Edgar Filing: BRAVO FOODS INTERNATIONAL CORP

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

FORM 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Report for Period January 1, 2004 to December 31, 2004

BRAVO! FOODS INTERNATIONAL CORP.
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(Name of Small Business Issuer in its Amended Charter)

Commission File Number 0-20549

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) 625-1411
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Securities registered under Section 12(b) of the Exchange Act:
None

Securities registered under Section 12(g) of the Exchange Act
Common Stock, $.001 par value
(Title of class)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.[ ]

The issuer's revenues for its most recent fiscal year were $3,344,699.

The aggregate market value of the voting stock held by non-affiliates of
the issuer on March 3, 2005, based upon the $0.14 per share average bid and
asked prices of such stock on that date, was $7,338,725, based upon
52,419,468 shares held by non-affiliates of the issuer. The total number
of issuer's shares of common stock outstanding held by affiliates and non-
affiliates as of March 4, 2005 was 59,917,797.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

DOCUMENTS INCORPORATED BY REFERENCE: See Exhibits

FORWARD-LOOKING STATEMENTS

Statements that are not historical facts, including statements about
our prospects and strategies and our expectations about growth contained in
this report are "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking
statements represent our present expectations or beliefs concerning future
events. We caution that such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
uncertainty as to our future profitability; the uncertainty as to whether
our new business model can be implemented successfully; the accuracy of our
performance projections; and our ability to obtain financing on acceptable
terms to finance our operations until profitability.

PART I

ITEM 1 - DESCRIPTION OF BUSINESS

The Company

Bravo! Foods International Corp. is a Delaware corporation, which was
formed on April 26, 1996. We formerly owned the majority interest in two
Sino-American joint ventures in China, known as Green Food Peregrine
Children's Food Co. Ltd. and Hangzhou Meilijian Dairy Products Co., Ltd.
These two joint ventures processed milk products for local consumption in
the areas of Shanghai and Hangzhou, China, respectively. We closed Green
Food Peregrine in December 1999 and sold our interest in Hangzhou Meilijian
Dairy in December 2000.

In December 1999, we obtained Chinese government approval for the
registration of a new wholly owned subsidiary in the Wai Gao Qiao "free
trade zone" in Shanghai, China. We formed this import-export company to
import, export and distribute food products on a wholesale level in China.
In addition, China Premium (Shanghai) was our legal presence in China with
respect to contractual arrangements for

the development, marketing and distribution of branded food products. We
ceased all activities of this Chinese subsidiary in April 2004, owing to
low sales volume and insufficient financial or logistic resources to market
our products profitably in mainland China.

In December 1999, we formed Bravo! Foods, Inc., a wholly owned
Delaware subsidiary, which we utilized to advance the promotion and
distribution of branded Looney Tunes(TM) products in the United States,
through production agreements with local dairy processors. At the end of
2001, we assumed this business, and our U.S. subsidiary ceased functioning
as an operating company at that time.

On February 1, 2000, we changed our name from China Peregrine Food
Corporation to China Premium Food Corporation, and on March 16, 2001 we
changed our name to Bravo! Foods International Corp.

In January 2005, we formed Bravo! Brands (UK) Ltd., a United Kingdom
registered company that is wholly owned by Bravo! Brands International Ltd.
We will utilize Bravo! Brands (UK) Ltd. to advance the production,
promotion and distribution of licensed branded products in the United
Kingdom through production and sales agent agreements with local entities.

In March 2005, we formed Bravo! Brands International Ltd., a Delaware
subsidiary that will hold license rights for our branded products on an
international basis. We will utilize Bravo! Brands International Ltd. to
hold and exploit certain license rights for branded products developed by
us in international markets through local second-tier subsidiaries such as
Bravo! Brands (UK) Ltd.

The Business

Our business involves the development and marketing of our own
Slammers(R) trademarked brand, the obtaining of license rights from third
party holders of intellectual property rights to other trademarked brands,
logos and characters and the granting of production and marketing rights to
processor dairies to produce branded flavored milk utilizing our
intellectual property. In the United States, we generate revenue from the
unit sales of finished branded flavored milks to retail consumer outlets.
Internationally, we generate revenue primarily through the sale of "kits"
to these processors.

"Kits" sold to processors consist of flavor ingredients that are
developed and refined by us and the grant of production rights to
processors to produce the flavored milks. The consideration paid to us
under these production contracts consists of fees charged for our grant of
production rights for the branded flavored milks plus a charge for flavor
ingredients. The fees charged by us for the production rights are set to
match royalty fees for our intellectual property licenses.

All of our licensing agreements recognize that we will use third
party production agreements for the processing of flavored milk products,
and that the milk products will be produced and may be sold directly by
those processors. Our responsibilities under our third party production
agreements are to design and provide approved packaging artwork, to help
determine the best tasting flavors for the particular market and to assist
in the administration, promotion and expansion of the respective branded
milk programs. Ingredients for the flavored milks are formulated to our
specifications and supplied on an exclusive basis by either Givaudan Roure
or Mastertaste, both of which are flavor development and production
companies. In the United States, we assume the responsibility for sales
and marketing of our flavored milks produced by Jasper Products LLC.

Third Party Intellectual Property Licenses
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Warner Bros. (Looney Tunes(TM))

In January 1999, we commenced a licensing agreement with Warner Bros.
Consumer Products, permitting us to produce and distribute a line of high
quality, flavored milks branded with the Warner Bros. Looney Tunes(TM)
logos, characters and names in the Shanghai and Hangzhou greater
metropolitan areas. On July 27, 2000, we executed a licensing agreement
with Warner Bros. to use Looney Tunes(TM) characters and names on milk
products in the United States. The term of these licenses expired December
31, 2003.

On November 7, 2001, we executed a licensing agreement with Warner
Bros. to use Looney Tunes(TM) characters and names on milk products in
Mexico. This licensing agreement granted us the right to use the Warner
Bros. cartoon characters on milk products for sale in specified retail
outlets throughout Mexico. The initial term of the agreement was for 3
years and expired May 31, 2004.

On May 28, 2002, we executed a licensing agreement with Warner Bros.
to use Looney Tunes(TM) characters and names on milk products in Canada.
The initial term of the agreement was for 25 months and expired March 31,
2004.

The history of all of our Warner Bros. licenses, as a function of
sales of the flavored milks, did not support the guaranteed royalty
structure required by Warner Bros. for its licenses. As a result, we
developed our own Slammers(R) brand in 2003 and, in the fourth quarter of
that year, we decided not to seek the renewal for the China license and not
accept the offer of Warner Bros. to renew the U.S. license. In addition,
we decided not to renew our licenses with Warner Bros. for Canada and
Mexico. In 2004, we executed third party licenses with Marvel Comics,
Masterfoods and Moon Pie.

Marvel Enterprises, Inc. (Super Heroes(R) and Marvel Heroes(R))

In January 2004, we commenced a license agreement with Marvel
Enterprises, Inc. Under the terms of the license agreement, we have the
right to use certain Marvel Super Heroes for the packaging and promotion of
our flavored milk products in the United States (including its territories)
and nine Middle East countries for a one-year (renewable) term. We agreed
to a royalty rate of 11% on the amount invoiced to dairy processors for
"kits" and 4% of net wholesale sales in the United States.

On February 4, 2005, we entered into a two-year license agreement for
the utilization of Marvel Heroes characters on our flavored milks in the
United Kingdom and Ireland. We agreed to a royalty rate of 4% of net
wholesale sales in the territory against the prepayment of a guaranteed
minimum royalty amount. We have adopted the unit sales model currently
used in the United States. We have outsourced the infrastructure required
for the production, promotion, marketing, distribution and sale of our
products through a production agreement with Waterfront Corporation in the
UK and through an exclusive sales agency agreement with Drinks Brokers,
Ltd. a UK registered company responsible for the launch and growth of
several major beverage brands in the licensed territory.

We currently are negotiating with Marvel to conclude a new one year
license for the United States, Mexico and Canada and a two year license for
the Middle East.

Chattanooga Bakery, Inc.( Moon Pie(R))

In October 2003, we commenced a two-year license agreement with MD
Enterprises, Inc. on behalf of Chattanooga Bakery. Under the terms of the
license agreement, we have the exclusive right to

manufacture, distribute, market and sell Moon Pie(R) flavored milk products
in the United States. We agreed to a variable royalty rate of 3% to 2% of
net wholesale sales, depending upon volume.

Masterfoods USA (Starburst(R), Milky Way(R), 3 Musketeers(R))

On September 21, 2004, we entered into a licensing agreement with
Masterfoods USA, a division of Mars, Incorporated, for the use of
Masterfood's Milky Way(R), Starburst(R) and 3 Musketeers(R) trademarks in
connection with the manufacture, marketing and sale of single serve
flavored milk drinks in the United States, its Possessions and Territories,
and US Military installations worldwide. The license limits the
relationship of the parties to separate independent entities. The initial
term of the license agreement expires December 31, 2007. We have agreed to
pay a royalty based upon the total net sales value of the licensed products
sold and advance payments of certain agreed upon guaranteed royalties.
Ownership of the licensed marks and the specific milk flavors to be
utilized with the marks remains with Masterfoods. We have a right of first
refusal for other milk beverage products utilizing the Masterfoods marks
within the licensed territory.

In House Intellectual Property
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In addition to our third-party licenses, we have developed and sell
flavored milks bearing trademarks developed by us, including "Slammers(R)"
"Pro Slammers(TM)" and "Slim Slammers(R)".

Production Contracts/Administration
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Prior to 2000, our business primarily involved the production and
distribution of milk in China. In the third quarter of 2000, we began to
refocus our business away from the production - distribution aspect of the
value chain by implementing a business model that involved the branding,
marketing, packaging design and promotion of branded flavored fresh milk in
the United States. During the middle of 2001, this refocused business was
implemented in China, in December 2001 in Mexico and in the third quarter
of 2002 in Canada. Currently, operations in the United States, Mexico and
Canada are run directly by Bravo! Foods International Corp. Our
international business, which had been facilitated by AsheTrade, our
international agent, will now be handled by the company's subsidiary formed
in 2005, Bravo! Brands International Ltd. Mr. Ibrahim Ashemimry, the
principal of AsheTrade, has joined Bravo! Brands International Ltd. as an
employee and officer.

United States

The initial dairy processors with which we had production contracts
were members of Quality Chekd Dairies, Inc., a national cooperative with
over 40 member dairies that process fresh milk on a regional basis. This
business, while viable, proved to have limited sales expansion capabilities
in the US owing to the inherent regional distribution limitations of a
"fresh" milk product with a short shelf life.

The advent of extended shelf life (ESL) and aseptic long life milk
presented us with the opportunity to increase dramatically sales on a
national basis. In the third quarter of 2001 and the first quarter of
2002, we entered into production contracts with Shamrock Farms, located in
Phoenix, Arizona and Jasper Products, of Joplin, Missouri, and began to
market branded ESL and aseptic flavored milks to large national chain
accounts. Since 2003, we have our ESL and aseptic milks produced by Jasper
Products

Middle East

In December 2003, we entered into a third party production agreement
with Saudia Dairy & Foodstuff Company, (SADAFCO) one of the largest Middle
East dairy processors, headquartered in Jeddah, Saudi Arabia. SADAFCO
processes our Slammers (R) branded flavored milks, including the Marvel
line, for distribution in nine Middle East countries. Our international
business is facilitated by AsheTrade, our international agent, with offices
in Miami, Florida and Jeddah, Saudi Arabia.

Mexico

In December 2001, we commenced a contractual relationship with Neolac
S.A, a national dairy processor located in central Mexico. We sell kits to
Neolac, including production rights for our branded flavored milk for all
of Mexico. Our responsibilities are to design and provide approved
packaging artwork, to help determine the best tasting flavors for the
particular market and to assist in the administration, promotion and
expansion of the branded flavored milk program. Ingredients for the
flavored milks are formulated to our specifications and supplied on an
exclusive basis by Mastertaste. We do not have any responsibility for or
participation in sales or distribution in Mexico.

Canada

In April 2002, we commenced a contractual relationship with Farmers
Dairy, a dairy processor located in Halifax, Nova Scotia, Canada. We sold
kits to Farmers Dairy, including production rights for our branded flavored
milk products. In early 2004, the relationship with this processor
terminated. Currently, we are negotiating with a large dairy processor for
a third party production contract, that will be administered by a newly
formed subsidiary to be known as Bravo! Brands (Canada) Ltd.

Products
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Commencing in September of 2000, we implemented the "kit" sales
program with third party dairy processors in the United States, for the
production and sale of fresh branded flavored milk in single serve plastic
bottles. This product, as with all of our U.S. products up to September
2000, had a limited shelf life of, generally, 21 days.

In early 2002, we developed branded extended shelf life and aseptic,
bacteria free, long life flavored milk products. The extended shelf life
product was sold in 11.5oz single serve plastic bottles and had to be
refrigerated. The shelf life of this product is 90 days. Our aseptic
product does not require refrigeration and has a shelf life of 8 months.
This product was packaged in an 11.2oz Tetra Pak Prisma(TM) sterile paper
container. Both of these products were introduced to the public in the
second and third quarters of 2002.

Commencing in May 2002, we developed a new branded fortified flavored
milk product under the "Slammers(R) Fortified Reduced Fat Milk" brand name.
We use our Slammers(R) brand in conjunction with our licensed third party
trademarks. Slammers(R) is made from 2 percent fat milk and is fortified
with 11 essential vitamins. The introduction of this new product and the
phase out of our "regular" branded milks occurred in the fourth quarter of
2002. Our Slammers(R) flavored milks are sold in the United States in
single serve extended shelf life plastic bottles, as well as the long life
aseptic Tetra Pak Prisma(TM) package. Our Slammers(R) flavored milks are
sold in Mexico and have been sold in Canada in single serve extended shelf
life plastic bottles.

In October 2002, Parmalat introduced Looney Tunes(TM) brand fortified
aseptic milk, packaged in an 8oz Tetra-Brik(TM) format under our Slammers
Fortified Reduced Fat Milk(R) logo pursuant to a production

agreement that we executed in June 2002. The 8oz Tetra Brik Slammers(R)
does not require refrigeration and has a shelf life of 6 months.
Currently, this product is no longer available.

In November 2002, we introduced Slim Slammers(R) Fortified Milk, a
low calorie version of our Slammers (R)Fortified Reduced Fat Milk. Slim
Slammers(R) Fortified Milk has no added sugar and is sweetened with
sucralose, a natural sweetener made from sugar. Slim Slammers(R) Fortified
Milk is made from 1 percent fat milk, is fortified with 11 essential
vitamins and is available in the same flavors as our Slammers(R) brand. We
reintroduced this product in the United States with a new package and
formulation during 2004.

In 2004, we announced our product development and brand strategy for
seven new, separate and distinct single serve product lines. Ultimate
Slammers(TM), Slim Slammers(R), Moon Pie Slammers(R), Pro-Slammers(TM),
Starburst(R) Slammers(R), 3 Musketeers(R) Slammers(R), and Milky Way(R)
Slammers(R) are all fortified and positioned to appeal directly to profiled
demographic segments, including teens and pre teens for Ultimate
Slammers(TM), Starburst(R) Slammers(R) and , Milky Way(R) Slammers(R),
teens and sports enthusiasts for Pro-Slammers(TM), young to old for Moon
Pie(R) Slammers(R) and health conscious adults for Slim Slammers(R) and3
Musketeers(R) Slammers(R).

We launched four brands in 2004, beginning with Ultimate Slammers(R)
in April and achieved national distribution of Ultimate Slammers(R) through
both retail grocers and convenience stores by mid- summer. Roughly 10,000
retail supermarket stores carried this brand nationwide in 2004. This was
followed by our June launch of Slim Slammers(R) and Moon Pie (R)Slammers(R)
and the July release of our Pro-Slammers(TM) line.

Industry Trends
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The flavored milk industry has grown from approximately $750 million
in 1995 to $2.5 billion in 2004. The single serve portion of this category
is difficult to measure, since approximately 2/3 of the sales in the single
serve milk industry are sold in immediate consumption channels or other
channels that do not report scan-data. For example, Wal-Mart, has become
the largest retailer in the USA for milk, selling an estimated 15% of total
milk sales. Wal-Mart does not report sales for the industry data resources
embodied in A.C. Neilson or IRI analyses. Similarly, most convenience
stores and "up-and-down-the-street" retailers in the immediate consumption
sales channels do not report either, and neither do vending and schools.

We have analyzed the industry using reports available from milk and
beverage industry sources. These include the total, segmented and rate of
growth sales that are reported, the immediate consumption sales rates for
all consumables compared to retail grocery buying patterns and opinions of
experts in the milk industry as to the relative size of reported versus
non-reported sales. Based upon these reports and analysis, we believe the
current size of the single serve flavored milk industry (packaging 16 oz.
or smaller) is approximately $1.5 billion domestically. The industry grew
at annual rates of between 5 and 15 percent during the last five years but
was virtually flat in the last two years while it digested the remarkable
10-year growth rates. We believe that this space is positioned for growth
now and will continue to be in the immediate consumption channels such as
vending, convenience stores and food service market segments.

Market Analysis
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The flavored milk business is a relatively new category in the dairy
field. The flavored "refreshment" segment is both the fastest growing and
most profitable category in the industry and is

receiving the most attention in the industry today. Pioneered by Nestle
with the NesQuik line and Dean Foods with its Chug brand, this "good for
you" segment is in demand both in the U.S. and internationally.

The International Dairy Foods Association reports that, although
flavored milk currently amounts to only 5 to 6 percent of milk sales, it
represents over 59% of the growth in milk sales. With the total milk
category exceeding $9.3 billion in 2004, the flavored milk segment was
approximately $2.5 billion in 2004, with single serve flavored milk growing
to approximately $1.5 billion for the same period. Statistically, as the
flavored segment grows, the entire category grows as well. In the past ten
years, selling more flavored milks has resulted in more sales of white milk
as well.

In addition, the International Dairy Foods Association and Dairy
Management Inc. have reported on studies suggesting that dairy products may
help in weight loss efforts when coupled with a reduced calorie diet, based
on data associating adequate calcium intake with lower body weight and
reduced body fat. We continue to develop a niche in the single serve
flavored milk business by utilizing strong, national branding as part of
the promotion of our Slammers(R), Pro Slammers(TM) and Slim Slammers(R)
products. This niche has as its focus the increased demand for single
serve, healthy and refreshing drinks.

Market Segment Strategy
-----------------------

The Bravo! product model addresses a very clear and concise target
market. We know from experience that the largest retailers of milk
products are demanding new and more diverse refreshment drinks,
specifically in the dairy area, in response to consumer interest and
demand. To that end, we have and will continue to differentiate our
products from those of our competitors through innovative product
formulations and packaging designs, such as those implemented in our
Slammers(R) and Pro Slammers(TM) fortified milk product lines and our Slim
Slammers(R) low calorie, no sugar added products.

Our Slammers(R) milk products have had promising results penetrating
this arena as consumers continue to look for healthy alternatives to
carbonated beverages. The positioning of our products as a healthy, fun
and great tasting alternative refreshment drink at competitive prices to
more traditional beverages creates value for the producer and the retailer
alike. This "profit orientation" for the trade puts old-fashioned milk
products in a whole new light. The consumer is happy, the retailer is
happy and the producer is able to take advantage of the value added by the
brand and the resulting overall increase in milk sales.

We currently are implementing a very important "first-to-market"
strategy that we feel will dramatically reposition our brands and company.
Until now, all single served flavored milk in plastic bottles required
refrigeration for storage, distribution, and shelf placement. Our
strategic partner, Jasper Products, became America's first processor with
FDA approval to offer a "shelf stable" re-sealable plastic bottle for
ambient milk products that do not require refrigeration.

