $
            1,721,231
            
            
            
            100.00
            %
            
            $
            2,228,455
            
            
            
            100.00
            %





In an
effort to mitigate any potential risk, the Company periodically evaluates the
credit quality of the financial institutions at which it holds deposits, both in
the United States and China.


F -
8
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2008 --
CONTINUED





Cash
and Cash Equivalents





For
purposes of the consolidated statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents.





Marketable
Equity Securities





For the
year ended December 31, 2008 , the Company recognized an aggregate realized loss
of $325,983  from the sale of trading marketable equity securities
which has been reflected in the accompanying consolidated statement of
operations. At September 30, 2009 and December 31, 2008, the Company did not own
any marketable securities.





Notes
Receivable





Notes
receivable represents trade accounts receivable due from various customers where
a Chinese bank has guaranteed the payment of the receivable. This amount is
non-interest bearing and is normally paid within three to six months.
Historically, the Company has experienced no losses on notes receivable. The
Company‘s notes receivable totaled $829,890 and $1,104,343 at September 30, 2009
and December 31, 2008, respectively.





Accounts
Receivable





Accounts
receivable are presented net of an allowance for doubtful accounts. The Company
maintains allowances for doubtful accounts for estimated losses. The Company
reviews the accounts receivable on a periodic basis and makes general and
specific allowances when there is doubt as to the collectability of individual
balances. In evaluating the collectability of individual receivable balances,
the Company considers many factors, including the age of the balance, customer’s
payment history, its current credit-worthiness and current economic trends.
Accounts are written off after exhaustive efforts at collection. As of September
30, 2009 and December 31, 2008, the Company has recorded an allowance for
doubtful accounts of $175,701 and $0, respectively.





Inventories





Inventories
are stated at the lower of average cost or market and consist of raw materials
and finished goods. The Company writes down inventory for estimated obsolescence
or unmarketable inventory based upon assumptions and estimates about future
demand and market conditions. If actual market conditions are less favorable
than those projected by the Company, additional inventory write-downs may be
required.





Prepaid
Expenses and Other Current Assets





Prepaid
expenses and other current assets consist primarily of prepayments to vendors
for merchandise that had not yet been shipped and the deposit on Tianjin’s
construction in progress. At September 30, 2009 and December 31, 2008, prepaid
expenses and other current assets consist of the followings:





September
      30, 2009
            
            
            December
      31, 2008Deposit
      on TianJin construction
            
            $
            393,377
            
            
            $
            -Others
            
            
            46,109
            
            
            
            48,186Total
            
            $
            439,486
            
            
            $
            48,186





Property
and Equipment





Property
and equipment are carried at cost and are depreciated on a straight-line basis
over the estimated useful lives of the assets. The costs of repairs and
maintenance are expensed as incurred; major replacements and improvements are
capitalized. When assets are retired or disposed of, the cost and accumulated
depreciation are removed from the accounts, and any resulting gains or losses
are included in income in the year of disposition. The Company examines the
possibility of decreases in the value of fixed assets when events or changes in
circumstances reflect the fact that their recorded value may not be
recoverable.





Impairment
of Long-Lived Assets





The
Company periodically reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. The Company recognizes an impairment loss
when the sum of expected undiscounted future cash flows is less than the
carrying amount of the asset. The amount of impairment is measured as the
difference between the asset's estimated fair value and its book value. The
Company did not incur any impairment for the nine months transition period ended
September 30, 2009 and the year ended December 31, 2008.  F -
9
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2008 --
CONTINUED





Advances
from Customers





Advances
from customers represent prepayments to the Company for merchandise that had not
yet been shipped. The Company will recognize the deposits as revenue as
customers take delivery of the goods, in accordance with its revenue recognition
policy.





Fair
Value of Financial Instruments





Effective
January 1, 2008, the Company began using the following methods and hierarchy for
measuring fair value :





•
            Level
      1-Inputs are unadjusted quoted prices in active markets for identical
      assets or liabilities available at the measurement
date.•
            Level
      2-Inputs are unadjusted quoted prices for similar assets and liabilities
      in active markets, quoted prices for identical or similar assets and
      liabilities in markets that are not active, inputs other then quoted
      prices that are observable, and inputs derived from or corroborated by
      observable market data.•
            Level
      3-Inputs are unobservable inputs which reflect the reporting entity’s own
      assumptions on what assumptions the market participants would use in
      pricing the asset or liability based on the best available
      information.





The
carrying amounts reported in the balance sheet for cash, accounts and notes
receivable, due from related party, accounts payable and accrued expenses,
advances from customers, notes payable, loans and amounts due from related
parties approximate their fair market value based on the short term maturity of
these instruments. The Company did not identify any assets or liabilities that
are required to be presented on the consolidated balance sheets at fair
value.





Revenue
Recognition





In
general, the Company records revenue when persuasive evidence of an arrangement
exists, services have been rendered or product delivery has occurred, the sales
price to the customer is fixed or determinable, and collectability is reasonably
assured.  The following policies reflect specific criteria for the
various revenues streams of the Company:





•
            The
      Company generates revenue from the sale of its products and records
      revenues from the sale of products when the goods are shipped, title
      passes, and collectability is reasonably assured.•
            Revenue
      from periodic maintenance agreements is generally recognized ratably over
      the respective maintenance periods provided no significant obligations
      remain and collectability of the related receivable is
      probable.•
            Revenue
      from the performance of services is recognized upon completion of the
      service.





Loss
per Common Share





Basic
loss per share is computed by dividing net loss by the weighted average number
of shares of common stock outstanding during the period. Diluted loss per share
is computed by dividing net loss by the weighted average number of shares of
common stock, common stock equivalents and potentially dilutive securities
outstanding during each period. Potentially dilutive common shares consist of
the unexercised stock options and warrants. For the nine months transition
period ended September 30, 2009 and the year ended December 31, 2008, the
computation of diluted net loss per share does not include dilutive common stock
equivalents in the weighted average shares outstanding as they would be
anti-dilutive.  The Company's common stock equivalents at September
30, 2009 and December 31, 2008 include the following:





September
      30, 2009
            
            
            December
      31, 2008Options
            
            
            8,900,000
            
            
            
            7,900,000Warrants
            
            
            61,350,113
            
            
            
            63,800,11370,250,113
            
            
            
            71,700,113





Stock
Based Compensation





The
Company recognized the cost resulting from all stock-based payment transactions
including shares issued under its stock option plans in the financial
statements.





