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Lessons on Enterprise Development

june2010

Lessons on Enterprise Development:


An Account on MACOFAMCO in the
Copra to CNO Trading Project

Joey Faustino
Executive Director
Coconut Industry Reform Movement, Inc.

To the COIR Board Members:

You will recall that the Copra to CNO Trading Project (CCNOTP) made a very
impressive trial run last April to May 2009. The gains hit a whopping figure of nearly a
million pesos after a week’s consolidation of 500 tons of copra from the communities for
toll-crushing by the CIIF Oil Mills. This became possible via a toll-crushing agreement
between the Manay Coconut Farmers Multi-purpose Cooperative (MACOFAMCO), a
small cooperative with 120 members in Davao Oriental, and the CIIF Oil Mills thru the
facilitation of COIR. Apart from buying copra from the communities at P1 higher-than-
millgate price, the gains were distributed as well to cover the consolidators’ share and
some administrative requirements. This impressive run enabled us to maintain a
townhouse-office in Davao City and fund a series of monthly consultations with most of
the copra consolidator-networks from Davao Oriental, Davao Sur, General Santos City,
Zamboanga. The series of monthly consultations guided each consolidator-network and
COIR in running the project.

Of course we wanted to keep this going even on limited volumes and sold via the local
market. However, after the successful trial run, Lito Masugbod of MACOFAMCO, whom
I appointed as Manager of the project then, started showing signs of weakness in the
business aspect -- at least this was how I saw it at that time. Earlier Lito would hire a
vehicle, a Crosswind (SUV), for a whole month without telling us. He will speak out only
when he cannot find a way to pay it anymore and expect COIR to handle it. I protested
against it and asked him to stop such an unnecessary overhead expense.

Later he started booking copra deliveries which is a basic "NO-NO" for all in the
network -- this has been agreed on in our series of conferences and meetings.
The result was a complete reverse of the success (profit) that was made. When I
questioned the decision he had made, all he said was, "Ganun talaga, Sir, at nasubo
na ako. Tulungan mo sana ako dahil kung hindi, masisira tayo sa mga kausap
natin."

Because of this erratic decision-making on his end I redesigned the system of copra
pricing. I still made Lito as the Chief Trader for the project but I, myself, took the helm as
Manager. This means that the approval of any price for copra buying would rest on me
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alone while Lito would still look for the sources of copra. In the process, Robson Corp.,
which initially funded the trial run started withdrawing some amounts from us. Robson
told us that the company needed the amounts to cover for collaterals with a bank for
securing a huge loan that would enable us to finally push through with the exportation of
CNO to Europe.

This was when things started getting really messy. With diminishing resources (funds)
on hand we (networks) all agreed to pursue a very limited and calculated copra buying
and toll-crushing for the following months (August 2009 thereafter). Lito then proposed
to go into edible oil retailing. I said it was worth contemplating if the concept was “to buy
copra at a higher price and bring back the edible oil to the communities at a cheaper
rate” via retail (takal) than from the grocery store. The scheme would have doubled the
benefits for the farming communities.

So I asked for a brief feasibility study from Lito. He responded with text messages
saying that it is profitable and that we can make it work. He also wrote a letter
requesting P1 million for the undertaking. But I said that I could not just entertain the
request without a simple calculated projection. He then scheduled us to go to
Saranggani with Pastor Roger Fernandez in early September 2009. I believe Lito
expected to get his hands on the P1 million after that trip. Lito and Pastor Roger were
suggesting that copra buying be made in General Santos City -- that money shall be
advanced to them for such a purpose. I begged to disagree because the main rule was
that copra should be delivered to the mill where it is paid for immediately at higher-than-
millgate price. That trip was actually a waste of precious resources for it did not result
into any workable scheme. Instead I instructed Gerry Quijada to assist MACOFAMCO in
putting some concrete figures into the edible oil retailing. COIR did some computation
thereafter and I agreed to use up some funds for the purpose -- on the condition that the
copra would now be sourced out directly from our community POs. My first choice was
a women's association of small coco farmers in Governor Generoso – the Agraryong
Repormang Samahan ng mga Kababaihan which Bread for the World had earlier
assisted by means of a Special Project Fund for copra trading.