The tactical advantage of distributing our milk products at ambient
temperatures enables us to side-step a major entry barrier in our immediate
consumption strategy. Most beverages are distributed ambient either
through beverage distribution channels or warehouse "candy and tobacco"
distributors. Refrigerated milk was relegated to dairy direct-store-
delivery systems that are controlled by either regional dairy processors or
larger national dairy holding companies such as Dean Foods or H.B. Hood. We
avoid the roadblock of being reliant upon our competition for chilled
distribution since we are now in the unique position to use the more
traditional distribution network that accommodates non-refrigerated
beverages. We currently are converting all of our products into ambient
"shelf stable" re-sealable plastic bottles.

We have been and continue to pursue a strategic goal of placing
Slammers(R) milks in elementary, middle and high schools through ala carte
lunch programs and vending facilities in school cafeterias and

we are promoting our Slim Slammers(R) milks as low calorie, non-sugar added
alternatives to traditional soft drinks. Penetration of this market
segment has been limited by logistic and economic concerns of school
administrators in the push to remove traditional carbonated soft drinks
from schools in favor of milk and milk based products.

Competition
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Nestle pioneered the single serve plastic re-sealable bottle which
has become the standard for this industry, and they currently enjoy a
dominant market share. Dean Foods owns a number of regional single serve
brands that are sold in this format, and they also have an exclusive
license to produce Hershey brand flavored milk nationwide. Our analysis
indicates that the Nestle's Nesquik brand accounts for approximately 30-35
percent of the U.S. single serve milk category, while Hershey's market
share is approximately half that, at around 15%. The other competition
comes from private label and regional dairy brands. Our Slammers(R) milks
are the only other single serve brand distributed nationally in America in
plastic re-sealable containers.

Our resources for promotions have been limited, and we run
significantly less promotional activities in comparison to our competitors.
Where we are in direct competition with Nestle and Hershey, however, we
have been able to maintain competitive sales levels.

Employees

We have twelve full time employees located at our North Palm Beach
corporate offices. China Premium Food Corp (Shanghai) Co. Ltd. ceased
operations and does not maintain any employees in China.

ITEM 2 - DESCRIPTION OF PROPERTY

We currently do not own any real property. As of February 1, 1999,
we moved corporate offices from West Palm Beach to 11300 US Highway 1,
Suite 202, North Palm Beach, Florida, pursuant to a lease with HCF Realty,
Inc., having an initial term of five years. The current aggregate monthly
rent amounts to approximately $7,468, which includes an expansion of our
office space from 2,485 square feet to 3,490 square feet. The term of this
lease has been extended for six years to October 30, 2010.

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

ITEM 3. - LEGAL PROCEEDINGS

There currently are no claims or lawsuits against us for which a
report is required.

ITEM 4. - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None in the fourth quarter 2004

PART II

ITEM 5. - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Common stock market price
-------------------------

Of the 57,793,501 shares of common stock outstanding as of December
31, 2004, all but approximately 850,000 shares can be traded on the over-
the-counter trading on the OTC Electronic Bulletin Board, which trading
commenced October 24, 1997. Of this amount, 7,498,329 shares are held by
affiliates. The following quarterly quotations for common stock
transactions on the OTC Bulletin Board reflect inter-dealer prices, without
retail mark-up, markdown or commissions and may not represent actual
transactions.

QUARTER HIGH BID PRICE LOW BID PRICE
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2003

First Quarter .28 .20
Second Quarter .23 .09
Third Quarter .16 .09
Fourth Quarter .12 .05

2004

First Quarter .17 .06
Second Quarter .34 .14
Third Quarter .27 .13
Fourth Quarter .22 .09

Equity holders at March 3, 2005
-------------------------------

Common stock 59,917,797 shares 1,900 holders (approximate)
Series B preferred stock 107,440 shares 1 holder
Series F preferred stock 55,515 shares 3 holders
Series H preferred stock 165,500 shares 7 holders
Series I preferred stock 30,000 shares 2 holders
Series J preferred stock 200,000 shares 1 holder
Series K preferred stock 95,000 shares 1 holder

Dividends
---------

We have not paid dividends on our common stock and do not anticipate
paying dividends. Management intends to retain future earnings, if any, to
finance working capital, to expand our operations and to pursue our
acquisition strategy.

The holders of common stock are entitled to receive, pro rata, such
dividends and other distributions as and when declared by our board of
directors out of the assets and funds legally available therefor. The
availability of funds is dependent upon dividends or distribution of
profits from our

subsidiaries and may be subject to regulatory control and approval by the
appropriate government authorities on either a regional or national level.

We have accrued dividends for our convertible preferred stock in the
amount of $339,904 at December 31, 2003 and $388,632 for the period ended
December 31, 2004.

Sale of unregistered securities
-------------------------------

Quarter Ended December 31, 2004

On October 6, 2004, we converted $25,000 of our November 2003
Convertible Promissory Note into 500,000 shares of common stock pursuant to
a September 23, 2004 notice of conversion from Gamma Opportunity Capital
Partners LP, at a fixed conversion price of $0.05. The conversion did not
include accrued and unpaid interest on the converted amount. We issued the
underlying common stock upon conversion pursuant to our SB-2 registration
statement, declared effective on August 3, 2004.

On October 6, 2004, we issued 500,000 shares of our common stock to
Knightsbridge Holdings, LLC, pursuant to a consulting agreement dated
November 10, 2003. We issued the common stock pursuant to our SB-2
registration statement, declared effective on August 3, 2004. The issued
and outstanding equity reported in our Form 10QSB for the period ended
March 31, 2004 reflects these shares of common stock.

On October 13, 2004, we issued 250,000 restricted shares of our
common stock in a private placement to Arthur Blanding, at the market price
of $0.12 per share, pursuant to Section4(2) of the Securities Act of 1934.
Mr. Blanding, who solicited the purchase, is an accredited investor and has
been a director of the Company since 1999.

On October 15, 2004, we issued 750,000 shares of our common stock to
Marvel Enterprises, Inc., as partial compensation under a license agreement
dated February 1, 2004. We issued the common stock pursuant to our SB-2
registration statement, declared effective on August 3, 2004. The issued
and outstanding equity reported in our Form 10QSB for the period ended
March 31, 2004 reflects these shares of common stock.

On October 29, 2004, we entered into Subscription Agreements with
Longview Fund, LP, Alpha Capital Aktiengesellschaft, Whalehaven Funds
Limited and Stonestreet Limited Partnership for the issuance of convertible
10% notes in the aggregate amount of $550,000 and five-year "C" warrants
for the purchase of, in the aggregate, 2,200,000 shares of common stock, at
$0.15 per share, and the repricing of five-year "A" warrants, issued June
30, 2004 for the purchase of, in the aggregate, 3,200,000 shares of common
stock, from $0.25 to $0.15 per share. The notes are convertible into
shares of our common stock at $0.10 per common share. Conversions are
limited to a maximum ownership of 9.99% of the underlying common stock at
any one time. The notes are payable in twelve equal monthly installments,
commencing May 1, 2005. The installment payments consist of principal and
a "premium" of 20% of the principal paid per installment. We have the
option to defer such payment until the note's maturity date on April 30,
2006, if our common stock trades above $0.15 for the five trading days
prior to the due date of an installment payment and the underlying common
stock is registered. In connection with this transaction, we issued
additional notes, without attached warrants, in the aggregate amount of
$27,500 to Gem Funding, LLC, Bi-Coastal Consulting Corp., Stonestreet
Limited Partnership and Libra Finance, S.A upon identical terms as the
principal notes, as a finder's fee, and paid $12,500 in legal fees. The
common stock underlying all notes and warrants carry registration rights.
We issued the convertible notes and warrants to accredited investors,
pursuant to a Regulation D offering.

On December 17, 2004, we converted $50,000 of our April 2004
Convertible Promissory Note into 500,000 shares of common stock pursuant to
a December 8, 2004 notice of conversion from Longview Fund LP, at a fixed
conversion price of $0.10. The conversion did not include accrued and
unpaid interest on the converted amount. We issued the underlying common
stock upon conversion pursuant to our SB-2 registration statement, declared
effective on August 3, 2004.

On December 20, 2004, we converted $25,000 of our April 2004
Convertible Promissory Note into 265,958 shares of common stock pursuant to
a December 9, 2004 notice of conversion from Bi Coastal Consulting Corp.,
at a fixed conversion price of $0.10. The conversion included $1,595.89
accrued and unpaid interest on the converted amount. We issued the
underlying common stock upon conversion pursuant to our SB-2 registration
statement, declared effective on August 3, 2004.

On December 20, 2004, we converted $50,000 of our November 2003
Convertible Promissory Note into 1,000,000 shares of common stock pursuant
to a December 8, 2004 notice of conversion from Gamma Opportunity Capital
Partners LP, at a fixed conversion price of $0.05. The conversion did not
include accrued and unpaid interest on the converted amount. We issued the
underlying common stock upon conversion pursuant to our SB-2 registration
statement, declared effective on August 3, 2004.

On December 27, 2004, we converted 10,000 shares of Series F
Convertible Preferred Stock into 1,290,323 shares of common stock pursuant
to a December 27, 2004 notice of conversion from Austinvest Anstalt
Balzers, at a conversion price of $0.0775. The conversion did not include
accrued and unpaid dividends on the converted preferred. We issued the
preferred and the underlying common stock upon conversion to an accredited
investor, pursuant to a Regulation D offering and Rule 144.

On December 27, 2004, we converted 10,000 shares of Series F
Convertible Preferred Stock into 1,290,323 shares of common stock pursuant
to a December 27, 2004 notice of conversion from Esquire Trade & Finance
Inc., at a conversion price of $0.0775. The conversion did not include
accrued and unpaid dividends on the converted preferred. We issued the
preferred and the underlying common stock upon conversion to an accredited
investor, pursuant to a Regulation D offering and Rule 144.

On December 29, 2004, we closed a funding transaction with Momona
Capital Corp. and Ellis International Ltd. for the issuance of convertible
10% notes in the aggregate amount of $200,000 and five-year "C" warrants
for the purchase of, in the aggregate, 800,000 shares of common stock, at
$0.15 per share. The notes are convertible into shares of our common stock
at $0.10 per common share. Conversions are limited to a maximum ownership
of 9.99% of the underlying common stock at any one time. The notes are
payable in twelve equal monthly installments, commencing May 1, 2005. The
installment payments consist of principal and a "premium" of 20% of the
principal paid per installment. We have the option to defer such payment
until the note's maturity date on April 30, 2006, if our common stock
trades above $0.15 for the five trading days prior to the due date of an
installment payment and the underlying common stock is registered. In
connection with this transaction, we issued additional notes, without
attached warrants, in the aggregate amount of $10,000 to the investors upon
identical terms as the principal notes, as a finder's fee, and paid $3,500
in legal fees. The common stock underlying all notes and warrants carry
registration rights. We issued the convertible notes and warrants to
accredited investors, pursuant to an amendment to an October 29, 2004
Regulation D offering.

On December 31, 2004, we issued 8,095,105 shares of our common stock
and options for 150,000 shares at an exercise price of $0.25 per share,
pursuant to a Form S-8 registration statement filed December 23, 2004, as
follows:

Description Employee / Consultant Common Shares

Compensation Plan: issue
common for existing options

Arthur W. Blanding - Director 170,000
Robert J. Cummings - Director 255,000
Paul Downes - Director 205,000
Michael Edwards - VP 600,000
Stanley A. Hirschman - Director 100,000
Tommy E. Kee - CFO 300,000
John J. McCormack - Director 205,000
Benjamin Patipa - VP 300,000
Phillip Pearce - Director 205,000
Roy D. Toulan, Jr. VP- General Counsel 300,000
Roy Warren - CEO, Director 2,755,000

Compensation Plan: issue
common in lieu of 10% of salary

Roy Warren - CEO 291,282
Tommy E. Kee - CFO 87,385
Roy D. Toulan, Jr. VP- General Counsel 196,615
Michael Edwards - VP 149,282
Benjamin Patipa - VP 87,385
Bryce Boynton 29,128
Nicole Warren 21,486

Employment Contract
Roy D. Toulan, Jr. VP- General Counsel 100,000

Employment Contract
Michael Edwards - VP 116,189

Common in lieu of cash -
consultants and non-fund raising
service providers

Joseph Zappulla - public relations 111,111
Stanley Harris - marketing 75,227
David Uhlman - operations 40,000
Timothy Preuniger - operations 50,000
Roy D. Toulan, Jr. - legal 303,506
Marc J. Ross - legal 250,000

Options for common stock in
lieu of cash - consultants)
Tim Ransom Options for 150,000
shares @ $0.25/share

Consultant Agreements Knightsbridge Capital, LLC, alter ego
for Robert Press, financial advisor;
corporate planning 250,000

Black Dog Communications Group,
Inc., alter ego for Shep Doniger,
public relations 41,509

Geoffrey Eiten, strategic planning; part
of 1,500,000 shares registered under
Form S-8 500,000

ITEM 6. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

Our business model includes the development and marketing of our
company owned Slammers(R) trademarked brand, the obtaining of license
rights from third party holders of intellectual property rights to other
trademarked brands, logos and characters and the granting of production and
marketing rights to processor dairies to produce branded flavored milk. We
generate revenue in our international (non-US) business through the sale of
"kits" to these dairies. The price of the "kits" consists of an invoiced
price for a fixed amount of flavor ingredients per kit used to produce the
flavored milk and a fee charged to the dairy processors for the production,
promotion and sales rights for the branded flavored milk. In the United
States, we generate revenue from the unit sales of finished branded
flavored milks to retail consumer outlets.

Our new product introduction and growth expansion continues to be
expensive, and we reported a net loss of $3,799,926 for the year ended
December 31, 2004. As shown in the accompanying financial statements, we
have suffered operating losses and negative cash flows from operations
since inception and at December 31, 2004 have an accumulated deficit, a
capital deficit, are delinquent on certain debts and have negative working
capital. These conditions give rise to substantial doubt about our ability
to continue as a going concern. As discussed herein, we plan to work
toward profitability in our U.S. and international business and obtain
additional financing. While there is no assurance that funding will be
available or that we will be able to improve our operating results, we are
continuing to seek equity and/or debt financing. We cannot give any
assurances, however, that management will be successful in carrying out our
plans.

CORPORATE GOVERNANCE

The Board of Directors

Our board has positions for nine directors that are elected as Class
A or Class B directors at alternate annual meetings of our shareholders.
We presently have two mid-term vacancies on the board. Six of the seven
current directors of our board are independent. Our chairman and chief
executive officer are separate. The board meets regularly either in person
or by telephonic conference at least four times a year, and all directors
have access to the information necessary to enable them to discharge their
duties. The board, as a whole, and the audit committee in particular,
review our financial condition and performance on an estimated vs. actual
basis and financial projections as a regular agenda item at scheduled
periodic board meetings, based upon separate reports submitted by our chief
executive officer and chief financial officer. Our shareholders elect
directors after nomination by the board or the board appoints directors
when a vacancy arises prior to an election. This year we have adopted a
nomination procedure based upon a rotating nomination committee made up of
those members of the director Class

not up for election. The board presently is examining whether this
procedure, as well as the make up of the audit and compensation committees,
should be the subject of an amendment to the by-laws.

Audit Committee

Our audit committee is composed of three independent directors and
functions to assist the board in overseeing our accounting and reporting
practices. Our financial information is booked in house by our CFO's
office, from which we prepare financial reports. Lazar Levine & Felix LLP,
independent registered public accountants and auditors, audit or review
these financial reports. Our chief financial officer reviews the
preliminary financial and non-financial information prepared in house with
our securities counsel and the reports of the auditors. The committee
reviews the preparation of our audited and unaudited periodic financial
reporting and internal control reports prepared by our chief financial
officer. The committee reviews significant changes in accounting policies
and addresses issues and recommendations presented by our internal and
external certified accountants as well as our auditors. Currently, there
is one vacancy on the audit committee.

Compensation Committee

Our compensation committee is composed of three independent directors
and reviews the compensation structure and policies concerning executive
compensation. The committee develops proposals and recommendations for
executive compensation and presents those recommendations to the full board
for consideration. The committee periodically reviews the performance of
our other members of management and the recommendations of the chief
executive officer with respect to the compensation of those individuals.
Given the size of our company, the board periodically reviews all such
employment contracts. The board must approve all compensation packages
that involve the issuance of our stock or stock options. Currently, there
is one vacancy on the compensation committee.

Nominating Committee

The nominating committee was established in the second quarter 2002
and consists of those members of the director Class not up for election.
The committee is charged with determining those individuals who will be
presented to the shareholders for election at the next scheduled annual
meeting. The full board fills any mid term vacancies by appointment.

CRITICAL ACCOUNTING POLICIES

Estimates

This discussion and analysis of our consolidated financial condition
and results of operations are based on our consolidated financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, we evaluate our
company's estimates, including those related to reserves for bad debts and
valuation allowance for deferred tax assets. We base our estimates on
historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the result of which forms the basis
for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may
differ materially from these estimates under different assumptions or
conditions. Our use of estimates, however, is quite limited as we have
adequate time to process and record actual results from operations.

Revenue recognition

United States
-------------

We recognize revenue in the United States at the gross amount of our
invoices for the sale of finished product to wholesale buyers. We take
title to our branded flavored milks when they are shipped by our third
party processors and recognize as revenue the gross wholesale price charged
to our wholesale customers. Our gross margin is determined by the reported
wholesale price less the cost charged by Jasper Products, our third party
processor, to produce the branded milk products.

Prior to 2004, we reported revenue in the United States from our sale
of "kits" to third party processors and from the differential between the
cost of producing our finished product and the wholesale price of our
finished product. Commencing in the first quarter 2004, we report revenue
from our sale of finished product on the wholesale level. We report the
cost of producing the product charged by a third party processor as the
cost of goods sold. This change in revenue recognition has resulted in
materially higher reported revenue for our company, with a corresponding
material increase in reported costs of goods sold.

In certain circumstances in our U.S. business, we are required to pay
slotting fees, give promotional discounts or make marketing allowances in
order to secure wholesale customers. These payments, discounts and
allowances reduce our reported revenue in accordance with the guidelines
set forth in EITF 01-9 and SEC Staff Accounting Bulletin No. 101.

International Sales
-------------------

We recognize revenue in our international (non US) business at the
gross amount of our invoices for the sale of kits at the time of shipment
of flavor ingredients to processor dairies with whom we have production
contracts for extended shelf life and aseptic long life milk. We base this
recognition on our role as the principal in these transactions, our
discretion in establishing kit prices (including the price of flavor
ingredients and production right fees), our development and refinement of
flavors and flavor modifications, our discretion in supplier selection and
our credit risk to pay for ingredients if processors do not pay ingredient
suppliers. The revenue generated by the production contracts under this
model consists of the cost of the processors' purchase of flavor
ingredients and fees charged by us to the processors for production rights.
We formulate the price of production rights to cover our intellectual
property licenses, which varies by licensor as a percentage of the total
cost of a kit sold to the processor dairy under the production agreement.
We recognize revenue on the gross amount of "kit" invoices to the dairy
processors and simultaneously record as cost of goods sold the cost of
flavor ingredients paid by the processor dairies to ingredients supplier.
The recognition of revenue generated from the sale of production rights
associated with the flavor ingredients is complete upon shipment of the
ingredients to the processor, given the short utilization cycle of the
ingredients shipped.

Pursuant to EITF 99-19, international sales of kits made directly to
customers by us are reflected in the statements of operations on a gross
basis, whereby the total amount billed to the customer is recognized as
revenue.

RESULTS OF OPERATIONS

Financial Condition at December 31, 2004

As of December 31, 2004, we had an accumulated deficit of
$33,737,029, cash on hand of $113,888 and reported total capital deficit of
$3,029,694.

For this same period of time, we had revenue of $3,344,699 and
general and administrative expense of $2,639,085.

