CHINA PEREGRINE FOOD CORP, 10SB12G/A, 1999-03-12

CHINA PEREGRINE FOOD CORP
10SB12G/A, 1999-03-12
DAIRY PRODUCTS

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As filed with the Securities and Exchange Commission on March 10, 1999
Registration No. 0-25039

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-SB-A

GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS
ISSUERS (FIRST AMENDMENT)

Under Section 12(b) or (g) of the Securities Exchange Act of 1934

CHINA PEREGRINE FOOD CORPORATION
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(Name of Small Business Issuer in its Amended Charter)

Delaware 62-1681831
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

11300 US Highway 1, Suite 202, North Palm Beach, Florida 33408 USA
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(Address of principal executive offices) (Zip Code)

Telephone number: (561) 366-0070
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Securities to be registered under Section 12(b) of the Act:

Title of each class Name of each exchange on which
to be so registered each class is to be registered

N/A N/A

Securities to be registered under Section 12(g) of the Act:

Common Stock, par value $0.001 per share
----------------------------------------
(Title of Class)

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CHINA PEREGRINE FOOD CORPORATION

FORM 10-SB

TABLE OF CONTENTS

PART 1 Page

Item 1. Description of Business.................................. 1

Item 2. Management's Discussion and Analysis of
Financial Condition and Operations...................... 16

Item 3. Description of Property.................................. 29

Item 4. Security Ownership of Certain Beneficial Owners
and Management.......................................... 31

Item 5. Directors, Executive Officers, Promoters
and Control Persons..................................... 35

Item 6. Executive Compensation................................... 38

Item 7. Certain Relationships and Related Transactions........... 40

Item 8. Description of Securities................................ 42

PART II

Item 1. Market Price of and Dividends on the Company's
Common Equity and Other Shareholder Matters............. 48

Item 2. Legal Proceedings........................................ 51

Item 3. Changes in and Disagreements with Accountants............ 51

Item 4. Recent Sales of Unregistered Securities.................. 51

Item 5. Indemnification of Directors and Officers................ 56

PART F/S Financial Statements........................................ 58

PART III

Item 1. Index to Exhibits........................................ 59

Signatures............................................... 60

PART I

GENERAL

This Form 10-SB is filed voluntarily by China Peregrine Food Corporation
(the "Company"). This voluntary filing is being made (1) to facilitate
future registrations of securities by the Company, (2) to support the
Company's fund raising efforts in the future, (3) to support the
development of a market for its securities, and (4) to have its securities
meet one of the conditions for eventual designation as a national market
system security.

ITEM 1 - DESCRIPTION OF BUSINESS

BUSINESS AND DEVELOPMENT OF THE COMPANY

China Peregrine Food Corporation is a Delaware corporation formed on April
26, 1996. Presently, the Company owns the controlling interest in a Sino-
American joint venture in China known as Green Food Peregrine Children's
Food Co. Ltd. ("Green Food Peregrine"). Green Food Peregrine is in the
business of processing and distributing dairy and non dairy food products
in the People's Republic of China and, at present, owns and operates a
dairy processing plant in Shanghai. Green Food Peregrine is an equity joint
venture with registered capital of US $5,000,000 and established under the
law of the People's Republic of China on July 3, 1993. The equity interest
of Green Food Peregrine presently is divided among the Company (70%) and
its Chinese partner, China National Green Food Corporation ("China National
Green Food") (30%). Consistent with the national scope of the Green Food
Peregrine joint venture, China National Green Food is wholly owned by the
Ministry of Agriculture of the People's Republic of China.

The business focus of Green Food Peregrine is providing milk and non-
carbonated beverages in China through the development and utilization of
advanced food technology and western-style marketing expertise. Currently,
Green Food Peregrine is manufacturing and distributing dairy products in
Shanghai and is in the process of developing a number of new and non-
carbonated beverages for infants and school age children. Green Food
Peregrine intends to establish processing facilities and operate in cities
with a population of more than two million throughout China.

From April of 1993, through March 5, 1997, the majority equity interest in
Green Food Peregrine was owned by China Peregrine Enterprises, Limited
("China Peregrine Enterprises"), a Texas limited partnership created for
the sole purpose of controlling the operation of the Green Food Peregrine
joint venture business. The Green Food Peregrine joint venture company was
formed pursuant to a Joint Venture Contract and Articles of Association,
dated April 13, 1993, by and among China National Green Food, China
Peregrine Enterprises, and Amer-China Partners Ltd. ("Amer-China").
Pursuant to the Joint Venture Contract and the Articles of Association for
Green Food Peregrine, China Peregrine Enterprises was required to invest US
$3,000,000 as its share of the joint venture's registered capital, with an
initial investment of US $720,000. Subsequent to the initial investments
by the respective parties, the Articles of Association were amended to
reflect an additional capital contribution by China Peregrine Enterprises,
so that it ultimately obtained a 70% interest in Green Food Peregrine.

From its inception in 1993 through the end of 1996, Green Food Peregrine
sought to complete the construction of its processing plant for efficient
production and to develop a foothold in the Shanghai retail milk market.
The Shanghai operations were not profitable and China Peregrine Enterprises
was in need of additional financing to fund those operations and to meet
its capital contribution obligations under the Joint Venture Contract and
the Articles of Association. As a result, management of China Peregrine
Enterprises embarked on fund raising efforts outside of the limited
partnership participants, in an attempt to satisfy these financial needs.

The efforts to obtain outside financing continued through the close of
1996, when China Peregrine Enterprises sought to provide for its final
required capital contribution installment of approximately US $1,200,000.
At that time, negotiations began with representatives of the Company, which
was then a non-operating corporate entity, to utilize the Company as an
appropriate vehicle to manage the asset represented by the Joint Venture
Contract, and to raise the required funds to go forward. Those
negotiations resulted in the March 5, 1997, purchase of the assets of China
Peregrine Enterprises by the Company in exchange for common stock of the
Company. The assets purchased by the Company consisted of China Peregrine
Enterprises' equity interest in Green Food Peregrine and its contractual
rights under the Green Food Peregrine Joint Venture Contract. After the
acquisition of the China Peregrine Enterprises assets by the Company, the
partners of that limited partnership held 45% of the Company's common
stock.

The Company, which was formed on April 26, 1996, under the laws of the
state of Delaware, was formerly known as Shakespeare Holding, Inc.
("Shakespeare"). In February, 1997, Shakespeare merged with Manor Products
Corp., a Delaware company established on January 26, 1996, and changed its
name to China Peregrine Food Corporation. Manor was a shell company with
331 shareholders and no operating history. Similarly, China Peregrine Food
Corporation was a company without substantial assets or operating activity
until it purchased the assets of China Peregrine Enterprises in March,
1997.

Prior to the negotiations leading up to the acquisition of the assets of
China Peregrine Enterprises by the Company, the two entities had no
affiliation, other than a social acquaintance between Mr. Paul Downes, an
individual who controlled Shakespeare, as it was then known, and Mr. Dale
Reese, the major investor in the China Peregrine Enterprises limited
partnership. The negotiations for the purchase of the China Peregrine
Enterprises assets were conducted by and among (1) Mr. Downes, (2) Mr.
Reese, (3) Mr. Charles Beech, who was responsible for negotiating and
obtaining the Joint Venture Contract in 1993 and who controlled the General
Partner of China Peregrine Enterprises, and (4) Mr. Roy Warren, a financial
consultant who had worked with China Peregrine Enterprises in its attempts
to raise additional capital for the Joint Venture project. These
negotiations were an extension of the then ongoing attempts of China
Peregrine Enterprises to raise additional capital. By agreement of these
parties, a plan to reorganize the business of the limited partnership was
developed, which included the utilization of an entity which (1) was more
suited to raising the needed additional capital, (2) preserved and
protected the financial and control positions of those who held the major
interests in the limited partnership, and (3) provided the requisite
incentive for new participants to become involved directly on a long term
basis. To achieve the first goal, the already existing Shakespeare entity
was utilized and, to achieve the second and third goals, the four parties
responsible for the "reorganization" plan were issued common and preferred
stock at par value as "founders" of the recast Company.

After the equity structure of the newly reorganized Shakespeare entity was
determined and effected, the parties set about the task of making the
Company (now called China Peregrine Food Corporation) the operating entity
and raising new monies to support the Company. Several significant steps
were taken to achieve those goals, including (1) the retirement of China
Peregrine Enterprise's bank debt in the amount of $1,260,0000, by Mr.
Reese's assumption of same, (2) the transfer of the limited partnership's
assets (the Joint Venture Contract) to the Company in exchange for stock,
and (3) Mr. Reese's payment of approximately US$1,200,000 to satisfy
capital contribution requirements of the Chinese Joint Venture, the
repayment of which by the Company was financed, in part, through a limited
public offering, commencing in March of 1997. In consideration of Mr.
Reese's assumption of the bank debt of China Peregrine Enterprises, he was
issued 1,260,000 shares of the Company's Series A Preferred Stock, having
an agreed upon value of $1.00 per share. Similarly, the Company issued
1,040,000 shares of its common stock, at $1.00 per share, to China
Peregrine Enterprises in connection with the Company's asset purchase, and
the Company raised $975,000 to meet the Joint Venture Contract capital
requirements, through the issuance of 975,000 shares of its common stock in
connection with the March, 1997 limited public offering.

The March 5, 1997 purchase of the assets of China Peregrine Enterprises by
the Company resulted in the Company becoming an operating entity. In
consideration for this purchase, the Company issued 45% of its outstanding
common stock to the limited partnership. As a result, owing to the
Company's non-operating status prior to the above-described acquisition,
this transaction has been accounted for as a "reverse" acquisition for
financial reporting purposes. Although China Peregrine Enterprises is
deemed to be the acquiring company for financial accounting and reporting
purposes, the legal status of the Company as the surviving and operating
corporation remains intact.

With the Company's acquisition of 100% of the assets of China Peregrine
Enterprises, the Company was poised to become the controlling partner of
Green Food Peregrine. Since, however, Green Food Peregrine is a national
Chinese joint venture, the Company's replacement of China Peregrine
Enterprises as the controlling partner was subject to (1) the approval by
the Board of Directors of Green Food Peregrine and (2) the approval by the
Ministry of Foreign Trade and Economic Cooperation (MOFTEC), which is the
Chinese governmental authority that initially approved the Green Food
Peregrine joint venture in 1993. In typical fashion, that approval process
took the form of proposed amendments to the Green Food Peregrine Articles
of Association, calling for the replacement of China Peregrine Enterprises
with the Company. In addition, the Joint Venture Contract was modified to
reflect the change. During the interim period between the March 5, 1997
acquisition transaction and final governmental approval, the Company
operated Green Food Peregrine pursuant to an agency agreement executed by
China Peregrine Enterprises and the Company. Final governmental approval
for the amended Articles of Association was obtained on July 31, 1998.

The Joint Venture Contract by and among China Peregrine Enterprises
Limited, China National Green Food Corporation and Amer-China Partners was
executed on April 13, 1993. Subsequent to the execution of the contract,
as discussed herein, the Company purchased the rights of China Peregrine
Enterprises Limited and Amer-China Partners to this contract. Pursuant to
its terms, the execution of the contract and of all material changes to the
Joint Venture Contract must be approved by the Ministry of Foreign Trade
and Economic Cooperation. In accordance with the Joint Venture Contract, a
limited liability company, known as Green Food Peregrine Children's Food
Company Limited, was formed in July of 1993. As a limited liability
company, the liability of each equity owner is limited to its respective
contributions of registered capital. As such, no party is liable to the
other for the liabilities of Green Food Peregrine.

The total registered capital for the Joint Venture Company is US
$5,000,000, with China Peregrine Enterprises initially contributing 60% of
that amount. The contribution of capital, which is now completed under the
express terms of the Joint Venture Contract, was paid into Green Food
Peregrine in stages, the last payment of which occurred in March of 1997,
in the amount of US $1,200,000.

The stated purpose of the Joint Venture Contract is to strengthen economic
cooperation and exchange of technology to develop and improve the quality
of products which are competitive in the domestic and international markets
and to improve economic efficiency and ensure satisfactory economic
profits. The scope of the business of Green Food Peregrine is stated as
the manufacture, distribution and marketing of children's fresh milk and
other children's food products, including baby foods and supplements. The
geographic scope of the joint venture was initially set in Shanghai and
Beijing, with expansion to other cities with a population exceeding 2
million upon approval by the Board of Directors.

No party to the Joint Venture Contract may assign or sell any or part of
its ownership interests without a written consent from all other parties to
the Joint Venture Contract. Similarly, any changes in the registered
capital of the Joint Venture Company must receive the unanimous approval of
the Board of Directors and be approved by the examination and approval
authority. The respective responsibilities of the parties under the Joint
Venture Contract include China National Green Food Corporation's assistance
and compliance with all local legal, governmental and other requirements
for the operation of the business. The other parties, including the
Company, have the responsibility for providing equipment and materials to
operate the business and to initiate and maintain qualified management, who
have the responsibility of operating the business of the Joint Venture
Company.

The Board of directors of the Joint Venture Company shall consist of five
members, with China National Green Food Corporation having the right to
appoint two members, the Company having the right to appoint three members,
plus the appointment of one advisory director, who has no right to vote.
The term of board members is four years unless extended by the appointing
party. The Chairman of the Board is elected from the members appointed by
China National Green Food Corporation. While the Chairman is designated as
the "legal representative" of the Joint Venture, the Chairman acts at all
times subject to the direction of the Board of Directors. The Joint
Venture Contract provides that the Board of Directors "is the highest organ
of power of the joint venture...and the Board has the sole power to revise
the Articles of Association for the Joint Venture Company, increase or
assign the registered capital and make determinations concerning the
termination, dissolution or liquidation of the joint venture."

The management of the business of the Joint Venture Company is the
responsibility of the General Manager, who is nominated by the Company and
approved by the Board of Directors. The General Manager is responsible for
implementing all resolutions of the Board of Directors and for organizing
and exercising management of the daily administrative and production
functions of the Joint Venture Company. The General Manager also is
responsible for the preparation of the annual business plan and budget,
which is submitted to the Board of Directors for review. The General
Manager's responsibility for the annual business plan and budget includes
the procurement of equipment and other property, raising and expenditure of
capital, plans for production and marketing, maintenance and repair of
property and equipment, budgetary estimates of the Joint Venture Company
based on production plans and budgets, the formulation of training plans
for joint venture personnel, the provision for raw material, fuel, water,
electricity and other public facilities needed by the Joint Venture
Company.

In addition, the General Manager is responsible for the control of all
labor-management affairs, the procurement of materials and equipment to be
utilized by the Joint Venture Company in its business and the preparation
of financial statements of account for the Joint Venture Company.

The term of the Joint Venture Contract is fifty years, and can be extended
by the Board of Directors upon the approval and examination of the approval
authority. The Joint Venture Contract, however, may be terminated by
written notice prior to the expiration of the stated term upon certain
events including a violation of the Joint Venture Contract by any party,
without resolution; accumulated losses in excess of the total registered
capital, without resolution; assignment of equity ownership by one party
without approval; and the violation of Chinese laws in the operation of the
joint venture. Upon a written notice of termination, the parties to the
Joint Venture Contract are charged with making attempts to negotiate a
resolution of the circumstances which led to the notice of termination
within sixty days after the issuance of the termination notice. If the
parties cannot reach an agreement to settle the matter, the Board of
Directors is directed to submit an application to the examination and
approval authority for dissolution.

The Joint Venture Contract provides for the continuation of the operation
of the Joint Venture Company subsequent to the expiration of the 50 year
term, either by unanimous agreement or upon the satisfaction of certain
terms and conditions by less than all of the parties to the Joint Venture
Contract. If the Joint Venture Company is not continued under any
circumstances beyond the term of the Joint Venture Contract, provisions are
made for the orderly liquidation of the assets of the company and any
remaining capital after payment of debts shall be divided according to the
parties' respective registered capital contributions.

If any party fails to fulfill its liabilities under the Joint Venture
Contract, the breaching party shall have thirty days to resolve such breach
after receiving written notice of the breach from the other party. If the
breaching party fails to correct the breach, that party shall compensate
the other parties "for all the direct and foreseeable loss arising from the
breach of contract. Under no circumstances, however, shall the breaching
party's liability exceed its registered capital contribution.

If any dispute is not resolved in accordance with the terms of the contract
in the time periods provided, the dispute shall be submitted to the
American Institute of the Stockholm chamber of commerce in Stockholm,
Sweden, for the final decision in accordance with the arbitration rules of
the Institute.

As part of the March 5, 1997 transaction between the Company and China
Peregrine Enterprises, the Company (through a loan from Mr. Reese)
contributed approximately US $1,200,000 to the registered capital of Green
Food Peregrine, satisfying the requirements of both the Green Food
Peregrine Joint Venture Contract and the Articles of Association, for the
payment of the final installment of the registered capital. The monies
extended by Mr.Reese were paid back, in part, by a limited public offering
of the Company's common stock.

On October 1, 1997, the Company and Amer-China executed an agreement for
the transfer of Amer-China's contract rights and equity interest in Green
Food Peregrine to the Company. The consideration for this transfer was
120,000 shares of the Company's common stock. With the approval of this
transfer by the Ministry of Foreign Trade and Economic Cooperation, the
Company's equity interest in Green Food Peregrine increased from 67.6% to
70%.

On May 2, 1998, the Company approved and ratified an agreement between the
Company and China National Green Food for the increase of the Company's
equity interest in Green Food Peregrine from 70% to 76.92%. This change in
the ownership ratio will take place upon the payment of an additional US
$1,500,000 in registered capital by the Company over the next eighteen
months. Since Chinese government regulations require approval of this
change of the investment ratio by the Ministry of Foreign Trade and
Economic Cooperation, the Company has agreed to an interim loan of US
$500,000 to Green Food Peregrine, with the conversion of that loan to
registered capital upon obtaining the required governmental approval.

On September 3, 1997 and June 28, 1998, respectively, the Company executed
agreements to acquire a 52% interest in Hangzhou Meilijian Dairy Products
Co., Ltd., ("Hangzhou Meilijian") from American Flavors China, Inc.
("American Flavors China"), a Delaware corporation. American Flavors China
is controlled by Noam and Florence Sender. Prior to this transaction, the
Senders had no affiliation with the Company. The remaining 48% of Hangzhou
Meilijian is owned by Hangzhou Dairy Co., a controlled entity of the regional
Chinese government. On July 31, 1998, the Board of Directors of Hangzhou
Meilijian approved the acquisition. The acquisition transaction is subject to
formal approval by the regional government agency. That governmental approval
process presently is pending. In the interim period, the operational control
of Hangzhou Meilijian has been transferred to the Company pursuant to a
principal/agent agreement with American Flavors China, effective July 31,
1998. The Company, with the cooperation of its Chinese partner and American
Flavors China, has installed a new management team to run the day to day
operation of that dairy facility.

The Joint Venture Contract by and among Hangzhou Dairy Complex and American
Flavors China, Inc. was executed on July 25, 1993. Pursuant to its terms,
the execution of the contract and of all material changes to the Joint
Venture Contract must be approved by the examination and approval
authority. As a limited liability company, the liability of each equity
owner is limited to its respective contributions of registered capital. As
such, no party is liable to the other for the liabilities of the Joint
Venture entity.

The total registered capital for the Joint Venture Company is US
$5,000,000, with American Flavors China initially contributing 52% of that
amount. The contribution of capital, which is now completed under the
express terms of the Joint Venture Contract, was paid into the Joint
Venture entity in cash and equipment.

The stated purpose of the Joint Venture Contract is to strengthen economic
cooperation and exchange of technology to develop and improve the quality
of products which are competitive in the domestic and international markets
and to improve economic efficiency and ensure satisfactory economic
profits. The scope of the business of the Joint Venture is stated as the
manufacture, distribution and marketing of children's fresh milk and other
children's food products, including baby foods and supplements

The Board of directors of the Joint Venture Company consists of six
members, with three members being appointed by each party. The term of
board members is four years unless extended by the appointing party. The
Chairman of the Board is elected from the members appointed by American
Flavors China and is designated as the "legal representative" of the Joint
Venture. The Board has the sole power to revise the Articles of
Association for the Joint Venture Company, increase or assign the
registered capital and make determinations concerning the merger,
termination, dissolution or liquidation of the joint venture. The
management of the business of the Joint Venture Company is the
responsibility of the Board of Directors, with limited powers delegated to
the General Manager

The term of the Joint Venture Contract is twenty years, and can be extended
by the Board of Directors upon the approval and examination of the approval
authority. The Joint Venture Contract, however, may be terminated prior to
the expiration of the stated term upon certain events including a violation
of the Joint Venture Contract by any party, without resolution; accumulated
losses resulting in the inability of the Joint Venture to continue; and
conditions of impossibility of performance.

The Joint Venture Contract provides for the continuation of the operation
of the Joint Venture Company subsequent to the expiration of the twenty
year term, by unanimous agreement of the parties. If the Joint Venture
Company is not continued beyond the term of the Joint Venture Contract,
provisions are made for the orderly liquidation of the assets of the
company and any remaining capital after payment of debts shall be divided
according to the parties' respective registered capital contributions.

If any dispute is not resolved in accordance with the terms of the
contract, the dispute shall be submitted to the American Institute of the
Stockholm chamber of commerce in Stockholm, Sweden, for the final decision
in accordance with the arbitration rules of the Institute.

BUSINESS OF THE COMPANY

GENERAL
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The Company is headquartered in West Palm Beach, Florida. The Company
directs the operations of its subsidiary, Green Food Peregrine, from that
location and through frequent trips to China by either the Company's
President or Chairman. In addition, we have selected key personnel to run
the day to day operation of the Green Food Peregrine dairy processing plant
located in Shanghai, the People's Republic of China. As such, we utilize
monthly reports from our on site management, together with visits by
stateside personnel to monitor and manage the Green Food Peregrine
operations.

The mission of the Company is to implement a comprehensive manufacturing,
distribution and marketing strategy that allows the Company to operate its
joint operations in Shanghai profitably and, subsequently, to expand the
joint venture business into new markets with dairy and non-dairy food
products. This strategy involves the creation of a nationwide network of
state-of-the-art manufacturing facilities that can process products and
deliver the highest quality fresh refrigerated pasteurized milk to the
local consumer. Such facilities will allow the Company to develop its
position as an effective competitor in the dairy business in major cities
in China and allow for the expansion of the Company's business into other
dairy and non-dairy food products. As such, the present business of the
Company is two-fold: first, the manufacturing, marketing and distribution
of dairy and, ultimately, a combination of dairy and non-dairy products to
consumers; and second, the expansion of these operations to major cities
throughout the People's Republic of China, either through acquisitions of
existing dairy processing facilities or the construction of new facilities.

With respect to the expansion of products to include non-dairy items, such
as fruit juices, new juice products currently are being formulated and
tested in laboratory and consumer preference conditions to develop products
which best appeal to local consumers. We expect that this testing and
formulation process will present sufficient data for a decision on the
release of new non-dairy products in the Shanghai market during the last
quarter of 1999. In Hangzhou, our joint venture currently produces and
sells a variety of juice products, which account for approximately 10% of
Hangzhou Meilijian's annual gross sales. While we are attempting to
increase overall sales in the Hangzhou market, no special efforts are
anticipated to increase non-dairy sales as a percentage of gross sales.

With respect to the Company's current acquisition activities, we anticipate
that negotiations, due diligence and appraisal processes pertaining to
existing dairies under consideration for possible acquisition will be
completed by the third quarter of 1999, at which time a decision will be
made. Funding of any such acquisitions will be provided through the sale
of the Company's equity. At present, we do not anticipate the expansion of
operations through the construction of new dairy facilities.

The Shanghai manufacturing plant has been in full operation since December
of 1994, and consists of a 15,00+/- sq. ft. facility having a daily
capacity of 45 tons. The process involves the receipt of tested and
accepted milk from a farm tanker, which is transferred to a blanching
process stage. In the blanching process, the milk is heated and cooled to
a very cold temperature to stabilize quality. Also, a lactose enzyme is
introduced at this stage, which converts lactose to glucose and galatose
during subsequent cold storage. The raw, stabilized and lactose reduced
milk is then transferred to a blender, where pre-prepared and pre-weighed
additives are incorporated. The milk is placed in blend tanks, which
perform an averaging and accumulation function for the pasteurization and
homogenizing system, following which the product is transferred to cold
finished product tanks. As a final pre distribution step, the product is
filled into gable top cartons of an appropriate size, and packed into
corrugated boxes.

PRINCIPAL PRODUCTS, MARKETS AND DISTRIBUTION METHODS
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The Products
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Historically and at present, the predominant milk product available to
consumers in major cities in the People's Republic of China has been non-
refrigerated "baggie milk," prepared for retail consumption on a daily
basis. Once opened, baggie milk must be consumed immediately, since the
shelf life of this product is non-existent. The processing of baggie milk
customarily has involved either a type of pasteurization that has not met
western bacteria count standards, or the utilization of an ultra high
temperature (UHT) process. As a result of the excessive temperatures to
which the milk is subjected, however, the UHT process can adversely affect
the nutrient value and the taste of the end product. The distribution of
milk in China has been through a methodology known as the "reserve system"
which was put in place more than a decade ago as a way to deliver state-
produced milk directly to milk stations and public housing units. Since
refrigeration is not part of this distribution system, the trend in recent
years has been to utilize UHT processed milk products in an attempt to meet
bacteria count standards.

Fresh, pasteurized and refrigerated milk of western quality and other fresh
dairy beverages generally have not been available at the retail level to
any significant degree. In recent years, several state owned facilities in
major cities, along with a few regional joint ventures between the Chinese
government and private groups, have developed more advanced methods of
processing, packaging, and delivering fresh, refrigerated milk products.
To date, however, these fresh refrigerated milk products represent less
than a fifteen percent market share in the major markets throughout the
People's Republic of China.

The Company's subsidiary, Green Food Peregrine, has constructed an initial
manufacturing facility in Shanghai that processes, packages and distributes
western quality fresh, pasteurized, refrigerated milk. Green Food Peregrine
has produced and distributed branded products of this type since the second
quarter of 1995. Initially, the Shanghai plant was set up as a test market
to develop the Company's operational plans, ranging from production,
operations, marketing and sales, prior to local expansion. Included in
this initial and continuing operation is our attempt to implement a strong
consumer acceptance for our Happy Family[TRADEMARK] brand of dairy
products. In Shanghai, Green Food Peregrine is the only company that sells
western quality pasteurized, fresh, refrigerated milk in gable topped
cartons. "Gable topped" cartons are traditional Western style treated
paper box like containers with triangular "gable" tops. Five years ago,
100% of the milk purchased by Shanghai consumers was the traditional non-
refrigerated baggie milk. In 1998, chain food stores in Shanghai
significantly increased the availability of refrigeration at retail. The
Happy Family[TRADEMARK] brand is the only gable top milk sold in Shanghai,
which is fresh, pasteurized and refrigerated.

Suppliers
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Both the Shanghai and Hangzhou operations utilize cartons and boxes
supplied by International Paper Company. In Shanghai, Green Food Peregrine
purchases raw milk from a number of suppliers, with 60% of such purchases
from East Sea Dairy Company and Hangzian Dairy, on an equal basis (30%
each). The remaining 40% of purchases are spread among a group of
suppliers, with no significant percentage attributable to any one dairy.
In Hangzhou, the Hangzhou Meilijian joint venture buys 80% of its raw milk
from the Company's partner in that joint venture, Hangzhou Dairy Complex.
The remaining 20% of purchases are from a variety of other dairies.
Neither facility has experienced problems with suppliers and we anticipate
that the required raw goods supply will be stable and adequate in the
future.

Price Strategy
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Green Food Peregrine refrigerated milk is sold in Shanghai at a premium
compared to the price per ounce of the milk that is distributed in 240 ml
plastic baggie packages. Typically, baggie milk is sold at .8 renminbi
(RMB), or approximately US$0.09 (at the government set exchange rate of
8.3), as compared to 3 RMB, or approximately US$0.36, for the 240 ml Green
Food Peregrine milk. While more expensive, Green Food Peregrine market
research conducted in 1994, suggests that consumers would prefer the Happy
Family[TRADEMARK] product to the "baggie milk" product and package. Green
Food Peregrine in-market experience through 1998 confirms this and supports
our strategy rationale that Chinese consumers are willing to pay a premium
for quality and value. Demographic statistics also confirm that urban
consumers have the financial capability to pay a premium price for premium
value at the consumer products level. Therefore, depending on the
competitive individual products, and the quality of those competitive
individual products, Green Food Peregrine expects to continue to price its
gable top milk higher than the per ounce price of baggie milk.

The 1994 market research referenced above and elsewhere in this discussion
was designed by Message Factors, Inc., a US marketing company controlled by
Mr. Charles Beech, with experience in marketing in the People's Republic of
China. The actual market research was performed by Modern International
Market Research, Inc., a recognized independent Chinese marketing research
company based in Shanghai.

The referenced demographic statistics in this discussion are based upon
extrapolations from the Chinese State Statistical Bureau Reports for 1997
and "China The Consumer Revolution," Conhua Li, Deloitte & Touche Consulting
Group, John Wiley & Sons, Publishers, 1998.

Distribution
- ------------

Currently, Green Food Peregrine product distribution is being held at a
limited store distribution level pending additional working capital
contributions by the Company. Presently, numerous state owned dairies and
beverage companies distribute throughout Shanghai. The direct competition
for milk in cartons, however, emanates from two state owned enterprises and
one Korean joint venture. Sales of carton milk represent approximately 40%
of the total milk sales in the Shanghai metropolitan area. Since the
commencement of the Shanghai plant operation, Green Food Peregrine has
sought to place its products in chain stores in an effort to maximize its
distribution efforts. In 1998, approximately 650 chain stores exist in
Shanghai, with Green Food Peregrine distributing its product to
approximately 70% of these stores. The remaining 30% of the chain stores
are in locations in the large Shanghai metropolitan area that are not
efficient for our present distribution efforts. We believe that, as time
moves forward, the vast majority of milk products will be sold through
these stores and new channels of distribution will need to be developed for
the smaller retail shops.

Distribution by Green Food Peregrine in Shanghai starts with the delivery
of product from the processing plant to a distribution center in a large
refrigerated truck operated by the joint venture. Green Food Peregrine van
type refrigerated trucks then pick up product at the distribution center
once each day for delivery throughout the Shanghai metropolitan area, with
typically 20 to 30 delivery stops per day. Presently, drivers are not
responsible for the collection of payment for product, which is
accomplished through a direct invoice system.

In Hangzhou, 90% of product distribution is accomplished utilizing the
traditional Chinese "reserve system" discussed below. Each delivery truck
is insulated and makes deliveries directly from the processing plant.
Typically, each delivery truck makes one plant pick up and follows the same
delivery route each day.

Distribution Opportunities
- --------------------------

Until the very recent past (in the last three years) most fresh dairy
products in China were delivered from a non-refrigerated vehicle to a non-
refrigerated point of purchase. Typically, this point of purchase was in
the housing units (similar to large apartment buildings) of consumers. As
a result, product was delivered within hours of production (in the very
early morning hours), purchased by the consumer immediately upon delivery
to their housing unit, and consumed within hours of purchase. Under this
"reserve system," milk is packaged in 240 ml soft baggie packets that are
purchased daily in the lobby of the respective housing units. This milk
historically has a high bacteria count and less than satisfactory taste by
western standards.

In Shanghai, as well as in most of the rest of China, delivery of fresh,
refrigerated products and merchandising of fresh, refrigerated products at
retail virtually had been non-existent. During the last two years,
however, the appearance of retail super stores and grocery chain stores has
opened the door for more "westernized" marketing of refrigerated products
such as milk. Today, Green Food Peregrine products are sold in 450 super
stores and chain stores. These 450 stores are the largest of this type in
Shanghai and represent approximately 85% of the milk business in area chain
stores. Given that the number of these supermarkets in Shanghai grew in
1997 by 40%, we expect Green Food Peregrine to be represented in over 800
such stores by the year 2000, as the number of these stores grows.

The incremental product acceptance of premium fresh, refrigerated milk in
Shanghai is such that our distribution system must expand. We can produce
many times the volume of milk than we can distribute currently and we
intend to increase distribution to take advantage of our production
capabilities. Accordingly, the strategy developed for Shanghai for 1999
calls for employment of additional refrigerated trucks to facilitate our
expected expansion of distribution to the many retail outlets in Shanghai.

Sales Expansion / Working Capital
- ---------------------------------

In 1999, Green Food Peregrine intends aggressively to expand its sales and
distribution in Shanghai. We fully intend to increase our presence in all
super stores and supermarkets while continuing to serve a small percentage
of the local retail trade. The new consumer buying patterns in Shanghai
have attracted many new food retailers in this market as consumer
expenditures for food have increased by 60% in the past 5 years.

Servicing these stores and the introduction of new products such as juices
could expand our sales approximately three-fold in 1999, and will require
capital expenditures, including investment in equipment and working capital
to finance receivables. The 1999 plan calls for the investment of
approximately US $2,000,000 and, if successfully implemented, could bring
the Green Food Peregrine business to a break even point during the next
twelve months. In addition, Green Food Peregrine intends to develop,
market, and distribute new products in Shanghai and other cities. In the
next twelve months, we will focus on the expansion of Green Food
Peregrine's market share within the current market and with existing and
new products in Shanghai.

Marketing and Advertising
- -------------------------

In China, the viewing rate for television is over 80% for those who have
watched television as recently as the previous day. This figure rises to
86% for urban population. Nationwide, 54% of households own black and
white televisions and another 40% have color televisions. In Beijing and
Shanghai, 94% of households own color televisions.

At this time, there virtually is no advertising for milk or ready-to-feed
infant formula in Shanghai. There is TV and print advertising for other
carbonated and non-carbonated beverages, and multi-national company
branded, aseptic and powdered products. We believe that all beverage
advertising for branded quality products will increase overall awareness
and consumption for these categories. After Green Food Peregrine has
expanded its distribution, we intend to begin print and television
advertising.

Competition
- -----------

In Shanghai, Green Food Peregrine is subject to significant competition
from various dairy product producing sources that offer both traditional
baggie milk and gable top milk at reduced prices. In the first two months
of 1998, QJ Dairy, a privately (non-government) owned Korean enterprise,
entered the market as a new competitor and significantly lowered its prices
in order to achieve a greater market share. While the price reduction by
the competitor was dealt with effectively by the Company to protect its
market share, there can be no assurance that similar events will not take
place in the future, requiring more drastic measures by Green Food
Peregrine. Accordingly, as part of the Company's marketing strategy, we
intend to emphasize consumer awareness of the differences in quality and
taste between Green Food Peregrine's products and those of competitors. We
believe that this type of consumer awareness can mitigate the negative
effects of reduced prices by competitors.

Currently, there is competition for gable top milk in Shanghai. This
competition is represented by Shanghai Dairy Corporation, a subsidiary of a
Hong Kong conglomerate, which enjoys approximately 80% of the overall
retail milk market in the metropolitan area., two state dairies and the
Korean joint venture. The only pasteurized and fresh product, however, is
produced by the Company. As a result, Green Food Peregrine intends to
continue its focus on the quality of raw milk purchased, our processing,
and the efficiency of packaging and distribution to promote its brand
image.

For quite some time, there have been powdered and aseptic packaged products
available in China that could be considered as indirect competition to the
Happy Family[TRADEMARK] product line. Green Food Peregrine market research,
which commenced in 1994 (discussed above) and continues through the
present, however, as well as Green Food Peregrine in-market consumer
experience, demonstrate a consumer preference for the Happy
Family[TRADEMARK] brand. Green Food Peregrine strategy is to continue to
build the Happy Family[TRADEMARK] brand and logo to create a real
competitive point of difference through highest quality products, packaging
and effective marketing.

Heinz and Gerber have been importing their non-refrigerated baby food
products to China. Also, Nestle and other companies have been importing
powdered baby formula and powdered milk. There is a segment of the market
that will purchase these products, but market research and the in-market
experience of Green Food Peregrine, in combination with its refrigerated
distribution system, demonstrates that there is today an existing and
growing market for fresh refrigerated Happy Family[TRADEMARK] products.

ACQUISITION ACTIVITIES AND STRATEGY
- -----------------------------------

General
- -------

We intend to continue to focus the Company's efforts on producing quality
products through technological innovation. In addition, we intend to
explore the opportunities presented by our joint venture business which are
the result of a shortage of technological facilities with respect to the
processing of dairy and other products, the emerging Chinese consumer
market, and the shift from a controlled economy to a free market system in
this industry. The government of the People's Republic of China has
prioritized the development of children's food, in particular milk
products, to better serve its people. The role of agriculture, in general,
in China is of paramount importance and is the largest segment of China's
economy in terms of capital demands, consumer expenditure and employment.
In addition, owing to the relatively low level of productivity in
agricultural sectors and the challenge of feeding 1.2 billion people, the
government of China continues to place a high priority on improving this
segment of its economy with new technologies and methodologies. As a
result, the Ministry of Agriculture, which wholly owns our partner in Green
Food Peregrine, plays an important role in economic and political decisions
that effect the food industry in China.

Recently, the Chinese government changed its laws with respect to the
future ownership of companies presently owned by state enterprises. These
laws now allow for the acquisition of state owned facilities by private
investors, including foreign-Chinese joint venture combinations. We intend
to pursue an acquisition strategy which involves the creation of new joint
ventures with our existing partner to acquire state owned dairies, to
retool the production facilities of those dairies, and to offer high
quality products to the Chinese consumer.

Hangzhou Meilijian Dairy Co.
- ----------------------------

The Hangzhou based joint venture has been in business for over 40 years and
has over 420 employees. Sales for this joint venture in 1997 were
approximately US $6,240,000. Hangzhou Meilijian has 60% of the total
market share in the Hangzhou urban area, which has a population of 5.8
million. Hangzhou Meilijian produces and distributes dairy and juice
products, including baggie milk, milk powder, aseptic packaged milk and
juice products, as well as bottled drinkable yogurt. Hangzhou is located
approximately 180 miles from Shanghai. The Company plans to utilize this
acquisition and its proximity to the Shanghai operation to cross-market
products in both cities.

With this recent approval of the American Flavors China acquisition
transaction by the Board of Directors of Hangzhou Meilijian, we intend to
complete the formulation of a comprehensive market analysis to determine
whether the 85% market share presently enjoyed by Hangzhou Meilijian can be
improved.

Potential Acquisition Activities
- --------------------------------

In August of 1998, management of the Company met with representatives of
our partner in Green Food Peregrine to explore, among other things, the
potential acquisition of state owned dairies as part of the national
government's announced privatization program, either through the existing
joint venture or through the establishment of individual, separate joint
ventures for each potential acquisition site. A strategy was developed
with our partner to pursue this acquisition program.

As part of this strategy, the Chairman and President of the Company,
together with representatives of our partner in China, met with
representatives of four state-owned dairies and visited each dairy
facility. The Company has executed "letters of intent" with each of these
dairies and with our partner to continue the acquisition/negotiation
process.

In China, the acquisition of state-owned enterprises by foreign entities
usually involves the creation of a joint venture company by articles of
association contemporaneous with the execution of a joint venture
agreement. That agreement then governs the respective registered capital
requirements of the parties and the ongoing rights and obligations of such
parties in and to the joint venture business. The actual "price" of the
acquisition of hard assets is a non-negotiated figure, set prior to the
execution of these documents by an appraisal report generated by government
qualified and approved third-party business appraisers. Presently, we are
examining a proposed joint venture contract for potential use in this
process and we are arranging for appraisals of each dairy involved. While
these activities are ongoing, "letters of intent" in China have no legal
effect and we cannot assume that acquisitions are probable.

DOING BUSINESS IN CHINA

Investments in China involve several risks including internal and
international political risks, evolving national economic policies as well
as financial and accounting standards, expropriation and the potential for
a reversal in economic conditions.

Green Food Peregrine's revenues will be in Chinese Renminbi ("RMB). In
order to pay the Company fees and dividends, Green Food Peregrine will need
to convert RMB into US dollars. Under current Chinese law, the conversion
of RMB into foreign currency requires government consent. To date, Green
Food Peregrine has been able to convert currency without problem.
Government authorities, however, may impose restrictions, which could
impact this flexibility.

To complete the planned expansion into additional facilities, we will need
various levels of central and local government approval. These approvals
may include site permits, building permits, and approval for transfer of
assets. While we believe that, because of the importance attached to
nutrition issues for children by the central government, the encouragement
for the Company to expand either through the Green Food Peregrine joint
venture or separate new joint ventures will continue, there can be no
assurance of continuation of the government support which Green Food
Peregrine has enjoyed since its inception.

With respect to the conditions and activities of Chinese companies with
which the Company is involved pursuant to its joint venture contracts, the
operations of these joint venture companies must be viewed in the context
of the Chinese business environment existing in the People's Republic of
China. There can be no assurance that the sources from which information is
provided concerning the day to day activities of such joint ventures,
including their respective relationships to local governmental and
regulatory authorities, are wholly reliable. Official statistics also may
be produced on a basis different to that used in western countries. Any of
the statements as to operations contained in this document must be subject
to some degree of uncertainty due to doubts about the reliability of
available information from and with regard to the respective joint
ventures.

Moreover, while the government of the People's Republic of China has
pursued a policy which has prioritized the development of children's food,
in particular milk products, to better serve its people resulting in a
focus on the role of agriculture, in general, in China, there can be no
assurance that this policy will continue in the long term. Similarly, the
recent changes in the laws of China pertaining to the future ownership of
commercial facilities presently owned by the state, which has resulted in a
perceived policy shift from a controlled economy to a free market system in
the dairy industry, may not be accurate in concept or in execution. As
such, the risk is present that the acquisition strategy set forth in this
document may not be successful owing to a change in government approach, or
that the very existence of the joint venture businesses in which the
Company has controlling interests may be affected adversely.

EMPLOYEES

As of February 28, 1999, the Company had four full time employees located
at its North Palm Beach corporate offices. For the same time period, Green
Food Peregrine had 75 employees servicing its Shanghai facility,
functionally categorized as follows: management, 4; administrative, 10;
manufacturing 41; and distribution, 20.

PART I

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATIONS

GENERAL

The following discussion and analysis of the Company's financial condition
and operations should be read in conjunction with the information which
follow, as well as the Report On Audited Consolidated Financial Statements
For The Years Ended December 31, 1996 and 1997. Since, for reporting
purposes, a "reverse" acquisition occurred in March of 1997, between the
Company and China Peregrine Enterprise, whereby the Company became an
operating entity, the discussion and analysis of the periods prior to March
of 1997 pertains to the financial condition and operation of China
Peregrine Enterprises. The following discussion contains trend information
and other forward looking statements that involve a number of risks and
uncertainties. The Company's actual future results could differ materially
from its historical results of operations and those discussed in the
forward looking statements.

Overview
- --------

The Company and its subsidiary, Green Food Peregrine, engage in the
business of the processing, marketing and distribution of dairy products in
the People's Republic of China. Presently, the Company's primary business
activities are in the Shanghai market. The business of the Company also
involves the acquisition or construction of other dairy processing plants
in cities located in the People's Republic of China having a population of
at least two million. While the Company has purchased a controlling equity
interest in an existing joint venture located in Hangzhou, which produces,
markets and distributes dairy products, the approval of the Board of
Directors of that joint venture just recently occurred on July 31, 1998.
In conjunction with its Chinese partner in that joint venture and the
former majority equity holder, the Company has installed a new management
team in the Hangzhou facility. Accordingly, except with respect to the
potential future operations in Hangzhou, the following historical
discussion and analysis does not include the Hangzhou Meilijian operation.

In addition, in conjunction with its Chinese partner in the Green Food
Peregrine joint venture, the Company is exploring and negotiating the
potential acquisition of four additional dairy processing facilities, which
presently are state owned. Owing to the fact that insufficient information
is available on a current basis with respect to the historical operation of
these state owned dairies, the potential impact of such acquisitions is not
included in the following discussion, except as may be set forth in the
"trends" section below.

Trends
- ------

In addition to the matters discussed above, the following are important
factors that could cause actual results or events to differ materially from
those contained in any forward looking statement made by the Company.

Operating Strategy
- ------------------

The Company's ability to increase revenues of its existing operation and
other facilities which may be acquired will be affected by various factors,
including customer demand, and our ability to market our products
effectively. The Company's marketing plan requires a continued emphasis on
the qualitative differences of our products and competitive products, and
the development of other marketing programs necessary to attract new
customers in existing markets. There can be no assurance that our
operating strategies will be successful or that the Company will be able to
generate cash flow adequate to support its operations and internal growth.

In addition, management of the Company's China operation has embarked on
several cost cutting and efficiency directed programs in an effort to
reduce the costs of sales and general and administrative expenses. While
the Company believes those cost efficient methods of production and
distribution, such as more stringent operating controls, can be
implemented, there is no guaranty that these measures will result in
profitability.

Availability of Acquisition Financing
- -------------------------------------

The ability of the Company to acquire additional dairy processing
facilities at affordable prices, to integrate new operations into our
overall strategy, and to grow such operations in a profitable fashion will
depend upon the availability of additional capital. The consideration for
potential acquisitions will be cash, which the Company will be required to
raise through the sale of its equity interests. If we are not successful
in raising additional capital, the Company may be limited in its ability to
continue its acquisition strategy.

YEARS ENDED DECEMBER 31, 1996 AND 1997

FINANCIAL CONDITION

General
- -------

For the years ending December 31, 1996 and 1997, the Company had
accumulated deficits of US $2,206,628 and US $4,370,266, respectively. As
of December 31, 1997, the Company had cash on hand of US $435,630 and
reported total shareholders' equity of US $807,976.

RESULTS OF OPERATIONS

On March 5, 1997, the Company purchased the assets of China Peregrine
Enterprises Limited. For financial reporting purposes, China Peregrine
Enterprises Limited is considered the predecessor to the Company and its
operations have been integrated in the financial reporting of the Company
for the fiscal year 1996 and the first two months of 1997 as this
transaction was accounted for in a way similar to a pooling of interest.

Year Ended December 31, 1996
- ----------------------------

For the fiscal year ending December 31, 1996, the Company had net sales of
$485,682 and a gross loss of $113,830. In addition to the $599,512 cost of
sales, the Company had selling expenses of $230,842, and general and
administrative expenses of $1,068,839. After interest expenses of $448,272
and other net income of $53,785, the Company had a net loss before income
taxes of $1,807,998. Since the Company does not own 100% of the equity
interest in Green Food Peregrine, its share of the loss before income taxes
amounted to $1,331,763, resulting in a basic loss per share of $1.28.

General and administrative expenses have been and are projected to be a
significant percentage of revenue at this stage of the Company's existence.
The loss from operations for the 1996 year was due primarily to the high
level of general and administrative expense as a percentage of revenue
combined with the continuing attempts, as a Company in only its first full
year of operation, to penetrate an emerging market with a product whose
qualitative virtues were largely unknown to the ultimate consumer.

Year Ended December 31, 1997
- ----------------------------

For the fiscal year ending December 31, 1997, the Company had net sales of
$730,195 and had a gross loss of $122,082. In addition to the $852,277
cost of sales, the Company had selling expenses of $380,836, and general
and administrative expenses of $1,873,360. After interest expenses of
$234,517 and other net income of $58,200, the Company had a net loss before
income tax of $2,552,595. Since the Company does not own 100% of the
equity interest in Green Food Peregrine, its share of the loss before
income taxes amounted to $2,078,588, resulting in a basic loss per share of
$0.59.

As noted above, general and administrative expenses have been and are
projected to be a significant percentage of revenue at this stage of the
Company's existence. We anticipate that as revenue increases through
marketing efforts in Shanghai, and with the acquisition of the Hangzhou
Meilijian joint venture, and through other potential acquisitions, general
and administrative expenses will increase in total but decrease as a
percentage of revenue.

The loss from operations for 1997 continued to result from the high level
of expense associated with the continuing attempts to penetrate an emerging
market with a product whose qualitative virtues were largely unknown to the
ultimate consumer.

In addition, the Company experienced significant general and administrative
expenses in connection with the acquisition of the assets of China
Peregrine Enterprises (its majority equity interest in the Green Food
Peregrine joint venture) and two fund raising exercises in 1997. The
Company also spent certain resources to negotiate the acquisition of
certain of the assets of American Flavors China, Inc. (its majority
interest in the Hangzhou Meilijian joint venture).

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
- ---------------------------------------------------------------------

Revenues increased almost 50% to $730,195 in 1997 from $485,682 in 1996.
The increase was due to the continuing marketing efforts to penetrate the
sophisticated Shanghai market and the increase in sales volume of 1 Liter
milk.

Cost of goods sold increased approximately 42% to $852,277 in 1997 from
$599,512 in 1996. The increase was due mainly to a higher level of revenue
that required a corresponding increase in cost of goods sold. However,
cost of goods sold accounting for a percentage of revenue decreased to 117%
in 1997 from 123% in 1996. Consequently, the gross profit ratio was
increased to negative 17% in 1997 from negative 23% in 1996. The reason
for the loss was that the production volume was still under the necessary
volume that would bring the Company to a break-even level.

Selling expenses increased approximately 65% to 380,836 in 1997 from
230,842 in 1996. The increase was due mainly to the continuing efforts to
penetrate Shanghai market. As a percentage of revenues selling expense
increased to 52% in 1997 from 48% in 1996. We believe that the increase in
selling expense was justifiable as it increased the total revenue in 1997.

General and administrative expenses increased approximately 75% to
$1,873,360 in 1997 from $1,068,839 in 1996. This increase reflects the
almost $1.09 million of $1.87 million in expenses incurred in the U.S. that
were associated with reorganization of the ownership structure of the
business, the acquisition of the assets of China Peregrine Enterprises
Limited (its majority equity interest in Green Food Peregrine), two fund
raising exercises, and a part of the acquisition of some of the assets of
American Flavors China, Inc. (its majority equity interest in the Hangzhou
Meilijian joint venture). With respect to the general and administrative
expense in China operation, total general and administrative expenses
decreased approximately 16% to 782,503 in 1997 from 916,386 in 1996.
Overall, as a percentage of the total revenue, the general and
administrative expenses increased to 256% in 1997 from 220% in 1996.

Interest expense decreased approximately 48% to $234,517 in 1997 from
$448,272 in 1996. The reduction in interest expense was a result of the
reduction of the outstanding loans from US $2,489,182 in 1996 to US
$1,231,914 in 1997, even though the total interest expense in 1997 already
included the penalty interest imposed to Green Food Peregrine for the
outstanding loans payable to two Chinese commercial banks.

Consequently, the net loss applicable to the Company increased
approximately 62% to $2,163,638 in 1997 from $1,331,762 in 1996. The net
loss applicable to the Company as a percentage of revenue increased to 285%
in 1997 from 274% in 1996.

Based on the results of operations, the Company reported a loss per share
of $1.28 in 1996 and $0.59 in 1997. The decrease in the loss per share was
due to the new issuance of common shares. As of December 31, 1996, there
were 1,040,000 shares of common stock outstanding while as of December 31,
1997 there were 5,289,000 shares of common stock outstanding. Due to the
timing of issuance of new shares, however, the weighted average number of
shares of common stock outstanding in 1997 was 3,681,827. The loss per
share in 1997 decreased by approximately 54% compared with 1996.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1996, the Company reported that net cash provided by
operating activities was $243,544, net cash used in investing activities
was $303,265, and net cash provided by financial activities was $133,080
with the effect of changes in exchange rates at a negative $39,073.

As of December 31, 1997, the Company reported that net cash used in
operating activities was $1,929,803, net cash used in investing activities
was $128,727, and net cash provided by financing activities was $2,430,506
with the effect of changes in exchange rates at $5,468.

Net cash used in operating activities increased 892% to $1,929,803 in 1997
from $243,544 of net cash provided by operating activities in 1996. The
increase in negative cash flow in operating activities reflects the
increase in net loss in 1997 that was attributed to the majority of general
and administrative expense incurred in U.S. side, the reduction in accounts
payable in China operation, and increase in prepaid assets and other
assets.

Net cash used in investing activities decreased approximately 57% to
$128,727 in 1997 from $303,265 in 1996. The decrease was due mainly to the
fact that there were no significant additions to fixed assets located in
China.

Net cash provided by financing activities increased 1726% to $2,430,506 in
1997 from $133,080 in 1996. The major reason for this increase was due to
two fund raising exercises conducted in 1997. A Rule 504, Regulation D
offering and a Rule 144 offering provided a total of $2,475,000 of cash
that allowed the Company to acquire the assets from China Peregrine
Enterprises Limited and the infusion of working capital in Green Food
Peregrine.

The Company's primary requirements for cash (other than for acquisition
activities) consist of (1) purchasing transportation equipment for
distribution of its products; (2) expenses related to product development,
marketing and advertising in Shanghai and, to a lesser extent, in Hangzhou;
and (3) repayment of loans to state-owned Chinese banks in the aggregate
amount of approximately US $1,507,888 by the end of 1999. The Company
estimates that net cash provided by current operating activities together
with cash on hand will enable the Company to meet the anticipated cash
requirements for the first two quarters of 1999. The Company believes that
it needs to have additional injection of equity or debt capital to meet the
Company's anticipated capital expenditures for the balance of 1999, and the
Company actively is seeking to raise such additional capital through equity
or debt financing.

Accordingly, through the implementation of distribution and marketing
strategies discussed in Item 1, the Company intends to pursue internal
growth potential as a move toward profitability and fund interim capital
needs through the possible public and private sale of debt and equity
securities.

PERIOD FROM JANUARY 1, 1998 TO JUNE 30, 1998

RESULTS OF OPERATIONS

At June 30, 1998, the Company had an accumulated deficit from operations of
US$5,578,921. The Company had cash on hand of US$1,180,017and reported
total shareholders' equity of US$1,166,350.

The Company had net sales of $402,993 and a gross loss of $56,618. In
addition to the $459,611 of cost of sales, the Company had selling expenses
of $157,726 and general and administrative expenses of $989,095. After
interest expenses of $115,079 and other net income of $51,516 and the
accumulated net losses of $94,555 attributed to 2.4% minority interest
acquired in February, 1998, the Company had a net loss before income tax of
$1,362,535, resulting in a loss per share of $.22.

As in the prior period, general and administrative expenses have been and
are continuing to be a significant percentage of revenue at this stage of
the Company's existence.

Six Month Period Ended June 30, 1998 Compared to Six Month Period Ended
- -----------------------------------------------------------------------
June 30, 1997
- -------------

Revenues increased almost 30% to $402,993 in 1998 from $311,793 in 1997.
The increase was due to the continuing marketing efforts to penetrate the
sophisticated Shanghai market and the increase in sales volume of 1Litre
milk.

Cost of goods sold increased approximately 20% to $459,611 in 1998 from
$387,613 in 1997. The increase was due mainly to higher revenue that
requires a corresponding increase in cost of goods sold. However, the cost
of goods sold as a percentage of revenue decreased to 114% in 1998 from
124% in 1997. Consequently, the gross profit ratio increased to negative
14% in 1998 from negative 24% in 1997. The reason for negative gross
profit was that the production volume was still under the necessary volume
that would bring the Company to a break-even level.

Selling expenses decreased approximately 29% to $157,726 in 1998 from
$222,131 in 1997. The decrease was due to the Company cutting expenses as
much as possible and implementing an incentive policy for all sales
representatives to encourage reduction of various expenses.

General and administrative expenses increased approximately 47% to $989,095
in 1998 from $674,148 in 1997. The US corporate office's general and
administrative expenses increased approximately 149% to $582,946 in 1998
from $234,290 in 1997. This is due to legal expenses, auditing and other
professional expenses, office rental expenses, and corporate officer
payroll expense that did not exist in the first six months of 1997. The
general and administrative expenses incurred in the China operations,
decreased approximately 8% to $406,148 in 1998 from $439,858 in 1997. The
decrease was due to the Company implementing a cost cutting program in
1998. Overall, as a percentage of total revenue, the general and
administrative expenses increased to 245% in 1998 from 216% in 1997.

Interest expense increased approximately 199% to $115,079 in 1998 from
$38,434 in 1997. The increase was due to penalty interest imposed by two
Chinese commercial banks.

Consequently, the net loss applicable to the common shares increased
approximately 62% to $1,208,654 in 1998 from $744,810 in 1997. The net
loss to the common shares as a percentage of revenue increased to 300% in
1998 from 239% in 1997.

The Company reported a loss per share of $.22 in 1998 and $.33 in 1997.
The decrease in the loss per share was due to new issues of common shares.
As of June 30, 1997 there were 3,660,000 shares of common stock outstanding
and as of June 30, 1998 there were 6,021,272 shares of common stock
outstanding. Due to the timing of issuance of new shares, the weighted
average number of common shares outstanding in 1998 was only 5,289,000.
The loss per share in 1998 decreased approximately 33% compared to 1997.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 1997, the Company reported that net cash used in operating
activities was $950,657 and net cash provided by financial activities was
$2,263,236 with a $4,316 effect of exchange rate changes on cash.

As of June 30, 1998, the Company reported net cash used in operating
activities was $600,424, net cash used in investing activities was $5,690,
and net cash provided by financing activities was $1,383,769 with a
negative $33,268 effect of exchange rate changes on cash.

Net cash used in operating activities decreased 37% to $600,424 in the
first six months of 1998 from $950,657 in the same period of 1997. The
cash used in operating activities decreased due mainly to the accumulated
losses of $94,533 recognized in 1998 attributed to the acquisition of 2.4%
minority equity interest and $392,707 increase in accrued liabilities and
other small items.

Net cash used in investing activities increased approximately 100% to
$5,690 in the first six months of 1998 from $0 in the same period of 1997.

Net cash provided by financing activities decreased 42% to $1,383,769 in
the first six months of 1998 from $2,263,236 in the same period of 1997.
The major reason for this decrease was due to only one fund raising
exercise conducted in the first six months of 1998, and two fund raising
exercises conducted in the same period of 1997.

The Company's requirements for cash (other than for acquisition activities)
consist of (1) purchasing transportation equipment for distribution of its
products; (2) expenses relating to product development, marketing and
advertising in Shanghai and, to a lesser extent, in Hangzhou; and (3)
repaying loans to state-owned Chinese banks in the aggregate amount of
approximately US $1,022,864 by the end of 1998. The Company estimates that
net cash provided by operating activities in 1998 together with cash on
hand will enable the Company to meet the anticipated cash requirements for
the remainder of 1998. The Company believes it will need to have additional
equity or debt capital to meet the Company's anticipated capital
expenditures for 1999.

PERIOD FROM JANUARY 1, 1998 TO SEPTEMBER 30, 1998

RESULTS OF OPERATIONS

At September 30, 1998, the Company had an accumulated deficit from
operations of US$6,111,368. The Company had cash on hand of US$695,078 and
reported total shareholders' equity of US$1,764,848.

The Company had net sales of $1,484,600 and a gross loss of $39,448. In
addition to the $1,524,048 of cost of sales, the Company had selling
expenses of $318,955 and general and administrative expenses of $1,439,977.
After interest expenses of $225,320 and other net income of $86,700 and the
accumulated net losses of $94,533 attributed to 2.4% minority interest
acquired in February, 1998, the Company had a net loss before income tax of
$2,031,533, resulting in a loss per share of $.29.

As in the prior period, general and administrative expenses have been and
are continuing to be a significant percentage of revenue at this stage of
the Company's existence.

Nine Month Period Ended September 30, 1998 Compared to Nine Month Period
- ------------------------------------------------------------------------
Ended September 30, 1997
- ------------------------

Revenues increased almost 193% to $1,484,600 in 1998 from $507,305 in 1997.
The increase was due to sales revenue of $860,000 from Meilijian and the
continuing marketing efforts to penetrate the sophisticated Shanghai market
and the increase in sales volume of 1Litre milk.

Cost of goods sold increased approximately 154% to $1,524,048 in 1998 from
$599,849 in 1997. The increase was due mainly to higher revenue that
requires a corresponding increase in cost of goods sold. However, the cost
of goods sold as a percentage of revenue decreased to 103% in 1998 from
118% in 1997. Consequently, the gross profit ratio increased to negative
3% in 1998 from negative 18% in 1997. The reason for negative gross profit
was that the production volume was still under the necessary volume that
would bring the Company to a break-even level.

Selling expenses increased approximately 8% to $318,955 in 1998 from
$296,196 in 1997. The increase was due mainly to higher revenue that
requires a corresponding increase in selling expense.

General and administrative expenses increased approximately 34% to
$1,439,977 in 1998 from $1,071,347 in 1997. The US corporate office's
general and administrative expenses increased approximately 90% to $856,758
in 1998 from $451,050 in 1997. This was due to legal expenses, auditing and
other professional expenses, office rental expenses, and corporate officer
payroll expense that did not exist in the first nine months of 1997. The
general and administrative expenses incurred in the China operations,
increased approximately 6% to $661,019 in 1998 from $619,200 in 1997. The
increase was due mainly to Meilijian's portion in 1998. Overall, as a
percentage of total revenue, the general and administrative expenses
decreased to 125% in 1998 from 288% in 1997.

