Yayi International Inc. today released the following open letter to
investors:
Dear Investors:
Thank you for your kind support for Yayi International Inc. (the
“Company”, “Yayi” or “we”) in the past several years.
Both our manufacturing base and consumer market are in the mainland
China. Chinese government has enhanced supervision of infant products,
especially infant formula products. Many new “market entry” regulations
have been established to further increase the requirement on milk powder
manufacturers in terms of production environment, equipment, technology,
quality and source control over raw milk.
Yayi has always treated quality as our number one principle and
priority. We closely monitor the quality from the minute we start
collecting raw milk from its source. We have set up proprietary dairy
goat breeding farms in Shaanxi Province to ensure high quality control
of milk sources. At the same time, we have our own raw powder
manufacturing and processing plants to ensure the high quality of our
raw powder. Currently in order to meet the Chinese government’s stricter
requirements towards milk powder industry, the largest raw goat milk
powder manufacturing base, with access to the most advanced technology
and equipment in China, is under construction in Shaanxi Province. The
provincial government of Shaanxi Province is in full support behind the
goat milk industry and is one of the major industries the provincial
government is focusing on. In addition, a new goat milk powder, tablet
and liquid milk manufacturing base is being constructed in Jinghai
Industry Zone of Tianjin, China. This new facility will implement
world-leading dairy manufacturing equipment and will help Yayi to become
the industry leader of providing wide spectrum of various goat milk
products. Upon the completion of this project, the tangible asset of
Yayi is expected to be about 300 million RMBs.
Yayi has always been the leading goat dairy brand in China. Since we
have consistently pursued the principle of quality first, we have won
good reputation among consumers in China. In brand promotion, since 2009
Yayi has successively invested several tens of millions RMBs in
advertising on core television media in China – CCTV1, CCTV2, CCTV3 and
CCTV8. As a result, Yayi has become a well-known national brand in
southern China. In sales and marketing, Yayi has established its own
distribution channel of large amounts of infant and toddler stores,
supermarkets (especially Wal-Mart), shopping malls and pharmacy stores
covering 23 provinces in China. In the aspect of brand integration, we
have adopted news marketing, online marketing, Baidu marketing (Baidu
Encyclopedia, Baidu Knowledge, Baidu BBS), blog and micro-blog
marketing, forum marketing and many other marketing ways to complement
each other. As a result, our brand can influence wider audience and the
promotion helps to enhance our brand awareness and reputation.
Yayi has always emphasized on building up our brand with a goal to
become the number one famous and reliable Chinese goat milk brand. In
2005, authority estimated that the brand value of Yayi had reached 320
million RMBs. After recent years of development, our brand value has
been consistently increasing with an estimated brand value of 500-600
million RMBs.
Chinese government will launch a series of consolidation policies
regarding the key enterprises in the dairy industry. Recently in
“Opinions on further strengthening the quality of infant formula”, Food
and Drug Administration, Ministry of Industry and Information
Technology, Ministry of Public Security, Ministry of Agriculture,
Ministry of Commerce, Health and Family Planning Commission, General
Administration of Customs, State Administration for Industry and
Commerce, and State Quality Inspection Administration have stressed “the
need to tighten the approval standards on new and expansion projects of
infant formula. Infant formula manufacturers must have self-established
and self-controlled milk sources and implement batch inspection on raw
milk/powder and whey powder to ensure quality. Manufacturers should make
efforts to strengthen dairy farming standardization and technical
training, and to promote large scale dairy breeding. Governments should
increase support for manufacturers to implement technology innovation
and to upgrade inspection abilities through financial subsidies, tax
incentives and other preferential policies. Governments should also
encourage and support corporate mergers and acquisitions, increase
industrial consolidation and promote standardized, scalable and
modernized enterprise developments and practices. Governments should
provide the funding for technology supporting the infant formula
inspection and electronic information management.”
Policies discussed above should help to consolidate and stabilize the
leading position of Yayi in the goat milk industry in China and help
Yayi in capital raising, integration and consolidation.
Based on the current situation on the goat milk industry in China and
the market sentiment on Chinese stocks publicly listed in the U.S. stock
market, our board has considered to adopt a strategy of delisting from
U.S. and turning to stock exchange of Hong Kong or mainland China in the
future. Based on our own developmental plan, the operating environment
in mainland China and the level of support from local government, Yayi
plans to gradually go private in due course. At the moment, Yayi is
actively getting in touch with international and domestic related
companies and looking for mergers and acquisition possibilities to
sustain the development of the Yayi brand.
Chinese dairy industry has experienced a very tough time and is now in
its consolidation phase. As a result, sales of our goat milk
deteriorated all the way. In order to re-invent our business, we
continue to invest in industrial bases and high-tech equipments,
expecting to lay a solid foundation for future development of our
operation, business and brand. We believe that our efforts will finally
pay off. For that reason, we are trying to reach a mutually beneficial,
reasonable and practical agreement with SAIF Partners who is holding $15
million preferred stocks of Yayi. We believe that we will survive from
this bad time and do our best to protect Yayi’s business and our
investors.
In light of Chinese dairy industry being in consolidation, significant
reduction in our sales, investment projects under construction, the cash
flow has been on the verge of breaking; therefore we are in urgent need
of large cash support. As a result, we want to apologize for not being
able to repay principle in full at maturity in September, 2013 and
interest payments due since March 2013. However, in order to show good
faith to honor our obligations and to protect the interest of investors
the best we can, we plan to pay an amount of $30,000 indicated from the
last press release, and in addition, we are willing to consider issuing
669,000 common stock shares currently in the escrow account to our
convertible note holders, pending our discussion with SAIF Partners and
after receiving final written confirmation from SAIF Partners.
We believe that with your long term support and continued efforts of our
own, we together will overcome current difficulties and walk out of this
slump. We promise we will do our best to meet our obligations and to the
utmost to protect the interest of our investors.
Thank you all again for your kind support.
Yayi International Inc.
Copyright Business Wire 2013