American Dairy Provides Update on Ausnutria Acquisition

05/11/07 American Dairy, Inc., one of the leading producers and distributors of milk powder and soybean products in China, announced that it has entered into an Equity Purchase Agreement for the purchase of 75% of the issued and outstanding equity interests in Ausnutria Dairy (Hunan) Company Ltd., a distributor of milk powder and rice products in the People's Republic of China. The 75% equity interest is being acquired from two shareholders of Ausnutria, Chen Yuanrong and Hunan Mulin Modern Food Company Ltd. The aggregate purchase price paid for the 75% equity interest is approximately USD $27 million. Completion of the transaction is contingent upon obtaining certain regulatory approvals in the PRC, including a new business license from the local counterpart of the State Administration for Industry & Commerce.

Ausnutria, based in Changsha, Hunan Province, China, is a distributor of premium milk powder and rice products in the PRC under the "Ausnutria" and "Allnutria" brands. The Company has approximately 140 employees and a diversified portfolio of products, which are imported primarily from Australia and include milk powder products for children and pregnant women. The products are distributed through a sales network of approximately 150 distributors in mainland China, and reaches hospitals and retail stores in China's largest cities such as Beijing, Shanghai, Shenzhen, Tianjin, and Chongqing. According to unaudited financial results, in the year 2006, Ausnutria's net revenue after VAT increased more than 100% YoY to $15.9 million and its net income was approximately $3.0 million.

Mr. Leng You Bin, Chief Executive Officer of American Dairy, stated, "We welcome the addition of Ausnutria's high quality brands to our existing premium product suite. Ausnutria and Allnutria are established and trusted brands in China, with a ubiquitous presence in top tier cities. We believe that Ausnutria will keep growing fast in the coming years and we expect our combined efforts will extend our geographic reach and complement our strong position in China's smaller growth markets. This is an outstanding opportunity for both companies to combine our high quality brands, and leverage our complementary distribution channels."

Mr. Chen, Chairman of Ausnutria, added, "We are pleased to partner with American Dairy and the Feihe brand. The opportunity to extend our reach beyond the large cities in China, into the smaller, high growth tier two and tier three cities we have previously not penetrated, and to realize the cost benefits of utilizing American Dairy's  manufacturing capacity and lower priced domestic raw materials to produce our branded milk and nutritional products, will allow us to further enhance our already strong margins and earnings performance."

As previously reported, on June 27, 2007, the Company entered into a Loan Agreement with Moveup Limited pursuant to which the Company advanced USD $10 million as a deposit towards the purchase of an equity interest in Ausnutria. In connection with the Loan Agreement, the Company also entered into a Share Subscription Agreement with Ausnutria Dairy Pty. Ltd. However, the Company has decided not to pursue the transaction structure contemplated by the Loan Agreement and the Share Subscription Agreement and is in the process of terminating these agreements. Today's Equity Purchase Agreement represents an alternative transaction structure that is separate from the Loan Agreement and the Share Subscription Agreement. The Deposit, which was being held in escrow, has been applied towards the Purchase Price.