U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                  Form 10-KSB

                  [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
                   OF THE SECURITIES AND EXCHANGE ACT OF 1934
                  for the fiscal year ended December 31, 2003

               [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
        For the transition period from ______________ to ________________

                        Commission File Number: 0-27351

                              American Diary, Inc.
                 (Name of small business issuer in its charter)

              Utah                                       87-0445575
--------------------------------            ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


1st Qingxiang Street, Kedong County, Heilongjiang Province 164800, The People's
                                Republic of China
                    (Address of principal executive offices)

                                011-0452-4312688
                          (Issuer's telephone number)

Securities  registered  under  Section  12(b)  of  the  Exchange  Act:

                              Title of each class
                                      N/A

                    Name of each exchange on which registered
                                      N/A

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

                          Common Stock, par value $.001

     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



<PAGE>

     Check  if  there  is no 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.  [X  ]

     State  issuer's  revenues  for  its  most  recent  fiscal year: $19,059,357

The  aggregate  market   value  of  voting   and  non-voting   equity  held   by
non-affiliates  of  the  registrant as of December 31, 2003: Common stock, $.001
par  value:  $3,781,908


      ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS

     Check whether the issuer has filed all documents and reports required to be
filed  by  Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities  under  a  plan  confirmed  by  a  court.  Yes  [ ]     No  [ ]

     The  number  of  shares  of the registrant's common stock outstanding as of
March  29,  2004:  11,750,970  shares.

     Documents  incorporated  by  reference:  None

     Transitional Small Business Disclosure Format: Yes [ ]   No [X]




























                                        2

<PAGE>

                                TABLE OF CONTENTS

PART  I

Item  1.  Description  of  Business                                            4

Item  2.  Description  of  Property                                           17

Item  3.  Legal  Proceedings                                                  17

Item  4.  Submission  of  Matters  to  a  Vote  of  Security  Holders         17

PART  II

Item  5.  Market  for  Common  Equity  and  Other  Stockholder  Matters       18

Item  6.  Managements' Discussion and Analysis  r Plan of Operations          20

Item  7.  Financial  Statements                                               25

Item  8.  Changes  in  and  Disagreements  with  Accountants
          on  Accounting and Financial  Disclosure                            26

PART  III

Item  9.  Directors  and  Executive  Officers  of  Registrant                 26

Item  10. Executive  Compensation                                             27

Item  11. Security  Ownership  of  Certain  Beneficial  Owners
          and  Management  and  Related  Stockholder  Matters                 30

Item  12. Certain  Relationships  and  Related  Transactions                  31

Item  13. Exhibits  and  Reports  on  Form  8-K                               32

Item  14. Controls  and  Procedures                                           33

Item  15. Principal  Accountant  Fees  and  Services                          34

Signatures                                                                    35

Exhibit  Index                                                                36



                                        3
<PAGE>
ITEM  I  DESCRIPTION OF BUSINESS

     American  Dairy,  Inc.   ("American  Dairy")  was  incorporated  under  the
corporate  laws  of  the State of Utah on December 31, 1985, originally with the
corporate  name  of Gaslight, Inc.  It was inactive until March 30, 1988 when it
changed  its  corporate  name  to  Lazarus  Industries,  Inc. and engaged in the
business  of manufacturing and marketing medical devices.  This line of business
was  discontinued  in  1991, and it became a non-operating public company shell.

     Effective  May 7, 2003, American Diary completed the acquisition of 100% of
the  issued  and  outstanding capital stock of American Flying Crane Corporation
(formerly called American Dairy Holdings, Inc.) ("AFC"), a Delaware corporation.
As  a  result,  AFC  become  a  wholly-owned  subsidiary  of American Dairy.  In
addition,  American  Dairy  amended  its Articles of Incorporation to change its
name  to  "American  Dairy,  Inc."  and  completed a one-for-nineteen (1-for-19)
reverse split of its Common Stock.  AFC holds 100% of the issued and outstanding
capital of Heilongjiang Feihe Dairy Co., Limited ("Feihe Dairy") in The People's
Republic  of China.  The principal activity of Feihe Dairy is the production and
distribution  of  milk powder and other dairy products.  Feihe Dairy has two 99%
owned  subsidiaries, Heilongjiang Sanhao Dairy Co., Limited ("Sanhao Dairy") and
BaiQuan  Feihe  Dairy  Co.,  Limited  ("BaiQuan Dairy"), that are engaged in the
production  and  supply  of processed milk and soybean products for Feihe Dairy.