With such a task, Lito asked for some cash advance to fund his travel for that purpose.
Lito and his team usually avail of cash advances for tasked travels to source out copra.
He initially submitted a huge budget for the travel – including car rental. Since the
target volume was calculated I advised him to simply make use of a motorbike instead.
Days after, a little over 3 tons of copra was delivered to LegOil which we then toll-
crushed into edible oil. MACOFAMCO withdrew around 1,800 kilos of edible oil and sold
it retail in Mati. I later sold the copra pellets to LegOil to pay (in part) for the toll-crushing
fee.

By early October 2009 the office received a letter from MACOFAMCO, a Notice of
Termination of the tripartite contract with Robson and COIR (refer to Annex). It came as
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a shock to me for I never got any hint at all from anyone in MACOFAMCO. Worse, the
letter was jointly addressed to Robson and COIR, as if COIR and MACOFAMCO were
never together when they both signed the contract with Robson. The MACOFAMCO
resolution cancelling the contract also stated that they were not given their
rightful share in the trial run -- with no details. So I wrote an email asking questions.
You will be greatly surprised at the audacity of the response that I got from them. And
since then, neither Lito nor Pastora Mercy, MACOFAMCO Chair, can readily be
reached thru cellphone. For a few times I got thru to Pastora Mercy -- but she can only
say, "Di ako makakasagot sa mga tanong ninyo, Sir. Mag-meeting pa ang Board."

Last November 2009 I went to Davao where I have initially scheduled to meet up with
Pastora Mercy. I called her on the day of the meeting itself just to make sure. She told
me she was ill and cannot make it. I then visited Davao Oriental areas and the edible oil
retail store in Mati and found out a number of shocking details:

1. Lito bought the copra for edible oil from Gov. Generoso as instructed, but not
from our network women's group. He bought it from his own contact (again
reportedly using a Crosswind he rented). The women's group was, of course, furious
about it.

2. MACOFAMCO was able to penetrate the edible oil retail market quite convincingly --
but their Board later issued a
resolution, late September, to borrow
part of the collection (around P40,000)
for administrative / office expenses.
They did not inform COIR or any of the
project’s networks -- as if it was their own
money they managed. Obviously they
knew that COIR will not agree to putting
the money into a non-income generating
expense. Pastor Almer, who tends to the
retail store, also informed me that he
requested for Lito and Mercy's presence
during my visit at the retail store -- but
they refused. Instead, they wanted me to
meet with the MACOFAMCO Board --
alone, by myself -- in Manay, Davao
Oriental.

3. This prompted me to pay a visit to


MACOFAMCO's office in Mati. The door
to the office was nailed and only a
computer unit and air conditioner was
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inside (can be seen thru a glass window). I talked to the building owner and was
informed that MACOFAMCO had been in default for 3 months with 1 issued check
that bounced. The owner was hoping to get hold of their equipment and furniture but
MACOFAMCO was able to slip them out -- this is why he had to nail the door shut. He
thought he would still have the computer unit and the air conditioner. But he found out
later that the equipment was being repossessed for lack of payment. (A few months ago
I saw this office only thru the internet and asked if MACOFAMCO was sure they would
be able to maintain it. Lito, of course, responded in the positive.)

4. I was greatly worried by the sudden


shift in MACOFAMCO's attitude
towards COIR. Not only because of the
resources they had willfully taken from
the edible oil project, but also because
we had another project with them thru
the CIIF -- the coco seednut nurseries.
COIR had earlier passed on to the
MACOFAMCO account an amount of
P460,000 for the purchase of seednuts
for the New Bataan, ComVal nursery.

The nursery project originated from a


tripartite agreement signed by and
between CIIF, MACOFAMCO, and
COIR regarding the CIIF Coconut Farm
Development Program in 2007. CIIF
committed to farm out a total of Php 3
million to fund two (2) nurseries in New
Bataan, Compostela Valley and Cateel,
Davao Oriental. Initially, MACOFAMCO was
able to co-manage and report an amount of
Php 500,000 for the land preparation of both
sites. This easily prompted COIR to release
the Php 460,000 / Php 725,000 for the
purchase of seednuts in New Bataan.