After interest expenses of $240,447, cost of goods sold of
$2,374,805, product development costs of $85,671 and selling expenses of
$1,804,617 incurred in operations, we had a net loss of $3,799,926.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Consolidated Revenue
--------------------

We had revenue for the year ended December 31, 2004 of $3,344,699,
with cost of sales of $2,374,805, resulting in a gross margin of $969,894.
This revenue and resultant gross margin are net of slotting fees,
promotional discounts and marketing allowances for this period in the
amount of $204,755. Of the reported $3,344,699, U.S. sales accounted for
$2,771,081 with an additional $573,618 from international sales in Mexico
and the Middle East. Our reported revenue for the year ended December 31,
2004 increased by $2,144,557, a 178.69% increase compared to revenue of
$1,200,142 for the same period in 2003. This increase is the result of a
change in our method of revenue recognition in the United States,
commencing January 1, 2004, when we began to act as the principal in these
transactions, rather than as an agent. In addition, in the first quarter
of 2004, we began to phase out our Looney Tunes(TM) flavored milk products
and to develop four new branded product lines in the United States,
including the launch of our Slammers(R) line of Marvel Comics Super
Heroes(R) branded flavored milks during the second quarter 2004. We also
began to ship kits to our third-party Middle East dairy processor during
the second quarter 2004.

Consolidated Cost of Sales
--------------------------

We incurred cost of goods sold of $2,374,805 for the year ended
December 31, 2004, $2,262,055 of which was incurred in our U.S. business,
and $112,750 in connection with out international sales. Cost of goods
sold in 2004 increased by $2,182,307, a 1133.68% increase compared to
$192,498 for the same period in 2003. The increase in cost of goods sold
reflects an increase in sales, the change in our role from agent to
principal during this period and the concomitant increase in reported cost
of goods sold associated with that change.

In countries except the United States, our revenue is generated by
the sale of kits to dairy processors. Each kit consists of flavor
ingredients for flavored milks and production rights to manufacture and
sell the milks. In line with our revenue recognition policies, we
recognize the full invoiced kit price as revenue, less the cost of
production charged by the processor, which we record as cost of goods sold.

In the United States, we are responsible for the sale of finished
Slammers(R) flavored milk (referred to as "unit sales") to retail outlets.
For these unit sales, we recognize as revenue the invoiced wholesale prices
that we charge to the retail outlets that purchase the Slammers(R) flavored
milks. We report, as cost of goods sold, the price charged to us by Jasper
Products, a third party processor under contract with our company, for
producing the finished Slammers(R) products.

Segmented revenues and costs of sales
-------------------------------------

The following table presents revenue by source and type against costs
of goods sold, as well as combined gross revenues and gross margins. In
countries other than the United States, revenues for the

period ended December 31, 2004 were generated by kit sales to third party
processors. Our revenue from the sale of finished product to retail outlets
is recorded as "unit sales" on the following table.

United Middle Total
2004 States Canada Mexico East Company
------ ------ ------ ------ -------

Cost of goods sold (2,262,055) - (55,609) (57,141) (2,374,805)
----------- ------- -------- -------- -----------

Gross margin $ 509,026 $ - $ 64,359 $396,509 $ 969,894
=========== ======= ======== ======== ===========

United Total
2003 States Canada Mexico China Company
------ ------ ------ ----- -------

Revenue - unit sales $ 356,985 $ - $ - $ - $ 356,985
Revenue - net kit sales 2,737 - - - 2,737
Revenue - gross kit sales 629,999 43,745 145,362 21,314 840,420
----------- ------- -------- -------- -----------
Total revenue 989,721 43,745 145,362 21,314 1,200,142

Cost of goods sold (127,647) (10,403) (45,247) (9,201) (192,498)
----------- ------- -------- -------- -----------

Gross margin $ 862,074 $33,342 $100,115 $ 12,113 $ 1,007,644
=========== ======= ======== ======== ===========

United States
-------------

Revenues for the period ended December 31, 2004 in the United States
increased from $989,721 for the same period in 2003 to $2,771,081 in 2004,
a 179.99% increase. The increase is the result of a change in revenue
recognition and the introduction of our new product lines during this
period.

In the period ended December 31, 2004, our gross margin for U.S.
sales of $509,026 decreased by $353,048, or by 40.95%, from $862,074 for
the same period in 2003. The decrease in gross margin was the result of
our role change from agent to principal in our US sales transactions, which
required us to recognize the entire cost of production of our milk products
against revenues from the wholesale sales for those products.

Foreign Sales
-------------

Revenues for the period ended December 31, 2004 from kit sales in
foreign countries increased from $210,421 for the same period in 2003 to
$573,618, a 172.6 % increase. The increase is the result of sales growth
in Mexico and the Middle East during this period.

We recorded $112,750 in costs of kit sales in foreign countries for
the period ended December 31, 2004, an increase of $47,899 or 73.86% from
$64,851 for the same period in 2003. As a percentage of sales, the costs
of goods sold decreased 19.7% for the period ended December 31, 2004, from
30.8% for the same period in 2003. The decrease in cost of goods sold as a
percentage of sales was the result of the

commencement of sales in the Middle East, which had significantly lower
costs of goods sold as a percentage of sales than occurred China, Mexico
and Canada.

For the period ended December 31, 2004, the gross profit of $460,868
for kit sales in foreign countries increased by $315,298 or 216.6%, from
$145,570 for the same period in 2003. The increase in gross profit was
consistent with the increase in sales volume and the decease in cost of
goods sold for this period.

Consolidated Operating Expenses
-------------------------------

We incurred selling expenses of $1,804,617 for the period ended
December 31, 2004, of which we incurred $1,664,520 in our United States
operations. Our selling expense for this period increased by $64,767, a
3.72% increase compared to selling expense of $1,739,850 for the same
period in 2003. The increase in selling expenses in the current period was
due to increased freight and promotional charges associated with our
transition away from our Looney Tunes(TM) product line and the development
of four new product lines, utilizing newly licensed and directly owned
branded trademarks.

Our incurred general and administrative expenses for the period ended
December 31, 2004 were $2,639,085, most of which we incurred in our United
States business operations. Our general and administrative expenses for
this period increased by $389,407, a 17.31% increase compared to $2,249,678
for the same period in 2003. The increase in general and administrative
expenses for the current period in 2004 is the result of the accrual of the
compensation value of the conversion of management's and directors' options
to common stock, in the amount of $269,750 plus the recording of an
additional payroll period in 2004. This expense is a one-time charge.

As a percentage of total revenue, our general and administrative
expenses decreased from 187.5% in the period ended December 31, 2003, to
78.9% for the current period in 2004. We anticipate a continued effort to
reduce these expenses as a percentage of sales through revenue growth, cost
cutting efforts and the refinement of business operations.

Interest Expense
----------------

We incurred interest expense for the period ended December 31, 2004
of $240,447. Our interest expense increased by $210,914, a 714.16%
increase compared to $29,533 for the same period in 2003. The increase was
due to additional loans in 2004 and utilizing debt to finance our
operations during this period's transition in licensors of intellectual
property utilized by our company and the development and launch of new
product lines.

Loss Per Share
--------------

We accrued dividends payable of $388,632 to various series of
preferred stock during the period ended December 31, 2004. Our accrued
dividends increased for this period by $48,728, or 14.33%, from $339,904
for the same period in 2003. The net loss before accrued dividends
increased by $782,939, from $3,016,987 for the period ended December 31,
2003 to $3,799,926 for the current period, and the increase in accrued
dividends was offset by the increase in the weighted average number of
common shares outstanding, resulting in a decrease in our current period
loss per share from $0.15 for the same period in 2003, to a loss per share
of $0.10 for the current period.

Liquidity and Capital Resources

Operations
----------

As of December 31, 2004, we reported that net cash used in operating
activities was $4,122,830, net cash provided by financing activities was
$4,257,500 and net cash used in investing activities was $78,952. We had a
negative working capital of $2,365,969 as of December 31, 2004.

Compared to $1,562,389 of net cash used in operating activities in
the period ended December 31, 2003, our current year net cash used in
operating activities increased by $2,560,441 to $4,122,830. This increase
was the result of our utilization of cash rather than equity to pay service
providers in this current period and changes in deferred product
development costs, prepaid expenses, accounts payable and accrued expenses.
Included in the net loss in this current period were depreciation and
amortization and stock compensation for a finder's fee aggregating
$974,847, compared to $194,635 for the same period in 2003.

Changes in accounts receivable in this current period in 2004
resulted in a cash decrease of $26,047, compared to a cash increase in
receivables of $210,228 for the same period in 2003, having a net result of
a decrease of $236,275. The changes in accounts payable and accrued
liabilities in the period ended December 31, 2003 contributed to a cash
increase of $1,285,443, whereas the changes in accounts payable and accrued
liabilities for the current period in 2004 amounted to a decrease of
$593,475. We have adopted and will keep implementing cost-cutting measures
to lower our costs and expenses and to pay our company's accounts payable
and accrued liabilities by using cash and equity instruments. Our cash
flow generated through operating activities was inadequate to cover all of
our cash disbursement needs in the period ended December 31, 2004, and we
had to rely on equity and debt financing to cover expenses.

Cash used in 2004 in investing activities for equipment was $78,952
for software, computer equipment and leasehold improvements in the U.S.,
compared to $31,323 for the same period in 2003.

Net cash provided by financing activities for the period ended
December 31, 2004 was $4,257,500. Net cash provided by financing
activities for the same period in 2003 was $1,427,062, for a net increase
of $2,830,438. The increase was due primarily to issuing Series K preferred
stock with gross proceeds of $950,000 and debt in the aggregate amount of
$3,427,500 in this current period.

We used the proceeds of the current period financing for working
capital purposes and to repay approximately $1,128,386 for a note to Jasper
Products.

Going forward, our primary requirements for cash consist of the
following:

* the continued development of our business model in the United
States and on an international basis;

* general overhead expenses for personnel to support the new business
activities;

* development, launch and marketing costs for our line of new branded
flavored milk products, and

* the payment of guaranteed license royalties.

We estimate that our need for financing to meet cash needs for
operations will continue through the fourth quarter of 2005, when we expect
that cash supplied by operating activities will approach the anticipated
cash requirements for operation expenses. We anticipate the need for
additional financing in 2005 to reduce our liabilities, assist in marketing
and to improve shareholders' equity status. No

assurances can be given that we will be able to obtain additional
financing, or that operating cash flows will be sufficient to fund our
operations.

We currently have monthly working capital needs of approximately
$220,000. We will continue to incur significant selling and other expenses
in 2005 in order to derive more revenue in retail markets, through the
introduction and ongoing support of our new products. Certain of these
expenses, such as slotting fees and freight charges, will be reduced as a
function of unit sales costs as we expand our sales markets and increase
our sales within established markets. Freight charges will be reduced as
we are able to ship more full truckloads of product given the reduced per
unit cost associated with full truckloads versus less than full truckloads.
Similarly, slotting fees, which are paid to warehouses or chain stores as
initial set up or shelf space fees, are essentially one-time charges per
new customer. We believe that along with the increase in our unit sales
volume, the average unit selling expense and associated costs will
decrease, resulting in gross margins sufficient to mitigate cash needs. In
addition, we are actively seeking additional financing to support our
operational needs and to develop an expanded promotional program for our
products.

We are continuing to explore new points of sale for our branded
flavored milk. Presently, we are aggressively pursuing the school and
vending market through trade/industry shows and individual direct contacts.
The implementation of such a school base program, if viable, could have an
impact on the level of our revenue during 2004. Similarly, we expect that
the greater control over sales resulting from our refined business model
and the anticipated expansion into bodega stores as well as national
chains, such as 7-Eleven, will have a positive impact on revenues.

New Product Lines
-----------------

In the third quarter 2003, we commenced an analysis of the Looney
Tunes(TM) brand performance within the context of the possible renewal of
our Warner Bros. licenses for United States, Mexico, China and Canada. In
the fourth quarter 2003, we concluded that, as a function of the sales of
flavored milks, the Looney Tunes(TM) brand has not supported the guaranteed
royalty structure required by Warner Bros. for its licenses. In the fourth
quarter 2003, we decided not to renew our license agreements with Warner
Bros., and began to develop new products in anticipation of the
consummation of other license relationships with Marvel Comics and MoonPie
for co-branded flavored milk, as well as a new single Slammers(R) brand.
We have developed new aseptic products in anticipation of these licenses
and our own singular brand. We launched four brands in 2004, beginning
with Ultimate Slammers in April and achieved national distribution of
Ultimate Slammers through both retail grocers and convenience stores by
mid- summer. Roughly 10,000 retail supermarket stores carried this brand
nationwide in 2004. This was followed by the June launch of Slim
Slammers(R) and Moon Pie Slammers(R) and the July release of the Pro-
Slammers(TM).

Coincident with the Marvel license, we executed a production
agreement with Saudia Dairy & Foodstuff Company (SADAFCO), one of the
largest Middle East dairy processors, headquartered in Jeddah, Saudi
Arabia. SADAFCO processes our Slammers (R) branded flavored milks,
including the Marvel line, for distribution in nine Middle East countries.
SADAFCO has the capacity to process our branded milk products for
distribution throughout the European Community. AsheTrade, our
international agent, facilitated our international business in 2004 with
offices in Miami, Florida and Jeddah, Saudi Arabia.

On September 21, 2004, we entered into a licensing agreement with
Masterfoods USA, a division of Mars, Incorporated, for the use of
Masterfood's Milky Way(R) Starburst(R) and 3 Musketeers(R) trademarks in
connection with the manufacture, marketing and sale of single serve
flavored milk drinks in the United States, our possessions and Territories,
and US Military installations worldwide. The license

limits the relationship of the parties to separate independent entities.
The initial term of the license agreement expires December 31, 2007. We
have agreed to pay a royalty based upon the total net sales value of the
licensed products sold and advance payments of certain agreed upon
guaranteed royalties. Ownership of the licensed marks and the specific
milk flavors to be utilized with the marks remains with Masterfoods. We
have been granted a right of first refusal for other milk beverage products
utilizing the Masterfoods marks within the license territory.

External Sources of Liquidity
-----------------------------

Individual Loans
----------------

On November 6 and 7, 2001, respectively, we received the proceeds of
two loans aggregating $100,000 from two offshore lenders. The two
promissory notes, one for $34,000 and the other for $66,000, were payable
February 1, 2002 and bear interest at the annual rate of 8%. These loans
are secured by a general security interest in all our assets. On February
1, 2002, the parties agreed to extend the maturity dates until the
completion of the anticipated Series H financing. On September 18, 2002,
the respective promissory note maturity dates were extended by agreement of
the parties to December 31, 2002. On September 18, 2002, we agreed to
extend the expiration dates of warrants issued in connection with our
Series D and F preferred until September 17, 2005 and to reduce the
exercise price of certain of those warrants to $1.00, in partial
consideration for the maturity date extension. The holders of these notes
have agreed to extend the maturity dates, and the notes are now payable on
a demand basis.

On August 27, 2003, we received the proceeds of a loan from Mid-Am
Capital, L.L.C., in the amount of $150,000. The note was payable November
25, 2003 and bears interest at the annual rate of 10%. This loan was
secured by a general security interest in all our assets. On April 2,
2004, this note was paid and cancelled.

On January 28, 2004, we converted accounts payable in the amount of
$1,128,386 by the issuance of a 10% short term promissory note to Jasper
Products, LLC, dated January 1, 2004, in the principal amount of $1,128,386
for amounts owed to Jasper in connection with Jasper's processing and sale
of our products. As of March 31, 2004, we paid $200,000 in principal and
was credited an additional $11,350. On April 20, 2004, we paid an
additional $200,000. On May 7, 2004, we paid $717,036 in full payment of
the note's principal and accrued interest.

On May 6, 2004, we issued a secured promissory note to Mid- Am
Capital LLC in the principal amount of $750,000. The note provides for 8%
interest. The note's original maturity date of September 4, 2004 has been
extended to January 31, 2005. We issued warrants to purchase 3,000,000
shares of our common stock to Mid-Am in connection with this promissory
note. The warrants are exercisable for one year from issue at an exercise
price of $0.25 per share. We used the proceeds of this promissory note to
pay the promissory note issued to Jasper Products in January 2004.

Convertible Debentures
----------------------

To obtain funding for our ongoing operations, we entered into the
following financing transactions in 2004.

April 2004
----------

In April 2004, we entered into a Subscription Agreement with two
accredited investors for the sale of (i) $500,000 in convertible debentures
and (ii) warrants to buy 3,000,000 shares of our common

stock at $0.15 per share. In connection with this financing, we paid a
fee, which included an aggregate of convertible debentures in the amount of
$50,000.

The debentures issued in connection with the April 2004 financing
bear interest at 10%. The principal on the notes is due in equal monthly
installments commencing on November 1, 2004 until October 1, 2005. On
October 1, 2005, all principal and interest shall become due. In the event
that our common stock has a closing price in excess of $.20 for the five
days preceding the monthly payment, then, within our discretion, the
monthly payment may be deferred. The notes are convertible into our common
stock at $0.10 per share. Based on this conversion price, the $550,000
convertible debentures, excluding interest, were convertible into 5,500,000
shares of our common stock.

The note holders have contractually agreed to restrict their ability
to convert or exercise their warrants and receive shares of our common
stock such that the number of shares of common stock held by them and their
affiliates after such conversion or exercise does not exceed 9.99% of the
then issued and outstanding shares of common stock.

June 2004
---------

In June 2004, we entered into a Subscription Agreement with Longview
Fund, LP, Alpha Capital Aktiengesellschaft, Whalehaven Funds Limited,
Stonestreet Limited Partnership and Mid-Am Capital L.L.C for the issuance
of convertible 10% notes in the aggregate amount of $1,300,000 and five-
year "A" warrants for the purchase of, in the aggregate, 5,200,000 shares
of common stock, at $0.25 per share, and five-year "B" warrants for the
purchase of, in the aggregate, 13,000,000 shares of common stock, at $2.00
per share. In connection with the October 2004 financing, we subsequently
amended the exercise price to $.15 for the "A" warrants issued to Longview
Fund, LP, Alpha Capital Aktiengesellschaft, Whalehaven Funds Limited and
Stonestreet Limited Partnership. The notes are convertible into shares of
our common stock at $0.15 per common share. The notes are payable in
twelve equal monthly installments, commencing January 1, 2005. The
installment payments consist of principal and a "premium" of 20% of the
principal paid per installment. We have the option to defer such payment
until the note's maturity date on December 1, 2005, if our common stock
trades above $0.20 for the five trading days prior to the due date of an
installment payment. In connection with this transaction, we issued
additional notes in the aggregate amount of $40,000 to Gem Funding, LLC,
Bi-Coastal Consulting Corp., Stonestreet Limited Partnership and Libra
Finance, S.A upon identical terms as the principal notes, as a finder's
fee, and paid $12,500 in legal fees. The common stock underlying all notes
and warrants carry registration rights.

October 2004
------------

our common stock trades above $0.15 for the five trading days prior to the
due date of an installment payment and the underlying common stock is
registered. In connection with this transaction, we issued additional
notes, without attached warrants, in the aggregate amount of $27,500 to Gem
Funding, LLC, Bi-Coastal Consulting Corp., Stonestreet Limited Partnership
and Libra Finance, S.A upon identical terms as the principal notes, as a
finder's fee, and paid $12,500 in legal fees. The common stock underlying
all notes and warrants carry registration rights.

December 2004
-------------

In December 2004, we entered into Subscription Agreements with Momona
Capital Corp. and Ellis International Ltd. for the issuance of convertible
10% notes in the aggregate amount of $200,000 and five-year "C" warrants
for the purchase of, in the aggregate, 800,000 shares of common stock, at
$0.15 per share. The notes are convertible into shares of common stock at
$0.10 per common share. The notes are payable in twelve equal monthly
installments, commencing May 1, 2005. The installment payments consist of
principal and a "premium" of 20% of the principal paid per installment. We
have the option to defer such payment until the note's maturity date on
April 30, 2006, if our common stock trades above $0.15 for the five trading
days prior to the due date of an installment payment and the underlying
common stock is registered. In connection with this transaction, we issued
additional notes, without attached warrants, in the aggregate amount of
$10,000 to Momona Capital Corp. and Ellis International Ltd. upon identical
terms as the principal notes, as a finders' fees. The common stock
underlying all notes and warrants carry registration rights.

