China Genetics Holdings and Its Chinese Operation

China Genetics Holdings Ltd. In October 2004, China Genetics Holdings was incorporated in Cayman Island as the offshore parent company to its subsidiaries operating in China.

Hua Xia Dairy Farm

In summer of 2004, “Huaxia Dairy Husbandry Company Ltd.,” or in its English name,“China Genetics (Sanhe) Ltd.” (thereafter HX), was incorporated as a WOFE (wholly owned foreign enterprise) in Sanhe city, Hebei Province, 50km (33 miles) west of Tiananmen Square in Beijing. It started out with 180 imported New Zealand Holstein cows and now on four leasehold properties that total over 100 acres with one operating as a dairy farm, raising over 1600 heads of New Zealand Holsteins in American style free stall facilities and the second properties under construction to house 2600 new dairy cows in 2008. The third parcel will be constructed into a facility that raises only heifers (cows that is 60 days before first calf birth). And the fourth one will be developed into an industrial compound where offices, manufacturing, exhibition center, R&D facility and JV operation will occupy.

WonderFood Co.

Being in close proximity to Beijing and Tianjin with over 30 million population, HX has started marketing a premium milk branded “Wondermilk” with the emphasis on being 100% natural, low temperature pasteurization, best quality, healthy and safe. The brand targets the affluent population and expatriate residents in urban Beijing. There are whole milk and 1% low fat milk packaged in 500ml hip roof cartons with western influenced designs in prominent white and black colors respectively. “Wondermilk” whole milk and 1% low fat milk have been sold in Beijing for an average retail selling price of 13 RMB/Carton (equivalent to US$13 per gallon) with distribution to selected supermarkets (7-11, Jenny Lou, Pacific Department Store, Xinguang department store, Huantang Supermarkets and more) and home delivery to selected areas. HX’s current production is processed on a dedicated line in a contracted factory and monitored by full time HX staff on site. In January 2008, fermented yogurt in both whole and low fat will enter into the market as well. We are looking at export market to Hong Kong and Middle Eastern countries where consumers will pick quality over price and local dairy production is limited.