Thru Pastor Boy Acillo and Nonoy


Cabazares, I was able to meet up with Lito
just before leaving Davao on November 24,
2009. I asked about the recent decisions
made by MACOFAMCO. He just replied, "Di
ako makakasagot, Sir. Mag-meeting pa ang
Board" – a line I heard before from Pastora
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Mercy. I did not push for any answer but I threw out all the questions anyway. Then I
asked if the CIIF nursery funds were
still intact in MACOFAMCO’s account.
He just said, "Ginagawaan ng proper
accounting." So I repeated the
question more emphatically, "Intact pa
ba ang funds o hindi na?" He just said,
"Di ako makakasagot, Sir." That
meeting was surely a waste of time!

When I got back to Manila I learned a


few more details about my querry. The
MACOFAMCO Accountant reported
how the nursery fund was
withdrawn to purchase copra -- not
for the original purpose of purchasing
seednuts for the nursery. This caused
the delay in the implementation of
the 1st nursery site in New Bataan,
and thereby totally negating the other P725,000
COIR-
nursery project for Cateel -- a joint MACOFAMCO
CIIF NURSERY FUNDS
project with Monching Ramos and the UCPB FOR COMVAL
Cateel Coconut Industry Development
Council. INTERNET
TRANSFER P460,000
MACOFAMCO
Even more shocking was the fact that the UCPB

nursery fund was allegedly withdrawn to


buy copra from Gov. Generoso (refer to # P210,000
BASILISA CHAN
CHECK
1 above). The plan, as it appears, was for
MACOFAMCO or Lito to make profit from P95,000
TED SUAZO
selling copra to the CNO Project as we
were ready to buy at higher-than-millgate P65,000
MACOFAMCO

price. This explains why Lito chose his ADMIN Consultancy


included

own contact over our preferred women's P50,000


P50,000
Pastor De Guzman

group. However, the bigger problem ONB


Lito Masugbod Copra

lies on the fact that only some 3 tons


of copra reached the mill while the P250,000
Allegedly encashed
amount withdrawn by Lito, with the by Lito Masugbod Copra

approval of the MACOFAMCO Board,


was good enough for 15 tons. Right
now only they know where the money P265,000
Intact with COIR
went. internet account

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Because of the "leak" of information Lito and the MACOFAMCO Board have reportedly
now been isolating those who have spoken the truth with threats of filing charges
against them -- for reporting the information to COIR?

What can drive the MACOFAMCO management and the board, pastors at that, to this?
Considering that Lito Masugbod and MACOFAMCO had been alongside COIR for
almost four (4) years doing advocacy work without any monetary remuneration, they
had proven to be extremely trustworthy then. These advocacy efforts later on
transformed into more concrete and tangible gains such as the tripartite agreement with
CIIF on the Coco Farm Development Program. Both the Toll-Crushing Agreement and
the Nursery Projects resulted from this agreement. Earlier on MACOFAMCO was
granted preferential rates for the copra that they sold to LegOil. All these results did not
come on a silver platter – it was definitely a hard fought struggle.

Now comes the first taste of harvest from the CCNOTP Trial Run and one can only
expect that MACOFAMCO would savour the opportunity that could start up wider
opportunities in the future – especially so that they had been seasoned in the struggle.
But much to COIR’s dismay, it appears that upon tasting its first share (est. Php
250,000) in the CCNOTP Trial Run, the leadership could not resist taking more and
more money with lesser waiting period and effort. They immediately forgot that,
originally, MACOFAMCO’s effort was for the larger sector of coconut farmers – not just
their own interests.