Interest expense increased approximately 130% to $225,320 in 1998 from
$98,123 in 1997. The increase was due to penalty interest imposed by two
Chinese commercial banks.

Consequently, the net loss applicable to the common shares increased
approximately 85% to $1,741,102 in 1998 from $1,213,518 in 1997. The net
loss to the common shares as a percentage of revenue decreased to 117% in
1998 from 239% in 1997.

The Company reported a loss per share of $.29 in 1998 and $.39 in 1997.
The decrease in the loss per share was due to new issues of common shares.
As of September 30, 1997, there were 5,104,000 shares of common stock
outstanding and as of September 30, 1998 there were 7,552,957 shares of
common stock outstanding. Due to the timing of issuance of new shares, the
weighted average number of common shares outstanding in 1998 was 6,042,348.
The loss per share in 1998 decreased approximately 26% compared to that in
1997.

Three Month Period Ended September 30, 1998 Compared to Three Month Period
- --------------------------------------------------------------------------
Ended September 30, 1997
- ------------------------

Revenues increased almost 453% to $1,081,607 in 1998 from $195,512 in 1997.
The increase was due mainly to the inclusion of Meilijian's sales of
860,000 and the continuing marketing efforts to penetrate the sophisticated
Shanghai market and the increase in sales volume of 1Litre milk.

Cost of goods sold increased approximately 402% to $1,064,437 in 1998 from
$212,236 in 1997. The increase was due mainly to higher revenue that
requires a corresponding increase in cost of goods sold. However, the cost
of goods sold as a percentage of revenue decreased to 98% in 1998 from 109%
in 1997. Consequently, the gross profit ratio increased to positive 2% in
1998 from negative (9%) in 1997. The reason for negative gross profit was
that the production volume was still under the necessary volume that would
bring the Company to a break-even level.

Selling expenses decreased approximately 118% to $161,229 in 1998 from
$74,065 in 1997. The increase was due mainly to higher revenue that
requires a corresponding increase in selling expense.

General and administrative expenses increased approximately 14% to $450,883
in 1998 from $397,199 in 1997. Overall, as a percentage of total revenue,
the general and administrative expenses decreased to 42% in 1998 from 203%
in 1997.

Interest expense increased approximately 311% to $110,240 in 1998 from
$26,829 in 1997. The increase was due to penalty interest imposed by two
Chinese commercial banks.

Consequently, the net loss applicable to the common shares increased
approximately 43% to $532,447 in 1998 from $370,058 in 1997. The net loss
to the common shares as a percentage of revenue decreased to 49% in 1998
from 189% in 1997.

The Company reported a loss per share of $.08 in 1998 and $.07 in 1997.
The increase in the loss per share was due to new issues of common shares.
As of September 30, 1997, there were 5,104,000 shares of common stock
outstanding and as of September 30, 1998 there were 7,552,957 shares of
common stock outstanding, of which 1,531,685 was issued on August 6, 1998.
Due to the timing of issuance of new shares, the weighted average number of
common shares outstanding in 1998 was only 6,953,602. The loss per share
in 1998 increased approximately 14% compared to that in 1997.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1997, the Company reported that net cash used in
operating activities was $1,399,282 and net cash provided by financial
activities was $2,363,236 with a $3,694 effect of exchange rate changes on
cash.

As of September 30, 1998, the Company reported net cash used in operating
activities was $565,069, net cash used in investing activities was
$278,091, and net cash provided by financing activities was $1,508,274 with
a negative $405,666 effect of exchange rate changes on cash which mainly
came from Meilijian's book.

Net cash used in operating activities decreased 60% to $565,069 in the
first nine months of 1998 from $1,399,282 in the same period of 1997. The
cash used in operating activities decreased due mainly to the inclusion of
Meilijian's operation activities.

Net cash used in investing activities increased approximately 100% to
$278,091 in the first nine months of 1998 from $0 in the same period of
1997. The increase was due mainly to the acquisition payment of $210,000
and capitalized expense of $26,890 associated with Meilijian's acquisition.

Net cash provided by financing activities decreased 42% to $1,508,274 in
the first nine months of 1998 from $2,363,236 in the same period of 1997.
The major reason for this decrease was due to only one fund raising
exercise conducted in the first nine months of 1998, and two fund raising
exercises conducted in the same period of 1997.

The Company's requirements for cash (other than for acquisition activities)
consist of (1) purchasing transportation equipment for distribution of its
products; (2) expenses relating to product development, marketing and
advertising in Shanghai and, to a lesser extent, in Hangzhou; and (3)
repaying loans to state-owned Chinese banks in the aggregate amount of
approximately US$1,022,864 by the end of 1998. The Company estimates that
net cash provided by current operating activities together with cash on
hand will enable the Company to meet the anticipated cash requirements for
the first two quarters of 1999. The Company believes that it needs to have
additional injection of equity or debt capital to meet the Company's
anticipated capital expenditures for the balance of 1999, and the Company
actively is seeking to raise such additional capital through equity or debt
financing.

DEBT STRUCTURE

On December 27, 1993, Green Food Peregrine entered into a loan agreement
with a state owned commercial bank in China and obtained a loan of
approximately US $905,819 (RMB7,500,000). This loan matured on December 26,
1996 and bore an interest rate of 12.24% per annum. The loan, which was
guaranteed by China National Green Food, contained an increased interest
rate penalty if repayments were not made on a timely basis. On December
26, 1996, Green Food Peregrine failed to pay off the principal and interest
then due on the loan; the bank thereafter imposed a penalty interest rate
of 16.43% per annum on the unpaid accumulated interest due at December 31,
1997. As of that date, Green Food Peregrine had accrued interest payable
of approximately US $257,856 (RMB2,135,000), in addition to the principal
of the loan.

In June, 1998, we renegotiated this loan and obtained a new repayment
schedule, with approximately US $125,606 now becoming due on December 31,
1998, and an additional US $1,038,069 becoming due on December 31, 1999.
The bank further agreed that, as long as Green Food Peregrine completes
this repayment schedule in a timely fashion, the bank will waive the
penalty interest imposed upon the interest calculation. The Company met
its obligations under the renegotiated payment schedule with respect to the
December 31, 1998 payment.

On December 1, 1994, Green Food Peregrine entered into a second loan
agreement with another state owned commercial bank in China and obtained a
loan of approximately US $325,300 (RMB2,700,000). This loan will mature on
December 31, 2001, and bears an interest rate of 9.9% per annum. This
interest rate is variable and can change in accordance with an annual
notice from the China Central Bank. In December, 1997, Green Food
Peregrine failed to pay off the regular interest and principal then due.
As such, the bank imposed a penalty interest rate of 12.43% per annum on
the interest calculation. As of that date, Green Food Peregrine had
accrued interest payable of approximately US $122,346 (RMB1,013,000) and a
current portion of principal payable of approximately US $120,776
(RMB1,000,000).

In June, 1998, we renegotiated this loan and established a new repayment
schedule with the bank which called for payment of approximately US $90,582
(RMB750,000) by September 20, 1998, and additional payments of
approximately US $50,726 (RMB420,000) at three month intervals through
December 20, 1999. The balance remaining on this loan, if any, is payable
on December 31, 1999. The bank has agreed that, as long as Green Food
Peregrine completes this payment plan in a timely fashion, the bank will
release the penalty interest rate imposed on the interest calculation. The
Company is current with this renegotiated payment schedule.

During the organization period of Green Food Peregrine and in April of
1996, China National Green Food loaned the aggregate amount of RMB8,600,000
to Green Food Peregrine. These shareholder loans were converted to paid in
capital in 1997 to satisfy the registered capital requirements of China
National Green Food pursuant to the Green Food Peregrine Articles of
Association. In addition, interest payable of RMB882,721 likewise has been
converted to paid in capital.

In April and November, 1996, China National Green Food loaned an additional
RMB350,000 and RMB200,000, respectively, to Green Food Peregrine to finance
working capital. An interest rate of 12.4% per annum was applied to these
loans. Both of these loans were paid in full in September and October,
1997, respectively.

In January, 1997, the major limited partner of China Peregrine Enterprises
loaned US $200,000 to that limited partnership in order for China Peregrine
Enterprises to meet interim registered capital requirements of the Green
Food Peregrine Articles of Association and Joint Venture Contract. In
March, 1997, three shareholders of the Company together provided a loan of
US $1,315,000 to pay China Peregrine Enterprises' final registered capital
requirement to Green Food Peregrine. This last capital contribution was
set by the Board of Directors of Green Food Peregrine as a condition
precedent to the approval of the Company's acquisition of the interest of
China Peregrine Enterprises in and to the Green Food Peregrine joint
venture. These two loans were paid off during May and June, 1997,
utilizing the proceeds from a Rule 504 regulation D offering by the
Company.

In March, 1997, a holder of the majority of the partnership interests in
China Peregrine Enterprises (and a major stockholder in the Company),
together with two other investors in the Company, assumed a US $1,260,000
outstanding line of credit owed by the limited partnership to a Tennessee-
based financial institution. On March 15, 1997, the Company issued
1,260,000 shares of its Series B preferred stock to these shareholders in
consideration for this assumption. The line of credit was paid in full in
October, 1997.

While the above described related party loans have been paid in full, there
can be no assurance that the Company will have the ability to meet the
newly negotiated payment schedule to retire the obligations owing to the
two state owned banks in China, either by utilizing its capital resources
or from the generation of cash flows adequate to support the repayment
schedules.

EFFECTS OF INFLATION

The Company believes that inflation has not had material effect on its net
sales and results of operations

EFFECT OF FLUCTUATION IN FOREIGN EXCHANGE RATES

The Company's operating subsidiary, Green Food Peregrine, is located in
China. It buys and sells products in China using Chinese Renminbi as
functional currency. Based on Chinese government regulation, all foreign
currencies under the category of current account are allowed to freely
exchange with hard currencies. During the past two years of operation,
there were no significant changes in exchange rates. However, there is no
assurance that there will be no significant change in exchange rates in the
near future.

FUTURE OPERATIONS

Since the Company's acquisition of a majority interest in the Hangzhou
Meilijian joint venture has recently occurred, the results of operations
for Hangzhou Meilijian have not been incorporated herein. We anticipate,
however, that the inclusion of the Hangzhou Meilijian operation will have a
significant impact on the financial reporting of the Company in the future.
For example, as of December 31, 1997, Hangzhou Meilijian reported
approximately US $6,240,000 in revenues. Since an audit of the financial
statements of that joint venture under US GAAP and GAAS has not been
completed, however, there can be no assurances that the Hangzhou Meilijian
joint venture will be profitable.

In addition, if the Company is able to raise additional capital to finance
its acquisition of a majority interest in one or more of the state owned
dairies presently under consideration with the Ministry of Agriculture,
both the revenue reports and the profitability of the Company may be
affected materially.

Finally, there can be no assurances of the success of the strategic
marketing plan of the Company with respect to its Shanghai operations, or
the ability to fund that marketing strategy. The successful implementation
of the planned marketing strategy for the Shanghai market could result in a
profitable Shanghai operation within a twelve month period. The success of
the planned marketing strategy, in addition to the above stated factors,
involves the continued focus on consumer acceptance of the qualitative
differences between the products being offered by Green Food Peregrine and
its competitors.

NEW ACCOUNTING STANDARDS NOT ADOPTED YET

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130), which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statements that is
displayed with the same prominence as other financial statements.

Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS No. 131), which
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," establishes standards for the way that public enterprises
report information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers.
SFAS No. 131 defines operating segments as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.

Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Due to the recent issuance
of these standards, management has been unable to fully evaluate the
impact, if any, they may have on future financial statement disclosures.

Statement of Financial Accounting Standards No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits" (SFAS No.
132) is effective for financial statements with fiscal years ending
beginning after December 15, 1997; earlier application is permitted. The
new standard revises employers' disclosures about pension and other
postretirement benefit plans but does not change the measurement or
recognition of those plans. SFAS No. 132 standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures previously required when no
longer useful. The Company does not expect the adoption of SFAS No. 132 to
have a material effect, if any, on its financial position or results of
operations.

Statement of Financial Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133) requires companies to
recognize all derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge, the objective
of which is to match the timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative
not designated as a hedging instrument, the gain or loss is recognized in
income in the period of change. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999.

Historically, the Company has not entered into derivative contracts either
to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard on January 1, 2000 to
affect its financial statements.

The Accounting Standards Executive Committee issued Statement of Position
("SOP") 98-5 "Reporting on the Costs of Start-Up Activities" which will be
effective for financial statements for fiscal years after December 15, 1998
and requires that costs of start-up activities, including organization
costs, be expensed as incurred. In accordance with SOP 98-5, the Company
expects to write off start up costs in its subsidiary in 1999.

YEAR 2000 STATEMENT

We are currently in the process of identifying, evaluating and implementing
changes to computer systems in the United States and the Green Food
Peregrine facility in Shanghai, People's Republic of China, as necessary.
This issue affects computer systems that have date sensitive software
programs or chipsets that may not recognize the year 2000. Systems that do
not recognize such information properly could generate erroneous data or
cause a system to fail, resulting in an interruption of normal business
activities.

We have arranged with a third party vendor the performance of a
comprehensive analysis of the Company's in house computers with respect to
potential Year 2000 problems. Our internal analysis has revealed the
existence of one micro computer which, owing to its age, bears a high risk
of date sensitive operation. We anticipate the completion of the third
party analysis prior to the end of the 1999 second quarter, and immediate
remediation, if necessary, owing to the small number of micro computers
(less than 10) utilized by the Company and its subsidiaries. Given the
benefit to the Company of utilizing technology more advanced than exists in
its present computers, and the utilization of readily available "off the
shelf" hardware and software, the Company is prepared to upgrade or replace
all problem computers immediately, where appropriate.

We have been informed that the cost of the third party analysis and report
will be less than $2,000. Even assuming the need to replace all present
computers and software, we estimate the cost of such replacement to be less
than $30,000.

The Company utilizes computers in its United States operation in a fashion
which is non-essential to the day to day business of the Company. The
computers at the North Palm Beach, FL corporate offices function as word
processors for communication purposes and contain some database
information, which is duplicative of files kept by outside legal,
accounting and transfer agent affiliates. In the Shanghai and Hangzhou
facilities, basic record keeping is both manual and computer assisted. As
such, while downtime owing to date sensitive problems would present an
inconvenience to operations, it would not affect the ability of the
Company's subsidiaries to function appropriately on a day to day basis.

Neither the Company nor its subsidiaries rely upon third parties who are
computer dependent for their respective business functions. As such, we do
not believe that Year 200 problems which may be experienced by such third
parties will have any material effect on our operations in the United
States or in China.

Since we utilize readily available hardware and software in our business,
we believe the cost of modifying or replacing all systems to be Year 2000
compliant will be minimal, and the Company will modify or replace computers
experiencing such problems immediately, without an appreciable interruption
in its operations, financial condition or results of operations.

PART I

ITEM 3 - DESCRIPTION OF PROPERTY

Neither China Peregrine Food Corporation nor its subsidiary, Green Food
Peregrine, currently owns any real property. As of February 1, 1999, the
Company's corporate offices are located at 11300 US Highway 1, Suite 202,
North, Palm Beach, Florida, pursuant to a lease with HCF Realty, Inc.,
having a term of five years. The Company's current aggregate monthly rent
amounts to approximately $4,900, which will increase (assuming an estimated
annual increase of 2%) to approximately $6,100 per month by the fifth
year.

The following properties are currently leased by Green Food Peregrine:

1. Office facilities located in Shanghai presently are rented on a month
to month basis following the expiration of a lease term ending
November 28, 1998, at the rate of RMB16,520 per month (approximately
US $1,990). A new lease term will be negotiated for this space
during the later part of March, 1999.

2. A ground lease for the land on which the dairy processing facility is
located for a term ending June 30, 2043, at the rate of RMB25,000.00
per month (approximately US $3,012).

3. Distribution center located in Shanghai, for a monthly tenancy, at
the rate of RMB 8,500 per month (approximately US $1,025).

While Green Food Peregrine does not own any real estate, it does own the
buildings located on the land, which is subject to the above described
ground lease. As of December 31, 1997, the plant and buildings comprising
the Shanghai facility are carried on the books of Green Food Peregrine at a
net book value of US $495,661.

Currently, the Company does not have a policy to acquire property for
possible capital gains or income generation. In addition, the Company does
not invest in securities of real estate entities or developed or
underdeveloped properties.

PART I

ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a) The following individuals hold 5 % or more of the outstanding voting
stock of the Company. No other individual or any group is known to the
Company to be the beneficial owner of more than 5% of any class of the
Company's voting securities.

<TABLE>
<CAPTION>
Name & Address of(2) Amount & Nature of(3) Percent of(4)
Title of Class(1) Beneficial owner Beneficial Owner Class
- ----------------- -------------------- --------------------- -------------

<S> <S> <C> <C>
Common Mr. Dale Reese 3,157,985 22.75%
125 Kingston Road
Media, PA 19063

Common American Flavors China, Inc. 1,531,685 11.03%
1007 Chestnut Street
Newton, MA 02164

Common Tamarind Management., Ltd. 2,202,327 15.87%
31 Broad Street
P.O. Box 23
St. Helier Channel Islands

Common Peregrine Enterprises, Inc. 1,070,914 7.71%
5350 Poplar Avenue
Memphis, TN 38119

<FN>
<F1> While listed as "common," the class of stock includes the shares of
common stock underlying warrants, options and convertible preferred
stock issued by the Company.

<F2> Insofar as Mr. Paul Downes has investment power with respect to the
affairs of Tamarind Management, Ltd., the Company's securities held
by Mr. Downes and Tamarind are combined in this table. Similarly,
insofar as Mr. Charles Beech has investment power with respect to the
affairs of Peregrine Enterprises, Inc., the Company's securities held
by Mr. Beech and Peregrine Enterprises are combined in this table.
Mr. Noam Sender and Mrs. Florence Sender control American Flavors
China, Inc. Their address is the same as the address for that
corporate entity.

<F3> The following is a breakdown, by beneficial owner and title of class,
of the common stock issued and common stock underlying warrants,
options and convertible preferred stock which the respective holders
have the right to acquire within sixty (60) days:
</FN>

<CAPTION>
Number of Shares of
Common Stock (Issued
Holder Type of Security or Capable of Being Acquired)
- ------ ---------------- -----------------------------

<S> <S> <C>
Mr. Dale Reese Common 840,544
Warrants 100,000
Series A Convertible Pref. 500,000
Series B Convertible Pref. 1,017,441
Options 700,000

Tamarind Common 687,000
Management, Ltd. Series B Convertible Pref. 107,440
Options 1,383,705

Mr. Paul Downes Common 24,182

Peregrine
Enterprises, Inc. Common 360,000

Mr. Charles Beech Common 200,000
Options 510,914

<FN>
<F4> Includes issued shares of common stock plus the shares of common
stock underlying warrants, options and convertible preferred stock
issued by the Company, which can be acquired within sixty (60) days.
</FN>
</TABLE>

(b) The following includes all who served as directors or executive
officers in 1997 and 1998, who hold equity securities of the Company and
the total held by all directors and executive officers. This table includes
issued shares of common stock plus the shares of common stock underlying
warrants, options and convertible preferred stock issued, which can be
acquired within sixty (60) days, as above.

<TABLE>
<CAPTION>
Name & Address of Amount & Nature of Percent of
Title of Class Beneficial Owner Beneficial Owner(1) Class
- -------------- ----------------- ------------------- ----------

<S> <S> <C> <C>
Common Mr. Dale Reese 3,157,985 22.75%
125 Kingston Road
Media, PA 19063

Common Mr. Paul Downes 2,202,327 15.87%
(Director)
5646 Windrift Lane
Boca Raton, FL 33433

Common Mr. Charles Beech 1,070,914 7.71%
(Chairman/CEO/Director)
4339 Gwynne Road
Memphis, TN 38117

Common Roy G. Warren 598,914 4.31%
(President/Director)
1128 Country Club Road
N. Palm Beach, FL 33408

Common Robert Cummings 400,000 2.88%
(Director)
2829 N.E. 44th Street
Lighthouse Point, FL 33064

Common Michael G. Lucci 410,000 2.73%
(Director)
49 Spanish River Drive
Ocean Ridge, FL 33435

Common John McCormack 200,000 1.44%
(Director)
8750 South Grant
Burridge, IL 60521

Common Phillip Pearce 25,000 0.18%
(Director)
6624 Glenleaf Court
Charlotte, NC 28270

Common Michael L. Davis 25,000 0.18%
(CFO)
20 Harris Avenue
Hamptom Beach, NH 03843

Common Susan Lurvey 12,000 0.086%
(Treasurer/Secretary)
6340 Fox Run Circle
Jupiter, FL 33458

Common All directors and executive 4,914,155 35.40%
officers as a group

<FN>
<F1> The following is a breakdown, by beneficial owner and title of class,
of the common stock issued and common stock underlying warrants,
options and convertible preferred stock which the respective holders
have the right to acquire within sixty (60) days:
</FN>

<CAPTION>
Number of Shares of
Common Stock (Issued
Holder Type of Security or Capable of Being Acquired)
- ------ ---------------- -----------------------------

<S> <S> <C>
Mr. Dale Reese Common 840,544
Warrants 100,000
Series A Convertible Pref. 500,000
Series B Convertible Pref. 1,017,441
Options 700,000

Tamarind Common 687,000
Management, Ltd. Series B Convertible Pref. 107,440
(c/o Mr. Paul Downes) Options 1,383,705

Mr. Paul Downes Common 24,182
(Individually)

Peregrine
Enterprises, Inc. Common 360,000
(c/o Mr. C. Beech)

Mr. Charles Beech Common 200,000
(Individually) Options 510,914

Roy G. Warren Common 188,000
Options 410,914

Robert Cummings Common 200,000
Warrants 200,000

Michael G. Lucci Common 210,000
Warrants 200,000

John McCormack Common 100,000
Warrants 100,000

Phillip Pearce Common 25,000

Michael L. Davis Options 25,000

Susan Lurvey Common 12,000
</TABLE>

PART I

ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.

The following table presents directors, executive officers, promoters and
control persons of the Company as of September 30, 1998; directors serve
two year terms.

Mr. Charles Beech, Chairman, Chief Executive Officer and Director, Age 56.
Term expires 2000

Mr. Beech has a background of senior level management experience within a
variety of industries including: consumer products, emerging growth high
technology, merchant banking and sales and marketing consulting firms. Mr.
Beech has over 25 years of experience in executive level management, sales
and marketing, consumer product research and development. As former
President of Maybelline Sales Corporation, and following a 17-year career
in management with Procter & Gamble, Mr. Beech negotiated with the Chinese
government to establish the Green Food Peregrine Children's Food Company
joint venture alliance with the Ministry of Agriculture, one of the Chinese
joint venture businesses presently run by the Company. Mr. Beech also
serves as Chairman, CEO and President of Peregrine Enterprises, Inc., a
multi-national corporation which is parent to several consumer market
research firms in the United States and in China, including Message
Factors, Inc., an international consumer market research company which is
currently ranked (by revenues) in the top 2% of the U.S. market research
industry. Mr. Beech is one of the "founders" of the Company as it
presently exists.

Mr. Robert Cummings, Director, Age 56.
Term expires 1999

Mr. Cummings' work experience includes ten years in purchasing at Ford
Motor Company. In 1975, he founded and currently operates J & J Production
Service, Inc., a manufacturing representative business, which is currently
responsible for over $300 million in annual sales.

Mr. Michael L. Davis, Chief Financial Officer, Age 65.

Entering the securities industry over 35 years ago as a securities and
special situations analyst with ValueLine, Mr. Davis proceeded to serve as
a Tactical Planner, General Portfolio Manager and Short Sale Portfolio
Manager with a number of hedge funds. In 1972, he was a member of the
Investment Committee at Anchor Corp. which supervised its $2.5 billion
family of funds, as well as serving as Anchor's Chief Market Analyst. From
1978 through 1989, Mr. Davis was the Portfolio Manager of Merrill Lynch's
Special Value Fund. In addition to his position with China Peregrine, Mr.
Davis operates a private consulting firm, M.L. Davis Financial Services,
which advised clients on stock selection and general market timing
considerations, research and writing of special reports on selected small
and mid-cap growth companies and in the supervision of an investment
portfolio for a group of United Arab Emirates investors.

Mr. Paul Downes, Director, Age 37.
Term expires 2000

Mr. Downes currently is a director of the Company and, until his
resignation in April, 1998, served as Chairman of the Company. For the
past 10 years, Mr. Downes has managed a diverse portfolio of international
investments with concentration in the United Kingdom, Eastern Europe, North
Africa and Asia. In 1985, he founded a group of nursing homes for the
elderly in Great Britain that he sold in 1990. Prior to that time, Mr.
Downes spent several years organizing golf tournaments and international
golf matches in Malaysia, Singapore, Thailand, Philippines, Indonesia and
Hong Kong, spending two years living in Southeast Asia. Mr. Downes is one
of the "founders" of the Company as it presently exists

Mr. George Holdsworth, Director, Age 60.
Term expires 1999

Until May, 1998, Mr. Holdsworth was responsible for the operational aspects
of the Company's Chinese operations. Mr. Holdsworth is a graduate of the
University of London with a B.S. in Mathematics and an Associate of the
London College of Music. He started in business as a manufacturing manager
in his father's company, Earlsdon Components, Ltd., where he became
Director of Operations, then owner and Managing Director. In 1993, Mr.
Holdsworth became owner of Earlsdon Technology, Ltd., a JV Partner of
Shanghai Earlsdon Valve Company, Ltd., and has lived in Shanghai for the
last four years, until May, 1998. Mr. Holdsworth sold his interest in
Shanghai Earlsdon and commenced his duties for the Company in March, 1997.

Michael Lucci, Director, Age 58.
Term expires 1999

Mr. Lucci is a former All Pro linebacker who played for the Detroit Lions
of the National Football League from 1964 through his retirement from
professional football in 1973. Mr. Lucci became associated with Bally's
Total Fitness Corporation in 1971 and rose through the ranks to become that
corporation's Vice President of club operations in the mid-west, Senior
Vice-President, and President and Chief Operating Officer in 1993. Mr.
Lucci retired in 1996 and, since that time, has managed a diverse
investment portfolio for himself.

Mr. John McCormack, Director, Age 40.
Term expires 2000

Mr. McCormack filled the directorship vacated by Mr. Dale Reese in the
summer of 1997. For over 15 years, Mr. McCormack served as an executive
with Dean Foods Co., a processor and distributor of a full line of branded
and private label products, including fluid milk, cottage cheese and ice
cream. In 1996 and 1997, Mr. McCormack served as Vice President of Sales
and Marketing for Dean Food's McArthur Dairy in Miami, Florida. Currently,
as a Vice President of Dean Foods, he is in charge of Dean Food's mid-
western division out of Chicago, Illinois.

Mr. Phillip Pearce, Director, Age 69.
Term expires 1999

Mr. Pearce is a "retired" member of the securities industry. Mr. Pearce
served as Chairman of the NASD during which time he was instrumental in the
founding of NASDAQ. Additionally, Mr. Pearce was a former Director of E.F.
Hutton and has served as Governor of the New York Stock Exchange. Since
his retirement in 1988, Mr. Pearse has remained active in the securities
industry as a corporate financial consultant.

Mr. Roy G. Warren, President and Director, Age 43.
Term expires 2000

Mr. Warren has been in charge of the day to day US operations of the
Company since the summer of 1997. In addition to his day to day
operational duties, Mr. Warren continues to develop strategy for the
Company in growth and external financial matters. From 1981 through 1996,
Mr. Warren enjoyed an active career in the securities brokerage industry.
During 1995 and 1996, Mr. Warren was a Registered Representative of a
satellite office of Southeast Research Partners, Boca Raton, Florida. From
1992 to 1994, he was a Partner of Laffer Warren & Company, a small
independent broker dealer, registered with the NASD, located in North Palm
Beach, Florida. During the period from 1987 to 1992, Mr. Warren was a an
executive officer, principal, securities broker, and partner with
Gulfstream Financial Association, a subsidiary of Kemper Financial
Companies, and later as Vice President-Sales, of Alex Brown & Sons, West
Palm Beach, Florida.

As of August 31, 1998, there were no family relationships among the
directors and executive officers. Further, no director, executive officer,
promoter or control person has been involved in any legal proceedings
during the past five years that are material to an evaluation of the
ability or integrity of such director, person nominated to become a
director, executive officer, promoter or control person of the Company.
None of the individuals listed in this Item 5 has had a bankruptcy petition
filed by or against any business of which such person was a general partner
or executive officer either at the time of such bankruptcy, if any, or
within two years prior to that time. No director, executive officer,
promoter or control person was or has been convicted in a criminal
proceeding or is subject to a pending criminal proceeding or subject to any
order, judgment, or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, borrowing, or otherwise limiting his or her involvement in any
type of business, securities or banking activities. No director, executive
officer, promoter or control person has been found by a court of competent
jurisdiction in a civil action to have violated federal or state securities
or commodities law.

PART I

ITEM 6 - EXECUTIVE COMPENSATION

Summary Compensation Table
- --------------------------

The following table relates to executive compensation paid during 1997(1)

<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------- ---------------------------
Stock
Awards
Name & Position Salary Bonus Total (Restricted) Options(2)
- --------------- ------ ----- ----- ------------ ----------

<S> <C> <C> <C> <C>
Roy G. Warren $80,000 $80,000 410,914
President
[8/15/97 to date]

George Holdsworth
President
[4/20/97 to 8/15/97]
Chief Operating Officer
[4/20/97 to 4/30/98]

Charles Beech 510,914
Chairman
[4/20/97 to 6/1/97
and 4/30/98 to date]
Chief Executive Officer
[4/20/97 to date]

Dale Reese 700,000
Chairman/Treasurer
[6/1/97 to 8/15/97]

Paul Downes(3) 1,383,705
Chairman
[8/15/97 to 4/30/98]

Philip Pearce
Director 25,000
[4/20/97 to date]

<FN>
<F1> Prior to March of 1997, the executive officer of the Company's
predecessor, China Peregrine Enterprises, Limited (CPEL), was
compensated through his equity interests in that partnership entity
for his limited day to day function in the running of the U.S. Operation
of CPEL. Upon the receipt of the Company's common stock in exchange for
assets, China Peregrine Enterprises, Limited made a distribution of
that common stock to its equity participants in accordance with their
respective equity interests.

<F2> The Options listed above were authorized by a Directors' resolution

on April 20, 1997. At that time, a market did not exist for the
Company's unrestricted shares, which had a par value of $0.001.

<F3> These options were granted to Tamarind Management, Ltd., an affiliate
of Mr. Downes.
</FN>
</TABLE>

Option Grant Table
- ------------------

<TABLE>
<CAPTION>
Securities
Underlying Percentage Per Share Expiration
Name & Position Options(1) of Total Exercise $ Date
- --------------- ---------- ---------- ---------- ----------

<S> <C> <C> <C> <C>
Roy G. Warren 160,914 5.30% $1.00 4-28-2002
President 250,000 8.25% $1.00 4-29-2002
[8/15/97 to date]

Charles Beech 160,914 5.30% $1.00 4-28-2002
Chairman 350,000 11.54% $1.00 4-29-2002
[4/20/97 to 6/1/97
and 4/30/98 to date]
Chief Executive Officer
[4/20/97 to date]

Dale Reese 700,000 23.09% $1.00 4-29-2002
Chairman/Treasurer
[6/1/97 to 8/15/97]

Paul Downes(2) 683,705 22.56% $1.00 4-28-2002
Chairman 700,000 23.09% $1.00 4-29-2002
[8/15/97 to 4/30/98]

<FN>
<F1> The Options listed above are exercisable for Common Stock, which has
a par value of $0.001.

<F2> These options were granted to Tamarind Management, Ltd., an affiliate
of Mr. Downes.
</FN>
</TABLE>

Aggregated 1997 Fiscal Year End Option Value Table
- --------------------------------------------------

<TABLE>
<CAPTION>
Securities Underlying Value of "In The Money"
Name & Position Unexercised Options(1) Unexercised Options at 12-31-97(2)
- --------------- ---------------------- ----------------------------------

<S> <C> <C>
Roy G. Warren 410,914 $1,232,742
President
[8/15/97 to date]

Charles Beech 510,914 $1,532,742
Chairman
[4/20/97 to 6/1/97
and 4/30/98 to date]
Chief Executive Officer
[4/20/97 to date]

Dale Reese 700,000 $2,100,000
Chairman/Treasurer
[6/1/97 to 8/15/97]

Paul Downes(3) 1,383,705 $4,151,115
Chairman
[8/15/97 to 4/30/98]

<FN>
<F1> The Options listed above were authorized by a Directors' resolution
on April 20, 1997. At that time, a market did not exist for the
Company's unrestricted shares, which had a par value of $0.001.

<F2> On December 31, 1997, the Company's unrestricted common stock was
quoted on the NASD Over The Counter Electronic Bulletin Board at a
closing price of $4.00; the reported dollar values represent the "in-
the money" value of the options listed as of the 1997 year end.

<F3> These options were granted to Tamarind Management, Ltd., an affiliate
of Mr. Downes.
</FN>
</TABLE>

Employment Contracts
- --------------------

There are no written employment contracts for the individuals listed in
this item.

PART I

ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Loans/Fees
- ----------

During the organization period of Green Food Peregrine, China National
Green Food Corporation, one of the three partners of Green Food Peregrine,
wired RMB6,600,000 in the form of shareholder's loan to Green Food
Peregrine to finance its activities. In April, 1996, China National Green
Food Corporation wired another RMB2,000,000 in the form of shareholder's
loan to GFP. All these shareholder's loans have been converted to paid-in
capital to satisfy the registered capital requirements contained in the
Article of Association of Green Food Peregrine. To date, a total of
interest payable of RMB882,721 has been converted to paid-in capital as the
registered capital of China National Green Food Corporation.

In 1996, Amer-China, one of three partners of Green Food Peregrine,
provided Green Food Peregrine with consulting services, such as English
translation and negotiation supporting services in the U.S., and charged a
total of $36,000 to Green Food Peregrine. The charge was accounted for
consulting expense in Green Food Peregrine's books.

In February, 1997 the Company issued 25,000 shares of common stock in
exchange for 100% of equity interest of Manor Products Corp. (Manor).
Manor was a Delaware company established on January 10, 1996. In early
1996, 80% of equity interest of Manor was bought by the principal of the
initial founding entity of the Company. Accordingly, this acquisition was
regarded as a related party transaction.

Relationships
- -------------

Mr. Paul Downes has investment power with respect to the affairs of
Tamarind Management, Ltd. Accordingly, the Company's securities held by
Mr. Downes and Tamarind have been combined in this document for reporting
purposes. The Downes/Tamarind ownership of issued and underlying shares of
common stock, Series B Preferred Stock and Options represents 15.87% of all
issued and outstanding common stock and shares of common stock underlying
the Series A and B Preferred plus unexercised options and warrants.

Similarly, insofar as Mr. Charles Beech has investment power with respect
to the affairs of Peregrine Enterprises, Inc. The Company's securities held
by Mr. Beech and Peregrine Enterprises likewise have been combined in this
document for reporting purposes. The Beech/Peregrine Enterprises ownership
of issued and underlying shares of common stock and Options represents
7.71% of all issued and outstanding common stock and shares of common stock
underlying the Series A and B Preferred plus unexercised options and
warrants.

The Company purchased the assets of China Peregrine Enterprises, Limited
(China Peregrine Enterprises) in March of 1997, in exchange for 1,040,000
shares of the common stock of the Company. At the time of this asset
purchase, Mr. Dale Reese was the major equity holder in the China Peregrine
Enterprises limited partnership and Mr. Charles Beech "controlled" the
activities of China Peregrine Enterprises by virtue of his control of China
Peregrine International, Inc., the General Partner of China Peregrine
Enterprises. At the time of the asset purchase, Messrs. Reese and Beech
were two of the three directors of the Company. As noted above, through
the assumption of a loan in excess of one million dollars owed by China
Peregrine Enterprises to a Tennessee bank, and by virtue of his position as
a founder of the Company, and through stock purchases, Mr. Reese presently
holds a 22.75% interest in the equity of the Company. Similarly, Mr.
Beech, directly and through Peregrine Enterprises, Inc., presently holds
7.71% of such equity.

PART I

ITEM 8 - DESCRIPTION OF SECURITIES

The Company is authorized by its charter to issue a maximum of 20,000,000
shares of Common Stock, having a par value of $0.001 per share, and
5,000,000 shares of Preferred Stock, also having a par value of $0.001 per
share. The Company has made three designations of Preferred Stock:: 500,000
shares of Series A Preferred Stock, having a par value of $0.001; 1,260,000
shares of Series B Preferred Stock, having a par value of $0.001 and a
stated value of $1.00 per share; and 400,000 shares of Series C Convertible
Preferred Stock, having a par value of $0.001 and a stated value of $3.00
per share The following sets forth the number of currently issued and
outstanding Shares of Common Stock, Series A Preferred Stock, Series B
Preferred Stock and Series C Convertible Preferred Stock., as of February
28, 1999 All such stock is fully paid and nonassessable.

<TABLE>

<S> <C>
Common Stock......................................................... 7,795,462
Preferred Stock (Series A)........................................... 500,000
Preferred Stock (Series B)........................................... 1,260,000
Convertible Preferred Stock (Series C) issued........................ 133,334
Convertible Preferred Stock (Series C) outstanding after conversion.. 58,715
</TABLE>

COMMON STOCK

The following is a summary of certain rights and provisions of the shares
of the Company's Common Stock. This summary includes all of the material
rights and provisions of these shares. This summary does not purport to be
complete, however, and is qualified in its entirety by reference to the
Articles of Organization of the Company and to the General Corporation Law
of the State of Delaware.

Dividend Rights
- ---------------

The holders of Common Stock are entitled to receive, pro rata, such
dividends and other distributions as and when declared by the Company's
Board of Directors out of the assets and funds legally available therefor.
The availability of funds to the Company is dependent upon dividends or
distribution of profits from its subsidiaries, and may be subject to
regulatory control and approval by the appropriate government authorities
on either a regional or national level in the People's Republic of China.

Voting Rights
- -------------

The holders of Common Stock are entitled to one vote per share on all
matters presented for a shareholder vote. There is no provision for
cumulative voting. The business of the Company is controlled by a Board of
Directors. This Board is elected by a majority vote of the shareholders,
and bylaws have been adopted for the guidance and control of the Company.
Amendments to the bylaws can be effected by majority vote of the Board of
Directors. The effective vote of the holders of a majority of the
outstanding shares of the voting stock of the Company (Common Stock, Series
A and Series B Preferred Stock) is required for mergers, consolidations or
other similar transactions.

Liquidation Rights
- ------------------

Subject to the rights of the holders of the Series A and Series B Preferred
Stock, upon the voluntary or involuntary dissolution, liquidation, or
winding up or the affairs of the Company, after the payment in full of its
debts and other liabilities, the remainder of its assets, if any, are to be
distributed pro rata among the holders of shares of Common Stock. Subject
to any required regulatory approvals, the directors of the Company, at
their discretion, may authorize and issue debt obligations, whether or not
subordinated, without prior approval of the shareholders, thereby further
depleting the liquidation value of the shares of Common Stock.

Preemptive Rights
- -----------------

Owners of Common Stock of the Company do not have the preemptive right to
purchase additional shares offered by the Company in the future. That is,
the Company may sell additional shares of Common Stock to particular
shareholders or to non-shareholders without first offering each then
current shareholder the right to purchase the same percentage of such newly
offered shares as is the shareholder's percentage of the then outstanding
shares of the Company's Common Stock.

Redemption
- ----------

The Company does not have the discretionary right to redeem its Common
Stock.

PREFERRED STOCK

Series A Convertible Preferred Stock consisting of 500,000 shares.

Dividends
- ---------

Series A Convertible Preferred Stock shall pay or accrue dividends only to
the extent that dividends are declared by the Board of Directors with
respect to the Common Stock of the Corporation, out of the assets and funds
legally available therefor. The availability of funds to the Company is
dependent upon dividends or distribution of profits from its subsidiaries,
and may be subject to regulatory control and approval by the appropriate
government authorities on either a regional or national level in the
People's Republic of China.

Voting
- ------

Voting rights of the Series A Convertible Preferred Stock shall be equal to
and same as that attributable to the Common Stock of the Corporation and
shall be non-cumulative.

Conversion
- ----------

Series A Convertible Preferred Stock is convertible anytime after December
31, 1997 to the Common Stock of the Corporation at the fixed ratio of one
share of Common Stock for one share of Series A Convertible Preferred Stock
surrendered for conversion (Conversion Ratio).

Adjustments to Conversion Ratio
- -------------------------------

The Conversion Ratio for Series A Convertible Preferred Stock shall be
proportionally increased or reduced to reflect: (1) effectuation of a
division of the Common Stock of the Corporation or a combination thereof;
(2) capital reorganization or reclassification or distribution to the
holders of Common Stock of stock, debt securities or other assets of the
Corporation; (3) a legal merger, consolidation, corporate combination,
share exchange, or a sale or lease of substantially all of the assets of
the Corporation resulting in the distribution to the holders of Common
Stock of the Corporation, stock, debt securities or other assets of the
Corporation; (4) the issuance or sale of common stock, options, warrants or
other rights to purchase the Common Stock of the Corporation for less than
the stated value.

Liquidation Preference
- ----------------------

Holders of Series A Convertible Preferred Stock shall be entitled to
receive for each share of Series A Convertible Preferred Stock a cash
payment equal to the par value ($0.001) of such stock. If the assets of
the Corporation are insufficient for the Corporation to make such payment,
the assets of the Corporation shall be distributed ratably to the holders
of the Series A Convertible Preferred Stock.

Liquidation
- -----------

Upon any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of the Series A Convertible Preferred
Stock shall be entitled to receive for each share of Series A Convertible
Preferred Stock their Liquidation Preference in addition to whatever rights
such holders may have, by operation of law or otherwise, to share in the
liquidation value of the Corporation.

Series B Convertible Preferred Stock consisting of 1,260,000 shares.

Dividends
- ---------

Series B Convertible Preferred Stock shall pay or accrue dividends at the
rate of 9% per annum, payable only upon liquidation or redemption, as a
percentage of the Stated Value ($1.00 per share) of the Series B
Convertible Preferred Stock, out of the assets and funds legally available
therefor. The availability of funds to the Company is dependent upon
dividends or distribution of profits from its subsidiaries, and may be
subject to regulatory control and approval by the appropriate government
authorities on either a regional or national level in the People's Republic
of China.

Voting Rights
- -------------

Non cumulative; voting rights of the Series B Convertible Preferred Stock
shall be equal to and same as that attributable to the Common Stock of the
Corporation.

Conversion
- ----------

Series B Convertible Preferred Stock is convertible anytime after December
31, 1997 to the Common Stock of the Corporation at the fixed ratio of one
share of Common Stock for one share of Series B Convertible Preferred Stock
surrendered for conversion (Conversion Ratio).

Adjustments to Conversion Ratio
- -------------------------------

The Conversion Ratio for Series B Convertible Preferred Stock shall be
proportionally increased or reduced to reflect: (1) effectuation of a
division of the Common Stock of the Corporation or a combination thereof;
(2) capital reorganization or reclassification or distribution to the
holders of Common Stock of stock, debt securities or other assets of the
Corporation; (3) a legal merger, consolidation, corporate combination,
share exchange, or a sale or lease of substantially all of the assets of
the Corporation resulting in the distribution to the holders of Common
Stock of the Corporation, stock, debt securities or other assets of the
Corporation; (4) the issuance or sale of common stock, options, warrants or
other rights to purchase the Common Stock of the Corporation for less than
the stated value.

Liquidation Preference
- ----------------------

Holders of Series B Convertible Preferred Stock shall be entitled to
receive for each share of Series B Convertible Preferred Stock a cash
payment equal to the Stated Value of such stock plus all accrued dividends.
If the assets of the Corporation are insufficient for the Corporation to
make such payment, the assets of the Corporation shall be distributed
ratably to the holders of the Series B Convertible Preferred Stock.

Liquidation
- -----------

Upon any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of the Series B Convertible Preferred
Stock shall be entitled to receive for each share of Series B Convertible
Preferred Stock an amount equal to the Stated Value plus all accrued
dividends attributable to each such share.

Redemption
- ----------

The Corporation shall have the right in its sole discretion to redeem any
or all of the outstanding shares of Series B Convertible Preferred Stock at
a redemption price equal to the Stated Value of the Series B Convertible
Preferred Stock redeemed plus accumulated dividends for such redeemed
shares.

Series C Convertible Preferred Stock consisting of 400,000 shares.

Dividends
- ---------

Series C Convertible Preferred Stock shall pay or accrue dividends at the
rate of 8% per annum, as a percentage of the Stated Value ($3.00 per share)
of the Series C Convertible Preferred Stock, payable in cash or Common
Stock quarterly, at the option of the Company. Accrued dividends shall be
payable upon conversion or redemption. The availability of funds to the
Company is dependent upon dividends or distribution of profits from its
subsidiaries, and may be subject to regulatory control and approval by the
appropriate government authorities on either a regional or national level
in the People's Republic of China.

Voting Rights
- -------------

Except as otherwise provided and as otherwise required by law, the Series C
Convertible Preferred Stock shall have no voting rights, except as provided
in the General Corporation Law of Delaware. So long as any shares of
Series C Convertible Preferred Stock are outstanding, however, the Company
shall not (a) alter or change adversely the powers, preferences or rights
given to the Series C Convertible Preferred Stock, (b) alter or amend this
Certificate of Designation, (c) authorize or create any class of stock
ranking as to dividends or distribution of assets upon a Liquidation or
otherwise, which class ranking is senior to the Series C Convertible
Preferred Stock, (d) amend its certificate of incorporation, bylaws or
other charter documents so as to affect adversely any rights of any
holders, (e) increase the authorized number of shares of Series C
Convertible Preferred Stock and (f) enter into any agreement with respect
to the foregoing, without the affirmative vote of the holders of a majority
of the shares of the Series C Convertible Preferred Stock then outstanding.

Conversion
- ----------

Series C Convertible Preferred Stock is convertible to the Common Stock of
the Company at a per share Conversion Price based upon the lesser of (a)
75% of the average Per Share Market Price on the date of the applicable
Holder Conversion Notice or (b) $3.00 per share.

Adjustments to Conversion Price
- -------------------------------

If the Company, at any time while any shares of Series C Convertible
Preferred Stock are outstanding, shall (a) pay a stock dividend or
otherwise make a distribution or distributions on shares of its Junior
Securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding before such event and
of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any such adjustment shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision, combination or reclassification.

Liquidation Preference
- ----------------------

Upon any liquidation, dissolution or winding-up of the Company, whether
voluntary or involuntary, but subject to the Liquidation rights of the
holders of Series A and Series B Convertible Preferred Stock, the holders
of Series C Convertible Preferred Stock shall be entitled to receive out of
the assets of the Company, whether such assets are capital or surplus, for
each share of Series C Convertible Preferred Stock an amount equal to the
Stated Value plus all accrued but unpaid dividends per share, whether
declared or not, before any distribution or payment shall be made to the
holders of any Junior Securities, and if the assets of the Company shall be
insufficient to pay in full such amounts, then the entire assets to be
distributed to the holders of Series C Convertible Preferred Stock shall be
distributed among the holders of Series C Convertible Preferred Stock
ratably in accordance with the respective amounts that would be payable on
such shares if all amounts payable thereon were paid in full.

Redemption
- ----------

The Company shall have the right, at the Company's option, to redeem all or
a portion of the Series C Convertible Preferred Stock at a price per share
equal to the sum of (a) the Stated Value and (b) a sum equal to ten percent
(10%) of the Stated Value, computed on a simple interest, non-compounded,
and non-annualized basis.

CHANGE OF CONTROL DETERRENCE

The Company's by-laws provide for the election of Directors on a staggered
basis in two distinct groups. Currently, the Board of Directors consists
of eight (8) members, with one alternating set of four (4) members being
subject to election every year. As such, unless a director resigns or is
otherwise removed, each director serves a two (2) year term.

In April, 1997, the Board of Directors granted options for the Company's
Common Stock to certain key members of the Company's founder/management
team. The holders of these options have the right to purchase the
Company's Common Stock aggregating 3,005,533 shares, at an exercise price
of $1.00 per share. The grant of these options was, in part, for anti-
dilution purposes. Insofar as holders of these options may purchase the
Common Stock at a discount to market price, the options can be viewed as
providing a deterrence to a change in control of the Company's management.

PART II

ITEM 1 - MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

Market Price
- ------------

Of the 7,554,957 shares of the Company's Common Stock issued and
outstanding as of September 30, 1998, approximately 1,000,000 shares are
and have been subject to over-the-counter trading on the NASD OTC
Electronic Bulletin Board, since October 24, 1997. The following quarterly
quotations for Common Stock transactions on the OTC Bulletin Board reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and
may not represent actual transactions.

<TABLE>
<CAPTION>
QUARTER HIGH BID PRICE LOW BID PRICE
------- -------------- -------------

<S> <S> <C> <C>
1997 Q4 (10/1 - 12/31) $6.87 $3.00

1998 Q1 (1/3 - 3/31) $4.10 $2.10

Q2 (4/1 - 6/30) $2.60 $0.60

Q3 (7/1 - 9/30) $2.50 $0.33

Q4 (10/1 - 12/31) $2.25 $1.00
</TABLE>

Non-Market Equity Subject to Options, Warrants and Conversion
- -------------------------------------------------------------

Stock Warrants and Options
- --------------------------

The Company issued warrants for 975,000 shares of common stock as part of
the units sold in the Rule 504, Regulation D limited public offering.
These warrants may be exercised at any time after May 31, 1998, and from
time to time thereafter through and including March 31, 1999, at $5.00 per
share of common stock purchased. The common stock underlying these
Warrants are not part of or covered by the 1997 504 limited public
offering.

During 1997, the Company signed a total of four stock options agreements
with certain shareholders and non-employee directors. These four stock option
agreements are summarized as follows:

<TABLE>
<CAPTION>
Granting Options Exercise Vesting Expiration
Date Granted Price Period Date
--------------------------------------------------------------

<S> <C> <C> <C> <S> <C>
Agreement One 4/29/97 1,005,533 $1.00 None 4/28/2002
Agreement Two 4/30/97 2,000,000 $1.00 None 4/29/2002
Agreement Three 10/1/97 25,000 $1.00 None 9/30/2002
Agreement Four 10/1/97 15,000 $1.00 None 9/30/2002
- -----------------------------------------------------------------------------------------------
Total options granted in 1997 3,045,533
---------
</TABLE>

On November 23, 1998, the Company issued 83,334 shares of its Series C
Convertible Preferred Stock, and 50,000 shares of such stock on January 4,
1999, pursuant to a Rule 504, Regulation D. limited public offering.
Associated with this 504 offering was the grant of 533,335 Warrants for the
Company's Common Stock. at an exercise price of $1.00 per share. Of the
Warrants granted, 83,334 expire May 10, 1999, and 450,000 Warrants will
expire April 30, 1999.

Convertible Preferred
- ---------------------

Series A: In February, 1997, the Company reorganized its members of the
founding group. As a result, the total founders increased from one entity
to three individuals and two entities. Consequently, 788,000 shares of
common stock and 500,000 shares of preferred stock at par value of $0.001
per share were issued to the newly joined founders, pursuant to the
exemption from Section 5 registration provided by Section 4(2) of the
Securities Act of 1933 (the Act).

Each share of Series A preferred stock entitles its holder to receive
dividends at the same rate paid to common shareholders. Each share of
Series A preferred stock is convertible into one share of common stock, as
adjusted, for such things as stock split, stock dividends and other similar
dilutive occurrences. At any time subsequent to December 31, 1997, the
holder of each share of Series A preferred stock is allowed to convert all
or part of the Series A preferred shares into corresponding shares of
common stock on a one for one basis.

Series B: On March 15, 1997, the Company issued 1,260,000 shares of Series
B Convertible Preferred Stock, pursuant to Section 4(2) of the Act, at
stated value of $1.00 per share to three shareholders in consideration of
their assumption of the obligation to pay off approximately $1,260,000 of
an outstanding line of credit owed by CPEL to a Tennessee-based financial
institute.

Each share of Series B preferred stock is convertible into one share of
common stock, as adjusted, for such things as stock split, stock dividends
and other similar dilutive occurrences. At any time subsequent to December
31, 1998 the holder of each share of Series B preferred stock, is allowed
to convert all of part of the Series B preferred shares into corresponding
shares of common stock. Each share of Series B preferred stock entitles
its holder to accumulate dividends at 9% per annum, even if the dividends
are payable only upon dissolution and liquidation of the Company and
redemption called by the Company. However, each share of Series B
preferred stock entitles its holder to receive dividends at the same rate
paid to common shareholders if the Company declares or pays dividends to
common shareholders. The shares of Series B preferred stock are redeemable
at $1.00 per share totaling $1,260,000 called by the Company any time after
December 31, 1998.

Series C: On November 23, 1998 and January 4, 1999, respectively, the
Company issued 133,334 shares of Series C Convertible Preferred Stock,
pursuant to a Rule 504, Regulation D limited public offering, at a stated
value of $3.00 per share to two corporate investors. The proceeds of this
504 offering were used by the Company to fund an increase of its equity
share of the registered capital in the Green Food Peregrine joint venture.

Series C Convertible Preferred Stock shall pay or accrue dividends at the
rate of 8% per annum, as a percentage of the Stated Value, payable in cash
or Common Stock quarterly, at the option of the Company. Accrued dividends
shall be payable upon conversion or redemption Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary,
but subject to the Liquidation rights of the holders of Series A and Series
B Convertible Preferred Stock, the holders of Series C Convertible
Preferred Stock shall be entitled to receive out of the assets of the
Company, whether such assets are capital or surplus, for each share of
Series C Convertible Preferred Stock an amount equal to the Stated Value
plus all accrued but unpaid dividends per share, whether declared or not,
before any distribution or payment shall be made to the holders of any
Junior Securities, and if the assets of the Company shall be insufficient
to pay in full such amounts, then the entire assets to be distributed to
the holders of Series C Convertible Preferred Stock shall be distributed
among the holders of Series C Convertible Preferred Stock ratably in
accordance with the respective amounts that would be payable on such shares
if all amounts payable thereon were paid in full. The Company shall have
the right, at the Company's option, to redeem all or a portion of the
Series C Convertible Preferred Stock at a price per share equal to the sum
of (a) the Stated Value and (b) a sum equal to ten percent (10%) of the
Stated Value, computed on a simple interest, non-compounded, and non-
annualized basis.

Rule 144 Stock
- --------------

Of the 7,795,462 shares of Common Stock presently issued and outstanding,
1,388,456 shares have been held by non-affiliates of the Company for in
excess of one year; an additional 2,695,544 shares of Common Stock have
been held by affiliates for in excess of one year. These shares may be sold
pursuant to Rule 144, subject to the volume and other limitations set forth
under Rule 144. In general, under Rule 144 as currently in effect, a person
(or persons whose shares are aggregated) who has beneficially owned
restricted shares of the Company for at least one year is entitled to sell,
within any three-month period and in accordance with an approved manner of
sale, an amount of shares that does not exceed the greater of (i) the
average weekly trading volume in the Company's common stock during the four
calendar weeks preceding such sale, or (ii) 1% of the shares then
outstanding. A person who is not deemed to be an "affiliate" of the Company
and who has held restricted shares for at least two years would be entitled
to sell such shares without regard to the resale limitations of Rule 144.

Holders at February, 28, 1999
- -----------------------------

<TABLE>

<S> <C> <C>
Common Stock....................... 7,795,462 shares......... 442 holders
Preferred Stock (Series A)......... 500,000 shares......... 1 holder
Preferred Stock (Series B)......... 1,260,000 shares......... 3 holders
Preferred Stock (Series C)......... 58,715 shares......... 1 holder
</TABLE>

Dividends
- ---------

The Company has not paid dividends on its Common Stock and does not
anticipate paying dividends. The Company intends to retain future earnings,
if any, to finance working capital, to expand its operations, and to pursue
its acquisition strategy.

The Company has accrued dividends for its Series B Convertible Preferred
Stock in the amount of $85,050.00, as of December 31, 1997 and $170,110 as
of September 30, 1998. In addition, the Company will book a dividend
charge in 1998 and 1999 resulting from the less than market conversion
price for Company's common stock pursuant to the terms of the Series C
Convertible Preferred Stock.

PART II

ITEM 2 - LEGAL PROCEEDINGS

There currently are no claims or lawsuits against the Company or its
subsidiaries. The Company, however, may become involved in litigation and
claims arising in the ordinary course of its business.

ITEM 3 - CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS

The Company has not had any changes in or disagreements with its
independent accountants.

ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES

FISCAL YEAR 1997

1997 Recapitalization
- ---------------------

Prior to February 1997, the Company (then known as Shakespeare Holding,
Inc.) was owned by Tamarind Management, Ltd., which held 472,000 shares of
Shakespeare's common stock as the original "founder." Shakespeare did no
business and was not an operating entity. In February 1997, however, the
Company underwent a "reorganization" by increasing the members of its
founding group to include two of the major participants in the China
Peregrine Enterprises, Limited (CPEL), the corporate General Partner of the
CPEL limited partnership, and a financial consultant. As a result, the
total founders increased from one entity to three individuals and two
entities. Consequently, 788,000 shares of common stock and 500,000 shares
of preferred stock at par value of $0.001 per share were issued to the
newly joined founders, pursuant to the exemption from Section 5
registration provided by Section 4(2) of the Securities Act of 1933 (the
Act). This "reorganization" resulted from and was part of an overall plan
of the new "founders" to utilize the Company to purchase the assets of
CPEL, and operating entity with business interests in the People's Republic
of China.

Merger with Shell
- -----------------

On February 28, 1997, the Company issued 25,000 shares of common stock in
exchange for 100% of equity interest in Manor Products Corp. (Manor),
pursuant to the safe harbor provisions of Regulation D, Rule 504. Manor
was a Delaware company established on January 10, 1996 without any
operating activities or substantial assets. In early 1996, 80% of equity
interest of Manor was bought by Mr. Paul Downes, a principal of Tamarind
Management, Ltd., the initial founding entity of the Company. Manor had
331 shareholders and 20,000,000 shares of common stock authorized. As of
February 9, 1997, Manor had 4,090,448 shares outstanding. Pursuant to a
merger agreement, each one thousand shares of Manor were exchanged for one
share of common stock of the Company, with fractional share rounded up to
the nearest full share. The remaining shares of the 25,000 shares of
common stock issued by the Company at that time were issued to this
principal individually.

Purchase of China Peregrine Enterprises, Limited Assets
- -------------------------------------------------------

On March 5, 1997, the Company issued 1,040,000 shares of common stock in
exchange for the assets of China Peregrine Enterprises, Limited (CPEL),
pursuant to Section 4(2) of the Act. CPEL was a Texas limited partnership,
set up to manage its interest in China operation conducted by a Chinese
joint venture known as Green Food Peregrine Children's Food Co. Ltd. (GFP).
By this transaction, the Company assumed all of the rights and obligations
of CPEL in and to the GFP Chinese Joint Venture. With the completion of
the transaction, the Company became an operating entity.

Issuance of Preferred Stock in 1997 in Consideration for Assumption of Debt
- ---------------------------------------------------------------------------

As a condition to the Company's purchase of CPEL's assets, the Company
required that all non joint venture obligations of CPEL be removed from
CPEL's books. Accordingly, three shareholders of the Company agreed to
assume such non joint venture debt, which consisted of a line of credit
obligation existing at the First Tennessee Bank. On March 15, 1997, the
Company issued 1,260,000 shares of Series B preferred stock, pursuant to
Section 4(2) of the Act, at stated value of $1.00 per share to three
shareholders in consideration of their assumption of the obligation to pay
off approximately $1,260,000 of an outstanding line of credit owed by CPEL
to the Tennessee-based financial institution. The outstanding line of
credit was incurred by CPEL during 1995 and 1996 and paid off in 1997. Two
of the three shareholders to whom the Series B shares were issued were part
of the reorganized "founders" group, and the third was a limited partner in
CPEL

Satisfaction of registered Capital Requirements of Joint Venture
- ----------------------------------------------------------------

In the Spring of 1997, the payment of the last installment to satisfy the
capital contribution requirements of the GFP joint venture contract and
Articles of Association for that joint venture company became due. Payment
of this last installment was necessary to secure the continued involvement
of the Company in the GFP joint venture. Accordingly, by late March, 1997,
certain shareholders of the Company loaned sufficient funds to pay the
capital contribution installment then due. On May 31,1997, the Company
closed a Rule 504, Regulation D, limited public offering of 975,000 units,
each unit consisting of one share of common stock and a warrant for one
share of common stock, at $1.00 per unit to raise money to repay these
loans, the proceeds of which had been utilized to pay the required capital
contribution. The net proceeds of this offering amounted to $975,000. All
of the proceeds of this limited public offering were earmarked for and
utilized to repay the shareholders loans. This 504 offering was combined
with the issuance of 25,000 shares by the Company in the above discussed
merger transaction with Manor Corp. for reporting and integration purposes.
The common stock underlying the warrants were not part of this 504
offering, having an exercise date deferred for one year. This offering
closed May 1, 1997.

