5 May 2009

2 minute read

Asia

Net loss for fiscal 2008 was $2.6 million or $0.03 per share as compared to a loss of $0.6 million in the prior year. On an EBITDA basis, the Company earned $1.5 million for the year ended December 31, 2008, compared to EBITDA loss of 0.2 million in fiscal 2007. For the fourth quarter ended December 31, 2008, the Company achieved revenue of $8.2 million and net earnings of $0.6 million.

Revenue in 2008 includes $2.3 million from milk sales and $7.3 million from the sale of 3,000 cows to Yili Group. In 2007, no milk was produced as the herd was too young, and revenue was derived primarily from activities that are no longer as part of the Company's business strategy. Management expects milk revenue to increase in 2009, as the milking herd size expands.

At December 31, 2008, the Company had a herd size of just more than 7,000. The Company continues to use its inventory of over 200,000 embryos to produce Canadian Holsteins. These embryos have historically been implanted in Chinese domestic cows as surrogates. The Company has paid the owner of the surrogate a fee on the successful birth of a cow. As the herd has developed, the Company has also sought to grow its herd by artificially inseminating the best of breed of its China-born Canadian heifers. As of the end of March 2009, the total herd size had increased to more than 9,000 cows.

As a result of new government regulations adopted after the melamine scandal in 2008, management believes that a new market opportunity for further growth presents itself in 2009. New Chinese government regulations encourage dairy processors to purchase raw milk from larger-scale farms. The government has established a goal that all dairy processors obtain at least 70 per cent of their raw milk from these scaled farms by October 2011. This has provided the Company with the opportunity to acquire Chinese Holsteins at favorable prices as small-scale dairy farms transition out of dairy farming. By purchasing mature Chinese Holstein cows locally, the Company expects to increase the herd size on its large scale farms faster and at lower costs. So far, during the month of April 2009, the Company has acquired more than 2,000 Chinese Holsteins at approximately $900 (5,000 RMB) per cow.

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