Non-Employee
Stock-Based Compensation





The cost
of stock-based compensation awards issued to non-employees for services are
recorded at either the fair value of the services rendered or the instruments
issued in exchange for such services, whichever is more readily determinable,
using the measurement date as to when the service was substantially
performed.


F -
10
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2008 --
CONTINUED





Income
Taxes





The
Company accounts for income taxes utilizing the recognition of deferred tax
assets and liabilities to reflect the future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Measurement of the deferred items is based on enacted tax laws. In the event the
future consequences of differences between the financial reporting basis and tax
bases of the Company's assets and liabilities result in a deferred tax asset, we
an evaluation of the probability of our being able to realize the future
benefits indicated by such assets. A valuation allowance related to a deferred
tax asset is recorded when it is more likely than not that some or the entire
deferred tax asset will not be realized.





To
evaluate our uncertain tax positions, we use a two-step process. The first step
is to determine whether it is more likely than not that a tax position will be
sustained upon examination, including the resolution of any related appeals or
litigation based on the technical merits of that position. The second step is to
measure a tax position that meets the more-likely-than-not threshold to
determine the amount of benefit to be recognized in the financial statements. A
tax position is measured at the largest amount of benefit that is greater than
50% likelihood of being realized upon ultimate settlement. Tax positions that
previously failed to meet the more-likely-than-not recognition threshold should
be recognized in the first subsequent period in which the threshold is met.
Previously recognized tax positions that no longer meet the more-likely-than-not
criteria should be de-recognized in the first subsequent financial reporting
period in which the threshold is no longer met.





Foreign
Currency Translation





The
reporting currency of the Company is the U.S. dollar. The functional currency of
the Company is the local currency, the Chinese Renminbi (“RMB”). Results of
operations and cash flows are translated at average exchange rates during the
period, assets and liabilities are translated at the unified exchange rate at
the end of the period, and equity is translated at historical exchange rates.
Translation adjustments resulting from the process of translating the local
currency financial statements into U.S. dollars are included in determining
comprehensive income.  The cumulative translation adjustment and
effect of exchange rate changes on cash for the transition period year ended
September 30, 2009 and year ended December 31, 2008 was $4,884 and $82,421,
respectively. Transactions denominated in foreign currencies are translated into
the functional currency at the exchange rates prevailing on the transaction
dates. Assets and liabilities denominated in foreign currencies are translated
into the functional currency at the exchange rates prevailing at the balance
sheet date with any transaction gains and losses that arise from exchange rate
fluctuations on transactions denominated in a currency other than the functional
currency are included in the results of operations as incurred.





All of
the Company’s revenue transactions are transacted in the functional currency.
The Company does not enter any material transaction in foreign currencies and
accordingly, transaction gains or losses have not had, and are not expected to
have, a material effect on the results of operations of the
Company.





Asset and
liability accounts at September 30, 2009 and December 31, 2008 were translated
at 6.8376 RMB to $1.00 and at 6.8542 RMB to $1.00, respectively. Equity accounts
were stated at their historical rate. The average translation rates applied to
the statements of income for the nine months transition period ended September
30, 2009 and year ended December 31, 2008 were 6.84251 RMB and 6.96225 RMB to
$1.00, respectively.  In accordance with Statement of Financial
Accounting Standards No. 95, "Statement of Cash Flows," cash flows from the
Company's operations are calculated based upon the local currencies using the
average translation rate. As a result, amounts related to assets and liabilities
reported on the statement of cash flows will not necessarily agree with changes
in the corresponding balances on the balance sheets.





Noncontrolling
Interest





Noncontrolling
interests in our subsidiary are recorded as a component of our equity, separate
from the parent’s equity.  Purchase or sale of equity interests that do not
result in a change of control are accounted for as equity transactions. 
Results of operations attributable to the noncontrolling interest are included
in our consolidated results of operations and, upon loss of control, the
interest sold, as well as interest retained, if any, will be reported at fair
value with any gain or loss recognized in earnings.





Comprehensive
Loss





Comprehensive
income is comprised of net income and other comprehensive income or loss. Other
comprehensive income or loss refers to revenue, expenses, gains and losses that
under accounting principles generally accepted in the United States are included
in comprehensive income but excluded from net income as these amounts are
recorded directly as an adjustment to equity.





Our other
comprehensive income consists of foreign currency translation adjustments and
unrealized losses on marketable equity securities. The following table sets
forth the computation of comprehensive income for the nine months ended
September 30, 2009 and 2008 and for the year ended December 31,
2008:


F -
11
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2008 --
CONTINUED





For
      the Nine Months Ended September 30,
            
            
            For
      the Year Ended December 31,2009
            
            
            2008
            
            
            2008UnauditedNet
      (loss) income
            
            $
            (362,051
            )
            
            $
            401,977
            
            
            $
            (124,360
            )Other
      comprehensive (loss) income, net of taxUnrealized
      loss on marketable equity securities, net of tax
            
            
            -
            
            
            
            (157,727
            )
            
            
            -Unrealized
      Foreign currency translation gain, net of tax
            
            
            22,253
            
            
            
            403,604
            
            
            
            416,017Total
      other comprehensive income, net of tax
            
            
            22,253
            
            
            
            245,877
            
            
            
            416,017Comprehensive
      (loss) income
            
            
            (339,798
            )
            
            
            647,854
            
            
            
            291,657Less:
      Comprehensive income attributable to the noncontrolling
      interests
            
            
            101,542
            
            
            
            596,683
            
            
            
            535,400Comprehensive
      (loss) Income attributable to China America Holdings, Inc.
            