Working Capital Funding
- -----------------------

Subsequent to Rule 504, Regulation D offering, the Company conducted a
separate private placement to issue 1,520,000 shares of its common stock at
$1.00 per share, commencing May 2, 1997, to raise funds for general working
capital. The total proceeds from this Section 4(2) private placement, which
closed May 31, 1997, amounted to $1,520,000. All subscribers were required
to execute subscription agreements and a questionnaire, which qualified
them as "accredited" investors. These purchasers were existing
shareholders, having participated in the 504 offering, or were associates
of such 504 investors.

Issuance of Common Stock for Services
- -------------------------------------

During 1997, the Company incurred consulting, legal and accounting expenses
relating to these fund raising activities, and other directors' fees and
travel expenses. The Company issued a total of 469,000 shares of common
stock at $1.00 per share for these expenses, pursuant to Section 4(2).
Each recipient of these shares had worked closely with management of the
Company and had access to detailed corporate information.

<TABLE>
<CAPTION>
Description Date Shares Identity
- -------------------------------------------------------------------------------------------------------

<S> <C> <C> <S>
Assumption of CPEL's accrued legal 03/15/97 200,000 Peregrine Enterprises, Inc.
Fees

Issuance of stock for legal fees 03/30/97 15,000 Roy D. Toulan, Jr.
relating to fund raising

Issuance of stock for stock promotion 04/15/97 100,000 Continental Capital & Equity
service Corporation

Issuance of stock for promotion 05/01/97 35,000 Robert Mazzei (10,000); Settondown
services Capital Int'l (10,000); John Bannon
(10,000); Carol Bowes (5,000)

Issuance of stock for financial 06/01/97 10,000 Manchester Asset Management, Ltd.
consultation services

Issuance of stock for consulting 07/01/97 24,000 Susan Lurvey (12,000); Dennison
service Chapman (12,000)

Issuance of stock for accounting 10/01/97 15,000 Seymour Borislow (10,000)
Service Jeffrey Factor (5,000)

Issuance of stock for consulting 10/15/97 25,000 David Dreyer
Service

Issuance of stock for a directors' fee 11/01/97 25,000 Philip Pearce

Issuance of stock for travel expense 11/17/97 20,000 Tamarind Management Ltd.(15,000)
Dale Reese (5,000)
- -------------------------------------------------------------------------------------------------------
</TABLE>

Grant of Options
- ----------------

During 1997, the Company signed a total of four stock options agreements
with certain shareholders and non-employee directors for restricted shares
pursuant to Section 4(2) of the Act. These four stock option agreements are
summarized as follows:

<TABLE>
<CAPTION>
Granting Options Exercise Vesting Expiration
Date Granted Price Period Date
--------------------------------------------------------------

FISCAL YEAR 1998

Issuance of Stock for Services Rendered
- ---------------------------------------

On January 15, 1998, the Company issued 50,000 shares of common stock at
$1.00 per share to Settondown International, Ltd. (Settondown) in exchange
for services by that capital service company, pursuant to Section 4(2) of
the Act. Settondown has consulted with the Company and its reorganization
"founders" from early 1997. Settondown's business involves consultation
and finder services for corporate financing on a private and limited basis.

On February 2, 1998, the Company issued 5,272 shares of common stock at
$2.25 per share to Kenneth G. Hanson in exchange for his services in
connection with the furnishing of the Company's corporate office, pursuant
to Section 4(2) of the Act. Mr. Hanson gained detailed knowledge of the
business and operations of the Company through his access to top level
management at the West Palm Beach corporate offices.

Purchase of Amer-China Partners, Limited Interest in Joint Venture
- ------------------------------------------------------------------

On February 19, 1998, the Company issued 120,000 shares of common stock at
a price of $1.00 per share to Amer-China Partners, Limited (ACPL) pursuant
to a signed agreement dated October 1, 1997, to acquire ACPL's entire
interest and right (2.4%) in and to the Green Food Peregrine Children's
Food Co. Ltd., pursuant to Section 4(2) of the Act.

Working Capital Funding
- -----------------------

On May 2, 1998, the Company issued 557,000 units (each unit composed of one
share of common stock and one warrant to purchase one share of common
stock) at a price of $2.50 per unit, pursuant to a private offering in
accordance with the exemption provided in Regulation D, Rule 506. The net
proceeds of this offering were $1,387,500. Among the 557,000 shares
issued, 2,000 shares were issued in exchange for accounting services. The
holders of such warrants are entitled to purchase, from time to time, up to
557,000 shares of common stock, per value $0.001 per share, at an exercise
price of $1.00 per share, at any time after June 30, 1998 and through and
including June 30, 2003. The 557,000 shares were sold to 33 purchasers
who, with one exception, all qualified as "accredited" investors.

Purchase of American Flavors China, Inc. Interest in Hangzhou Meilijian
- -----------------------------------------------------------------------
Joint Venture
- -------------

On June 19, 1998, the Company entered into a definitive agreement with
American Flavors China, Inc., a U.S.-based entity, to acquire its 52%
equity interest in Hangzhou Meilijian Dairy Products Co. Ltd. (Hangzhou
Meilijian). The Boards of Directors of both companies and of the joint
venture have approved the acquisition. Hangzhou Dairy Co. Ltd., a state-
owned enterprise in Zhejian Province of China, controls the remaining 48%
of equity interest in Hangzhou Meilijian. The aforesaid acquisition is
subject to approval by the local government authorities, which presently is
pending. The terms of the acquisition agreement, in part, resulted in the
issue of 1,513,685 shares of the Company's common stock to American Flavors
China, Inc., pursuant to Section 4(2) of the Act. The negotiations for
this purchase covered a time period at approximately one year. During that
time, the principals at American Flavors China, Inc. were given appropriate
corporate information concerning the business and operations of the
Company.

Working Capital Funding
- -----------------------

Between December 17, 1998 and February 18, 1999, the Company issued 265,000
shares of its Common Stock to 15 holders of Warrants issued May 1, 1997, as a
result of the exercise of these Warrants. All investors receiving these
shares were shareholders of the Company and are "accredited" investors.
The proceeds from this exercise aggregated $265,000.

Funding of Increase in Company's Equity Interest in Green Food Peregrine
- ------------------------------------------------------------------------
Joint Venture
- -------------

On May 2, 1998, the Company approved and ratified an agreement between the
Company and China National Green Food for the increase of the Company's
equity interest in Green Food Peregrine from 70% (assuming the approval of
the Amer-China transfer) to 76.92%. This change in the ownership ratio
will take place upon the payment of an additional US $1,500,000 in
registered capital by the Company over an eighteen month period. Since
Chinese government regulations require approval of this change of the
investment ratio by the Ministry of Foreign Trade and Economic Cooperation,
the Company has agreed to an interim loan of US $500,000 to Green Food
Peregrine, with the conversion of that loan to registered capital upon
obtaining the required governmental approval. To fund this equity
increase, commencing on October 21, 1998, the Company initiated a limited
public offering of its Series C Convertible Preferred Stock, pursuant to
Rule 504 of Regulation D. On November 19, 1998, the Company issued 83,334
shares of its Series C Convertible Preferred Stock, plus a like number of
Warrants, at a price of $3.00 per share (including the Warrants) to Utah
Resources International, Inc., a sophisticated investor, resulting in
proceeds of $250,000. Subsequently, on January 2, 1999, this Rule 504
limited public offering was amended to offer and issue 50,000 shares of
like Series D Convertible Preferred Stock, plus nine Warrants per share, at
a price of $3.00 per share (including Warrants), to Explorer Fund
Management, Inc., a sophisticated investor, resulting in proceeds received of
$150,000. The aggregate proceeds from this Rule 504 limited public
offering, which closed January 4, 1999, amounted to $400,000. In addition,
the exercise of all Warrants at the exercise price would result in an
additional $533,334 in proceeds applied toward the Company's purchase of
additional registered capital in Green Food Peregrine.

ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's articles of incorporation provides that the Company "shall be
empowered to indemnify" to the full extent of its power to do so, all
directors and officers, pursuant to the applicable provisions of the
Delaware General Corporation Law. We anticipate that the Company will
indemnify its officers and directors to the full extent permitted by law.

Section 145 of the Delaware General Corporation Law provides in relevant
part as follows:

(1) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by
or in the right of the corporation) by reason of the fact that he is
or was a director, officer, employee, or agent of the corporation, or
is or was serving at the request of the corporation as a director,
officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses
(including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with
such action, suit, or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit, or proceeding by
judgment, order, settlement, conviction, or on a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.

(2) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim,
issue, or matter as to which such person shall have been adjudged to
be liable for negligence or misconduct in the performance of his duty
to the corporation unless and only to the extent that the court in
which such action or suit was brought shall determine on application
that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem
proper.

(3) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense
of any action, suit, or proceeding referred to in 1) or (2) of this
subsection, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.

(4) The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those seeking indemnification
may be entitled under any bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be
a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.

Insofar as indemnification by the Company for liabilities arising under the
Securities Act may be permitted to officers and directors of the Company
pursuant to the foregoing provisions or otherwise, we are aware that, in
the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.

CHINA PEREGRINE FOOD CORPORATION AND SUBSIDIARY

____________________________

REPORT ON AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

China Peregrine Food Corporation and Subsidiary

Index to Consolidated Financial Statements

Report of Independent Certified Public Accountants F-3

Consolidated Financial Statements
Balance Sheets F-4
Statements of Operations F-6
Statement of Shareholders' Equity F-7
Statements of Cash Flows F-8
Summary of Accounting Policies F-10
Notes to Financial Statements F-15

BDO Seidman, LLP
Accountants and Consultants
1900 Avenue of the Stars, 11th Floor
Los Angeles, California 90067

Report of Independent Certified Public Accountants

To the Board of Directors
China Peregrine Food Corporation and Subsidiary

We have audited the accompanying consolidated balance sheets of China
Peregrine Food Corporation (a Delaware corporation) and subsidiary as of
December 31, 1996 and 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the two years in
the period ended December 31, 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of China
Peregrine Food Corporation and subsidiary as of December 31, 1996 and 1997,
and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles in the United States.

/s/BDO Seidman, LLP

Los Angeles, California
June 25, 1998

China Peregrine Food Corporation and Subsidiary
Consolidated Balance Sheets

December 31, 1996 1997
- ---------------------------------------------------------------------------------------------------

<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 58,186 $ 435,630
Accounts receivable, less allowances for doubtful accounts of
$13,184 and $20,546 250,507 390,132
Other receivable 30,111 18,135
Inventory (Note 1) 49,331 77,547
VAT refund receivable 27,159 31,525
Prepaid expenses 4,665 119,611
Deposits 15,514 24,693
- ---------------------------------------------------------------------------------------------------
Total current assets 435,473 1,097,273
- ---------------------------------------------------------------------------------------------------

Property, plant and equipment, net (Note 2) 1,763,702 1,692,141
Construction in progress 138,515 138,501
Proprietary technology, net 68,798 60,593
Start up costs, net 619,026 428,389
- ---------------------------------------------------------------------------------------------------
Total assets $3,025,514 $3,416,897
===================================================================================================

Liabilities and Shareholders' Equity
Current liabilities
Bank loan (Note 3) $2,163,810 $ 905,819
Current portion of long-term bank loan (Note 4) - 120,776
Related party loan (Note 5) 66,279 -
Accounts payable 369,025 215,381
Accrued liabilities 824,000 800,064
Advances from customers 62 10,681
Dividends payable - 85,050
- ---------------------------------------------------------------------------------------------------

Total current liabilities 3,423,176 2,137,771

Long-term bank loan (Note 4) 325,372 205,319
- ---------------------------------------------------------------------------------------------------

Total liabilities 3,748,548 2,343,090

Minority interest 738,955 265,831

Commitments and contingencies (Note 7)

Shareholders' Equity (Notes 8 and 9):
Series A convertible preferred stock, par value $0.001 per share,
500,000 shares authorized, 500,000 shares issued and
outstanding - 500
Series B convertible, 9% cumulative, and redeemable preferred
stock, stated value $1.00 per share, 1,260,000 shares authorized,
1,260,000 shares issued and outstanding, redeemable at
$1,260,000 - 1,260,000
Common stock, par value $0.001 per share, 20,000,000 shares
Authorized, 1,040,000 and 5,289,000 shares issued and
Outstanding 1,040 5,289
Additional paid-in capital 908,115 4,075,130
Accumulated deficit (2,206,628) (4,370,266)
Translation adjustments (164,516) (162,677)
- ---------------------------------------------------------------------------------------------------

Total shareholders' equity (1,461,989) 807,976
- ---------------------------------------------------------------------------------------------------

Total liabilities and shareholders' equity $3,025,514 $3,416,897
===================================================================================================
</TABLE>

See accompanying summary of accounting policies and notes
to consolidated financial statements.

China Peregrine Food Corporation and Subsidiary
Consolidated Statements of Operations

Years ended December 31, 1996 1997
- ------------------------------------------------------------------------------------

<S> <C> <C>
Net sales $ 485,682 $ 730,195

Cost of goods sold 599,512 852,277
- ------------------------------------------------------------------------------------

Gross margin (113,830) (122,082)

Selling expense 230,842 380,836
General and administrative expense 1,068,839 1,873,360
- ------------------------------------------------------------------------------------

Loss from operations (1,413,511) (2,376,278)

Other income (expense):
Interest expense, net (448,272) (234,517)
Other - net 53,785 58,200
- ------------------------------------------------------------------------------------

Loss before income taxes (1,807,998) (2,552,595)

Income taxes (Note 6) - -
- ------------------------------------------------------------------------------------

Loss before minority interest (1,807,998) (2,552,595)

Less: loss attributable to minority interest (476,235) (474,007)
- ------------------------------------------------------------------------------------

Net loss (1,331,763) (2,078,588)

Dividends accrued for Series B preferred stock - 85,050
- ------------------------------------------------------------------------------------

Net loss applicable to common shares $(1,331,763) $(2,163,638)
====================================================================================

Loss per share $ (1.28) $ (0.59)
====================================================================================

Weighted average number of common shares outstanding 1,040,000 3,681,827
====================================================================================
</TABLE>

See accompanying summary of accounting policies and notes to
consolidated financial statements

China Peregrine Food Corporation and Subsidiary
Consolidated Statements of Shareholders' Equity

<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------------- ----------------- Paid-in Accumulated Translation
Shares Amount Shares Amount Capital Deficit Adjustments Total
- -------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 1,040,000 $1,040 $ 738,960 $ (874,865) $(164,760) $ (299,625)

Injection of capital 169,155 169,155
Net loss (1,331,763) (1,331,763)
Translation adjustments 244 244
- -------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1996 - $ - 1,040,000 1,040 908,115 (2,206,628) (164,516) (1,461,989)

Recapitalization 500,000 500 1,285,000 1,285 1,785
Issuance of Series B preferred
Stock 1,260,000 1,260,000 1,260,000
Assumption of CPEL's accrued
legal fees 200,000 200 199,800 200,000
Issuance of stock for legal fees
for fund raising 15,000 15 14,985 15,000
Issuance of stock for stock
promotion service 100,000 100 99,900 100,000
Issuance of stock for finder's
fees 35,000 35 34,965 35,000
Rule 504 Regulation D issuance 975,000 975 974,025 975,000
Issuance of stock for finders'
fee 10,000 10 9,990 10,000
Rule 144 issuance 1,320,000 1,320 1,318,680 1,320,000
Issuance of stock for consulting
service 24,000 24 23,976 24,000
Issuance of stock for accounting
service 15,000 15 14,985 15,000
Rule 144 issuance 200,000 200 199,800 200,000
Issuance of stock for consulting
service 25,000 25 24,975 25,000
Issuance of stock for a
director's fee 25,000 25 24,975 25,000
Issuance of stock for travel
expense 20,000 20 19,980 20,000
Net loss (2,078,588) (2,078,588)
Compensation due to issuance of
options 205,979 205,979
Preferred stock dividends
accrued (85,050) (85,050)
Translation adjustments 1,839 1,839
- -------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1997 1,760,000 $1,260,500 5,289,000 $5,289 $4,075,130 $ (4,370,266) $(162,677) $ 807,976
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying summary of accounting policies and notes to
consolidated financial statements.

China Peregrine Food Corporation and Subsidiary
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents

Year ended December 31, 1996 1997
- ------------------------------------------------------------------------------------------

<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,331,762) $(2,163,638)
Adjustments to reconcile net loss to net cash
Provided by (used in) operating activities:
Depreciation and amortization 377,281 398,261
Provision for bad debts 13,185 7,362
Loss (gain) on disposal of fixed assets - 869
Stock issuance in exchange for services and expenses - 269,000
Directors compensation for options granted - 205,979
Minority interest 476,235 (474,007)
Increase (decrease) from changes in:
Accounts receivable (227,198) (146,986)
Other receivable 180,823 11,976
Inventory 2,730 (28,216)
VAT refund receivable (8,157) (4,366)
Prepaids and other assets (9,143) (124,126)
Accounts payable 321,160 (153,644)
Accrued liabilities 448,390 186,683
Dividends payable - 85,050
- ------------------------------------------------------------------------------------------

Net cash provided by (used in) operating activities 243,544 (1,929,803)
- ------------------------------------------------------------------------------------------

Cash flows from investing activities
Purchase of equipment and machinery (220,044) (128,727)
Additions to construction in progress (83,221) -
- ------------------------------------------------------------------------------------------

Net cash used in investing activities: (303,265) (128,727)
- ------------------------------------------------------------------------------------------

Cash flows from financing activities:
Line of credit - borrowings 700,000 -
Proceeds of related party loans - 1,515,000
Repayment of related party loan (736,075) (1,581,279)
Injection of additional paid-in capital 169,155 -
Proceeds of Series A preferred stock - 500
Proceeds of issuance to founders - 1,285
Proceeds from Rule 504 offering - 975,000
Proceeds from Rule 144 offering - 1,520,000
- ------------------------------------------------------------------------------------------

Net cash provided by financing activities 133,080 2,430,506
- ------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash (39,073) 5,468
- ------------------------------------------------------------------------------------------

Net increase in cash and cash equivalents 34,286 377,444
- ------------------------------------------------------------------------------------------

Cash and cash equivalents, beginning of year 23,900 58,186
- ------------------------------------------------------------------------------------------

Cash and cash equivalents, end of year $ 58,186 $ 435,630
==========================================================================================

Cash paid during the year:
Interest - 211,096
Income taxes $ - $ -
==========================================================================================
</TABLE>

Supplemental Disclosure of Non-Cash Activities:

The Company issued 1,260,000 shares of Series B preferred stock at a stated
value of $1.00 per share to three shareholders in consideration for their
assumption of the obligation to repay $1,260,000 of a line of credit
utilized by CPEL for operations during 1995 and 1996.

In 1997, the Company issued a total of 469,000 shares of common stock at
$1.00 per share to various individuals and entities in connection with the
assumption of the obligation to repay accrued legal expense of $200,000
incurred by CPEL and the payment of various services or expense aggregating
$269,000. Please see details in Note 9.

In 1997, the Company granted to four non-employee directors 1,638,828
options to purchase common stock. According to SFAS 123, the Company
recognized compensation expense of $205,979 by adding the same amount to
additional paid-in capital.

- ---------------------------------------------------------------------------

See accompanying summary of accounting policies and notes to
consolidated financial statements.

China Peregrine Food Corporation and Subsidiary
Summary of Accounting Policies

Basis of Presentation

China Peregrine Food Corporation (formerly Shakespeare Holding, Inc.) (the
Company) was incorporated under the laws of the State of Delaware on April
26, 1996. Shakespeare Holdings, Inc. was a shell company without any
substantial assets and operating activities until it merged with China
Peregrine Enterprises, Ltd. in March, 1997.

In February, 1997, the Company issued 25,000 shares of common stock to
acquire 100% of equity interest in Manor Products Corp. (Manor), a Delaware
company, established on January 26, 1996. Manor was a shell company with
331 shareholders.

On March 5, 1997, the Company issued 1,040,000 shares of its common stock
in exchange for 100% of equity interest of China Peregrine Enterprise,
Limited (CPEL). CPEL was a Texas limited partnership, which was created
for the sole purpose of controlling the operation of a joint venture in
Shanghai, China known as Green Food Peregrine Children's Food
Company,Limited (Green Food Peregrine).

Green Food Peregrine is a foreign investment equity joint venture with
registered capital of US$5 million and established under the law of
People's Republic of China on July 3, 1993. The Company accounted for
67.6%, China National Green Food Corporation accounted for 30%, and Amer-
China, an Illinois limited partnership, accounted for 2.4% of the Green
Food Peregrine's equity interest as of December 31, 1997. Green Food
Peregrine has been focusing on providing better nutrition for infants and
children in China through the development of advanced food technology and
marketing expertise from the West. Currently, Green Food Peregrine is
manufacturing and distributing dairy products in Shanghai, China and is
developing a number of new and non-carbonated beverages for infants and
school age children. Green Food Peregrine has intentions to operate in the
cities with a population more than 2 million throughout China.

This issuance of the Company's common stock to the former CPEL's partners
made the Company become an active operating entity. Generally accepted
accounting principles requires that the company whose stockholders retain
the majority interest in a combined business be treated as the acquirer for
accounting purpose, therefore, this transaction has been accounted for as a
"reverse acquisition" for financial reporting purposes. The relevant
acquisition process utilizes the capital structure of Shakespeare Holdings,
Inc. and the assets and liabilities of CPEL and its subsidiary are recorded
at their historical cost.

CPEL is the continuing operating entity for financial reporting purposes
and the financial statements prior to March 5, 1997 represent CPEL's
financial position and results of operations. The assets of $1,785 and
shareholders' equity of $1,785 of Shakespeare Holdings, Inc. are included
as of March 5, 1997. Although CPEL is deemed to be the acquiring company
for financial accounting and reporting purpose, the legal status of the
Company as the surviving corporation does not change.

Concurrent with the reverse acquisition, the Company changed its corporate
name from Shakespeare Holdings, Inc. to China Peregrine Food Corporation
with headquarters located in West Palm Beach, Florida.

Basis of Accounting

The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
which include the accounts of the Company and its subsidiary. All
significant inter-company accounts and transactions have been eliminated in
consolidation. The minority interest in the Chinese joint venture has been
reported as a separate line item on the consolidated balance sheet. The
consolidated financial statements are presented in U.S. dollars.

Revenue Recognition

The Company recognizes revenue when the risk of loss for the product sold
passes to the customer which is generally when goods are shipped.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

Inventory Valuation

Inventory is stated at the lower of cost or market. Costs are determined
on a first-in and first-out basis.

Foreign Currency Translation and Transactions

The financial position and results of operations of the Company's foreign
subsidiary are determined using local currency as the functional currency.
Assets and liabilities of this subsidiary are translated at the prevailing
exchange rate in effect at each year end. Contributed capital accounts are
translated using the historical rate of exchange when capital injected.
Income statement accounts are translated at the average rate of exchange
during the year. Translation adjustments arising from the use of different
exchange rates from period to period are included in the cumulative
translation adjustment account in shareholders' equity. Gains and losses
resulting from foreign currency transactions are included in operations.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is computed
primarily utilizing the straight-line method over the estimated useful
lives of the assets as follows :

Estimated Useful
Life
(in years)
----------------

<S> <C>
Plant and building 20
Machinery and equipment 10
Computer, office equipment and furniture 5
Vehicles 5

</TABLE>

Maintenance, repairs and minor renewals are charged directly to expenses as
incurred. Additions and betterment to property and equipment are
capitalized. When assets are disposed of, the related cost and accumulated
depreciation thereon are removed from the accounts and any resulting gain
or loss is included in the statement of income.

VAT Refund Receivable

The Company's subsidiary in China, Green Food Peregrine, is subject to
value added tax (VAT) imposed by the Chinese government on its domestic
sales. The output VAT is 17% for sales of chocolate milk and 13% for sales
of fresh milk. The input VAT is paid when Green Food Peregrine purchases
raw materials. According to the relevant government regulation, the input
VAT can be offset against output VAT. The VAT payable account balance is
the amount of output VAT reduced by the amount of input VAT on a cumulative
basis. VAT refund receivable is the excess of input VAT over output VAT.

Construction in Progress

Construction in progress represents another plant in Beijing, China. The
construction in progress is stated at cost. All direct costs relating to
the construction of the plant are capitalized as long-term assets.

Proprietary Technology

The proprietary technology is composed mainly of patents and recipes for
various milk products and other drinking products. The proprietary
technology is being amortized over a period of ten years starting from
April, 1995 when Green Food Peregrine began its commercial production in
China.

Start Up Costs

Start up costs represents costs incurred in setting up the Green Food
Peregrine headquarters and its plants in order to operate on a commercial
basis. Such costs are capitalized and amortized over a period of five
years from the date of commencement of business.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenue and expenses during the
reporting period. Among the more significant estimates included in these
financial statements are the estimated allowance for doubtful accounts
receivable and the deferred income tax asset allowance. Actual results
could differ from those estimates.

Accounts Receivable and Concentration of Credit Risk

The Company's main business are manufacturing and distribution. During the
normal course of business, the Company extends unsecured credit to its
customers located in Shanghai area. The Company reviews its accounts
receivable on a regular basis to determine if bad debt allowance is
adequate at each year end. The Company maintains its cash accounts in high
quality financial institution.

Fair Value of Financial Instruments

The carrying amount of cash, trade accounts receivable, notes receivable,
trade accounts payable and accrued payable are reasonable estimates of
their fair value because of the short maturity of these items. The
carrying amounts of the Company's credit facilities approximate fair value
because the interest rates on these instruments are subject to change with
market interest rates.

Income Taxes

The Company accounts for income taxes using the liability method, which
requires an entity to recognize deferred tax liabilities and assets.
Deferred income taxes are recognized based on the differences between the
tax bases of assets and liabilities and their reported amounts in the
financial statements which will result in taxable or deductible amounts in
future years. Further, the effects of enacted tax laws or rate changes are
included as part of deferred tax expenses or benefits in the period that
covers the enactment date. A valuation allowance is recognized if it is
more likely than not that some portion, or all of, a deferred tax asset
will not be realized.

Earnings (Loss) Per Share

Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). The
statement replaces the calculation of primary and fully diluted earnings
(loss) per share with basic and diluted earnings (loss) per share. Basic
earnings (loss) per share includes no dilution and is computed by dividing
income (loss) available to common shareholders by the weighted average
number of shares outstanding during the period. Diluted earnings (loss)
per share reflects the potential dilution of securities that could share in
the earnings of an entity, similar to fully diluted earnings (loss) per
share. All earnings (loss) per share amounts have been restated to conform
to the requirements of SFAS 128.

Stock-based Compensation

The Company has adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-based Compensation" (SFAS No. 123). The
Company adopts the intrinsic value method of accounting for employee stock
options and disclose the pro forma impact on net income and earnings per
share as if the fair value based method had been applied. For equity
instruments, including stock options issued to non-employee, including
directors, the fair value of the equity instruments or the fair value of
the consideration received, whichever is more readily determinable, is used
to determine the value of services or goods received and the corresponding
charge to operations.

New Accounting Standards Not Adopted Yet

Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard on January 1, 2000 to
affect its financial statements.

China Peregrine Food Corporation and Subsidiary
Notes To Consolidated Financial Statements

Note 1. Inventory

Inventory consists of:

December 31, 1996 1997
- ---------------------------------------------------------------------------

<S> <C> <C>
Raw materials $ 47,794 $ 69,678
Finished goods 1,537 7,869
- ---------------------------------------------------------------------------
Total $ 49,331 $ 77,547
===========================================================================
</TABLE>

Note 2. Property, Plant and Equipment

Property, plant and equipment consists of:

December 31, 1996 1997
- ---------------------------------------------------------------------------

<S> <C> <C>
Plant and buildings $ 494,562 $ 495,661
Machinery 1,291,079 1,306,070
Computer, office equipment and furniture 60,870 172,100
Vehicles 236,042 236,567
- ---------------------------------------------------------------------------
2,082,553 2,210,398
Accumulated depreciation and amortization (318,851) (518,257)
- ---------------------------------------------------------------------------
Property, plant and equipment, net $1,763,702 $1,692,141
===========================================================================
</TABLE>

Note 3. Bank Loan

On December 27, 1993, Green Food Peregrine entered into a loan contract
with a state-owned commercial bank in China to obtain a loan of
RMB7,500,000 (approximately US$905,819), which matured on December 26, 1996
at an interest rate of 12.24% per annum. The loan contract was guaranteed
by China National Green Food Corporation. The contract specified that the
Bank would impose a penalty interest rate if Green Food Peregrine failed to
make proper repayments for this loan on a timely basis. The interest rate
is subject to an annual change based on the notification from China Central
Bank.

On December 26, 1996 Green Food Peregrine failed to pay the principal and
relevant interest on a timely basis and was subject to a penal interest
rate of 16.43% per annum on the unpaid accumulated interest as of
December 31, 1997. Green Food Peregrine accordingly accrued interest
payable of approximately RMB2,135,000 (approximately US$257,856) as of
December 31, 1997.

In June 1998, the Company renegotiated the loan and reached agreement with
the Bank on a new repayment schedule. The Bank agreed to extend the loan
period to December 31, 1999 and that if Green Food Peregrine completes the
following repayment schedule Green Food Peregrine will be released from the
penalty interest rate imposed on the interest calculation. The new
repayment schedule is as follows:

RMB1,040,000 (approximately US$125,606) By December 31, 1998
RMB8,595,000 (approximately US$1,038,069) By December 31, 1999

Note 4. Long-Term Bank Loan

On December 1, 1994, Green Food Peregrine entered into a loan contract with
another state-owned commercial bank in China to obtain a loan of
RMB2,700,000 (approximately US$325,300), which will mature on December 31,
2001 at an interest rate of 9.9% per annum. The interest rate is subject
to an annual change based on the notification from China Central Bank. The
loan contract specified that the money should be used in connection with
Green Food Peregrine's Beijing plant and was guaranteed by Chongqing Hotel,
an affiliate company of China National Green Food Corporation. The loan
contract stipulated that the Bank would have a right to impose a penalty
interest rate if Green Food Peregrine used the money for a different
project. In addition, the loan contract specified that the entire amount
of RMB2,700,000 should be paid off as follows:

RMB500,000 By December 31, 1997
RMB500,000 By December 31, 1998
RMB500,000 By December 31, 1999
RMB500,000 By December 31, 2000
RMB700,000 By December 31, 2001

In December, 1997 Green Food Peregrine failed to pay the regular interest
and relevant principal amount due. Green Food Peregrine was subject to a
penalty interest rate of 12.43% per annum imposed on interest calculation.
As of December 31, 1997, Green Food Peregrine accordingly accrued interest
payable of RMB1,013,000 (approximately US$122,346).

1996 1997
- --------------------------------------------------------------------------

<S> <C> <C>
Long term bank loan $325,372 $ 326,095
Less: current portion - (120,776)
- --------------------------------------------------------------------------
$325,372 $ 205,319
==========================================================================
</TABLE>

In June 1998, the Company renegotiated the loan and reached an agreement
with the Bank on a repayment schedule. The Bank agreed that Green Food
Peregrine would be released from the penalty interest rate imposed on
interest calculation if Green Food Peregrine completes the following
repayment schedule. The new repayment schedule is as follows:

RMB750,000 (approximately US$90,582) By September 20, 1998
RMB420,000 (approximately US$50,726) By December 20, 1998
RMB420,000 (approximately US$50,726) By March 20, 1999
RMB420,000 (approximately US$50,726) By June 20, 1999
RMB420,000 (approximately US$50,726) By September 20, 1999
RMB420,000 (approximately US$50,726) By December 20, 1999
The remaining balance, if any By December 31, 1999

Note 5. Related Party Transactions

a) Related Party Loans from China National Green Food Company

During the organization period of Green Food Peregrine, China National
Green Food Corporation, one of the three partners of Green Food Peregrine,
wired RMB6,600,000 (approximate US$795,353) in the form of shareholder's
loan to Green Food Peregrine to finance its activities. In April, 1996,
China National Green Food Corporation wired another RMB2,000,000
(approximately US$241,016) in the form of shareholder's loan to Green Food
Peregrine. All these shareholder's loans have been converted to paid-in
capital to satisfy the registered capital requirements contained in the
Article of Association of Green Food Peregrine. To date, a total of
interest payable of RMB882,721 (approximately US$106,375) has been
converted into paid-in capital as part of the registered capital under the
name of China National Green Food Corporation.

In April and November 1996, China National Green Food Corporation loaned
RMB350,000 (approximately US$42,178) and RMB200,000 (approximately
US$24,101), respectively, to Green Food Peregrine to finance its working
capital. An interest rate of 12.4% per annum was applied to determine
relevant interest accrual. These two loans were being paid off in
September and October, 1997, respectively.

b) Amer-China's Consulting Fees

In 1996, Amer-China, one of three partners of Green Food Peregrine,
provided Green Food Peregrine with consulting services, such as English
translation and negotiation supporting services in the U.S., and charged a
total of $36,000 to Green Food Peregrine. The amount was included in Green
Food Peregrine's general and administrative expenses.

c) Acquisition of Manor Products Corp. in 1997

In February, 1997 the Company issued 25,000 shares of common stock in
exchange for a 100% equity of Manor Products Corp. (Manor). Manor was a
Delaware company established on January 10, 1996. In early 1996, 80%
equity of Manor was bought by the principal of the initial founding entity
of the Company. Accordingly, this acquisition was regarded as a related
party transaction.

d) Related Party Loans from Shareholders of the Company

In January and March, 1997, one shareholder and three shareholders together
provided loan of US$200,000 and US$1,315,000, respectively, to satisfy
registered capital needs of Green Food Peregrine by the end of March, 1997.
These two loans were paid off during May and June 1997 by using the
proceeds of various stock offerings.

Note 6. Income Taxes

For federal income tax purpose, income tax expense in 1996 for CPEL was
passed through to the individual partners. From January 1 to March 5,
1997, CPEL did not have any operating activities. The Company's
subsidiary, Green Food Peregrine, is operating in China and subject to the
Chinese Foreign Investment Enterprise Income Tax at the rate of 33%, of
which 30% is attributed to central government and 3% to provincial
government. In line with relevant income tax law, a foreign investment
enterprise with an operating period of more than ten years is entitled to
have a 100% income tax credit for two years and a 50% income tax credit for
three years starting from the first profit-making year and the net
operating losses can be carried forward for five years. The following
tables reflect the consolidated income tax provision for the Company from
March 1 to December 31, 1997.

Year ended December 31, 1997
- --------------------------------------------------------------------------

<S> <C>
Current
Federal $ -
Foreign -
- --------------------------------------------------------------------------
$ -
==========================================================================
</TABLE>

The components of the net deferred tax assets and liabilities are as
follows:

December 31, 1997
- --------------------------------------------------------------------------

<S> <C>
The U.S. Company
Deferred tax assets:
Net operating loss carryforwards $ 298,161
Valuation allowance (298,161)
- --------------------------------------------------------------------------
-
- --------------------------------------------------------------------------

Foreign (China)
Deferred tax assets:
Bad debt allowance 6,780
Net operating loss carryforwards 1,303,234
Valuation allowance (1,310,014)
- --------------------------------------------------------------------------
$ -
==========================================================================
</TABLE>

Management is unable to determine whether the realization of the net deferred
tax asset is more likely than not, therefore, a 100% valuation allowance has
been established.

The difference between the effective tax rate and that computed under the
federal statutory rate is as follows:

December 31, 1997
- --------------------------------------------------------------------------

<S> <C>
Federal statutory rate 34%
Utilization of net operating loss carryforwards (34%)
- --------------------------------------------------------------------------
-
==========================================================================
</TABLE>

Note 7. Commitments and Contingencies

Commitments

The Company's subsidiary in China, Green Food Peregrine, has leased the
plant land and office building in Shanghai under operating leases expiring
at June 30, 2043 and September 28, 1998, respectively.

Future minimum rental payments required under operating leases that have an
initial or a remaining lease term in excess of one year at December 31,
1997 are as follows:

Year ending December 31, Amount
- --------------------------------------------------------------------------

<S> <C>
1998 $ 36,233
1999 36,233
2000 36,233
2001 36,233
2002 36,233
Thereafter 797,121
- --------------------------------------------------------------------------
$978,286
==========================================================================

Rental expense for the years ended December 31, 1996 and 1997 was
approximately $57,730 and $82,728.

Note 8. Reorganizations and Recapitalization

(a) In February 1997, the Company reorganized its members of the
founding group. In accordance with the reorganization agreement among all
parties who were involved in, the total founders of the Company increased
from one entity to three individuals and two entities. Consequently,
788,000 shares of common stock and 500,000 shares of preferred stock with a
par value of $0.001 per share were issued to the new joined founders of the
"reorganized" Company.

Each share of Series A preferred stock entitles its holder to receive
dividends at the same rate paid to common shareholders. Unless the Company
pays or declares dividends with respect to common shares, the Company has
no obligation to declare or pay dividends with respect to Series A
preferred stock. Each share of Series A preferred stock is convertible
into one share of common stock as adjusted, for such things as stock
splits, stock dividends and other similar dilutive occurrence. At any time
subsequent to December 31, 1997 the holder of each share of Series A
preferred stock is allowed to convert all or part of the Series A preferred
shares into corresponding shares of common stock.

(b) On March 5, 1997, the Company issued 1,040,000 shares of common stock
in exchange for a 100% equity of China Peregrine Enterprises, Limited
(CPEL). CPEL was, a Texas limited partnership, set up to manage its
interest in the China operation conducted by a Chinese joint venture known
as Green Food Peregrine Children's Food Company, Limited. As the two major
partners of CPEL were members of the founding group of the reorganized
Company, this reverse acquisition was reported as a related party
transaction and accounted for in a manner similar to a pooling of interest.

The following table presents all outstanding shares of common stock and
Series A preferred stock before the reverse acquisition transaction closed:

</TABLE>
<TABLE>
<CAPTION>

Series A
Preferred Stock Common Stock Additional
------------------ ------------------ Paid-in
Shares Amount Shares Amount Capital Total
- ----------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C>
Beginning balance at January 1, 1997 - $ - 472,000 $ 472 $ - $ 472

Issuance of Series A Preferred Stock 500,000 500 - - - 500

Issuance of common stock to new founders - - 788,000 788 - 788

Issuance of common stock to acquire
Manor Products Corp. - - 25,000 25 - 25
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 500,000 $500 1,285,000 $1,285 $ - $1,785
================================================================================================================
</TABLE>

Note 9. New Issuance of Common Stock and Preferred Stock in 1997

(a) On March 15, 1997, the Company issued 1,260,000 shares of Series B
preferred stock with a stated value $1.00 per share to three shareholders
after they assumed the repayment of approximately $1,260,000 for an
outstanding line of credit (including accrued interest through October
1997) owed by CPEL to a Tennessee-based financial institution. The
outstanding line of credit was incurred during 1995 and 1996 in connection
with operation of CPEL and was paid off in full in October, 1997. This
issuance of preferred stock was pursuant to a condition to the Company's
purchase of CPEL's assets that this particular liability should be removed
from CPEL's balance sheet. To satisfy that condition, the three
shareholders assumed this debt. In exchange for this assumption, the
Company issued 1,260,000 shares of its Series B preferred stock. At the
issuance of these preferred shares, the $1.00 per share was equal to the
price per share in Rule 504 offering.

The shares of Series B preferred stock have three features. First, each
share of Series B preferred stock is convertible into one share of common
stock, as adjusted, for such things as stock split, stock dividends and
other similar dilutive occurrence. At any time subsequent to December 31,
1998 the holder of each share of Series B preferred stock, is allowed to
convert all of part of the Series B preferred shares into corresponding
shares of common stock. Second, each share of Series B preferred stock
entitles its holder to accumulate dividends at 9% per annum even if the
dividends are payable only upon dissolution and liquidation of the Company
and redemption called by the Company. However, each share of Series B
preferred stock entitles its holder to receive dividends at the same rate
paid to common shareholders if the Company declares or pays dividends to
common shareholders. Third, the shares of Series B preferred stock are
redeemable at $1.00 per share totaling $1,260,000 called by the Company any
time after December 31, 1998.

(b) On May 31, 1997, the Company closed a Rule 504, Regulation D limited
public offering of 975,000 units (each unit consisting of one share of
common stock and a warrant for one share of common stock) at $1.00 per
unit. The net proceeds of this offering amounted to $975,000. These funds
were utilized to repay shareholders' loans to the Company, the proceeds of
which were utilized to satisfy the registered capital requirements of Green
Food Peregrine.

(c) Subsequent to the Rule 504, Regulation D offering, the Company
conducted a Rule 144 private placement to issue 1,520,000 shares of common
stock at $1.00 per share. The investor group involved in this Rule 144
offering was made up largely of the same investor group involved with the
Rule 504, Regulation D offering The total proceeds from this private
placement amounted to $1,520,000.

(d) During 1997, the Company incurred consulting, legal and accounting
expenses relating to these two fund raising activities, and other
directors' fees and travel expenses. In order for the Company to pay these
expenses and discharge the obligation to pay the legal expenses incurred in
1995 and 1996 by CPEL, it issued a total of 469,000 shares of common stock
at $1.00 per share. These non-cash transactions are presented as follows:

Common Stock Additional
------------------ Paid-in
Date Shares Amount Capital Total
- -------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Assumption of CPEL's accrued legal fees 03/15/97 200,000 $200 $199,800 $200,000

Issuance of stock for legal fees relating to
fund raising 03/30/97 15,000 15 14,985 15,000

Issuance of stock for stock promotion service 04/15/97 100,000 100 99,900 100,000

Issuance of stock for stock promotion service 05/01/97 35,000 35 34,965 35,000

Issuance of stock for stock promotion service 06/01/97 10,000 10 9,990 10,000

Issuance of stock for consulting service 07/01/97 24,000 24 23,976 24,000

Issuance of stock for accounting service 10/01/97 15,000 15 14,985 15,000

Issuance of stock for consulting service 10/15/97 25,000 25 24,975 25,000

Issuance of stock for a directors' fee 11/01/97 25,000 25 24,975 25,000

Issuance of stock for travel expense 11/17/97 20,000 20 19,980 20,000
- -------------------------------------------------------------------------------------------------------------
469,000 $469 $468,531 $469,000
=============================================================================================================
</TABLE>

Note 10. Stock Warrants and Options

During 1997, the Company signed a total of four stock options agreements
with certain shareholders and non-employee directors. These warrants and
four stock option agreements are summarized as follows:

Warrants/
Grant Options Exercise Vesting Expiration
Date Granted Price Period Date
--------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Warrants issued in Rule 504
Regulation D offering 5/31/97 975,000 $5.00 12 months 3/31/1999
---------
Agreement One 4/29/97 1,005,533 $1.00 None 4/28/2002
Agreement Two 4/30/97 2,000,000 $1.00 None 4/29/2002
Agreement Three 10/1/97 25,000 $1.00 None 9/30/2002
Agreement Four 10/1/97 15,000 $1.00 None 9/30/2002
---------
Total options granted in 1997 3,045,533
=========
</TABLE>

The Company adopted FAS 123 to account for its stock warrants and options
granted during 1997. Accordingly, a compensation cost of $205,979 has been
recognized for the options granted to non-employee directors.

A summary of the status of the Company's stock options and warrants as of
December 31, 1997 and changes during the year then ended are presented
below:

Weighted Average
Shares Exercise Price
- --------------------------------------------------------------------------------------

<S> <C> <C>
Outstanding at January 1, 1997 - -
Granted 4,020,533 $1.97
- --------------------------------------------------------------------------------------

Outstanding at December 31, 1997 4,020,533 $1.97
======================================================================================

Options exercisable at December 31, 1997 3,045,533 $1.00
======================================================================================

Weighted average fair value of options and warrants
Granted during 1997 4,020,533 $0.19
======================================================================================
</TABLE>

The following table summarizes information about stock options and warrants
outstanding at December 31, 1997:

<TABLE>
<CAPTION>
Warrants/Options Outstanding Options Exercisable
--------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
- ---------------------------------------------------------------------------------------

Note 11. Subsequent Events

a) Issuance of Additional Equity Securities

1) On January 15, 1998, the Company issued 50,000 shares of common stock
at $1.00 per share in exchange for stock promotion services provided by a
capital service company.

2) On February 2, 1998, the Company issued 5,272 shares of common stock
at $2.25 per share to an individual in exchange for his services in
connection with the furnishing of the Company's corporate office.

3) On May 2, 1998, the Company issued 557,000 units (each unit composed
of one share of common stock and one warrant to purchase one share of
common stock) at a price of $2.50 per unit, pursuant to a private offering
in accordance with the exemption provided in Rule 506, Regulation D. The
net proceeds of this offering were $1,387,500. Among the 557,000 shares
issued, 2,000 shares were issued in exchange for accounting service. The
holders of such warrants are entitled to purchase, from time to time, up to
557,000 shares of common stock, per value $0.001 per share, at an exercise
price of $1.00 per share, at any time after June 30, 1998 and through and
including June 30, 2003.

4) On February 19, 1998, the Company issued 120,000 shares of common
stock at a price of $1.00 per share to Amer-China Partners, Limited (ACPL)
pursuant to a signed agreement dated October 1, 1997 to acquire ACPL's
entire interest and right (2.4%) in and to the Green Food Peregrine
Children's Food Co. Ltd.

b) Increase in Registered Capital in Chinese Joint Venture

On May 2, 1998, the Company approved and ratified an agreement between the
Company and China National Green Food Corporation to satisfy the need for
additional capital for Green Food Peregrine by the contribution of
$1,500,000 by the Company over the next 18 months. This contribution will
constitute an increase in the registered capital in Green Food Peregrine
attributed to the Company and a commensurate increase in the equity holding
of the Company in Green Food Peregrine from 70% (after the approval of the
Company's acquisition of ACPL's equity interest) to 76.92%. In addition,
the right to match this additional capital contribution to maintain the
status quo of the investment has been waived by China National Green Food
Corporation.

In line with Chinese government regulations, the change of investment ratio
in Green Food Peregrine must be approved by the Ministry of Foreign Trade
and Economic Cooperation (MOFTEC) in China. Therefore, the Company has
agreed to provide an interim loan of $500,000 in tranches to Green Food
Peregrine and convert this loan into registered capital upon obtaining
MOFTEC's approval.

c) Acquisition of Hangzhou Meilijian

On June 18, 1998, the Company entered into a definitive agreement with
American Flavors China, Inc., a U.S.-based entity, to acquire its 52% of
equity interest in Hangzhou Meilijian Dairy Products Co. Ltd. The Boards
of Directors of both companies and of the joint venture have approved the
acquisition. Hangzhou Dairy Co. Ltd., a state-owned enterprise in Zhejian
Province of China, controls the remaining 48% of equity interest in
Hangzhou Meilijian. The aforesaid acquisition agreement is subject to
approval by the local government which is presently pending.

The terms of the acquisition agreement are as follows: 1) to assume
$285,000 of the debt of American Flavors China, Inc., 2) to pay cash of
$210,000, and 3) to issue 1,513,685 shares of the Company's common stock to
American Flavors China, Inc. Hangzhou Meilijian is a foreign investment
enterprise established under the law of People's Republic of China with
over 420 employees and has accounted for 85% of the market of dairy and
juice products among its many distribution outlets in Hangzhou. The
Hangzhou metropolitan area has a total population of 5.8 million including
240 schools. Total sales revenue for the calendar year of 1997 was
approximately $6,240,000.

PART F/S - INTERIM FINANCIAL STATEMENTS (Unaudited)
FOR THE PERIOD JANUARY 1, 1998 TO JUNE 30, 1998

China Peregrine Food Corporation and Subsidiary
Unaudited Interim Financial Statements

China Peregrine Food Corporation and Subsidiary
Consolidated Balance Sheets

<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
---------------------------
(Audited) (Unaudited)

<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 435,630 $ 1,180,017
Accounts receivable, less allowances for doubtful accounts of
$20,546 and $28,131 390,132 390,934
Other receivable 18,135 107,330
Inventory 77,547 55,272
VAT refund receivable 31,525 976
Prepaid expenses 119,611 91,743
Deposits 24,693 5,000
---------------------------
Total current assets 1,097,273 1,831,272

Property, plant and equipment, net 1,692,141 1,595,163
Construction in progress 138,501 137,997
Proprietary technology, net 60,593 56,210
Start up cost, net 428,389 331,980
---------------------------

Total assets $ 3,416,897 $ 3,952,622
---------------------------

Liabilities and Shareholders' Equity

Current liabilities:
Bank loan $ 905,819 $ 902,527
Current portion of long-term bank loan 120,776 120,337
Accounts payable 215,381 176,362
Accrued liabilities 800,064 1,204,505
Advances from customers 10,681 302
Dividends payable 85,050 141,750
---------------------------
Total current liabilities 2,137,771 2,545,783

Long-term bank loan 205,319 204,573
---------------------------
Total liabilities 2,343,090 2,750,356

Minority interest 265,831 35,916

Shareholders' Equity
Series A convertible preferred stock; par value $0.001 per share,
500,000 shares authorized, 500,000 shares issued and
outstanding 500 500
Series B convertible, 9% cumulative, and redeemable preferred
stock; stated value $1.00 per share, 1,260,000 shares authorized,
1,260,000 shares issued and outstanding, redeemable at
$1,260,000 1,260,000 1,260,000
Common stock; par value $0.001 per share, 20,000,000 shares
authorized, 6,021,000 and 5,289,000 shares issued and
outstanding 5,289 6,021
Additional paid-in capital 4,075,130 5,648,760
Accumulated deficit (4,370,266) (5,578,921)
Translation adjustments (162,677) (170,010)
---------------------------
Total shareholders' equity 807,976 1,166,350
---------------------------

Total liabilities and shareholders' equity $ 3,416,897 $ 3,952,622
---------------------------
</TABLE>

See accompanying to consolidated financial statements.

China Peregrine Food Corporation and Subsidiary
Consolidated Statement of Operations

<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1998
--------------------------
(Unaudited) (Unaudited)

<S> <C> <C>
Revenues $ 311,793 $ 402,993
Cost of goods sold (387,613) (459,611)
--------------------------

Gross margin (75,820) (56,618)

Selling expense (222,131) (157,726)
General and administrative expense (674,148) (989,095)
--------------------------

Loss from operations (972,099) (1,203,439)

Other income (expense):
Interest expense, net (38,434) (115,079)
Other 20,934 (43,017)
--------------------------

Loss before income taxes (989,599) (1,361,535)
Income taxes - -
--------------------------

Loss before minority interest (989,599) (1,361,535)
Less: loss attributable to minority interest 244,789 209,581
--------------------------

Net loss $ (744,810) $(1,151,954)
Dividends accrued for Series B preferred stock - (56,700)
--------------------------
Net loss applicable to common shares $ (744,810) $(1,208,654)
--------------------------

Loss per share $ (.33) $ (.22)
--------------------------

Weighted average number of common shares outstanding 2,227,762 5,591,678
--------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

China Peregrine Food Corporation and Subsidiary
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1998
---------------------------
(Unaudited) (Unaudited)

<S> <C> <C>
Cash flows from operating activities
Net loss $ (744,810) $(1,208,654)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 207,489 234,284
Provision for bad debts - 7,584
Issuance of stock in exchange for services 160,000 66,862
Adjustment for prior period net losses attributed
to 2.4% minority interest acquired during 1998 - 94,533
Minority interest (244,789) (209,581)
Increase (decrease) from changes in:
Accounts receivable (18,763) (8,387)
Other receivable (101,853) (89,195)
Inventory 2,425 22,275
VAT refund receivable 7,839 30,550
Prepaids and other assets (104,266) 47,562
Accounts payable (165,042) (39,019)
Advances from customers 11,029 (10,379)
Accrued liabilities 11,734 404,441
Dividends payable 28,350 56,700
---------------------------

Net cash used in operating activities (950,657) (600,424)
---------------------------

Cash flows from investing activities
Additions to fixed assets - (5,690)
---------------------------

Net cash used in investing activities - (5,690)
---------------------------

Repayment of bank loan (33,549) (3,731)
Proceeds of issuance of Series A Preferred stock 500 -
Proceeds of Rule 504 Regulation D offering 975,000 -
Proceeds of founders' common stock 1,285 -
Proceeds of Rule 144 offering 1,320,000 -
Proceeds of Rule 506 Regulation D offering - 1,387,500
---------------------------
Net cash provided by financing activities 2,263,236 1,383,769
---------------------------

Effect of exchange rate changes on cash 4,316 (33,268)
---------------------------

Net increase in cash and cash equivalents 1,316,895 744,387

Cash and cash equivalents, beginning of period 58,186 435,630
---------------------------

Cash and cash equivalents, end of period $1,375,081 $ 1,180,017
---------------------------

Cash paid during the period:
Interest $ (115,079) $ (38,434)
Income taxes 0.00 0.00
---------------------------
</TABLE>

Supplemental disclosure of non-cash activities:

In January 1998, the Company issued 50,000 shares of common stock at $1.00
per share in exchange for stock promotion services provided by a capital
service company.

On February 2, 1998, the Company issued 5,272 shares of common stock at
$2.25 per share to an individual in exchange for his services in connection
with the furnishing of the Company's corporate office.

On February 19, 1998 the Company issued 120,000 shares of common stock at a
price of $1.00 per share to Amer-China Partners, Limited (ACPL) pursuant to
a signed agreement dated October 1, 1997 to acquire ACPL's entire interest
and rights (2.4%) in and to the Green Food Peregrine Children's Food Co.
Ltd.

On May 2, 1998 during the process of Rule 506 Regulation D offering, the
Company issued 2,000 shares of common stock in exchange for accounting
services provided by two existing shareholders.

See accompanying notes to consolidated financial statements

China Peregrine Food Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)

Organization and Business
- -------------------------

China Peregrine Food Corporation (the Company) was incorporated under the
laws of the State of Delaware on April 26, 1996. The company has invested
in an equity joint venture in China known as Green Food Peregrine Children
Food Co. Ltd.

Green Food Peregrine Children's Food Co. Ltd. (GFP) is a foreign investment
equity joint venture with registered capital of US$5 million and
established under the law of People's Republic of China on July 3, 1993.
Among the equity interest of GFP, the Company accounted for 70% and China
National Green Food Corporation accounted for 30% as of June 30, 1998. GFP
has been focusing on providing better nutrition for infants and children in
China through the development of advanced food technology and marketing
expertise from the West. Currently, GFP is manufacturing and distributing
dairy products in Shanghai, China and is developing a number of new and
non-carbonated beverages for infants and school age children. GFP has
intentions to operate in the cities with a population more than two million
throughout China.

Note 1 - Basis of Presentation
- ------------------------------

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. All significant inter-company accounts and
transactions have been eliminated in consolidation. The minority interest
in the Chinese joint venture has been reported as a separate line item on
the consolidated balance sheet. The consolidated financial statements are
presented in U.S. dollars. Accordingly, the accompanying financial
statements do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for fair presentation have been
included. Operating results for the six months period ended June 30, 1998
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report for the year ended December 31, 1997.

Note 2 - Income Taxes
- ---------------------

As of December 31, 1997, for federal income tax purposes, the Company had
approximately $876,944 in net operating loss carryforwards expiring through
2012. The annual utilization of the operating loss carryforward may be
significantly limited due to the adverse resolution, if any, with respect
to the loss carryover provisions of Internal Revenue Code Section 382 in
connection with certain stock issuance by the Company.

Note 3 - Related Party Transactions
- -----------------------------------

During the process of Rule 506 Regulation D offering, 2,000 shares were
issued in exchange for accounting services provided by two existing
shareholders. On February 19, 1998 the Company issued 120,000 shares of
common stock at a price of $1.00 per share to Amer-China Partners, Limited
(ACPL) pursuant to a signed agreement dated October 1, 1997 to acquire
ACPL's entire interest and rights (2.4%) in and to the Green Food Peregrine
Children's Food Co. Ltd.

On May 2, 1998, the Company approved and ratified an agreement between the
Company and China National Green Food Corporation to satisfy the need for
additional capital for GFP by the contribution of $1,500,000 by the Company
over the next 18 months. This contribution will constitute an increase in
the registered capital in GFP attributed to the Company and a commensurate
increase in the equity holding of the Company in GFP from 70% (after the
approval of the Company's acquisition of ACPL's equity interest) to 76.92%.
In addition, the right to match this additional capital contribution to
maintain the status quo of the investment has been waived by China National
Green Food Corporation.

In line with Chinese government regulations, the change of investment ratio
in GFP must be approved by the Ministry of Foreign Trade and Economic
Cooperation (MOFTEC) in China. Therefore, the Company has agreed to
provide an interim loan of $500,000 in traunches to GFP and convert this
loan into registered capital upon obtaining MOFTEC's approval. As of June
30, 1998 the company advanced US $50,000 to GFP.

Note 4 - Transactions in Shareholders' Equity

On January 15, 1998, the Company issued 50,000 shares of common stock at
$1.00 per share in exchange for stock promotion services provided by a
capital service company.

On May 2, 1998, the Company issued 557,000 units (each unit composed of one
share of common stock and one warrant to purchase one share of common
stock) at a price of $2.50 per unit, pursuant to a private offering in
accordance with the exemption provided in Rule 506, Regulation D. The net
proceeds of this offering were $1,387,500. The holders of such warrants
are entitled to purchase, from time to time, up to 557,000 shares of common
stock, per value $0.001 per share, at an exercise price of $1.00 per share,
at any time after June 30, 1998 and through and including June 30, 2003.

Note 5 - Subsequent Events

Hangzhou Dairy Co. Ltd., a state-owned enterprise in Zhejian Province of
China, controls the remaining 48% of equity interest in Hangzhou Meilijian.
The aforesaid acquisition agreement is subject to approval by the local
government that is presently pending.

The terms of the acquisition agreement requires the company: 1) to assume
$285,000 of the debt of American Flavors China, Inc., 2) to pay cash of
$210,000, and 3) to issue 1,513,685 shares of the Company's common stock to
American Flavors China, Inc. Hangzhou Meilijian is a foreign investment
enterprise established under the law of People's Republic of China with
over 420 employees and has accounted for 85% of the market of dairy and
juice products among its many distribution outlets in Hangzhou. Total sales
revenue of Hangzhou Meilijian for the calendar year of 1997 was
approximately $6,240,000.

PART F/S - INTERIM FINANCIAL STATEMENTS (Unaudited)
FOR THE PERIOD JANUARY 1, 1998 TO SEPTEMBER 30, 1998

China Peregrine Food Corporation and Subsidiary
Unaudited Interim Financial Statements

China Peregrine Food Corporation and Subsidiary
Consolidated Balance Sheets

<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------------------------
(Audited) (Unaudited)

<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 435,630 $ 695,078
Accounts receivable, less allowances for doubtful accounts of
$20,546 and $688,220 390,132 619,524
Other receivable, less allowance for doubtful accounts of
$0 and $919,629 18,135 139,963
Inventory, less provision of $0 and $24,050 77,547 1,001,545
VAT refund receivable 31,525 31,525
Prepaid expenses 119,611 148,820
Deposits 24,693 29,693
------------------------------

Total current assets 1,097,273 2,666,148

Property, plant and equipment, net 1,692,141 5,886,831
Construction in progress 138,501 194,159
Proprietary technology, net 60,593 54,337
Start up cost, net 428,389 298,628
Deferred assets - 444,535
------------------------------

Total assets $ 3,416,897 $ 9,544,638
------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
Bank loans $ 905,819 $ 2,331,481
Long-term bank loan - current portion 120,776 120,802
Related party loans - current portion - 75,592
Note payable - current portion - 59,256
Accounts payable 215,381 750,772
Accrued liabilities 800,064 1,291,388
Advances from customers 10,681 253,326
Dividends payable 85,050 170,110
------------------------------
Total current liabilities 2,137,771 5,052,717

Long-term bank loan 205,319 205,364
Note payable - 206,493
Related party loans - 596,386
------------------------------

Total long-term liability 205,319 1,008,243

Total liabilities 2,343,090 6,060,960

Minority interest 265,831 1,718,830

Shareholders' Equity
Series A convertible preferred stock; par value $0.001 per share,
500,000 shares authorized, 500,000 shares issued and
outstanding 500 500
Series B convertible, 9% cumulative, and redeemable preferred
stock; stated value $1.00 per share, 1,260,000 shares authorized,
1,260,000 shares issued and outstanding, redeemable at
$1,260,000 1,260,000 1,260,000
Common stock; par value $0.001 per share, 20,000,000 shares
authorized, 5,289,000 and 7,552,957 shares issued and
outstanding 5,289 7,553
Additional paid-in capital 4,075,130 7,178,912
Accumulated deficit (4,370,266) (6,111,368)
Translation adjustments (162,677) (570,749)
------------------------------
Total shareholders' equity 807,976 1,764,848
------------------------------

Total liabilities and shareholders' equity $ 3,416,897 $ 9,544,638
------------------------------
</TABLE>

See accompanying to consolidated financial statements.