EFFECTS OF INFLATION

We believe that inflation has not had any material effect on our net
sales and results of operations.

ITEM 7. - FINANCIAL STATEMENTS

The financial statements for the years ended December 31, 2004 and
2003 are contained on pages F-1 to F-30, which follow.

BRAVO! FOODS INTERNATIONAL CORP.

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

FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2003 and 2004

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

F-1

BRAVO! FOODS INTERNATIONAL CORP.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm F-3

Consolidated Financial Statements

Balance Sheets F-4 to F-5

Statements of Operations and Comprehensive Loss F-6

Statements of Capital Deficit F-7

Statements of Cash Flows F-8

Notes to Consolidated Financial Statements F-9 to F-30

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Bravo! Foods International Corp.
North Palm Beach, Florida

We have audited the accompanying consolidated balance sheets of Bravo!
Foods International Corp. as of December 31, 2003 and 2004 and the related
statements of operations and comprehensive loss, shareholders' deficit and
cash flows for the years then ended. 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 the standards of the Public
Company Accounting Oversight Board (U.S.). 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 consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. 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 Bravo! Foods
International Corp. as of December 31, 2003 and 2004 and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, the Company has incurred a net loss of $3,799,926 for the year
ended December 31, 2004 and as of that date had a working capital
deficiency of $2,365,969 and a shareholders' deficit of $3,029,694. The
Company is also delinquent in payment of certain debts. These conditions
raise substantial doubt about their ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the
Company cannot continue in existence. Management's actions in regard to
these matters are more fully described in Note 1.

------------------------
LAZAR LEVINE & FELIX LLP

New York, New York
March 4, 2005

F-3

BRAVO! FOODS INTERNATIONAL CORP.

CONSOLIDATED BALANCE SHEETS

December 31,
-----------------------------
2003 2004
------------ ------------

Assets

Current assets:

Cash and cash equivalents $ 58,859 $ 113,888
Accounts receivable, net 25,921 51,968
Other receivables 6,331 -
Inventories 54,995 11,656
Prepaid expenses 201,617 551,510
------------ ------------

Total current assets 347,723 729,022

Furniture and equipment, net 68,623 111,206
License rights, net of accumulated amortization 24,065 67,301
Trademarks, net - 10,249
Deferred product development costs 41,711 162,169
Deposits 10,736 13,900
------------ ------------

Total assets $ 492,858 $ 1,093,847
============ ============

Liabilities and Capital Deficit

Current liabilities:
Note payable to International Paper $ 187,743 $ 187,743
Notes payable to Alpha Capital 100,000 217,954
Notes payable to Mid-Am Capital LLC 150,000 111,262
Notes Payable to Libra Finance - 40,106
Notes Payable to Longview - 54,086
Notes Payable to Stonestreet - 47,014
Notes Payable to Whalehaven - 17,082
Notes Payable to Bi-Coastal - 13,649
Notes Payable to Gem Funding - 8,231
License fee payable to Warner Brothers 147,115 147,115
Note Payable to Gamma - 59,678
Note Payable to Momona - 25,885
Note Payable to Ellis - 25,885
Accounts payable 2,123,705 1,763,339
Accrued liabilities 610,665 375,962
------------ ------------

Total current liabilities 3,319,228 3,094,991

Dividends payable 582,823 928,379
Other notes payable 310,098 100,171
------------ ------------

Total liabilities 4,212,149 4,123,541
------------ ------------

Commitments and contingencies

F-4

BRAVO! FOODS INTERNATIONAL CORP.

CONSOLIDATED BALANCE SHEETS

December 31,
-----------------------------
2003 2004
------------ ------------

Capital Deficit:

Series B convertible, 9% cumulative, and redeemable preferred
stock, stated value $1.00 per share, 1,260,000 shares authorized,
107,440 shares issued and outstanding, redeemable at $107,440 107,440 107,440

Series F convertible and redeemable preferred stock, stated value
$10.00 per share, 130,515 and 55,515 shares issued and outstanding 1,205,444 512,740

Series G convertible, 8% cumulative and redeemable preferred
stock, stated value $10.00 per share, 58,810 shares issued and
outstanding in 2003 520,604 -

Series H convertible, 7% cumulative and redeemable preferred stock,
stated value $10.00 per share, 165,500 shares issued and outstanding 895,591 895,591

Series I convertible, 8% cumulative and redeemable preferred stock,
stated value $10.00 per share, 30,000 shares issued and outstanding 72,192 72,192

Series J convertible, 8% cumulative and redeemable preferred stock,
stated value $10.00 per share, 200,000 shares issued and outstanding 1,854,279 1,854,279

Series K convertible, 8% cumulative and redeemable preferred
stock, stated value $10.00 per share, 95,000 shares issued
and outstanding - 950,000

Common stock, par value $0.001 per share, 300,000,000 shares
authorized, 28,047,542 and 57,793,501 shares issued and outstanding 28,045 57,791
Additional paid-in capital 21,144,896 26,257,302
Accumulated deficit (29,548,471) (33,737,029)
Accumulated other comprehensive loss - translation adjustment 689 -
------------ ------------

Total capital deficit (3,719,291) (3,029,694)
------------ ------------

Total liabilities and capital deficit $ 492,858 $ 1,093,847
============ ============

See accompanying notes

F-5

BRAVO! FOODS INTERNATIONAL CORP

CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS

Years ended December 31,
---------------------------
2003 2004
----------- -----------

Revenue - unit sales $ 356,985 $ 2,726,702
Revenue - net kit sales 2,737 -
Revenue - gross kit sales 840,420 617,997
----------- -----------
Total revenue 1,200,142 3,344,699
Cost of sales (192,498) (2,374,805)
----------- -----------
Gross margin 1,007,644 969,894
Selling expense 1,739,850 1,804,617
Product development 5,570 85,671
General and administrative expense 2,249,678 2,639,085
----------- -----------
Loss from operations (2,987,454) (3,559,479)
Other income (expense):
Interest expense, net 29,533 240,447
----------- -----------
Loss before income taxes (3,016,987) (3,799,926)
Provision for income taxes - -
----------- -----------
Net loss (3,016,987) (3,799,926)

Dividends accrued for Series B preferred stock (9,669) (9,696)
Dividends accrued for Series G preferred stock (46,457) (15,633)
Dividends accrued for Series H preferred stock (120,818) (116,168)
Dividends accrued for Series I preferred stock (24,000) (24,066)
Dividends accrued for Series J preferred stock (138,960) (160,438)
Dividends accrued for Series K preferred stock - (62,631)
Deemed dividend on Series J preferred stock (367,211) -
Deemed dividend on Series F preferred stock (195,353) -
----------- -----------
Net loss applicable to common shareholders $(3,919,455) $(4,188,558)
----------- -----------

Weighted average number of common shares outstanding 26,779,222 40,229,738
----------- -----------

Basic and diluted loss per share $ (0.15) $ (0.10)
----------- -----------

Comprehensive loss and its components consist of the following:

Net loss $(3,016,987) $(3,799,926)

Foreign currency translation adjustment 930 (689)
----------- -----------

Comprehensive loss $(3,016,057) $(3,800,615)
=========== ===========

See accompanying notes

F-6

BRAVO! FOODS INTERNATIONAL CORP.

STATEMENTS OF CAPITAL DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2003 and 2004

Preferred Stock Common Stock Additional Accumulated
--------------------- -------------------- Paid In Accumulated Comprehensive
Shares Amount Shares Amount Capital Deficit Loss Total
-------- ---------- ---------- ------- ----------- ------------ ------------- -----------

Balance, December 31, 2002 613,663 $3,803,156 25,732,854 $25,730 $20,266,464 $(25,629,015) $(241) $(1,533,906)
Issuance of common stock
for services - - 100,000 100 27,900 - - 28,000
Conversion preferred stock (21,398) (147,606) 1,814,688 1,815 169,538 - - 23,747
Issuance of Series J
preferred stock 100,000 1,000,000 - - 367,211 (367,211) - 1,000,000
Finders' fees for financing - - 400,000 400 65,029 - - 65,429
Issuance of warrants for
convertible notes - - - - 49,474 - - 49,474
Beneficial conversion
feature of convertible
notes - - - - 40,427 - - 40,427
SEC registration costs
for financing - - - - (36,500) - - (36,500)
Conversion price changes
for warrants - - - - 195,353 (195,353) - -
Accrued Dividends -
Series B - - - - - (9,669) - (9,669)
Accrued Dividends -
Series G - - - - - (46,457) - (46,457)
Accrued Dividends -
Series H - - - - - (120,818) - (120,818)
Accrued Dividends -
Series I - - - - - (24,000) - (24,000)
Accrued Dividends -
Series J - - - - - (138,961) - (138,961)
Net loss for 2003 - - - - - (3,016,987) - (3,016,987)
Translation adjustment - - - - - - 930 930
------- ---------- ---------- ------- ----------- ------------ ----- -----------
Balance, December 31, 2003 692,265 $4,655,550 28,047,542 $28,045 $21,144,896 $(29,548,471) $ 689 $(3,719,291)

Issuance of common stock
for services - - 9,332,300 9,332 666,300 - - 675,632
Conversion preferred
stock (133,810) (1,213,308) 15,897,701 15,898 1,240,485 - - 43,075
Conversion notes payable - - 4,265,958 4,266 132,917 - - 137,183
Issuance of Series K
preferred stock 95,000 950,000 - - - - - 950,000
Private Placement
financing - - 250,000 250 29,750 - - 30,000
Issuance of warrants
for convertible notes - - - - 2,778,557 - - 2,778,557
Beneficial conversion
feature of convertible
notes - - - - 141,277 - - 141,277
SEC registration costs
for financing - - - - (40,656) - - (40,656)
Conversion price changes
for warrants - - - - 105,911 - - 105,911
Beneficial conversion
price changes
for warrants - - - - 373 - - 373
Stock option expense
for consultants - - - - 57,492 - - 57,492
Accrued Dividends -
Series B - - - - - (9,696) - (9,696)
Accrued Dividends -
Series G - - - - - (15,633) - (15,633)
Accrued Dividends -
Series H - - - - - (116,168) - (116,168)
Accrued Dividends -
Series I - - - - - (24,066) - (24,066)
Accrued Dividends -
Series J - - - - - (160,438) - (160,438)
Accrued Dividends -
Series K - - - - - (62,631) - (62,631)
Net loss for 2004 - - - - - (3,799,926) - (3,799,926)
Translation adjustment - - - - - - (689) (689)
------- ---------- ---------- ------- ----------- ------------ ----- -----------

Balance, December 31, 2004 653,455 $4,392,242 57,793,501 $57,791 $26,257,302 $(33,737,029) $ - $(3,029,694)
======= ========== ========== ======= =========== ============ ===== ===========

See accompanying notes

F-7

BRAVO! FOODS INTERNATIONAL CORP.

STATEMENTS OF CASH FLOWS

Years ended December 31,
----------------------------
2003 2004
------------ ------------

Cash flows from operating activities:
Net loss $(3,016,987) $(3,799,926)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 101,207 374,215
Stock issuance for compensation and financing finders' fees 93,428 600,632
Options issued for compensation - 57,492
Registration costs for financing (36,500) (40,656)
Loss on disposal of fixed assets 15,134 6,216
Increase (decrease) from changes in:
Accounts receivable 210,228 (26,047)
Other receivable 8,331 6,331
Advance to vendors 8,719 -
Inventories 67 43,339
Prepaid expenses (189,748) (353,057)
Accounts payable and accrued expenses 1,285,443 (593,475)
Deferred product and development costs (41,711) (397,894)
----------- -----------
Net cash used in operating activities (1,562,389) (4,122,830)
----------- -----------

Cash flows from investing activities:
Purchase of equipment (31,323) (78,952)
Net cash used in investing activities (31,323) (78,952)

Cash flows from financing activities:
Proceeds from issuance of Series J preferred stock 1,000,000 -
Borrowings 150,000 -
Proceeds of Series K preferred stock - 950,000
Convertible notes payable 400,000 3,427,500
Private placement financing - 30,000
Payment of note payable, bank loan and license fee payable (122,938) (150,000)
----------- -----------
Net cash provided by financing activities 1,427,062 4,257,500
----------- -----------

Effect of changes in exchange rate on cash 930 (689)
----------- -----------
Net (decrease) / increase in cash and cash equivalents (165,720) 55,029
Cash and cash equivalents, beginning of period 224,579 58,859
----------- -----------
Cash and cash equivalents, end of period $ 58,859 $ 113,888
=========== ===========

Cash paid during the year for interest $ - $ 51,301

Non-cash investing and financing activities:
Stock granted in exchange of debt and payables and services $ 93,428 $ 600,632
Preferred stock and accrued dividends converted to common stock $ 171,353 $ -
Beneficial conversion feature $ 133,611 $ 141,650

See accompanying notes

F-8

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Organization, Businesses and Going Concern Uncertainty

Bravo! Foods International Corp., formerly known as China Premium Food
Corporation, was incorporated under the laws of the State of Delaware on
April 26, 1996. We are engaged in the sale of branded flavored milk
products and flavor ingredients in the United States, the Middle East,
Canada and Mexico.

In December 1999, we obtained Chinese government approval for the
registration of China Premium Food Corp (Shanghai) Co. Ltd., a wholly owned
subsidiary, in the Wai Gao Qiao free trade zone in Shanghai, China. This
subsidiary was formed to import, export and distribute food products and
flavored milk ingredients on a wholesale level in China. We ceased all
business activities of this Chinese subsidiary in the second quarter 2004
and did not generate revenue in 2004 from our China operation.

In January 2005, we formed Bravo! Brands (UK) Ltd., a registered United
Kingdom subsidiary. The Company formed this subsidiary to operate our
branded flavored milk business in the United Kingdom. On February 4, 2005,
we executed a license agreement with Marvel Enterprises, Inc., for the use
of Marvel Heroes(R) comic book characters on our products.

Going Concern Uncertainty

As shown in the accompanying consolidated financial statements, we have
suffered operating losses and negative cash flow from operations since
inception and have an accumulated deficit of $33,737,029, a capital deficit
of $3,029,694, negative working capital of $2,365,969 and are delinquent on
certain of our debts at December 31, 2004. Further, our auditors stated in
their report on our Consolidated Financial Statements for the year ended
December 31, 2004, that these conditions raise substantial doubt about our
ability to continue as a going concern. Management plans to increase gross
profit margins in our U.S. business and obtain additional financing and is
continuing to reposition our products with the launch of three new product
lines in the first and second quarters of 2005. While there is no assurance
that funding will be available or that the Company will be able to improve
its profit margins, management is continuing to actively seek equity and/or
debt financing, and the Company received $1,150,000 in the first quarter
2005 as part of a $2,300,000 convertible debt financing. No assurances can
be given that the Company will be successful in carrying out our plans.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 the financial statements and the reported
amounts of revenues 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 valuation allowance. Actual results could differ
materially from those estimates.

Fair Value of Financial Instruments

The carrying amount of cash, receivables, accrued liabilities and notes
payable are reasonable estimates of their fair value because of the short
maturity of these items.

F-9

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents

We consider all highly liquid investments purchased with a remaining
maturity of three months or less to be cash equivalents.

Accounts Receivable and Concentration of Credit Risk

Our financial instruments that are exposed to concentrations of credit risk
primarily consist of cash and accounts receivable.

During the normal course of business, we extend unsecured credit to our
customers who are located in various geographical areas. Typically credit
terms require payments to be made by the thirtieth day following the sale.
We regularly evaluate and monitor the creditworthiness of each customer on
a case-by-case basis. We provide an allowance for doubtful accounts based
on our continuing evaluation of our customers' credit risk. As of December
31, 2004, the allowance of doubtful accounts aggregated $90,396. We
maintain cash accounts with high credit quality financial institutions.
The FDIC insures total cash balances up to $100,000 per bank. Cash
balances in any one financial institution were not in excess of this limit
at December 31, 2004.

Inventory

Inventory, which consists primarily of packing materials and flavor
ingredients, is stated at the lower of cost on the first in, first-out
method or market.

Furniture and Equipment

Furniture and equipment are stated at cost. Depreciation is computed
primarily utilizing the straight-line method over a period of seven years
for furniture and five years for equipment.

Maintenance, repairs and minor renewals are charged directly to expenses as
incurred. Additions and betterments 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 operations.

Impairment of Long-Lived Assets

Effective January 1, 2002, we began applying the provisions of Statement of
Financial Accounting Standard No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 requires
that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable through the estimated undiscounted cash flows expected
to result from the use and eventual disposition of the assets. Whenever
any such impairment exists, an impairment loss will be recognized for the
amount by which the carrying value exceeds the fair value.

Revenue Recognition

We sell flavor ingredients and production rights (collectively referred to
as "kits") to processor dairies in Mexico and nine Middle East counties and
also sell flavored milk products in the U.S. We recognize revenue when
goods are shipped, and title and the risk and reward of ownership have been
passed to the customer and possible return of goods can be reasonably
estimated. The criteria to meet this guideline

F-10

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

are: 1) persuasive evidence of an arrangement exists, 2) delivery has
occurred or services have been rendered, 3) the price to the buyer is fixed
or determinable and 4) collectibility is reasonably assured.

We follow the final consensus reached by the Emerging Issues Task Force
(EITF) 99-19, "Reporting Revenue Gross as a Principal versus Net as an
Agent". Pursuant to EITF 99-19, our sales of kits made directly to
customers are reflected in the statement of operations on a gross basis,
whereby the total amount billed to the customer is recognized as revenue.
Sales of kits made through intermediaries, in whom our role is similar to
that of an agent, are reflected on a net basis, which represents the amount
earned by us in the transaction.

We have production agreements with processors of dairy products pursuant to
which we sell flavored milk products to retail stores (referred to as "unit
sales"). We benefit from the difference between the prices charged by the
dairy processor to produce the product for us and the price paid by retail
stores to purchase the product. We bear the responsibility for paying food
brokers fees, transportation and delivery expenses and sample expense, etc.
We recognize revenue on the gross basis and recognize the aforementioned
expenses as selling expenses.

Shipping and Handling Costs

Shipping and handling costs incurred by us are included in selling expenses
and aggregated $504,971 and $ 498,313 for 2003 and 2004, respectively.

Advertising and Promotion Costs

Advertising and promotion costs, which are included in selling expenses,
are expensed as incurred and aggregated $342,367 and $656,614 for 2003 and
2004, respectively.

Income Taxes

We account 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 that 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 expense or benefit 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

Basic earnings (loss) per common share is computed by dividing the loss
applicable to common stockholders by the weighted average number of common
shares outstanding for the period.

For the years ended December 31, 2003 and 2004, potential common shares
arising from our stock options, stock warrants and convertible preferred
stock of 39,611,363 and 65,089,658, respectively, were not included in the
computation of diluted earnings per share because their effect was
antidilutive.

Stock-based Compensation

We have adopted the intrinsic value method of accounting for employee stock
options as permitted by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-based Compensation" (SFAS No. 123) and disclose
the pro forma effect on net loss and loss per share as if the fair value
based

F-11

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

method had been applied. For equity instruments, including stock options,
issued to non-employees, 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. (SFAS 123 was amended further
in December 2004; see below - Recent Accounting Pronouncements).

The following table illustrates the effect on net loss and loss per share
as if we had applied the fair value recognition provision of SFAS No. 123
to stock-based employee compensation.