            $
            (441,340
            )
            
            $
            51,171
            
            
            $
            (243,743
            )





Shipping
Costs





Shipping
costs are included in selling expenses and totaled $407,481 and $513,655 for the
nine months ended September 30, 2009 and 2008, respectively.





Advertising





Advertising
is expensed as incurred and was not material for the nine months ended September
30, 2009 and 2008.





Recent
Accounting Pronouncements





EITF
Issue No. 07-5 (ASC 815), "Determining Whether an Instrument (or embedded
Feature) is Indexed to an Entity's Own Stock" (EITF 07-5) was issued in June
2008 to clarify how to determine whether certain instruments or features were
indexed to an entity's own stock under EITF Issue No. 01-6 (ASC 815), "The
Meaning of "Indexed to a Company's Own Stock" (EITF 01-6) (ASC 815),. EITF
07-5(ASC 815), applies to any freestanding financial instrument (or embedded
feature) that has all of the characteristics of a derivative as defined in FAS
133, for purposes of determining whether that instrument (or embedded feature)
qualifies for the first part of the paragraph 11(a) scope exception. It is also
applicable to any freestanding financial instrument (e.g., gross physically
settled warrants) that is potentially settled in an entity's own stock,
regardless of whether it has all of the characteristics of a derivative as
defined in FAS 133 (ASC 815), for purposes of determining whether to apply EITF
00-19 (ASC 815). EITF 07-5(ASC 815) does not apply to share-based payment awards
within the scope of FAS 123(R), Share-Based Payment (FAS 123(R) (ASC 718)).
However, an equity-linked financial instrument issued to investors to establish
a market-based measure of the fair value of employee stock options is not within
the scope of FAS 123(R) and therefore is subject to EITF 07-5(ASC
815).





In
January 2009, the FASB issued FSP EITF 99-20-1 (ASC 325), to amend the
impairment guidance in EITF Issue No. 99-20 (ASC 325) in order to achieve
more consistent determination of whether an other-than-temporary impairment
(“OTTI”) has occurred. This FSP amended EITF 99-20 (ASC 325) to more
closely align the OTTI guidance therein to the guidance in Statement
No. 115 (ASC 320, 10-35-31). Retrospective application to a prior interim
or annual period is prohibited. The guidance in this FSP was considered in the
assessment of OTTI for various securities at December 31,
2008.








In
June 2009, the FASB approved the “FASB Accounting Standards Codification”
(the “Codification”) as the single source of authoritative nongovernmental U.S.
GAAP to be launched on July 1, 2009.  The Codification does not change
current U.S. GAAP, but is intended to simplify user access to all authoritative
U.S. GAAP by providing all the authoritative literature related to a particular
topic in one place.  All existing accounting standard documents will be
superseded and all other accounting literature not included in the Codification
will be considered non-authoritative. The Codification is effective for interim
and annual periods ending after September 15, 2009.





In
August 2009, the FASB issued the FASB Accounting Standards Update No.
2009-04“Accounting for
Redeemable Equity Instruments - Amendment to Section
480-10-S99”  which represents an update to section 480-10-S99,
distinguishing liabilities from equity, per EITF Topic D-98,Classification and
Measurement of Redeemable Securities .  The Company does not expect
the adoption of this update to have a material impact on its consolidated
financial position, results of operations or cash flows.





F -
12
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2008 --
CONTINUED





In
August 2009, the FASB issued the FASB Accounting Standards Update No.
2009-05“Fair Value
Measurement and Disclosures Topic 820 – Measuring Liabilities at Fair
Value” , which provides amendments to subtopic 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities.  This update provides clarification that in circumstances in
which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the following techniques: 1. A valuation technique that uses: a. The
quoted price of the identical liability when traded as an asset b. Quoted prices
for similar liabilities or similar liabilities when traded as assets. 2. Another
valuation technique that is consistent with the principles of topic 820; two
examples would be an income approach, such as a present value technique, or a
market approach, such as a technique that is based on the amount at the
measurement date that the reporting entity would pay to transfer the identical
liability or would receive to enter into the identical liability. The amendments
in this update also clarify that when estimating the fair value of a liability,
a reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of the liability. The amendments in this update also clarify that both
a quoted price in an active market for the identical liability when traded as an
asset in an active market when no adjustments to the quoted price of the asset
are required are Level 1 fair value measurements.  The Company does not
expect the adoption of this update to have a material impact on its consolidated
financial position, results of operations or cash flows.





In
September 2009, the FASB issued the FASB Accounting Standards Update No.
2009-08“Earnings Per Share –
Amendments to Section 260-10-S99”, which represents technical corrections
to topic 260-10-S99, Earnings per share, based on EITF Topic D-53,Computation of Earnings
Per Share for a Period that includes a Redemption or an Induced Conversion of a
Portion of a Class of Preferred Stock  and EITF Topic
D-42,The Effect of
the Calculation of Earnings per Share for the Redemption or Induced Conversion
of Preferred Stock . The Company does not expect the adoption of this
update to have a material impact on its consolidated financial position, results
of operations or cash flows.





In
September 2009, the FASB issued the FASB Accounting Standards Update No.
2009-09“Accounting for
Investments-Equity Method and Joint Ventures and Accounting for Equity-Based
Payments to Non-Employees” .  This update represents a correction to
Section 323-10-S99-4,Accounting by an
Investor for Stock-Based Compensation Granted to Employees of an Equity Method
Investee . Additionally, it adds observer commentAccounting Recognition
for Certain Transactions Involving Equity Instruments Granted to Other Than
Employees  to the Codification. The Company does not expect the
adoption to have a material impact on its consolidated financial position,
results of operations or cash flows.