China Peregrine Food Corporation and Subsidiary
Consolidated Statement of Operations

<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1997 1998 1997 1998
-------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)

<S> <C> <C> <C> <C>
Revenues $ 195,512 $1,081,607 $ 507,305 $ 1,484,600
Cost of goods sold 212,236 1,064,437 599,849 1,524,048
-----------------------------------------------------------------

Gross profit (16,724) 17,170 (92,544) (39,448)

Selling expense 74,065 161,229 296,196 318,955
General and administrative expenses 397,199 450,883 1,071,347 1,439,977
-----------------------------------------------------------------

Loss from operations (487,988) (594,942) (1,460,087) (1,798,380)

Other income (expense):
Interest expense, net (26,829) (110,240) (98,123) (225,320)
Other 9,331 35,183 63,125 (7,833)
-----------------------------------------------------------------

Loss before income taxes (505,486) (669,999) (1,495,085) (2,031,533)
Income taxes - - - -
-----------------------------------------------------------------

Loss before minority interest (505,486) (669,999) (1,495,085) (2,031,533)
Less: loss attributable to minority
Interest 163,778 165,902 338,267 375,481
-----------------------------------------------------------------

Net loss (341,708) (504,097) $(1,156,818) $(1,656,052)
Dividends accrued for Series B
preferred stock 28,350 28,350 56,700 85,050
-----------------------------------------------------------------

Net loss applicable to common shares $ (370,058) $ (532,447) $(1,213,518) $(1,741,102)
-----------------------------------------------------------------

Loss per share $ (0.07) $ (0.08) $ (0.39) $ (0.29)
-----------------------------------------------------------------

Weighted average number of
common shares outstanding 5,104,000 6,953,602 3,135,088 6,042,348
-----------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

China Peregrine Food Corporation and Subsidiary
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1997 1998
-------------------------------
(Unaudited) (Unaudited)

<S> <C> <C>
Cash flows from operating activities
Net loss $(1,213,518) $(1,741,102)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 297,141 473,855
Provision for bad debts - 16,176
Inventory provision - 24,050
Issuance of stock in exchange for services 184,000 66,862
Adjustment for prior period net losses attributed
to 2.4% minority interest acquired during 1998 - 94,533
Minority interest (259,417) 1,453,000
Increase (decrease) from changes in:
Accounts receivable (86,709) (910,039)
Other receivable (91,310) (321,457)
Inventory 11,676 (948,048)
VAT refund receivable 1,812 -
Prepaids and other assets (134,942) (34,208)
Accounts payable (164,955) 535,391
Advances from customers 21,278 242,645
Accrued liabilities (21,038) 398,223
Dividends payable 56,700 85,050
-----------------------------
Net cash used in operating activities (1,399,282) (565,069)
-----------------------------

Cash flows from investing activities
Additions to fixed assets - (37,617)
Additions to construction in progress - (3,494)
Additions to deferred assets - (26,980)
Acquiring American Flavor's interest - (210,000)
-----------------------------
Net cash used in investing activities - (278,091)
-----------------------------

Repayment of bank loan (33,549) -
Proceeds from bank loan - 120,774
Proceeds of issuance of Series A Preferred stock 500 -
Proceeds of Rule 504 Regulation D offering 975,000 -
Proceeds of founders' common stock 1,285 -
Proceeds of Rule 144 offering 1,420,000 -
Proceeds of Rule 506 Regulation D offering - 1,387,500
-----------------------------
Net cash provided by financing activities 2,363,236 1,508,274
-----------------------------

Effect of exchange rate changes on cash (3,694) (405,666)
-----------------------------

Net increase in cash and cash equivalents 960,260 259,448

Cash and cash equivalents, beginning of period 58,186 435,630
-----------------------------
Cash and cash equivalents, end of period $ 1,018,446 $ 695,078
-----------------------------

Cash paid during the period:
Interest $ 98,124 $ 225,319
-----------------------------
</TABLE>

Supplemental disclosure of non-cash activities:

In January 1998, the Company issued 50,000 shares of common stock at $1.00
per share in exchange for stock promotion services provided by a capital
service company.

On May 2, 1998 during the process of Rule 506 Regulation D offering, the
Company issued 2,000 shares of common stock in exchange for accounting
services provided by two existing shareholders.

On August 8, 1998 the Company issued 1,531,685 shares of common stock at
US$1.00 per share as part of consideration in exchange for 52% of American
Flavor China's all interest in and rights to Hangzhou Meilijian Dairy
Products Co. Ltd.

See accompanying notes to consolidated financial statements.

China Peregrine Food Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)

Organization and Business
- -------------------------

Note 1 - Basis of Presentation

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. All significant inter-company accounts and
transactions have been eliminated in consolidation. The minority interest
in the Chinese joint venture has been reported as a separate line item on
the consolidated balance sheet. The consolidated financial statements are
presented in U.S. dollars. Accordingly, the accompanying financial
statements do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for fair presentation have been
included. Operating results for the nine month period ended September 30,
1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report for the year ended December 31, 1997.

Note 2 - Income Taxes

Note 3 - Related Party Transactions

During the process of Rule 506 Regulation D offering, 2,000 shares were
issued in exchange for accounting services provided by two existing
shareholders.

On February 19, 1998 the Company issued 120,000 shares of common stock at a
price of $1.00 per share to Amer-China Partners, Limited (ACPL) pursuant to
a signed agreement dated October 1, 1997 to acquire ACPL's entire interest
in and rights (2.4%) to the Green Food Peregrine Children's Food Co. Ltd.

In line with Chinese government regulations, the change of investment ratio
in GFP must be approved by the Ministry of Foreign Trade and Economic
Cooperation (MOFTEC) in China. Therefore, the Company has agreed to
provide an interim loan of $500,000 in traunches to GFP and convert this
loan into registered capital upon obtaining MOFTEC's approval. As of
September 30, 1998 the company advanced US $420,000 to GFP.

Note 4 - Transactions in Shareholders' Equity

On January 15, 1998, the Company issued 50,000 shares of common stock at
$1.00 per share in exchange for stock promotion services provided by a
capital service company.

On May 2, 1998, the Company issued 557,000 units (each unit composed of one
share of common stock and one warrant to purchase one share of common
stock) at a price of $2.50 per unit, pursuant to a private offering in
accordance with the exemption provided in Rule 506, Regulation D. The net
proceeds of this offering were $1,387,500. The holders of such warrants
are entitled to purchase, from time to time, up to 557,000 shares of common
stock, per value $0.001 per share, at an exercise price of $1.00 per share,
at any time after June 30, 1998 and through and including June 30, 2003.

On June 18, 1998, the Company entered into a definitive agreement with
American Flavors China, Inc., a U.S. based entity, to acquire its 52% of
equity interest in Hangzhou Meilijian Dairy Products Co. Ltd. On July 31,
1998 the Board of Directors of Hangzhou Meilijian approved the acquisition.

Hangzhou United Dairy Co. Ltd., a state-owned enterprise in Zhejian
Province of China, controls the remaining 48% of equity interest in
Hangzhou Meilijian. The aforesaid acquisition agreement is subject to
approval by the local government that is presently pending.

The Company paid the following considerations to American Flavor China for
this acquisition: 1) US$210,000 of cash; 2) a note payable with a face
value of US$282,637.53, a term of 23 installment payments of US$7,250 and a
balloon payment at the end of the 24th month starting on July 15, 1998 at
an interest of 10.5% per annum; and 3) 1,531,685 shares of common stock at
US$1.00 per share.

As a result of this acquisition, the consolidated financial statements of
the Company already included the financial position as of September 30,
1998 and the operation results of Hangzhou Meilijian for the two months
period ended September 30, 1998. Please see the following pro forma
information.

China Peregrine Food Corporation and Subsidiary
Pro Forma Information About Operation Results

<TABLE>
<CAPTION>
Pro Forma CPHC Meilijian Pro Forma
CPHC Meilijian Consolidated Operation Operation Consolidated
Operation Operation Operation Results Results Operation
Results Results Results Nine Months Nine Months Results
Year Ended Year Ended Year Ended Ended Ended Period Ended
December 31, December 31, December 31, September 30, September 30, September 30,
1997 1997 1997 1998 1998 1998
------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C>
Revenues $ 730,195 $6,244,687 $ 6,974,882 $ 624,549 $3,691,477 $ 4,316,026

Cost of goods sold 852,277 5,212,932 6,065,209 707,359 3,151,056 3,858,415

Gross profit (122,082) 1,031,755 909,673 (82,810) 540,421 457,612

Selling expense 380,836 495,604 876,440 242,792 319,593 562,386
General and administrative expenses 1,873,360 708,856 2,582,216 1,371,095 349,386 1,720,481

Loss from operations (2,376,278) (172,705) (2,548,983) (1,696,697) (128,558) (1,825,256)

Other income (expense):
Interest expense, net (234,517) (212,043) (446,560) (198,238) (124,863) (323,101)
Other 58,200 46,486 104,686 (8,548) (2,897) (11,445)

Loss before income taxes (2,552,595) (338,262) (2,890,857) (1,903,483) (256,318) (2,159,801)

Income taxes - - - - - -

Loss before minority interest (2,552,595) (338,262) (2,890,857) (1,903,483) (256,318) (2,159,801)

Less: Loss attributable to minority
interest 474,007 162,366 636,373 314,018 123,032 437,050

Net loss (2,078,588) (175,896) (2,254,484) (1,589,465) (133,286) (1,722,751)

Dividends accrued for Series B
Preferred stock 85,050 85,050

Net loss applicable to common shares $(2,339,534) $(1,722,751)

Loss per share $ (0.45) $ (0.25)

Weighted average number of common
shares 5,213,512 7,265,452

<FN>
<F1> China Peregrine Food Corporation acquired a 52% equity interest in
Meilijian Dairy Products Co. Ltd. effective August 1, 1998. The
above pro forma information provides what if China Peregrine Food
Corporation acquired a 52% equity interest on January 1, 1997 and
1998, respectively.

<F2> There was no pro forma adjustments made in the above information.
</FN>
</TABLE>

PART III

ITEM 1 - INDEX TO EXHIBITS

Copies of the following documents are included as exhibits to this Form 10-
SBA pursuant to item 601 of Regulation S-B.

<TABLE>
<CAPTION>
SEC
Exhibit Reference
No. No. Title of Document Location
- ------- --------- ----------------- --------

<C> <C> <S> <C>
1a 2 Asset Purchase Agreement Page III-1
China Peregrine Enterprises, Limited

1b 2 Interim Agreement to Operate
China Peregrine Project Page III-

2a 3(i) Articles of Incorporation Page III-

2b 3(i) Amended Articles (name change) Page III-

3 3(ii) Restated Bylaws Page III-
China Peregrine Food Corporation

4a 4 Rights of Equity Holders Page III-
Common - Articles of Incorporation

4b 4 Preferred, Series A and B Designation Page III-

4c 4 Preferred, Series C Designation Page III-

5 10 Material Contracts Page III-
Green Food Joint Venture Contract

6 10 Material Contracts Page III-
Hangzhou Meilijian Joint
Venture Contract

7a 10 Material Contracts Page III-
Asset Purchase Agreement
American Flavors China, Inc.

7b 10 First Amendment (1-28-98) Page III-

7c 10 Second Amendment (6-19-98) Page III-

8 21 Subsidiaries Page III-
Articles of Association
Green Food Peregrine

9 21 Subsidiaries Page III-
Articles of Association
Hangzhou Meilijian

10 27 Financial Data Schedule Page III-

11 99 Hangzhou Meilijian Audited Financial Page III-
Statements, Years Ending
December 31,1996, 1997 & July 30, 1998
</TABLE>

In accordance with Section 12 of the Securities Exchange Act of 1934, China
Peregrine Food Corporation has caused this first amended registration
statement to be signed on its behalf by the undersigned, thereunder duly
authorized.

CHINA PEREGRINE FOOD CORPORATION

By: /S/ Roy G. Warren, President

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----

<S> <C> <C>
/S/ Charles Beech Chairman, Director March 10, 1999

/S/ Roy G. Warren President, Director March 10, 1999

/S/ Susan Lurvey Secretary, Treasurer March 10, 1999

</TABLE>

Transfer/Assignment Agreement
To Operate China Peregrine Project

1. Introduction. This Agreement is made this 5th day of March, 1997,
by and among China Peregrine International, Inc. (CPII), as the General
Partner and on behalf of China Peregrine Enterprises, Limited (CPEL), and
China Peregrine Food Corporation (CPFC).

2. Considerations. The following facts and events have been duly
considered by the parties in entering into this Agreement:

2.1 CPEL is the successor in interest to Peregrine Enterprises, Inc.,
a Texas corporation, with respect to a certain Joint Venture Contract, dated
April 13, 1993, entered into with China National Green Food Corporation and
Amer-China Partners Limited, for the purpose of developing manufacturing and
distribution primarily for children's food products in the People's Republic
of China (the Joint Venture Project).

2.2 In recognition of the need for additional financing on both a
short and long term basis for the Joint Venture Project, CPEL desires to
assign of all of its right title and interest in the Joint Venture Contract
to CPFC in exchange for an equity position in CPFC.

2.3 Any agreement to assign the rights of CPEL to CPFC is subject to
approval by the Joint Venture participants and the appropriate governmental
agency of the People's Republic of China.

2.4 Subsequent to the Joint Venture participants approval the
aforesaid assignment the parties to the Joint Venture Contract must await
approval of the assignment by the appropriate governmental agency of the
People's Republic of China. The Joint Venture participants anticipate that
the required approval of the assignment will be forthcoming but are unsure
of the time frame within which such approval may be effected.

2.5 Notwithstanding the foregoing, the participants to the Joint
Venture Project desire to continue to move the project forward in accordance
with the Joint Venture Contract during the interim period while awaiting
final governmental approval of the assignment of CPEL's rights in said
Contract to CPFC.

2.6 The parties acknowledge and agree that, in order to achieve the
goals set forth herein, an interim restructure of the operational aspects of
the rights to the Joint Venture Contract is necessary and, accordingly,
agree as follows.

3. Basic Agreement. In consideration of the mutual promises
contained in this Agreement, the parties agree to the following:

3.1 Transfer. CPEL hereby transfers and assigns of all of its right,
title and interest in the Joint Venture Contract to CPFC in exchange for the
issuance by CPFC of 1,040,000 shares of its common stock to CPEL.

3.2 Agency Agreement. CPEL, as Principal, hereby appoints CPFC
Principal's exclusive Agent for the performance of all acts required of
Principal, and in the name of Principal, under the Joint Venture Contract.
Agent accepts the appointment.

a. The agency shall begin on the date of this agreement and continue
until terminated in accordance with the provisions of this Agreement.

b. In furtherance of the agency, Agent undertakes performance of all
duties and obligations of Principal under and pursuant to a certain Joint
Venture Contract, dated April 13, 1993, entered into with China National
Green Food Corporation and Amer-China Partners Limited, for the purpose of
developing manufacturing and distribution primarily for children's food
products in the People's Republic of China.

c. As full remuneration for Agent's services, Agent shall be
entitled to any and all profit or other remuneration to which Principal is
entitled under the Joint Venture Contract.

d. Unless earlier terminated by the mutual agreement of the parties
to this agreement, the term of this Agreement shall be until the assignment
of CPEL's rights to the Joint Venture Contract to CPFC is approved by the
appropriate governmental agency of the People's Republic of China, at which
time this agreement shall terminate and be of no further force or effect.

e. This Agreement does not constitute an agreement for a partnership
or joint venture between Principal and Agent. All expenses and costs
incurred by Agent in meeting Agent's obligations under this Agreement shall
be solely those of Agent, and Principal shall not be liable for their
payment. Agent can make no commitments with third parties that are binding
upon Principal without Principal's written consent, and Agent in no way
shall hold Agent out as having that power.

f. This Agreement is personal to both Principal and Agent, and
neither party can assign or delegate any rights or duties arising hereunder
to a third party, whether by contract, will, or operation of law, without
the prior written consent of the other party to this agreement. Any attempt
to do so shall be void.

3.3 Assumption of Obligations.

a. As a covenant separate from the aforesaid Agency Agreement, CPFC
hereby assumes all of the duties and obligations, financial and otherwise,
of CPEL under, pursuant to and resulting from a certain Joint Venture
Contract, dated April 13, 1993, entered into with China National Green Food
Corporation and Amer-China Partners Limited, for the purpose of developing
manufacturing and distribution primarily for children's food products in the
People's Republic of China.

b. In consideration of the covenant contained in paragraph 3.3 a.
herein, CPFC shall be entitled to any and all profit or other remuneration
to which CPEL is entitled under the Joint Venture Contract.

4. Ratification of Terms of Agreement. The parties will vote their
stock and cast their votes as directors of CPFC and vote their partnership
interests in CPEL to enable the adoption and ratification by CPEL and CPFC
of the terms and conditions of this Agreement.

5. Agreement Not Assignable. This Agreement may not be assigned by
any party without the written consent of the other parties.

6. Counterparts. This Agreement may be executed in several and
separate counterparts which, collectively, shall constitute the operative
Agreement among the parties.

7. Law Governing. This Agreement shall be governed by the laws of
the State of Delaware, without consideration of choice of law principles.

IN WITNESS WHEREOF, the parties have signed this Agreement on the day
and year first above written.

CHINA PEREGRINE ENTERPRISES, LIMITED
BY: CHINA PEREGRINE INTERNATIONAL, INC.
General Partner of China
Peregrine Enterprises, Limited

By s/Charles Beech
--------------------------------------
Charles Beech, President

CHINA PEREGRINE FOOD CORPORATION

By s/Paul Downes
--------------------------------------
Paul Downes, Presisent

Interim Agreement to Operate China Peregrine Project

1. Introduction. This Agreement is made this 5 day of April, 1997,
by and among China Peregrine International, Inc. (CPII), as the General
Partner of China Peregrine Enterprises, Limited (CPEL), Dale Reese (Reese),
Charles J. Beech (Beech), Paul Downes (Downes), Tamarind Management, Ltd.
(Tamarind) and China Peregrine Food Corporation (CPFC).

2. Considerations. The following facts and events have been duly
considered by the parties in entering into this Agreement:

2.2 In recognition of the need for additional financing on both a
short and long term basis for the Joint Venture Project, CPEL has agreed to
assign of all of its right title and interest in the Joint Venture Contract
to CPFC in exchange for an equity position in CPFC.

2.3 The aforesaid agreement to assign the rights of CPEL to CPFC was
and is subject to approval by the Joint Venture participants and the
appropriate governmental agency of the People's Republic of China.

2.4 The Joint Venture participants have approved the aforesaid
assignment and the parties to the Joint Venture Contract are awaiting
approval of the assignment by the appropriate governmental agency of the
People's Republic of China. The Joint Venture participants anticipate that
the required approval of the assignment will be forthcoming but are unsure
of the time frame within which such approval may be effected.

3. Basic Agreement. In consideration of the mutual promises
contained in this Agreement, the parties agree to the following:

3.1 Agency Agreement. CPEL, as Principal, hereby appoints CPFC
Principal's exclusive Agent for the performance of all acts required of
Principal, and in the name of Principal, under the Joint Venture Contract.
Agent accepts the appointment.

a. The agency shall begin on the date of this agreement and continue
until terminated in accordance with the provisions of this Agreement.

c. As full remuneration for Agent's services, Agent shall be
entitled to any and all profit or other remuneration to which Principal is
entitled under the Joint Venture Contract.

3.2 Assumption of Obligations.

b. In consideration of the covenant contained in paragraph 3.2 a.
herein, CPFC shall be entitled to any and all profit or other remuneration
to which CPEL is entitled under the Joint Venture Contract.

5. Agreement Not Assignable. This Agreement may not be assigned by
any party without the written consent of the other parties.

6. Counterparts. This Agreement may be executed in several and
separate counterparts which, collectively, shall constitute the operative
Agreement among the parties.

7. Law Governing. This Agreement shall be governed by the laws of
the State of Delaware, without consideration of choice of law principles.

IN WITNESS WHEREOF, the parties have signed this Agreement on the day
and year first above written.

CHINA PEREGRINE ENTERPRISES, LIMITED
BY: CHINA PEREGRINE INTERNATIONAL, INC.
General Partner of China Peregrine
Enterprises, Limited

By s/Charles Beech
--------------------------------------
Charles Beech, President

CHINA PEREGRINE FOOD CORPORATION

By s/Charles Beech
--------------------------------------
Charles J. Beech, Chairman and
Chief Executive Officer

By s/Dale Reese
--------------------------------------
Dale Reese, Treasurer

s/ Dale Reese s/ Charles Beech
- ----------------------------- --------------------------------------
Dale Reese Charles Beech

TAMARIND MANAGEMENT, LTD.

s/Paul Downes By s/Paul Downes
- ----------------------------- --------------------------------------
Paul Downes

STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 04/26/1996
960121448 - 2619440

ARTICLES OF INCORPORATION

OF
SHAKESPEARE HOLDINGS, INC

The undersigned natural, adult person, acting as incorporator of a
corporation hereinafter usually referred to as the "Corporation") pursuant
to the provisions of the Delaware Corporation Law, hereby adopts the
following Articles of Incorporation for said Corporation.

ARTICLE I

Name
----

The name of the corporation shall be Shakespeare Holdings, Inc.

ARTICLE II

Duration
--------

The period of duration of the Corporation shall be perpetual.

ARTICLE III

The purpose for which the Corporation is organized is to transact any
or all lawful business for which corporations may be incorporated pursuant
to the Delaware Corporation Law.

ARTICLE IV

Capital Stock
-------------

The authorized capital stock of the Corporation shall consist of
20,000,000 shares of common stock with a par value of $0.00l per share and
and 5,000,000 shares of preferred stock with a par value of $0.001 per share.

ARTICLE V

Preferences, Limitations,
and Relative Rights of
Capital Stock

No share of the common stock shall have any preference over or
limitation in respect to any other share of such common stock. All shares of
common stock shall have equal rights and privileges, including the
following:

1. All shares of common stock shall share equally in dividends.
Subject to the applicable provisions of the laws of Delaware,
the Board of Directors of the Corporation may, from time to
time, declare and the Corporation may pay dividends in cash,
property, or its own shares, except when the Corporation is
insolvent or when the payment thereof would render the
Corporation insolvent or when the declaration or payment thereof
would be contrary to any restrictions contained in these
Articles of Incorporation. When any dividend is paid or any
other distribution is made, in whole or in part, from sources
other than unreserved and unrestricted earned surplus, such
dividend or distribution shall be identified as such, and the
source and amount per share paid from each source shall be
disclosed to the stockholder receiving the same concurrently
with the distribution thereof and to all other stock holders not
later than six months after the end of the Corporation's fiscal
year during which such distribution was made.

2. All shares of common stock shall share equally in distributions
in partial liquidation. Subject to the applicable provisions or
the laws of Delaware, the Board of Directors of the Corporation
may distribute, from time to time, to Its stockholders in
partial liquidation, out of stated capital or capital surplus of
the Corporation, a portion of its assets in cash or property,
except when the Corporation is insolvent or when: such
distribution would render the Corporation insolvent, each such
distribution, when made, shall be identified as a distribution
in partial liquidation, out of stated capital or capital
surplus, and the source and amount per share paid from each
source shall be disclosed to all stockholders of the Corporation
concurrently with the distribution thereof. Any such
distribution may be made by the Board of Directors from stated
capital without the affirmative vote of any stockholders or the
Corporation.

3. Each outstanding share of common stock shall be entitled to one
vote at stockholders' meetings, either in person or by proxy.

b) The designations, restrictions and limitations of the preferred
stock shall be established from time to time by the Corporation's Board of
Directors, in accordance with Delaware Corporation Law.

c) 1. Cumulative voting shall not be allowed in elections of
directors or for any purpose.

2. No holders of shares of common stock of the Corporation shall be
entitled, as such, to any preemptive or preferential right to subscribe to
any unissued stock or any other securities which the Corporation may now or
hereafter be authorized to issue. The Board of Directors of the Corporation,
however, in its discretion by resolution, may determine that any unissued
securities of the Corporation shall be offered for subscription solely to
the holders of common stock of the Corporation, or solely to the holders of
any class or classes of such stock, which the Corporation may now or
hereafter be authorized to issue, in such proportions based on stock
ownership as said board in its discretion may determine.

3. The Board of Directors may restrict the transfer of any of the
Corporation's stock issued by giving the Corporation or any stockholder
"first right of refusal to purchase" the stock, by making the stock
redeemable, or by restricting the transfer of the stock under such terms and
in such manner as the directors may deem necessary and as are not
Inconsistent with the laws of this State. Any stock so restricted must
carry a conspicuous legend noting the restriction and the place where such
restriction may be found in the records of the Corporation.

4. The judgment of the Board of Directors as to the adequacy of any
consideration received or to be received for any shares, options, or any
other securities which the Corporation at any time may be authorized to
issue or sell or otherwise dispose of shall be conclusive in the absence of
fraud, subject to the provisions of these Articles of Incorporation and any
applicable law.

ARTICLE VI

Place of Business
-----------------

The registered office of the Corporation will be:

Three Christina Centre
209 North Walnut Street
Wilmington, Delaware 19801
New Castle County

The name of the Corporation's initial registered agent at its office
shall be:

The Company Corporation

ARTICLE VII

Directors
---------

The affairs of the Corporation shall be governed by a board of not
less than one (l) director, who shall be elected in accordance with the
Bylaws of the Corporation. Subject to such limitation, the number of
directors shall be fixed by or in the manner provided in the Bylaws of the
Corporation, as may be amended from time to time. The organization and
conduct of the board shall be in accordance with the following:

1. The name and address of the initial Director, who shall hold
office until the first annual meeting of the stockholders of the
Corporation or until his successor shall have been elected and
qualified is:

Name Address
---- -------
Paul Downes c/o Eaton Group

2. The directors of the Corporation need not be residents of
Delaware and shall not be required to hold shares of the
Corporation's capital stock.

3. Meetings of the Board of Directors, regular or special, may be
held within or without Delaware upon such notice as may be
prescribed by the By-laws of the Corporation. Attendance of a
director at a meeting shall constitute a waiver by him or notice
of such meeting unless he attends only for the express purpose
of objecting to the transaction of any business thereat on the
ground that the meeting is not lawfully called or convened

4. A majority of the number of directors at any time constituting
the Board of Directors shall constitute a quorum for the
transaction or business.

5. By resolution adopted by a majority of the Directors at any time
constituting the Board of Directors, the Board of Directors may
designate two or more directors to constitute an Executive
Committee or one or more other committees each of which shall
have and may exercise, to the extent permitted by law or in such
resolution, all the authority of the Board of Directors in the
management of the Corporation; but the designation of any such
committee and the delegation of authority thereto shall not
operate to relieve the Board of Directors, or any member
thereof, or any responsibility imposed on it or him by law.

6. Any vacancy in the Board of Directors, however caused or
created, may be filled by the affirmative vote of a majority of
the remaining directors, though less than a quorum of the Board
of Directors. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office and
until his successor is duly elected and qualified.

ARTICLE VIII

Officers
--------

The officers of the Corporation shall be prescribed by the Bylaws of
the Corporation.

ARTICLE IX

Meetings of Stockholders
------------------------

Meetings of the stockholders of the Corporation shall be held at such
place within or without Delaware and at such times as may be prescribed in
the Bylaws of the Corporation. Special meetings of the stockholders or the
Corporation may be called by the President of the Corporation, the Board of
Directors, or by the record holder or holders of at least ten percent (l0%)
of all shares entitled to vote at the meeting. At any meeting of the
stockholders, except to the extent otherwise provided by law, a quorum shall
consist of a majority of the shares entitled to vote at the meeting: and, if
a quorum is present, the affirmative vote of the majority of shares
represented at the meeting and entitled to Vote thereat shall be the act of
the stockholders unless the vote of a greater number is required by law.

ARTICLE X

Voting
------

When, with respect to any action to be taken by stockholders of this
Corporation, the Delaware Corporation Law requires the affirmative vote of
the holders of more than a majority of the outstanding shares entitled to
vote thereon, or of any class or series, such action may be taken by the
affirmative vote of the holders of a majority of the outstanding shares
entitled to vote on such action.

ARTICLE XI

By-laws
-------

The Initial By-laws of the Corporation shall be adopted by Its Board
of Directors. Subject to repeal or change by action of the stockholders,
the power to alter, amend, or repeal the By-laws or to adopt new By-laws
shall be vested In the Board of Directors,

ARTICLE XII

Transactions with Directors and
-------------------------------
Other Interested Parties
------------------------

No contract or other transaction between the Corporation and any other
corporation, whether or not a majority of the shares of the capital stock of
such other corporation is owned by the Corporation, and no act of the
Corporation shall in any way be affected or invalidated by the fact that any
of the directors of the Corporation are pecuniarily or otherwise interested
in, or are directors or officers of, such other corporation. Any director of
the corporation, individually, or any firm with which such director is
affiliated may be a party to or may be pecuniarily or otherwise interested
in any contract or transaction of the Corporation; provided, however, that
the fact that he or such firm is so interested shall be disclosed or shall
have been known to the Board of Directors of the Corporation, or a majority
thereof, at or before the entering into such contract or transaction; and
any director of the Corporation who is also a director or officer of such
other corporation, or who is so interested, may be counted In determining
the existence of a quorum at any meeting of the Board of Directors of the
Corporation which shall authorize such contract or transaction, with like
force and effect as if he were not such director or officer of such other
corporation or not so interested.

ARTICLE XIII

Limitation of Director Liability
--------------------------------
and Indemnification
-------------------

No director of the Corporation shall have liability to the Corporation
or to is stockholders or to other security holders for monetary damages for
breach of fiduciary duty as a director; provided, however, that such
provisions shall not eliminate or limit the liability of a director to the
Corporation or to its shareholders or other security holders for monetary
damages for: (1) any breach or the director's duty or loyalty to the
Corporation or to its shareholders or other security holders; (ii) acts or
omissions of the director not in good faith or which involve intentional
misconduct or a knowing violation of the law by such director; (iii) acts by
such director as specified by the Delaware Corporation Law; or (iv) any
transaction from which such director derived an improper personal benefit.

No officer or director shall be personally liable for any injury to
person or property arising out of a tort committed by an employee of the
Corporation unless such officer or director was personally involved in the
situation giving rise to the injury or unless such officer or director
committed a criminal offense. The protection afforded in the preceding
sentence shall not restrict other common law protections and rights that an
officer or director may have.

The word "director" shall include at least the following, unless
limited by Delaware law: an individual who is or was a director of the
Corporation and an individual who, while a director of a Corporation is or
was serving at the Corporation's request as a director, officer, partner,
trustee, employee or agent of any other foreign or domestic corporation or
of any partnership, joint venture, trust, other enterprise or employee
benefit plan. A director shall be considered to be serving an employee
benefit plan at the Corporation's request if his duties to the Corporation
also impose duties on or otherwise involve services by him to the plan or to
participants in or beneficiaries of the plan. To the extent allowed by
Delaware law, the word "director" shall also include the heirs and personal
representatives of all directors.

This Corporation shall be empowered to indemnify its officers and
directors to the fullest extent provided by law, including but not limited
to the provisions set forth in the Delaware Corporation Law, or any
successor provision.

ARTICLE XIII

Incorporator
------------

The name and address of the Incorporator of the Corporation is as
follows:

Name Address
---- -------

William T. Hart 1624 Washington Street
Denver, CO 80203

IN WITNESS WHEREOF the undersigned incorporator has hereunto affixed
his signature on the 23rd day of April, 1995.

William T. Hart
------------------------------
William T. Hart

STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )

I, Kathryn R. Sweeney, a Notary Public in and for the State of
Colorado, hereby certify that on the 23rd day of April, 1996, personally
appeared before me William T. Hart, being by me first duly sworn, who
declared that he is the person who signed the foregoing Articles of
Incorporation as Incorporator and that the statements contained therein are
true.

Katheryn R. Sweeney
------------------------------
NOTARY PUBLIC

My Commission expires 10/25/96

(SEAL)

STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 05:20 PM 04/16/1997
971124042 - 2619440

STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION

SHAKESPEARE HOLDINGS, INC.
- ----------------------------------------------------------------------------

A corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware

DOES HEREBY CERTIFY:

FIRST: That at a meeting of the Board of Directors of
SHAKESPEARE HOLDINGS, INC.
--------------------------
- ----------------------------------------------------------------------------
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:

RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "ARTICLE I" so that, as
amended, said Article shall be and read as follows:-----------

The name of the Corporation shall be China Peregrine Food Corporation
- ----------------------------------------------------------------------------

- ----------------------------------------------------------------------------

SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and
held upon notice in accordance with Section 222 of the General Corporation
Law of the State of Delaware at which meeting the necessary number of shares
as required by statute were voted in favor of the amendment.

THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said amendment.

IN WITNESS WHEREOF, said Shakespeare Holdings, Inc. has caused this
certificate to be signed by ---------------------------

Paul Downes , an Authorized Officer, this 15th day of March , 1997.
- ----------------- ------ --------- ---

BY: [ Paul Downes]
------------------------------------------
TITLE OF OFFICER: PRESIDENT AND DIRECTOR
------------------------

BYLAWS
OF
CHINA PEREGRINE FOOD CORPORATION

Article I

OFFICES

1.01. The principal office of the corporation is located in West
Palm Beach, Florida. The Corporation may have other offices, within or
without Florida or the United States, as the Board of Directors may
designate or as the business of the Corporation may require.

The registered office of the Corporation, required by the Delaware
General Corporation Law to be maintained in Delaware, as presently
identified in the Corporation's Certificate of Incorporation, may be changed
by the Board of Directors.

Article II

SHAREHOLDERS

2.01. Annual Meeting. The annual meeting of the shareholders will be
held on the first Tuesday of June in each year, for the preceding fiscal
year, at 10:00 AM Eastern Time Zone or at any other time and day within that
month that is fixed by the Board of Directors, for the purpose of electing
Directors and for the transaction of any other business that may come before
the meeting. If the day fixed for the annual meeting is a legal holiday in
Florida, the meeting shall be held on the next succeeding business day. If
the election of Directors is not held on the day designated for any annual
meeting of the shareholders or at any adjournment of the meeting, the Board
of Directors shall call for the election to be held at a special meeting of
the shareholders as soon thereafter as possible.

2.02. Special Meetings. Special meetings of the shareholders, for
any purpose, may be called by the Chairman, President or by the Board of
Directors. A special meeting must be called by the Chairman if requested by
the holders of not less than ten percent (10%) of all outstanding shares of
the Corporation entitled to vote at the meeting. The provisions of this
Section are subordinate to any statutory provisions that may require a
different procedure.

2.03. Meeting Place. The Board of Directors may designate any place
within or without Florida, as the meeting place for any annual meeting or
for any special meeting called by the Board of Directors. A waiver of
notice signed by all shareholders entitled to vote at a meeting may
designate any place, within or without Florida, as the place for the meeting
described in the waiver. If no designation is made, or if a special meeting
is called in a different manner than that described in this Section, the
place of meeting shall be the principal office of the Corporation in
Florida.

2.04. Notice of Meeting. Written notice stating the place, day, and
hour of the meeting and, in case of a special meeting, the purpose for which
the meeting is called, shall be delivered not less than ten nor more than
fifty days before the date of the meeting, either personally or by mail, to
each shareholder of record entitled to vote at the meeting. If mailed, the
notice shall be deemed to be delivered when deposited in the U.S. mail,
addressed to the shareholder at the address as it appears on the stock
transfer books of the Corporation, with postage prepaid. The provisions of
this Section are subordinate to any statutory provisions that may require a
different procedure.

2.05. Closing of Transfer Books or Fixing of Record Date. To
determine which shareholders are entitled to: (a) Receive notice of any
meeting; (b) Vote at any meeting; (c) Receive payment of any dividend; or
(d) To identify shareholders for any other proper purpose, the Board of
Directors may close the stock transfer books for a stated period not to
exceed fifty days. If the stock transfer books are closed to determine
which shareholders are entitled to notice of or to vote at a meeting of
shareholders, the books must be closed for at least ten days immediately
before the meeting. In lieu of closing the stock transfer books, the Board
of Directors may fix in advance a date as the record date for any
identification of shareholders, the date to be not more than fifty days and,
in case of a meeting of shareholders, not less than ten days before the date
on which the particular action is to be taken. If the stock transfer books
are not closed and no record date is fixed, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of
Directors declaring a dividend is adopted, shall be the record date for
determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this Section, the determination shall apply to any adjournment of the
meeting.

2.06. Voting Record. The officer or agent in charge of the stock
transfer books of the Corporation will make a complete record of the
shareholders entitled to vote at each meeting of shareholders, or any
adjournment of the meeting, arranged in alphabetical order, with each
stockholder's address and the number of shares held by each stockholder.
These records will be produced and kept open at the time and place of the
meeting and will be subject to the inspection of any shareholder during the
whole time of the meeting.

2.07. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, will
constitute a quorum at a meeting of shareholders. If there are less than a
majority of the shares represented at a meeting, a majority of the shares
represented may adjourn the meeting without further notice. At an adjourned
meeting where a quorum is present, any business may be transacted that might
have been transacted at the original meeting.

2.08. Proxies. At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by the shareholder or by his
authorized attorney-in-fact. A proxy must be filed with the Secretary of
the Corporation before or at the time of the meeting. No proxy will be
valid after eleven months from the date of its execution, unless the proxy
provides otherwise.

2.09. Voting of Shares. Except for cumulative voting for Directors
if permitted by these Bylaws, each outstanding share entitled to vote shall
be entitled to one vote upon each matter submitted to shareholders.

2.10. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by the officer, agent, or proxy
prescribed by that corporation's bylaws or, in the absence of a bylaw
provision, as the Board of Directors of that corporation determines.

Shares held by an administrator, executor, guardian, or conservator
may be voted by him, either in person or by proxy, without transferring the
shares into his name. Shares standing in the name of a trustee may be voted
by the trustee either in person or by proxy, but no trustee shall be
entitled to vote shares held by the trustee without transferring the shares
into the trustee's name.

Shares standing in the name of a receiver may be voted by the
receiver. Shares held by, or under the control of, a receiver may be voted
by the receiver without transferring them into the receiver's name if there
is authority to do so contained in the court order by which such receiver
was appointed.

A shareholder whose shares are pledged will be entitled to vote them
until the shares have been transferred into the name of the pledgee, and,
thereafter, the pledgee shall be entitled to vote the shares so transferred.

Treasury shares of its own stock held by the Corporation, and shares
held by another corporation, if the Corporation holds a majority of the
shares entitled to vote for the election of directors of such other
corporation, will not be voted at any meeting, nor counted in determining
the total number of outstanding shares for the purpose of any meeting.

2.11. Informal Action by Shareholders. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without
a meeting if a consent in writing, setting forth the action to be taken, is
signed by all of the shareholders entitled to vote on the action.

2.12. Non-Cumulative Voting. At each election for Directors, every
shareholder entitled to vote at the election has the right to vote in person
or by proxy the number of shares owned by the shareholder for as many people
as there are Directors to be elected and for whose election the shareholder
has a right to vote.

Article III

BOARD OF DIRECTORS

3.01. General Powers. The business and affairs of the Corporation
will be managed by the Board of Directors.

3.02. Number, Tenure, and Qualifications. The number of Directors of
the Corporation shall be fixed initially at eight. Thereafter, the number
of Directors of the Corporation shall be fixed and determined by resolution
adopted by a majority of the directors at any time constituting the Board of
Directors. The Directors shall be divided into two groups; the number of
Directors in each group shall be set initially by the then existing Board of
Directors at four. Such groups shall be designated as Group A or Group B,
respectively. Each group of Directors shall hold office until the second
next annual meeting of shareholders subsequent to each such Director's
election and until each such Director's successor has been elected and
qualified. The Directors in Group A shall be elected at the annual meeting
of shareholders held for odd numbered fiscal years, irrespective of the
calendar year in which such meeting is held. The Directors in Group B shall
be elected at the annual meeting of shareholders held for even numbered
fiscal years, irrespective of the calendar year in which such meeting is
held. Directors need not be residents of Delaware or shareholders of the
Corporation.

3.03. Regular Meetings. A regular meeting of the Board of Directors
will be held without any notice other than this Bylaw immediately after, and
at the same place as, the annual meeting of shareholders. The Board of
Directors may fix, by resolution, the time and place, either within or
without Florida, of additional regular meetings without any notice other
than the resolution.

3.04. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman or any two Directors.
The person(s) authorized to call special meetings of the Board of Directors
may fix the time and place, either within or without Florida, of any special
meeting of the Board of Directors called by them.

3.05. Notice. Notice of any special meeting shall be given at least
five (5) business days in advance in writing, delivered personally or mailed
to each Director at his business address, or by telegram. If mailed, the
notice shall be deemed to be delivered when deposited in the U.S. mail,
addressed, with postage prepaid. If notice is given by telegram, the notice
shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any Director may waive notice of any meeting. The
attendance of a Director at a meeting shall constitute a waiver of notice of
that meeting, unless the Director attends for the express purpose of
objecting to the transaction of any business because the meeting is not
lawfully called or convened.

3.06. Quorum. A majority of the number of Directors fixed by Section
3.02 shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. If less than a majority is present at a
meeting, a majority of the Directors present may adjourn the meeting without
further notice.

3.07. Manner of Acting. The act of the majority of the Directors
present in person or by telephonic communication or conference call, during
which telephonic communication or conference call each Director present is
capable of hearing and speaking to all other Directors present, at a meeting
at which a quorum is present shall be the act of the Board of Directors.

3.08 Action Without a Meeting. Any action required or permitted to
be taken by the Board of Directors at a meeting may be taken without a
meeting if a consent in writing, stating the action to be taken, is signed
by all of the Directors. Such signatures, and the consent(s) on which such
signatures are placed, shall become effective and valid as an Action of the
Board of Directors pursuant to this section upon the receipt by the
Secretary, President or Chairman of the Corporation of facsimile
representations of such signature(s) on such consent(s) provided, however,
that such signatures are verified telephonically as to authenticity by the
Secretary, President or Chairman of the Corporation. As a matter of
practice and corporate procedure, but not affecting the validity of such
consent(s), the Secretary shall cause the original manually signed consents
to be obtained from the respective Directors and placed in the corporate
records as a part of such consent(s). Consents signed in numerous
counterparts shall be allowed and shall constitute valid, effective and
binding actions of the Board of Directors.

3.09. Vacancies. Any vacancy in the Board of Directors may be filled
by the affirmative vote of a majority of the remaining Directors. A
Director elected to fill a vacancy shall be included in the same Director
Group as such Director's predecessor and shall be elected for the unexpired
term of the Director's predecessor in office. Any directorship to be filled
by reason of an increase in the number of Directors may be filled by
election by the Board of Directors for a term of office continuing as set
forth in Section 3.02 of these Bylaws. Directors elected by reason of an
increase of the number of Directors shall be included in either Director
Group A or B on an alternating basis.

3.10. Compensation. By resolution, the Board of Directors may direct
that each Director be reimbursed for expenses actually incurred in attending
each meeting of the Board of Directors. The Board of Directors, by
resolution, may also set an annual salary for each Director, a stated sum
for attending a meeting of the Board of Directors, or both. This payment
shall not preclude any Director from serving the Corporation in any other
capacity and receiving compensation for that service.

3.11. Presumption of Assent. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken, unless his dissent appears in the minutes of the meeting, or unless
the Director files his written dissent to the action with the person acting
as the secretary of the meeting before the adjournment, or forwards the
Director's dissent by registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. This right to dissent
does not apply to a Director who voted in favor of the action.

Article IV

OFFICERS

4.01. Number. The officers of the Corporation shall be a Chairman,
Chief Executive Officer, President, Chief Operating Officer, one or more
Vice-Presidents (the number to be determined by the Board of Directors), a
Secretary, and a Treasurer, each of whom shall be elected by the Board of
Directors. Other officers and assistant officers may be elected or
appointed by the Board of Directors. Any two or more offices may be held by
the same person, except the offices of president and secretary.

4.02. Election and Term of Office. The officers of the Corporation
shall be elected annually by the Board of Directors at the first meeting of
the Board of Directors following the annual meeting of the shareholders. If
the election of officers is not held at that meeting, the election shall be
held as soon as convenient. Each officer shall hold office until the
officer's successor has been elected and has qualified or until the officer
dies, resigns, or is removed in the manner provided in Section 4.03.

4.03. Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the removal will serve the best interests
of the Corporation.

4.04. Vacancies. A vacancy in any office for any reason may be
filled by the Board of Directors for the unexpired portion of the term.

4.05. Chairman. The Chairman is the chief officer of the Corporation
and, subject to the control of the Board of Directors, will supervise the
overall corporate and business affairs of the Corporation. The Chairman
will preside at all meetings of the Board of Directors. The Chairman may
sign, with the President or any other officer of the Corporation authorized
by the Board of Directors, certificates for shares of the Corporation, as
well as deeds, mortgages, bonds, contracts, or other instruments that the
Board of Directors has authorized to be executed. The Chairman may not
sign these documents where their signing and execution has been expressly
delegated by the Board of Directors or by these Bylaws to some other officer
or agent of the Corporation or where the law of Delaware requires the
documents to be signed or executed by others.

4.06. Chief Executive Officer. The Chief Executive Officer is the
primary executive officer of the Corporation and, subject to the control of
the Board of Directors, will supervise the day to day business affairs of
the Corporation. The Chief Executive Officer will perform all duties
incident to the office and all other duties as may be prescribed by the
Board of Directors.

4.07. President. The President is the primary operating officer of
the Corporation and, subject to the control of the Board of Directors, will
supervise and control all of the day to day corporate business affairs of
the Corporation. The President, unless otherwise directed by the Board of
Directors, will preside at all meetings of the shareholders. The President
may sign, with the Chairman or any other officer of the Corporation
authorized by the Board of Directors, certificates for shares of the
Corporation, as well as deeds, mortgages, bonds, contracts, or other
instruments that the Board of Directors has authorized to be executed. The
President may not sign these documents where their signing and execution has
been expressly delegated by the Board of Directors or by these Bylaws to
some other officer or agent of the Corporation or where the law of Delaware
requires the documents to be signed or executed by others. In general, the
President will perform all duties incident to the office of president and
all other duties as may be prescribed by the Board of Directors.

4.08. Chief Operating Officer. The Chief Operating Officer is the
operating officer of the Corporation charged with the supervision and
control of the day to day operation of the business of the Corporation,
subject to the control of the Board of Directors. The Chief Operating
Officer will perform all duties incident to the office and all other duties
as may be prescribed by the Board of Directors.

4.09. The Vice-Presidents. In the President's absence, death, or
inability or refusal to act, the Vice-President (or in the event there is
more than one vice-president, the vice-president in the order designated at
the time of their election; or in the absence of any designation, then in
the order of their election) shall perform the duties of the President.
When the Vice-President is acting as president, the Vice-President shall
have all the powers of and be subject to all the restrictions upon the
President. Any vice-president may sign, with the Secretary or an assistant
secretary, certificates for shares of the Corporation and perform any other
duties that may be assigned by the President or by the Board of Directors.

4.10. The Secretary. The Secretary shall: (a) keep the minutes of
the proceedings of the shareholders and of the Board of Directors in one or
more books provided for that purpose; (b) see that all notices are given in
accordance with the provisions of these Bylaws or as required by law; (c) be
custodian of the corporate records and of the Corporation's seal, and see
that the Corporation's seal is affixed to all documents that must be
executed under its seal; (d) keep a register of the address of each
shareholder that has been given to the Secretary by each shareholder; (e)
sign with the President, or a vice-president, certificates for shares of the
Corporation; (f) have general charge of the stock transfer books of the
Corporation; and (g) perform all duties incident to the off ice of secretary
and any other duties that may be assigned by the President or by the Board
of Directors.

4.11. The Treasurer. The Treasurer shall: (a) have charge and
custody of all funds and securities of the Corporation; (b) receive and give
receipts for monies due and payable to the Corporation from any source, and
deposit all the Corporation's monies in the name of the Corporation in the
banks, trust companies, or other depositories that are selected in
accordance with the provisions of these Bylaws; and (c) in general, perform
all of the duties incident to the office of treasurer and any other duties
that may be assigned by the President or by the Board of Directors. If
required by the Board of Directors, the Treasurer will give a bond for the
faithful discharge of his duties in a specified sum and with the surety or
sureties designated by the Board of Directors.

4.12. Assistant Secretary and Assistant Treasurer. The assistant
secretary, when authorized by the Board of Directors, may perform the duties
of the Secretary, subject to the control and supervision of the Secretary
and the Board of Directors. The assistant treasurer shall, if required by
the Board of Directors, give bonds for the faithful discharge of their
duties in specified sums and with sureties designated by the Board of
Directors. In general, the assistant secretary and assistant treasurer will
perform those duties that are assigned to them by the Secretary or the
Treasurer, or by the President or the Board of Directors.

4.13. Salaries. The salaries of the officers will be fixed by the
Board of Directors. No officer shall be denied a salary because the officer
is also a Director of the Corporation.

Article V

CONTRACTS, LOANS, CHECKS, AND DEPOSITS

5.01. Contracts. The Board of Directors may authorize one or more
officers or agents to enter into any contract or execute and deliver any
instrument on behalf of the Corporation. This authority may be general or
confined to specific instances.

5.02. Loans. No loans shall be contracted on behalf of the
Corporation, and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. This authority
may be general or confined to specific instances.

5.03. Checks, Drafts, Etc. All checks, drafts, or other orders for
the payment of money, and notes or other evidences of indebtedness issued in
the Corporation's name shall be signed by the officers and/or agents of the
Corporation in the manner authorized by resolution of the Board of
Directors.

5.04. Deposits. All funds of the Corporation not otherwise employed
shall be deposited to the credit of the Corporation in banks, trust
companies, or other depositories that the Board of Directors selects.

Article VI

CERTIFICATES FOR SHARES AND THEIR TRANSFER

6.01. Certificates for Shares. Certificates representing shares of
the Corporation shall be in the form specified by the Board of Directors.
The certificates shall be signed by the President and the Secretary and
sealed with the corporate seal or a facsimile. The officers' signatures
upon a certificate may be facsimiles if the certificate is manually signed
by the Corporation's transfer agent or registrar. Each certificate will be
consecutively numbered or otherwise identified. The name and address of
each person to whom certificates are issued, with the number of shares
represented by the certificate and date of issue, shall be entered on the
stock transfer books of the Corporation. All certificates surrendered to
the Corporation for transfer shall be canceled, and no new certificate will
be issued until the former certificate for a like number of shares has been
surrendered and canceled. In case of a lost, destroyed, or mutilated
certificate, a replacement may be issued upon the terms and indemnity to the
Corporation as the Board of Directors may prescribe.

6.02. Transfer of Shares. Transfer of the Corporation's shares will
be entered in the Corporation's stock transfer books only when authorized by
the holder of record or the holder's legal representative, who shall provide
proper evidence of his authority filed with the Corporation's Secretary. No
transfer of shares will be entered in the stock transfer book unless the
certificate representing the shares has been surrendered for cancellation.
The person or entity in whose name shares are entered in the stock transfer
ledger shall be deemed to be the owner of the shares for all purposes.

Article VII

FISCAL YEAR

7.01. The fiscal year of the Corporation shall begin on the first day
of January and end on the thirty-first day of December in each year.

Article VIII

DIVIDENDS

8.01. The Board of Directors may declare and the Corporation may pay
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law and the Corporation's Articles of Incorporation.
Article IX

WAIVER OF NOTICE

9.01. Whenever any notice must be given to any shareholder or
Director of the Corporation under the provisions of these Bylaws or under
the provisions of the Certificate of Incorporation or under the law of
Delaware, a waiver of notice signed by the person or persons entitled to the
notice, whether before or after the time set out in the notice, is
equivalent to the giving of notice.

Article X

AMENDMENTS

10.01. Except as may be provided otherwise by the Delaware General
Corporation Law, these Bylaws may be altered, amended, or repealed, and new
Bylaws may be adopted by the Board of Directors at any regular or special
meeting of the Board of Directors.

Page 8 of _

Rights of Equity Holders of
CHINA PEREGRINE FOOD CORPORATION
Common Stock

See Exhibit 2a "Articles of Incorporation"

CHINA PEREGRINE FOOD CORPORATION
--------------------------------

Designation of Series A Convertible Preferred Stock
Designation of Series B Convertible Preferred Stock

Pursuant to the authority expressly granted and vested in the Board of
Directors by the Articles of Incorporation of the Corporation and The
Delaware General Corporation Law, the following classes of stock of the
Corporation hereby designated as "Series A Convertible Preferred Stock," and
which shall have the rights set forth in following terms:

Designation: Series A Convertible Preferred Stock consisting of 500,000
shares (the Series A Stock).

Dividends: Series A Stock shall pay or accrue dividends only to the
extent that dividends are declared by the Board of Directors
with respect to the Common Stock of the Corporation.

Voting: Non cumulative; voting rights of the Series A Stock shall be
equal to and same as that attributable to the Common Stock
of the Corporation.

Conversion: Convertible anytime after December 31, 1997 to the Common
Stock of the Corporation at the fixed ratio of one share of
Common Stock for one share of Series A Stock surrendered for
conversion (Conversion Ratio).

Adjustments to
Conversion
Ratio: The Conversion Ratio shall be proportionally increased or
reduced to reflect:

(1) effectuation of a division of the Common Stock of the
Corporation or a combination thereof;

(2) capital reorganization or reclassification or
distribution to the holders of Common Stock of stock, debt
securities or other assets of the Corporation;

(3) merger, consolidation, corporate combination, share
exchange, or a sale or lease of substantially all of the
assets of the Corporation resulting in the distribution to
the holders of Common Stock of the Corporation, stock, debt
securities or other assets of the Corporation;

(4) The issuance or sale of common stock, options, warrants
or other rights to purchase the Common Stock of the
Corporation for less than the stated value.

Liquidation
Preference: Holders of Series A Stock shall be entitled to receive for
each share of Series A Stock a cash payment equal to the par
value ($0.001) of such stock. If the assets of the
Corporation are insufficient for the Corporation to make
such payment, the assets of the Corporation shall be
distributed ratably to the holders of the Series A Stock.

Liquidation: Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders
of the Series A Stock shall be entitled to receive for each
share of Series A Stock their Liquidation Preference in
addition to whatever rights such holders may have, by
operation of law or otherwise, to share in the liquidation
value of the Corporation.

Designation: Series B Convertible Preferred Stock consisting of 1,260,000
shares (the Series B Stock).

Dividends: Cumulative dividends at the rate of 9% per annum, payable
only upon liquidation or redemption, as a percentage of the
Stated Value ($1.00 per share) of the Series B Stock.

Voting: Non cumulative; voting rights of the Series B Stock shall be
equal to and same as that attributable to the Common Stock
of the Corporation.

Conversion: Convertible anytime after December 31, 1997 to the Common
Stock of the Corporation at the fixed ratio of one share of
Common Stock for one share of Series B Stock surrendered
for conversion (Conversion Ratio).

Adjustments to
Conversion
Ratio: The Conversion Ratio shall be proportionally increased or
reduced to reflect:

(1) effectuation of a division of the Common Stock of the
Corporation or a combination thereof;

(2) capital reorganization or reclassification or
distribution to the holders of Common Stock of stock, debt
securities or other assets of the Corporation;

(4) The issuance or sale of common stock, options, warrants
or other rights to purchase the Common Stock of the
Corporation for less than the stated value.

Liquidation
Preference: Holders of Series B Stock shall be entitled to receive for
each share of Series B Stock a cash payment equal to the
Stated Value of such stock plus all accrued dividends. If
the assets of the Corporation are insufficient for the
Corporation to make such payment, the assets of the
Corporation shall be distributed ratably to the holders of
the Series B Stock.

Liquidation: Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders
of the Series B Stock shall be entitled to receive for each
share of Series B Stock an amount equal to the Stated Value
plus all accrued dividends attributable to each such share.

Redemption: The Corporation shall have the right in its sole discretion
to redeem any or all of the outstanding shares of Series B
Stock at a redemption price equal to the Stated Value of the
Series B Stock redeemed plus accumulated dividends for such
redeemed shares.

CHINA PEREGRINE FOOD CORPORATION

Terms of Series C Convertible Preferred Stock

Section 1. Designation, Amount and Par Value. The series of Series C
Convertible Preferred Stock shall be designated as Series C Convertible
Preferred Stock, and the number of shares so designated shall be 400,000,
which shall not be subject to increase without the consent of the majority
of the holders of the Series C Convertible Preferred Stock. Each share of
Series C Convertible Preferred Stock shall have a par value of $0.001 per
share and a stated value of $3.00 per share (the "Stated Value").

Section 2. Dividends.

(a) Holders of Series C Convertible Preferred Stock shall be entitled
to receive, when and as declared by the Board of Directors out of funds
legally available therefor, and the Company shall pay, cumulative dividends
at the rate per share (as a percentage of the Stated Value per share) equal
to 8% per annum, payable, in cash or shares of Common Stock (subject to the
terms and conditions set fort herein) at the option of the Company.
Dividends on the Series C Convertible Preferred Stock shall be calculated on
the basis of a 360-day year, shall accrue daily commencing on the Original
Issue Date, and shall be deemed to accrue from such date whether or not
earned or declared and whether or not there are profits, surplus or other
funds of the Company legally available for the payment of dividends.
Accrued dividends of the Series C Convertible Preferred Stock shall be paid
on the date on which such Series C Convertible Preferred Stock is converted.

(b) The Company shall have the option to pay dividends more
frequently as and when declared by the Board of Directors; in such case,
dividends may be paid quarterly, in cash or shares of Common Stock, on March
31, June 30, September 30 and December 31 of each year, as appropriate. If
the Company chooses to pay dividends in any quarter, the Company shall
provide the holders of Series C Convertible Preferred Stock a notice of its
intention to pay dividends in cash or shares of Common Stock. Such notice
shall be delivered to all holders not less than 10 Trading Days prior to
March 31, June 30, September 30 and December 31 of each year, as
appropriate, for so long as shares of Series C Convertible Preferred Stock
are outstanding. If dividends are paid in shares of Common Stock, the number
of shares of Common Stock payable as such dividend to each Holder shall be
equal to the cash amount of such dividend payable to such Holder on such
dividend payment date divided by the closing bid price of the Common Stock
on such dividend payment date.

(c) The party that holds the Series C Convertible Preferred Stock on
an applicable record date for any dividend payment will be entitled to
receive such dividend payment and, if appropriate, any other accrued and
unpaid dividends which accrued prior to such dividend payment date, without
regard to any sale or disposition of such Series C Convertible Preferred
Stock subsequent to the applicable record date but prior to the applicable
dividend payment date. Except as otherwise provided herein, if at any time
the Company pays less than the total amount of dividends then accrued on
account of the Series C Convertible Preferred Stock, such payment shall be
distributed ratably among the holders of the Series C Convertible Preferred
Stock based upon the number of shares held by each holder. Payment of
dividends on the Series C Convertible Preferred Stock is further subject to
the provisions of Section 5(b).

(d) Notwithstanding anything to the contrary contained herein, the
Company may not issue shares of Common Stock in payment of dividends (and
must deliver cash in respect thereof) on the Series C Convertible Preferred
Stock if:

(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as
treasury stock, is insufficient to pay such dividends in shares of
Common Stock; or

(ii) the Company has failed to timely satisfy its obligations
pursuant to any Holder Conversion Notice.

(e) So long as any Series C Convertible Preferred Stock shall remain
outstanding, the Company shall not directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect
of, any Junior Securities, nor shall any monies be set aside for or applied
to the purchase or redemption (through a sinking fund or otherwise) of any
Junior Securities or shares pari passu with the Series C Convertible
Preferred Stock, except for repurchases effected by the Company on the open
market, pursuant to a direct stock purchase plan.