Year ending December 31,
----------------------------
2003 2004
------------ ------------

Net loss applicable to common shareholders: as reported $(3,919,455) $(4,188,558)
Add: total stock based employee compensation expense
determined under fair value method for all awards - -
----------- -----------
Pro forma net loss $(3,919,455) $(4,188,558)
=========== ===========

Loss per share:
As reported $ (0.15) $ (0.10)
Pro forma $ (0.15) $ (0.10)

Recent Accounting Pronouncements

In December 2004, the FASB issued Statement No. 152, "Accounting for Real
Estate Time-Sharing Transactions". This statement amends SFAS No. 66
(Accounting for Sales of Real Estate) and SFAS No. 67 (Accounting for Costs
and Initial Rental Operations of Real Estate Projects). This standard,
which is effective for financial statements for fiscal years beginning
after June 15, 2005, is not applicable to the Company's current operations.

In December 2004, the FASB issued SFAS No. 153 "Exchange of Non-Monetary
Assets - an amendment of APB Opinion No. 29". Statement 153 eliminates the
exception to fair value for exchanges of similar productive assets and
replaces it with a general exception for exchange transactions that do not
have commercial substance, defined as transactions that are not expected to
result in significant changes in the cash flows of the reporting entity.
This statement is effective for exchanges of non-monetary assets occurring
after June 15, 2005. The application of this statement is not expected to
have an impact on the Company's financial statements considering the
Company's intermittent participation in exchanges of non-monetary assets.

In December 2004, the FASB issued a revision of SFAS No. 123 "Share-Based
Payment" (No. 123R). The statement establishes standards for the
accounting for transactions in which an entity exchanges its equity
instruments for goods and services. It also addresses transactions in which
an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity's equity instruments or that may be
settled by the issuance of those equity instruments. The statement does
not change the accounting guidance for share-based payments with parties
other than employees. The statement requires a public entity to measure
the cost of employee service received in exchange for an award of equity
instruments based on the grant-date fair value of the award (with limited
exception). That cost will be recognized over the period during which an
employee is required to provide service in exchange for the award (usually
the vesting period). A public entity will initially measure the cost of
employee services received in exchange for an award of a liability
instrument based on its current fair value; the fair value of that award
will be remeasured subsequently at each reporting date through the

F-12

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

settlement date. Changes in fair value during the requisite service period
will be recognized as compensation over that period. The grant-date fair
value of employee share options and similar instruments will be estimated
using option-pricing models adjusted for the unique characteristics of
these instruments. According to management, this pronouncement, which
becomes effective for the Company for periods beginning after December 15,
2005, is not expected to have a material effect on their financial position.

Note 2 - Fixed Assets

Fixed assets are comprised of the following:

2003 2004
--------- --------

Furniture and fixtures $ 79,841 $150,871
Office equipment 166,179 151,577
Leasehold improvements 21,321 23,714
Purchased software - 3,223
-------- --------
267,341 329,385

Less: accumulated depreciation and amortization (198,718) (218,179)
-------- --------
$ 68,623 $111,206
======== ========

Depreciation and amortization expense of fixed assets aggregated $37,168
and $30,153 for 2003 and 2004, respectively.

Note 3 - Licensing Agreements

Warner Brothers Consumer Products Co.

On January 1, 1999, we entered into a licensing agreement (the Original
Agreement) with Warner Brothers Consumer Products Co. (Warner) for the
right to utilize Looney Tunes(TM) images and names, as defined in the
Agreement, on our products in Shanghai and Hangzhou, China. We recorded
license rights of $300,000 and amortized the rights over a period of three
years. On November 21, 2000, we entered into an amendment of the Original
Agreement with Warner. Per the amendment, the term of the agreement was
extended to June 30, 2003 with the guaranteed consideration being increased
to $400,000. The Original Agreement, as amended, was extended to October
29, 2003, at which time it expired. As of December 31, 2003, the
outstanding obligation under this agreement was $147,115.

We decided not to seek another license from Warner Bros. for China beyond
the October 2003 expiration based upon the lack of sales in our China
markets and what we perceived to be the licensor's continuing overall lack
of brand support in China. The Company and Warner Bros. dispute the
contractual necessity of the payment of the balance owed on the China
license as a result of the above circumstances. As of December 31, 2004,
we reserved and continue to reserve $147,116 for this obligation,
representing a total $183,343 balance of guaranteed royalties, which
includes $36,227 for the legally allowed default penalty.

On July 26, 2000, we entered into a license agreement with Warner Bros. and
obtained rights to utilize Looney Tunes(TM) character images and names in
the United States in connection with specified categories of products sold
by Bravo!. The license agreement was originally effective from January 1,
2000 to December 31, 2002 and was extended to December 31, 2003. We
recorded total license rights for this U.S. license of $750,000

F-13

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In September 2001, we entered into a licensing agreement with Warner for
the right to utilize Looney Tunes(TM) character images and names, as
defined in the agreement, on our products sold in Mexico, with a minimum
total guaranteed consideration of $145,000, which we amortized over a
period of three years. This licensing agreement was effective through May
31, 2004.

In May 2002, we entered into a licensing agreement with Warner to utilize
Looney Tunes(TM) characters and names on milk products sold in specified
retail outlets throughout Canada, for the period March 1, 2002 to March 31,
2004. We recorded a license right of $32,720 upon execution of the
agreement.

Our experience with Warner Bros. licenses, as a function of sales of the
flavored milks, has not supported the guaranteed royalty structure required
by Warner Bros. for its licenses. As a result, we decided to exploit our
own Slammers(R) brand, which was developed in 2003, and commenced
negotiations for licenses with Marvel Comics and Moon Pie. For these
reasons, we decided not to accept the offer of Warner Bros. to renew the
U.S. license.

Marvel Enterprises, Inc.

In January 2004, we commenced a license agreement with Marvel Enterprises,
Inc. for the right to use certain Marvel Super Heroes in the United States
(including its territories) and nine Middle East countries for a one-year
(renewable) term. We agreed to a royalty rate of 11% on the amount
invoiced to dairy processors for "kits" and 4% of net wholesale sales in
the United States. We have recorded $100,000 and $75,000 for 750,000
shares and options for additional 750,000 shares as license fees.

We currently are negotiating with Marvel to conclude a new one-year license
for the United States, Mexico and Canada and a two-year license for the
Middle East.

Chattanooga Bakery, Inc.( Moon Pie(R))

In October 2003, we commenced a two-year license agreement with MD
Enterprises, Inc. on behalf of Chattanooga Bakery for the right to
manufacture, distribute, market and sell Moon Pie(R) flavored milk products
in the United States. We agreed to a variable royalty rate of 3% to 2% of
net wholesale sales, depending upon volume.

Masterfoods USA (Starburst(R), Milky Way(R), 3 Musketeers(R))

F-14

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Default of Note Payable to International Paper

In 1999, we issued a promissory note to assume existing debt owed by our
then Chinese joint venture subsidiary to a supplier, International Paper.
The face value of that unsecured note was $282,637 at an interest rate of
10.5% per annum. The note originally required 23 monthly payments of
$7,250 and a balloon payment of $159,862 due on July 15, 2000. During
2000, we negotiated an extension of this note to July 1, 2001.
International Paper imposed a charge of $57,000 to renegotiate the note,
which amount represents interest due through the extension date. The
current balance due on this note is $187,743 at December 31, 2004, all of
which is delinquent. We have not had any communication with International
Paper during the last three years. Although International Paper has not
pursued collection of the note, it is possible that they could do so in the
future and, if they do, such collection effort may have a significant
adverse impact on the liquidity of the Company. We have not accrued
interest as of December 31, 2003 and December 31, 2004.

Note 5 - Notes Payable to Individual Lenders

On May 9, 2004 we received the proceeds of a $750,000 loan from Mid-Am
Capital, payable September 3, 2004, with an interest rate of 8%. This loan
is secured by a general security interest in all of our assets. Mid-Am has
agreed to extend the note to January 31, 2005. Interest accrued and unpaid
as December 31, 2004 aggregated $10,121.

Note 6 - Capital Deficit

2003

On January 2, 2003, we issued 100,000 shares of common stock to an
employee. This common stock was registered under a Form S-8 registration
statement in December 2004. In January 2003, we recorded $28,000 of
compensation expense based upon a signing bonus for this grant. In addition,
we granted options for 100,000 shares of common stock to the employee
pursuant to an employment contract. These options vested immediately, expire
on December 30, 2007 and have an exercise price of $0.40 per share. We also
granted options for 200,000 shares of common stock at an exercise price of
$0.40 per share and vest as follows: options for 100,000 shares on each of
December 31, 2003 and 2004, and 100,000 expire on each of December 30, 2008
and 2009, respectively.

On February 4, 2003, we issued 30,000 shares of common stock to Keshet,
LP, upon the conversion of 480 shares of Series G Convertible Preferred
stock, at a conversion price of $0.196. The conversion included accrued and
unpaid dividends on the preferred converted.

On February 21, 2003, we issued 50,000 shares of non-voting Series J 8%
Convertible Preferred stock, having a stated value of $10.00 per Preferred J
share, and common stock warrants to Mid-Am Capital, L.L.C. ("Mid-Am") for the
aggregate purchase price of $500,000. Each preferred share is convertible to
40 shares of our common stock at a per common share conversion price of
$0.25, representing 2,000,000 shares of common stock underlying the
preferred. The issued warrants entitle the

F-15

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

holder to purchase 33.33 shares of common stock for each share of Series J
Convertible Preferred stock issued at an exercise price of $0.30 per common
stock share, representing 1,666,667 shares of common stock underlying the
warrants. The warrants are exercisable for a five-year period. The February
21, 2003 closing market trading price was $0.23 per share. This private
offering was made to Mid-Am, an accredited investor, pursuant to Rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933. In accordance
with EITF 00-27, we recorded a deemed dividend of $274,720 related to a
beneficial conversion feature.

On April 14, 2003, we issued 50,000 shares of common stock to Keshet,
LP, upon the conversion of 596 shares of Series G Convertible Preferred, at a
conversion price of $0.148. The conversion included accrued and unpaid
dividends on the preferred converted.

On April 22, 2003, we issued 50,000 shares of common stock to The
Keshet Fund, LP, upon the conversion of 595 shares of Series G Convertible
Preferred, at a conversion price of $0.148. The conversion included accrued
and unpaid dividends on the preferred converted.

On May 22, 2003, we issued 100,000 shares of common stock to Keshet,
LP, upon the conversion of 607 shares of Series G Convertible Preferred, at a
conversion price of $0.076. The conversion included accrued and unpaid
dividends on the preferred converted.

On May 22, 2003, we issued 100,000 shares of common stock to The Keshet
Fund, LP, upon the conversion of 607 shares of Series G Convertible
Preferred, at a conversion price of $0.076. The conversion included accrued
and unpaid dividends on the preferred converted.

On May 29, 2003, we issued 50,000 shares of non-voting Series J 8%
Convertible Preferred stock, having a stated value of $10.00 per Preferred J
share, and common stock warrants to Mid-Am Capital, L.L.C. for the aggregate
purchase price of $500,000. Each preferred share is convertible to 50 shares
of our common stock at a conversion price of $0.20, representing 2,500,000
shares of common stock underlying the preferred. The issued warrants entitle
the holder to purchase 40 shares of common stock for each share of Series J
Convertible Preferred stock issued at an exercise price of $0.25 per common
stock share, representing 2,000,000 shares of common stock underlying the
warrants. The warrants are exercisable for a five-year period. The May 22,
2003 closing market trading price was $0.12 per share. In addition, we made
the following adjustments to prior issued warrants for the purpose of
facilitating future fund raising by us arising out of the exercise of the
warrants by Holder. The purchase price, as defined in the Warrants No. 1 and
2, has been reduced to $0.25, subject to further adjustment as described in
the warrants. The warrant stock provided for in Warrant No.1 has been
increased by 1,500,000 shares. The warrant stock provided for in Warrant No.
2 has been increased by 333,333 shares. The expiration date, as defined in
the respective warrants, remains as stated. The trading price call option
trigger set forth in Section 9 (b) of the warrants has been reduced from
$1.75 to $0.75 per share. This private offering was made to Mid-Am, an
accredited investor, pursuant to Rule 506 of Regulation D and Section 4(2) of
the Securities Act of 1933. The value of the warrants, $92,491, was
determined using the Black-Scholes model.

On August 12, 2003, we issued 1,200,000 shares of common stock based
upon Series G notices of conversion received in June and July 2003. The
issuance of common stock was delayed in order to determine the accuracy of
the conversion variables contained in the respective notices of conversion,
as follows:

We issued 200,000 shares of common stock to Keshet, LP, upon the
conversion of 1,209 shares of Series G Convertible Preferred, at a conversion
price of $0.076. The conversion included accrued and unpaid dividends on the
preferred converted.

F-16

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We issued 200,000 shares of common stock to The Keshet Fund, LP, upon
the conversion of 1,209 shares of Series G Convertible Preferred, at a
conversion price of $0.076. The conversion included accrued and unpaid
dividends on the preferred converted.

We issued 150,000 shares of common stock to The Keshet Fund, LP, upon
the conversion of 773 shares of Series G Convertible Preferred, at a
conversion price of $0.0653. The conversion included accrued and unpaid
dividends on the preferred converted.

We issued 250,000 shares of common stock to Keshet, LP, upon the
conversion of 1,289 shares of Series G Convertible Preferred, at a conversion
price of $0.0653. The conversion included accrued and unpaid dividends on
the preferred converted.

We issued 200,000 shares of common stock to Talbiya B. Investments,
Ltd., upon the conversion of 1,031 shares of Series G Convertible Preferred,
at a conversion price of $0.0653. The conversion included accrued and unpaid
dividends on the preferred converted.

We issued 200,000 shares of common stock to Nesher. Ltd., upon the
conversion of 1,031 shares of Series G Convertible Preferred, at a conversion
price of $0.0653. The conversion included accrued and unpaid dividends on
the preferred converted.

On September 15, 2003, we issued 213,750 shares of common stock to
Michael Willms, upon the conversion of 7,500 shares of Series H Convertible
Preferred, at the fixed conversion price of $0.40. The conversion included
accrued and unpaid dividends on the preferred converted.

On September 29, 2003, we issued 70,938 shares of common stock to The
Dennis H. Willms Irrevocable Trust, Michael Willms, Trustee, upon the
conversion of 2,500 shares of Series H Convertible Preferred, at the fixed
conversion price of $0.40. The conversion included accrued and unpaid
dividends on the preferred converted.

On November 21, 2003, we entered into a Subscription Agreement with
Gamma Opportunity Capital Partners, LP for the sale of a convertible note in
the amount of $200,000 and warrants to purchase 5,000,000 shares of common
stock, at $1.00 per share. The convertible note is convertible into shares
of our common stock at the lesser of $0.05 or 75% of the average of the three
lowest closing bid prices for the thirty trading days prior to but not
including the conversion date. During the 180 days following the issuance of
the convertible note, the conversion price shall not be less than $.03 per
share if no event of default exists. This 180 day period shall be extended
indefinitely if no event of default exists, the closing trading price for any
15 day consecutive trading period is $0.20 or higher, the daily trading
volume for the 15 days is at least 300,000 and a registration statement
registering the convertible note is effective. In connection with this
transaction, we issued 400,000 shares of our common stock and a warrant to
purchase 2,000,000 shares of common stock at $.05 per share.

On November 21, 2003, we also entered into a Subscription Agreement
with Mid-Am Capital, LLC for the sale of a convertible note in the amount of
$200,000 and warrants to purchase 5,000,000 shares of common stock, at $1.00
per share. The convertible note is convertible into shares of our common
stock at the lesser of $0.05 or 75% of the average of the three lowest
closing bid prices for the thirty trading days prior to but not including the
conversion date. During the 180 days following the issuance of the
convertible note, the conversion price shall not be less that $.03 per share
if no event of default exists. This 180 day period shall be extended
indefinitely if no event of default exists, the closing trading price for any
15 day consecutive trading period is $0.20 or higher, the daily trading
volume for the 15 days is at least 300,000 and a registration statement
registering the convertible note is effective.

F-17

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2004

On February 1, 2004, we agreed to issue 750,000 shares of our common
stock and warrants to purchase an additional 750,000 shares of common stock
to Marvel Enterprises, Inc. We issued this equity in connection with the
grant of an intellectual property license by Marvel on January 17, 2004,
giving us the right to use certain Marvel Comics characters on our
Slammers(R) line of flavored milks. The warrants have an exercise price of
$0.10 per share for the first year and, upon the occurrence of certain
conditions tied to the royalty performance under the license, can be
extended for an additional year with an exercise price of $0.14 per share.
We made this private offering to Marvel Enterprises, an accredited
investor, pursuant to Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933.

On February 12, 2004, we held a special meeting of shareholders at
which the shareholders approved an increase of our authorized common stock
from 50,000,000 shares to 300,000,000 shares.

On February 17, 2004, we converted 875 shares of Series G Convertible
Preferred Stock into 215,164 shares of common stock pursuant to a January
12, 2004 notice of conversion from Nesher, LP, at a conversion price of
$0.0407. The conversion included accrued and unpaid dividends on the
converted preferred. We delayed processing this notice in light of our
special meeting of shareholders held February 12, 2004. The shares of
common stock issued pursuant to this conversion were retired and cancelled
on March 5, 2004 and issued to third parties on that date in accordance
with the instructions of Nesher, LP.

On February 17, 2004, we converted 1,400 shares of Series G
Convertible Preferred Stock into 343,980 shares of common stock pursuant to
a January 12, 2004 notice of conversion from Talbiya Investments, Ltd., at
a conversion price of $0.0407. The conversion included accrued and unpaid
dividends on the converted preferred. We delayed processing this notice in
light of our special meeting of shareholders held February 12, 2004. The
shares of common stock issued pursuant to this conversion were retired and
cancelled on March 5, 2004 and issued to third parties on that date in
accordance with the instructions of Talbiya Investments, Ltd.

On February 17, 2004, we converted 700 shares of Series G Convertible
Preferred Stock into 172,162 shares of common stock pursuant to a January
12, 2004 notice of conversion from The Keshet Fund, LP, at a conversion
price of $0.0407. The conversion included accrued and unpaid dividends on
the converted preferred. We delayed processing this notice in light of our
special meeting of shareholders held February 12, 2004. The shares of
common stock issued pursuant to this conversion were retired and cancelled
on March 5, 2004 and issued to third parties on that date in accordance
with the instructions of The Keshet Fund, LP.

On February 17, 2004, we converted 2,025 shares of Series G
Convertible Preferred Stock into 497,951 shares of common stock pursuant to
a January 12, 2004 notice of conversion from Keshet LP, at a conversion
price of $0.0407. The conversion included accrued and unpaid dividends on
the converted preferred. We delayed processing this notice in light of our
special meeting of shareholders held February 12, 2004. The shares of
common stock issued pursuant to this conversion were retired and cancelled
on March 5, 2004 and issued to third parties on that date in accordance
with the instructions of Keshet, LP.

On March 1,2004, we issued 80,000 shares of non-voting Series K 8%
Convertible Preferred stock, to Mid-Am Capital, LLC, having a stated value
of $10.00 per Preferred K share, for the aggregate purchase price of
$800,000. Each preferred share is convertible to 100 shares of our common
stock at a conversion price of $0.10, representing 8,000,000 shares of
common stock underlying the preferred. In addition, we made the following
adjustments to prior issued warrants for the purpose of facilitating future

F-18

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

fund raising by us arising out of the exercise of the warrants by Holder.
The purchase price, as defined in the Warrant No. 2003-B-002, has been
reduced to $0.10, subject to further adjustment as described in the
warrant. The expiration date, as defined in the warrant, remains as
stated. This private offering was made to Mid-Am, an accredited investor,
pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act
of 1933.

On March 9, 2004, we converted 5,000 shares of Series F Convertible
Preferred Stock into 1,315,789 shares of common stock pursuant to a January
8, 2004 notice of conversion from Esquire Trade & Finance Inc., at a
conversion price of $0.038. The conversion did not include accrued and
unpaid dividends on the converted preferred. We delayed processing this
notice in light of our special meeting of shareholders held February 12,
2004. The shares of common stock issued pursuant to this conversion were
issued to third parties on that date in accordance with the instructions of
Esquire Trade & Finance Inc.