I can only surmise one possible reason that led them to this. Last August 2009 COIR
finally delivered the Coconut Industry Research Institute (CIRI) to MACOFAMCO's
doorstep. CIRI is composed of experts in the field of oleochemicals. CIRI signed a
management agreement with MACOFAMCO to help make the cooperative ultimately fit
to take on oleochem business – a high-end coconut by-product. If you recall I used the
term "heavens of copra" to refer to oleochem for it commands the biggest value-addition
to copra. One deal with toll-crushing arrangement for oleochemicals would amount to
millions and millions of profit. Initial calculations of COIR with CIRI show that profits can
reach up to P17 million net from a minimum exportable volume of CNO (5,000 MT). This
was initially being planned by COIR for all the networks in CCNOTP to share as well.
But when MACOFAMCO welcomed CIRI on their doorstep the leadership probably just
went crazy over it. CIRI’s management agreement does not entail any monetary
contribution and MACOFAMCO had to find ways for initial organizational expenses.
Don’t count the chicks until all the eggs are hatched, so goes the cliche. MACOFAMCO,
it appears, counted the chicks before the eggs were even laid. As one of the pastors
had reportedly said in a MACOFAMCO board meeting, “Ngayon lang sa kasaysayan na
magiging milyonaryo ang mga pastor.”

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To sum it all up, the following have yet to be settled with the MACOFAMCO leadership:

Responsible Party/ies Particulars Remarks


Lito Masugbod, Manager Some Php 40,000 unliquidated Undoubtedly utilized for task-
cash advances from the travel related purposes...but how
CCNOTP efficiently and judiciously?
Lito Masugbod with the Some Php 40,000 withdrawn
MACOFAMCO Board of from the Edible Oil Retail
Directors Marketing (CCNOTP) funds
Lito Masugbod with the Remaining fund balance of some
MACOFAMCO Board of Php 89,000 capitalization of the
Directors Edible Oil Retail Marketing funds
Lito Masugbod with the Php 460,000 (fund and report)
MACOFAMCO Board of less Php 95,000 released to the
Directors New Bataan Nursery

The abovementioned now adds up to MACOFAMCO’s various obligations to the CIIF


Oil Mills (Php 167,000) for the Direct Copra Marketing Program in 2004; over a million
pesos unliquidated with another NGO for abaca and copra marketing; and hundreds of
thousands worth of other loans from individuals prior to the CCNOTP – only their “God”
knows how much. COIR was hoping that the opportunities would later enable
MACOFAMCO to settle its obligations finally. Unfortunately, reports have it that Lito
Masugbod, after all these, have unrelentingly borrowed huge amounts from other
individuals with only a promise “to move heaven and earth to set the farmers free from
bondage.” Pastor Almer, the one in charge of the Edible Oil Retail Marketing for
MACOFAMCO, recently filed a suit against the board for not returning Php 100,000
borrowed from his mother-in-law.

In a phone conversation with Pastora Mercy Mamontayao, MACOFAMCO Chair, last


January 26, 2010 I asked if they could be willing to meet up with COIR Board
representatives to settle the issues. I told her that COIR already knows some details on
what had transpired with the questionable use of funds (I even mentioned malversation)
by MACOFAMCO for the CIIF Nursery and the Edible Oil Retail Marketing. She told me
that their board was scheduled to meet that week and that she would relay to me their
response thereafter. On February 2, I received the following text message from Pastora
Mercy:

Helo gud am Sir Jo, ang Macofamco board willing po na makipagmeet sa COIR board
then ask lng po kmi kng ano ang mga agenda na dapat tatalakayin during sa meeting at
kalian pls pkisend sa MACOFAMCO email add. Tnx po Sir.

I replied in the positive and that I shall forward their reply to the COIR board and got
another text message from her:

Ok Sir tnx Godbls u. But the meeting never came to being.