In
September 2009, the FASB issued the FASB Accounting Standards Update No.
2009-12“Fair Value
Measurements and Disclosures Topic 820 – Investment in Certain Entities That
Calculate Net Assets Value Per Share (or Its Equivalent)” , which
provides amendments to Subtopic 820-10, Fair Value Measurements and
Disclosures-Overall, for the fair value measurement of investments in certain
entities that calculate net asset value per share (or its equivalent). The
amendments in this update permit, as a practical expedient, a reporting entity
to measure the fair value of an investment that is within the scope of the
amendments in this update on the basis of the net asset value per share of the
investment (or its equivalent) if the net asset value of the investment (or its
equivalent) is calculated in a manner consistent with the measurement principles
of Topic 946 as of the reporting entity’s measurement date, including
measurement of all or substantially all of the underlying investments of the
investee in accordance with Topic 820. The amendments in this update also
require disclosures by major category of investment about the attributes of
investments within the scope of the amendments in this update, such as the
nature of any restrictions on the investor’s ability to redeem its investments
at the measurement date, any unfunded commitments (for example, a contractual
commitment by the investor to invest a specified amount of additional capital at
a future date to fund investments that will be make by the investee), and the
investment strategies of the investees. The major category of investment is
required to be determined on the basis of the nature and risks of the investment
in a manner consistent with the guidance for major security types in U.S. GAAP
on investments in debt and equity securities in paragraph 320-10-50-1B. The
disclosures are required for all investments within the scope of the amendments
in this update regardless of whether the fair value of the investment is
measured using the practical expedient. The Company does not expect the adoption
to have a material impact on its consolidated financial position, results of
operations or cash flows.





A variety
of proposed or otherwise potential accounting standards are currently under
study by standard setting organizations and various regulatory agencies. Due to
the tentative and preliminary nature of those proposed standards, management has
not determined whether implementation of such proposed standards would be
material to our consolidated financial statements.


F -
13
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2008 --
CONTINUED





NOTE 2 -
DISPOSITIONS





Big Tree





On April
30, 2008, the Company entered into an Agreement with Wei Lin and China Direct
pursuant to which the Company transferred all of its rights, title and interest
in and to 60% of the stock of Big Tree to Mr. Lin in exchange for 53,654 shares
of the common stock of China Direct owned by Mr. Lin. These shares had a fair
market value of approximately $445,328 on the date of the agreement. As a result
of this transaction, the Company no longer owns any interest in Big Tree or its
wholly-owned subsidiary, Jieyang Big Tree. The Company did not report any
revenues from Big Tree during 2007 or 2008 and its assets were limited to a loan
due from a related party which was made prior to our acquisition of Big Tree.
The Company found that it was unable to obtain appropriate financial information
pertaining to Jieyang Big Tree for the purposes of consolidating those results
with the Company in accordance with generally accepted accounting principles.
Big Tree is reported as a discontinued operation and prior periods have been
restated in the Company's financial statements and related footnotes to conform
to this presentation. At December 31, 2008, the Company did not have any asset
or liabilities from this discontinued operation. For the year ended December 31,
2008, the Company recognized a gain from the sale of discontinued operations of
$45,912.





Biometrics
Business





On
January 19, 2009, the Company entered into an Asset Purchase Agreement with
Pearl Group for the sale of certain assets related to its biometric technology
based fingerprint identification business (the “Biometrics
Business”).  Pearl Group is wholly owned by Dore S. Perler, a member
of the Company’s board of directors and its former Chief Executive Officer.
Included in the Asset Purchase Agreement are the following assets of the
Company's Biometric Business: customer and supplier lists, business
records, trademarks and other intellectual property and manufacturers and
vendors’ warranty claims.  The consideration received by the Company
in connection with the Asset Purchase Agreement included the assumption of
liabilities, if any, by Pearl Group related to the Biometrics Business and the
termination of Mr. Perler’s May 1, 2007 employment agreement entered into
between him and the Company. Also, in connection with the termination of the
employment agreement, the Company agreed to pay Mr. Perler the sum of $75,000.
As of January 19, 2009, the Company will no longer be engaged in the Biometrics
Business.  The Company did not incur any costs or take any charges,
and does not expect any in the future, related to the sale of the Biometrics
Business pursuant to the Asset Purchase Agreement. For the years ended December
31, 2008 and 2007, the biometric segment is reported as a discontinued operation
and prior periods have been restated in the Company's financial statements and
related footnotes to conform to this presentation.





The
following table sets forth for the nine months ended September 30, 2009 and
2008, and the year ended December 31, 2008 indicated selected financial data of
the Company's discontinued operations the biometrics segment.





September
      30,
            
            
            December
      31,2009
            
            
            2008
            
            
            2008Net
      Revenues
            
            $
            -
            
            
            $
            39,052
            
            
            $
            39,052Cost
      of Sales
            
            
            -
            
            
            
            4,228
            
            
            
            4,228Gross
      profit
            
            
            -
            
            
            
            34,824
            
            
            
            34,824Operating
      and other non-operating expenses
            
            
            75,375
            
            
            
            220,251
            
            
            
            313,561Loss
      from discontinued operations
            
            
            (75,375
            )
            
            
            (185,427
            )
            
            
            (278,737
            )Gain
      from disposal of discontinued operations
            
            
            -
            
            
            
            45,912
            
            
            
            45,912Total
      loss from discontinued operations
            
            $
            (75,375
            )
            
            $
            (139,515
            )
            
            $
            (232,825
            )





NOTE 3 -
INVENTORIES





At
September 30, 2009 and December 31, 2008, inventories consisted of:





September
      30, 2009
            
            
            December
      31, 2008Raw
      materials
            
            $
            1,987,680
            
            
            $
            1,598,227Finished
      goods
            
            
            177,887
            
            
            
            121,569$
            2,165,567
            
            
            $
            1,719,796





NOTE 4 –
RELATED PARTY TRANSACTIONS





Due to related
parties





At
September 30, 2009 and December 31, 2008 due to related parties, which is
attributable to AoHong, consists of the following:


F -
14
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2008 --
CONTINUED





September
      30, 2009
            
            
            December
      31, 2008Due
      to Aihua Hu
            
            $
            10,693
            
            
            $
            170,303Due
      to Ying Ye
            
            
            58,500
            
            
            
            23,675Due
      to Liang Wenjuan
            
            
            14,625
            
            
            
            14,590Due
      to China Direct, Inc.
            