     American  Dairy  purchased all of the outstanding capital stock of AFC from
its stockholders in exchange for 9,650,000 restricted shares (post-split) of the
Common  Stock  of American Dairy.  Pursuant to a written consent by stockholders
holding approximately 66% of the outstanding Common Stock of American Dairy, the
stockholders  approved:

1.   an  amendment  to the Articles of Incorporation of American Dairy to change
     its  corporate  name  to  "American  Dairy,  Inc.";
2.   a one-for-nineteen (1-for-19) reverse split of the Common Stock of American
     Dairy;  and
3.   the  establishment  of  its  2003  Stock  Incentive Plan covering 3,000,000
     shares  of  Common  Stock  for  its  key  employees,  including  officers,
     employees,  directors  and  consultants.

     In  addition  to these actions, at the closing of the transaction effective
May  7,  2003, all of the directors of American Dairy resigned and Leng You-Bin,
Liu  Sheng-Hui,  Lee  Hui-Lan, and Liu Hua were elected as the new directors and
officers  of  American  Dairy.








                                        4
<PAGE>

Current  Corporate  Structure
-----------------------------

     The  following  chart  reflects  the  current  corporate  structure  of the
American  Dairy  entities:


                              American Dairy, Inc.
                    -----------------------------------------
                    formerly named "Lazarus Industries, Inc."
                                      100%

                        American Flying Crane Corporation
                        ---------------------------------
                                      100%

                      Heilongjiang Feihe Dairy Co., Limited
                      -------------------------------------

                 99%(1)                                      99%(2)

Heilongjiang Sanhao Dairy Co., Limited          BaiQuan Feihe Dairy Co., Limited
--------------------------------------          --------------------------------

(1)  The  remaining  1%  is  held  by  Fu  Man  Guo  in  trust  for Feihe Dairy.
(2)  The  remaining  1%  is  held  by  Liang  Ai  Yun  in trust for Feihe Dairy.

Heilongjiang  Feihe  Dairy  Co.,  Limited  and  Subsidiaries
------------------------------------------------------------

     Heilongjiang  Feihe Dairy Co., Limited ("Feihe Dairy") and its subsidiaries
are  companies  organized  under  the  laws  of  The  People's Republic of China
("China"  or  "PRC").

     The  history  of  Feihe  Dairy  commenced  in  1962  when  its predecessor,
Heilongjiang  Zhaoguang  Hongguang  Dairy  Plant  ("Hongguang  Dairy  Plan") was
established  as a wholly owned State Enterprise, whose principal activities were
the  production  and  distribution  of  powdered milk in China.  Hongguang Dairy
Plant  was  located  at  Zhaoguang  Livestock  Farm of Zhaoguang Agro-Cultivated
Bureau  and  its  production  capability  was five tons a day and its main sales
territory  was  Shangdong  Province.

     In  1982,  Heilongjiang  Zhaoguang Dairy Plant ("Zhaoguang Dairy"), another
State  Enterprise,  was established at Zhaoguang Plantation near BeiAn City.  In
1984, the two Dairy Plant, Hongguang Dairy and Zhaoguang Dairy, were merged into
Heilongjiang  Zhaoguang Dairy Plant.  The State continued to retain ownership of
the  merged  Heilongjiang  Zhaoguang  Dairy  Plant  and  the  merged  production
capability  increased  to  20  tons  a  day.

     In  1997,  the  merged  Heilongjiang  Zhaoguang  Dairy  Plant  was  further
reorganized  and changed its name to Heilongjiang Feihe Dairy Group Limited.  In
February  2000,  Heilongjiang Feihe Dairy Group Limited completed its registered
capital  restructuring  to  become  a private company with registered capital of
$845,411.

     In  March  2001,  the  restructured  Heilongjiang Feihe Dairy Group Limited
changed  its  name  to its present name of Heilongjiang Feihe Dairy Co., Limited
and  acquired  all  of  the  fixed  assets (including land use rights, plant and
equipment and factory buildings) of Kedong Gongmu Dairy Plant. Feihe Dairy holds
99%  (1%  of the equity is held in trust by Fu Man Guo) of the registered equity
of  Heilongjiang Sanhao Dairy Co., Limited ("Sanhao Dairy"), which is considered
to  be  a  wholly  owned  subsidiary).