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THE TRIAL RUN PROVED THAT THERE CAN BE SCHEMES FOR VALUE-
ADDITION TO COPRA WHICH FARMING COMMUNITIES CAN BENEFIT FROM.
COCONUT FARMERS NEED NOT RELY ON MERELY COPRA AS A PRODUCE
AND THE ONLY SOURCE OF INCOME. THE DIFFERENCE BETWEEN COPRA AND
A PROCESSED PRODUCT FROM COPRA IS OBVIOUSLY SUBSTANTIAL. AT THE
CURRENT JUNCTURE THE COCONUT FARMERS DO NOT HAVE ANY ACCESS
TO CAPITAL TO PUT UP PROCESSING CENTERS. WITH A LITTLE HELP THEY
MAY BE ABLE TO PUT UP VILLAGE-LEVEL PROCESSING CENTERS. HOWEVER,
EVEN THE VILLAGE-LEVEL PROCESSING CENTERS WILL NOT STAND A
CHANCE WHILE IN COMPETITION WITH THE BIG MILLERS LIKE CIIF AND WILL
LIKELY FAIL. NOR WILL THEY LIKELY TAP THE MARKET WITH THE LIMITED
VOLUME THEY WILL BE ABLE TO PRODUCE. ORGANIZED CONSOLIDATION IS
A MUST IN ORDER TO TAKE ON EXISTING MARKETS. IN SUCH A CASE,
SCHEMES LIKE THE TOLL-CRUSHING AGREEMENT CAN PROVE TO BE A
BETTER ALTERNATIVE. PARTNERSHIPS BETWEEN THE PRIVATE SECTOR AND
THE FARMERS CAN OFFER BETTER RESULTS AT THE MOMENT UNTIL SUCH
TIME THAT THE FARMING COMMUNITIES ARE READY TO TAKE ON THE HUGE
TASK BY THEMSELVES.

ON THE OTHER HAND, IT ALSO PROVED THAT THERE NEEDS TO BE MORE


THAN JUST THESE SCHEMES AND “VALUES” TO TRULY EMPOWER THE
FARMERS’ COOPERATIVES TO TAKE ON SUCH GREAT RESPONSIBILITIES. THE
OPPORTUNITIES THAT ENTERPRISE BUILDING CAN OPEN UP IS VAST WITH
PROMISING HUGE GAINS. THESE GAINS CAN BE VERY TEMPTING TO SERVE
ONE OWN’S INTEREST OVER THE OTHERS. THE MACOFAMCO LEADERSHIP
GOT INTOXICATED AT A VERY EARLY STAGE OF BUILDING SUCH AN
ENTERPRISE. WHILE THERE WERE SYSTEMS OF CHECKS AND BALANCE
APPLIED TO THE CCNOTP, THE COOPERATIVE RESISTED APPLYING SUCH ON
ITSELF. THE COOPERATIVES AND COMMUNITIES SHALL NEED TO BE
ORIENTED AND TRAINED ON MANAGEMENT AND GOVERNANCE GRADUALLY.

The MACOFAMCO Board


and Management, all
pastors, praying over the
COIR Board and Staff in
August 2009 – just before
embarking on its
anomalous travels.

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EXCERPT FROM THE MINUTES TAKEN FROM THE REGULAR BOARD MEETING HELD
ON 28TH day OF SEPTEMBER 2009, AT ANOLING STREET, MANAY, DAVAO ORIENTAL

RESOLUTION NO.51

Series of 2009

RESOLUTION TO TERMINATE THE MEMORANDUM OF AGREEMENT BETWEEN


ROBSON AGRO VENTURES CORPORATION, MANAY COCONUT FARMER MULTI-
PURPOSE COOPERATIVE (MACOFAMCO) AND COCONUT INDUSTRY REFORM
MOVEMENT (COIR)

WHEREAS, MACOFAMCO entered into two agreements with Robson Agro Ventures
Corporation, Manay Coconut Farmers Multi-Purpose Cooperative (MACOFAMCO) and
the Coconut Industry Reform Movement (COIR) as follows:

1. Copra and CNO/Cochin Oil Buying/Marketing, Memorandum of Agreement


dated April 3, 2009; and

2. Copra and CNO Buying/Marketing, Memorandum of Agreement dated August


29, 2008.

