789868--4/2/2007--AMERICAN_DAIRY

related topics

{product, liability, claim}

{operation, international, foreign}

{product, market, service}

{property, intellectual, protect}

{loan, real, estate}

{condition, economic, financial}

{cost, regulation, environmental}

{cost, operation, labor}

{tax, income, asset}

{personnel, key, retain}

We expect to incur costs related to our planned expansion and growth into new plants and ventures which may not prove to be profitable. Moreover, any delays in our expansion plans could cause our profits to decline and jeopardize our business. Our products may not achieve market acceptance. Changing consumer preferences make demand for our products unpredictable. Our planned growth may require more raw milk than is available and could diminish the quality of our dairy products. Possible volatility of raw milk costs makes our operating results difficult to predict, and a steep cost increase could cause our profits to diminish significantly. The loss of any of our key executives could cause an interruption of our business and an increase in our expenses if we are forced to recruit a replacement; we have no key-man life insurance covering these executives. The milk business is highly competitive and, therefore, we face substantial competition in connection with the marketing and sale of our products. Lack of property and general liability insurance expose American Dairy to the risk of loss of our property as well as liability risks in the event of litigation against our company. As we increase the scale of our operations, we may be unable to maintain the level of quality we currently attain by producing our products in small batches. We face the potential risk of product liability associated with food products. Doing business in China involves various risks including internal and international political risks, evolving national economic policies as well as financial accounting standards, expropriation and the potential for a reversal in economic conditions. Extensive regulation of the food processing and distribution industry in China could increase our expenses resulting in reduced profits. The Chinese currency, Renminbi , is not a freely convertible currency, which could limit our ability to obtain sufficient foreign currency to support our business operations in the future. Fluctuations in the exchange rate between the Chinese currency and the United States dollar could adversely affect our operating results. Dividends paid to American Dairy, as the U.S. parent company, would be subject to U.S. corporate income tax. Lack of bank deposit insurance puts our funds at risk of loss from bank foreclosures or insolvencies. Limited and uncertain trademark protection in China makes the ownership and use of our trademark uncertain. Our lack of patent protection could permit our competitors to copy our trade secrets and formulae and thus gain a competitive advantage.

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789868--4/2/2007--AMERICAN_DAIRY_INC