Section 3. Voting Rights. Except as otherwise provided herein and as
otherwise required by law, the Series C Convertible Preferred Stock shall
have no voting rights, except as provided in the General Corporation Law of
Delaware. So long as any shares of Series C Convertible Preferred Stock are
outstanding, however, the Company shall not (a) alter or change adversely
the powers, preferences or rights given to the Series C Convertible
Preferred Stock, (b) alter or amend this Certificate of Designation, (c)
authorize or create any class of stock ranking as to dividends or
distribution of assets upon a Liquidation or otherwise, which class ranking
is senior to the Series C Convertible Preferred Stock, (d) amend its
certificate of incorporation, bylaws or other charter documents so as to
affect adversely any rights of any holders, (e) increase the authorized
number of shares of Series C Convertible Preferred Stock and (f) enter into
any agreement with respect to the foregoing, without the affirmative vote of
the holders of a majority of the shares of the Series C Convertible
Preferred Stock then outstanding.

Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a
"Liquidation"), but subject to the Liquidation rights of the holders of
Series A and Series B Convertible Preferred Stock, the holders of Series C
Convertible Preferred Stock shall be entitled to receive out of the assets
of the Company, whether such assets are capital or surplus, for each share
of Series C Convertible Preferred Stock an amount equal to the Stated Value
plus all accrued but unpaid dividends per share, whether declared or not,
before any distribution or payment shall be made to the holders of any
Junior Securities, and if the assets of the Company shall be insufficient to
pay in full such amounts, then the entire assets to be distributed to the
holders of Series C Convertible Preferred Stock shall be distributed among
the holders of Series C Convertible Preferred Stock ratably in accordance
with the respective amounts that would be payable on such shares if all
amounts payable thereon were paid in full. A sale, conveyance or
disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related
transactions in which more than 50% of the voting power of the Company is
disposed of, or a consolidation or merger of the Company with or into any
other company or companies shall not be treated as a Liquidation, but
instead shall be subject to the provisions of Section 5. The Company shall
mail written notice of any such Liquidation, not less than 30 days prior to
the payment date stated therein, to each record holder of Series C
Convertible Preferred Stock.

Section 5. Conversion.

(a) Each share of Series C Convertible Preferred Stock shall be
convertible into shares of Common Stock at the Conversion Price, at the
option of the holder in whole or in part at any time after the Original
Issue Date. The Holders shall effect conversions by surrendering the
certificate or certificates representing the shares of Series C Convertible
Preferred Stock to be converted to the Company, together with the form of
conversion notice attached hereto as Exhibit A (the "Holder Conversion
Notice"). Each Holder Conversion Notice shall specify the number of shares
of Series C Convertible Preferred Stock to be converted and the date on
which such conversion is to be effected, which date may not be prior to the
date the holder delivers such Holder Conversion Notice by facsimile (the
"Holder Conversion Date"). If no Holder Conversion Date is specified in a
Holder Conversion Notice, the Holder Conversion Date shall be the date that
the Holder Conversion Notice is deemed delivered pursuant to Section 5(i).
Subject to Sections 5(b), each Holder Conversion Notice, once given, shall
be irrevocable. If the holder is converting less than all shares of Series
C Convertible Preferred Stock represented by the certificate or certificates
tendered by the holder with the Holder Conversion Notice, or if a conversion
hereunder cannot be effected in full for any reason, the Company shall
promptly deliver to such holder (in the manner and within the time set forth
in Section 5(b)) a certificate for such number of shares as have not been
converted.

(b) Not later than five (5) Trading Days after any Conversion Date,
the Company will deliver to the holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions,
representing the number of shares of Common Stock being acquired upon the
conversion of shares of Series C Convertible Preferred Stock, (ii) one or
more certificates representing the number of shares of Series C Convertible
Preferred Stock not converted, (iii) a bank check in the amount of accrued
and unpaid dividends (if the Company has elected to pay accrued dividends in
cash) and (iv) if the Company has elected to pay accrued dividends in shares
of Common Stock, certificates, which shall contain restrictive legends and
trading restrictions should only restricted shares of Common Stock be
available for such payment, representing such number of Shares of Common
Stock as equals such dividend divided by the Conversion Price on the
Conversion Date; provided, however, that the Company shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon
conversion of any shares of Series C Convertible Preferred Stock until
certificates evidencing such shares of Series C Convertible Preferred Stock
are either delivered for conversion to the Company or any transfer agent for
the Series C Convertible Preferred Stock, or the holder of such Series C
Convertible Preferred Stock notifies the Company that such certificates have
been lost, stolen or destroyed and provides a bond (or other adequate
security) reasonably satisfactory to the Company to indemnify the Company
from any loss incurred by it in connection therewith. If in the case of
any Holder Conversion Notice such certificate or certificates, including for
purposes hereof, any shares of Common Stock to be issued on the Conversion
Date on account of accrued but unpaid dividends hereunder, are not delivered
to or as directed by the applicable holder by the fifth Trading Day after
the Conversion Date, the holder shall be entitled by written notice to the
Company at any time on or before its receipt of such certificate or
certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return the certificates representing the shares of
Series C Convertible Preferred Stock tendered for conversion.

(c) (i) The conversion price for each share of Series C Convertible
Preferred Stock (the "Conversion Price") in effect on any Conversion Date
shall be the lesser of (a) 75% of the average Per Share Market Price on the
date of the applicable Holder Conversion Notice or (b) $3.00 per share;
provided, that, during the period from November 1, 1998 through February 28,
1999, the Conversion Price shall not be less than $1.00 for each share of
Underlying Common Stock (the "Price Floor"), which Price Floor shall be
applicable to the aggregate number of issued and outstanding Series C
Convertible Preferred Stock held by any one holder, as follows: 100% during
November, 1998; 75% during December, 1998; 50% during January, 1999; 25%
during February, 1999; and no applicable Price Floor thereafter.

(ii) If the Company, at any time while any shares of Series C
Convertible Preferred Stock are outstanding, (a) shall pay a stock dividend
or otherwise make a distribution or distributions on shares of its Junior
Securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
5(c)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date
in the case of a subdivision, combination or re-classification.

(iii) All calculations under this Section 5 shall be made to
the nearest dollar or the next highest whole share, as the case may be.

(iv) Whenever the Conversion Price is adjusted pursuant to
Section 5(c)(ii),, the Company shall promptly mail to each holder of Series
C Convertible Preferred Stock, a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.

(v) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person pursuant
to which a majority of the Company's Board of Directors will not constitute
a majority of the board of directors of the surviving entity or less than
65% of the outstanding shares of the capital stock of the surviving entity
will be held by the same shareholders of the Company prior to such
reclassification, consolidation or merger, the sale or transfer of all or
substantially all of the assets of the Company or any compulsory share
exchange pursuant to which the Common Stock is converted into other
securities, cash or property, the following shall occur, at the option of
the Company: (A) the Series C Convertible Preferred Stock then outstanding
shall be converted into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or
share exchange, and the holders of the Series C Convertible Preferred Stock
shall be entitled to receive such amount of securities, cash or property as
the shares of the Common Stock of the Company into which such shares of
Series C Convertible Preferred Stock could have been converted immediately
prior to such reclassification, consolidation, merger, sale, transfer or
share exchange would have been entitled or (B) the Company shall redeem,
from funds legally available therefor at the time of such redemption, its
shares of Series C Convertible Preferred Stock at a price per share equal to
the average Per Share Market Price immediately preceding (1) the effective
date, the date of the closing or the date of the announcement, as the case
may be, of the reclassification, consolidation, merger, sale, transfer or
share exchange or (2) the date of payment in full by the Company of the
redemption price hereunder, whichever is greater. The terms of any such
consolidation, merger, sale, transfer or share exchange shall include such
terms so as to continue to give to the holder of Series C Convertible
Preferred Stock the right to receive the securities, cash or property set
forth in this Section 5(c)(v) upon any conversion or redemption following
such consolidation, merger, sale, transfer or share exchange.

(vi) If:

A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or

B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or

C. the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or
of any rights; or

D. the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger
to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company, of
any compulsory share of exchange whereby the Common Stock
is converted into other securities, cash or property; or

E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of
the Company;

then the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of Series C Convertible Preferred Stock, and
shall cause to be mailed to the holders of Series C Convertible Preferred
Stock at their last addresses as they shall appear upon the stock books of
the Company, at least 30 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating the (i) date on which
a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined
or (ii) the date on which such reclassification, consolidation, merger,
sale, transfer or share exchange is expected to become effective or close,
and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however,
that the failure to mail such notice or any defect therein or in the mailing
thereof shall not affect the validity of the corporate action required to be
specified in such notice. Holders are entitled to convert shares of Series
C Convertible Preferred Stock during the 30-day period commencing the date
of such notice to the effective date of the event triggering such notice.

(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the
purpose of issuance upon conversion of Series C Convertible Preferred Stock
and payment of dividends on Series C Convertible Preferred Stock, each as
herein provided, free from preemptive rights or any other actual contingent
purchase rights of persons other than the holders of Series C Convertible
Preferred Stock, not less than two times the number of shares of Common
Stock as shall be issuable upon the conversion of all outstanding shares of
Series C Convertible Preferred Stock and payment of dividends hereunder.
The Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and freely tradeable.

(e) The issuance of certificates for shares of Common Stock on
conversion of Series C Convertible Preferred Stock shall be made without
charge to the holders thereof for any documentary stamp or similar taxes
that may be payable in respect of the issue or delivery of such certificate,
provided that the Company shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery of
any such certificate upon conversion in a name other than that of the holder
of such shares of Series C Convertible Preferred Stock so converted and the
Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.

(f) Shares of Series C Convertible Preferred Stock converted into
Common Stock shall be canceled and shall have the status of authorized but
unissued shares of undesignated stock.

(g) Any and all notices or other communications or deliveries to be
provided by the holders of the Series C Convertible Preferred Stock
hereunder, including, without limitation, any Holder Conversion Notice,
shall be in writing and delivered personally, by facsimile or sent by a
nationally recognized overnight courier service, addressed to the attention
of the Chief Executive Officer of the Company at the facsimile telephone
number or address of the principal place of business of the Company as set
forth in the Purchase Agreement. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall
be in writing and delivered personally, by facsimile or sent by a nationally
recognized overnight courier service, addressed to each holder of Series C
Convertible Preferred Stock at the facsimile telephone number or address of
such holder appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of business of
the holder. Any notice or other communication or deliveries hereunder shall
be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section prior to 5:00 p.m.
(Eastern Time), (ii) the date after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile telephone
number specified in this Section later than 5:00 p.m. (Eastern Time) on any
date and earlier than 11:59 p.m. (Eastern Time) on such date, (iii) upon
receipt, if sent by a nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given.

(h) Automatic Conversion.

(i) All outstanding and unconverted shares of Series C
Convertible Preferred Stock shall, on the date which is two years from
the Original Issue Date or if such day is not a Trading Day then on
the next Trading Day thereafter, be automatically converted by the
Company at the then applicable Conversion Price.

(ii) The automatic conversion shall be subject to and in
accordance with the provisions of Section 5(b), 5(c)(i), 5(c)(ii),
5(c)(iii), 5(e), 5(f) and 5(g) herein.

Section 6. Redemption Option.

At any time subsequent to the Original Issue Date, the Company shall
have the right, at the Company's option, to redeem all or a portion of the
Series C Convertible Preferred Stock at a price per share (the "Redemption
Price") equal to the sum of (A) the Stated Value and (B) a sum equal to ten
percent (10%) of the Stated Value, computed on a simple interest, non-
compounded, and non-annualized basis.

(a) As a condition precedent to such redemption, the Company shall
provide a written notice (the "Redemption Notice") to the holder(s) of the
Series C Convertible Preferred Stock of such redemption at least thirty (30)
calendar days prior to the date for redemption set forth in such notice (the
"Redemption Date"). Holder(s) of the Series C Convertible Preferred Stock
may exercise conversion rights with respect to all or a part of such stock
on any Business Day prior to but not including the Redemption Date.

(b) Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight
courier service, addressed to each holder of Series C Convertible Preferred
Stock at the facsimile telephone number or address of such holder appearing
on the books of the Company, or if no such facsimile telephone number or
address appears, at the principal place of business of the holder. Any
notice or other communication or deliveries hereunder shall be deemed given
and effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 5:00 p.m. (Eastern
Time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 5:00 p.m. (Eastern Time) on any date
and earlier than 11:59 p.m. (Eastern Time) on such date, (iii) upon receipt,
if sent by a nationally recognized overnight courier service, or (iv) upon
actual receipt by the party to whom such notice is required to be given.

(c) Upon the issuance of a Redemption Notice to a holder for all or
part of the outstanding Series C Convertible Preferred Stock held by such
holder, the Company will deposit the Redemption Price for the redemption of
such stock in an escrow account on or before the Redemption Date. The
Company will thereafter release the Redemption Price from escrow to the
appropriate holder upon the later of the Redemption Date or the Company's
receipt of a certificate or certificates evidencing the Series C Convertible
Preferred Stock listed in the Redemption Notice, transferring such shares to
the Company. In the event that less than all of such shares represented by
a single certificate are listed in the Redemption Notice, the Company shall
issue irrevocable instructions to the transfer agent for the Company for the
issuance of a new certificate for the remaining shares not listed in the
Redemption Notice. If the Redemption Price is not released to the holder
within three (3) business days of the later of the Redemption Date or the
Company=s receipt of the certificate, as provided herein (the Redemption
Payment Date), the redemption of such shares shall continue only at the
option of the holder. Should the holder choose to terminate the redemption,
a written notice of such termination shall be given to the Company within
five (5) business days subsequent to the Redemption Payment Date. Upon the
termination of the redemption as provided herein, all of the rights of the
holder as set forth in this Series C Convertible Preferred Stock Designation
shall be reinstated. If the Company does not receive the certificate(s)
from a holder of such shares as provided herein within ten (10) business
days after the Redemption Date, the shares listed in the Redemption Notice
shall be retired and have the same legal validity and rights as if the
holder thereof had surrendered same to the Company for redemption; in such
event, the Company shall retain the Redemption Price in the escrow account
for distribution to the holder of such shares only upon receipt by the
Company of the appropriate certificate for such shares as provided herein.

Section 7. Definitions. For the purposes hereof, the following terms
shall have the following meanings:

"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking
institutions in the State of Florida are authorized or required by law or
other governmental action to close.

"Common Stock" means the Company's common stock, $0.001 par value per
share, of the Company and stock of any other class into which such shares
may hereafter have been reclassified or changed.

"Junior Securities" means the Common Stock of the Company.

"Market Price" as at any date shall mean the average Per Share Market
Value for the ten (10) Trading Days immediately preceding such date.

"Original Issue Date" shall mean the date of the first issuance of any
shares of the Series C Convertible Preferred Stock.

"Per Share Market Value" on any particular date means (a) the closing
bid price per share of the Common Stock on such date on the Nasdaq SmallCap
Market or other stock exchange or quotation system on which the Common Stock
is listed for trading, or (b) if the Common Stock is not listed on the
Nasdaq SmallCap Market or any other stock exchange or market, the closing
bid price per share of the Common Stock on such date on the over-the-counter
market, as reported by the OTC Bulletin Board, or (c) if the Common Stock is
not quoted on the OTC Bulletin Board, the closing bid price per share of
Common Stock on such date on the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices), or (d) if the Common
Stock is no longer traded on the over-the-counter market and reported by the
National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices), such closing bid price
shall be determined by reference to "Pink Sheet" quotes for the relevant
conversion period as determined in good faith by the Holder or (c) if the
Common Stock is not then publicly traded, the fair market value of a share
of Common Stock as determined by an appraiser selected in good faith by the
holders of a majority in interest of the Series C Convertible Preferred
Stock (the Company, after receipt of the determination by such appraiser,
shall have the right to select an additional appraiser, in which case, the
fair market value shall be equal to the average of the determinations by
each such appraiser); provided, that all determinations of the Per Share
Market Value shall be appropriately adjusted for any stock dividends, stock
splits or other similar transactions during such period.

"Person" means a corporation, an association, a partnership,
organization, limited liability company, a business, an individual, a
government or political subdivision thereof or a governmental agency.

"Purchase Agreement" means the Convertible Series C Convertible
Preferred Stock Purchase Agreement, dated as of the Original Issue Date,
among the Company and the original holders of the Series C Convertible
Preferred Stock.

"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq Stock Market or other stock exchange or market on which the
Common Stock has been listed, or (b) if not listed on any stock exchange or
market, a day on which the Common Stock is traded on the over-the-counter
market, as reported by the OTC Bulletin Board, or (c) if not quoted on the
OTC Bulletin Board, a day on which the Common Stock is quoted on the over-
the-counter market as reported by the National Quotation Bureau Incorporated
(or any similar organization or agency succeeding its functions of reporting
prices); provided, however, that in the event that the Common Stock is not
listed or quoted as set forth above, then Trading Day shall mean any day
except Saturday, Sunday and any day which shall be a legal holiday or a day
on which banking institutions in the State of Florida are authorized or
required by law or other government action to close.

GREEN FOOD PEREGRINE CHILDREN'S FOOD COMPANY, LIMITED

JOINT VENTURE CONTRACT

between

CHINA NATIONAL GREEN FOOD CORPORATION

and

CHINA PEREGRINE ENTERPRISES, LIMITED

and

AMER-CHINA PARTNERS LIMITED

DATED APRIL 13, 1993

TABLE OF CONTENTS

Page

ARTICLE I
Section 1.1 General Provisions 1

ARTICLE II
Section 2.1 Parties to the Contract 1

ARTICLE III
Section 3.1 Establishment of the Joint Venture 2
Section 3.2 Effective Date of this Contract and Date of
Establishment of the Joint Venture 2
Section 3.3 The First Meeting of the Board 2
Section 3.4 The Name of the Joint Venture 2
Section 3.5 Laws and Decrees 3
Section 3.6 The Organization of the Joint Venture 3

ARTICLE IV
Section 4.1 Purposes of the Joint Venture 3
Section 4.2 Business Scope of the Joint Venture 3
Section 4.3 Geographical Scope of the Joint Venture 3
Section 404 Production Scale of the Joint Venture 3

ARTICLE V
Section 5.1 The Total Investment and Registered Capital 4
Section 5.2 Loans 4
Section 5.3 Contribution of Capital 4
Section 5.4 Conditions Precedent to the Payment of
Registered Capital Contribution 5
Section 5.5 Audit of Contributed Capital 5
Section 5.6 Assignments 5
Section 5.7 Changes in Registered Capital 6

ARTICLE VI
Section 6.1 Responsibilities of the Parties to the Contract 6
Section 6.2 Responsibilities of Party A 6
Section 6.3 Responsibilities of Party B and Party C 8
Section 6.4 No Right to Compensation 9

ARTICLE VII
Section 7.1 Use of the Green Food Trade Mark 9

ARTICLE VIII
Section 8.1 Marketing of the Products 9
Section 8.2 Marketing Prices 9
Section 8.3 Marketing in Domestic and International Markets 9

ARTICLE IX
Section 9.1 The Board of Directors 9
Section 9.2 Term of Board Members 10
Section 9.3 Vacancy of a Board Member 10
Section 9.4 Chairman of the Board 10
Section 9.5 Power of the Board 10
Section 9.6 Meetings of the Board 10
Section 9.7 Absenteeism of Board Members 11
Section 9.8 Power and Procedures of the Board 11
Section 9.9 Authority of Initiate/Terminate 11

ARTICLE X
Section 10.1 Administrative Management 11
Section 10.2 Responsibilities of the General Manager 11
Section 10.3 Responsibilities of the Department Managers 11
Section 10.4 Dismissal of Executives 11
Section 10.5 Salaries of Administrative Staff 12
Section 10.6 Annual Business Plan and Budget 12
Section 10.7 Duty of Managers 12

ARTICLE XI
Section 11.1 Import of Materials, Spare Parts and Equipment 13
Section 11.2 Purchase of Materials, Spare Parts and Equipment 13

ARTICLE XII
Section 12.1 Preparatory Office 13
Section 12.2 Responsibilities of the Preparatory Office 13
Section 12.3 Construction Budget 13

ARTICLE XIII
Section 13.1 Management of Labor 13
Section 13.2 Contracted Invitation System 14
Section 13.3 No Other Employment 14
Section 13.4 Employees 14
Section 13.5 Labor Management Affairs 14
Section 13.6 Laws and Regulations 14

ARTICLES XIV
Section 14.1 Taxation 14
Section 14.2 Foreign Staff 14

ARTICLES XV
Section 15.1 Responsibilities of the Treasurer 15
Section 15.2 Responsibilities of the General Manager 15
Section 15.3 Fiscal Year 15
Section 15.4 Standard Accounting Currency 15
Section 15.5 Financial Statements 15
Section 15.6 Auditors 16
Section 15.7 Balance Between Receipts and Expenditures 16
Section 15.8 Savings of Foreign Currency 16
Section 15.9 Band Accounts 16
Section 15.10 Allocation of Reserve Fund 16
Section 15.11 Distribution of After-Tax Profits 16

ARTICLES XVI
Section 16.1 Insurance 17

ARTICLES XVII
Section 17.1 Confidence 17

ARTICLE XVIII
Section 18.1 Term of the Joint Venture 17
Section 18.2 Procedures for Extension of the Term 18
Section 18.3 Termination of the Term 18
Section 18.4 Circumstances for Continuance of Operations 18

ARTICLE XIX
Section 19.1 Liquidation 19
Section 19.2 Form and Responsibilities of the Liquidation
Committee 19
Section 19.3 Receipt of Liquidation Property Committee 20

ARTICLE XX
Section 20.1 Revisions Procedure 20

ARTICLE XXI
Section 21.1 Liability 20

ARTICLE XXII
Section 22.1 Force Majeure 21

ARTICLE XXIII
Section 23.1 Concerned Laws 21

ARTICLE XXIV
Section 24.1 Dispute Resolution 22
Section 24.2 Arbitration 22

ARTICLE XXV
Section 25.1 Language 23

ARTICLE XXVI
Section 26.1 Survival Rights 23
Section 26.2 No Assignment without Chinese Government Approval 23
Section 26.3 Effectiveness of Other Provisions 23
Section 26.4 Agreement in Total 23
Section 26.5 Non-Compete 23
Section 26.6 Procedures for Notices 23

SIGNATURE 24

ARTICLE I

General Provisions

Section 1.1. General Provisions. On the principle of equality and mutual
interest, through friendly consultation, and according to the terms and
conditions of this Contract, China National Green Food Corporation ("Party
A") and China Peregrine Enterprises, Limited ("Party B") and Amer-China
Partners Limited ("Party C") have agreed to establish a C``hinese-foreign
Joint Venture limited (the "Joint Venture"), in accordance with the "Law of
the People's Republic of China on Chinese-Foreign Equity Joint Ventures",
the implementing deregulations issued thereunder as well as the provision
set forth under this Contract.

ARTICLE II

Parties to the Contract

Section 2.1. Parties to the Contract. The "Parties" to this Contract are:

1. Party A: China National Green Food Corporation
Legal Address: Guangzimen Beili, No. 16, Chaoyang District,
Beijing 100026, People's Republic of China
Fax: 4221190
Telephone: 4228888-7206
Legal Representative: Liu Lianfu
Post: General Manager
Nationality: People's Republic of China

2. Party B: China Peregrine Enterprises, Limited
Legal Address: 5333 Westheimer, Suite 800
Houston, Texas 77056, United States of America
Fax: (713)961-5726
Telephone: (713)961-0034
Legal Representative: Charles J. Beech
Post: President
Nationality: United States of America

3. Party C: Amer-China Partners
Legal Address: 620 North Third Avenue
St. Charles, Illinois 60174, U.S.A.
Fax: (708)513-5338
Telephone: (708)513-5765
Legal Representative: George C. Bergland
Post: President
Nationality: United States of America

ARTICLE III

Establishment of the Joint Venture

Section 3.1. Establishment of the Joint Venture. When this Contract is
signed, Party A shall take the following procedures to establish the Joint
Venture.

1. When this Contract is signed, Party A shall immediately submit it
to the Ministry of Foreign Economic Cooperation and Trade of the People's
Republic of China (hereinafter referred to as the Ministry of Foreign
Economic Cooperation and Trade) or its authorized agencies the application
document, signed originals of this Contract and the Articles of Association
and the list of names of the Board of Directors appointed by each Party
according to the provisions of this Contract. When Party A receives any
official approval documents, it shall immediately send a written notice to
Party B and Party C.

2. When Party A receives a certificate of approval from the
examination and approval authority, Party A shall, within the period
stipulated by relevant laws and regulations, immediately take all necessary
measures to register the Joint Venture with the State Administration for
Industry and Commerce (hereafter referred to as the Agency for Registration
and Administration) or its authorized agency and acquire a business license
signifying Chinese legal person status. A copy of these certifications and
registrations shall be provided to Party B and Party C.

Section 3.2 Effective Date of this Contract and Date of Establishment of
the Joint Venture. This Contract shall become effective on the date on
which the Ministry of Foreign Economic Cooperation and Trade has approved
this Contract and the Articles of Association without altering the terms and
conditions hereof or thereof and without imposing any additional obligations
on any Party or the Joint Venture. The date when the Agency for
Registration and Administration issues the business license to the Joint
Venture without altering the terms and conditions of this Contract or the
Articles of Association or imposing any additional obligations on any Party
or the Joint Venture shall be the date of establishment of the Joint Venture
as a Chinese legal person.

Section 3.3 The First Meeting of the Board. The Board of Directors shall
hold the first meeting of the Board within ninety (90) days after the
provisions set forth in Section 9.6 become effective.

Section 3.4 The Name of the Joint Venture.

The Chinese name of the Joint venture shall be
, and the English name shall be Green Food
Peregrine Children's Food Company, Limited. The legal address of the Joint
Venture is the Chongqing Hotel, Beijing. The Joint Venture may set up
branches both in China and abroad after approval by the Board of Directors
and relevant departments of the Chinese government.

Section 3.5 Laws and Decrees. All the activities of the Joint Venture
should abide by and be protected by the laws, decrees and concerned
regulations of China.

Section 3.6. The Organization of the Joint Venture. The form of
organization of the Joint Venture shall be a limited liability company. The
liability of each Party is limited to its contribution of registered capital
contributed under this Contract. The Joint Venture is responsible to third
parties to the full extent of its property. No Party has any responsibility
for the other Parties, the Joint Venture or a third party for any losses of
the Joint Venture or claims against the Joint Venture except according to
any guaranty provided by each Party. If any Party, entrusted by the Joint
Venture with and entrusted letter, acts on behalf of the Joint Venture and
such acts lead to claims for compensation by a third party, the Joint
Venture shall compensate such Party's expenses, losses, compensation, claims
and responsibility. Subject to the foregoing provisions, all Parties shall
share the profits, losses and risks of the Joint Venture according to the
amount of their respective registered capital in the Joint Venture.

ARTICLE IV

Purposes, Scope and Scale of this Joint Venture

Section 4.1 The Purposes of the Joint Venture. The purpose of the Joint
Venture shall be to strengthen economic cooperation and exchange of
technology, to adopt advanced and practical technology and scientific
methods of management to improve the quality of products, to develop new
products competitive in the domestic and international markets in quality
and price, to improve economic efficiency and ensure satisfactory economic
profits to all Parties.

Section 4.2 The Business Scope of the Joint Venture. The business scope of
the Joint Venture shall be the manufacture distribution and marketing of
children's fresh milk ("infant formula"), other children's food products,
and a range of baby foods and supplements. The Joint Venture may sell its
products both in China and abroad.

Section 4.3 The Geographic Scope of the Joint Venture. The Joint Venture
shall, in its initial stage, set up production lines for children's fresh
milk in Shanghai and Beijing. When the Board of Directors determines that
conditions are appropriate, it may set up productive branches in other
cities with the approval of concerned departments in accordance with related
Chinese regulations. The Parties presently anticipate that the Joint
Venture will apply to establish production branches in cities in China with
a population exceeding 2,000,000 and may establish branches in other cities.

Section 4.4 The Production Scale of the Joint Venture. The initial
production scale of the Joint Venture is 30,000 tons of children's fresh
mile and the production of other foods for children. The Board of Directors
may adjust production capacity in response to market conditions.

ARTICLE V

Total Investment and Registered Capital

Section 5.1 Total Investment and Registered Capital. The total investment
of the Joint Venture is US$9,900,000. The total registered capital of the
Joint Venture is US$5,000,000 in which:

1. Party A shall invest in cash US$1,500,000 for the Joint Venture's
registered capital, an amount equal to 30% of the total registered capital.

2. Party B shall invest in cash US$3,000,000 for the Joint Venture's
registered capital, an amount equal to 60% of the total registered capital

3. Party C shall invest in cash US$500,000 for the Joint Venture's
registered capital, an amount equal to 10% of the total registered capital.

Section 5.2. Loans. The Joint Venture shall make up the difference between
the total investment and the registered capital by loans. Upon agreement by
all parties, each Party hereto may provide a guarantee for the loan
according to its proportion of the registered capital.

Section 5.3 Contribution of Capital.

1. Subject to Section 5.4, each Party shall contribute its registered
capital in accordance with Article 5.1.

2. Subject to Section 5.4, each Party shall, for the first phase in
Shanghai and Beijing, contribute 24% of its registered capital within 90
days after the Joint Venture's business license becomes effective.

Party A: US$360,000
Party B: US$720,000
Party C: US$120,000

3. Subject to Section 5.4, each Party shall contribute its registered
capital within three (3) years of the date of issuance of the business
license according to the resolutions of the Board of Directors.. The Board
of Directors shall determine the specific dates of contribution according to
the obtaining of governmental approvals for projects in other cities and the
construction schedule.

4. If any Party fails to contribute its portions of the registered
capital within the time set forth in this Contract, it shall pay the Joint
Venture 10% annual interest for the late portion. From the date the
contribution is due (including the due date) until the date the contribution
is made (not including such date), the interest shall be paid on a monthly
basis. If any Party fails to make the contribution ninety (90) days after
the due date, the other Parties shall have the right and option to terminate
this Contract according to Section18.3, or make the contribution, and
thereafter own the additional portion of the Joint Venture represented by
the contribution so made by the total registered capital of the Joint
Venture.

Section 5.4 Conditions Precedent to the Payment of Registered Capital
Contribution. The Parties shall not be obligated to contribute their
respective shares of the registered capital unless the following conditions
have been fulfilled:

1. The Parties have signed this Contract and the Articles of
Association and both documents are approved by the examination and approval
authority without altering the terms and conditions hereof or thereof and
without imposing any additional obligations on any Party or the Joint
Venture.

2. The Agency for Registration and Administration issues the business
license to the Joint Venture without altering the terms and conditions
hereof or thereof and without imposing any additional obligations on any
Party or the Joint Venture.

If any of the prerequisite conditions in (1) or (2) above are not
achieved within ninety (90) days after the Contract is signed, and if no
Party presents a written document wishing to waive any of the above
prerequisite conditions, or to agree to extend time for achieving the
prerequisite conditions, any Party shall have the right to terminate this
Contract, and upon such termination, no Party shall have the right to
require the other Parties to contribute registered capital, or to require
the other Parties to make any compensation.

Section 5.5 Audit of Contributed Capital. The date on which any amount of
contribution in cash has been transferred by any Party to the account of the
Joint Venture shall be deemed to be the date of such contribution.
Following each Party's contribution of capital, the Joint Venture shall
draft and submit a verification report regarding the contribution(s) to
respective Parties, and the Chairman and Vice-Chairman of the Joint Venture
shall sign a contribution certificate.

Section 5.6 Assignment. Any Party may assign or sell its total or partial
amount of registered capital (ownership) to the other Parties to this
Contract or a third Party; however, to do so, it must obtain a written
consent from the other Parties to this Contract.

1. When one Party wishes to assign, sell or dispose of its total or
partial registered capital, it shall send a written notice to the other
Parties setting forth the terms and conditions of the assignment, sale or
other methods of disposal. The other Parties shall have the priority to
purchase in proportion to their respective shares of registered capital the
above-mentioned registered capital (ownership) according to the terms and
conditions described in the notice.

2. If no Party of this Contract exercises its priority right within
ninety (90) days after it receives written notice of the intent to so
exercise, the selling Party may assign, sell or dispose of its registered
capital, in total or in part, as set out in the notice; however, it shall
not give the buyer terms or conditions of better preferential treatment to
the buyer than those listed in the notice. The selling Party shall present
to other Parties copies of written agreement of the sale or assignment.

3. Provided there is no other agreement to the contrary among the
Parties hereto, the business, other contract liabilities, fulfilment of the
liabilities and the structural organization shall not be affected in any way
by this assignment or sale.

4. Any sale or assignment under this Contract shall be within the
scope provided by law, and subject to the approval of the examination and
approval authority.

The Joint Venture shall apply to the Agency for Registration and
Administration to fulfill the formalities related to the change.

Section 5.7 Changes in Registered Capital. Any increase to the registered
capital shall be approved unanimously by the Board of Directors, and
approved by the examination and approval authority. Upon receiving the
approval from the examination and approval authority, the Joint Venture
shall register the increased capital with the Agency for Registration and
Administration.

ARTICLE VI

Responsibilities of the Parties to the Contract

Section 6.1 Responsibilities of the Parties to the Contract. All parties
to the Joint Venture shall cooperate sincerely and safeguard the rights and
interests of the Joint Venture. One Party cannot benefit at the expense of
the other Parties.

Section 6.2. Responsibilities of Party A. Apart from responsibilities
under this Contract, Party A shall also assume the following
responsibilities:

1. Deliver its amount of contribution to the registered capital as
provided in Article V;

2. Assist in the fulfilment of all formalities for the establishment
of the Joint Venture, including affairs concerning application,
registration, obtaining the business license and other requirements of the
establishment of the Joint Venture required by the departments in charge in
China;

3. Assist the Joint Venture in all affairs related to its business,
including the application for permission, certificates and licenses related
to security and hygiene, environmental affairs, product and product
formulation approval, the sale of products on a foreign currency basis, and
other affairs requested by the governmental authorities;

4. Ensure that the Joint Venture has the right to use adequate sites
reasonable required to carry out the purposes of this Contract;

5. Assist the Joint Venture to fulfill all the customs formalities
and do the best to fulfill the import duties and taxes on all imported
machines, equipment, material and goods which are allowed to import
according to relevant regulations in China, and assist with their
transportation in Chinese territory;

6. Assist the Joint Venture to purchase machines, equipment,
material, office necessities, transport vehicles, communication equipments
and other goods and services necessary to carry out the purposes of the
Joint Venture;

7. Assist the Joint Venture in contacting and negotiating with
related departments to secure its electricity, water, communication and
transportation facilities necessary to carry out the purposes of the Joint
Venture;

8. In cooperation with Party B and Party C, organize the designing
and construction work to expand and renew the production facilities of the
Joint Venture;

9. Prepay the related expenditures and fees related to the
establishment of the Joint Venture, where such related expenditures and
fees, following confirmation by the Board of Directors, shall be included in
the initial expenditures of the Joint Venture;

10. Assist the Joint Venture to find a number of qualified personnel
from which the Joint Venture shall be able to employ as management and
administrative personnel, technical staff and other needed personnel;

11. Assist the foreign personnel of Joint Venture and of the
companies which are a party hereto to obtain the necessary visa and work
permission, as well as provide recommendations, offices, transportation and
medical care and other health facilities;

12. Assist the Joint Venture in obtaining approval for loans and
assist the Joint Venture to apply to branches of the Bank of China and other
authorized banks in China in order to open foreign currency accounts,
foreign currency credit accounts and Renminbi accounts;

13. Ensure that, after Contract has been approved by the Ministry of
Foreign Economic Cooperation and Trade, Party A has the authority and power
to undertake and perform all of its obligations hereunder;

14. Assist the Joint Venture to handle its relations with local
government and other Chinese companies in the general sense;

15. Provide the required supply of raw materials and distribution
channels for products to provide the opportunity for each facility to
operate at full capacity. Raw materials/products shall be provided at
competitive prices similar to those offered for respective domestic
consumption by processors or consumers;

16. Assist the Joint Venture to give Party B and Party C any part or
all of the distribution of profits of the Joint Venture in U.S. dollars, or
any other foreign currency Party B and Party C may chose, at the exchange
rate as quoted by the Foreign Exchange Adjustment Centers of the State
Administration for Exchange Control on that day;

17. Assist the Joint Venture in submitting an application to the
examination and approval authority no less than one hundred and eighty (180)
days before the term terminated in a manner that achieves the maximum
renewal options. Each time there is an increase in registered capital,
assist the Joint Venture in applying for extension; and

18. Handle other affairs entrusted by the Joint Venture.

Section 6.3. Responsibilities of Party B and Party C. Apart from other
responsibilities under this Contract, Party B and Party C have the following
responsibilities:

1. Deliver their amount of contribution to the registered capital as
provided in Article V;

2. Assist in the procurement of advanced, brand-new, reasonably
priced machines, equipment and material which are otherwise impossible to be
obtained in China, or for the consideration of the competitiveness of their
price, quality, performance and other factors which require the Joint
Venture to import from outside China, and other project affairs;

3. Provide the design drawings and relative technical materials
concerning the building of plant, and/or expansion and renovation of the
plants;

4. Assist the Joint Venture to install and adjust equipment;

5. Train the Joint Venture's managerial, administrative, technical
and sales personnel;

6. For the interest of all Parties and that of the Joint Venture
provide suggestions and assistance regarding export products;

7. Assist the Joint Venture to purchase machines, equipment,
material, office necessities, transport vehicles, communication equipment
and other goods and services necessary to carry out the purposes of the
Joint Venture;

8. In cooperation with Party A, organize the designing and
construction work to expand and renew the construction facilities of the
Joint Venture;

9. Prepay the expenditures and fees related to the establishment of
the Joint Venture which, following confirmation by the Board of Directors,
shall be included in the project expenditures of the Joint Venture;

10. Assist the Joint Venture to find a number of qualified personnel
which the Joint Venture shall be able to employ as management and
administrative personnel, technical staff and other needed personnel;

11. Ensure that, Party B and Party C have the authority and power to
undertake and perform all of their obligations hereunder; and

12. Handle other affairs entrusted by the Joint Venture.

Section 6.4 No Right to Compensation. Except as otherwise provided in this
Contract or its appendices, no Party has the right to claim compensation or
repayment from any assistance or service provided under the Article VI of
this Contract.

ARTICLE VII

Trade Mark

Section 7.1. Use of the Green Food Trade Mark. The Joint Venture shall
establish business trust and fame through development of Green Food and the
excellent quality of its products and service. Trade marks of its products
shall be decided by its Board of Directors. The Joint Venture shall
register its trade marks at an appropriate time both in China and outside.
If the trade marks to be used by the Joint Venture are the same or similar
to those possessed by the related companies of one Party, the Joint Venture
shall sign permission Contracts with the companies that possess them.
Related fees and other conditions shall be decided through talks between the
Joint Venture and other companies. The Joint Venture shall apply for the
right to use Green Food label on its products through formal procedures and
pay related fees.

ARTICLE VIII

Marketing of the Products

Section 8.1. Marketing of the Products. The marketing of the Joint
Venture's products shall cover both the domestic and international markets.
In order to secure maximum economic efficiency, the Joint Venture shall make
effort to raise the quality of its products to that of an international
standard. The proportions of domestic and international sales shall be
decided by the Board of Directors.

Section 8.2. Marketing Price. The marketing prices shall be decided by the
Board of Directors. The Parties realize, according to the differences in
marketing, sale, advertisement and message, it might be suitable to pursue
different prices in different markets.

Section 8.3. Marketing in the Domestic and International Markets. The
Joint Venture shall undertake marketing in the domestic market and in the
international market.

ARTICLE IX

The Board of Directors

Section 9.1. The Board of Directors.

1. The Board of Directors shall consist of five members. Party A
shall appoint two members. Party B shall appoint three members. Party C
shall appoint one advisory director who shall have no right to vote.

2. Party A or Party B has the right to appoint an advisory directors
who shall have no right to vote.

3. No members of the Board shall bear personal responsibility of
liability when they act on behalf of the Joint Venture unless that action
will cause the Joint Venture or a respective member of the Board to violate
the law.

Section 9.2 Term of Board Members. The term of office of members of the
Board shall be four (4) years which can be extended if the appointing Party
so decides. The Chairman of the Board shall be elected from the members
appointed by Party A. The Vice Chairman shall be elected from members
nominated by Party B.

Section 9.3. Vacancy of a Board Member. If there is a vacancy arising from
the retirement, resignation, illness, inability in performance, or death
among the members of the Board, or one Party terminates its appointed
member, the nomination Party shall appoint a successive member to the post,
to serve the remaining term of the previous member.

Section 9.4. Chairman of the Board. The Chairman of the Board of Directors
is the legal representative of the Joint Venture. However, the Chairman is
not permitted to bind the Joint Venture other than within the power clearly
entrusted to him by the Board of Directors. When the Chairman is not able
to fulfill his responsibilities he shall authorize the Vice Chairman or
another member of the Board to represent the Joint Venture in his place.

Section 9.5. Power of the Board. The Board of Directors is the highest
organ of power of the Joint Venture and is responsible for the discussion of
all important matters related to the Joint Venture. The combination,
termination, dissolution or liquidation of the Joint Venture, or the
revision of the Articles of Association, or the increase or assignment of
registered capital, shall only be decided by unanimous vote of approval by
all Board members. Resolutions with respect to other matters may be adopted
by a majority of the Board members taking part in the meeting (by the Board
member himself or the entrusted representative). At least two-thirds of the
total number of Board members shall constitute a quorum which shall be
necessary for a meeting to be held. The procedure and methods regarding the
meeting of the Board of Directors and its resolutions are written in detail
in the Articles of Association.

Section 9.6. Meeting of the Board. Meeting of the Board of Directors shall
be held at the least once a year. The first meeting shall be held within
ninety (90) days after the date of issuance of the business license. The
meeting shall be called by any member and shall be chaired by the Chairman
of the Board of Directors once chosen. When at least two Board members
apply in written form to discuss a certain matter, the Chairman shall call
for an interim meeting of the Board after consulting his deputies as to the
time and place of the meeting. For any meeting of the Board of Directors,
the Chairman shall inform the members of the Board at least 14 days prior to
the meeting. The notice of meeting shall include a detailed schedule of the
meeting an matters to be discussed, with all related reports, documents and
other materials. The notice, detailed schedule and related reports,
documents and other materials shall be written in Chinese and English.
Records of every meeting of the Board shall be signed by the Chairman and
his deputies. The original signed record shall be kept in the files of the
Joint Venture. Copies shall be provided to every member and the legal
representatives of all Parties.

Section 9.7. Absenteeism of Board Members. When a member is unable to
attend a meeting of the Board, he may entrust another person (who may be
another member of the Board) to take part in the meeting with a letter of
trust. The representative so entrusted shall have the same rights and power
as the absent member in addition to his own rights and power.

Section 9.8. Power and Procedures of the Board. The specific power and
procedures shall be stipulated in relative provision of the Articles of
Association which shall be approved unanimously by the Board of Directors.

Section 9.9. Authority to Initiate/Terminate. The Board of Directors shall
have the authority to initiate and/or terminate production facilities,
markets and products as required by business needs.

ARTICLE X

Administrative Management

Section 10.1. Administrative Management. The Board of Directors shall
appoint one (1) general manager and one (1) assistant general manager. The
general manager shall be nominated by Party B and approved by the Board of
Directors. The assistant general manager shall be nominated by Party A and
approved by the Board of Directors.

Section 10.2. Responsibilities of the General Manager. The general manager
is responsible for implementing all resolutions of the meeting of the Board
of Directors and for organizing and exercising leadership of the daily
administrative and management of the Joint Venture. The general manager
shall consult with the assistant general manager when dealing with serious
matters. The assistant general manager shall assist the general manager
with his work.

Section 10.3. Responsibilities of the Department Managers. The
administrative and management body shall employ department managers to be in
charge of the work of various departments of the Joint Venture, to implement
the work assigned by the general manager and the assistant general manager,
and to be responsible to them.

Section 10.4. Dismissal of Executives. The general manager and assistant
general manager may be dismissed at any time by resolution of the Board of
Directors. However, replacements must be chosen in the manner set out in
Section 10.1.

Section 10.5. Salaries of Administrative Staff. The Board of Directors
shall be wholly responsible for deciding the salaries and other rewards of
the administrative staff including the general manager and the assistant
general manager.

Section 10.6. Annual Business Plan and Budget. The general manager shall
draft the annual business plan and budget. The annual business plan and
budget of every fiscal year (including the estimated capital indebtedness
plan, deficit and profit plan and cash income and expenditure report) shall
be submitted to the Board of Directors, and shall include the following
detailed information:

1. The procurement of equipment and other property of the Joint
Venture;

2. Raising and expenditure of capital;

3. Plans for production and product marketing;

4. Maintenance and repair of the property and equipment of the Joint
Venture;

5. Budgetary estimate of the Joint Venture based on production plan
and budget;

6. Training plan for the personnel of the Joint Venture;

7. The raw material, fuel, water, electricity and other public
facilities needed during the next year;

8. The plan for proportion of export and internal sales and
recommendations on export and domestic sales prices;

9. Foreign currency income and expenditure balance plan; and

10. Report on any other matters that might be asked for by the Board
of Directors or any member of the Board.

The general manager shall write an administrative report which shall
include the information required by the Board of Directors. The general
manager shall also prepare and deliver all other report required by the
Chairman, Vice Chairman, or the Board of Directors.

Section 10.7 Duty of Managers. The general manager, the assistant general
manager and senior and senior administrative personnel are employees of the
Joint Venture and not the representatives of a Party hereto. They shall
safeguard the interest of the Joint Venture. In case of graft or serious
dereliction of duty by the above mentioned persons, they may be dismissed at
any time by resolution of the Board of Directors.

ARTICLE XI

Procurement of Materials, Spare Parts and Equipment

Section 11.1 Import of Materials, Spare Parts and Equipment. The Joint
Venture may import equipment, raw materials, fuel, spare parts, transport
vehicles, office necessities and other items that are needed. If the above-
mentioned materials are available in China at a competitive price, quality,
service and delivery time, the Joint Venture may purchase such materials
domestically. The general manager shall list his recommendations in the
annual business plan regarding such procurement and shall be approved or
disapproved by the Board of Directors. The provider shall be chosen by the
Board of Directors according to their quality, price, service and delivery
time table.

Section 11.2 Purchase of Materials, Spares Parts and Equipment. Except as
otherwise provided by the law, the Joint Venture has the right to purchase
equipment, raw materials and services in China with Renminbi. The price
shall not be higher than that paid by the Chinese state-run enterprises.
When the Joint Venture entrusts Party B or Party C to purchase equipment in
the international markets, representatives from Party A shall be invited to
take part.

ARTICLE XII

Preparation and Construction

Section 12.1 Preparatory Office. A preparatory office shall be appointed
within thirty (30) days after the Contract comes into effect. The director
and deputy director of the preparatory office shall be appointed by the
Board of Directors and be responsible for the Board.

Section 12.2 Responsibilities of Preparatory Office. The preparatory
office shall be in charge of project planning, signing construction
contracts, organizing procurement and testing of the equipment and
materials, planning the constructions schedule, making expenditure plans,
handling the affairs of the Joint Venture until a permanent office shall be
established by the Board of Directors.

Section 12.3 Construction Budget. The staff, rewards, and expenditures of
the preparatory office, when approved by all the Parties, shall be added
into the construction budget. When a permanent office is established by the
Board of Directors, the preparatory office shall be closed.

ARTICLE XIII

Management of Labor

Section 13.1 Management of Labor. Party A shall assist the Joint Venture
in finding qualified candidates to be selected by the Joint Venture. The
general manager shall employ the most qualified candidates from the
recommended personnel by exam and evaluation results. The Joint Venture
also has the right to find and employ workers on its own.

Section 13.2 Contracted Invitation System. The Joint Venture shall employ
the contracted invitation system. All its personnel shall have to pass an
exam and an evaluation. The terms of the exam and evaluation shall be
provided in the invitation contract. The Joint Venture shall decide whether
it shall employ them.

Section 13.3 No Other Employment. None of the Joint Venture's selected
personnel may be employed part or full time by other companies or units.

Section 13.4 Employees. The labor management affairs such as employment,
dismissal, wages, labor insurance, career security and hygiene, welfare, and
rewards of the employees of the Joint Venture shall be planned by the Board
of Directors according to the related Chinese laws, regulations and rules of
departments in charge. The Joint Venture shall sign collective contracts
through the Labor Union or sign individual contracts with each employee to
stipulate the above mentioned matters. Such labor contracts shall be filed
with the local agencies of labor.

Section 13.5 Labor Management Affairs. According to the plan approved by
the Board of Directors and the Labor contract stipulated in Section 13.4,
the general manager shall have the full power to handle all the labor
management affairs, including dismissal of unqualified and surplus
personnel, and those who failed to fulfill or efficiently implement the work
assigned to them, and the ones who refuse to obey or have violated the rules
and regulations f the Joint Venture, on the basis of the"Regulations of the
People's Republic of China on Labor Management in Joint Ventures Using
Chinese and Foreign Investment".

Section 13.6 Laws and Regulations. The Joint Venture must abide by the
Chinese rules and regulations regarding labor protection and environmental
protection to ensure safe and civilized production.

ARTICLE XIV

Taxation

Section 14.1 Taxation. The Joint Venture shall fulfill the registration
formalities at the local taxation departments within one (1) month after the
date of establishment of the Joint Venture. The Joint Venture shall pay all
taxes in accordance with the related laws and regulations in China, and
shall enjoy favourable treatment offered by the state of local government to
Chinese-foreign Joint Ventures.

Section 14.2 Foreign Staff. Foreign staff and workers in the Joint Venture
shall pay individual income tax in accordance with the "Individual Income
Tax Law of the People's Republic of China" and other related regulations.
Chinese staff and workers shall pay individual income tax in accordance with
the "Provisional Rules of the People's Republic of China on Individual
Income Adjustment Tax".

ARTICLE XV

Finance and Foreign Currency

Section 15.1 Responsibilities of the Treasurer. The treasurer recommended
by the general manager and approved by the Board of Directors shall be
responsible for the financial management of the Joint Venture.

Section 15.2 Responsibilities of the General Director. According to the
"Regulations of the People's Republic of China on Financial Administration
of Foreign Investment Enterprises" and its attached regulations as well as
modern management methods, the general manager and the treasurer shall
formulate the Joint Venture's system of financial management and procedures.
The system of financial management of procedures adopted by the Joint
Venture shall be submitted to the Board of Directors for approval. The
system of financial management and procedures shallb e filed in the
department in charge within the Joint Venture and also concerned local
financial departments and taxation agencies. The Joint Venture shall adopt
the debit and credit accrual basis for accounting as its accounting system
and principles.

Section 15.3. Fiscal Year. The annual financial year of the Joint Venture
shall be from January 1 to December 31 of the same year. Although all
original "source documents" such as daily vouchers, receipts, and statements
shall be in the language in which they are provided, which in most cases
will be Chinese, the accounting will be done on a computer system and
software provided by Party B. Accounting reports, including detailed
general ledger reports will be provided monthly on paper as well as MS-DOS
computer readable format. The Joint Venture shall provide all reasonable
assistance and cooperation to each Party of the Joint Venture to assist in
their understanding of these records.

Section 15.4. Standard Accounting Currency. The Joint Venture adopts
Renminbi as its standard accounting currency. If cash deposits, other cash
receipts and expenditures as well as the currency for losses or gains in
remittances are different from the currency in the accounting statement, the
currency in the actual receipts and expenditures shall be the accounting
currency. The actual profit or loss resulting from exchange shall be
accounted as profit or loss. The exchange rate adopted by the Joint Venture
in remittance sand account (and any changes thereto) shall be chosen by the
Board of Directors in accordance with applicable Chinese laws and
regulations.

Section 15.5 Financial Statements. The general manager shall draft a
financial statement of accounts, including statements of assets and
liabilities, statements of losses and gains, and a plan for the distribution
of profits within the first three (3) months of every business year for the
preceding business year. The Joint Venture shall invite an accountant
registered in China as its auditor, who shall examine the Joint Venture's
financial condition twice a year. After the examination, the annual report
shall be submitted to the Board of Directors for approval. Following
approval by the Board of Directors, the Joint Venture shall also draft a
quarterly business report and other reports as may be required by the Board
of Directors and shall send such reports to all Parties.

Section 15.6 Auditors. Each Party may employ at its own expense and
accountant (an accounted registered either in China or in a foreign country)
to examine the Joint Venture's accounting items. The Joint Venture shall
provide all reasonable assistance to the auditor. The auditor shall keep
secret all material he comes across during the examination.

Section 15.7 Balance Between Receipts and Expenditures. The Joint Venture
may achieve balance between receipts and expenditures in foreign currency
through exporting products or othe methods allowed by Chinese laws.

Section 15.8 Savings of Foreign Currency. With respect to foreign currency
savings, the Joint Venture may mortgage its foreign currency to the
appropriate branch of the Bank of China or other specified financial
agencies for Renminbi of the relative amount in accordance with the
"Provisional Measures of the People's Bank of China on Foreign Exchange
Secured RenminbiLoans for Foreign Investment Enterprises". The Renminbi
borrowed shall be used for Renminbi expenditures of the Joint Venture.

Section 15.9 Bank Accounts. If it is necessary for the Joint Venture to
open an account in a Hong Kong or a foreign country bank outside China, it
shall obtain permission from the State Administration for Exchange Control
and submit the receipts and expenditures and provide bills or checks. The
foreign currency trade of the Joint Venture shall be in accordance with the
foreign exchange control regulations in the People's Republic of China.

Section 15.10 Allocation of Reserve Fund. The Joint Venture shall allocate
the reserve fund, Joint Venture expansion fund, and bonus and welfare fund
for staff and workers in Renminbi, with the ratio for such allocations to be
determined by the Board of Directors.

Section 15.11 Distribution of After-Tax Profits. When the three funds are
allocated in accordance with Section 15.10, and any loans are repaid by the
Joint Venture in accordance with the terms thereof, the after-tax profits of
the Joint Venture shall be distributed based upon the ratio of each Party's
registered capital. The profits shall be decided by the Board of Directors
whether for distribution or for the expansion of the Joint Venture's
business, provided, however, that where profits are used for expansion the
Board of Directors shall distribute to Party B and Party C from
the profits that are available for distribution to Party B and Party C an
amount of profits sufficient to enable Party B and Party C to pay the tax
liabilities, if any, that they each may incur in respect of the Joint
Venture's profits. At the same time, the Board of Directors shall
idstribute to Party A from the profits available to Party A a corresponding
amount of profits. After the Shanghai plant is in production, the Joint
Venture may distribute profits to the Parties. If the Joint Venture has
incurred losses in previous years, the profits of the current year shall be
first used to make up losses. The Joint Venture shall not distribute
profits until he previous losses are made up. Remaining profits from
previous years may be added to the current year for profits distribution, or
for distribution after making up the current year's deficit. The profits of
Party B and Party C may be used for further investment inside China or may
be remitted outside China.

Where the Joint Venture has foreign currency available for profit
distribution, each Party shall receive an amount of such foreign currency in
proportion to its respective contribution to registered capital. The Joint
Venture shall assist each Party upon requesting exchanging profits available
for distribution in Renminbi into United States Dollars using the Foreign
Exchange Adjustment Centers and any other reasonable methods that ma e
available to the Joint Venture or any Party. The costs of cash exchanges
shall be borne by the Party receiving the foreign currency profit
distribution. All profits distributed to Party B or Party C in foreign
shall be freely remittable outside of China to a bank account designated by
such Party. If Party A desires to convert into Renminbi any of the foreign
currency it receives pursuant to this Article, it shall first offer such
foreign currency to Party B and Party C (in proportion to their respective
contributions to registered capital) at an exchange rate to be agreed by the
Parties.

ARTICLE XVI

Insurance

Section 16.1. Insurance. During the preparatory and operation periods of
the Joint Venture, the Joint Venture shall procure insurance with the
approval of the Board of Directors in accordance with related Chinese
regulations. The risks, value and terms of insurance shall be determined by
the Board of Directors.

ARTICLE XVII

Confidentiality

Section 17.1. Confidentiality. During the term of existence of the Joint
Venture as well as the period before information is made available to the
public by the Board of Directors, all Parties shall not inform any parties
outside this Contract of any information regarding the establishment of the
Joint Venture and the management of the Joint Venture, including but not
limited to proprietary technology of the Joint Venture or either Party. All
Parties and the Joint Venture shall assume responsiblity to ensure that all
employees observe the regulations of this Article XVII, and are responsible
for violation of these regulations by their own employees.

ARTICLE XVIII

Term and Termination of the Joint Venture

Section 18.1 Term of the Joint Venture. The term of this Joint Venture
shall be fifty (50) years from the date when the Stare Administration for
Industry and Commerce issues the Joint Venture its business license
signifying legal person status.

Section 18.2 Procedure for Extension of the Term. If the Board of
Directors agree to extend the term, the Joint Venture shall submit an
application to the examination and approval authority no less than one
hundred eighty (180) days before the expiration of the term.

Section 18.3 Termination of the Term. This Contract expires when the term
of the Joint Venture terminates. However, if any of the following occurs,
and other Parties may give written notice the other Parties to terminate the
Contract before the expiration of the term;

1. Any Party violates this Contract or regulations, and fails to
resolve the violation within sixty (60) days after it receives written
notice of the violation;

2. The accumulated losses of the Joint Venture exceed 100% of its
total registered capital while respective Parties cannot reach a written
agreement on a plan to adjust the Joint Venture's capital structure;

3. The Party assigns its investment in the registered capital
violating this Contract and the Articles of Association;

4. The Joint Venture's property or substantial part thereof is
imposed or taken by any government so that the Joint Venture cannot carry on
its production and management;

5. Force Majeure (see Section 22.1 for a definition of Force Majeure)
or its consequences remain over one hundred twenty (120) days while
respective Parties fail to find a fair settlement in accordance with Article
XXII;

6. An unexpected situation occurs which creates difficulties for the
normal operation of the Joint Venture;

7. Other reasons formulated by this Contract or other related laws or
regulations;

8. If the operation of the Joint Venture violates Chinese laws, the
Agency for Registration and Administration and the examination and approval
authority will jointly terminate the operation of the Joint Venture in
accordance with law; or

9. The arbitration body or the People's Court pronounces to terminate
the Contract and the Articles of Association.

If one party issues a notice requesting a termination of this
Contract, respective Parties shall hold negotiations and make efforts to
solve the problem leading to the desire to terminate the Contract within
sixty (60) days after the issue of the notice. If respective Parties cannot
reach an agreement to settle the problem after sixty (60) days, the Board of
Directors shall submit an application to the examination and approval
authority for dissolution, and provisions in Section 18.4 shall be applied.

Section 18.4 Circumstances for Continuance of Operations. If the term of
the Joint Venture in not extended in accordance with Section 18.2, or if no
agreement is reached in accordance with the regulations in Section 18.3 and
one Party submits an notice of dissolution under Section18.3, the Joint
Venture may carry out its operations only under the following circumstance:
one of the Parties gives notice to the other Party, stating a desire to
purchase the other Party's rights and interests (a Purchase Notice) in the
Joint Venture, and offers to purchase the above rights and interests on the
following conditions:

1. The price of the purchase is negotiated until all Parties are
satisfied; if respective Parties fail to reach an agreement within four (4)
weeks after they receive the Purchase Notice, the price shall be decided
according to the next paragraph.

2. Each Party selects an accountant or an assessor officially
registered in China to jointly value the Joint Venture in U.S. Dollars. The
above appointment shall be sent in the form of written notice to other
Parties within six (6) weeks after the date when the Purchase Notice is
issued. Failure by a Party to select an accountant or an assessor shall
cause the Party to forfeit its right to do so. The team of the accountants
and assessors shall complete and carry out the valuation of the Joint
Venture within four (4) weeks on the following conditions: the Joint Venture
shall continue operation and shall continue to have the right to use the
site(s) in accordance with the contract of the leasing of site(s). If the
accountants and or assessor cannot agree on a value, the average of the
values assigned by each accountant or assessor shall be the value used. The
purchase price shall equal the value of the Joint Venture multiplied by the
percentage of the registered capital owned by the seller.

3. The purchase price decided upon in the above Section 18.4.1 and
Section 18.4.2 shall be transferred by the buyer to the seller in U.S.
Dollars within fourteen (14) days after the value is determined.

4. If the seller is Party B or Party C, the purchase price shall be
paid in U.S. Dollars.

5. If no agreement is reached upon the above provisions concerning
the purchase price, or if the seller does not receive the total payment in
accordance with the above regulation, the Joint Venture shall carry out
liquidation.