            
            144,647
            
            
            
            -$
            228,465
            
            
            $
            208,568





At
September 30, 2009, we reflect $144,647 due to China Direct Industries, Inc.
comprised of $17,710 nine months interest payable related to $400,000 promissory
note due to China Direct (please see note 7), and $126,937 of professional fees
paid by China direct on behalf of the company. China Direct is a significant
shareholder, owning in excess of 10% of our common stock.





Mr. Aihua
Hu, CEO of AoHong, and Mrs. Ying Ye are the minority owners of AoHong. Mr. Hu
and Mrs. Ye are husband and wife. Liang Wejuan is the aunt of Mr.
Hu.





NOTE 5 –
PROPERTY AND EQUIPMENT





At
September 30, 2009 and December 31, 2008, property and equipment consisted of
the following:





Estimated
      Life
            
            
            September
      30, 2009
            
            
            December
      31, 2008Buildings
            
            20
      years
            
            
            $
            1,515,412
            
            
            $
            1,511,742Auto
      and Truck
            
            5
      years
            
            
            
            303,365
            
            
            
            302,191Manufacturing
      Equipment
            
            10
      years
            
            
            
            2,089,014
            
            
            
            1,698,532Office
      Equipment
            
            5-7
      years
            
            
            
            52,349
            
            
            
            10,736Construction
      in Progress
            
            
            -
            
            
            
            678,385
            
            
            
            259,7314,638,525
            
            
            
            3,782,932Less:
      Accumulated Depreciation
            
            
            
            
            
            
            (589,240
            )
            
            
            (388,775
            )$
            4,049,285
            
            
            $
            3,394,157





For the
nine months ended September 30, 2009 and 2008 (unaudited), depreciation expense
amounted to $262,831 and $219,710, respectively.  The depreciation
expense for the twelve months ended December 31, 2008 was $310,282.





NOTE 6 -
LAND USE RIGHTS AND OTHER INTANGIBLE ASSETS





Land
Use Rights





AoHong
has land use rights pursuant to an agreement with the Chinese government. The
land use rights are valued at a fixed amount of approximately RMB 600,082,
fluctuated by the exchange rate. Under the terms of the agreement, AoHong has
rights to use certain land until November 3, 2053. AoHong amortized these land
use rights over the remaining contract period beginning on June 27, 2007 (date
of acquisition).





In May
2009, Tianjin Aohong paid Ji City Bureau of Land Resource an aggregate price of
RMB5,137,734 (USD $751,394) for the purchase of the land use rights located in
Tianjin province. Under the terms of the land use right acquisition contract,
Tianjin Aohong has land use rights with a maturity date of February 22,
2059.





At
September 30, 2009 and December 31, 2008 , land use rights are valued at the
following:





EstimatedRemaining Life
            
            September
      30, 2009
            
            
            December
      31, 2008Land
      Use Rights - Shanghai AoHong
            44
      years
            
            $
            87,763
            
            
            $
            87,550Land
      Use Rights - Tianjin AoHong
            50
      years
            
            
            751,394
            
            
            
            -Less
      Accumulated Amortization
            
            
            
            (10,503
            )
            
            
            (2,804
            )$
            828,654
            
            
            $
            84,746





For the
nine months ended September 30, 2009 and 2008 (unaudited), amortization expense
amounted to $7,687 and $1,351, respectively.  The amortization expense
for the twelve months ended December 31, 2008 was $1,874.


F -
15
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2008 --
CONTINUED


Amortization
of land use rights attributable to future periods is as follows:





Period
      ending September 30:2010
            $16,9242011
            16,9242012
            16,9242013
            16,9242014
            16,924Thereafter
            744,034$828,654





Deposit
on land use rights





As of
December 31, 2008 Tianjin AoHong paid Ji City Bureau of Land Resource
$744,303 as a deposit towards an aggregate price of RMB 5,137,734, or
approximately $751,394 on the purchase on the land use rights located in
Tianjin City. The payment has been reflected as a deposit on land use rights on
the accompanying balance sheet. Under the terms of the land use right
acquisition contract signed with Ji City Bureau of Land Resource in February
2009, Tianjin Aohong has rights to use certain land until February 22,
2059.  In
February 2009, AoHong Tianjin paid off the balance and received the Confirmation
Letter of Land Delivery, which represented the ownership of the land use right.
The release of Certificate of Land Use Right is under process.





In May
2009, Tianjin AoHong paid off the remaining balance of RMB 5,137,734
(approximately $751,000) for the purchase of the land use rights located in
Tianjin City. Under the terms of the land use right acquisition contract,
Tianjin Aohong has land use rights with a maturity date of February 22,
2059.





NOTE 7 –
NOTES PAYABLE AND NOTES PAYABLE – RELATED PARTY





Notes
payable consisted of the following at September 30, 2009 and December 31,
2008:





September
      30, 2009
            
            
            December
      31, 2008Notes
      payable to Industrial and Commercial Bank of China Yangpu Road Branch, due
      on February 25, 2010. Interest only payable quarterly at an annual rate of
      5.103%. Secured by accounts receivable of Shanghai 3F Material Co. Ltd.
      amount of $546,318.
            
            $
            435,825
            
            
            
            -Notes
      payable to Industrial and Commercial Bank of China Yangpu Road Branch, due
      on January 20, 2010.  Interest only payable quarterly at an
      annual rate of 5.103%. Secured by Accounts Receivable of Shanghai 3F
      Material Co., Ltd. amount of $478,677.
            
            
            381,713
            
            
            
            -Notes
      payable to Industrial and Commercial Bank of China Anshan Road Branch, due
      on February 10, 2009. Interest only payable quarterly at an annual rate of
      6.7068%. Secured by accounts receivable of Shanghai 3F Material Co. Ltd.
      amount of $551,487.
            
            
            -
            
            
            
            551,487Notes
      payable to Industrial and Commercial Bank of China Anshan Road Branch, due
      on March 12, 2009. Interest only payable quarterly at an annual rate of
      6.7068%. Secured by accounts receivable of Shanghai 3F Material Co. Ltd.
      amount of $491,669.
            