On April 1 2004, we converted 5,000 shares of Series F Convertible
Preferred Stock into 1,315,789 shares of common stock pursuant to a January
27, 2004 notice of conversion from Austinvest Anstalt Balzers, at a
conversion price of $0.038. The conversion did not include accrued and
unpaid dividends on the converted preferred. We delayed processing this
notice in light of our special meeting of shareholders held February 12,
2004. The shares of common stock issued pursuant to this conversion were
issued to third parties on that date in accordance with the instructions of
Austinvest Anstalt Balzers. We issued the preferred and the underlying
common stock upon conversion to an accredited investor, pursuant to a
Regulation D offering.

On April 2, 2004, the Comoany and Mid-Am Capital, LLC entered into
Supplement No.1 to the Series K Convertible Preferred Subscription
Agreement, by which we sold an additional 15,000 shares of our Series K
Convertible Preferred Stock utilizing the proceeds from a certain
promissory note issued by us to Mid-Am in the face amount of $150,000.
With the consummation of this sale, the $150,000 promissory note was deemed
paid by us in full. We issued the preferred and the underlying common
stock upon conversion to an accredited investor, pursuant to a Regulation D
offering.

On April 8, 2004, we converted 4,862 shares of Series G Convertible
Preferred Stock into 700,000 shares of common stock pursuant to a March 25,
2004 notice of conversion from Nesher, LP, at a conversion price of
$0.0853. The conversion included accrued and unpaid dividends of $11,089
on the preferred converted. We issued the preferred and the underlying
common stock upon conversion to an accredited investor, pursuant to a
Regulation D offering.

On April 8, 2004, we converted 4,478 shares of Series G Convertible
Preferred Stock into 650,000 shares of common stock pursuant to a March 25,
2004 notice of conversion from Talbiya B. Investments, Ltd., at a
conversion price of $0.0853. The conversion included accrued and unpaid
dividends of $10,662 on the preferred converted. We issued the preferred
and the underlying common stock upon conversion to an accredited investor,
pursuant to a Regulation D offering.

On April 8, 2004, we converted 1,919 shares of Series G Convertible
Preferred Stock into 275,000 shares of common stock pursuant to a March 25,
2004 notice of conversion from The Keshet Fund, LP, at a conversion price
of $0.0853. The conversion included accrued and unpaid dividends of $4,265
on the preferred converted. We issued the preferred and the underlying
common stock upon conversion to an accredited investor, pursuant to a
Regulation D offering.

On April 8, 2004, we converted 7,677 shares of Series G Convertible
Preferred Stock into 1,100,000 shares of common stock pursuant to a March
25, 2004 notice of conversion from Keshet, LP, at a conversion price of
$0.0853. The conversion included accrued and unpaid dividends of $17,060
on the

F-19

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

preferred converted. We issued the preferred and the underlying common
stock upon conversion to an accredited investor, pursuant to a Regulation D
offering.

On April 20, 2004, we entered into a Subscription Agreement with
Longview Fund, LP and Alpha Capital Aktiengesellschaft for the issuance of
two convertible 10% notes in the amount of $250,000 each and five-year
warrants for the purchase of, in the aggregate, 3,000,000 shares of common
stock, at $0.15 per share. The notes are convertible into shares of our
common stock at $0.10 per common share. Conversions are limited to a
maximum ownership of 9.99% of the underlying common stock at any one time.
The notes are payable in twelve equal monthly installments, commencing
November 1, 2004. The installment payments consist of principal and a
"premium" of 20% of the principal paid per installment. We have the option
to defer such payment until the note's maturity date on October 1, 2005, if
our common stock trades above $0.20 for the five trading days prior to the
due date of an installment payment. In connection with this transaction,
we issued two additional notes in the aggregate amount of $50,000, upon
identical terms as the principal notes, as a finder's fee, and paid $20,000
in legal fees. The common stock underlying all notes and warrants carry
registration rights. We issued the convertible notes and warrants to
accredited investors, pursuant to a Regulation D offering.

On April 30, 2004, we converted 20,000 shares of Series F Convertible
Preferred Stock into 1,945,525 shares of common stock pursuant to an April
27, 2004 notice of conversion from Esquire Trade & Finance Inc., at a
conversion price of $0.1028. We issued the preferred and the underlying
common stock upon conversion to an accredited investor, pursuant to a
Regulation D offering.

On April 30, 2004, we converted 20,000 shares of Series F Convertible
Preferred Stock into 1,945,525 shares of common stock pursuant to an April
27, 2004 notice of conversion from Austinvest Anstalt Balzers, at a
conversion price of $0.1028. We issued the preferred and the underlying
common stock upon conversion to an accredited investor, pursuant to a
Regulation D offering.

On April 30, 2004, we converted 2,500 shares of Series F Convertible
Preferred Stock into 243,191 shares of common stock pursuant to an April
27, 2004 notice of conversion from Esquire Trade & Finance Inc., at a
conversion price of $0.1028. We issued the preferred and the underlying
common stock upon conversion to an accredited investor, pursuant to a
Regulation D offering.

On April 30, 2004, we converted 2,500 shares of Series F Convertible
Preferred Stock into 243,191 shares of common stock pursuant to an April
27, 2004 notice of conversion from Austinvest Anstalt Balzers, at a
conversion price of $0.1028. We issued the preferred and the underlying
common stock upon conversion to an accredited investor, pursuant to a
Regulation D offering.

On May 20, 2004, we converted 9,226 shares of Series G Convertible
Preferred Stock into 620,578 shares of common stock pursuant to a May 19,
2004 notice of conversion from Nesher, LP, at a conversion price of $0.148.
The conversion did not include accrued and unpaid dividends on the
converted preferred. We issued the preferred and the underlying common
stock upon conversion to an accredited investor, pursuant to a Regulation D
offering.

On May 20, 2004, we converted 13,972 shares of Series G Convertible
Preferred Stock into 939,782 shares of common stock pursuant to a May 19,
2004 notice of conversion from Keshet, LP, at a conversion price of $0.148.
The conversion did not include accrued and unpaid dividends on the
converted preferred. We issued the preferred and the underlying common
stock upon conversion to an accredited investor, pursuant to a Regulation D
offering.

F-20

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On June 17, 2004, we issued 87,195 of our common stock to Stephen
Nollau, a former consultant, for services rendered. We issued the common
stock pursuant to a Form S-8 registration statement, filed by us on June
16, 2004.

On June 29, 2004, we converted 234 shares of Series G Convertible
Preferred Stock into 13,604 shares of common stock pursuant to a June 15,
2004 notice of conversion from Nesher, LP, at a conversion price of $0.172.
The conversion did not include accrued and unpaid dividends on the
converted preferred. We issued the preferred and the underlying common
stock upon conversion to an accredited investor, pursuant to a Regulation D
offering. This conversion exhausted the outstanding Series G convertible
preferred held by this investor.

On June 29, 2004, we converted 1,850 shares of Series G Convertible
Preferred Stock into 107,558 shares of common stock pursuant to a June 15,
2004 notice of conversion from Keshet, LP, at a conversion price of $0.172.
The conversion did not include accrued and unpaid dividends on the
converted preferred. We issued the preferred and the underlying common
stock upon conversion to an accredited investor, pursuant to a Regulation D
offering. This conversion exhausted the outstanding Series G convertible
preferred held by this investor.

On June 29, 2004, we converted 3,472 shares of Series G Convertible
Preferred Stock into 201,860 shares of common stock pursuant to a June 15,
2004 notice of conversion from The Keshet Fund, LP, at a conversion price
of $0.172. The conversion did not include accrued and unpaid dividends on
the converted preferred. We issued the preferred and the underlying common
stock upon conversion to an accredited investor, pursuant to a Regulation D
offering. This conversion exhausted the outstanding Series G convertible
preferred held by this investor.

On June 29, 2004, we converted 8,091 shares of Series G Convertible
Preferred Stock into 470,406 shares of common stock pursuant to a June 15,
2004 notice of conversion from Talbiya B. Investments, Ltd, at a conversion
price of $0.172. The conversion did not include accrued and unpaid
dividends on the converted preferred. We issued the preferred and the
underlying common stock upon conversion to an accredited investor, pursuant
to a Regulation D offering. This conversion exhausted the outstanding
Series G convertible preferred held by this investor.

On June 30, 2004, we entered into Subscription Agreements with
Longview Fund, LP, Alpha Capital Aktiengesellschaft, Whalehaven Funds
Limited, Stonestreet Limited Partnership and Mid-Am Capital L.L.C for the
issuance of convertible 10% notes in the aggregate amount of $1,300,000 and
five-year "A" warrants for the purchase of, in the aggregate, 5,200,000
shares of common stock, at $0.25 per share, and five-year "B" warrants for
the purchase of, in the aggregate, 13,000,000 shares of common stock, at
$2.00 per share. The notes are convertible into shares of our common stock
at $0.15 per common share. Conversions are limited to a maximum ownership
of 9.99% of the underlying common stock at any one time. The notes are
payable in twelve equal monthly installments, commencing January 1, 2005.
The installment payments consist of principal and a "premium" of 20% of the
principal paid per installment. We have the option to defer such payment
until the note's maturity date on December 1, 2005, if our common stock
trades above $0.20 for the five trading days prior to the due date of an
installment payment. In connection with this transaction, we issued
additional notes in the aggregate amount of $40,000 to Gem Funding, LLC,
Bi-Coastal Consulting Corp., Stonestreet Limited Partnership and Libra
Finance, S.A upon identical terms as the principal notes, as a finder's
fee, and paid $12,500 in legal fees. The common stock underlying all notes
and warrants carry registration rights. We issued the convertible notes
and warrants to accredited investors, pursuant to a Regulation D offering.

On August 9, 2004, we converted $50,000 of our November 2003
Convertible Promissory Note into 1,000,000 shares of common stock pursuant
to an August 5, 2004 notice of conversion from Gamma

F-21

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Opportunity Capital Partners LP, at a fixed conversion price of $0.05. The
conversion did not include accrued and unpaid interest on the converted
amount. We issued the underlying common stock upon conversion pursuant to
our SB-2 registration statement, declared effective on August 3, 2004.

On August 23, 2004, we converted $50,000 of our April 2004
Convertible Promissory Note into 500,000 shares of common stock pursuant to
an August 5, 2004 notice of conversion from Longview Fund LP, at a fixed
conversion price of $0.10. The conversion did not include accrued and
unpaid interest on the converted amount. We issued the underlying common
stock upon conversion pursuant to our SB-2 registration statement, declared
effective on August 3, 2004.

On September 27, 2004, we converted $50,000 of our April 2004
Convertible Promissory Note into 500,000 shares of common stock pursuant to
a September 21, 2004 notice of conversion from Longview Fund LP, at a fixed
conversion price of $0.10. The conversion did not include accrued and
unpaid interest on the converted amount. We issued the underlying common
stock upon conversion pursuant to our SB-2 registration statement, declared
effective on August 3, 2004.

On October 13, 2004, we issued 250,000 restricted shares of our
common stock in a private placement to Arthur Blanding, at the market price
of $0.12 per share, pursuant to Section 4(2) of the Securities Act of 1934.
Mr. Blanding, who solicited the purchase, is an accredited investor and has
been a director of the Company since 1999.

F-22

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

transaction, we issued additional notes, without attached warrants, in the
aggregate amount of $27,500 to Gem Funding, LLC, Bi-Coastal Consulting
Corp., Stonestreet Limited Partnership and Libra Finance, S.A upon
identical terms as the principal notes, as a finder's fee, and paid $12,500
in legal fees. The common stock underlying all notes and warrants carry
registration rights. We issued the convertible notes and warrants to
accredited investors, pursuant to a Regulation D offering.

On December 27, 2004, we converted 10,000 shares of Series F
Convertible Preferred Stock into 1,290,323 shares of common stock pursuant
to a December 27, 2004 notice of conversion from Esquire Trade & Finance
Inc., at a conversion price of $0.0775. The conversion did not include
accrued and unpaid dividends on the converted preferred. We issued the
preferred and the underlying common stock upon conversion to an accredited
investor, pursuant to a Regulation D offering and Rule 144.

On December 29, 2004, we closed a funding transaction with Momona
Capital Corp. and Ellis International Ltd. for the issuance of convertible
10% notes in the aggregate amount of $200,000 and five-year "C" warrants
for the purchase of, in the aggregate, 800,000 shares of common stock, at
$0.15 per share. The notes are convertible into shares of our common stock
at $0.10 per common share. Conversions are limited to a maximum ownership
of 9.99% of the underlying common stock at any one time. The notes are
payable in twelve equal monthly installments, commencing May 1, 2005. The
installment payments consist of principal and a "premium" of 20% of the
principal paid per installment. We have the option to defer such payment
until the note's maturity date on April 30, 2006, if our common stock
trades above $0.15 for the five trading days prior to the due date of an
installment payment, and the underlying common stock is registered. In
connection with this transaction, we issued additional notes, without
attached warrants, in the aggregate amount of $10,000 to the investors upon
identical terms as the principal notes, as a finder's fee, and paid $3,500
in legal fees. The common stock underlying all notes and warrants carry
registration rights. We issued the convertible notes and warrants to
accredited investors, pursuant to an amendment to an October 29, 2004
Regulation D offering.

F-23

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description Employee / Consultant Common Shares

Compensation Plan: issue
common for existing options

Compensation Plan: issue
common in lieu of 10% of salary Roy Warren - CEO 291,282
Tommy E. Kee - CFO 87,385
Roy D. Toulan, Jr. VP- General Counsel 196,615
Michael Edwards - VP 149,282
Benjamin Patipa - VP 87,385
Bryce Boynton 29,128
Nicole Warren 21,486

Employment Contract Roy D. Toulan, Jr. VP- General Counsel 100,000

Employment Contract Michael Edwards - VP 116,189

Common in lieu of cash -
consultants and non-fund
raising service providers Joseph Zappulla - public relations 111,111
Stanley Harris - marketing 75,227
David Uhlman - operations 40,000
Timothy Preuniger - operations 50,000
Roy D. Toulan, Jr. - legal 303,506
Marc J. Ross - legal 250,000

Option for common stock in
lieu of cash - consultants) Tim Ransom Options for 150,000
shares @ $0.25/share

Consultant Agreements Knightsbridge Capital, LLC, alter ego
for Robert Press, financial advisor;
corporate planning 250,000

F-24

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Black Dog Communications Group,
Inc., alter ego for Shep Doniger,
public relations 41,509

Geoffrey Eiten, strategic planning; part
of 1,500,000 shares registered under
Form S-8 500,000

Note 7 - Stock Warrants and Options

2003

On January 2, 2003, we granted options for 100,000 shares of common
stock to an employee pursuant to an employment contract. These options
vested immediately, expire on December 30, 2007 and have an exercise price
of $0.40 per share. We also granted options for 200,000 shares of common
stock at an exercise price of $0.40 per share and vest as follows: options
for 100,000 shares on each of December 31, 2003 and 2004, and 100,000
expire on each of December 30, 2008 and 2009, respectively.

On February 21, 2003, we issued a warrant for 1,666,667 shares of
common stock to Mid-Am, in connection with the issuance of 50,000 shares of
non-voting Series J 8% Convertible Preferred stock, having a stated value
of $10.00 per Preferred J share, for the aggregate purchase price of
$500,000. The warrants have an exercise price of $0.30 per common stock
share, and are exercisable for a five-year period. The February 21, 2003
closing market trading price was $0.23 per share. In accordance with EITF
00-27, we recorded a deemed dividend of $274,720 related to a beneficial
conversion feature.

On May 29, 2003, we issued a warrant for 2,000,000 shares of common
stock to Mid-Am, in connection with the issuance of 50,000 shares of non-
voting Series J 8% Convertible Preferred stock, having a stated value of
$10.00 per Preferred J share, for the aggregate purchase price of $500,000.
The warrants entitle the holder to purchase 40 shares of common stock for
each share of Series J Convertible Preferred stock issued at an exercise
price of $0.25 per common stock share, and are exercisable for a five-year
period. The May 22, 2003 closing market trading price was $0.12 per share.
In addition, we made the following adjustments to prior issued warrants for
the purpose of facilitating future fund raising by us arising out of the
exercise of the warrants by Holder. The purchase price, as defined in the
Warrants No. 1 (issued September 2002) and 2 (issued February 2003), was
reduced to $0.25, subject to further adjustment as described in the
warrants. The warrant stock provided for in Warrant No.1 was increased by
1,500,000 shares. The warrant stock provided for in Warrant No. 2 was
increased by 333,333 shares. The expiration date, as defined in the
respective warrants, remains as stated. The trading price call option
trigger set forth in Section 9 (b) of all of the warrants has been reduced
from $1.75 to $0.75 per share. The value of the warrants, $92,491, was
determined using the Black-Scholes model.

On November 21, 2003, we issued two "A" warrants for the aggregate
amount of 2,000,000 shares of common stock, and two "B" warrants for the
aggregate amount of 10,000,000 shares of common stock to Mid-Am Capital,
L.L.C. and Gamma Opportunity Capital Partners, LP, in connection with the
issuance of two convertible notes in the aggregate face amount of $400,000.
The "A" warrants have an exercise price of $0.05 per share and the "B"
warrants have an exercise price of $1.00 per share. In connection with
this transaction, we issued a warrant to purchase 2,000,000 shares of
common stock at $0.05 per share, as a finder's fee. All warrants issued in
connection with this transaction are exercisable for five years.

F-25

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2004

On February 1, 2004, we agreed to issue warrants to purchase 750,000
shares of common stock to Marvel Enterprises, Inc. We issued this equity
in connection with the grant of an intellectual property license by Marvel
on January 17, 2004, giving us the right to use certain Marvel Comics
characters on our Slammers(R) line of flavored milks. The warrants have an
exercise price of $0.10 per share for the first year and, upon the
occurrence of certain conditions tied to the royalty performance under the
license, can be extended for an additional year with an exercise price of
$0.14 per share. We made this private offering to Marvel Enterprises, an
accredited investor, pursuant to Rule 506 of Regulation D and Section 4(2)
of the Securities Act of 1933.

On May 9, 2004 we received the proceeds of a $750,000 loan from Mid-Am
Capital, payable September 3, 2004, with an interest rate of 8%. This loan
is secured by a general security interest in all of our assets. Mid-Am has
agreed to extend the note without to January 31, 2005. We issued one-year
warrants for 3,000,000 shares of common stock at $0.25 per share to Mid-Am
Capital in connection with this loan.

On November 19, 2004, we agreed to grant incentive stock options to
National Financial Communications Corp. for the purchase of the aggregate
of 1,000,000 shares of our common stock at an exercise price of $.25 per
share in connection with a public relations and corporate communications
services agreement. The options are exercisable during the period
commencing on the agreement date and ending three years subsequent to the
termination date of the agreement. The grant of options shall be as
follows: (i) options for 250,000 shares upon the execution of the
agreement, and (ii) beyond the first ninety (90) days of the agreement, the
balance of 750,000 shares on a pro rata quarterly basis at the rate of
250,000 per quarter, conditioned upon the continuation of the agreement.

On December 29, 2004, we closed a funding transaction with Momona
Capital Corp. and Ellis International Ltd. for the issuance of convertible
10% notes in the aggregate amount of $200,000 and five-

F-26

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

year "C" warrants for the purchase of, in the aggregate, 800,000 shares of
common stock, at $0.15 per share. The common stock underlying all notes
and warrants carry registration rights. We issued the convertible notes
and warrants to accredited investors, pursuant to an amendment to an
October 29, 2004 Regulation D offering.