ARTICLE XIX

Liquidation

Section 19.1 Liquidation. If the Joint Venture does not continue operation
according to the conditions described in Section 18.4, the Joint Venture
shall dissolve and carry out liquidation under the leadership of the
liquidation committee.

Section 19.2 Form and Responsibilities of the Liquidation Committee. The
liquidation committee shall consist of the Board of Directors. The
liquidation committee shall arrange the handling of the capital and property
of the Joint Venture. The liquidation committee shall value the properties
and sell them, and the committee shall use its reasonable efforts to obtain
the highest possible sale price. If a Party hereto shall offer an amount
not lower than that of a third party, the Party hereto shall have the
priority of buying the property. The property of the Joint Venture shall,
by all possible means, be sold in foreign currencies that are validly
convertible to other foreign currencies. After liquidation and when all
other debts and due taxes (including the expenses and the rewards of the
liquidation committee) are paid, the remaining capital (including that in
foreign currency) shall be divided according to the Parties' registered
capital. All the money that is to be paid to Party B and Party C shall be
in U.S. Dollars and shall be transferred to the foreign bank appointed by
Party B and Party C. If there is an insufficient amount of U.S. currency to
pay Party B and Party C, the liquidation committee shall purchase the amount
of foreign currency from the Foreign Exchange Adjustment Center to pay Party
B and Party C.

Section 19.3 Receipt of Liquidation Property Committee. When the bank
outside China appointed by Party B or Party C has received the money that is
to be paid to Party B or Party C under Section 18.3 and Section 18.4 or it
has received liquidation property from the Joint Venture outside China, then
Party B or Party C no longer bears any responsibility or debts to the Joint
Venture and or Party A, and Party B or Party C shall cease to enjoy any
rights except those stipulated in Article XVI. This provision shall apply
equally to Party A.

ARTICLE XX

Procedure for Changing this Contract

Section 20.1 Revision Procedure. Any revision, modification and supplement
of the Contract or its appendices shall be done by written agreement among
the Parties. According to the provisions of the laws in China, revisions or
modifications of the agreement shall come into effect only if approved by
the examination and approval authority.

ARTICLE XXI

Liability for Breach of Contract

Section 21.1 Liability for Breach of Contract. If any Party fails to
fulfill its liabilities under this Contract or its appendices, or its
statements or assurances made herein are not real or in fact are incorrect,
the Party shall be judged as having breached this Contract. The breaching
Party shall have thirty (30) days to correct such breach after receiving
such written notice from the other Parties. If it fails to correct the
breach, it shall compensate the other Parties for all the direct and
foreseeable loss arising from the breach of contract. If all Parties have
breached this Contract or any appendices of it, they shall bear
responsibilities accordingly. Under any circumstances, any Party's
compensation responsibility shall not exceed its registered capital
contribution to the Joint Venture (in case or in other form).

ARTICLE XXII

Force Majeure

Section 22.1. Force Majeure.

1. "Force Majeure" refers to affairs that occur after this Contract
is signed, and that prevent any Party from performing, fully or partially,
its obligations under this Contract and that occurrence cannot be controlled
by the respective Parties or the Joint Venture, cannot be anticipated or
cannot be avoided even if it is anticipated, including such events as
earthquake, typhoon, fire, flood, war and others.

2. If Force Majeure occurs, the Party affected thereby shall be
allowed to cease fulfilling its liabilities under this Contract, not
including the liabilities specified in Article XXII during the period
affected by the Force Majeure, and this period is extended automatically,
the extended period affected by the Force Majeure, and this period is
extended it is unnecessary to pay any fine or compensation to the other
Parties.

3. The Party that claims the occurrence of Force Majeure shall
immediately notify the other Parties, present proper proof of the occurrence
of Force Majeure and make all reasonable efforts to terminate the Force
Majeure and its influence.

4. When Force Majeure occurs, the Parties shall immediately consult
each other to find a rational solution, and do their efforts to reduce the
effects of the said Force Majeure to the least possible extent.

5. The Party which is prevented from the implementation of the
Contract and its appendices because of the Force Majeure is not responsible
for breaching Contract. As soon as the Force Majeure is over, the Party
shall implement the Contract immediately by appropriate measures, otherwise
the Party shall be seen as breaching the Contract and must hold the
responsibilities resulted from this breach.

ARTICLE XXIII

Concerned Laws

Section 23.1 Concerned Laws. The signing, effective date, explanation, and
implementation of this Contract, and the resolution of any disputes
concerned with this Contract shall be governed by the published Chinese
laws. If the dispute fails to be resolved within sixty (60) days after
consultation has begun, it shall be resolved through arbitration for a final
and indisputable solution as set out in the next paragraph.

Section 24.2 Arbitration. If the dispute is not resolved within the time
period stated in the previous paragraph or such longer period as the Parties
agree to in writing at that time, then the dispute shall be submitted to the
Arbitration Institute of the Stockholm Chamber of Commerce in Stockholm,
Sweden for final decision in accordance with the Arbitration Rules of the
Institute. Arbitration shall be conducted as follows:

1. English Proceedings. All proceedings in any such arbitration
shall be conducted in English.

2. Three Arbitrators. There shall be three (3) arbitrators, all of
whom shall be fluent in English. The Party or Parties acting as plaintiffs
shall appoint one arbitrator and the Party or Parties acting as defendants
shall appoint one arbitrator and the third arbitrator shall be appointed by
the President of the Arbitration Institute and shall serve as chairman of
the Panel.

3. Award Binding. The arbitration award shall be final and binding
on the Parties,and the Parties agree to be bound thereby and to act
accordingly.

4. Costs. The costs of arbitration shall be borne by the losing
Party or Parties, unless otherwise determined by the arbitration award.

5. Obligations to Continue. When any dispute occurs and when any
dispute is under arbitration, expect for the matters under dispute, the
Parties shall continue to exercise their remaining respective rights, and
fulfill their remaining respective obligations under this Contract.

6. Enforcement. In any arbitration proceeding, any legal proceeding
to enforce any arbitration award or any legal action among the Parties in
relation to this Contract, each Party expressly waives the defense of
sovereign immunity and any other defense based on the fact or allegation
that it is an agency or instrumentality of a sovereign state. Any award of
the arbitrators shall be enforceable by any court having jurisdiction over
the Party against which he award has been rendered, or wherever assets of
the Party against which the award has been rendered can be located and shall
be enforceable in accordance with "United nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (1958)."

ARTICLE XXVI

Language

Section 25.1 Language. This Contract shall be signed in both Chinese and
English languages. Both language versions shall be equally valid.

ARTICLE XXV

Others

Section 26.1 Survival of Rights. If any party to this Contract fails or
postpones to use any right, power or privilege under the provisions of this
Contract, the Party shall not be judged that it has given up those rights,
powers or privileges. Any unilateral or partial use of any right, power or
privileges shall also not obstruct future use of such right, power or
privileges.

Section 26.2 No Assignment without Chinese Government Approval. Without
the other Party's written agreement and all necessary approval by the
Chinese government, no Party can wholly or partially assign this Contract.

Section 26.3 Effectiveness of Other Provisions. The invalidity of any
provision of this Contract does not affect the effectiveness of any other
provisions of this Contract.

Section 26.4 Agreement in Total. This Contract constitutes all agreement
of all Parties in the aim of this Contract and shall replace all the
discussions, talks and agreements between all Parties.

Section 26.5 Non-Compete. Party A agrees that during the term of the Joint
Venture and for one (1) year after the expiration or termination of the
Joint Venture, Party A shall not manufacture, distribute or sell inside or
outside China any products for the infant and/or children's market,
including children's fresh milk ("infant formula"), other children's food
products and baby foods and supplements, unless otherwise agreed by other
Parties. Party B and Party C agree that during the term of the Joint
Venture, they shall not manufacture, distribute, or sell in China any
products for the infant and/or children's market, including children's fresh
milk ("infant formula"), other children's food products and baby foods and
supplements, unless otherwise agreed by the other Parties.

Section 26.6 Procedures for Notices. Any notice or written communication
under this Contract shall be in Chinese and English and shall be sent out by
air mail (with receipt), fax, ocean cable, cable or telex. If notices are
sent out by fax, ocean cable, cable or telex, they shall be confirmed with
airmail and its receipt. If notices of communication under this Contract
are sent out by air mail, the date on the receipt shall be considered as the
receiving date. If they are sent out by fax, ocean cable, cable or telex,
two (2) working days after the sending out dated shall be considered as the
receiving date. Unless the legal address is changed by written notice to
other Party, the legal address and communication numbers in Article II shall
be the address and numbers of the Parties.

This Contract signed on the 13th day of April, 1993 by the authorized
representative of the Parties. This contract shall come into effect after
the approval by the related departments of the Chinese government.

Party A:
China National Green Food Corporation

By
________________________

Name
______________________

Position
__________________

Party B:
China Peregrine Enterprises Limited

By
________________________

Name Charles J. Beech
----------------------

Position President
------------------

Party C:
Amer-China Partners

By
------------------------

Name George C. Bergland
----------------------

Position President
------------------

Contract

Sino-American Joint Venture

Hangzhou American Flavors Dairy Products Co., Ltd.

Signed by

Hangzhou Dairy Complex

and

American Flavors China, Inc.

Contents

1. General Provisions

2. Parties of the Joint-Venture

3. Establishment of the JV Company

4. Purpose, Scope, Scale of Production and Business

5. Total Investment and Registered Capital

6. Responsibilities of Each Party to the JV

7. Board of Directors

8. Purchase and Inspection of Equipment

9. Labour Management

10. Taxes, Finance, Audit and Foreign Exchange

11. Duration

12. Disposal of Assets Upon the Expiration of Duration

13. Insurance

14. Amendment alternation and Termination of the Contract

15. Liabilities for Breach of Contract

16. Force Majeure

17. Applicable Law

18. Settlement of Disputes

19. Language

20. Effectiveness of the Contract and Miscellaneous

CHAPTER 1

GENERAL PROVISIONS

In accordance with the "Law of People's Republic of China on Joint
Ventures Using Chinese and Foreign Investment" and other relevant laws,
decrees, and rules and regulations of the People's Republic of China
(hereinafter referred to as the "PRC"), adhering to the principles of
equality and mutual benefit, and through friendly negotiation; Hangzhou
Dairy Complex and American Flavors china, Inc. agree to invest jointly in
the setting up of a joint venture company in Hangzhou city, Zhojiang
province, PRC; and the contract is hereunder stipulated.

CHAPTER 2

PARTIES OF THE JOINT-VENTURE

Article 1

Parties to the contract are as follows:

Party A: Hangzhou Dairy Complex [Chinese characters] registered with
Hangzhou Municipal Industrial and Commercial Administration Bureau, Zhejiang
province, PRC.
Registered address: No 178 North Qiutao Road, Hangzhou
Post Code: 310004
Legal representative: Mr. Qim Genhua
Nationality: Chinese

Party B: American Flavors China, Inc. registered with the State of
Delaware, U.S.A.
Registered address: No 285 Commonwealth Avenue, Boston,
Massachusetts 02116 U.S.A.
Legal Representative: Ms. Florence H. Sender
Position: Chairman
Nationality: American

CHAPTER 3

ESTABLISHMENT OF THE JOINT-VENTURE COMPANY

Article 2

In accordance with the "Law of the People's Republic of China on Joint
Ventures Using Chinese and Foreign Investment" and other relevant laws,
decrees and rules and regulations of the PRC, Party A and Party B hereby
agree to set up an equity joint venture Hangzhou American Flavors Dairy
Products Co., Ltd. (hereinafter referred to as the "JV") in Hangzhou, PRC.

Article 3

The name of the JV in Chinese is:
[Chinese characters]
The name of the JV in English is:
Hangzhou American Flavors Dairy Products Co., Ltd.
Registered address of the JV is: No 188 North Qiutao Road,
Hangzhou, PRC
Post Code: 310004

Article 4

All activities of the JV shall be governed by the laws, decrees and
pertinent rules and regulations of PRC.

Article 5

The organization of the JV is a limited liability company. Each party
to this contract is only liable to the JV within the limit of the investment
subscribed by the party. The profits, loss and risk of the JV shall be
shared between Party A and Party B in proportion to their respective
contribution to the JB's registered capital.

CHAPTER 4

PURPOSE, SCOPE, SCALE OF PRODUCTION AND BUSINESS

Article 6

The purpose of Parties A and B in setting up the JV is to substantiate
the good will of both Parties A and B in strengthening economic cooperation
and technical exchange; by adopting appropriate and advanced technology and
management method to produce and sell dairy products, drinks with milk
content and fruit juices; to improve the products quality, develop new
products, so as to achieve a high degree of competitiveness in quality and
price in the domestic market; and to enable both Parties A and B to realize
a satisfactory economic return.

Article 7

The scope of production and business of the JV is to produce and sell
dairy products, drinks with mild content and fruit juices.

Article 8

The scale of production of the JV is:

- ice cream 2,500 mt / year
- UHT milk 5,500 mt / year
- milk powder 1,200 mt / year

and shall increase with future development of business and production.

CHAPTER 6

TOTAL INVESTMENT AND THE REGISTERED CAPITAL

Article 9

The total amount of investment of the JV is USD 10,000,000-.

Article 10

The total investment contributed by party A and party B is USD
5,100,000- and shall be the registered capital of the JV, of which party A
shall contribute USD 2,448,000-, accounting for 48% of the registered
capital; Party B shall contribute USD 2,652, 000-, accounting for 52% of the
registered capital.

Article 11

Parties A and B shall contribute the following as their investments.

Party A: the existing factory building, machinery, management
facilities and other fixed items valued at USD 2,448,000-, (See Appendix II
"Agreement on Party A's Contribution to the Joint Venture's Registered
Capital).

Party B: USD 2,652,000-, of which USD 42,000- is in cash, the
remaining USD 2,610,000- shall be contributed in the form of imported
equipment (See Appendix III, "Agreement on Party B's Contribution to the
JV's Registered Capital")

Article 12

The registered capital of the JV shall be contributed by parties A and
B in accordance with the following schedule.

(1) Within three months from the date of the JV's business license is
issued, party A shall contribute all of its investment to the JV; Party B
shall remit USD 42,000- cash to the bank account of the JV.

(2) From the date of the JV's business licence issued and before the
end of April, 1994, party B shall deliver the equipment, valued at USD
2,610,000- at Chinese ports designated by the JV and provide a complete set
of clean bill of lading to the JV.

The USD 4,900,000- balance between the total amount of investment and
registered capital of the JV shall be made up in the following ways:

(1) USD 3,400,000-, when required by the JV, JV shall obtain loan(s)
from the bank.

(2) USD 1,500,000 shall be loaned to the JV by parties A and B
according to their respective investment proportion. The detailed schedule,
amount and currency shall be decided by the Board of Directors of the JV.

Article 18

If either party intends to transfer all or part of its investment in
the JV to a third party, unanimous approval of the Board of Directors and
approval from the original examination and approval authority shall be
obtained.

When one party transfers all or part of its investment, the other
party shall have a first right of refusal.

The terms and conditions of such transfer to a third party shall not
be more favourable than those offered to the other party of the JV.

CHAPTER 8

RESPONSIBILITIES OF EACH PARTY TO THE JV

Article 14

Parties A and B shall be responsible for the following matters
respectively:

Party A:

1. application to all relevant authorities in the PRC for approval,
registration, business licence and other matters concerning the
establishment of the JV;

2. providing its investment in the registered capital in accordance
with Chapter 5;

3. assisting the JV in the design and construction work concerning
the necessary re-construction of the factory building and auxiliary
facilities; assisting the JV in ascertaining such basic facilities as water,
electricity supply, road, steam and waste disposal;

4. assisting the JV in recruiting Chinese management personnel,
technical personnel, workers and other personnel needed;

5. In accordance with "Party A supply Agreement" signed between Party
A and the JV, Party A shall supply the materials and relative services
needed to the JV;

6. handling all other matters entrusted by the JV.

Party B

1. providing its investment in the registered capital in accordance
with Chapter 5;

2. assisting the JV, when entrusted by the JV, outside the PRC with
selecting and purchasing machinery and equipment;

3. responsible for the installation, modification and trial
production of the imported equipment and responsible for the expenses of
related personnel engaged for such purposes; and providing technical
information and assistance in the technical improvement, and adopting the
imported equipment to the existing factory building, its equipment and
auxiliary facilities.

4. training the technical personnel and workers for the JV;

5. handling the other matters entrusted by the JV.

CHAPTER 7

BOARD OF DIRECTORS

Article 15

A Board of Directors of the JV shall be established and become
effective on the date on which the JV's business licence is issued.

Article 16

The Board of Directors (hereinafter referred to as the BOD) shall
comprise of six (6) directors, of which three (3) shall be appointed by
Party A and three (3) by Party B. A director appointed by Party B shall
serve as the Chairman of the BOD and a director by Party A shall serve as
the Vice-Chairman. The appointment of the first BOS's director, Chairman
and Vice-Chairman is for a term of four (4) years. Any director may serve
consecutive terms if appointed by the Party which originally appointed him.

Article 17

The BOD shall be the highest authority of the JV, and shall decide all
major issues concerning the company. Unanimous approval of all directors at
the BOD's meeting shall be required before any decisions are made concerning
the following major issues:

1. Alteration of the Articles of Association of the JV.
2. Termination and dissolution and extension of the duration of the
JV.
3. Increase and transfer of the JV's registered capital.
4. Merger of the JV with other economic organizations.
5. Loan or any form of indebtedness and/or purchase of fixed assets
exceeding USD 500,000. The decision thereof shall be signed by
all the directors of party A and sent to all the directors of
Party B for their signatures and then put into implementation.

Decisions on the following issues shall be valid when adopted by a
majority of the total number of directors and shall have the approval of one
Party's A appointee and one Party B's appointee to the BOD;

1) deciding and approving the important reports submitted by the
General Manager e.g., production plan, annual business report, loans, etc.

2) approving annual financial report, budget of receipts and
expenditures, distribution plan of annual profit.

3) adopting major rules and regulations of the JV.

4) deciding the timing and location to set up branches of the JV
inside and outside of China.

5) amending rules and regulations of the JV.

6) deciding the employment dismissal, responsibilities, welfare and
term and condisitons of employment.

7) deciding the liquidation procedures, principles and members of the
liquidation committee after the termination and dissolution of the
JV.

8) deciding the drawing ratio of the "three funds" and all type of
insurance.

9) deciding all other major issues deemed necessary to be decided at
BOD's meeting.

Article 18

The JV shall establish management organization responsible for the
JV's day-to-day management of the JV.

The JV shall have a General Manager to be appointed by Party A and a
Deputy General Manager to be appointed by Party B. Both appointments shall
be approved by the BOD. The term of office for the General Manager and
Deputy General Manager is four (4) years and may serve consecutive term if
re-appointed.

Article 19

The responsibility of the General Manager is to carry out the
decisions of the BOD, organize and conduct the day to day management of the
JV, the Deputy General Manager shall assist the General Manager in his work.
The management organization shall establish several departments. The
department manager shall be responsible for the operation of their
respective department, handling the matters instructed by the General
Manager and shall be responsible to them.

Article 20

In case of graft or serious dereliction of duty on the part of the
General Manager and the Deputy General Manager, the BOD shall have the power
to dismiss them at any time deemed necessary.

CHAPTER 8

PURCHASE AND INSPECTION OF EQUIPMENTS

Article 21

Under the same conditions, the equipments, transportation vehicles and
office articles needed by the JV shall be given priority to be purchased
inside China.

Article 22

In the event the JV entrusts Party B to select and purchase equipment
outside China, a import contract shall be worked out under the relevant
regulations of the PRC. Party B shall ensure the equipment to be up to
date, suitable for use and the price thereof reasonable. Party B shall
invite party A to send personnel to participate in the purchase. The
expenses thus incurred shall be born by the JV.

Article 23

The equipment purchased from outside China by the JV shall be subject
to the inspection of Chinese commodity inspection authority under the
Commodity Inspection Regulations of PRC.

CHAPTER 9

LABOUR MANAGEMENT

Article 24

Employment, recruitment, dismissal, salary, welfare, labor insurance,
labor protection, performance bonus and disciplinary actions and other
matters concerning the staff and workers of the JV shall be handled in
accordance with the "Regulations of PRC on Labour Management in Joint
Ventures Using Chinese and Foreign Investment" and other relative
regulations.

The BOD shall formulate a plan for labor management, and the JV shall
constitute and sign Contracts of Employment with the JV's trade union
collectively or the workers individually to cover the terms and conditions
of employment, and other labor related issues.
Upon the constituting and signing of the employment contract, it shall be
filed with the labor management department.

Article 25

The employment, salary, social insurance, welfare and travel expense
standard of the high-ranking managerial personnel nominated by Parties A and
B shll be discussed and decided at BOD's meeting.

CHAPTER 10

TAXES, FINANCE, AUDIT AND FOREIGN EXCHANGE

Article 26

The JV and its staff and workers shall pay taxes in accordance with
the related Chinese laws and regulations.

Article 27

Allocations for reserve funds, development funds, welfare funds and
bonuses for staff and workers shall be set aside in accordance with the "Law
of the People's Republic of China on Joint Ventures Using Chinese and
Foreign Investment". The proportion of allocations shall be decided
manually by the BOD according to the business situations of the JV.

Article 28

The fiscal year of the JV shall be from January (1) to December 31 of
the Gregorian Calendar.

All vouchers, account books, statistic statement and reports shall be
written in Chinese and English.

Article 29

The joint venture's financial and accounting system shall be subject
to the related Chinese regulations and be filed with the local finance and
tax authority.

Article 30

All the JV's expenditure vouchers shall be valid only after being
signed by the General Manager or his authorized representative.

Article 31

The JV's financial matters shall be examined and checked by the
registered Chinese accountant engaged by the JV. The report thereof shall
be provided to the BOD and the General Manager.

If either party considers it necessary that foreign accountant or
auditor shall be independently appointed to examine the annual financial
affairs, the JV shall grant its consent. All the expenses incurred shall be
born by the engaging party.

Article 32

Within the first three months of each fiscal year, the General Manager
shall be responsible for preparing the balance sheet, profit and loss
statement and profit distribution plan of the previous year an deliver such
to the BOD for examination and approval.

Within the last three months of each fiscal year, the General Manager
shall prepare the forecast of profit distribution plan and forecast of
various funds allocation plan and submit such to the BOD, for examination.

The general manager shall prepare monthly and quarterly financial
reports and present to the BOD.

Article 33

All the JV's matters relating to foreign exchange shall be handled
under the "Provisional Regulations on Foreign Exchange Control of PRC" and
other related regulations. In the event the JV experiences an imbalance in
foreign exchange, profit to be distributed to Parties A and B shall be in
terms of renminbi (RMB).

CHAPTER 11

DURATION

Article 34

The duration of the JV is twenty (20) years.

The date of issuance of the JV's business licence is the date when the
JV is established.

Upon the unanimous approval from the BOD meeting, the application for
extension of duration proposed by one party may be, not later than 180 days
prior to the expiration date, submitted to the examination and approval
authority.

CHAPTER 12

DISPOSAL OF ASSETS UPON EXPIRATION OF DURATION

Article 355

Upon the expiration or early termination of the JV, the JV shall
proceed with liquidation in accordance with laws. After liquidation, the
property of the JV shall be distributed in proportion to each party's
investment in the registered capital of the JV.

CHAPTER 13

INSURANCE

Article 36

Insurance policies of the JV on various kinds of risks shall be
underwritten with the insurance organizations in China. The types, values,
duration and terms of insurance shall be discussed and decided by the BOD in
accordance with relevant regulations of such insurance organizations.

CHAPTER 14

AMENDMENT ALTERATION AND
TERMINATION OF THE CONTRACT

Article 37

Any amendment or alteration to this contract, or to any of the
appendices annexed hereto, shall come into force only after a written
agreement providing for such amendments or alterations has been duly signed
by Parties A and B, and approved by the original examination and approval
authorities.

Article 39

Should the JV be unable to continue its operations or achieve the
business stipulated in this contract due to the fact that any one party
hereto fails to fulfill its lawful obligation to this contract or the
Articles of Association, or seriously violates the terms of this contract or
Articles of Association, then the party concerned shall be deemed to be
unilaterally terminating this contract, and the other party to this contract
has the right to claim damages from the party concerned in addition to the
right to submit to the original examination and approval authorities for
approval to terminate this contract, if all parties to this contract agree
to continue to operate the JV under such circumstance, the breach of
contract party shall be liable for the economic losses thus cuased to the
JV.

CHAPTER 15

LIABILITIES FOR BREACH OF CONTRACT

Article 40

If any one of Parties A and B does not make its contributions to the
registered capital on schedule in accordance with the terms stipulated in
CHAPTER 5 of this contract, the party which is on breach of contract shall
pay to the other party who has made its contribution to the registered
capital on schedule, an amount equal to 1% of its subscribed investment in
the registered capital, ofr every month starting from the date of such delay
in making contribution to the registered capital. If the delay of such
nature is over a period of three (3) months, the party which abides by the
contract has the right to proceed with the termination of this contract as
stipulated in Article 39 and claim damages from the breach of contract
party, in addition to the right to claim the cumulative penalty in the
amount of 8% of its subscribed investment in the registered capital.
In the event that either party should delay its contribution due to the
events stipulated in Article 42, such party shall not be reliable in any
way.

Article 41

Due to the fault of any one of the parties to this contract which
prevents the execution, wholly or partially, of this contract, Articles of
Association and Appendices, the defaulting party shall be responsible for
all the liabilities of the breach of contract. If in the event that both
parties to this contract are in breach of contract, each party hall be
responsible for the liabilities incurred by its breachof contract according
to the actual situation.

CHAPTER 16

FORCE MAJEURE

Article 42

Should either party to this contract be prevented from performing this
contract or be unable to perform this contract according to its terms and
conditions by force majeure, such as earthquake, typhoon, flood, fire, war
and other unforseen events, the happening and consequences of which are
unpresentable and unavoidable, the affected party should notify the other
party to the contract by telex without any delay and within 15 days
thereafter provide the detailed information of the event and valid
certifying documents evidencing the occurrence of the event of force
majeure. Such documents should be issued by a public notary organization
from where the force majeure occurred, explaining the reason for the
affected Party's inability to perform or delay in performing, all or part of
this contract. Depending on the extent the performing of this contract is
affected, the parties to this contract shall, through consultation, decide
whether to terminate this contract, or to exempt the performance of part of
the obligation to this contract, or postpone the performance of this
contract.

CHAPTER 17

APPLICABLE LAW

Article 43

The making of this contract, its validity, interpretation and
execution, and settlement of any disputes concerning this contract shall be
governed by the laws and regulations of the PRC.

After the effectiveness of the contract, if and when there should be
any amendments of the Chinese laws and/or regulations, the parties may
continue to execute the contract under Article 40of the PRC Law on Foreign-
Related Economic Contract."

CHAPTER 18

SETTLEMENT OF DISPUTES

Article 44

Any disputes arising from the execution of, or in connection with,
this contract shall be settled through friendly consultation between both
parties to the contract. In the event that settlement cannot be reached
through consultations, the disputes shall be submitted for arbitration. The
defending party shall choose to be heard at the Arbitration Institute of
Stockholm Chamber of Commerce in Sweden or China International Economic and
Trade Arbitration Commission. In the event that both parties to this
contract propose arbitration, the case for arbitration shall be submitted to
the Arbitration Institute of Stockholm Chamber of Commerce. The arbitration
verdict shall be final and binding on all parties to this contract. The
arbitration fee shall be borne by the losing party.

Article 45

During the course of arbitration, this contract shall continue to be
performed except for the part which the parties to this contract are
disputing and which is undergoing arbitration.

CHAPTER 19

LANGUAGE

Article 46

This contract shall be written in Chinese and in English. Both
versions carry the same force and effect.

CHAPTER 20

EFFECTIVENESS OF THE CONTRACT
AND MISCELLANEOUS

Article 47

The appendices to this contract are stipulated in accordance with the

Transfer/Assignment and Agreement to Operate
Hangzhou American Flavors Dairy Products Joint Venture Project

1. Introduction. This Agreement is made this 3rd day of September,
1997, by and between American Flavors China (AFC), a Delaware corporation
having a principal place of business at 1007 Chestnut Street, Newton,
Massachusetts 02164 and China Peregrine Food Corporation (CPFC), a Delaware
corporation having a principal place of business at 777 South Flagler Drive,
Suite 1113, Phillips Point, West Tower, West Palm Beach, Florida 33401.

2. Considerations. The following facts and events have been duly
considered by the parties in entering into this Agreement:

2.1 American Flavors China (AFC) presently holds and enjoys 52% of
the joint venture rights in and to a certain joint venture contract entered
into with Hangzhou Dairy Complex, dated July 25, 1993 (the Joint Venture
Contract), with respect to a joint venture business known as Hangzhou
Meilijian Dairy Products Co., Ltd. (Hangzhou Meilijian) in the People's
Republic of China (the Joint Venture Project).

2.2. CPFC presently operates its own joint venture business in the
People's Republic of China (PRC) under the auspices of certain agreements
with China Peregrine Enterprises, Limited.

2.3. CPFC presently has 6,780,000 shares of its capital stock (common
and preferred) issued and outstanding and has granted warrants to certain
investors and stock options to certain key personnel for an additional
3,980,553 shares of its capital stock.

2.4. AFC desires to assign and transfer of all of its right title and
interest in the Joint Venture Contract to CPFC in exchange for an equity
position in CPFC.

2.5. The provisions of this Agreement which provide for the transfer
and assignment of the rights of AFC to CPFC are subject to approval by the
Hangzhou Meilijian Board of Directors, in accordance with Article 13 of the
Joint Venture Contract, and the Hangzhou Foreign Economic and Trade
Commission and any other appropriate governmental agency of the People's
Republic of China.

2.6. While the parties to this Agreement anticipate approval of the
transfer and assignment provided herein by the parties to the Joint Venture
Contract, and while the parties to this Agreement are awaiting approval of
the transfer and assignment by the appropriate governmental agency of the
People's Republic of China, said parties are unsure of the time frame within
which such approval may be effected.

2.7. Notwithstanding the foregoing, the participants to the Joint
Venture Project desire to continue to move the project forward in accordance
with the Joint Venture Contract during the interim period subsequent to the
execution of this Agreement and prior to the approval of the transfer and
assignment herein by the parties to the Joint Venture Contract and prior to
the final governmental approval of the transfer and assignment of AFC's
rights in said Joint Venture Contract to CPFC.

2.8. The parties acknowledge and agree that, in order to achieve the
goals set forth herein, an interim restructure of the operational aspects of
the rights to the Joint Venture Contract is necessary and, accordingly,
agree as follows.

3. Basic Agreement. In consideration of the mutual promises
contained in this Agreement, the parties agree to the following:

3.1. Transfer and Assignment. CPFC hereby purchases the entire
interests of AFC in and to the Joint Venture Contract and AFC hereby
transfers and assigns such interests to CPFC; in full consideration for the
aforesaid transfer and assignment, CPFC forthwith shall direct its Stock
Transfer Agent to issue 870,279 shares of the common stock of CPFC to AFC
and CPFC hereby grants options for 235,406 shares of the common stock of
CPFC to AFC at the option price of $1.00 per share, said options to expire
five (5) years subsequent to the commencement of the public trading of the
common stock of CPFC, all as provided in a certain Option Agreement by and
between the parties hereto executed contemporaneously herewith, attached as
Schedule A;

a. Assignee Assumes Duties and Obligations. By the acceptance of
this assignment, CPFC assumes the performance of all of AFC's duties and
obligations under the Joint Venture Contract and will hold AFC harmless from
any liability or loss resulting from the performance or nonperformance of
such duties and obligations as are set forth and defined in the Joint
Venture Contract.

b. Assumption of Contracts by CPFC. Upon the execution of this
Agreement, CPFC will assume all contracts, if any, entered into by AFC in
the course of the business of the Joint Venture project that remain
executory and that are described in Schedule B attached to this Agreement
and made part of it. Except with respect to a certain contract entered into
by and between AFC and Evergreen, Inc. (Evergreen), AFC will indemnify CPFC
against any loss incurred by CPFC by reason of AFC's breach of any such
contract. CPFC will indemnify AFC against any loss incurred by AFC by
reason of CPFC's breach of any such contract following the execution of this
Agreement.

c. Title Passing/Closing. Upon the execution of this Agreement by
all parties and payment of the purchase price by CPFC to AFC in accordance
with Paragraph 3.1 herein, this transaction shall be deemed closed and
CPFC shall have title to and possession of AFC's right, title and interest
in and to the Joint Venture Contract.

d. Management. Upon the execution of this Agreement, CPFC shall have
the right to appoint three (3) directors to the Board of Directors of
Hangzhou Meilijian Dairy Products Co., Ltd., and to name one of said
directors Chairman; in addition, CPFC shall have the right to appoint, as
its representative, a Deputy General Manager of the Joint Venture Project,
subject to the terms and conditions of any contract existing between such
present Deputy General Manager and Hangzhou Meilijian.

e. Upon the closing of the transaction contemplated herein, and
provided that CPFC shall have obtained directors' and officers' insurance,
Florence Sender shall be elected to the Board of Directors of CPFC to serve
at least one term as a director.

3.2 Agency Agreement. AFC, as Principal, hereby appoints CPFC
Principal's exclusive Agent for the performance of all acts required of
Principal, and in the name of Principal, under the Joint Venture Contract.
Agent accepts the appointment.

a. The agency shall begin on the date of this agreement and continue
until terminated in accordance with the provisions of this Agreement.

b. In furtherance of the agency, Agent undertakes performance of all
duties and obligations of Principal under and pursuant to the Joint Venture
Contract, for the purpose of developing manufacturing and distribution of
food products in the People's Republic of China.

c. As full remuneration for Agent's services, Agent shall be
entitled to any and all profit or other remuneration to which Principal is
entitled under the Joint Venture Contract.

d. Unless earlier terminated by the mutual agreement of the parties
to this Agreement, the term of this Agreement shall be until the transfer
and assignment of AFC's rights to the Joint Venture Contract to CPFC is
approved by the Hangzhou Foreign Economic and Trade Commission and any other
appropriate governmental agency of the People's Republic of China, at which
time the provisions of this Paragraph shall 3.2 terminate and be of no
further force or effect. In the event that such approval is not obtained,
the parties hereto agree that the agency created hereby shall continue to
exist coterminous with the Joint Venture Contract.

3.3. Assumption of Obligations.

a. As a covenant separate from the aforesaid Agency Agreement, CPFC
hereby assumes all of the duties and obligations, financial and otherwise,
of AFC under, pursuant to and resulting from the Joint Venture Contract; in
consideration of the covenant contained in this Paragraph 3.3 a., CPFC shall
be entitled to any and all profit or other remuneration to which AFC is
entitled under the Joint Venture Contract.

b. In addition, CPFC shall pay to AFC the amount of $240,000 (US),
which shall be payable by CPFC to AFC four (4) months subsequent to the
approval of the transfer and assignment provided for herein by the Hangzhou
Meilijian Board of Directors, provided, however:

(i) that should the Board of Directors of CPFC determine that such
payment would impair the ability of CPFC to meet its operational
obligations, then such payment, at the option of CPFC, may be deferred for
an additional twelve (12) months, during which time the aforesaid obligation
shall accrue interest at the rate of eight percent (8%) per annum; and

(ii) that CPFC, at its option and in its sole discretion, in lieu of
making payments directly to AFC as set forth above, shall have the right to
issue a joint check or draft in payment of this obligation to AFC and
Evergreen in satisfaction of a certain debt owed by AFC to Evergreen in
connection with a certain packing machine delivered by Evergreen to Hangzhou
Meilijian Dairy Products Co., Ltd.; should the amount of said joint check or
draft amount to less than $240,000, CPFC shall remain indebted to AFC for
the balance of such $240,000.00, pursuant to this paragraph, but in an
amount less the amount of such joint check or draft; and

(iii) that, in consideration of such payment by CPFC, AFC hereby
assigns and transfers to CPFC all of its rights and interest to receive and
collect from Hangzhou Meilijian Dairy Products Co., Ltd. the aforesaid
obligation owing to AFC in the amount of $240,000 (US); and

further provided:

(iv) that, CPFC agrees to pay AFC all or part of the obligation set
forth in paragraph 3.3.b. herein, as appropriate, promptly upon its receipt
of monies from Hangzhou Meilijian,
to the extent of the amount of such monies received.

4. Ratification of Terms of Agreement/Option To Void Agreement.

4.1. This Agreement, and each and every part hereof, is subject to
and conditioned upon the written approval, adoption and ratification of the
terms and conditions of this Agreement by the Board of Directors of AFC and
the Board of Directors and Shareholders of AFC's corporate parent, America
China Enterprises, Inc. (ACE).

4.2. This Agreement shall terminate and be null and void, in the
event:

a. that the written approval, adoption and ratification of the terms
and conditions of this Agreement by the Board of Directors of AFC and the
Board of Directors and Shareholders of AFC's parent ACE, not be obtained
after the duly authorized solicitation of respective shareholders and
directors has been made; or

b. that the assignment and transfer of the interests to the Joint
Venture Contract as provided herein not be approved by the Board of
Directors of Hangzhou Meilijian in accordance with Article 13 of the Joint
Venture Contract by October 15, 1997, or such extended date as may be
mutually agreed upon, in writing, by the parties hereto.

Upon such termination, all common stock received by AFC and stock
options granted to AFC pursuant to this Agreement shall be retired and
canceled by CPFC and any certificates for such stock issued by CPFC to AFC
shall returned by AFC to CPFC within three (3) business days of such
termination. Except as provided in this subparagraph, upon such
termination, neither party to this Agreement shall have any further rights
or obligations under or pursuant to this Agreement nor shall AFC have any
claim or right to any equity or other interest to or in CPFC. Upon such
termination, CPFC agrees to execute all documents appropriate and necessary
to retransfer the Joint Venture Contract interests described herein to AFC.

5. Representations and Warranties of AFC.

The parties hereto understand and agree that representations and
warranties made by the parties herein with respect to the conditions and
activities of the respective Chinese companies in which each is involved
pursuant to a joint venture contract are made by the parties in the context
of the Chinese business environment extant in the People's Republic of
China. As such, there can be no assurance that the sources from which
information is provided concerning such joint ventures are wholly reliable.
Official statistics also may be produced on a basis different to that used
in Western countries. Any of the representations and warranties contained
herein therefore must be subject to some degree of inherent uncertainty due
to doubts about the reliability of available information from and with
regard to the respective joint ventures. Subject to the foregoing, to
induce CPFC to enter into this Agreement, AFC represents and warrants the
following:

5.1. General Representations.

a. AFC has in all material respects complied with and is now in all
material respects in compliance with, all laws and regulations applicable to
AFC or the assets subject of this Agreement or the operation of the Joint
Venture business, and no material capital expenditures will be required in
order to ensure continued compliance therewith. Except for permits or other
licenses already held by AFC or Hangzhou Meilijian Dairy Products Co., Ltd.,
and the approval of the transfer and assignment provided for herein, to the
best of AFC's knowledge, no other permit, license, order or approval of any
authority is material to or necessary for the conduct of the Joint Venture
business or AFC's participation therein.

b. To the best of AFC's knowledge, there are no pending or threatened
or anticipated proceedings by or before any authority which involve new
special assessments, special assessment districts, bonds, taxes,
condemnation action, eminent domain actions, laws or regulations or similar
matters which, if instituted, could reasonably be expected to have a
material adverse effect upon the condition (financial or otherwise), assets,
liabilities, business or other prospects of the Joint Venture, the value or
utility of the assets transferred and assigned hereby, or AFC's ability to
consummate the transactions contemplated herein.

c. To the best of AFC's knowledge, there is no fact which AFC has not
disclosed to CPFC which reasonably could be expected to have a material
adverse effect upon the condition (financial or otherwise), assets,
liabilities, business, operations, properties or prospects of AFC or the
Joint Venture, the value or utility of the assets transferred and assigned
hereby, or the ability of AFC to consummate the transactions contemplated
herein.

5.2. Representations and Warranties of AFC With Respect to the Joint
Venture.

a. Joint Venture Duly Organized. Hangzhou Meilijian Dairy Products
Co., Ltd. is a limited liability company organized in accordance with the
laws of the People's Republic of China and, in accordance with its Business
License issued October 25, 1993, is authorized to engage in the business of
the manufacture and sale of milk products, fruit juice and ice cream.

b. Joint Venture Interest Properly Issued. AFC's interest in the
Joint Venture Project has been properly issued and approved by the
appropriate authorities in the People's Republic of China.

c. Joint Venture Interest Free of Liens or Encumbrances. AFC has
full, complete, and absolute title to 52% of the issued and outstanding
Joint Venture interests, free of any liens, encumbrances, or agreements of
any kind, except the Joint Venture Contract and the Articles of Association
for Hangzhou Meilijian Dairy Products Co., Ltd.

d. Hangzhou's Financial Condition. There is attached to this
Agreement as Schedule C and made a part of it the most recent financial
statements of Hangzhou Meilijian Dairy Products Co., Ltd. consisting of a
balance sheet as of July 31, 1997 and an income statement for the period
ended July 31,1997. There have been no changes in Hangzhou Meilijian's
financial condition as set out in the balance sheet between the date of the
balance sheet and the date of this Agreement except for those changes that
will normally occur in the regular course of Hangzhou's business. No
dividends, distributions, changes in salaries, payments of profit sharing or
deferred compensation have been made since the date of the financial
statement fully described above.

e. No Suits Pending or Imminent. With the exception of the
anticipated litigation discussed in the Coopers & Lybrand "Financial Due
Diligence Review Report - July 1997" with respect to Hangzhou Meilijian, to
the best of AFC's knowledge, there are no actions at law or equity or
administrative proceedings pending against Hangzhou or in which Hangzhou is
a plaintiff, defendant, petitioner, or respondent. Hangzhou does not
propose to commence an action at law or equity or an administrative
proceeding in which it will be a plaintiff or petitioner. There are no
actions at law or equity or administrative proceedings pending in which it
is anticipated that Hangzhou will join or be joined as a party.

f. No Dividends. The Board of Directors of Hangzhou have not
declared any dividends since the date of the financial statements attached
to this Agreement.

g. No Salary Increases; No New Employees. From the date of this
Agreement to the approval of this Agreement by the Board of Directors of
Hangzhou Meilijian, AFC will not consent to any increase in any employee's
salary or the hire of any new management or executive level employee.

h. Officers and Directors. From the date of this Agreement to the
approval of this Agreement by the Board of Directors of Hangzhou Meilijian,
AFC will not elect any other directors or appoint any other officers, except
as CPFC may direct in writing.

i. Joint Venture Obligations. Except as set forth on Schedule D,
attached hereto, to the best of AFC's knowledge, all obligations and
requirements of the participants in the Joint Venture Contract have been
satisfied by the appropriate respective parties; no party to the Joint
Venture Contract is in default or breach of any of the provisions of said
Contract.

j. Execution of Consents. AFC agrees to obtain and deliver to CPFC
any and all appropriate shareholder and director consents in connection with
this transaction upon request of CPFC.

5.3. Representations and Warranties of AFC With Respect to Its
Condition.

a. Company Duly Organized. AFC is a corporation organized in
accordance with the laws of the State of Delaware and, in accordance with
its Articles of Incorporation, is authorized to engage in the business of
holding an interest in the Joint Venture project.

b. Company in Good Standing. AFC is in good standing. All taxes
currently due, including but not limited to income, trust, franchise, sales
and excise taxes, have been paid. There are no pending actions or
proceedings to limit or impair AFC's power to engage in business or to
dissolve AFC.

c. No Suits Pending or Imminent. There are no actions at law or
equity or administrative proceedings pending against AFC or in which AFC is
a plaintiff, defendant, petitioner, or respondent, which could have a
material adverse impact upon the asset being transferred hereunder.

d. Tax Matters. Within the times and in the manner prescribed by
law, AFC has filed all tax returns which AFC is required to file, has paid
or provided for all taxes shown thereon to be due an owing by it, and has
paid or provided for all deficiencies or other assessments of taxes,
interest, or penalties owed by it; no taxing authority has asserted, or
will successfully asserted, any claim for the assessment of any additional
taxes of any nature with respect to any periods covered by any such tax
returns. All taxes which are required to be withheld or collected by AFC
have been duly withheld or collected and, to the extent required, have been
paid to the proper taxing authority or properly segregated or deposited as
required by law. Each tax return filed by AFC fully and accurately reflects
its liability for taxes for such year or period and accurately sets forth
all items (to the extent required to be included or reflected in such
returns) relevant to it future liability for taxes, including the tax bases
of its properties and assets. The provisions for taxes payable reflected in
the financial statements are fully adequate and correct.

In addition, with respect to tax matters of AFC:

(i) No audit of any tax return of AFC is in progress, or to the
knowledge of the Seller or AFC, threatened or anticipated;

(ii) No issues have been raised with AFC by any taxing authority
which are currently pending in connection with any tax returns.
No material issues have been raised in any examination by any
taxing authority with respect to AFC which, by application or
similar principals, reasonably could be expected to result in a
proposed deficiency for any other period not so examined.
There are no unresolved issues or unpaid deficiencies relating
to any such examination;

(iii) AFC is not subject to any partnership, joint venture or other
arrangement which is treated as a partnership for federal or
state income tax purposes;

6. Indemnification.

6.1. Subject to the limitations set forth in paragraph 6.6 herein,
AFC agrees to indemnify and hold CPFC harmless from and against all
liability, loss, damage and other claims arising directly or indirectly from
AFC's breach of its representations of ownership set forth in paragraph
5.2.c herein.

6.2. Subject to the limitations set forth in paragraph 6.6 herein,
each party to this Agreement will indemnify and hold harmless the other
party by reason of any loss, including attorneys fees, suffered as a result
of the failure of such party to satisfy and perform the terms and conditions
and obligations of this Agreement or the material breach by such party of
any of its representations and warranties contained herein. This paragraph
does not apply to the actions of others that are not within the control of a
party to which this indemnification provision applies, insofar as the
ability of such party to satisfy the terms and conditions and obligations of
this Agreement are dependent upon such actions of others.

6.3. Subject to the limitations set forth in paragraph 6.6 herein,
AFC will indemnify and hold harmless CPFC with respect to any claim asserted
against CPFC involving a debt or obligation of AFC not specifically assumed
by CPFC hereunder, excluding the obligation of AFC to Evergreen referenced
in paragraph 3.3.b.(ii) herein.

6.4. Satisfaction of indemnification Obligations. If a party hereto
receives notice of any claim or other commencement of any action or
proceeding with respect to it as to which the other party to this Agreement
is obligated to provide indemnification pursuant to paragraphs 6.1, 6.2 or
6.3 herein , the party receiving such notice promptly shall give the other
party written notice thereof, which notice shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom.

6.5. In connection with any claim giving rise to indemnity hereunder
resulting from or arising out of any claim or legal proceeding by a person
who is not a party to this Agreement, the Indemnitor at its sole cost and
expense may, upon written notice to the Indemnitee, assume the defense of
any such claim or legal proceeding using counsel of its choice (subject to
the approval of the Indemnitee) if it acknowledges to the Indemnitee in
writing its obligations to indemnify Indemnitee with respect to all elements
of such claim. Indemnitee shall be entitled to participate in the defense
of any such action, with its counsel and at its own expense; provided,
however, that if Indemnitee, in its sole discretion, determines that there
exists a conflict of interest between it and the Indemnitor, Indemnitee
shall have the right to engage separate counsel, the reasonable costs and
expenses of which shall be paid by the Indemnitor, but in no event shall the
Indemnitor be liable to pay for the costs and expenses of more than one such
separate counsel. If the Indemnitor does not assume the defense of any such
action or litigation resulting therefrom, the Indemnitee may defend against
such claim or litigation, after giving notice of same to Indemnitor, on such
terms as Indemnitee may deem appropriate, and Indemnitor shall be entitled
to participate in (but not control) the defense of such action with his
counsel and at his own expense. If Indemnitor thereafter seeks to question
the manner in which Indemnitee defended such third party claim or the amount
or nature of any such settlement, Indemnitor shall have the burden to prove
by a preponderance of the evidence that Indemnitee did not defend or settle
such third party claim in a reasonably prudent manner. Notwithstanding the
foregoing, however, Indemnitee shall in all cases be entitled to control the
defense of any action if it:

a. may result in injunctions or other equitable remedies in respect
of Indemnitee or the business of Hangzhou Meilijian;

b. may result in liabilities which, taken with other than existing
claims by Indemnitee under Indemnitor's indemnification
obligations, would not be fully indemnified hereunder;

c. may have an adverse impact on the business of the Indemnitee or
Hangzhou Meilijian or the financial condition of same (including
an effect on the tax liabilities, earnings, or ongoing business
relationships) even if Indemnitor pays all indemnification amounts
in full.

6.6. Limitation of Indemnification. The provisions of this
indemnification agreement shall be subject to and limited by the following:

a. The maximum amount which any party, as indemnitor, shall be
required to pay to the other party, as Indemnitee, shall be
limited to $1,800,000.00, inclusive of all costs and expenses,
including attorneys fees; and

b. The obligation to indemnify created herein shall be applicable and
limited to an indemnifiable loss, damage or claim, as described in
paragraphs 6.1, 6.2 and 6.3 herein:

a. for which a notice of claim is made by an Indemnitee against
an indemnitor hereunder within the two (2) year period
commencing with the approval of the assignment and transfer of
the interests to the Joint Venture Contract as provided herein
by the Board of Directors of Hangzhou Meilijian in accordance
with Article 13 of the Joint Venture Contract. Such a notice
of claim shall be deemed made on the date of the delivery or
the mailing of same by the Indemnitee to the indemnitor at its
last known address; and

b. which indemnifiable loss, damage or claim exceeds $5,000.00.

6.7. Right to Offset. The provisions of Paragraph 3.3.b. herein
shall be subject to the CPFC's right to offset credits to CPFC by reason of
AFC's indemnification obligations under the preceding indemnification
paragraph. The right of offset provided herein is subject to the condition
that:

a. CPFC gives written notice to the AFC of the occurrence or
existence of an indemnifiable event;

b. AFC fails to remedy, resolve or remove the charge/loss or
anticipated charge/loss against CPFC resulting from such event
within ninety (90) days of AFC's receipt of such notice.

7. Representations and Warranties of CPFC. The parties hereto
understand and agree that representations and warranties made by the parties
herein with respect to the conditions and activities of the respective
Chinese companies in which each is involved pursuant to a joint venture
contract are made by the parties in the context of the Chinese business
environment extant in the People's Republic of China. As such, there can be
no assurance that the sources from which information is provided concerning
such joint ventures are wholly reliable. Official statistics also may be
produced on a basis different to that used in Western countries. Any of the
representations and warranties contained herein therefore must be subject to
some degree of inherent uncertainty due to doubts about the reliability of
available information from and with regard to the respective joint ventures.
Subject to the foregoing, to induce AFC to enter into this Agreement, CPFC
represents and warrants the following:

7.1. General Representations.

a. CPFC presently operates a Chinese joint venture business known as
Green Food Peregrine Children's Food Company, Ltd. (Green Food), pursuant to
a certain Interim Agreement by and between CPFC and China Peregrine
Enterprises, Limited, a Texas Limited Partnership holding 68.5% of the joint
venture interests in Green Food. To the best of CPFC's knowledge, CPEL has
in all material respects complied with and is now in all material respects
in compliance with, all laws and regulations applicable to CPEL or the
operation of Green Food. Except for permits or other licenses already held
by Green Food and the approval by the appropriate governmental authorities
of the transfer and assignment of CPEL's Green Food joint venture interests
to CPFC, to the best of CPFC's knowledge, no other permit, license, order or
approval of any authority is material to or necessary for the conduct of
Green Food or CPFC's participation therein.

b. To the best of CPFC's knowledge, there is no fact which CPFC has
not disclosed to AFC which reasonably could be expected to have a material
adverse effect upon the condition (financial or otherwise), assets,
liabilities, business, operations, properties or prospects of CPFC or Green
Food, or the ability of CPFC to consummate the transactions contemplated
herein.

7.2 Representations and Warranties of CPFC With Respect to Green
Food.

a. Joint Venture Duly Organized. Green Food is a limited liability
company organized on April 13, 1993, in accordance with the laws of the
People's Republic of China and, pursuant to its Business License, is
authorized to engage in the business of the manufacture and sale of milk and
food products.

b. No Suits Pending or Imminent. To the best of CPFC's knowledge,
there are no actions at law or equity or administrative proceedings pending
against Green Food or in which Green Food is a plaintiff, defendant,
petitioner, or respondent. Green Food does not propose to commence an
action at law or equity or an administrative proceeding in which it will be
a plaintiff or petitioner. There are no actions at law or equity or
administrative proceedings pending in which it is anticipated that Green
Food will join or be joined as a party.

c. Joint Venture Interests. CPFC presently holds the rights to 68.5%
of the joint venture interests in Green Food; upon the approval by the
appropriate governmental authorities of CPEL's transfer and assignment of
such Green Food joint venture interests to CPFC, CPFC will have full,
complete, and absolute title to 68.5% of the issued and outstanding Joint
Venture interests, free of any liens, encumbrances, or agreements of any
kind, except the Green Food joint venture contract and the Articles of
Association for Green Food.

7.3 Representations and Warranties of CPFC With Respect its
Condition.

a. Company Duly Organized. CPFC is a corporation organized in
accordance with the laws of the State of Delaware and, in accordance with
its Articles of Incorporation, is authorized to engage in the business of
holding an interest in the Joint Venture Project. The copies of the Articles
of Incorporation and By-Laws of CPFC, as amended to date, which have been
furnished to AFC by CPFC, are correct and complete.

b. Company in Good Standing. CPFC is a corporation in good
standing. All taxes currently due, including but not limited to income,
trust, franchise, sales and excise taxes, have been paid. There are no
pending actions or proceedings to limit or impair CPFC's power to engage in
business or to dissolve CPFC.

c. Continuity of Operations. CPFC shall use its best efforts in
connection with future fund raising to provide for and maintain the
operation of its various business ventures including the Joint Venture
Project which is the subject of the transaction contemplated herein.

d. Financial Condition. As of the date hereof, CPFC has cash on
hand in excess of $200,000.00 and no current or long term liabilities; CPFC
presently operates a joint venture business known as Green Food Peregrine
Children's Food Company, Ltd. in the People's Republic of China and has
rights to 68.5% of Green Food. The financial statements of Green Food as of
December 31, 1996, and an unaudited June 30, 1997 balance sheet of Green
Food, are annexed hereto as Schedule E and there is attached to this
Agreement as Schedule F the most recent financial statements of CPFC
consisting of a balance sheet as of June 30, 1997. The December 31, 1996
Green Food statement and the June 30, 1997 CPFC balance sheet are complete
and correct and fairly represent the financial position of Green Food and
CPFC, respectively, on the dates of such statements and the results of
operations for the periods covered thereby. Except insofar as the aforesaid
unaudited June 30, 1997 pro forma balance sheet of Green Food, prepared by
CPFC from Green Food management reports for internal information purposes
only, may reflect material changes to the financial condition of Green Food
since December 31, 1996, to the best of CPFC's knowledge, there have been no
changes in Green Food's financial condition as set out in its December 31,
1996 financial statement between the date thereof and June 30, 1997, except
for those changes that have normally occurred in the regular course of Green
Food's business.

e. No Suits Pending or Imminent. There are no actions at law or
equity or administrative proceedings pending against CPFC or in which CPFC
is a plaintiff, defendant, petitioner, or respondent. CPFC does not propose
to commence an action at law or equity or an administrative proceeding in
which it will be a plaintiff or petitioner. There are no actions at law or
equity or administrative proceedings pending in which it is anticipated that
CPFC will join or be joined as a party.

f. Compliance. CPFC has complied with all applicable securities
laws, rules and regulations with respect to the fund raising activities
engaged in by CPFC.

g. Insurance. CPFC shall use its best efforts to obtain directors'
and officers' insurance on a priority basis.

h. Capitalization. The authorized capital stock of CPFC consists of
20,000,000 shares of Common Stock, $.001 par value, of which 5,020,000
shares are validly issued and outstanding, fully paid and nonassessable and
3,980,553 shares are reserved for issuance pursuant to outstanding warrants
and options as identified on a schedule hereto and 5,000,000 shares of
Preferred Stock, $.001 par value, of which 1,760,000 shares are validly
issued and outstanding, fully paid and nonassessable. Except as set forth
on a schedule hereto, there are no (i) outstanding warrants, options or
other rights to purchase or acquire, or preemptive rights with respect to
the issuance or sale of, the capital stock of CPFC or an subsidiary of CPFC;
(ii) other securities of CPFC directly or indirectly convertible into or
exchangeable for shares of capital stock of CPFC; or (iii) other than
Securities Laws restrictions on the transfer of CPFC's capital stock.

i. Stockholder List. Attached as Schedule G is a true and complete
list of the stockholders of CPFC, showing the number of shares of capital
stock or other securities of CPFC held by each major stockholder as of the
date of this Agreement.

j. Authorization of Transaction; Issuance of Shares. The execution,
delivery and performance of this Agreement and the Option Agreement referred
to in Section 3.1 hereof have been duly authorized by all necessary
corporate or other action of CPFC and each such agreement is the valid and
binding obligation of CPFC, enforceable in accordance with its terms, except
to the extent limited by bankruptcy, insolvency, moratorium, reorganization
or other similar laws affecting creditor's rights generally and to general
principles of equity. The issuance of CPFC's common stock and options to
AFC pursuant to the terms of this Agreement shall be duly and validly
authorized, and no further approval or authority of the stockholders or the
directors of CPFC will be required for the issuance of the common stock and
options as contemplated by this Agreement. When issued to AFC, the common
stock of CPFC will be validly issued, fully paid and non-assessable, free
and clear of all liens and encumbrances.

k. Approvals; Compliance With Laws. CPFC is not in violation of its
Charter or by-laws as of the date hereof. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby (i)
do not require any approval or consent of, or filing with, and governmental
agency or authority in the United States of America or otherwise which has
not been obtained and which is not in full force and effect as of the date
hereof, (ii) will not conflict with or constitute a breach or violation of
the Charter or by-laws of CPFC or of any material agreement to which CPFC or
its assets is subject, and (iii) will not result in a violation of any law
or regulation to which it or its assets is subject.

l. Offering Memorandum. The Offering Memorandum of CPFC, dated March
12, 1997, attached hereto as Schedule H describes all material aspects of
the business of Green Food and CPFC. The factual information contained
therein is correct in all material respects, the assumptions are reasonable,
and the projections are, to the best knowledge of CPFC, reasonably
attainable within the periods indicated as of March 12, 1997.

8. Securities Issued As Consideration.

8.1. Unregistered Stock. A registration statement for the securities
issued as consideration for the transaction herein is not in effect. To
avoid violation of the Securities Act of 1933, as amended, CPFC may require
a written commitment from AFC before delivery of the certificate or
certificates for the securities issued pursuant to Paragraph 3.1 herein.
The commitment shall be in a form prescribed by CPFC and will state that it
is the intent of AFC to acquire the securities for investment only and not
with the intent of transferring or reselling same; that AFC has been
informed that the securities may be "restricted" pursuant to Rule 144 of the
Securities and Exchange Commission and that any resale, transfer, or other
distribution of the securities may only be made in conformity with Rule 144,
the Securities Act of 1933, as amended, or other federal statute, rule, or
regulation. CPFC may place a legend on the face of the certificate or
certificates in accordance with this commitment and may refuse to permit
transfer of the securities unless it receives satisfactory evidence that the
transfer will not violate Rule 144, the Securities Act of 1933, as amended,
or any other federal statute, rule, or regulation.

8.2. Non Tradable Stock. The parties acknowledge and agree that no
representations or assurances have been made or given concerning whether
such securities referenced herein are tradable or, if tradable, the price at
which such may be traded; notwithstanding the foregoing, CPFC shall use its
best efforts, within the bounds of applicable securities laws, to promote
the creation of a trade market for such shares through the registration of
the securities referred to herein.