            
            -
            
            
            
            491,669Notes
      payable to Industrial and Commercial Bank of China Anshan Road Branch, due
      on March 02, 2009.  Interest only payable quarterly at an annual
      rate of 6.5124%. Secured by accounts receivable of Shanghai 3F Material
      Co. Ltd. amount of $732,398. The note was satisfied at
      maturity.
            
            
            -
            
            
            
            732,398Notes
      payable to Country Commercial Bank HuaTing Branch, due on April 7, 2009.
      Interest only payable quarterly at an annual rate of 8.964%. Secured by
      the buildings located at 333 and 338 Huhua E.Rd Jiading Shanghai. The note
      was satisfied at maturity.
            
            
            -
            
            
            
            364,740Bank
      acceptances payable, non-interest bearing. Secured by restricted cash of
      $877,501 and $175,057 at September 30, 2009 and December 31, 2008 payable
      on demand, respectively.
            
            
            2,193,752
            
            
            
            437,688Note
      payable to individual, due on demand with interest due at 10% per annum
      and unsecured.
            
            
            25,000
            
            
            
            25,000Total
            
            
            3,036,290
            
            
            
            2,602,982Less:
      current position
            
            
            (3,036,290
            )
            
            
            (2,602,982
            )Long-Term
      portion of notes payable
            
            $
            -
            
            
            $
            -





In August
2008 we borrowed $400,000 from China Direct Industries, Inc., a related party,
under the terms of a secured promissory note. The balance of this note was
$400,000 at September 30, 2009 and December 31, 2008.  This note is
payable on June 30, 2010 with interest of 4% per annum due on the same
date.  We used the proceeds of this note to partially pay down our
obligation to the minority interest owners of AoHong as explained earlier in
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES.


F -
16
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2008 --
CONTINUED





NOTE 8 -
SHAREHOLDERS' EQUITY




Common
Stock





Common
Stock Issued For Services





In April
2009, we entered into a consulting and management agreement with China Direct
Investments, Inc. The agreement calls for services to be provided from January
1, 2009 through December 31, 2009. The agreement outlines various consulting
services, which have been provided by China Direct Investments, Inc. since July
1, 2008, including coordination of preparation and filing of public disclosures,
assistance in financial management and the implementation of internal controls,
managing investor road show/investment conferences, assisting in the
implementation of acquisition deals and similar services. Under the terms of the
April 2009 agreement, we will issue China Direct Industries, Inc. a total of
20,000,000 shares of our common stock are estimated to be valued at
approximately $400,000, of which $289,000 has been expensed during the
2009 transition period.  We expense these shares as the consulting
services are performed over the course of each quarter by multiplying the number
of shares earned by the consultant during the quarter by the average share price
during that quarter.  Of these shares, 5,000,000 shares are payable at
the end of each calendar quarter of 2009; accordingly, in May 2009, June of 2009
and September 2009, we issued 5,000,000 shares for each of the first three
quarters of 2009 for a total of 15,000,000 shares issued during the 2009
transition period to China Direct Industries, Inc. This agreement also provides
for the payment of discretionary award fees to be paid to the consultant and/or
its designees. Upon the mutual agreement of the parties, the fees can be paid
either in cash or marketable securities.  As of September 30, 2009 no
discretionary award has been paid.





In April
2009, we entered into a consulting agreement with Mr. Perler expiring on
December 31, 2009 to serve as a member of our Board of Directors and corporate
Secretary. Under the terms of this agreement, we agreed to pay Mr. Perler a
total of 1,000,000 shares of our common stock valued at $20,000 to serve in
these positions. As of May 14, 2009, we issued 1,000,000 shares during first
quarter of 2009 related to this agreement.




On
January 5, 2008, the Company entered into a two month consulting agreement for
investor relations services. In connection with this consulting agreement, the
Company paid cash of $100,000 and agreed to issue 1,100,000 shares of its common
stock to the consultant. The shares issuable pursuant to this contract were
issued by a third party on behalf of the Company. The shares were issued at the
fair values at the date of the issuance of $110,000 or $.10 per share based on
the trading price of common shares. Accordingly, the Company recorded consulting
expense of $110,000 and contributed capital of $110,000.





On
January 18, 2008, the Company issued 50,000 shares of its common stock to two
consultants for business development services rendered. The shares were issued
at the fair values at the date of the issuance of $5,000 or $.10 per share based
on the trading price of common shares.





On
February 8, 2008, the Company issued 60,000 shares of its common stock to a
consultant to satisfy accounts payable of $5,400 for previous accounting
services rendered. The shares were issued at the fair values at the date of the
issuance of $5,400 or $.09 per share based on the trading price of common
shares.





Stock
Options





In
connection with an employment agreement between AoHong and its chief executive
officer, Mr. Aihua Hu, on June 27, 2007 we granted Mr. Hu 1,000,000 options to
purchase our common stock at $0.20 per share during the term of his employment
agreement which expires on June 27, 2012.  The fair value of these
options at the date of grant was $80,195.  During the transition
period ended September 30, 2009, we discovered that these options were not
appropriately accounted for during the year ended December 31, 2007 and we
corrected the oversight to account for the options as if they were granted
during the transition period ended September 30, 2009.  This error was
determined to be immaterial to the financial statements and no prior period
adjustment or restatement was considered necessary.