     In  August  2001,  Feihe Dairy's new production facilities in Kedong County
commenced  production  of  milk  powder.


                                        5
<PAGE>

     Sanhao  Diary was incorporated in March 28, 2001 with registered capital of
$433,110.  Feihe  Dairy  owns  99%  of  Sanhao  Dairy  and  Fu Man Guo holds the
remaining  1%  in  trust  for  Feihe Dairy.  Under a Sale and Purchase Agreement
dated February 6, 2001 between Feihe Dairy and Kedong County Economic Committee,
Feihe  Dairy  agreed  to  acquire all the fixed assets including land use rights
from  Kedong  Gongmu  Dairy Plant at a consideration of $364,269.  Following the
incorporation  of  Sanhao  Dairy,  Feihe  Dairy, as its contribution towards the
registered  capital,  injected  all  the  fixed  assets from Kedong Gongmu Dairy
Plant,  except  for  its  land uses rights to 47,640 square meters of land, into
Sanhao  Dairy,  plus  cash  of  $68,841.

     Pursuant  to a Sale and Purchase Agreement dated January 3, 2003, between a
wholly  owned  subsidiary, Heilongjiang Feihe Dairy Co., Limited ("Feihe Dairy")
and BaiQuan County Economic Planning Council (the "Council"), Feihe Dairy agreed
to  acquire  all  the  fixed  assets  including  the  factory  site,  production
facilities, land use rights and buildings from BaiQuan County Dairy Factory at a
consideration  of $700,483 (Rmb.5,800,000), which is payable in two installments
totaling  $603,864  (Rmb.5.0  million)  on  or before March 31, 2003 and a final
installment  of $96,618 (Rmb.800,000) is due on or before March 31, 2004.  As of
December  31,  2003,  Feihe  Dairy  had  paid  $338,164 (Rmb.2.8 million) of the
consideration  to  the  Council.  Pursuant  to a supplemental agreement with the
Council  on  March  31,  2003,  Feihe  Dairy  agreed to repay the balance of the
consideration  of  $362,318  (Rmb.3.0  million)  as  follows:
<TABLE>
<CAPTION>
<S>                                                   <C>
          On  or  before  January  3,  2004           $  72,464
          On  or  before  January  3,  2005              96,618
          On  or  before  January  3,  2006              96,618
          On  or  before  January  3,  2007              96,618
                                                      ---------
                                                      $ 362,318
                                                      =========
</TABLE>

Sources  of  Milk
-----------------

     Under  supply  contracts  with numerous small dairy farmers who have cattle
grazing  rights  and use rights to approximately 514,640 acres of land in Kedong
County  in  northeastern China, American Dairy has been able to receive supplies
of  raw  milk  without  having  to make capital investments in farms and cattle.
Historically,  the milk industry in China has been very fragmented and segmented
with  most  production  being generated by farmers owning and milking one to ten
cows.    Approximately  27%  of   this  acreage  is  arable  pasture  land,  and
approximately  30%  is  planted  with  beans  and  corn.

     The  dairy  farms  under  contract  with  American Dairy have approximately
11,000  milk  cows  as  of  December  31,  2003.

     This  large  scale  dairy production has an annual production capability of
approximately  123,000  tons  (112,000  metric  tons).

Milk  Processing  Facilities
----------------------------

     American  Dairy  has  a  relatively  new milk powder packaging plant called
Feihe  Dairy in Kedong County in China that commenced milk processing production
in August 2001. This plant is located at 1st Qingxiang Street, Kedong County, in
the  City  of  QiQiHaEr,  in  Heilongjiang  Province,  China.  Feihe  Dairy  has
approximately  134  packaging employees at this plant. American Dairy has a milk
powder  processing  plant  called  Sanhao  Dairy in Kedong County in the City of
QiQiHaEr,  in  Heilongjiang  Province, China. Sanhao Dairy has approximately 236
production  employees.



                                        6
<PAGE>


     American  Dairy  is  planning to build an additional milk powder processing
plant  in  close  proximity to its existing Sanhao Dairy plant in Kedong County.
American  Dairy  has acquired the land use rights to this location for $400,966.
American  Dairy  has entered into a construction contract to build the new plant
for $4,210,870 (Rmb.34,866,000), of which $71,810 (Rmb.594,589) has been paid as
of  December  31,  2003.  In  anticipation  of the completion of this new plant,
American  Dairy  has  ordered new milk powder processing machines and equipment,
and  has  advanced  $1,897,885  as  of  December  31,  2003  to  suppliers.

