November 23, 2004

China's American Dairy Reports 66% Increase in Q3 Net Income

American Dairy, Inc. announced that the company's net income rose by $496,283 or 66% to $1,244,586 for the quarter ended September 30, 2004, compared with the same period in 2003 of $748,303. American Dairy is one of the leading producers and distributors of milk powder and soybean products in China.

Components of sales and expenses resulting in this increase in net income are attributed primarily to the following factors:

--  1.36% quarter-on-quarter increase in sales revenues.

--  2.39% quarter-on-quarter increase in gross profit margins. Gross profit margin improved to 47% for the quarter ended September 30, 2004, compared with 46% for the same corresponding quarter in 2003.

--  3.49% quarter-on-quarter increase in distribution expenses to $2,100,427. Variance in selling expenses was principally attributable to the increases in advertisements, salaries and allowances, and supermarket display and consignment.

Sales revenues increased by $2,388,534 or 51% quarter-on-quarter to $9,020,248 for the quarter ended September 30, 2004, compared with the same period in 2003 of $6,631,714.

"Increased awareness of the nutritional benefits of drinking milk products, assisted by the government and dairy product manufacturer's promotions as well as an increase in consumer purchasing power, are reasons for the favorable variance in sales revenues for the third quarter," according to Leng You-Bin, CEO of American Dairy, Inc.

"Our extensive sales network enhances the distribution of Feihe Dairy's products to different provinces. It not only enhanced the popularity of 'Feihe' products and trademark, but also the expansion of Feihe Dairy group's distribution network. This allowed Feihe Dairy group to widen and expand the geographic scope of the sales network and increase sales volume in existing markets," explained Leng.

"Recent scandals of some unscrupulous small dairy producers of producing tainted milk, low milk contents and substandard production have enabled Feihe Dairy to increase its market share," revealed the CEO. "As a matter of fact, in May 2004, 'Feihe' was recognized by the People's Republic of China's Quality Control Council as one of the PRC's Top 30 high quality milk powder manufacturers."