On December 31, 2004, we issued five-year options for 150,000 shares
of common stock at an exercise price of $0.25 per share to Tim Ransom for
graphic design services, pursuant to a Form S-8 registration statement

The assumptions used in the Black Scholes option pricing model in 2003 and
2004 were as follows:

December 31,
--------------------------------------
2003 2004
----------------- -----------------

Discount rate - bond yield rate 2.35 - 4.9% 2.33 - 3.25%
Volatility 69 - 88% 110 - 120%
Expected life 2.25 - 3.75 years 0.75 - 3.75 years
Expected dividend yield - -

A summary of the status of our stock options and warrants as of December
31, 2003 and 2004 with changes during the years then ended are presented
below:

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

Total warrants and options outstanding at December 31, 2002 21,157,803 $ 0.70

Warrants and options granted 18,668,337 0.13
Warrants and options exercised -
Warrants and options expired (214,777) (1.03)
---------- ------

Total warrants and options outstanding at December 31, 2003 39,611,363 0.28

Warrants and options granted 33,565,000 .87
Warrants and options exercised (5,895,000) (.06)
Warrants and options expired (2,191,705) (1.03)

Total warrants and options outstanding at December 31, 2004 65,089,658 $ 0.56
========== ======

The following table summarizes information about stock options and warrants
outstanding at December 31, 2004:

Warrants/Options Outstanding Options/Warrants Exercisable
--------------------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Number Remaining Exercise Number Exercise
Exercise Price Outstanding Life (Years) Price Exercisable Price
-------------- ----------- ------------ -------- ----------- --------

$0.00 to $0.75 46,724,658 3.0 $0.31 46,724,658 $0.31
$0.75 to 2.00 18,365,000 1.0 $1.56 18,365,000 $1.56
---------- --- ----- ---------- -----
65,089,658 2.6 $0.56 65,089,658 $0.56
========== === ===== ========== =====

F-27

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - Income Taxes

We are subject to Federal income taxes. As we have experienced operating
losses for the years of 2003 and 2004, we have not provided for income tax.

We have gross deferred tax assets of approximately $6.8 million and $8.1
million at December 31, 2003 and 2004, respectively, relating principally
to tax effects of net operating loss carry forwards. In assessing the
recoverability of deferred tax assets, management considers whether it is
more likely than not that the assets will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers projected future
taxable income and tax planning strategies in making this assessment.
Based upon the level of historical taxable loss and projections for future
taxable income over the periods in which the deferred tax items are
recognizable for tax reporting purposes, it is more likely than not that we
will not realize the benefits of these deferred tax assets existing at
December 31, 2003 and 2004. As such, management has recorded a valuation
allowance for the full amount of deferred tax assets at December 31, 2003
and 2004.

At December 31, 2004, we had available net operating losses of
approximately $19 million for federal income tax purposes, to offset future
taxable income, if any, which will expire at various dates through the year
2023 for federal income tax purposes. The utilization of net operating
losses, however, may be subject to certain limitations as prescribed by
Section 382 of the Internal Revenue Code.

Note 9 - Business Segment and Geographic Information

We operate principally in one industry segment. The following sales
information is based on customer location rather than subsidiary location.

United Middle Total
2004 States Canada Mexico East Company
------ ------ ------ ------ -------

Revenue - unit sales $ 2,726,702 $ - $ - $ - $ 2,726,702
Revenue - gross kit sales 44,379 - 119,968 453,650 617,997
----------- ------- -------- -------- -----------
Total revenue 2,771,081 - 119,968 453,650 3,344,699
Cost of goods sold (2,262,055) - (55,609) (57,141) (2,374,805)
----------- ------- -------- -------- -----------

Gross margin $ 509,026 $ - $ 64,359 $396,509 $ 969,894
=========== ======= ======== ======== ===========

United Total
2003 States Canada Mexico China Company
------ ------ ------ ----- -------

Revenue -unit sales $ 356,985 $ - $ - $ - $ 356,985
Revenue -net kit sales 2,737 - - - 2,737
Revenue -gross kit sales 629,999 43,745 145,362 21,314 840,420
----------- ------- -------- -------- -----------
Total revenue 989,721 43,745 145,362 21,314 1,200,142
Cost of goods sold (127,647) (10,403) (45,247) (9,201) (192,498)
----------- ------- -------- -------- -----------

Gross margin $ 862,074 $33,342 $100,115 $ 12,113 $ 1,007,644
=========== ======= ======== ======== ===========

F-28

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 - Commitments and Contingencies

Commitments

We lease office space at our corporate office in Florida under an original
operating lease that expired March 8, 2004. We have renewed the operating
lease for an additional six-year period that will expire October 30, 2010.

Future minimum rental payments required under the operating lease as of
December 31, 2004 are as follows:

Years ending December 31, Amount
------------------------- ------

2005 $89,616
2006 $89,616
2007 $89,616
2008 $89,616
2009 $89,616
2010 Partial year $74,680

Rental expense for the years ended December 31, 2003 and 2004 was $75,270
and $68,784, respectively.

Note 11 - Subsequent Events

On January 18, 2005, we converted $35,931 of our April 2004
Convertible Promissory Note into 500,000 shares of common stock pursuant to
a January 14, 2005 notice of conversion from Longview Fund LP, at a fixed
conversion price of $0.10. The conversion included $14,068 of accrued
and unpaid interest on the converted amount. We issued the underlying
common stock upon conversion pursuant to our SB-2 registration statement,
declared effective on August 3, 2004.

On January 19, 2005, we converted $64,068 of our April 2004
Convertible Promissory Note into 641,387 shares of common stock pursuant to
a January 19, 2005 notice of conversion from Longview Fund LP, at a fixed
conversion price of $0.10. The conversion included $70 of accrued and
unpaid interest on the converted amount. We issued the underlying common
stock upon conversion pursuant to our SB-2 registration statement, declared
effective on August 3, 2004.

On January 31, 2005, we closed a funding transaction with Longview
Fund, LP, Longview Equity Fund, LP, Longview International Equity Fund, LP,
Alpha Capital Aktiengesellschaft and Whalehaven Funds Limited, five
institutional accredited investors, for the issuance and sale to the
Subscribers of up to $2,300,000 of principal amount of promissory notes
convertible into shares of our common stock, and Warrants to purchase
shares of common stock at 100% coverage of the common stock issuable in
accordance with the principal amount of the notes. One Million One Hundred
Fifty Thousand Dollars ($1,150,000) of the purchase price was paid on the
initial closing date, and One Million One Hundred Fifty Thousand Dollars
($1,150,000) of the purchase price will be payable within five (5) business
days after the actual effectiveness of an SB-2 Registration Statement as
defined in the Subscription Agreement. The initial closing notes were at
prime plus 4% interest in the aggregate amount of $1,150,000, plus five-
year Warrants for the purchase of, in the aggregate, 9,200,000 shares of
common stock, at the lesser of (i) $0.16, or (ii) 101% of the closing bid
price of the Common Stock as reported by Bloomberg L.P. for the OTC
Bulletin Board for the trading day preceding the Closing Date. The notes
are convertible into shares of common stock of we at $0.125 per common
share. Conversions are limited to a maximum ownership of

F-29

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.99% of the underlying common stock at any one time. The notes have a
maturity date two yeas from closing and are payable in twelve equal monthly
installments, commencing June 1, 2005. The installment payments consist of
principal equal to 1/20th of the initial principal amount which, subject to
certain conditions concerning trading volume and price, can be paid in cash
at 103% of the monthly installment, or common stock or a combination of
both. The notes have an acceleration provision upon the change in a
majority of the present Board of Directors except as the result of the
death of one or more directors, or a change in the present CEO. In
connection with this transaction, we issued restricted common stock in the
aggregate amount of 460,000 shares plus the aggregate cash amount of
$57,500 for due diligence fees to the investors in this transaction

On February 14, 2005, we converted $41,666 of our June 2004
Convertible Promissory Note into 430,327 shares of restricted common stock
pursuant to a February 9, 2005 notice of conversion from Longview Fund LP,
at a fixed conversion price of $0.15. The conversion included $22,882 of
accrued and unpaid interest on the converted amount. We issued the
Convertible Promissory Note and the underlying common stock upon conversion
to an accredited investor, pursuant to a Regulation D offering

On February 16, 2005, we converted $25,000 of our November 2003
Convertible Promissory Note into 549,340 shares of common stock pursuant to
a February 15, 2005 notice of conversion from Gamma Opportunity Capital
Partners LP, at a fixed conversion price of $0.05. The conversion included
$2,467 of accrued and unpaid interest on the converted amount. We issued
the underlying common stock upon conversion pursuant to our SB-2
registration statement, declared effective on August 3, 2004.

F-30

BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ITEM 8. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

BDO Seidman, LLP, an independent accounting firm that was previously
engaged as the principal accountant to audit our financial statements,
resigned effective March 10, 2004. BDO Seidman, LLP has not offered any
explanation for its resignation beyond the statement of resignation
contained in the resignation letter.

The principal accountants' reports on our financial statements for
the past two years contained an explanatory paragraph regarding going
concern uncertainty.

No disagreement with the former auditors occurred during the two most
recent fiscal years or the subsequent interim period on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of the former accountants, would have caused them to make
reference to the subject matter of the disagreements in connection with
their reports.

The independent registered public accounting firm of Lazar Levine &
Felix, LLP, 350 Fifth Avenue, New York, NY, has agreed to serve as our
principal accountant to audit our financial statements, effective March 17,
2004. We did not consult with Lazar Levine & Felix, LLP prior to the
resignation of BDO Seidman, LLP. The decision to change accountants was
approved by the Audit Committee.

ITEM 8A. - CONTROLS AND PROCEDURES

a) Evaluation of Disclosure Controls and Procedures. Our Chief
Executive Officer and our principal financial officer, after evaluating the
effectiveness of our disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of the
filing date of this report on Form 10-KSB (December 31, 2004), have
concluded that as of the Evaluation Date, our disclosure controls and
procedures were adequate and effective to ensure that material information
relating to the Company and our consolidated subsidiary would be made known
to them by others within those entities, particularly during the period in
which this report on Form 10-KSB was being prepared.

b) Changes in Internal Controls. There were no changes in our internal
controls or in other factors that could significantly affect our disclosure
controls and procedures subsequent to the Evaluation Date, nor any
significant deficiencies or material weaknesses in such disclosure controls
and procedures requiring corrective actions. As a result, we took no
corrective actions.

PART III

ITEM 9. - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The directors, executive officers and significant employees/advisors
as of December 31, 2004, are set forth below. Our directors serve for
staggered terms of two years or until their successors are elected.

Year
Name and Age Position with the Company Appointed
------------ ------------------------- ---------

Stanley A. Hirschman 58 Chairman and Director 2000
Roy G. Warren 49 Director, Chief Executive Officer 1997/1999
Tommy E. Kee 56 Chief Financial Officer, Treasurer 2003
Roy D. Toulan, Jr. 59 Vice President, Corporate Secretary, General Counsel 2003
Michael Edwards 45 Vice President Sales 2000
Benjamin Patipa 49 Vice President, Operations 2002
Arthur W. Blanding 77 Director 1999
Robert Cummings 62 Director 1997
Paul Downes 43 Director 1997
John McCormack 46 Director 1997
Phillip Pearce 76 Director 1997

The experience and background of our executive officers follow:

Mr. Stanley A. Hirschman - Chairman and Director since September 2000

Mr. Hirschman is president of CPointe Associates, Inc., an executive
management and consulting firm specializing in solutions for emerging
companies with technology-based products. CPointe was formed in 1996. In
addition, he is an advisor to Redwood Grove Capital Management and Global
Marketing Partners. He is director of 5G Wireless Communications, Inc. and
iWorld Projects & Systems, Inc. Prior to establishing CPointe Associates,
Mr. Hirschman was vice president of operations of Software, Etc., Inc., a
retail software chain, from 1989 until 1996. Mr. Hirschman also has held
senior management positions with retailers T.J. Maxx, Gap Stores and Banana
Republic. Mr. Hirschman currently serves on the Audit Committee of our
board of directors.

Mr. Roy G. Warren - Chief Executive Officer since May 1999; Director since
1997

Mr. Warren serves as our Chief Executive Officer and as a director.
As Chief Executive Officer, Mr. Warren continues to develop strategy for
our growth and external financial matters.

For 15 years from 1981 through 1996, Mr. Warren was in the securities
brokerage industry. During those years, Mr. Warren acted as executive
officer, principal, securities broker and partner with brokerage firms in
Florida, most notably Kemper Financial Companies, Alex Brown & Sons and
Laffer Warren & Company. Mr. Warren currently serves on the Executive
Committee of our board of directors.

Mr. Tommy E. Kee - Chief Financial Officer, Treasurer since 2003

Tommy Kee joined us in March 2003 as Chief Financial Officer. He
graduated with an MBA from the University of Memphis and a BS degree in
accounting from the University of Tennessee. Before joining us, he served
for several years as CFO for Allied Interstate, Inc. in the West Palm Beach
area. Prior to that, Mr. Kee served as CFO and Treasurer for Hearx Ltd. a
West Palm Beach, Florida public company. He also served 18 years as
International Controller and Financial Director with the Holiday Inns Inc.
organization in Memphis and Orlando. Mr. Kee handles all financial
management and reporting

for us and works closely with our external auditors and general counsel for
financial reporting and SEC compliance.

Roy D. Toulan, Jr. - Vice President, Corporate Secretary, General Counsel
since 2003

Roy Toulan began with the original founders as outside corporate
counsel in 1997 and has been responsible for all of our corporate and
business legal work, including securities matters. Mr. Toulan became
Corporate Counsel in October 2002, when he left his private legal practice
in Boston, and Vice President in January 2003. He received his law degree
from Catholic University in Washington D.C. and for the first 15 years of
his career practiced corporate and securities litigation with large law
firms in New York and Boston. Before joining us full time, he spent the
last 18 years in private practice in Boston, Massachusetts in general
corporate and securities law helping companies with corporate structure and
funding, both domestically and internationally.

Mr. Michael Edwards - Vice President Sales, since 2003

Mr. Edwards has been with us in a sales and marketing capacity since
2000. Prior to that time, he worked for 5 years in beverage marketing
research for Message Factors, Inc., a Memphis, Tennessee marketing research
firm. Mr. Edwards has a BS degree from Florida State University in
Management and Marketing and spent 13 years in the banking industry,
leaving CitiBank to join Message Factors in 1995.

Dr. Benjamin Patipa - Vice President, Operations since 2002

Dr. Patipa is a pediatrician with over fifteen years of experience in
directing operations, marketing, sales and facilitating growth in both
public and private companies. In 1987, Dr. Patipa founded and served as
the chairman and CEO of Weight For Me, Inc., a company that developed a
proprietary program which pioneered the delivery of weight control and
nutrition services to the over 12 million obese children and adolescents in
America. Weight For Me earned national and international recognition as
the premier program for the control of obesity in children and adolescents.
Dr. Patipa also served at HEARx Ltd. as a member of the Executive Operating
Committee, Sonus USA, Inc., where he lead the company's franchise licensing
and buying group business in the Southeast United States. Most recently,
Dr. Patipa served as Senior Vice President and Operational Head of
eHDL/HealthNet Data Link, Inc., a national electronic healthcare
information company.

Mr. Arthur W. Blanding - Director since November 1999

Mr. Blanding is president of The Omega Company, an international
dairy industry consulting company. Mr. Blanding has over 50 years
experience in management of dairy processing, sales and strategic planning
consulting. He graduated from Michigan State University in 1956, with a
degree in food science, and in 1964 from Oregon State University with a
degree in Food Microbiology and attended Harvard Business School.

As President of The Omega Company for the past 20 years, Mr. Blanding
has completed over 200 projects successfully, both in the U.S. and abroad.
Clients of The Omega Company include Abbott International, Cumberland
Farms, Dairy Gold, Farm Fresh, Inc., Haagen Dazs, Labatt, Ross Laboratories
and Stop & Shop Company, among others. Mr. Blanding was a consultant for
the design and construction of the dairy processing facility built in
Shanghai by Green Food Peregrine.

Mr. Robert J. Cummings - Director Since 1997

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. Paul Downes - Director Since 1997

Mr. Downes is a director and, from August of 1997 to April of 1998,
served as our Chairman. For the past 12 years, Mr. Downes has managed his
personal 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, which 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 our "founders" and played a leading
role in our initial raising efforts. From 2001, Mr. Downes has served as
the Chairman of a start up software company located in Delray Beach,
Florida.

Mr. Phillip Pearce - Director Since 1997

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. Pearce has remained active in the
securities industry as a corporate financial consultant. Mr. Pearce serves
on the compensation committee of our board of directors. Mr. Pearce also
serves on our audit committee.

ITEM 9 - (COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT)

Based upon a review of the appropriate Forms 3, 4 and 5 and any
amendments to such forms filed pursuant to Section 16(a), we report the
following delinquent filings. Senior management and our Directors filed
Form 4 reports on January 28, 2005 for common stock issued on December 31,
2005, owing to a misunderstanding as to when the delivery of such shares by
us to the individual recipients was to occur.

During 2004, our directors and executive officers did not file Form
4s for options that were authorized pursuant to compensation plans but not
issued.

ITEM 10. - EXECUTIVE COMPENSATION

Compensation of directors

We compensated Directors for their travel expenses to and from board
of directors' meetings in 2001, 2002, 2003 and 2004. In 2003, there were
three in person meetings and four telephonic board meetings. In 2004,
there were three in person meetings and four telephonic board meetings.
Directors received options for 35,000 shares of common stock for each year
as a director through 2001. Each member of the executive committee has
received options for an additional 40,000 shares of common stock for their
services from 1998 through 2001. Directors received additional options for
25,000 shares for 2002 and 2003. On January 13, 2004, the Directors
unanimously voted to convert the options to common stock on a one for one
basis. The common shares so converted were issued pursuant to a Form S-8
registration statement filed December 23, 2004.

Compensation of executive officers

The following table sets forth the compensation paid during the last
three fiscal years to our Chief Executive Officer and our other executive
officers:

Summary Compensation

Long-Term
Annual Compensation Compensation
-------------------------------------------- --------------------------------------------
Bonus Restricted Stock All Other
Name & Position Year Salary 2004 (1) Other Awards and Options Compensation (2)
------------------------------------------------------------------------------------------------------------------

Roy G. Warren 2001 $180,000 $137,750 $12,000 2,500,000 employment $220,000 salary
President & CEO 2002 $180,000 value of Medical contract options and $12,000
Director 2003 $220,000 converted insurance 255,000 Director options (insurance)
2004 $220,000 options; converted to common
$8,462 stock per January 13,
cash bonus 2004 vote of Directors

Tommy E. Kee 2003 120,000 $15,000 $12,000 300,000 employment $60,000 salary
Chief financial; 2004 120,000 value of Medical contract options $12,000
Officer converted insurance converted to common (insurance)
options; stock per January 13,
$4,615 2004 vote of Directors
cash bonus

Roy D. Toulan, Jr. 2003 180,000 $15,000 $8,900 300,000 employment $180,000 salary
Vice President 2004 180,000 value Medical contract options $8,900
Secretary converted (part) converted to common (insurance)
Corporate Counsel options; Life & stock per January 13,
$6,923 disability 2004 vote of Directors
cash bonus insurance

Mr. Warren has waived a 4% EBITDA bonus provision in his employment
contract. Mr. Toulan was granted 100,000 shares of common stock in
2003 as a signing bonus, valued at $28, 000. The reported values of
options converted in 2004 are pursuant to a January 13, 2004 vote of
Directors authorizing conversion, and are valued $0.05 per share.

Amount paid for termination of employment owing to change of control.

Option Grants 2004 None.