8.3. Registration Covenant. With respect to the securities
referenced in this Agreement, CPFC agrees to provide for the participation
of AFC in any future registration statement that CPFC may file with respect
to its common stock. CPFC shall use its best efforts, within the bounds of
applicable securities laws, to register its securities to facilitate the
creation of a public trading market for such securities as soon as
practicable. All expenses associated with such registration statement shall
be the responsibility of CPFC, including those expenses attributable to the
participation of AFC in such registration statement. AFC shall not have the
right to cause CPFC to initiate and prosecute such registration statement
upon the specific demand of AFC, nor should anything contained herein be
deemed to provide or create such right. The Registration Rights granted
hereby are subject to and governed by the following:

a. If at any time or times CPFC shall determine to register any of
its securities under the Act and in connection therewith CPFC may lawfully
register any of the Registrable Securities, CPFC will promptly give written
notice thereof to the Holders. Upon the written request of the Holder
within thirty days after receipt of any such notice from CPFC, CPFC will,
except as herein provided, cause all Registrable Securities which the
Holders have requested to be registered to be included in such Registration
Statement, all to the extent requisite to permit the sale or other
disposition of the Registrable Securities. However nothing herein shall
prevent CPFC from at any time abandoning or delaying any registration.

b. If any registration pursuant to this Article shall be underwritten
in whole or in part, CPFC may require that the Registrable Securities
requested for inclusion pursuant to this Article be included in the
underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters. If in the good faith judgment of the
managing underwriter of such public offering the inclusion of all the
securities that all selling stockholders with a contractual right to
participate in such offering request to be included in such offering would
materially reduce the number of shares to be offered by CPFC or materially
interfere with the successful marketing of the shares of stock offered by
CPFC, then CPFC shall only be required to include in the offering so many of
the Registrable Securities as the underwriters believe will not jeopardize
the success of the offering (the securities so included to be apportioned
pro rata among all such selling stockholders according to the total amount
of securities owned by them).

c. With respect to any registration pursuant hereto, all fees, costs
and expenses of and incidental to such registration, inclusion and public
offering (as specified below) in connection therewith shall be borne by
CPFC, provided, however, that any security holders participating in such
registration shall bear their pro rata share of the underwriting discount
and commissions and transfer taxes. The fees, costs and expenses of
registration to be borne by CPFC as provided herein shall include, without
limitation, all registration, filing and NASD fees, printing expenses, fees
and disbursements of counsel and accountants for CPFC, fees and
disbursements of counsel for the underwriter or underwriters of such
securities (if CPFC and/or selling security holders are required to bear
such fees and disbursements), all legal fees and disbursements and other
expenses of complying with state securities or blue sky laws of any
jurisdiction in which the securities to be offered are to be registered or
qualified, and the premiums and other costs of policies of insurance against
liability arising out of such public offering; fees and disbursements of
counsel and accountants for the selling security holders and any other
expenses incurred by the selling security holders not expressly included
above shall be borne by the selling security holders.

d. Each Holder holding Registrable Securities included in any
Registration Statement pursuant to this Article shall furnish to CPFC such
information regarding such holder and the distribution proposed by such
holder as CPFC may reasonably request in writing and as shall be required in
connection with any registration, qualification or compliance process.

e. For purposes of this Agreement the following terms shall have the
indicated respective meanings:

"Act" means the Securities Act of 1993, as amended, or any similar
Federal statute, and the rules and regulations of the Commission
issued under the Act, as they each may, from time to time, be in
effect.

"Commission" means the Securities and Exchange Commission, or any
other Federal agency at the time administering the United States
securities laws.

"Common Stock" shall mean the $.001 par value voting common stock
of CPFC.

"Holders" shall mean AFC and any recipients of the shares of CPFC
to be issued to AFC pursuant to this Agreement, including, but not
limited to, the shareholders of American China Enterprises, Inc.,
who may receive such shares by way of a dividend or distribution.

"Registrable Securities" means (i) the shares issued to AFC
pursuant to this Agreement and (ii) any other shares of Common
Stock of CPFC issued in respect of such shares (because of stock
splits, stock dividends, reclassifications, recapitalization
mergers, consolidations, or similar events); provided, however,
that any shares previously sold by a Purchaser to the public
pursuant to a registered public offering or pursuant to Rule 144
under the Act shall cease to be Registrable Securities.

"Registration Statement" means a registration statement (other
than a registration statement Form S-8 solely with respect to
employee benefits plan, or on Form S-4 solely with respect to Rule
145 transactions, or any successor form or forms used for the
purpose specified by such forms) filed by CPFC with the Commission
under the Act for a public offering and sale of securities of
CPFC.

8.4 Right of Participation in Stockholder Sales ("Co-sale"). If (i)
any individual stockholder of CPFC ("the Corporation") in a management
position with the Corporation who holds more than one percent (1%) of the
issued and outstanding capital stock of the Corporation proposes to sell his
or her stock, which stock represents in excess of fifty percent (50%) of the
aggregate shares held by such Selling Stockholder, or (ii) any corporate
stockholder listed in Schedule G herein, which corporate stockholder holds
more than one percent (1%) of the issued and outstanding presently
restricted capital stock of the Corporation proposes to sell its stock,
which stock represents in excess of fifty percent (50%) of the aggregate
shares held by such Selling Stockholder, or (iii) a group of such
management and/or such corporate stockholders acting together or pursuant to
a common plan proposes to sell stock, which stock represents in excess of
fifty percent (50%) of the aggregate shares held by such Selling
Stockholders, AFC and any recipients of the shares of CPFC to be issued to
AFC pursuant to this Agreement, including, but not limited to, the
Shareholders of American China Enterprises, Inc. who may receive such shares
by way of a dividend or distribution (each an "Offeree Stockholder") shall
have the right to participate in such sale to the extent provided in this
Article.

a. Notice and Election. Not less than thirty (30) days prior to any
such proposed sale of Stock, the Selling Stockholder(s) shall give each of
the Offeree Stockholders written notice of the Selling Stockholder(s)
desire to proceeds with the proposed sale, which notice shall include the
name of the proposed transferee, the number and class of shares of Stock
which the Selling Stockholder(s) desire to sell (the "Tag Along Amount") and
the terms and conditions of the proposed transfer (the "Tag Along Notice").
Any Offeree Stockholder who wishes to participate in a sale pursuant to a
valid Tag Along Notice (a "Participating Stockholder") shall give the
Selling Stockholder(s) written notice of the Participating Stockholder's
election to participate not later than fifteen (15) days prior to the
proposed sale, specifying the number of shares of Stock which such
Participating Stockholder desires to sell.

b. Number of Offeree Shareholder Shares to be Sold. If any
Stockholder elects to participate in the sale, the Selling Stockholder(s)
shall not sell any Stock in such transaction unless the purchaser thereof at
the same time, purchases from each Participating Stockholder (on terms and
conditions no less favorable to the Offeree Stockholders than as set forth
in the Tag Along Notice and on the same terms and conditions as purchased
from the Selling Stockholder(s)), that number of shares of Stock at least
equal to the lesser of:

(i) the total number of shares of Stock which the Participating
Stockholder specified that the Participating Stockholder
desires to sell (the "Desired Amount"); or

(ii) a percentage of the Tag Along Amount equal to a fraction of
which (x) the numerator is the Desired Amount and (y) the
denominator is the sum of (A) the Tag Along Amount plus (B)
the Desired Amounts of all Participating Stockholders.

9. Agreement Not Assignable. This Agreement may not be assigned by
any party without the written consent of the other parties.

10. Counterparts. This Agreement may be executed in several and
separate counterparts which, collectively, shall constitute the operative
Agreement among the parties.

11. Law Governing. This Agreement shall be governed by the laws of
the State of Delaware, without consideration of choice of law principles.

12. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a written amendment executed by both
parties. The waiver by any party of a breach of any provision of this
Agreement shall not be a waiver of any subsequent breach.

IN WITNESS WHEREOF, the parties have signed this Agreement on the day
and year first above written.

CHINA PEREGRINE FOOD CORPORATION

By /s/ Paul Downes
------------------------------
Paul Downes, Chairman

AMERICAN FLAVORS CHINA, INC.

By /s/ Florence Sender
------------------------------
Florence Sender
Chairman and Chief Executive Officer

First Amendment To Transfer/Assignment and Agreement to Operate
Hangzhou American Flavors Dairy Products Joint Venture Project

1. Introduction. This Agreement, which is made this 28th day of
January, 1998, is the First Amendment to a certain Transfer/Assignment
Agreement, dated the 3rd day of September, 1997, by and between American
Flavors China (AFC), a Delaware corporation having a principal place of
business at 1007 Chestnut Street, Newton, Massachusetts 02164 and China
Peregrine Food Corporation (CPFC), a Delaware corporation having a principal
place of business at 777 South Flagler Drive, Suite 1113, Phillips Point,
West Tower, West Palm Beach, Florida 33401.

2. Considerations. The following facts and events have been duly
considered by the parties in entering into this Agreement:

2.1 By the aforesaid Transfer/Assignment Agreement, CPFC has agreed
to purchase the entire interests of AFC in and to a certain Joint Venture
Contract, with respect to a joint venture business known as Hangzhou
Meilijian Dairy Products Co., Ltd. (Hangzhou Meilijian), and AFC has agreed
to transfer and assign such interests to CPFC. [Section 3.1 of the
Transfer/Assignment Agreement]

2.2 In full consideration for the aforesaid transfer and assignment,
CPFC has agreed to direct its Stock Transfer Agent to issue 870,279 shares
of the common stock of CPFC to AFC and grant options for 235,406 shares of
the common stock of CPFC to AFC at the option price of $1.00 per
share.[Section 3.1 of the Transfer/Assignment Agreement]

2.3 In addition to the foregoing provisions of the aforesaid
Transfer/Assignment Agreement, CPFC has agreed therein to pay to AFC the
amount of $240,000 (US), upon certain terms, conditions and contingencies,
to wit: that CPFC, at its option and in its sole discretion, in lieu of
making payments directly to AFC as set forth above, shall have the right to
issue a joint check or draft in payment of this obligation to AFC and
Evergreen in satisfaction of a certain debt owed by AFC to Evergreen in
connection with a certain packing machine delivered by Evergreen to Hangzhou
Meilijian Dairy Products Co., Ltd. for its use and benefit. [Section 3.3.b
and 3.3.b.(ii) of the Transfer/Assignment Agreement]

2.4 In consideration of such payment by CPFC, AFC has assigned and
transferred to CPFC all of its rights and interest to receive and collect
from Hangzhou Meilijian Dairy Products Co., Ltd. the corresponding
obligation owing to AFC in the amount of $240,000 (US). [Section
3.3.b.(iii) of the Transfer/Assignment Agreement]

2.5 To date, the assignment and transfer of AFC's interests to the
Joint Venture Contract as provided in the Transfer/Assignment Agreement has
not be approved by the Board of Directors of Hangzhou Meilijian in
accordance with Article 13 of the Joint Venture Contract, as a condition
precedent to the aforesaid Transfer/Assignment Agreement. [Section 4.2.b of
the Transfer/Assignment Agreement]

3. Basic Agreement. In consideration of the mutual promises
contained in this First Amendment, the parties agree to the following:

3.1 Section 3.1 of the Transfer/Assignment Agreement is amended to
reduce the consideration from CPFC to AFC set forth therein from 870,279
shares of the common stock of CPFC to 816,279 shares of such common stock.

3.2 Sections 3.3.b. (i) through (iv) of the Transfer/Assignment
Agreement are hereby deleted and the following provisions are substituted in
lieu thereof:

b. In addition, CPFC shall assume and pay a certain debt owed by
AFC to Evergreen in connection with a certain packing machine
delivered by Evergreen to Hangzhou Meilijian Dairy Products
Co., Ltd. for its use and benefit; in consideration of such
assumption by CPFC, AFC hereby assigns and transfers to CPFC
all of its rights and interest to receive and collect from
Hangzhou Meilijian Dairy Products Co., Ltd. the corresponding
obligation owed to AFC in connection with AFC's obligation to
Evergreen for the aforesaid Evergreen packing machine
received and used by Hangzhou Meilijian Dairy Products Co.,
Ltd.

3.3 CPFC shall pay to AFC the sum of $210,000.00 (US) for the benefit
of Mr. Edrick Ho, who presently is one of AFC's designated Board members on
the Board of Directors of Hangzhou Meilijian Dairy Products Co., Ltd. The
aforesaid $210,000.00 shall not be paid to Mr. Ho directly; upon (a) receipt
of a duly acknowledged copy of a resolution of the Board of Directors of
Hangzhou Meilijian Dairy Products Co., Ltd. approving the assignment and
transfer of the interests to the Joint Venture Contract, in accordance with
Article 13 of the Joint Venture Contract and (b) receipt of the written
final approval of such transfer and assignment by the Hangzhou Foreign
Economic and Trade Commission and any other appropriate governmental agency
of the People's Republic of China, both as provided in the
Transfer/Assignment Agreement, CPFC shall pay such amount to AFC. By this
First Amendment, CPFC does not recognize or acknowledge any obligation or
responsibility, either direct or indirect, to Mr. Ho, nor does this First
Amendment create any third party beneficiary rights with respect to this
Section 3.3, nor should any such recognition, acknowledgment or beneficiary
rights be deemed to exist by virtue hereof. AFC shall indemnify and hold
harmless CPFC with respect to any claim made by Mr. Ho or his successors,
heirs or assigns, under this Section.

3.4 The date set forth in Section 4.2.b for the aforesaid approval of
the assignment and transfer of the interests to the Joint Venture Contract
in accordance with Article 13 thereof, shall be extended to and including
April 15, 1998.

4. Counterparts. This Agreement may be executed in several and
separate counterparts which, collectively, shall constitute the operative
Agreement among the parties.

5. Law Governing. This Agreement shall be governed by the laws of
the State of Delaware, without consideration of choice of law principles.

6. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and may
be amended only by a written amendment executed by both parties. The waiver
by any party of a breach of any provision of this Agreement shall not be a
waiver of any subsequent breach.

7. Ratification Of Underlying Agreement. Except as otherwise stated
herein, the Transfer/Assignment Agreement of September 3, 1997 is hereby
ratified and restated in its entirety.

IN WITNESS WHEREOF, the parties have signed this Agreement on the day
and year first above written.

CHINA PEREGRINE FOOD CORPORATION

By /s/ Paul Downes
------------------------------
Paul Downes, Chairman

AMERICAN FLAVORS CHINA, INC.

By /s/ Florence Sender
------------------------------
Florence Sender
Chairman and Chief Executive Officer

Second Amendment To Transfer/Assignment and Agreement to Operate Hangzhou
American Flavors Dairy Products Joint Venture Project

1. Introduction. This Agreement, which is made this 18th day of June,
1998, is the Second Amendment to a certain Transfer/Assignment Agreement,
dated the 3rd day of September, 1997, as amended by the First Amendment on
January 28, 1998 (the "Transfer Agreement") by and between American Flavors
China, Inc. (AFC), a Delaware corporation having a principal place of
business at 1007 Chestnut Street, Newton, Massachusetts 02164 and China
Peregrine Food Corporation (CPFC), a Delaware corporation having a principal
place of business at 777 South Flagler Drive, Suite 1113, Phillips Point,
West Tower, West Palm Beach, Florida 33401

2. Considerations. The following facts and events have been duly
considered by the parties in entering into this Agreement:

2.1 By the aforesaid Transfer Agreement, CPFC has agreed to purchase
the entire interests of AFC in and to a certain Joint Venture Contract, with
respect to a joint venture business known as Hangzhou Meilijian Dairy
Products Co., Ltd. (Hangzhou Meilijian or the Joint Venture), and AFC has
agreed to transfer and assign such interests to CPFC. [Section 3.1 of the
Transfer Agreement].

2.2 In full consideration for the aforesaid transfer and assignment,
CPFC has agreed to direct its Stock Transfer Agent to issue 816,279 shares
of the common stock of CPFC to AFC and grant options for 235,406 shares of
the common stock of CPFC to AFC at the option price of $1.00 per share
[Section 3.1 of the Transfer Agreement].

2.3 To date, the assignment and transfer of AFC's interests to the
Joint Venture Contract as provided in the Transfer Agreement has not been
approved by the Board of Directors of Hangzhou Meilijian in accordance with
Article 13 of the Joint Venture Contract, as a condition precedent to the
aforesaid Transfer Agreement. [Section 4.2.b of the Transfer Agreement]

2.4 By this Agreement, the parties wish to resolve certain
differences of opinion that have arisen between the parties concerning the
subject matter of the Transfer Agreement.

3. Basic Agreement. In consideration of the mutual promises
contained in this Second Amendment, the parties agree to the following:

3.1 Section 3.1 of the Transfer Agreement is further amended to
eliminate the consideration set forth therein paid in the form of 235,406
options and to change the consideration set forth therein from 816,279
shares of the common stock of CPFC to 1,531,685 shares of such common stock
and the sum of US $210,000. AFC agrees to return to CPFC the Option
Agreement issued to it by CPFC, and the parties agree that such Option
Agreement shall be null and void and of no further force and effect.

3.2 Section 4.2.b for the aforesaid approval of the assignment and
transfer of the interests to the Joint Venture Contract in accordance with
Article 13 thereof, shall be deleted, and the following language shall be
substituted in lieu thereof:

4.2 This Agreement shall terminate and be null and void, in the
event:

b. that the assignment and transfer of the interests to the Joint
Venture Contract as provided herein not be approved by the Board of
Directors of Hangzhou Meilijian, in accordance with Article 13 of the
Joint Venture Contract, within thirty (30) days after the proposed
assignment and transfer of the interests to the Joint Venture Contract
as provided herein is presented to said Board at a duly constituted
Board meeting for said entity which meeting is currently scheduled for
July 7, 1998, or such extended date as may be mutually agreed upon, in
writing, by the parties hereto.

3.3 As a condition to AFC's obligations to consummate the
transactions contemplated by the Agreement, CPFC agrees to deliver to AFC a
full and unconditional release of AFC by Evergreen (International Paper) on
or prior to the Board Meeting for the Joint Venture currently scheduled for
July 7, 1998, such release to be effective as of the closing.

3.4 It is understood and agreed that the obligation referenced in
Section 3.3(b) of the Agreement owed to AFC by Hangzhou Meiligian Dairy
Products Co., Ltd. in the amount of $240,000 has to been reduced, to AFC's
knowledge, to approximately US $210,000 (based upon an exchange rate of 8.3
RmB per U.S. dollar).

3.5 AFC agrees to supply to CPFC as soon as practicable financial
statements of the Joint Venture dated May 31, 1998 as presented to AFC by
the Joint Venture.

3.6 CPFC agrees to file and use its best efforts to effect a
Registration Statement of its Common Stock pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), within one year from
the date of the closing of this transaction.

In addition, for so long as any CPFC Common Stock held by AFC, American
China Enterprises, Inc. ("ACE") or its shareholders or its or their
affiliates is not freely tradeable, CPFC agrees that it (a) shall timely
file with the SEC any and all reports required to be so filed pursuant to
the Exchange Act and (b) shall not terminate its status as an issuer
required by the Exchange Act to file reports thereunder even if the Exchange
Act or the rules or regulations thereunder would permit such termination.

3.7 Section 3.3 of the First Amendment to the Agreement is hereby
deleted in its entirety.

3.8 The parties agree that the closing of the transaction
contemplated by the Agreement shall occur upon receipt by CPFC of written
evidence that the approval of the transaction by the Board of Directors of
the Joint Venture has been obtained. Upon such receipt, CPFC shall be
obligated to cause its transfer agent to issue the 1,531,685 shares to AFC
and to pay to AFC the sum of US $210,000 in immediately available funds (as
set forth in Section 3.1 hereof).

4. Counterparts. This Agreement may be executed in several and
separate counterparts which, collectively, shall constitute and operative
Agreement among the parties.

5. Law Governing. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, without consideration of choice of law
principles.

7. Ratification Of Underlying Agreement. Except as otherwise stated
herein, the Transfer/Assignment Agreement of September 3, 1997, as amended
by the January 28, 1998 First Amendment, is hereby ratified and restated in
its entirety.

8. Subject to Board Approval. This Second Amendment is subject to the
approval of the Board of Directors of CPFC, ACE and AFC prior to the close
of business on June 23, 1998.

IN WITNESS WHEREOF, the parties have signed this Agreement under seal
on the day and year first above written.

CHINA PEREGRINE FOOD CORPORATION

By: /s/ Roy G. Warren
-------------------------------
Roy G. Warren, President

AMERICAN FLAVORS CHINA, INC.

By: /s/ Florence Sender
-------------------------------
Florence Sender
Chairman and Chief Executive Officer

ARTICLES OF ASSOCIATION

GREEN FOOD PEREGRINE CHILDERN'S FOOD COMPANY, LIMITED

CHINA NATIONAL GREEN FOOD CORPORATION

CHINA PEREGRINE ENTERPRISES,LIMITED

AMER-CHINA PARTNERS LIMITED

DATED APRIL 13, 1993

TABLE OF CONTENTS

Chapter I Forward

Chapter II Parties to the Contract

Chapter III The Joint Venture

Chapter IV Purpose, Scope and Scale of Business

Chapter V Total Investment and Registered Capital

Chapter VI Board of Directors

Chapter VII Meeting of the Board of Directors

Chapter VIII Management Body

Chapter IX Annual Business Plan and Budget

Chapter X Bank Loans

Chapter XI Distribution of Profits

Chapter XII Foreign Currency Control

Chapter XIII Labor Management

Chapter XIV Financial Affairs and Audit

Chapter XV Term, Termination and Liquidation

Chapter XVI Revision

Chapter XVII Insurance

Chapter XVIII Language

Chapter XIX Effectiveness and Miscellaneous

Signatures

ARTICLES

CHAPTER I FORWARD

Section 1.01 China National Green Food Corporation (hereafter referred to
as Party A), China Peregrine Enterprises, Limited (hereafter referred to as
Party B), and Amer-China Partner Ltd. (hereafter referred to as Party C), in
accordance with the Law of the People's Republic of China on Chinese-foreign
Equity Joint Ventures and other related laws and regulations of the People's
Republic of China, and based on the joint venture contract signed by all the
Parties (the "Joint Venture Contract") hereby formulate these Articles of
Association of Green Food Peregrine Children's Food Company, Limited.

CHAPTER II PARTIES TO THE CONTRACT

Section 2.01 This Article is signed by the following Parties:

1. Party A: China National Green Food Corporation.
Legal Address: Guangximen Beili No. 16,
Chaoyang District,
Beijing 100028,
People's Republic of China
Fax: (86-1)422 1190
Telephone: (86-1)4228888-7206/7204
Legal Representative: Liu Lianfu
Post: General Manager
Nationality: China

2. Party B: China Peregrine Enterprises, Limited
Legal Address: 5333 Westheimer, Suite 800
Houston, Texas 77056
United States of America
Fax: (713)961-5726
Telephone: (713)961-0334
Legal Representative: Charles J. Beech
Post: President
Nationality: United States of America

3. Party C: Amer-China Partners, Ltd.
Legal Address: 620 North Third Avenue, St.
Charles, Illinois 60174,
United States of America
Fax: (708)513-5338
Telephone: (708)513-6765
Legal Representative: George C. Bergland
Post: President
Nationality: United States of America

CHAPTER III THE JOINT VENTURE

Section 3.01 The name of this Joint Venture is in Chinese, and Green Food
Peregrine Children's Products Company, Limited in English. It's legal
address is: Chongqing Hotel, Beijing, People's Republic of China. With the
approval of the Board of Directors and the relevant departments of the
Chinese government, The Joint Venture may set up branches in China and
abroad.

Section 3.02 The Joint Venture shall be a Chinese legal person, and all of
its activities should abide by and be protected by the laws, decrees and
concerned regulations of china.

Section 3.03 The form of organization of the Joint Venture shall be a
limited liability company. The liability of each Party is limited to its
contribution of registered capital contributed under this Contract. The
Joint Venture is responsible to third parties to the full extent of its
property. No Party has any responsibility for the other Parties, the Joint
Venture or a third party for any losses of the Joint Venture or claims
against the Joint Venture except according to any guaranty provided by each
Party. If any Party, entrusted by the Joint Venture with an entrusted
letter, acts of behalf of the Joint Venture and such acts lead to claims for
compensation by a third party, the Joint Venture shall compensate such
Party's expenses, losses, compensation, claims and responsibility. Subject
to the foregoing provisions, all Parties shall share the profits, losses and
risks of the Joint Venture according to the amount of their respective
registered capital in the Joint Venture.

CHAPTER IV PURPOSE, SCOPE AND SCALE OF THE JOINT VENTURE

Section 4.01 The purpose of the Joint Venture shall be to strengthen
economic cooperation and exchange of technology, to adopt advanced and
practical technology and scientific methods of management to improve the
quality of products, to develop new products competitive in the domestic and
international markets in quality and price, to improve economic efficiency
and ensure satisfactory economic profits to all Parties.

Section 4.02 The business scope of the Joint Venture shall be the
manufacture, distribution and marketing of children's fresh milk ("infant
formula"), other children's food products and a range of baby foods and
supplements. The Joint Venture may sell its products both in China and
abroad.

Section 4.03 The Joint Venture shall, in its initial stage, set up
production lines for Children's fresh milk in Shanghai and Beijing. When
the Board of Directors determines that conditions are appropriate, it may
set up productive branches in other cities with the approval of concerned
department in accordance with related Chinese regulations. The Parties
presently anticipate that the Joint Venture e will apply to establish
production branches in cities in China with a population exceeding 2,000,000
and may establish branches in other cities.

Section 4.04 The initial production scale of the Joint Venture is 30,000
tons of children's fresh milk and the production of other foods for
children. The Board of Directors may adjust production capacity in response
to market conditions.

CHAPTER V TOTAL INVESTMENT AND REGISTERED CAPITAL

Section 5.01 The total investment of the Joint Venture is US$9,900,000.
The total registered capital of the Joint Venture is US$5,000.000.

Section 5.02 1. Party A shall invest in cash US$1,500,000 for the Joint
Venture's registered capital, and amount equal to 30% of the total
registered capital.

2. Party B shall invest in cash US$3,000,000 for the Joint Venture's
registered capital, an amount equal to 60% of the total registered capital.

3. Party C shall invest in cash US$500,000 for the Joint Venture's
registered capital, an amount equal to 10% of the total registered capital.

Section 5.03 All Parties shall contribute their capital in the time and
manner stipulated in the Joint Venture Contract.

Section 5.04 The date on which any amount of contribution in cash has been
transferred by any Party to the account of the Joint Venture shall be deemed
to be the date of such contribution. Following each Party's contribution of
capital, the Joint Venture shall draft and submit a verification report
regarding the contribution(s) to respective Parties, and the Chairman and
Vice-Chairman of the Joint Venture shall sign a contribution certificate.

Section 5.05 Any Party may assign or sell its total or partial amount of
registered capital (ownership) to the other Parties or a third party;
however, to do so, it must obtain a written consent from other Parties.

1. When one Party wishes to assign, see or dispose of its total or
partial registered capital, it shall send a written notice to the other
Parties setting forth the terms and conditions of the assignment, sales or
other methods of disposal. The other Parties shall have the priority to
purchase in proportion to their respective shares of the above-mentioned
registered capital (ownership) according to the terms and conditions
described in the notice.

2. If no Party exercises its priority right within ninety (90) days
after it receives written notice of the intent to so exercise, the selling
Party may assign, sell or dispose of its registered capital, in total or in
part, as set out in the notice; however, it shall not give the buyer terms
or conditions of better preferential treatment to the buyer than those
listed in the notice. The selling Party shall present to other Parties
copies of written agreement of the sales or assignment.

3. Provided there is no other agreement to the contrary among the
Parties hereto, the business, other contract liabilities, fulfillment of the
liabilities and the structural organization shall not be affected in any way
by this assignment or sale.

Any sale or assignment of registered capital shall be within the scope
provided by law, and subject to the approval of the examination and approval
authority.

The Joint Venture shall apply to the Sate Administration for Industry
and Commerce or its designated authority ("Agency For Registration and
Administration") to fulfill the formalities related to the change.

Section 5.06 Any increase to the registered capital shall be approved
unanimously by the Board of Directors, and approved by the examination and
approval authority. Upon receiving the approval from the examination and
approval authority, the Joint Venture shall register the increased capital
with the Agency for Registration and Administration.

CHAPTER VI BOARD OF DIRECTORS

Section 6.01 The joint Venture shall establish of Board of Directors. The
Board of Directors is the highest power organ of the Joint Venture.

Section 6.02 The Board of Directors is responsible for all important
issues related to the Joint Venture. Its duties are mainly as follow:

(a) Ratify important reports of the General Manager such as the
production schedule, annual business report, funds, and loans:

(b) Ratify the annual accounting report, receipts and expenditures
budget, and annual profit distribution plan;

(d) Decide the establishment of branches of the Joint Venture;

(e) Revise the Articles of Association;

(f) Discuss and decide the termination of production, expiration
of the Joint Venture and its combination with other economic
organizations;

(g) Decide the employment of the General Manager, senior managers
and senior technicians;

(h) Be responsible for the termination of the Joint Venture and its
liquidation upon expiration;

(i) Decide all other important issues related to the Joint Venture.

Section 6.03 The Board of Directors shall consist of five (5) members.
Party A shall appoint two (2) members. Party B shall appoint three (3)
members and Party C shall appoint one (1) advisory member who shall have no
right to vote.

Section 6.04 The term of office of members of the Board shall be four (4)
years which can be extended if the appointing Party so decides. The
Chairman of the Board shall be elected from members nominated by Party A.
The Vice Chairman shall be elected form members nominated by Party B.

Section 6.05 If there is a vacancy arising from the retirement,
resignation, illness, inability in performance, or death among the members
of the Board, or if one Party terminates its appointed member, the
nominating Party shall appoint a successive member to the post, to serve the
remaining term of previous member.

Section 6.06 The Chairman of the Board of Directors is the legal
representative of the Joint Venture. However, the Chairman is not permitted
to bind the Joint Venture other than within the power clearly entrusted to
him by the Board of Directors. When the Chairman is not able to fulfill his
responsibilities he shall authorize the Vice Chairman or another member of
the Board to represent the Joint Venture in his place.

CHAPTER VII MEETING OF THE BOARD OF DIRECTORS

Section 7.01 The meeting of the Board of Directors shall be held at least
once a year, at the place selected by the Board of Directors, in principle,
the meeting of the Board shall be held in March or April. The first meeting
shall be held within ninety (90) days after the date that the business
license is issued.

Section 7.02 When at least two (2) Board members request in written form to
discuss a certain matter, the Chairman should call for an interim meeting of
the Board after consulting his deputies.

Section 7.03 The following subjects shall be decided only by unanimous
approval of the Board of Directors:

1. The revision of these Articles of association;

2. The increase or assignment of the registered capital of the Joint
Venture;

3. The combination of the Joint Venture with other economic
organizations;

4. The liquidation, dissolution or early termination of the Joint
Venture.

Section 7.04 Resolutions with respect to other matters may be adopted by
the majority of the Board present at the meeting in person or by proxy.

Section 7.05 A written resolution signed by all the members of the Board of
directors shall have the same effect as those reached in formally held
Board meeting with unanimous vote. A written resolution signed by no less
that needed members for a legal meeting shall have the same effect as those
reached in the formally held Board meeting with majority vote.

Section 7.06 The Chairman shall make the agenda and schedule for meetings
of the Board of Directors and be responsible to call for and preside over
the Board meeting. If the Chairman fails to attend the meeting, the vice-
chairman shall be responsible to call for and preside over the Board
meeting. All matters that are raised in the meeting shall be fully
discussed. All members (if they wish) should have equal opportunity to
express their opinions.

Section 7.07 If a member is unable to attend meeting, he may write a letter
of trust to entrust others to attend the meeting in his name. The
representative entrusted in this manner shall have the same right and power
as the absent member. If a member fails to attend the meeting or entrust
others to attend, he shall be deemed as waiving his right to vote in that
meeting.

Section 7.08 The quorum for all Board meetings shall be two-thirds of the
total number of directors, present in person or by proxy.

Section 7.09 For any meeting of the Board of Directors, the members of the
Board should be informed at least fourteen (14) days before the meetings.
The notice of meeting should include the place and time of the meeting, a
detailed agenda of the meeting and matters to be discussed, together with
all related reports, documents and other materials. The notice, detailed
agenda, related reports, documents and other materials should be written in
Chinese and in English.

Section 7.10 The Joint Venture should reimburse the Board members and their
entrusted representatives' reasonable expenses of transportation, food and
accommodation related to Board meetings.

Section 7.11 The general manager (or the acting general manager) may attend
Board meetings but without the right to vote, unless he (or the acting
general manager) himself is a Board member or is entrusted by one of the
Absent Board members.

Section 7.12 The meeting records should be written in Chinese and English
and be signed by the Chairman, vice-chairman, and all members of the Board
(or their respective proxies). The original signed record should be kept in
the files of the Joint Venture. Its copies should be sent to every Board
member and all Parties within thirty (30) days after the meeting.

Section 7.13 Any member of the Board who wants to make any revision or
supplement to the record should submit his revision of supplementary opinion
in written form to the Chairman written fourteen (14) days after he receives
the copy of records.

If there is no objection from the members, the said revision or
supplement will enter the formal record. If there is objection from
members, the revision of supplement is subject to approval of the meeting of
the Board.

CHAPTER VIII MANAGEMENT BODY

Section 8.01 The Board of Directors shall appoint one (1) general manager
and one (1) assistant general manager. The general manager shall be
nominated by Party B and approved by the Board of Directors. The assistant
manager shall be nominated by Party A and should be approved by the Board of
Directors. The term of office of the general manager and assistant general
manager shall be determined by the Board.

Section 8.02 The general manager is responsible for implementing all
resolutions of the meetings of the Board of Directors and for organizing and
exercising leadership of the daily administrative and management of the
Joint Venture The general manager shall consult with the assistant general
manager when dealing with serious matters. The assistant general manager
shall assist the general manager with his work.

Section 8.03 The administrative and management body shall employ a certain
number of department managers to be in charge of the work of various
departments of the Joint Venture, to implement the works assigned by the
general manager, and the assistant general managers and to be responsible to
them.

Section 8.04 The general manager and assistant general manager may be
dismissed at any time by resolution of the Board of Directors. However,
replacements must be chosen in the manner set out in Section 8.01.

Section 8.05 The Board of Directors shall decide on the salaries and other
compensation of the administrative staff.

Section 8.06 At the invitation of the Board of Directors, the Chairman,
vice-chairman and directors can be nominated to work as general manager,
assistant general manager and other senior posts.

Section 8.07 The general manager and assistant general manager shall not be
employed full or part time by other economic organizations.

Section 8.08 The general manager, assistant general manager and other
senior staff shall submit written notice (30) days before resigning.

Section 8.09 The General Manager shall prepare a monthly report summarizing
the previous month's developments regarding operations and finance and
other information requested by the Board of Director. The general manager
shall deliver a copy of such report to each. Party and to each Board
member.

CHAPTER IX ANNUAL BUSINESS PLAN AND BUDGET

Section 9.01 The general manager shall daft the annual business plan and
budget. The annual business plan and budget of every fiscal year (including
the estimated capital indebtedness, deficit and profit plan and cash income
and expenditure report) should be submitted before October 1 of the previous
fiscal year for the examination by the Board of Directors and shall include
following detailed materials:

1. The procurement of equipment's and other property of the Joint
Venture;

2. Raising and expenditure of capital;

3. Plans for production and product marketing;

4. Maintenance and repair of the property and equipment of the Joint
Venture;

5. Budgetary estimate of the Joint Venture based on business plan and
budget;

6. Training plan for the personnel of the Joint Venture;

7. Raw material, fuel, water, electricity, public facilities and
other thrown-in materials;

8. The plan for proportion of export internal sales and
recommendations of export and internal sales prices;

9. Foreign currency income and expenditure balance plan; and

10. Report on any other matters that might be asked for by the Board
of Directors or any member of the Board.

Section 9.02 The Board of Directors should examine and approve the
business plan and budget before October 31 of the same year that the planned
budget is submitted. The general manager shall be in charge of the
implementation of the annual business plan and budget approved by the Board.

CHAPTER X BANKS LOANS

Section 10.01 The Joint Venture may, according to specific needs, apply to
the Bank of China and (or) any other approved foreign or Chinese banks for
foreign currency and (or) Renminbi loans. The Joint Venture may also borrow
foreign currency funds from any other banks or financial institutions. The
Joint Venture should report the loans to the State Administration of
Exchange control or other concerned branches for the records.

Section 10.02 The Joint Venture may also borrow from each Party.

CHAPTER XI DISTRIBUTION OF PROFITS

Section 11.01 After paying income taxes in accordance with the relevant
Chinese laws and regulations, the after-tax profit shall be distributed
according to the principles below:

Section 11.02 The Joint Venture should allocate the reserve fund, expansion
fund and bonus and welfare fund for staff and workers in Renminbi, with the
ratio for such allocations to be determined each year by the Board of
Directors. The plan for using the three funds should be drawn by the general
manager and should be submitted to the Board of Directors for approval.
When it is approved, the plan should be implemented by the general manager.

Section 11.03 The reserve fund need not be increased when it is equal to
the registered capital. Besides the fulfilment of the deficit of the Joint
Venture, with approval of the examining and approving agency, the reserve
fund can also be used to increase capital and enlarge production.

Section 11.04 When the three funds are allocated in accordance with Section
11.02 and any loans are repaid by the Joint Venture in accordance with the
terms thereof, the after-tax profits of the Joint Venture in accordance with
the terms thereof, the after-tax profits of the Joint Venture shall be
distributed based upon the ratio of each Party's registered capital. The
profits shall be decided by the Board of Directors whether for distribution
or for expansion of the Joint Venture's business, provided, however, that
where profits are used for expansion the Board of Directors shall distribute
to Party B and Party C from the profits that are available for distribution
to Party B and Party C an amount of profits sufficient to enable Party B and
Party C to pay the tax liabilities, if any, that they each may incur in
respect of the Joint Venture's profits. At the same time, the Board of
Directors shall distribute to Party A from the profits available for
distribution to Party A a corresponding amount of profits. After the
Shanghai plant is in production, the Joint Venture may distributed profits
to the Parties. If the Joint Venture has incurred losses in the previous
years, the profits of the current year shall be first used to make up the
losses. The Joint Venture shall not distribute profits until the previous
losses are made up. Remaining profits from previous years may the added to
the current year for profits distribution, or for distribution after making
up the current year's deficit. The profits of Party B and Party C may be
used for further investment inside China or may be remitted outside China.

Where the Joint Venture has foreign currency available for profit
distribution, each Party shall receive an amount of such foreign currency in
proportion to its respective contribution to registered capital. The Joint
Venture shall assist each Party upon request in exchanging profits available
for distribution in Renminbi into United States Dollars using the Foreign
Exchange Adjustment Centers and any other reasonable methods that may be
available to the Joint Venture of any Party. The costs of such exchanges
shall be borne by the Party receiving the foreign currency profit
distribution. All profits distributed to Party B or Party C in foreign
currency shall be freely remittable outside of China to a bank account
designated by such Party. If Party A desires to convert into Renminbi any
of the foreign currency it receives pursuant to this Article, it shall first
offer such foreign currency to Party B and Party C (in proportion to their
respective contributions to registered capital) at an exchange rate to be
agreed by the Parties.

CHAPTER XII FOREIGN CURRENCY CONTROL

Section 12.01 The Joint Venture shall open a Renminbi account, foreign
currency account and (if the board of directors decides) a foreign currency
credit account in the banks inside China. All cash receipts and
expenditures should go through the bank. If it is necessary for the Joint
Venture to open an account in a Hong Kong bank or a foreign country bank
outside China, it shall obtain permission from the State Administration for
Exchange control and submit the receipts and expenditures and provide bills
or checks The foreign currency trade of the Joint Venture shall be in
accordance with the foreign exchange control regulations in the People's
Republic of China.

Section 12.02 The Joint Venture may balance its receipts and expenditures
in foreign currency through exporting products or other methods allowed by
Chinese laws.

Section 12.03 With respect to foreign currency savings, the Joint Venture
may mortgage its foreign currency to the appropriate branch of the Bank of
China or other specified financial agencies of Renminbi of the relative
amount in accordance with the "Provisional Measures of the People's Bank of
China of Foreign Exchange Secured Renminbi; Loans for Foreign Investment
Enterprises". The Renminbi borrowed shall be used for Renminbi expenditures
of the Joint Venture.

Section 12.04 Funds in the Joint Venture's foreign currency account should
be used by the general manager in accordance with normal business practices;
however, when it needs to exchange foreign currency, the Joint Venture
should give Party B and Party C priority in converting their renminbi profit
distributions based on the exchange rate announced on the date of exchange
by the Foreign Exchange Adjustment Centre of the State Administration for
Exchange control.

CHAPTER XIII LABOR MANAGEMENT

Section 13.01 The employment, invitation, dismissal, resignation, wages,
welfare labor insurance, labor safety, working discipline etc of the
employees of the Joint Venture shall be managed in accordance with the
"Provisions of the People's Republic China for Labor Management in Chinese-
foreign Equity Joint Ventures" and rules regarding its implementation.
Party A should assist the Joint Venture in finding a number of qualified
personnel for employment by the Joint Venture. The general manager should
employ the most qualified candidates from those recommended personnel after
examination. The Joint Venture also has the right to find and employ
workers on its own.

Section 13.02 The Joint Venture shall employ the contracted invitation
system. All its personnel shall have to pass an exam and an evaluation.
The terms of the exam and evaluation shall be provided in the invitation
contract. The Joint Venture shall decide whether it shall employ them.

Section 13.03 None of the personnel could be employed part of full time by
other companies units.

Section 13.04 The labor management affairs such as employment, dismissal,
wages, labor insurance, career security and hygiene, welfare, and rewards of
the employees of the Joint Venture shall be planned by the Board the
Directors according the related Chinese laws, regulations and rules of
departments in charge. The Joint Venture shall sign collective contracts
through the Labor Union or sign individual contracts with each employee to
stipulate the above mentioned matter. Such labor contracts shall be filed
with the local agencies of labor.

Section 13.05 According to the plan approved by the Board of Directors and
the labor contract stipulated in Section 13.04. the general manager has the
full power to handle all the labor management affairs, including dismissal
of unqualified and surplus personnel, and those who fail to fulfill or
efficiently implement the work assigned to them, and the ones who refuse to
obey or have violated the rules and regulation of the Joint Venture, on the
basis of the "Provisions of the People's Republic of China for Labor
Management in Chinese-foreign equity Joint Ventures".

Section 13.06 The regulations made by the Board of Directors of the Joint
Venture are:

1. Administration and management system, including regulation on
authority and working procedures of respective departments;

2. Personnel regulation;

3. Labor and wage system;

4. The system on work attendance, promotion, reward and penalty;

5. The system concerning welfare of personnel;

6. Financial regulations;

7. The procedure concerning the liquidation of the venture.

Section 13.07 The personnel of the venture have the right to set up their
labor union organization to carry out union activities, according to the
"Labor Union Law of the People's Republic of China".

Section 13.08 The Joint Venture shall submit 2% of total actual personnel
wages to the union fund monthly. The union of the Joint Venture shall use
the fund according to the "Measures for Handling Union Funds" stipulated by
the All China Workers' Union Confederation of China.

CHAPTER XIV FINANCIAL AFFAIRS AND AUDIT

Section 14.01 The accounting system shall be made in accordance with
relevant laws and accounting regulations of China and circumstances of the
Joint Venture. The Joint Venture shall submit its accounting system to the
finance and tax departments in charge for the record.

Section 14.02 The treasurer recommended by the general manager for and
appointed by the Board of Directors is responsible for the financial
management of the venture.

Section 14.03 According to the "Regulation of the People's Republic of
China on Financial Administration of Foreign Investment Enterprises" and its
attached regulations as well as modern management methods, the general
manager and the treasurer shall formulate the Joint Venture's system of
financial management and procedures. The system of financial management of
procedures adopted by the Joint Venture shall be submitted to the Board of
Directors for approval. The system of financial management and procedures
shall be filed in the department in charge within the Joint Venture and also
concerned local financial departments and taxation agencies. The Joint
Venture shall adopt the debit and credit and accrual basis for accounting as
its accounting system and principles.

Section 14.04 The annual financial year of the Joint Venture shall be from
January 1 to December 31 of the same year. Although all original "source
documents" such as daily vouchers, receipts, and statements shall be in the
language in which they are provided, which in most cases will be Chinese,
the accounting will be done on a computer system and software provided by
Party B. Accounting reports, including detailed general ledger reports,
will be provided monthly on paper as well as MS-DOS computer readable
format. The Joint Venture shall provide all the reasonable assistance and
cooperation to each Party of the Joint Venture to assist in their
understanding of these records.

Section 14.05 The Joint Venture adopts Renminbi as its accounting currency.
If cash deposits, other cash receipts and expenditures as well as the
currency for losses or gains in remittances are different from the currency
in the accounting statement, the currency in the actual receipts and
expenditures shall be the accounting currency. The actual profit or loss
resulting from exchange shall be accounted as profit or loss. The exchange
rate adopted by the Joint Venture in remittance and accounting (and any
changes thereto) shall be chosen by the Board of Directors in accordance
with applicable Chinese laws and regulations.

Section 14.06 The accounting book of the venture shall have content below:

1. All the amounts of cash income and expenditures of the Joint
Venture:

2. Buying and selling of materials of the Joint Venture;

3. The Joint Venture's registered capital and assets and liabilities;

4. Contribution time, increase and transfer of the registered capital
of the Joint Venture; and

5. Other items required by Chinese law or by any Party.

Section 14.07 The general manger shall draft a financial statement of
accounts, including statements of assets and liabilities, statements of
losses and gains, and a plan for the distribution of profits within the
first three(3) months of every business year of the preceding business year.
The Joint Venture shall invite an accountant registered in China as its
auditor, who shall examine the Joint Venture's financial condition twice a
year. After the examination, the annual report shall be submitted to the
Board of Directors for approval. Following approval by the Board of
Directors, the Joint Venture shall send the financial statement and the
auditor's report to the legal representative of all Parties within four (4)
months after the end of the previous financial year. The Joint Venture
shall also draft a quarterly business report and other reports as may be
required by the Board of Directors and shall send such report to all
Parties.

Section 14.08 Each Party may employ at its own expense an accountant to
examine the Joint Venture's accounting books. Unless the examination shows
significant mistakes that are not noticed by the auditor of the Joint
Venture, the Joint Venture has no responsibilities to pay the expenses
related to the examination. The Joint Venture should provide all the
reasonable assistance to the auditor and this auditor should keep secret of
all material he comes across during the examination.

CHAPTER XV TERM, TERMINAITON AND LIQUIDATION

Section 15.01 The term of the Joint Venture shall be fifty (50) years from
the date when the State Administration for Industry and Commerce issues the
Joint Venture its business license signifying legal person status.

Section 15.02 When the Joint Venture Contract expires, except in the case
that the Joint Venture Contract is extended according to Section 18.2 of the
Joint Venture Contract, the Joint Venture shall be dissolved and liquidated
in accordance with the relevant provisions of the Joint Venture Contract and
Chinese laws and regulations.

Section 15.03 Any Party may terminate the Joint Venture before the term
expires in accordance with Section 18.03 of the Joint Venture Contract.
Unless one Party's rights and benefits are purchased according to Section
18.4 of the Joint Venture Contract and the Joint Venture continues its
business, the Board of Directors of the Joint Venture should terminate,
dissolve and liquidate the Joint Venture two (2) months after it receives
the notice of terminations.

Section 15.04 When the Joint Venture expires of is terminated before the
end of its term, the Board of Directors shall determine procedures,
principles, and members of the liquidation committee to liquidate the assets
of the Joint Venture.

Section 15.05 The liquidation committee may include creditors'
representatives and other important relevant persons, and it may also employ
accountants and lawyers who are registered in China.

Section 15.06 The task of the liquidation committee is to carry out total
liquidation of the Joint Venture's assets, debts and credit rights, prepare
a balance sheet and list of assets, determine the liquidation plan, submit
the plan to the Board of directors and implement the plan.

Section 15.07 During the liquidation period, the liquidation committee
shall legally represent the Joint Venture in bringing and responding to
legal actions.

Section 15.08 The liquidation period, the liquidation committee shall
legally represent the Joint Venture in bringing and responding to legal
actions.

Section 15.09 After the settlement of all claims and debts, the rest of the
assets shall the distributed to the Parties in accordance with the ratio of
registered capital.

Section 15.10 After the end of liquidation, the Joint Venture shall submit
a report to the examination and approval authority, carry out deregistration
procedures at the Agency for Registration and Administration and turn in its
business license.

Section 15.11 After the term of the Joint Venture original accounting books
and records shall be kept by Party A, but Parties B and C may keep copies
thereof.

CHAPTER XVI REVISION

Section 16.01 Any revision, modification and supplement of the Contract or
its appendices shall be done by written agreement among the Parties.
According to the provisions of the laws in China, revisions or modifications
of the agreement shall come into effect only if approved by the examination
and approval authority.

CHAPTER XVII INSURANCE

Section 17.01 During the preparatory and operation periods of the Joint
Venture, the Joint Venture shall procure insurance with the approval of the
Board of Directors in accordance with related Chinese regulation. The
risks, value and terms of insurance shall be determined by the Board of
Directors.

CHAPTER XVIII LANGUAGE

Section 18.01 These Articles of Association shall be signed in both Chinese
and English. Both language versions shall be equally valid.

CHAPTER XIX EFFECTIVENESS AND MISCELLANEOUS

Section 19.01 Any notice or written communication under these Articles of
Association shall be in Chinese and English and shall be sent out by air
mail (with receipt), fax, ocean cable, cable or telex. If notices are sent
out by fax, ocean cable, cable or telex, they shall be confirmed with
airmail and its receipt. If notices of communication under these Articles
of Association are sent out by air mail, the date on the receipt shall be
considered as the receiving date. If they are sent out by fax, ocean cable,
cable or telex, two (2) working days after the sending-out date shall be
considered as the receiving date. Unless the legal address is changed by
written notice to the other Party, the legal address and the communication
numbers in Chapter II shall be the address and number of the Parties.

Section 19.02 The Joint Venture Contract, its appendices and these Articles
of Association shall be submitted to the examination and approval authority
and shall come into effect only after approval.

These Articles of Association are signed by the authorized
representatives of each Party in Beijing, the People's Republic of China on
April 13, 1993.

China National Green Food China Peregrine Enterprises, Limited
Corporation Management

By: By: /s/ Charles J. Beech
------------------------------ --------------------------
Name: [Chinese characters] Name: Charles J. Beech
---------------------------- ------------------------
Position: Position: President
------------------------ --------------------

Party C:

Amer-China Partners

By: /s/ George C. Bergland
------------------------------
Name: George C. Bergland
----------------------------
Position: President
------------------------

ARTICLES

CHAPTER I FORWARD

Section 1.01 China National Green Food Corporation (hereafter referred to as
Party A), China Peregrine Enterprises, Limited (hereafter referred to as
Party B), and Amer-China Partner Ltd. (hereafter referred to as Party C), in
accordance with the Law of the People's Republic of China on Chinese-foreign
Equity Joint Ventures and other related laws and regulations of the People's
Republic of China, and based on the joint venture contract signed by all the
Parties (the "Joint Venture Contract") hereby formulate these Articles of
Association of Green Food Peregrine Children's Food Company, Limited.

CHAPTER II PARTIES TO THE CONTRACT

Section 2.01 This Article is signed by the following Parties:

2. Party B: China Peregrine Enterprises, Limited
Legal address: 5333 Westheimer, Suite 800
Houston, Texas 77056
United States of America
Fax: (713)961-5726
Telephone: (713)961-0334
Legal Representative: Charles J. Beech
Post: President
Nationality: United States of America

3. Party C: Amer-China Partners, Ltd.
Legal Address: 620 North Third Avenue, St.
Charles, Illinois 60174,
United States of America
Fax: (708) 513-5338
Telephone: (708) 513-6765
Legal Representative: George C. Bergland
Post: President
Nationality: United States of America

CHAPTER III THE JOINT VENTURE

Section 3.01 The name of this Joint Venture is in
Chinese, and Green Food Peregrine Children's Products Company, Limited in
English. Its legal address is: Chongqing Hotel, Beijing, People's Republic
of China. With the approval of the Board of Directors and the relevant
departments of the Chinese government, the Joint Venture may set up branches
in China and abroad.

Section 3.02 The Joint Venture shall be a Chinese legal person, and all of
its activities should abide by and be protected by the laws, decrees and
concerned regulations of China.

Section 3.03 The form of organization of the Joint Venture shall be a
limited liability company. The liability of each Party is limited to its
contribution of registered capital contributed under this Contract. The
Joint Venture is responsible to third parties to the full extent of its
property. No Party has any responsibility for the other Parties, the Joint
Venture or a third party for any losses of the Joint Venture or claims
against the Joint Venture except according to any guaranty provided by each
Party. If any Party, entrusted by the Joint Venture with an entrusted
letter, acts on behalf of the Joint Venture and such acts lead to claims for
compensation by a third party, the Joint Venture shall compensate such
Party's expenses, losses, compensation, claims and responsibility. Subject
to the foregoing provisions, all Parties shall share the profits, losses and
risks of the Joint Venture according to the amount of their respective
registered capital in the Joint Venture.

CHAPTER IV PURPOSE, SCOPE AND SCALE OF THE JOINT VENTURE

Section 4.01 The purposes of the Joint Venture shall be to strengthen
economic cooperation and exchange of technology, to adopt advanced and
practical technology and scientific methods of management to improve the
quality and price, to improve economic efficiency and ensure satisfactory
economic profits to all Parties.

Section 4.03 The Joint Venture shall, in its initial state, set up
production lines for children's fresh milk in Shanghai and Beijing. When the
Board of Directors determines that conditions are appropriate, it may set up
productive branches in other cities with the approval of concerned
departments in accordance with related Chinese regulations. The Parties
presently anticipate that the Joint Venture will apply to establish
production branches in cities in China with a population exceeding 2,000,000
and may establish branches in other cities.

CHAPTER V TOTAL INVESTMENT AND REGISTERED CAPITAL

Section 5.01 The total investment of the Joint Venture is US$9,900,000. The
total registered capital of the Joint Venture is US$5,000,000.

Section 5.02 1. Party A shall invest in cash US$1,500,000 for the Joint
Venture's registered capital, an amount equal to 30% of the total registered
capital.

2. Party B shall invest in cash US$3,000,000 for the Joint
Venture's registered capital, an amount equal to 60% of the total registered
capital.

3. Party C shall invest in cash US$500,000 for the Joint
Venture's registered capital, an amount equal to 10% of the total registered
capital.

Section 5.03 All Parties shall contribute their capital in the time and
manner stipulated in the Joint Venture Contract.

Section 5.04 The date on which any amount of contribution in cash has been
transferred by any Party to the amount of the Joint Venture shall be deemed
to be the date of such contribution. Following each Party's contribution of
capital, the Joint Venture shall draft and submit a verification report
regarding the contribution(s) to respective Parties, and the Chairman and
Vice-Chairman of the Joint Venture shall sign a contribution certificate.

1. When one Party wishes to assign, see or dispose of its
total or partial registered capital, it shall send a written notice to the
other Parties setting forth the terms and conditions of the assignment,
sales or other methods of disposal. The other Parties shall have the
priority to purchase in proportion to their respective shares of the above-
mentioned registered capital (ownership) according to the terms and
conditions described in the notice.

2. If no Party exercises its priority right within ninety (90)
days after it receives written notice of the intent to so exercise, the
selling Party may assign, sell or dispose of its registered capital, in
total or in part, as set out in the notice; however, it shall not give the
buyer terms or conditions or better preferential treatment to the buyer than
those listed in the notice. The selling Party shall present to other Parties
copies of written agreement of the sales or assignment.

3. Provided there is no other agreement to the contrary among
the Parties hereto, the business, other contract liabilities, fulfillment of
the liabilities and the structural organization shall not be affected in any
way by this assignment or sale.

Any sale or assignment of registered capital shall be within
the scope provided by law, and subject to the approval of the examination
and approval authority.

The Joint Venture shall apply to the State Administration for
Industry and Commerce or its designated authority ("Agency For Registration
and Administration") to fulfill the formalities related to the change.

CHAPTER VI BOARD OF DIRECTORS

Section 6.01 The Joint Venture shall establish a Board of Directors. The
Board of Directors is the highest power organ of the Joint Venture.

Section 6.02 The Board of Directors is responsible for all important issues
related to the Joint Venture. Its duties are mainly as follow:

(a) Ratify important reports of the General Manager such as the
production schedule, annual business report, funds, and loans;

(b) Ratify the annual accounting report, receipts and expenditures
budget, and annual profit distribution plan;

(d) Decide the establishment of branches of the Joint Venture;

(e) Revise the Articles of Association;

(f) Discuss and decide the termination of production, expiration of
the Joint Venture and its combination with other economic
organizations;

(g) Decide the employment of the General Manager, senior managers and
senior technicians;

(h) Be responsible for the termination of the Joint Venture and its
liquidation upon expiration;

(i) Decide all other important issues related to the Joint Venture.

Section 6.03 The Board of Directors shall consist of five (5) members. Party
A shall appoint two (2) members. Party B shall appoint three (3) members and
Party C shall appoint one (1) advisory member who shall have no right to
vote.

Section 6.04 The term of office of members of the Board shall be four (4)
years which can be extended if the appointing Party so decides. The Chairman
of the Board shall be elected from members nominated by Party A. The Vice
Chairman shall be elected from members nominated by Party B.

Section 6.05 If there is a vacancy arising from the retirement, resignation,
illness, inability in performance, or death among the members of the Board,
or if one Party terminates its appointed member, the nominating Party shall
appoint a successive member to the post, to serve the remaining term of
previous member.

CHAPTER VII MEETING OF THE BOARD OF DIRECTORS

Section 7.02 When at least two (2) Board members request in written form to
discuss a certain matter, the Chairman should call for an interim meeting of
the Board after consulting his deputies.

Section 7.03 The following subjects shall be decided only by unanimous
approval of the Board of Directors:

1. The revision of this Articles of association;

2. The increase or assignment of the registered capital of the Joint
Venture;

3. The combination of the joint Venture with other economic
organizations;

4. The liquidation, dissolution or early termination of the Joint
Venture.

Section 7.04 Resolutions with respect to other matters may be adopted by the
majority of the Board present at the meeting in person or by proxy.

Section 7.05 A written resolution signed by all the members of the Board of
directors shall have the same effect as those reached in formally held Board
meetings with unanimous vote. A written resolution signed by no less that
needed members for a legal meeting shall have the same effect as those
reached in the formally held Board meeting with majority vote.

Section 7.06 The Chairman shall make the agenda and schedule for meetings
for the Board of Directors and be responsible to call for and preside over
the Board meeting. If the Chairman fails to attend the meeting, the vice-
chairman shall be responsible to call for and preside over the Board
meeting. All matters that are raised in the meeting shall be fully
discussed. All members (if they wish) should have equal opportunity to
express their opinions.

Section 7.08 The quorum for all Board meetings shall be two-thirds of the
total number of directors, present in person or by proxy.

Section 7.10 The Joint Venture should reimburse the Board members and their
entrusted representatives' reasonable expenses of transportation, food and
accommodation related to Board meetings.

Section 7.12 The meeting records should be written in Chinese and English
and be signed by the Chairman, vice, chairman, and all members of the Board
(or their respective proxies). The original signed record should be kept in
the files of the Joint Venture. Its copies should be sent to every Board
member and all Parties within thirty (30) days after the meeting.

Section 7.13 Any member of the Board who wants to make any revision or
supplement to the record should submit his revision of supplementary opinion
in written form to the Chairman within fourteen (14) days after he receives
the copy of records.

If there is no objection from the members, the said revision or
supplement will enter the formal record. If there is objection from members,
the revision of supplement is subject to approval of the meeting of the
Board.

CHAPTER VIII MANAGEMENT BODY

Section 8.02 The general manager is responsible for implementing all
resolutions of the meetings of the Board of Directors and for organizing and
exercising leadership of the daily administrative and management of the
Joint Venture. The general manager shall consult with the assistant general
manager when dealing with serious matters. The assistant general manager
shall assist the general manager with his work.

Section 8.03 The administrative and management body shall employ a certain
number of department managers to be in charge of the work of various
departments of the Joint Venture, to implement the works assigned by the
general manager and the assistant general managers, and to be responsible to
them.

Section 8.05 The Board of Directors shall decide on the salaries and other
compensation of the administrative staff.

Section 8.06 At the invitation of the Board of Directors, the Chairman,
vice-chairman and directors can be nominated to work as general manager,
assistant general manager and other senior posts.

Section 8.07 The general manager and assistant general manager shall not be
employed full or part time by other economic organizations.

Section 8.08 The general manager, assistant general manager and other senior
staff shall submit written notice (30) days before resigning.

Section 8.09 The General Manager shall prepare a monthly report summarizing
the previous month's developments regarding operations and finance and other
information requested by the Board of Directors. The general manager shall
deliver a copy of such report to each Party and to each Board member.