WHEREAS, all parties agreed to perform all their respective obligations and undertakings
hereunder in good faith under a covenant that no action shall be taken contrary to the
spirit and objectives of the agreement;

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WHEREAS, Robson Agro Ventures Corporation failed to perform their obligations pertaining to
the agreement such as; financial assistance for the copra purchasing, delivery and
CNO/Cochin Oil processing operations of MACOFAMCO;

WHEREAS, MACOFAMCO was not able to sustain the Copra purchasing due to the failure by
Robson Agro Ventures Corporation to provide the necessary financial assistance;

WHEREAS, MACOFAMCO did not receive its rightful share in the proceeds from
the sale of CNO and pellets arising from these agreements;

NOW WHEREFORE, upon motion of Director Alfonso Colegado seconded by Director


Dominador Sebog, it was;

RESOLVED, AS IT HEREBY RESOLVED, the following:

1) To terminate the following contracts effective October 31, 2009:

a) Copra and CNO/Cochin Oil Buying/Marketing, Memorandum of Agreement


dated April 3, 2009; and

b) Copra and CNO Buying/Marketing, Memorandum of Agreement dated August


29, 2008.

2) To authorize the Chairman of the Board, Mercy Mamontayao, to issue the necessary
notice of termination to effect the termination.

RESOLVE FINALLY, to furnished copy of this resolution to Coconut Industry Reform Movement
(COIR), INC. and Robson Agro Ventures Corporation

I HEREBY CERTIFY TO THE CORRECTNESS OF THE FOREGOING RESOLUTION

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CERTIFIED TRUE AND CORRECT:

SGD RICHELLE T. CASAGDA

Secretary

Board of Directors

SGD DOMINADOR B. SEBOG SGD ODEN R. VALDEZ

Vice Chairperson Member

SGD ALFONSO L. COLIGADO SGD LEONARDO A. MANAPOS

Member Member

SGD MERCY M. MAMONTAYAO

Chairperson

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October 1, 2009

JOSE MARIE T. FAUSTINO


Executive Director
Coconut Industry Reform Movement
Manila

&

CEASAR F. RAMIREZ
Robson Agro ventures Corporation
General Santos City

Dear Partners,

It is more than a year now since we executed the Memorandum of Agreement on Copra
and CNO Buying/Marketing. Also, we have executed another Memorandum of
Agreement for Copra and CNO/Cochin Oil Buying/Marketing, purposely for Korean
Market last April 2009. Truly, these two business agreements, indeed, have created the
momentum of high moral ground among our members and networks, with the hope
that it will gradually bring about concrete changes in the lives of the coconut farmers
from century-old impoverishment.

For the first MOA signed on August 2008, we were expecting that it will start days upon
the signing but then it had dragged to nearly 8 months of lull period before a test run
was implemented for about 8 days (April 22 – May 4, 2009). In fact, prior to the test
run, another MOA was executed purposely for the Korean market. We thought that
after the evaluation of the test run, which indeed made a positive result, would
snowball or accelerate into a full-scale operation. However, our expectation did not
happen.

The flip-flopping business operation has tremendously affected the reputation and
integrity of our Cooperative. Almost all our members and networks had expressed
discontentment on the implementation of the Copra-CNO Trading Project. Serious
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promises and pronouncements related to the development update of the business


operation that were not realized, had triggered a gradual mistrust of members to the
leaders of our Cooperative.

We truly understand the growing sentiments of our members and that we are oblige to
face the realities and challenges amid the tedious efforts and sacrifices we had exerted
from the very start until the project had its test run.

In view of the organizational dilemma that we are currently facing, we regret to inform
you that the Board of Directors of MACOFAMCO has decided to terminate our
participation in the following contracts effective October 31, 2009:

1. Copra and CNO/Cochin Oil Buying/Marketing, Memorandum of Agreement dated


April 3, 2009; and

2. Copra and CNO Buying/Marketing, Memorandum of Agreement dated August 29,


2008.

Please consider this as a formal notice of termination in accordance with Section 6.02 of
the above Memorandum of Agreements.

We made this crucial decision in time with the dire need to strengthen our ranks and
expand our membership to other Provinces in Mindanao. We believed that once we
have established our strength, it could serve as our leverage in bargaining with
business sectors and possibly gained equal rights to decide in running a business along
with business partners.

Our initial business experience with you has drawn significant lessons that could guide
us to become better entrepreneurs in the coconut land in the near future.

Thank you and more power.

Respectfully yours,

MERCY M. MAMONTAYAO
Chairperson
Board of Directors
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