F -
17
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2008 --
CONTINUED





Stock
option activities for the years ended September 30, 2009 and December 31, 2008
are summarized as follows:





Nine
      Month Transition PeriodEnded September 30, 2009
            
            
            Year
      Ended December 31, 2008Number
      of
            
            
            Weighted
      Average
            
            
            Aggregate
      Intrinsic
            
            
            Number
      of
            
            
            Weighted
      Average
            
            
            Aggregate
      IntrinsicOptions
            
            
            Exercise
      Price
            
            
            Value
            
            
            Options
            
            
            Exercise
      Price
            
            
            ValueBalance
      at beginning of year
            
            
            7,900,000
            
            
            $
            0.08
            
            
            
            -
            
            
            
            8,900,000
            
            
            $
            0.10
            
            
            
            -Granted
            
            
            1,000,000
            
            
            
            0.20
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Forfeited
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,000,000
            )
            
            
            0.22
            
            
            
            -Balance
      at end of year
            
            
            8,900,000
            
            
            $
            0.09
            
            
            $
            -
            
            
            
            7,900,000
            
            
            $
            0.08
            
            
            $
            -Options
      exercisable at end of year
            
            
            8,900,000
            
            
            $
            0.09
            
            
            $
            -
            
            
            
            7,900,000
            
            
            $
            0.08
            
            
            $
            -Weighted
      average fair value of options granted during the year
            
            
            -
            
            
            $
            -
            
            
            $
            -
            
            
            
            
            
            
            $
            -
            
            
            $
            -





The
following table summarizes the Company's stock options outstanding at September,
2009:





Options
      Outstanding
            
            
            Options
      ExercisableRange
      of Exercise Prices
            
            
            Number
      Outstanding at September 30, 2009
            
            Weighted
      Average Remaining Contractual Life
            
            Weighted
      Average Exercise Price
            
            
            Number
      Exercisable at September 30, 2009
            
            
            Weighted
      Average Exercise Price$
            0.07-0.08
            
            
            
            7,250,000
            
            2.79
      Years
            
            $
            0.073
            
            
            
            7,250,000
            
            
            $
            0.0730.19-0.20
            
            
            
            1,650,000
            
            1.38
      Years
            
            
            0.198
            
            
            
            650,000
            
            
            
            0.1988,900,000
            
            
            
            $
            0.096
            
            
            
            7,900,000
            
            
            $
            0.096





Common Stock
Warrants





Stock
warrant activities for the years ended September 30, 2009 and December 31, 2008
are summarized as follows:





Nine
      Month Transition PeriodEnded
      September 30, 2009
            
            
            Year
      Ended December 31, 2008Number
      of
            
            
            Weighted
      Average
            
            
            Number
      of
            
            
            Weighted
      AverageWarrants
            
            
            Exercise
      Price
            
            
            Warrants
            
            
            Exercise
      PriceBalance
      at beginning of year
            
            
            63,800,113
            
            
            $
            0.16
            
            
            
            67,811,613
            
            
            $
            0.16Granted
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Forfeited
            
            
            (2,450,000
            )
            
            
            0.50
            
            
            
            (4,011,500
            )
            
            
            0.20Balance
      at end of year
            
            
            61,350,113
            
            
            $
            0.15
            
            
            
            63,800,113
            
            
            $
            0.16Warrants
      exercisable at end of year
            
            
            61,350,113
            
            
            $
            0.15
            
            
            
            63,800,113
            
            
            $
            0.16





The
following table summarizes the Company's stock warrants outstanding at September
30, 2008:





Warrants
      Outstanding
            
            
            Warrants
      ExercisableRange
      of Exercise Prices
            
            
            Number
      Outstanding at September 30, 2009
            
            Weighted
      Average Remaining Contractual Life
            
            Weighted
      Average Exercise Price
            
            
            Number
      Exercisable at September 30, 2009
            
            
            Weighted
      Average Exercise Price$
            0.35-0.55
            
            
            
            5,668,455
            
            1.55
      Years
            
            $
            0.35
            
            
            
            8,118,455
            
            
            $
            0.350.16-0.20
            
            
            
            1,104,250
            
            0.93
      Years
            
            
            0.16
            
            
            
            1,104,250
            
            
            
            0.160.12
            
            
            
            52,477,408
            
            3
      Years
            
            
            0.12
            
            
            
            52,477,408
            
            
            
            0.120.10
            
            
            
            2,100,000
            
            2.5
      Years
            
            
            0.10
            
            
            
            2,100,000
            
            
            
            0.1061,350,113
            
            
            
            $
            0.14
            
            
            
            63,800,113
            
            
            $
            0.14




F -
18
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2008 --
CONTINUED










Effective
January 1, 2008, our subsidiary AoHong incorporated and operating in China is
governed by the Enterprise Income Tax Law of the Peoples Republic of China and
local income tax laws (the "PRC Enterprise Income Tax Law"). Pursuant to the PRC
Enterprise Income Tax Law, wholly-owned foreign enterprises are subject to tax
at a statutory rate of 25% (inclusive of state and local income taxes) for all
companies.  Pursuant to the PRC Enterprise Income Tax Law, our Chinese
subsidiaries are Resident Enterprises as defined in Chapter 1 Article 2 “... an
enterprise established within the territory of another country or other tax
region pursuant to foreign laws, whose actual management or control is located
is located in China” and are subject to tax at a statutory rate of approximately
25% for the calendar year ended December 31, 2008 and for the nine months ended
September 30, 2009.





The
components of (loss) income before income tax consisted of the
following:





Nine
      months ended September 30, 2009
            
            
            Nine
      months ended September 30, 2008
            
            
            Twelve
      months ended December 31, 2008(Unaudited)US
      Operations
            
            $
            (495,620
            )
            
            $
            (738,786
            )
            
            $
            (1,118,891
            )Chinese
      Operations
            
            
            307,683
            
            
            
            1,649,362
            
            
            
            1,581,972Discontinued
      Operations
            
            
            (75,375
            )
            
            
            (139,515
            )
            
            
            (232,825
            )$
            (263,312
            )
            
            $
            771,061
            
            
            $
            230,256





The
components of the provision (benefit) for income taxes are as
follows:





Nine
      months ended September 30, 2009
            
            
            Nine
      months ended September 30, 2008
            
            
            Twelve
      months ended December 31, 2008(Unaudited)US
      Operations
            
            $
            -
            
            
            $
            -
            
            
            $
            -Chinese
      Operations
            
            
            98,739
            
            
            
            369,084
            
            
            
            354,616Discontinued
      Operations
            
            
            -
            
            
            
            -
            
            
            
            -$
            98,739
            
            
            $
            369,084
            
            
            $
            354,616





The table
below summarizes the reconciliation of our income tax provision (benefit)
computed at the statutory U.S. Federal rate and the actual tax
provision:





Nine
      months ended September 30, 2009
            
            
            Nine
      months ended September 30, 2008
            
            
            Twelve
      months ended December 31, 2008(Unaudited)Income
      tax provision (benefit) at Federal statutory rate
            
            $
            (89,000
            )
            
            $
            262,000
            
            
            $
            78,000State
      income taxes, net of Federal Benefit
            
            
            (12,000
            )
            
            
            35,000
            
            
            
            2,000Permanent
      differences
            
            
            200,000
            
            
            
            42,000
            
            
            
            47,000Temporary
      differences
            
            
            -
            
            
            
            -
            
            
            
            -U.S.
      tax rate in excess of foreign tax rate
            
            
            (49,000
            )
            
            
            (213,000
            )
            
            
            (137,000
            )Increase
      in valuation allowance
            
            
            49,000
            
            
            
            243,000
            
            
            
            365,000Tax
      provision (benefit)
            
            $
            99,000
            
            
            $
            369,000
            
            
            $
            355,000





We have a
U.S. net operating loss carry forward for tax purposes totaling approximately
$11,325,000 at September 30, 2009. The net operating loss carries forwards for
United States income taxes, which may be available to reduce future years’
taxable income. These carry forwards will expire, if not utilize, through 2029
and are subject to the Internal Revenue Code Section 382, which places a
limitation on the amount of taxable income that can be offset by net operating
losses after a change in ownership.  Management believes that the
realization of the benefits from these losses appears uncertain due to the
Company’s continuing losses for United States income tax purposes. Accordingly,
the Company has provided a 100% valuation allowance on the deferred tax asset
benefit to reduce the asset to zero. Management will review this valuation
allowance periodically and make adjustments as warranted.




F -
19
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2008 --
CONTINUED


Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. We have recognized, a valuation
allowance for those deferred tax assets for which it is more likely than not
that realization will not occur. Our deferred tax assets are included below and
have been fully reserved with a valuation allowance as management of the Company
has not determined if realization of these assets are to occur in the
future.


Deferred
tax assets and liabilities are provided for significant income and expense items
recognized in different years for tax and financial reporting purposes.
Temporary differences, which give rise to a net deferred tax asset is as
follows:





Nine
      months ended September 30, 2009
            
            
            Nine
      months ended September 30, 2008
            
            
            Twelve
      months ended December 31, 2008(Unaudited)Tax
      benefit of net operating loss carryforward
            
            $
            4,337,000
            
            
            $
            4,127,000
            
            
            $
            3,914,000Tax
      benefit of capital loss carryforward
            
            
            -
            
            
            
            -
            
            
            
            115,000Stock-based
      compensation
            
            
            (125,000
            )
            
            
            (37,000
            )
            
            
            139,000Valuation
      allowance
            
            
            (4,212,000
            )
            
            
            (4,090,000
            )
            
            
            (4,168,000
            )Net
      deferred tax asset recorded
            
            $
            -
            
            
            $
            -
            
            
            $
            -





We
evaluate whether tax position we have taken will more likely than not be
sustained upon examination by the appropriate taxing authority.  We
periodically reassess the validity of its conclusions regarding uncertain income
tax positions to determine if facts or circumstances have arisen that might
cause the Company to change its judgment regarding the likelihood of a tax
position’s sustainability under audit. The impact of this reassessment for the
years ended December 31, 2008 and 2007 did not have any impact on its
results of operations, financial conditions or liquidity.





NOTE 10 –
STATUTORY RESERVES





The
Company is required to make appropriations to reserve funds, comprising the
statutory surplus reserve, statutory public welfare fund and discretionary
surplus reserve, based on after-tax net income determined in accordance with
generally accepted accounting principles of the People’s Republic of China (the
“PRC GAAP”). Appropriation to the statutory surplus reserve should be at least
10% of the after tax net income determined in accordance with the PRC GAAP until
the reserve is equal to 50% of the entities’ registered capital or members’
equity. Appropriations to the statutory public welfare fund are at a minimum of
5% of the after tax net income determined in accordance with PRC GAAP.
Commencing on January 1, 2006, the new PRC regulations waived the requirement
for appropriating retained earnings to a welfare fund. For the period from
acquisition to September 30, 2009, statutory reserve activity is as
follows:





AoHongBalance
      – June 27, 2007 (acquisition date)
            
            $
            476,144Addition
      to statutory reserves
            
            
            151,873Balance
      – December 31, 2007
            
            
            628,017Addition
      to statutory reserves
            
            
            59,700Balance
      – December 31, 2008
            
            
            687,717Addition
      to statutory reserves
            
            
            16,604Balance
      – September 30, 2009
            
            $
            704,321





NOTE 11 -
FOREIGN OPERATIONS





As of September 30, 2009 the majority of our revenues and assets are associated
with subsidiaries located in the People's Republic of China. Assets at September
30, 2009 and December 31, 2008 as well as revenues for the nine months ended
September 30, 2009 and 2008 and twelve months ended December 31, 2008 are as
follows, note that prior periods have been retrospectively restated to show the
effect of discontinued operations of our biometric segment:





United
      States
            
            
            People’s
      Republic
              Of
      China
            
            
            TotalNet
      Revenues for the nine months ended September 30, 2009
            
            $
            -
            
            
            $
            22,883,725
            
            
            
            22,883,725Net
      Revenues for the nine months ended September 30, 2008
            
            
            -
            
            
            
            27,067,776
            
            
            
            27,067,776Net
      Revenues for the twelve months ended December 31, 2008
            
            
            -
            
            
            
            34,967,512
            
            
            
            34,967,512Identifiable
      assets at September 30, 2009
            
            
            229
            
            
            
            13,879,560
            
            
            
            13,879,560Identifiable
      assets at December 31, 2008
            
            $
            98,707
            
            
            $
            13,615,345
            
            
            $
            13,714,052




F -
20
 CHINA
AMERICA HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2008 --
CONTINUED




NOTE 12 -
SUBSEQUENT EVENTS





We have
evaluated subsequent events through January 10, 2009, the date of issuance of
the audited consolidated financial statements. During this period we did not
have any material recognizable subsequent events.


F -
21