CHAPTER IX ANNUAL BUSINESS PLAN AND BUDGET

Section 9.01 The general manager shall draft the annual business plan and
budget. The annual business plan and budget of every fiscal year (including
the estimated capital indebtedness, deficit and profit plan and cash income
and expenditures report) should be submitted before October 1 of the
previous fiscal year for the examination by the Board of Directors and shall
include following detailed materials:

1. The procurement of equipment and other property of the Joint
Venture;

2. Raising and expenditures of capital;

3. Plans for production and product marketing;

4. Maintenance and repair of the property and equipment of the Joint
Venture;

5. Budgetary estimate of the Joint Venture based on business plan and
budget;

6. Training plan for the personnel of the Joint Venture;

7. Raw material, fuel, water, electricity, public facilities and
other thrown-in materials;

8. The plan for proportion of export internal sales and
recommendations of export and internal sales prices;

9. Foreign currency income and expenditure balance plan; and

10. Report on any other matters that might be asked for by the Board
of Directors or any member of the Board.

Section 9.02 The Board of Directors should examine and approve the business
plan and budget before October 31 of the same year that the planned budget
is submitted. The general manager shall be in charge of the implementation
of the annual business plan and budget approved by the Board.

CHAPTER X BANKS LOANS

Section 10.01 The Joint Venture may, according to specific needs, apply to
the Bank of China and (or) any other approved foreign or Chinese banks for
foreign currency and (or) Renminbi loans. The Joint Venture may also borrow
currency funds from any other banks or financial institutions. The Joint
Venture should report the loans to the State Administration of Exchange
control or other concerned branches for the record.

Section 10.02 The Joint Venture may also borrow from each Party.

CHAPTER XI DISTRIBUTION OF PROFITS

Section 11.01 After paying income taxes in accordance with the relevant
Chinese laws and regulations, the after-tax profit shall be distributed
according to the principles below:

Section 11.02 The Joint Venture should allocate the reserve fund, expansion
fund and bonus and welfare fund for staff and workers in Renminbi, with the
ratio for such allocations to be determined each year by the Board of
Directors. The plan for using the three funds should be drawn by the general
manager and should be submitted to the Board of Directors for approval. When
it is approved, the plan should be implemented by the general manager.

Section 11.03 The reserve fund need not be increased when it is equal to the
registered capital. Besides the fulfillment of the deficit of the Joint
Venture, with approval of the examining and approving agency, the reserve
fund can also be used to increase capital and enlarge production.

Section 11.04 When the three funds are allocated in accordance with Section
11.02. and any loans are repaid by the Joint Venture in accordance with the
terms thereof, the after-tax profits of the Joint Venture shall be
distributed based upon the ratio of each Party's registered capital. The
profits shall be decided by the Board of Directors whether for distribution
or for the expansion of the Joint Venture's business, provided, however,
that where profits are used for expansion the Board of Directors shall
distribute to Party B and Party C from the profits that are available for
distribution to Party B and Party C an amount of profits sufficient to
enable Party B and Party C to pay the tax liabilities, if any, that they
each may incur in respect to the Joint Venture's profits. At the same time,
the Board of Directors shall distribute to Party A from the profits
available for distribution to Party A a corresponding amount of profits.
After the Shanghai plant is in production, the Joint Venture may distributed
profits to the Parties. If the Joint Venture has incurred losses in the
previous years, the profits of the current year shall be first used to make
up the losses. The Joint Venture shall not distribute profits until the
previous losses are made up. Remaining profits from previous years may the
added to the current year for profits distribution, or for distribution
after making up the current year's deficit. The profits of Party B and Party
C may be used for further investments inside China or may be remitted
outside China.

Where the Joint Venture has foreign currency available for profit
distribution, each Party shall receive an amount of such foreign currency in
proportion to its respective contribution to registered capital. The Joint
Venture shall assist each Party upon request in exchanging profits available
for distribution in Renminbi into United States Dollars using the Foreign
Exchange Adjustment Centers and any other reasonable methods that may be
available to the Joint Venture of any Party. The costs of such exchanges
shall be borne by the Party receiving the foreign currency profit
distribution. All profits distributed to Party B or Party C in foreign
currency shall be freely remittable outside of China to a bank account
designated by such Party. If Party A desires to convert into Renminbi any of
the foreign currency it receives pursuant to this Article, it shall first
offer such foreign currency to Party B and Party C (in proportion to their
respective contributions to registered capital) at an exchange rate to be
agreed by the Parties.

CHAPTER XII FOREIGN CURRENCY CONTROL

Section 12.01 The Joint Venture shall open a Renminbi account, foreign
currency account and (if the board of directors decides) a foreign currency
credit account in the banks inside China. All cash receipts and expenditures
should go through the bank. If it is necessary for the Joint Venture to open
an account in a Hong Kong bank or a foreign country bank outside China, it
shall obtain permission from the State Administration for Exchange control
and submit the receipts and expenditures and provide bills or checks. The
foreign currency trade of the Joint Venture shall be in accordance with the
foreign exchange regulations in the People's Republic of China.

Section 12.02 The Joint Venture may balance its receipts and expenditures in
foreign currency through exporting products or other methods allowed by
Chinese laws.

Section 12.03 With respect to foreign currency savings, the Joint Venture
may mortgage its foreign currency to the appropriate branch of the Bank of
China or other specified financial agencies for Renminbi of the relative
amount in accordance with the "Provisional Measures of the People's Bank of
China of Foreign Exchange Secured Renminbi; Loans for Foreign Investment
Enterprises". The Renminbi borrowed shall be used for Renminbi expenditures
of the Joint Venture.

Section 12.04 Funds in the Joint Venture's foreign currency account should
be used by the general manager in accordance with normal business practices;
however, when it needs to exchange foreign currency, the Joint Venture
should give Party B and party C priority in converting their renminbi profit
distributions based on the exchange rate announced on the date of exchange
by the Foreign Exchange Adjustment Centre of the State Administration for
Exchange control.

CHAPTER XIII LABOR MANAGEMENT

Section 13.01 The employment, invitation, dismissal, resignation, wages,
welfare labor insurance, labor safety, working discipline etc of the
employees of the Joint Venture shall be managed in accordance with the
"Provisions of the People's Republic of China for Labor Management in
Chinese-foreign Equity Joint Ventures" and rules regarding its
implementation. Party A should assist the Joint Venture in finding a number
of qualified personnel for employment by the Joint Venture. The general
manger should employ the most qualified candidates from those recommended
personnel after examination. The Joint Venture also has the right to find
and employ workers on its own.

Section 13.03 None of the personnel could be employed part or full time by
other companies units.

Section 13.05 According to the plan approved by the Board of Directors and
the labor contract stipulated in Section 13.04. the general manager has full
power to handle all the labor management affairs, including dismissal of
unqualified and surplus personnel, and those who fail to fulfill or
efficiently implement the work assigned to them, and the ones who refuse to
obey or have violated the rules and regulations of the Joint Venture, on the
basis of the "Provisions of the People's Republic of China of Labor
Management in Chinese-foreign Equity Joint Ventures".

Section 13.06 The regulations made by the Board of Directors of the Joint
Venture are:

1. Administration and management system, including regulations on
authority and working procedures of respective departments;

2. Personnel regulation;

3. labor and wage system;

4. The system on work attendance, reward and penalty;

5. The system concerning welfare of personnel;

6. Financial regulations;

7. The procedure concerning the liquidation of the venture.

Section 13.07 The personnel of the venture have the right to set up their
union organization to carry out union activities, according to the "Labor
Union Law of the People's Republic of China".

CHAPTER XIV FINANCIAL AFFAIRS AND AUDIT

Section 14.01 The accounting system shall be made in accordance with
relevant laws and accounting regulations of China and circumstances of Joint
Venture. The Joint Venture shall submit its accounting system to the
finance and tax departments in charge for the record.

Section 14.02 The treasurer recommended by the general manager for and
appointed by the Board of Directors is responsible for the financial
management of the venture.

Section 14.03 According to the "Regulations of the People's Republic of
China on Financial Administration of Foreign Investment Enterprises" and its
attached regulations as well as modern management methods, the general
manager and the treasurer shall formulate the Joint Venture's system of
financial management and procedures. The system of financial management of
procedures adopted by the Joint Venture shall be submitted to the Board of
Directors for approval. The system of financial management and procedures
shall be filed in the department in charge within the Joint Venture and also
concerned local financial departments and taxation agencies. The Joint
Venture shall adopt the debit and credit and accrual basis for accounting as
its accounting system and principles.

Section 14.04 The annual financial year of the Joint Venture shall be from
January 1 to December 31 of the same year. Although all original "source
documents" such as daily vouchers, receipts, and statements shall be in the
language in which they are provided, which in most cases will be Chinese,
the accounting will be done on a computer system and software provided by
Party B. Accounting reports, including detailed general ledger reports,
will be provided monthly on paper as well as MS-DOS computer readable
format. The Joint Venture shall provide all reasonable assistance and
cooperation to each Party of the Joint Venture to assist in their
understanding of these records.

Section 14.05 The Joint Venture adopts Renminbi as its standard accounting
currency. If cash deposits, other cash receipts and expenditures as well as
the currency for losses or gains in remittances are different from the
currency in the accounting statement, the currency in the actual receipts
and expenditures shall be the accounting currency. The actual profit or loss
resulting from exchange shall be accounted as profit or loss. The exchange
rate adopted by the Joint Venture in remittance and accounting (and any
changes thereto)shall be chosen by the Board of Directors in accordance with
applicable Chinese laws and regulations.

Section 14.06 The accounting book of the venture shall have content below:

1. All the amounts of cash income and expenditures of the Joint Venture:

2. Buying and selling of materials of the Joint Venture;

3. The Joint Venture's registered capital and assets and liabilities;

4. Contribution time, increase and transfer of the registered capital of
the Joint Venture; and

5. Other items required by Chinese law or by any Party.

Section 14.07 The general manager shall draft a financial statement of
accounts, including statements of assets and liabilities, statements of
losses and gains, and a plan for the distribution of profits within the
first three (3) months of every business year for the preceding business
year. The Joint Venture shall invite an accountant registered in China as
its auditor, who shall examine the Joint Venture's financial condition twice
a year. After the examination, the annual report shall be submitted to the
Board of Directors for approval. Following approval by the Board of
Directors, the Joint Venture shall send the financial statement and the
auditor's report to the legal representative of all Parties within four (4)
months after the end of the previous financial year. The Joint Venture
shall also draft a quarterly business report and other reports as may be
required by the Board of Directors and shall send such reports to all
Parties.

Section 14.08 Each Party may employ at its own expense an accountant to
examine the Joint Venture's accounting books. Unless the examination shows
significant mistakes that are not noticed by the auditor of the Joint
Venture, the Joint Venture has no responsibilities to pay the expenses
related to the examination. The Joint Venture should provide all reasonable
assistance to the auditor and this auditor should keep secret of all
material he comes across during the examination.

CHAPTER XV TERM, TERMINATION AND LIQUIDATION

Section 15.01 The term of this Joint Venture shall be fifty (50) years form
the date when the State Administration for Industry and Commerce issues the
Joint Venture its business license signifying legal person status.

Section 15.03 Any Party any may terminate the Joint Venture before the term
expires in accordance with Section 18.3 of the Joint Venture Contract.
Unless one Party's rights and benefits are purchased according to Section
18.4 of the Joint Venture Contract and the Joint Venture continues its
business, the Board of Directors of the Joint Venture should terminate,
dissolve and liquidate the Joint Venture two (2) months after it receives
the notice of terminations.

Section 15.04 When the Joint Venture expires of is terminated before the end
of its term the Board of Directors shall determine procedures, principles,
and members of the liquidation committee to liquidate the assets of the
Joint Venture.

Section 15.05 The liquidation committee may include creditors'
representatives and other important relevant persons, and it may also employ
accountants and lawyers who are registered in China.

Section 15.07 During the liquidation period, the liquidation committee shall
legally represent the Joint Venture in bringing and responding to legal
actions.

Section 15.08 The liquidation expenses and compensation to the liquidation
committee members shall take priority in the distribution of Joint Venture
assets.

Section 15.09 After the settlement of all claims and debts, the rest of
assets shall the distributed to the Parties in accordance with the ratio of
registered capital.

Section 15.10 After the end of liquidation, the Joint Venture shall submit a
report to the examination and approval authority, carry out deregistration
procedures at the Agency for Registration and Administration and turn in its
business license.

Section 15.11 After the term of the Joint Venture original accounting books
and records shall be kept by Party A, but Parties B and C may keep copies
thereof.

CHAPTER XVI REVISION

Section 16.01 Any revision, modification and supplement of the Contract or
its appendices shall be done by written agreement among the Parties.
According to provisions of the laws in China, revisions or modifications of
the agreement shall come into effect only if approved by the examination and
approval authority.

CHAPTER XVII INSURANCE

Section 17.01 During the preparatory and operation periods of the Joint
Venture, the Joint Venture shall procure insurance with approval of the
Board of Directors in accordance with related Chinese regulation. The
risks, value and terms of insurance shall be determined by the Board of
Directors.

CHAPTER XVII LANGUAGE

Section 18.01 These Articles of Association shall be signed in both Chinese
and English. Both language versions shall be equally valid.

CHAPTER XIX EFFECTIVENESS AND MISCELLANEOUS

Section 19.01 Any notice or written communication under these Articles of
Association shall be in Chinese and English and shall be sent out by air
mail (with receipt), fax, ocean cable, cable or telex. If notices are sent
out by fax, ocean cable, cable telex, they shall be confirmed with airmail
and its receipt. If notices of communication under these Articles of
Association are sent out by fax, ocean cable, cable or telex, two (2)
working days after the sending-out date shall be considered as the receiving
date. Unless the legal address is changed by written notice to the other
Party, the legal address and the communication numbers in Chapter II shall
be the address and number of the Parties.

Section 19.02 The Joint Venture Contract, its appendices and these Articles
of Association shall be submitted to the examination and approval authority
and shall come into effect only after approval.

These Articles of Association are signed by the authorized representatives
of each Party in Beijing, the People's Republic of China on April 13, 1993.

China National Green Food China Peregrine Enterprises, Limited
Corporation Management

By: By: /s/ Charles J. Beech
------------------------------ ---------------------------

Name: /s/ [Chinese Characters] Name: Charles J. Beech
---------------------------- -------------------------

Position: Position: President
------------------------ ---------------------

Party C:
Amer-China Partners

By: /s/ George C. Bergland
------------------------------
Name: George C. Bergland
----------------------------

Position: President
------------------------

ARTICLES OF ASSOCIATION

SINO-AMERICAN JOINT VENTURE

HABGZHOU AMERICAN FLAVORS DAIRY PRODUCTS CO. LTD

SIGNED BETWEEN

HANGZHOU DAIRY COMPLEX

AND

AMERICAN FLAVORS CHINA, INC.

Contents

Chapter 1. General provisions

2. Purpose, scope and scale of production and business

3. Total investment and registered capital

4. Board of director

5. Business management office

6. Finance and accounting

7. Profit sharing

8. Staff and workers

9. Trade union organization

10. Duration, termination and liquidation

11. Rules and regulations

12. Supplementary articles

CHAPTER

GENERAL PROVISIONS

Article 1

In accordance with the "Law of People's Republic of China on Joint
Venture Using Chinese and Foreign Investment" and other laws and regulations
of the People's Republic of China (hereinafter referred to as the "PRC"),
and pursuant to the Joint Venture Contract (hereinafter referred to as the
"Contract") sighed on the date of July 25, 1993 between Hangzhou Dairy
Complex hereinafter referred to as "Party A") and American Flavors China,
Inc. U.S.A. (hereinafter referred to as "party B"), the Articles of
Association of the equity joint venture limited liability company
established in accordance with the contract are hereby formulated.

Article 2

The name of the equity joint venture limited liability company
established pursuant to the contract (hereinafter referred to as the "JV")
in Chinese is:

[Chinese characters]

The name of the JV in English is

HANGZHOU AMERICAN FLAVORS DAIRY PRODUCTS CO. LTD

The legal registered address of the JV is: No. 188 North Qiutao Road,
Hangzhou, PRC.

Article 3

The name and legal registered address of Parties A and B are as
follows:

Party A:
name: Hangzhou Dairy complex ( )
legal registered address: No 178 North Qiutao Road, Hangshou, PRC.
Party B:
name: American Flavors, China, Inc
legal registered address: 285 Commonwealth Avenue, Boston
Massachusetts, U.S.A.

Article 4

The JV is a limited liability company and is liable within the limit
of the registered capital as stated in the contract.

Article 5

The JV has the status of a legal person in the PRC and is subject to
the jurisdiction and protection of the laws of the PRC. All its activities
must abide by the laws, decrees, and pertinent rules and regulation of the
PRC.

CHAPTER 2

PURPOSE, SCOPE AND SCALE OF
PRODUCTION AND BUSINESS

Article 6

The purpose of the JV is to substantiate the good will of both
Parties A and B in strengthening economic cooperation and technical exchange,
by adopting appropriate and advanced technology and management method produce
and to engage in the business of dairy products, drinks with milk content and
fruit juice, upgrading the products, developing new product so as to achieve a
high degree of competitiveness in price and quality in the domestic market; to
raise economic efficiency so as to enable both parties to realize a
satisfactory economic return.

Article 7

The scope of production of the JV is the production, distribution and
scale of dairy products, drinks with milk content and fruit juice.

Article 8

The scale of production of the JV is as follows:
Ice Cream: 2500 mT
UHT Milk: 6600 mT
Milk Powder: 1200 mT

and shall increase with future development of business and production.

Article 9

The products of the JV are for sale in the domestic market.

CHAPTER 3

TOTAL INVESTMENT AND REGISTERED CAPITAL

Article 10

The total amount of investment of the JV is US dollar 10,000,000-, and
the registered capital is US dollar 5,100,000-.

Article 11

Party A shall contribute existing factory building, equipment and
machinery, management facilities and other fixed items as its investment in
the registered capital, valued at and totaling US dollar 2,448,000- and
accounts for 48% of the registered capital; Party B shall contribute US
dollar 42,000- in cash and equipment valued at US dollar 2,610,000-, as its
investment in the registered capital, totaling US dollar 2,652,000- and
accounts for 52% of the registered capital.

Article 12

Parties A and B shall pay up on schedule in accordance with the
contract their respective contribution to the registered capital.

Article 13

When Parties A and B have paid up in full their respective
contribution to the registered capital of the JV, a Chinese accountant
appointed by the JV shall verify such contribution and issue a Report of
Verification, and the JV shall subsequently issue to each party who has paid
its contribution a Certificate of Capital Contribution which shall include
the name of the JV, date of establishment of the JV, name of the JV's
Parties, amount of capital contributed, date of contribution to the
registered capital, and the date of issuance of the certificate of capital
contribution.

Article 14

During the term of the joint venture, the JV shall not reduce its
registered capital.

Article 15

Any increase in the registered capital shall have unanimous approval
of both Parties A and Parties B and the approval of the original examination
and approval authorities.

Article 16

Any one party to the Contract shall only assign or transfer all or
part of its investment subscribed to a third party upon the unanimous
approval of the Board of Directors.

And the other party to the Contract shall have a first right of
refusal to such assignment and transferal.

And the other party to the Contract shall have terms of such
assignment and transferral not less favorable than that offered to the third
party.

Article 17

Any increase or assignment of the registered capital of the JV shall
be unanimously approved by the Board of Directors and submitted to the
original examination and approval authorities for approval, and subsequently
proceed to register such changes at the original registration and
administration office.

CHAPTER 4

BOARD OF DIRECTOR

Article 18

The JV shall establish a Board of Directors (hereinafter referred to
as the "BOD") and the BOD is the highest authority of the JV.

Article 19

The BOD shall make decisions on major issues of the JV, the BOD's
power and functions shall include the following:

1) Examining and approval the important reports submitted by the
General Manager eg. production plan, annual business report,
loans, etc.

2) Approving annual financial reports, budget of receipts and
expenditures, distribution plan of annual profit.

3) Adopting major rules and regulations of the JV.

4) Deciding the timing and location to set up branches of the JV
inside and outside of the PRC.

5) Amending these Articles of Association.

6) Discussing and deciding the termination of production,
termination of the JV, or the merger with another economic
organization.

7) Deciding the employment or dismissal of the General Manager
and Deputy General Manager, chief engineer, treasurer, auditor
and other high-ranking personnel.

8) Deciding and handling the liquidation matters relating to the
dissolution of the JV upon the termination prior to or on the
expiration date of the JV.

9) Deciding all other issues deemed necessary to be decided at
BOD's meeting.

Article 20

The BOD shall comprise of six (6) directors of which three (3) shall
be appointed by Party A and three (3) by party B. The appointment of
directors, Chairman and Vice Chairman is for a term of four (4) years, any
director may serve consecutive term if re-appointed by the party which
originally appointed him.

Article 21

The Chairman of the BOD shall be appointed by Party B and the Vice
Chairman by Party A. The Chairman is the legal person of the JV.

Article 22

When appointing and replacing their respective appointees to the BOD,
Parties A and B shall submit a written notice to the BOD. In the event the
Chairman or Vice-Chairman is to be replaced, written notice shall be
submitted to the original examination and approval authorities in addition
to the BOD and the other party.

Article 23

The BOD should convene once every year. Interim BOD's meeting shall be
convened upon the request of not less than one third (1/3) of the total
number of directors. The expenses incurred by the directors in order to
attend the BOD's meeting shall be borne by the JV.

Article 24

The BOD's meeting shall in principle held at the locality of the JV.

Article 25

The BOD's meeting shalled be concerned and presided over by the
chairman, in the absence of the chairman, the vice-chairman shall convene
and preside over the BOD's meeting.

Article 26

The chairman shall notify the directors of the BOD thirty days (30)
prior to the BOD's meeting of the agenda, the time and location of the BOD's
meeting.

Article 27

Should a director be unable to attend the BOD's meeting for any
reason, he may by written notification to the BOD authorized any other
person as his proxy. In the event a director neither attends the BOD's
meeting nor authorizes any other person to act as his proxy, he should be
regarded as being abstained from exercising his voting power at the BOD's
meeting.

Article 28

Each and every BOD's meeting requires a quorum of two third (2/3) of
the total number of directors, resolutions passed at any BOD's meeting at
which a quorum is not present are invalid.

Article 29

The minutes of all BOD's meeting and resolution passed in all BOD's
meeting shall be carefully documented and duly signed by all directors
present at the meetings. In the event authorized representative of directors
are present, the representatives shall sign the meeting's document, language
of documentation shall be in Chinese and in English, and shall be kept in
the Minite Book of BOD's meeting of JV at the JV's legal address.

Article 30

Unanimous approval of all directors of the BOD shall be required
before any decisions are made concerning the following major issues:

1) Alteration of these Article of Association of the JV.

2) Termination of the joint venture between parties A and B and
dissolution of the JV.

3) Increase or transfer of the JV's registered capital.

4) Merger of the JV with another economic organization.

5) Loans or any form of indebtedness, and/or purchase of fixed
assets exceeding USD 500,000--. The decision thereof shall be
signed by all the directors of party A and sent to all the
directors of party B for their signatures and then put into
implementation.

6) All other major issues deemed necessary to be decided
unanimously by the BOD.

Article 31

Decisions on the following issues shall be valid when adopted by a
majority of the total number of directors and approved by at least one Party
A's appointee and one Party B's appointee to the BOD.

1) deciding and approving the important reports submitted by the
General Manager eg. production plan, annual business report,
loans etc.

2) approving annual financial report, budget of receipts and
expenditures, distribution plan of annual profit.

3) adopting major rules and regulations of the JV.

4) deciding the timing and location to set up branches of the JV
inside and outside of China.

5) amending rules and regulations of the JV.

6) deciding the employment, dismissal, responsibilities, welfare
and term and conditions of employment.

7) deciding the liquidation procedures, principles and members of
the liquidation committee after the termination and
dissolution of the JV.

8) deciding the drawing ratio of the three funds and all type of
insurance.

9) deciding all other major issues deemed necessary to be decided
at BOD's meeting.

CHAPTER 5

BUSINESS MANAGEMENT OFFICE

Article 32

The JV shall establish a management organization consisting of various
department, such as production, technical, sales and marketing, personnel,
finance and administration.

Article 33

The JV shall have a General Manager to be appointed by Party A and a
Deputy General Manager to be appointed by Party B. Both appointments shall
be approved by the BOD.

Article 34

The General Manager shall be directly responsible to the BOD, carry
out the decisions of the BOD, organize and provide leadership to the day-to-
day production, technical and management tasks. The Deputy General Manager
shall provide assistance to the work of the General Manager, and shall act
on behalf of the General Manager in his absence.

Article 35

Decisions concerning important issues of the day to day operation of
the JV shall be valid only with the signatures of the General Manager and
Deputy General Manager, and the BOD shall discuss and categorize such
issues.

Article 36

The term of office for the General Manager and Deputy General Manager
is four (4) years, and may serve consecutive term when re-appointed by the
BOD.

Article 37

The Chairman, Vice-Chairman and any director may concurrently be the
General Manager, Deputy General Manager or other high-ranking personnel of
the JV upon the appointment by the BOD.

Article 38

The General Manager and the Deputy General Manager shall not
concurrently be the general manager or deputy general manager of other
economic organization and engage in business competition activities of other
economic organization against the JV.

Article 39

The JV shall recruit and employ a chief engineer, treasurer, auditor
and other high-ranking personnel, and who shall be appointed by the BOD.

Article 40

The chief engineer, treasurer and auditor work under the leadership of
the General Manager.

The treasurer shall exercise leadership in financial and accounting
affairs of the JV, organize the JV to carry out complete economic accounting
and implement the economic responsibility system.

The auditor shall be in charge of the auditing work of the JV, examine
and audit the financial receipts and expenditure, and the account entries of
the JV; and submit reports to the General Manager and the BOD.

Article 41

The General Manager, Deputy General Manager, chief engineer, treasurer
auditor and other high-ranking personnel who wish to resign from their posts
shall submit their written resignation to the BOD thirty (30) days in
advance.

In case of graft or serious dereliction of duty on the part of the
aforementioned personnel in this Article, the BOD shall have the power to
dismiss them at any time deemed necessary.

CHAPTER 6

FINANCE AND ACCOUNTING

Article 42

The finance and accounting of the JV shall be handled in accordance
with the "Stipulation of Finance and Accounting system of Joint Venture
Using Chinese and Foreign Investment formulated by the Ministry of Finance
of the PRC.

Article 43

The fiscal year of the JV shall be from January 1 to December 31 of
the Gregorian Calendar.

Article 44

All vouchers, account books and report shall be written in Chinese,
and English.

Article 45

The JV adopts renminbi (RMB) as its account keeping units. The
exchange rates used against other foreign currencies shall be the same as
the exchange rates published by the state Administration of Exchange Control
of the PRC on the date of its occurrence.

Article 46

The JV shall open accounts in renminbi (RMB) and foreign currencies
with banks in China.

Article 47

The JV shall adopt the internationally used accrual basis, and debt
and credit accounting system in the preparation of its accounts.

Article 48

The following items shall be covered in the financial account books of
the JV.

1) The amount of overall cash receipt and expenditure of the JV

2) All purchases and sales made by the JV.

3) The registered capital and debt situation of the JV.

4) The time of payment, increase and assignment of the registered
capital of the JV.

Article 49

The financial department shall compile the statement of assets and
liabilities, and profit and loss accounts of the past year in the first
three (3) months of each fiscal year, and submitted the same to the BOD for
approval after these documents have been examined and signed by the auditor.

Article 50

Each of the parties to the Contract shall have the right to appoint an
accountant at its own expense to examine the accounts of the JV, and the JV
shall co-operate with such accountant.

Article 51

The depreciation period for the fixed assets of the JV shall be
decided by the BOD in accordance with the "Rule for the Implementation of
the Income Tax Law of the People's Republic of China Concerning Joint
Ventures with Chinese and Foreign Investment".

Article 52

All matters concerning foreign exchange shall be handled in accordance
with the "Provisional Regulations for Foreign Exchange Control of the
People's Republic of China", and other pertinent regulations of the PRC. In
the event the JV experiences an imbalance of foreign exchange, profit to be
distributed to Parties A and B in terms of renminbi (RMB).

CHAPTER 7

PROFIT SHARING

Article 53

The JV shall make allocation to reserve funds, developments, and
bonuses and welfare funds for staff and workers after the payment of taxes.
The proportion of such allocation shall be determined by the BOD.

Article 54

The JV shall pay taxes and make allocation to the various funds.

From the date the business license of the JV is issued till 1,
November, 1993, Party A shall be entitled and liable to the profit and loss
of the JV. And from 1, November, 1993, the profit and loss of the JV shall
be distributed rateably in proportion to the investment of each of Parties A
and B in the registered capital.

Article 55

The JV shall distribute its profit once a year. Within the first three
months of each fiscal year, the previous fiscal years profit distribution
plan and profit to be distributed to each party of the contract shall be
announced.

Within the last three months of each fiscal year, the General Manager
shall prepare the forecast of profit distribution plan and forecast of various
funds allocation plan, and submit to the BOD for examination.

The General Manager shall prepare monthly and quarterly financial
reports and present to the BOD.

Article 56

The JV shall not distribute profits unless the losses of previous
fiscal year(s) have been made up, remaining profit from previous fiscal
years can be distributed together with that of the current fiscal year.

CHAPTER 8

STAFF AND WORKERS

Article 57

Recruitment, employment, dismissal, resignation, salary, welfare,
labor protection and other issues in relation to the staff and workers of
the JV shall be handled in accordance with the "Regulation of the People's
Republic of China on Labour Management in Joint Ventures Using Chinese and
Foreign Investment" and other rules for its implementation.

Article 58

The required staff and workers may be recruited through public
recruitment process with notification to local labor department. All
selection is based on merits by examination.

Article 59

The JV shall have the right to take disciplinary actions, including
recording a demerit and reducing their salary, against those staff and
workers who violate the rules, regulation and labor disciplinary codes of
the JV. If the violation is of serious nature, the JV shall have the right
to take dismissal action, dismissal of staff and workers shall be filed with
the local labor management department.

Article 60

The salaries and other terms and conditions of employment shall be in
accordance with relevant rules and regulations in the PRC, confirmed by the
BOD based on practical situation of the JV and detailed in the contract of
employment.

Article 61

Matters concerning the welfare funds, bonuses, labor protection and
labor insurance, etc., shall be stipulated respectively in the JV's rules
and regulations concerning staff and workers to ensure that the staff and
workers are under suitable and normal producing and working conditions.

CHAPTER 9

THE TRADE UNION ORGANIZATION

Article 62

The staff and workers of the JV shall have the right to establish a
trade union organization and engage in union activities in accordance with
the "Trade Union Laws of the People's Republic of China" and "Law of the
People's Republic of China on Joint Ventures Using Chinese and Foreign
Investment".

Article 63

The trade union in the JV represents the interests of staff and
workers, the tasks of the trade union are: to protect the democratic rights
and material interests of the staff and workers under the law; to assist the
JV in arranging and making rational use of welfare funds and bonuses; to
organize political, professional, scientific and technical studies; carry
out literary, art and sport activities; and to educate staff and workers to
observe labor discipline and strive to fulfil the economic goals of the JV.

Article 64

The trade union of the JV shall have the right to represent staff and
workers in the constituting and signing of the contract of employment, and
monitor the execution of such contract.

Article 65

The trade union leader shall have the right to attend BOD's meeting or
matters concerning the JV's plan of development, and production and
operation, so as to reflect the opinion and request of the staff and
workers.

Article 66

The trade union of the JV shall mediate in the dispute between the JV
and its staff and workers.

Article 67

The JV shall allot an amount of money totaling not more than two (2)%
of the aggregate of all the salaries of the staff and workers of the JV as
trade union's fund, which shall be used by the trade union in accordance
with the "Managerial Rules for the Trade Union Funds" formulated by the All
China Federation by the All China Federation of Trade Union.

CHAPTER 10

DURATION, TERMINATION AND LIQUIDATION

Article 68

The duration of the joint venture shall be twenty (20) years,
commencing from the date on which the business license of the JV is issued.

Article 69

In the event both Parties A and B agree to extend the duration of the
joint venture and such extension in approved unanimously by the BOD, then an
application for the extension of the duration of the joint venture shall be
submitted to the original examination and approval authorities 180 days
prior to the expiration date of the joint venture, and proceed with
registering the new business license when such approval is given.

Article 70

In the event that parties A and B agree unanimously that the
termination of the joint venture is in the best interest of all the
parties, the terms of joint venture and thus the contract may be
terminated prior to the expiration date of the joint venture.

In the event the JV shall terminate prior to its expiration date,
decisions must be obtained at BOD's meeting with all directors present, and
submit for approval from the original examination and approval authorities.

Article 71

Any one party of parties A and B may terminate the JV in accordance
with laws in the event that the following occur:

1) The conditions and consequences of force majeure are so severe
to the extent that the JV is unable to continue to operate.

2) The cumulative losses of the JV is so severe to the extent that
the JV is unable to continue to operate.

3) Should the JV be unable to continue its operations due to the
fact that any one party fails to fulfill its obligation
prescribed by the Contract, or these Articles of Associations.

4) Should the JV cannot achieve the purpose of operation stated
in the Contract or these Articles of Associations due to the fact
that any one party seriously violates the terms of the Contract
or these Articles of Association.

Article 72

Upon the expiry or early termination of the joint venture, the BOD
shall present the procedures and principles for the liquidation of the JV,
nominate candidates for a liquidation committee, and set up a liquidation
committee for liquidating the JV's assets.

Article 73

The tasks of the liquidation committee are: to conduct through check
of the property of the JV, its claim and indebtedness; to work out the
statement of assets and liabilities, and a list of assets; to formulate
a liquidation plan. All these shall be carried out upon approval of
the BOD.

Article 74

During the process of liquidation, the liquidation committee shall
represent the JV to sue and be sued.

Article 75

The liquidation expenses and remuneration to the members of the
liquidation committee shall be paid in priority from the existing
assets of the JV.

Article 76

The remaining property after the clearance of debts of the JV shall be
distributed among parties A and B rateably according to the proportion of
each party's investment in the registered capital of the JV.

Article 77

On completion of the liquidation, the JV shall submit a liquidation
report to the original examination and approval authority and go through the
formalities for nullifying its registration at the local Administrative
Bureau for Industry and Commerce, which effected the original registration
for the company, and hand in its business license, and make an announcement
to the public.

Article 78

All records and books of the JV shall be kept with Party A after the
JV's dissolution.

CHAPTER 11

RULES AND REGULATION

Article 79

The BOD shall formulate the following rules and regulation in relation
to the JV:

1) Management regulation, including the powers and functions of the
department managers, and the working rules and procedures of the
JV's departments.

2) Rules and regulations for staff and workers.

3) System of labor, and salary.

4) System of work attendance record, promotions, performance bonuses
and penalty for staff and workers.

5) Regulations related to welfare of staff and workers.

6) Financial system of the JV.

7) Liquidation procedures upon the dissolution of the JV.

8) Other necessary rules and regulation.

CHAPTER 12

SUPPLEMENTARY ARTICLES

Article 80

Any amendment to these Articles of Association shall be unanimously
agreed and decided by the BOD and submitted to the original examination and
approval authorities for approval.

Article 81

These Articles of Association are written in the Chinese language and
English language. Both versions carry the same force and effect.

Article 82

These Articles of Association and its amendment shall come into force
and effect upon the approval of examination and approval authorities in the
PRC.

Party A:
Hangzhou Dairy Complex [Chinese Characters]
Authorized representative:

Party B:
American Flavors China, Inc.
Authorized representative:
/s/

July 25, 1993

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the December
31, 1997 audited financial statements and is qualified in its entirety by such
financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 435,630
<SECURITIES> 0
<RECEIVABLES> 410,678
<ALLOWANCES> 20,546
<INVENTORY> 77,547
<CURRENT-ASSETS> 1,097,273
<PP&E> 1,692,141
<DEPRECIATION> 398,261
<TOTAL-ASSETS> 3,416,897
<CURRENT-LIABILITIES> 2,137,771
<BONDS> 0
0
1,260,500
<COMMON> 5,289
<OTHER-SE> 4,075,130
<TOTAL-LIABILITY-AND-EQUITY> 3,416,897
<SALES> 730,195
<TOTAL-REVENUES> 788,395
<CGS> 852,277
<TOTAL-COSTS> 1,233,113
<OTHER-EXPENSES> 1,873,360
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234,517
<INCOME-PRETAX> (2,078,588)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,078,588)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> 0

</TABLE>

<ARTICLE> 5
<LEGEND>
This schedule contains amended summary financial information extracted from
the June 30, 1998 unaudited financial statements and is qualified in its
entirety by such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,180,017
<SECURITIES> 0
<RECEIVABLES> 419,065
<ALLOWANCES> 28,131
<INVENTORY> 55,272
<CURRENT-ASSETS> 1,831,272
<PP&E> 1,595,163
<DEPRECIATION> 234,284
<TOTAL-ASSETS> 3,952,622
<CURRENT-LIABILITIES> 2,545,783
<BONDS> 0
0
1,260,500
<COMMON> 6,021
<OTHER-SE> 5,648,760
<TOTAL-LIABILITY-AND-EQUITY> 3,952,622
<SALES> 402,993
<TOTAL-REVENUES> 402,993
<CGS> 459,611
<TOTAL-COSTS> 617,337
<OTHER-EXPENSES> 989,095
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,079
<INCOME-PRETAX> (1,151,954)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,208,654)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> 0

</TABLE>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1998 financial statements and is qualified in its entirety by
such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 695,078
<SECURITIES> 0
<RECEIVABLES> 1,307,744
<ALLOWANCES> 688,220
<INVENTORY> 1,001,545
<CURRENT-ASSETS> 2,666,148
<PP&E> 5,886,831
<DEPRECIATION> 473,855
<TOTAL-ASSETS> 9,544,638
<CURRENT-LIABILITIES> 5,052,717
<BONDS> 0
0
1,260,500
<COMMON> 7,553
<OTHER-SE> 7,178,912
<TOTAL-LIABILITY-AND-EQUITY> 9,544,638
<SALES> 1,484,600
<TOTAL-REVENUES> 1,484,600
<CGS> 1,524,048
<TOTAL-COSTS> 1,843,043
<OTHER-EXPENSES> 1,439,977
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 225,320
<INCOME-PRETAX> (1,656,052)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,741,102)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> 0

</TABLE>

HANGZHOU MEILIJIAN DAIRY PRODUCTS CO. LTD.

REPORT ON AUDITED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
AND THE SEVEN MONTHS ENDED JULY 31, 1998

HANGZHOU MEILIJIAN DAIRY PRODUCTS CO. LTD.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants F-2

Financial Statements
Balance Sheets F-3
Statements of Operations F-4
Statements of Comprehensive Income (Loss) F-4
Statements of Investors' Equity F-5
Statements of Cash Flows F-6
Summary of Accounting Policies F-7
Notes to Financial Statements F-10

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
China Peregrine Food Corporation

We have audited the accompanying balance sheets of Hangzhou Meilijian
Dairy Products Co. Ltd. (a Chinese corporation) as of December 31, 1996 and
1997 and July 31, 1998, and the related statements of operations, investors'
equity and cash flows for the years ended December 31, 1996 and 1997 and the
seven months ended July 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Hangzhou
Meilijian Dairy Products Co. Ltd. as of December 31, 1996 and 1997 and July
31, 1998, and the results of its operations and its cash flows for each of
the years ended December 31, 1996 and 1997 and the seven months ended July
31,1998 in conformity with generally accepted accounting principles in the
United States.

BDO SEIDMAN, LLP

Los Angeles, California
December 18, 1999

HANGZHOU MEILIJIAN DAIRY PRODUCTS CO. LTD.

BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
-------------------------- July 31,
1996 1997 1998
---------- ---------- ----------

<S> <C> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents $ 230,245 $ 227,079 $ 239,686
Accounts receivable, less allowances
for doubtful accounts of $458,400,
$676,148 and $676,140 233,581 213,576 231,287
Other receivable, less allowance for
doubtful accounts of $182,268,
$183,268 and $199,584 51,592 66,836 20,866
Inventory (Note 1) 882,826 1,205,971 1,334,417
Prepaid expenses 134,163 89,985 102,080
------------------------------------------

Total current assets 1,532,407 1,803,447 1,928,336
------------------------------------------

Property, plant and equipment, net
(Notes 2 and 3) 4,861,119 4,551,915 4,386,709
Construction in progress 4,820 52,164 55,615
Other deferred items, net of amortization
of $38,611, $58,480 and $70,019 158,781 139,351 127,809
Organizational expenses, net 28,765 19,767 14,481
------------------------------------------

Total assets $6,585,892 $6,566,644 $6,512,950
==========================================

LIABILITIES AND INVESTORS' EQUITY

Current liabilities:
Bank loans (Note 3) $1,542,503 $1,304,379 $1,425,138
Related party loans (Note 4) 136,200 169,359 185,917
Accounts payable 225,825 900,288 894,461
Advances from customers 306,346 243,279 229,459
Accrued liabilities 66,872 103,687 134,394
Employee bonus and welfare fund 20,428 14,059 1,521
Dividends payable 137,732 17,106 -
------------------------------------------

Total current liabilities 2,435,906 2,752,157 2,870,890

Long-term related party loans (Note 4) 722,636 718,203 674,071
------------------------------------------

Total liabilities 3,158,542 3,470,360 3,544,961
------------------------------------------

Commitments and contingencies (Note 6)

Investors' equity:
Paid-in capital 5,100,000 5,100,000 5,100,000
Appropriated earnings 153,521 153,521 153,521
Accumulated deficits (1,087,042) (1,425,304) (1,553,564)
Translation adjustment (739,129) (731,933) (731,968)
------------------------------------------

Total investors' equity 3,427,350 3,096,284 2,967,989
------------------------------------------

Total liabilities and investors' equity $6,585,892 $6,566,644 $6,512,950
==========================================
</TABLE>

See accompanying summary of accounting policies and notes to
financial statements.

HANGZHOU MEILIJIAN DAIRY PRODUCTS CO. LTD.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Seven
Months
Years Ended December 31, Ended
------------------------ July 31,
1996 1997 1998
---- ---- --------

<S> <C> <C> <C>
Net sales $ 6,776,978 $ 6,244,687 $ 2,831,255

Cost of sales (Note 4) 5,605,702 5,212,932 2,334,225
---------------------------------------------

Gross profit 1,171,276 1,031,755 497,030

Selling expense 790,357 495,604 243,416
General and administrative expense 1,123,219 708,856 280,487
---------------------------------------------

Loss from operations (742,300) (172,705) (26,873)

Other income (expense):
Interest expense, net (288,545) (212,043) (97,776)
Other, net (56,197) 46,486 (3,611)
---------------------------------------------

Loss before income taxes (1,087,042) (338,262) (128,260)

Income tax provision (Note 5) - - -
---------------------------------------------

Net loss $(1,087,042) $ (388,262) $ (128,260)
=============================================
</TABLE>

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

<TABLE>
<CAPTION>
Seven
Months
Years Ended December 31, Ended
------------------------ July 31,
1996 1997 1998
---- ---- --------

<S> <C> <C> <C>
Net loss $(1,087,042) $ (388,262) $ (128,260)
Other comprehensive income (loss)
- foreign currency translation
adjustment 8,085 7,196 (35)
---------------------------------------------

Comprehensive loss $(1,078,957) $ (381,066) $ (128,295)
=============================================
</TABLE>

See accompanying summary of accounting policies and notes to
financial statements.

HANGZHOU MEILIJIAN DAIRY PRODUCTS CO. LTD.

STATEMENTS OF INVESTORS' EQUITY

<TABLE>
<CAPTION>
Paid-In Capital
-------------------------
Hangzhou American
United Dairy Flavor Appropriated Accumulated Translation
Co., Ltd China Earnings Profit/Deficit Adjustment Total
------------ -------- ------------ -------------- ----------- -----

<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $2,448,000 $2,652,000 $ 97,360 $ 372,614 $(745,422) $ 4,824,552

Enterprise expansion fund - - 18,720 (18,720) - -
Reserve fund - - 37,441 (37,441) - -
Employee bonus and welfare
fund - - - (37,441) - (37,441)
Dividend declared - - - (280,804) - (280,804)
Net loss - - - (1,087,042) - (1,087,042)
Translation adjustments - - - 1,792 6,293 8,085
-------------------------------------------------------------------------------------

Balance, December 31, 1996 2,448,000 2,652,000 153,521 (1,087,042) (739,129) 3,427,350

Net loss - - - (338,262) - (338,262)
Translation adjustments - - - - 7,196 7,196
-------------------------------------------------------------------------------------

Balance, December 31, 1997 2,448,000 2,652,000 153,521 (1,425,304) (731,933) 3,096,284

Net loss - - - (128,260) - (128,260)
Translation adjustments - - - - (35) (35)
-------------------------------------------------------------------------------------

Balance, July 31, 1998 $2,448,000 $2,652,000 $153,521 $(1,553,564) $(731,968) $ 2,967,989
=====================================================================================
</TABLE>

See accompanying summary of accounting policies and notes to
financial statements.

HANGZHOU MEILIJIAN DAIRY PRODUCTS CO. LTD.

STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
Seven
Months
Year Ended December 31, Ended
----------------------- July 31,
1996 1997 1998
---- ---- --------

<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,087,042) $ (338,262) $ (128,260)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 346,427 345,345 201,072
Provision for bad debts 637,965 218,632 16,176
Provision for inventory reserve - - 24,045
Loss on disposal of fixed assets 32,070 9,334 -
Increase (decrease) from changes in:
Accounts receivable (291,511) (196,454) (17,711)
Other receivable 173,649 (15,980) 29,794
Inventory 454,369 (323,145) (152,491)
Prepaids 231,921 44,179 (12,095)
Accounts payable 135,359 674,463 (5,827)
Advances from customers (11,298) (63,067) (13,820)
Accrued liabilities (327,448) 36,814 30,707
Employee bonus and welfare fund (77,241) (6,369) (12,538)
Dividends payable (207,817) (120,626) (17,106)
-----------------------------------------------

Net cash provided by (used in) operating activities 9,403 264,864 (58,054)
-----------------------------------------------

Cash flows from investing activities:
Proceeds from disposal of fixed assets 13,736 26,796 -
Purchase of equipment and machinery (82,609) (34,425) (19,023)
Additions to construction in progress - (47,344) (3,451)
-----------------------------------------------

Net cash used in investing activities (68,873) (54,973) (22,474)
-----------------------------------------------

Cash flows from financing activities:
Proceeds from related party loans - 28,727 -
Repayments of related party loans (12,770) - (27,575)
Proceeds from bank loans 5,175,342 4,186,329 1,727,115
Repayments for bank loans (5,028,960) (4,427,480) (1,606,338)
-----------------------------------------------

Net cash provided by (used in) financing activities 133,612 (212,524) 93,202
-----------------------------------------------

Effect of changes in exchange rates on cash (963) (533) (67)
-----------------------------------------------

Net increase (decrease) in cash and cash equivalents 73,179 (3,166) 12,607

Cash and cash equivalents, beginning of period 157,066 230,245 227,079
-----------------------------------------------

Cash and cash equivalents, end of period $ 230,245 $ 227,079 $ 239,686
===============================================

Supplementary information:

Cash paid during the year:
Interest $ 302,523 $ 236,828 $ 108,723
===============================================
</TABLE>

See accompanying summary of accounting policies and notes to
financial statements.

HANGZHOU MEILIJIAN DAIRY PRODUCTS CO. LTD.

SUMMARY OF ACCOUNTING POLICIES

Basis of Presentation

Hangzhou Meilijian Dairy Products Co. Ltd. (the Company) is a foreign
investment joint venture with US$5.1 million of registered capital. The
Company was established under the laws of People's Republic of China on
October 25, 1993. American Flavor China, Inc. (AFC), a U.S. Delaware
company, has a 52% interest in the Company and Hangzhou United Dairy Company
(HDC) has a 48% interest in the Company. The Company manufactures and
distributes dairy products and juice based ultra high temperature (UHT)
products to distributors, retailers and residents in the City of Hangzhou.

Basis of Accounting

The financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (U.S. GAAP).
and are presented in U.S. dollars.

Revenue Recognition

The Company recognizes revenue when the risk of loss for the product
passes to the customer, which is generally when goods are shipped.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

Inventory Valuation

Inventory is stated at the lower of cost or market. Costs are
determined on a weighted average basis

Foreign Currency Translation and Transactions

The financial position and results of operations of the Company are
determined using local currency as the functional currency. Assets and
liabilities are translated at the prevailing exchange rate in effect at the
end of each reporting period. Contributed capital accounts are translated
using the historical rate of exchange at the time of capital contribution.
Income statement accounts are translated at the average rate of exchange
during the reporting period. Translation adjustments arising from the use
of different exchange rates from period to period are included in the
cumulative translation adjustment account in investors' equity. Gains and
losses resulting from foreign currency transactions are included in other
income (expense).

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is
computed primarily using the straight-line method over the estimated useful
lives of the assets as follows :

<TABLE>
<CAPTION>
Estimated Useful Life
(in years)
---------------------

<S> <C>
Plant and building 20
Machinery and equipment 10
Office equipment 5
Vehicles 5
</TABLE>

Maintenance, repairs and minor renewals are charged directly to
expenses as incurred. Additions and betterment to property and equipment are
capitalized. When assets are disposed of, the related cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in the statement of operations.

Value Added Tax

The Company is subject to value added tax (VAT) imposed by the Chinese
government on the Company's domestic sales. The output VAT is 17% for sale
of sweet milk, milk powder and other products and 13% for sale of fresh milk
and UHT products. The input VAT is paid when the Company purchases raw
materials. The input VAT can be offset against output VAT and the VAT
payable balance on the Balance Sheet is the net VAT and is included in
accrued liabilities.

Construction in Progress

Construction in progress is stated at cost. All direct construction
costs are capitalized as long term assets. No interest has been
capitalized.

Other Deferred Items

Other deferred items are composed of trademarks and costs to upgrade
utility capacity, such as telephone, electricity and water supply. All
these costs are amortized over a period of ten years in accordance with
Chinese government regulation.

Organizational Expenses

Organizational expenses are capitalized and amortized over a period of
five years from the date of commencement of business.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of financial statements and the reported
amounts of revenue and expenses during the reporting period. Among the more
significant estimates included in these financial statements are the
estimated allowance for doubtful accounts receivable and the deferred income
tax asset allowance. Actual results could differ from those estimates.

Accounts Receivable and Concentration of Credit Risk

The Company's main businesses are manufacturing and distribution.
Sales are made for cash or on credit. The Company reviews its accounts
receivable on a regular basis to determine if any allowance for bad debts is
necessary at the end each reporting period. The Company maintains its cash
accounts in high quality financial institutions.

Fair Value of Financial Instruments

The carrying amount of cash, trade accounts receivable, notes
receivable, trade accounts payable and accrued payable are reasonable
estimates of their fair value because of the short maturity of these items.
The carrying amounts of the Company's credit facilities approximate fair
value because the interest rates on these instruments are subject to change
with market interest rates.

Income Taxes

The Company accounts for income taxes using the liability method,
which requires an entity to recognize deferred tax liabilities and assets.
Deferred income taxes are recognized based on the differences between the
tax bases of assets and liabilities and their reported amounts in the
financial statements which will result in taxable or deductible amounts in
future years. Further, the effects of enacted tax laws or rate changes are
included as part of deferred tax expenses or benefits in the period that
covers the enactment date. A valuation allowance is recognized if it is
more likely than not that some portion, or all of, a deferred tax asset will
not be realized.

Appropriated Earnings

In light of Chinese law, the Company must appropriate its after tax
profit generated through operations before profit distribution at certain
percentage, which should be determined by the Board of Directors of the
Company. Three types of funds need to be appropriated: enterprise
expansion fund, reserve fund, and employee bonus and welfare fund. The
reserve fund and enterprise expansion fund, which are reported as
appropriated earnings, are non-distributable in nature but can be used to
offset prior year's losses or converted into paid-in capital.

According to the Chinese government regulations, the employee welfare
fund can be used only for the collective benefit of the Company's employees
such as the construction of dormitories, cafeteria and other employees
welfare facilities. This fund is reported as part of liabilities of the
Company. Under U.S. GAAP, the appropriations to this fund are charged to
general and administrative expenses as employee fringe benefit.

New Accounting Standards Not Adopted Yet

In February 1998, Statement of Financial Accounting Standards No. 132,
"Employer's Disclosures about Pensions and Other Postretirement Benefits"
(SFAS No. 132) amended the disclosure requirements for pensions and other
postretirement benefits. The Company does not expect the adoption to have
significant change on the Company's financial statement disclosures.

In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 requires
companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999.

Historically, the Company has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes. Accordingly,
the Company does not expect adoption of the new standard on January 1, 2000
to affect its financial statements.

The Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-5 "Reporting on the Costs of Start-Up Activities" which
will be effective for financial statements for fiscal years after December
15, 1998 and requires that costs of start-up activities, including
organization costs, be expensed as incurred. In accordance with SOP 98-5,
the Company expects to write off organizational expenses in 1999.

HANGZHOU MEILIJIAN DAIRY PRODUCTS CO. LTD.

NOTES TO FINANCIAL STATEMENTS

NOTE 1-INVENTORY

Inventory consist of:

<TABLE>
<CAPTION>
December 31,
------------------- July 31,
1996 1997 1998
---- ---- --------

<S> <C> <C> <C>
Raw materials $503,168 $ 641,718 $ 538,360
Finished goods 379,658 564,253 820,101
Allowance for spoilage - - (24,044)
----------------------------------------

Total $882,826 $1,205,971 $1,334,417
========================================
</TABLE>

NOTE 2-PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of:

<TABLE>
<CAPTION>
December 31,
------------------------- July 31,
1996 1997 1998
---- ---- --------

<S> <C> <C> <C>
Plant and buildings $1,233,413 $1,229,552 $1,229,537
Machinery 3,914,697 3,898,212 3,898,165
Office equipment 117,410 121,803 121,801
Vehicles 228,472 237,444 256,531
----------------------------------------
5,493,992 5,487,011 5,506,034
Accumulated depreciation and amortization (632,873) (935,096) (1,119,325)
----------------------------------------
Property, plant and equipment, net $4,861,119 $4,551,915 $4,386,709
----------------------------------------
</TABLE>

NOTE 3-BANK LOANS

The balances of the short-term bank loans consists of:

<TABLE>
<CAPTION>
December 31,
------------------------- July 31,
1996 1997 1998
---- ---- --------

<S> <C> <C> <C>
Bank of China $1,060,471 $ 942,051 $1,062,814
Construction Bank of China - 120,776 181,162
Industry and Commerce Bank of China 120,508 241,552 181,162
CITIC Bank 241,016 - -
Huaxia Bank 120,508 - -
----------------------------------------
Total $1,542,503 $1,304,379 $1,425,138
----------------------------------------
</TABLE>

The Company obtained revolving lines of credit from major state-owed
commercial banks in China for working capital purpose. Aggregately, these
lines of credit allowed the Company to borrow money up to RMB13 million
(approximately US$1,570,000 as of July 31, 1998). These lines of credit
have terms ranging from three months to seven months with a floating
interest rate at July 31, 1998 ranging from 7.5% to 10% per annum subject to
change based on notice from the central bank, People's Bank of China. These
lines of credit must be paid off when due to avoid penalty interest.

All these lines of credit were guaranteed by Hangzhou AOYIPOLLEN
Pharmaceutical Co. Ltd., a related party to Hangzhou United Dairy Company.
Starting September 1997, all the lines of credits from Bank of China were
collateralized by substantially all the fixed assets of the Company, in
addition to the guarantee provided by Hangzhou AOYIPOLLEN Pharmaceutical
Co., Ltd.

NOTE 4-RELATED PARTY TRANSACTIONS

The balances of related party loans consisted of:

<TABLE>
<CAPTION>
December 31,
------------------- July 31,
1996 1997 1998
---- ---- --------

<S> <C> <C> <C>
Shareholder loans-AFC $ 179,719 $ 198,687 $ 188,207
Shareholder loans-HDC 172,618 187,290 176,241
Fixed asset loan from HDC 458,295 459,314 459,308
Trademark obligation to HDC 48,204 42,272 36,232
---------------------------------------
858,836 887,562 859,988
Less: current portion
Shareholder loans - AFC (86,174) (104,933) (110,368)
Shareholder loans - HDC (50,026) (64,426) (75,549)
---------------------------------------
(136,200) (169,359) (185,917)
---------------------------------------

Long-term related party loans $ 722,636 $ 718,203 $ 674,071
=======================================
</TABLE>

In the course of setting up the Company, HDC contributed fixed assets
with a value in excess of its required capital contribution amount. Based
on an agreement signed by the Chinese and American investors, the excess
portion was treated as a fixed asset loan from HDC at an interest 8% per
annum.

On January 1, 1994, HDC provided the Company with the use of its
trademark, which was valued at RMB500,000 (approximately US$60,245). The
Company recorded this trademark value as a part of deferred assets and a
shareholder loan. The Company recorded amortization of RMB50,000
(approximately US$6,025) per year for trademark and paid cash of RMB50,000
to HDC per year against the shareholder loan.

The Company purchased from ranches owned by Hangzhou United Dairy
Company raw milk of US$3,180,267, US$2,933,221 and US$1,480,528 for the
period ended December 31, 1996 and 1997 and seven months ended July 31,
1998.

NOTE 5-INCOME TAXES

The Company is subject to Chinese Foreign Investment Enterprise Income
Tax of 33%, of which 30% is attributed to the central government and 3% to
the provincial government. Under the relevant income tax law, a foreign
investment enterprise with an operating period of more than ten years is
entitled to a 100% income tax credit for the initial two years a and 50%
income tax credit for the following three years starting in the first year
of taxable income. In accordance with China's corporate income tax
regulations, the Company had approximately US$657,000 net operation loss
carryforward available. Net operating losses are carried forward for five
years. The following tables reflect income tax provision:

<TABLE>
<CAPTION>
Seven
Months
Year Ended December 31, Ended
----------------------- July 31,
1996 1997 1998
---- ---- --------

<S> <C> <C> <C>
Income tax provision $ - $ - $ -
--------------------------------

$ - $ - $ -
================================
</TABLE>

The components of the net deferred tax asset and liability are as
follows:

<TABLE>
<CAPTION>
December 31,
----------------------- July 31,
1996 1997 1998
---- ---- --------

<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 211,421 $ 71,764 $ 5,338
Inventory reserves - - 7,935
Net operating losses carryforwards 145,453 114,835 97,538
Valuation allowance (356,874) (186,599) (110,811)

$ - $ - $ -
</TABLE>

Management is unable to determine whether the realization of the net
deferred tax asset is more likely than not, therefore, a 100% valuation
allowance has been established.

The difference between the effective tax rate and that computed under
the federal statutory rate is as follows:

<TABLE>
<CAPTION>
Seven Months
Year Ended December 31, Ended
----------------------- July 31,
1996 1997 1998
---- ---- ------------

<S> <C> <C> <C>
Statutory income tax rate $ 33.0 % $ 33.0 % $ 33.0 %
Income tax incentive program (16.5)% (16.5)% (16.5)%
Utilization of net operating loss (16.5)% (16.5)% (16.5)%
------------------------------------
$ - % $ - % $ - %
------------------------------------
</TABLE>

NOTE 6-COMMITMENTS AND CONTINGENCIES

Commitments

The Company has leased the plant land from the City of Hangzhou under
operating leases expiring at December 31, 2013.

Future minimum payments required under land leases that have an
initial or a remaining lease term in excess of one year at July 31, 1998 are
as follows:

<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ ------

<C> <C>
1999 $ 57,197
2000 40,374
2001 40,374
2002 40,374
2003 40,374
Thereafter 403,741
--------

$622,434
========
</TABLE>

The Company paid $8,000 as a land usage fee and $31,885 as a land
development fee in 1996, 1997 and 1998.

The Company provided cross guarantees for the outstanding bank loans of
approximately US$1,330,000, US$1,450,000 and US$1,580,000 borrowed by
Hangzhou AOYIPOLLEN Pharmaceutical Co. Ltd. as of December 31, 1996, 1997 and
1998.

Hangzhou AOYIPOLLEN Pharmaceutical Co. Ltd's financial information for
the years ended December 31, 1996, 1997 and 1998 is as follows:

<TABLE>
<CAPTION>
December 31,
------------------------------------
1996 1997 1998
---- ---- ----

<S> <C> <C> <C>
Total assets $7,108,274 $7,460,139 $7,465,889
Total liabilities 3,477,424 3,562,973 3,441,873
Total revenue 4,800,739 4,768,897 5,259,179
Net income 278,725 302,406 212,465
Total bank loans guaranteed
by Meilijain 1,327,028 1,449,310 1,570,200
</TABLE>

NOTE 7-SUBSEQUENT EVENT

Subsequent to July 31, 1998, China Peregrine Food Corporation (CPFC)
acquired the equity interest of and shareholder loans from American Flavor
China by executing a purchase agreement between CPFC and AFC with the
approval of Hangzhou United Dairy Company.