Aggregated Options Exercised in Last Fiscal Year
And Fiscal Year-End Option Values

Number of Securities Underlying Value of Unexercised In-the-
Unexercised Options at Money Options at 2004 Fiscal
Shares 2004 Fiscal Year-End Year-End
Acquired Value
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---------------------------------------------------------------------------------------------------------------------

Roy G. Warren 2,755,000 $220,400 -0- -0-
--------------------------------------
President & CEO (1) (3) -0- -0-
---------------------------------------------------------------------------------------------------------------------
Director

Tommy E. Kee 300,000 $ 24,000 -0- -0-
--------------------------------------
Chief Financial Officer (2) (3) -0- -0-
---------------------------------------------------------------------------------------------------------------------
Treasurer

Roy D. Toulan, Jr. 300,000 $ 24,000 -0- -0-
--------------------------------------
Vice President (2) (3) -0- -0-
---------------------------------------------------------------------------------------------------------------------
Secretary
Corporate Counsel

2,500,000 employment contract options and 255,000 Director options
converted to common stock per January 13, 2004 vote of Directors

300,000 employment contract options converted to common stock per
January 13, 2004 vote of Directors

The reported value of options converted in 2004 are at market ($0.08
per share) at January 13, 2004 vote of Directors authorizing
conversion, and at $0.05 per share for income tax reporting purposes

Compensation Plans
------------------

Directors

On March 27, 2001, we issued options to our directors, including Roy
Warren, to purchase the aggregate of 925,000 shares of our common stock.
The options have an exercise price of $0.75 and expire March 26, 2006.
Directors received options for 35,000 shares for each full year of service
and an additional 40,000 shares for service on a board committee. On July
1, 2002, we issued 250,000 options to the Board of Directors, including Roy
Warren, for services rendered as directors. Each director received options
for 25,000 shares of common stock at an exercise price of $0.60. The
options can be exercised for five years.

On January 13, 2004, the Board of Directors adopted a plan to convert
on a one for one basis the options granted to our present employees and the
directors currently serving on the Board into a like number of our
restricted shares of common stock at the then market value of $0.08 per
share. The conversion of the options to common stock for any individual
director or employee was conditioned upon a "lockup" agreement by such
director or employee, pursuant to which the recipients of such common stock
could not sell, transfer, pledge or hypothecate such common stock for a
six-month period.

Employment contracts

Roy G. Warren Chief Executive Officer

We have a one-year contract with Mr. Warren commencing January 1,
2003, at an annual base salary of $220,000. The contract provides for the
grant of options for 1,000,000 shares of common stock at $0.50 per share,
options for 1,000,000 shares of common stock at $1.50 per share and options
for 100,000 shares of common stock at $0.75 per share. During his
employment, he also will receive five-year incentive options for an
additional 400,000 shares in tranches of 100,000, as the public trading
price for our stock reaches $2.00, $3.00, $4.00 and $5.00, respectively.
The exercise price for these options will track the market price for our
common stock when granted. Mr. Warren's employment contract provides for
the payment of one year's salary plus medical insurance costs for
termination of employment owing to change of control. We converted these
employment contract options to common stock pursuant to a vote of the Board
of Directors on January 13, 2004. Our Board of Directors has extended this
contract pending the execution of a replacement employment contract.

Tommy E. Kee, Chief Financial Officer, Treasurer

Mr. Kee has an eighteen-month contract with us commencing July 1,
2003 at an annual salary of $120,000. We granted options for 300,000
shares of common stock as an incentive bonus pursuant to an employment
contract. The first 100,000 share options tranche vested on July 1, 2003
at an exercise price of $0.10 per share. The remaining options for 200,000
shares of common stock vest as follows: options for 100,000 shares on each
of December 31, 2003 and 2004, respectively. All of these options expire
five years from vesting. Mr. Kee's employment contract provides for the
payment of six months' salary plus medical insurance costs for termination
of employment owing to change of control. We converted these employment
contract options to common stock pursuant to a vote of the Board of
Directors on January

13, 2004. Our Board of Directors has extended this contract pending the
execution of a replacement employment contract.

Roy D. Toulan, Jr., Vice President, General Counsel and Corporate
Secretary

Mr. Toulan has a two-year contract with us commencing January 1, 2003
at an annual salary of $180,000. An incentive bonus of 100,000 common
stock shares was granted to Mr. Toulan in January 2003, valued at $0.28 per
share. In addition, we granted options for 100,000 shares of common stock
as part of the pursuant to an employment contract. These options vested
immediately, expire on December 30, 2007 and have an exercise price of
$0.40 per share. We also granted options for 200,000 shares of common
stock at an exercise price of $0.40 per share, which vest as follows:
options for 100,000 shares on each of December 31, 2003 and 2004. Options
for 100,000 shares expire on each of December 30, 2008 and 2009,
respectively. Mr. Toulan's employment contract provides for the payment of
one year's salary plus medical insurance costs for termination of
employment owing to change of control. We converted these employment
contract options to common stock pursuant to a vote of the Board of
Directors on January 13, 2004. Our Board of Directors has extended this
contract pending the execution of a replacement employment contract.

Securities authorized for issuance under equity compensation plans
------------------------------------------------------------------

The equity compensation reported in this section has been and will be
issued pursuant to individual compensation contracts and arrangements with
employees, directors, consultants, advisors, vendors, suppliers, lenders
and service providers. The equity is reported on an aggregate basis as of
December 31, 2004. Our security holders have not approved the compensation
contracts and arrangements underlying the equity reported.

Number of securities Number of securities
to be issued upon Weighted average price remaining for future
Compensation exercise of options, of outstanding options, issuance under equity
Plan Category warrants and rights warrants and rights compensation plans
----------------------------------------------------------------------------------------------------

Directors (former) 335,000 $0.71 0 individual plans
----------------------------------------------------------------------------------------------------
Employees (former) 591,167 $0.87 60,000 individual plans
----------------------------------------------------------------------------------------------------
Consultants 1,460,714 $0.30 0 individual plans
----------------------------------------------------------------------------------------------------
Lender 25,000 $0.40 0 individual plan
----------------------------------------------------------------------------------------------------
Total 2,412,381 $0.77 60,000
----------------------------------------------------------------------------------------------------

ITEM 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of our common
stock as of March 3, 2005, as to

* each person known to beneficially own more than 5% of our common
stock
* each of our directors
* each executive officer
* all directors and officers as a group

The following conditions apply to all of the following tables:

* except as otherwise noted, the named beneficial owners have direct
ownership of the stock and have sole voting and investment power
with respect to the shares shown

* the class listed as "common" includes the shares of common stock
underlying our issued convertible preferred stock, options and
warrants

Beneficial Owners
-----------------

Amount and Nature
Name and Address of of Beneficial
Title of Class Beneficial Owner (1) Ownership Percent of Class (2)
----------------------------------------------------------------------------------------------------

Common Amro International, SA (3) 5,985,787 9.99%
Grossmuenster Platz 26
P.O. Box 4401
Zurich, Switzerland CH 8022
Austinvest Anstalt Balzers
Landstrasse 938
9494 Furstentums Balzers,
Liechtenstein
Esquire Trade & Finance Inc.
Trident Chambers
P.O. Box 146
Road Town, Tortola, B.V.I.
----------------------------------------------------------------------------------------------------
Common The Keshet Fund LP (4) 5,985,787 9.99%
Keshet L.P.
Nesher Ltd
Talbiya B. Invest ments Ltd.
Ragnall House, 18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
----------------------------------------------------------------------------------------------------
Common Alpha Capital Aktiengesellschaft (5) 5,985,787 9.99%
Pradafant 7, Furstentums 9490,
Vaduz, Liechtenstein
----------------------------------------------------------------------------------------------------
Common Mid-Am Capital, L.L.C. (5) 5,985,787 9.99%
Northpointe Tower
10220 North Ambassador Drive
Kansas City, MO 64190
----------------------------------------------------------------------------------------------------
Common Explorer Fund Management, LLC (5) 5,985,787 9.99%
444 N. Michigan Ave.
Chicago, IL 60611
----------------------------------------------------------------------------------------------------
Common Longview Fund LP 3,633,333 6.06%
1325 Howard Avenue #422
Burlingame, CA 94010
Attn: S. Michael Rudolph
----------------------------------------------------------------------------------------------------
Common Stonestreet Limited Partnership 5,985,787 9.99%
C/o Canaccord Capital Corporation
320 Bay Street, Suite 1300
Toronto, Ontario M5H 4A6,
Canada
----------------------------------------------------------------------------------------------------
Common Whalehaven Funds Limited 3,816,667 6.37%
3rd Floor, 14 Par-Laville Road
Hamilton, Bermuda HM08
----------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------
Common Dale Reese (6) 3,305,985 5.52%
125 Kingston Road
Media, PA
----------------------------------------------------------------------------------------------------
Common Longview Fund LP(5) 5,985,787 9.99%
1325 Howard Avenue #422
Burlingame, CA 94010
----------------------------------------------------------------------------------------------------
Common Gamma Opportunity (5) 5,985,787 9.99%
Capital Partners LP
British Colonial Centre of Commerce
One Bay Street, Suite 401
Nassau, The Bahamas
----------------------------------------------------------------------------------------------------

Beneficial Ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting
or investment power with respect to securities. Shares of common
stock subject to options or warrants currently exercisable or
convertible, or exercisable or convertible within 60 days of March 3,
2005 are deemed outstanding for computing the percentage of the
person holding such option or warrant but are not deemed outstanding
for computing the percentage of any other person.

Percentage based on 59,917,797 shares of common stock outstanding
with respect to the common stock.

Amro International, S.A., Austinvest Anstalt Balzers and Esquire
Trade & Finance Inc. share a common investment representative,
attorney and subscription agreements for the Series D and Series F
convertible preferred stock and are treated as a group for beneficial
ownership purposes. This group is contractually limited to a
beneficial ownership of our equity not to exceed 9.99%. All of the
equity listed consists of convertible preferred and warrants.

The Keshet Fund L.P., Keshet L.P., Nesher Ltd. and Talbiya B.
Investments Ltd. share a common investment representative, attorney
and subscription agreements for the Series G convertible preferred
stock and are treated as a group for beneficial ownership purposes.
This group is contractually limited to a beneficial ownership of our
equity not to exceed 9.99%. All of the equity listed consists of
convertible preferred and warrants.

This owner is contractually limited to a beneficial ownership of our
equity not to exceed 9.99%. All of the equity listed consists of
convertible preferred and warrants.

The beneficial owner has the right to convert 107,440 shares of stock
preferred to 107,440 shares of common stock within 60 days.

Management Owners
-----------------

Name and Address of Amount and Nature
Title of Class Management Owner (1) of Ownership Percent of Class (2)
-----------------------------------------------------------------------------------------

Common Roy G. Warren 3,321,764 5.54%
11300 US Highway No.1
N. Palm Beach, FL
-----------------------------------------------------------------------------------------
Common Paul Downes 288,000 Less than 1%
Tamarind Management Ltd.
20579 S. Charlestown
Boca Raton, FL 33434
-----------------------------------------------------------------------------------------
Common Robert Cummings 565,000 Less than 1%
2829 N.E. 44th Street
Lighthouse Point, FL 33064
-----------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------
Common John McCormack 787,500 1.31%
8750 South Grant
Burridge, IL 60521
-----------------------------------------------------------------------------------------
Common Mr. Arthur W. Blanding 452,889 Less than 1%
Janesville, WI 53545
-----------------------------------------------------------------------------------------
Common Phillip Pearce 256,000 Less than 1%
6624 Glenleaf Court
Charlotte, NC 28270
-----------------------------------------------------------------------------------------
Common Stanley Hirschman 369,670 Less than 1%
2600 Rutgers Court
Plano, Texas 75093
-----------------------------------------------------------------------------------------
Common Roy D. Toulan, Jr. 1,015,121 1.696%
VP, General Counsel
6 Wheelers Pt. Rd
Gloucester, MA
-----------------------------------------------------------------------------------------
Common Tommy Kee 442,385 Less than 1%
CFO, Treasurer
11300 US Highway 1
N. Palm Beach, FL
-----------------------------------------------------------------------------------------
Common Executive officers and 7,498,329 12.52%
directors as a group
-----------------------------------------------------------------------------------------

Beneficial Ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting
or investment power with respect to securities. Shares of common
stock subject to options or warrants currently exercisable or
convertible, or exercisable or convertible within 60 days of April 2,
2004 are deemed outstanding for computing the percentage of the
person holding such option or warrant but are not deemed outstanding
for computing the percentage of any other person.

Percentage based on 59,917,797 shares of common stock outstanding
with respect to the common stock.

There currently are no arrangements that may result in a change of
ownership or control.

ITEM 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not Applicable

ITEM 13. - EXHIBITS

Exhibit Incorporated Filed
No. Document Description by Reference Herewith
-----------------------------------------------------------------------------------------

3.1 Articles of Incorporation (1)
3.2 Amended Articles (name change) (1)
3.4 Restated Bylaws (1)
4 Rights of Equity Holders
4.1 Preferred, Series B Designation (1)
4.2 Preferred, Series F Designation (2)
4.3 Preferred, Series G Designation (3)
4.4 Preferred, Series H Designation (6)
4.5 Preferred, Series I Designation (7)
4.6 Preferred, Series J Designation (8)
4.7 Preferred, Series K Designation (10)
4.8 Subscription Agreement dated November 2003 entered (11)

with Gamma Opportunity Capital Partners, LP
4.9 Class A Common Stock Purchase Warrant issued to
Gamma Opportunity Capital Partners, LP (11)
4.10 Class B Common Stock Purchase Warrant issued to
Gamma Opportunity Capital Partners, LP (11)
4.11 Convertible Note issued to Gamma Opportunity
Capital Partners, LP dated November 2003 (11)
4.12 Class A Common Stock Purchase Warrant issued to
Libra Finance, S.A. (11)
4.13 Subscription Agreement dated November 2003 entered
with MID-AM CAPITAL, L.L.C (11)
4.14 Class A Common Stock Purchase Warrant issued to
MID-AM CAPITAL, L.L.C. (11)
4.15 Class B Common Stock Purchase Warrant issued to
MID-AM CAPITAL, L.L.C (11)
4.16 Convertible Note issued to MID-AM CAPITAL, L.L.C.
dated November 2003 (11)
4.17 Subscription Agreement dated April 2, 2004 entered
with Alpha Capital Aktiengesellschaft
and Longview Fund LP (11)
4.18 Convertible Note issued to Alpha Capital
Aktiengesellschaft dated April 2004 (11)
4.19 Convertible Note issued to Longview Fund LP
dated April 2004 (11)
4.20 Common Stock Purchase Warrant issued to Alpha
Capital Aktiengesellschaft dated April 2004 (11)
4.21 Common Stock Purchase Warrant issued to
Longview Fund LP dated April 2004 (11)
4.22 Subscription Agreement entered by and between the
Company and Mid-AM Capital LLC dated June 2004 (12)
4.23 Convertible Note issued to Mid-AM Capital LLC
dated June 2004 (12)
4.24 Common Stock Purchase Warrant A issued to
Mid-AM Capital LLC dated June 2004 (12)
4.25 Common Stock Purchase Warrant B issued to
Mid-AM Capital LLC dated June 2004 (12)
4.26 Subscription Agreement entered by and between the
Company and Alpha Capital, Longview Fund LP,
Stonestreet Limited Partnership, Whalehaven Funds
Limited and Gamma Opportunity Capital Partners LP
dated June 2004 (12)
4.27 Form of Common Stock Purchase A issued to Alpha
Capital, Longview Fund LP, Stonestreet Limited
Partnership, Whalehaven Funds Limited and Gamma
Opportunity Capital Partners LP dated June 2004 (12)
4.28 Form of Common Stock Purchase B issued to
Alpha Capital, Longview Fund LP, Stonestreet
Limited Partnership, Whalehaven Funds Limited and
Gamma Opportunity Capital Partners LP dated June 2004 (12)
4.29 Form of Convertible Note issued to Alpha Capital,
Longview Fund LP, Stonestreet Limited Partnership,
Whalehaven Funds Limited and Gamma Opportunity
Capital Partners LP dated June 2004 (12)
4.30 Subscription Agreement entered by and between the
Company and Alpha Capital, Longview Fund LP,
Stonestreet Limited Partnership and Whalehaven
Funds Limited dated October 2004 (12)
4.31 Form of Common Stock Purchase C issued to Alpha (12)

Capital, Longview Fund LP, Stonestreet Limited
Partnership and Whalehaven Funds Limited
dated October 2004
4.32 Form of Convertible Note issued to Alpha Capital,
Longview Fund LP, Stonestreet Limited Partnership,
Whalehaven Funds Limited and Gamma Opportunity
Capital Partners LP dated October 2004 (12)
4.33 Subscription Agreement entered by and between the
Company and Momona Capital Corp. and Ellis
International Ltd. dated December 2004 (12)
4.34 Form of Common Stock Purchase C issued to Momona
Capital Corp. and Ellis International Ltd.
dated December 2004 (12)
4.35 Form of Convertible Note issued to Momona Capital
Corp. and Ellis International Ltd. dated December 2004 (12)
4.36 Form of Convertible Note issued to Alpha Capital,
Longview Fund LP, Longview Equity Fund LP, Longview
International Equity Fund LP and Whalehaven Funds
Limited dated January 2005 X
4.37 Subscription Agreement entered by and between the
Company and Alpha Capital, Longview Fund LP, Longview
Equity Fund LP, Longview International Equity Fund LP
and Whalehaven Funds Limited dated January 2005 X
4.38 Form of Common Stock Purchase Warrant issued to Alpha
Capital, Longview Fund LP, Longview Equity Fund LP,
Longview International Equity Fund LP and Whalehaven
Funds Limited dated January 2005 X
10 Material Contracts
10.1 Warner Bros China License Agreement (5)
10.2 Warner Bros. China License Agreement (modified) (5)
10.3 Warner Bros. U.S. License Agreement. (5)
10.4 Warner Bros. Mexico. License Agreement (6)
10.5 Warner Bros. Canada. License Agreement (6)
10.6 MoonPie License Agreement (10)
10.7 Marvel License Agreement (US) (10)
10.8 SADAFCO Production Agreement (10)
10.9 Real Estate Lease Amendment Extending Term (10)
10.10 Masterfoods License X
10.11 Marvel Enterprises License (UK) X
16.1 Letter on change or certifying accountant (9)
21.1 Subsidiary Articles of Association (4)
31.1 Certification of CEO, Rules 13a-14(a) & 15d-14(a) X
31.2 Certification of CFO, Rules 13a-14(a) & 15d-14(a) X
32.1 Certifications of CEO & CFO, 18 U.S.C. Sec. 1350 X

Filed with Form 10SB/A First Amendment
Filed with Form 10K-SB for 12-31-99
Filed with Form 10QSB for 6-30-00
Filed with Form SB-2/A Second Amendment
Filed with Form SB-2/A Third Amendment
Filed with Form 10K-SB 2001
Filed with Form 10QSB for 6-30-02

Filed with Form 8-K for 10-02-02
Filed with Form 8-K for 3-26-04
Filed with Form 10K-SB 2003
Filed with Form SB-2 June 4, 2004
Filed with Form SB-2 January 21, 2005

ITEM 14. - PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees
----------

The aggregated fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the audit of
our annual financial statements and review of financial statements included
in our Forms 10-QSB were $119,325 and $86,493 respectively for 2003 and 2004.

Audit Related Fees
------------------

None

Tax Fees
--------

None

All Other Fees
--------------

$3,699

Audit Committee Pre-Approval Policies
-------------------------------------

The audit committee makes reasonable inquiry as to the independence
of our principal auditors based upon the considerations set forth in Rule
2-01 of Regulation S-X, including the examination of representation letters
furnished by the principal accountant. The audit committee has not
approved any services beyond those required for the audit of our annual
financial statements and review of financial statements included in our
Forms 10-QSB.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, Bravo! Foods International Corp. has caused this report to be
signed on its behalf by the undersigned, thereunder duly authorized, this
March 21, 2005.

BRAVO! FOODS INTERNATIONAL CORP.
(Formerly China Premium Food Corporation)

By: /S/ Roy G. Warren, Chief Executive Officer

In accordance with the Securities Exchange Act of 1934, Bravo Foods
International Corp. has caused this report to be signed on its behalf by
the undersigned in the capacities and on the dates stated.

Signature Title Date
--------- ----- ----

/S/ Roy G. Warren Chief Executive Officer March 21, 2005

/S/ Tommy E. Kee Chief Financial Officer, Treasurer March 21, 2005