     American  Dairy  also  has  a  milk  powder processing plant called BaiQuan
Dairy.  BaiQuan  Dairy  has  approximately  62  production  employees.

     The  existing  production  facilities  employ  approximately  432  total
production  personnel.

     All  aspects  of  production  of  American  Dairy's  products  are based on
traditional  practices designed to yield premium quality, wholesome and superior
tasting  foods.

     The  existing production facilities have a daily milk processing capability
of  35  tons  of  fresh  milk,  and  have:

          1.  three  production  lines  for  processing  bean-milk  powders;
          2.  two  production  lines  for  processing  liquid milk into powdered
              milk;  and
          3.  one  production  line  for  processing  milk  Crowley  bean,  milk
              Crowley,  and  solid  milk.

     The  existing  processing facilities are capable of producing approximately
123,000  tons  (112,000  metric  tons)  of  milk  products  per  year.

     American  Dairy has been informed that the Kedong County government intends
to  invest  approximately  $12,000,000  into  milk  cow  breeding  operations to
increase  the presently available number of milk cows from 11,000 to 30,000, and
such  an  increase  in  the number of milk cows is anticipated to increase daily
milk  production  from  30,000 tons to approximately 105,900 tons of fresh milk.

     Because  of  the consistent quality of the milk powder products of American
Dairy,  it was awarded an ISO9002 quality Assurance Certificate in October 2000.
In  accordance  with  the  requirements of ISO9002, American Dairy established a
"Quality  Assurance  Handbook"   that  provides  standardized  requirements  and
procedures  regarding  the  purchase  of  raw milk, its milk processing systems,
storage  and packaging standards, the distribution of its products, and employee
training.

     Milk  Processing.  American Dairy believes that through purchasing raw milk
locally  and employing minimal processing techniques, it is able to preserve the


                                        7
<PAGE>

fresh  taste of milk.  American Dairy's dairy processes raw milk within 24 to 36
hours after milking.  Most large regional dairies, it believes, process raw milk
which  may  be three to four days old.  Milk processed by conventional farms for
sale  to  regional  dairies is typically stored at the farm for a minimum of two
days,  commonly  spends a full day in transit to the dairy facility, and is only
processed  the following day.  American Dairy's milk is not homogenized.  During
homogenization,  pressurized  milk  is  forced through openings smaller than the
size  of the fat globules present in milk, breaking them into smaller particles.
Thus  treated,  the  milk fat remains suspended and does not separate out in the
form  of cream.  American Dairy believes that this process adversely affects the
taste  and  feel  of milk.  In addition, American Dairy's milk is pasteurized at
the lowest temperatures allowed by law to avoid imparting a cooked flavor to the
milk.  When  the  milk is clarified and the butterfat removed to yield cream and
skim  milk,  a process of cold separation is used, rather than the more commonly
employed  hot  separation  which  it believes adversely affects the favor of the
milk.

     Dairy  Product  Processing.  American  Dairy's  products  are made in small
batches  using  minimal  processing  techniques  to maintain freshness and allow
maximum   flavor  and   nutrition  retention.   They  are  made  with  wholesome
ingredients.  No chemicals or additives are employed.  Because they are produced
locally,  our  dairy  products arrive to consumers in American Dairy's marketing
area  sooner after production than most other dairy products.  To assure product
quality,  the  beginning  of  each  production run is sampled for flavor, aroma,
texture  and  appearance.   In  addition,  inspectors  conduct  spot-checks  for
bacteria  and  butterfat content in its products, as well as sanitary conditions
in  its  facilities.

Research  and  Development
--------------------------

     American  Diary  has  six  technicians  engaged in research and development
activities.  These  technicians  monitor  quality control at the milk processing
plants  of  American  Diary   to  ensure  that  the  processing,  packaging  and
distribution  of  the milk products result in high quality premium milk products
that  are  safe  and  healthy  for its customers.  These technicians also pursue
methods and techniques to improve the taste and quality of its milk products and
to  evaluate  new  milk  products  for  further production based upon changes in
consumer  tastes,  trends  and the introduction of competitive products by other
milk  producers.

Growth  Strategy
----------------

     General.  American  Dairy  believes  that  its  products enjoy a reputation
among  those  people  who  are familiar with its milk powder products  for being
high  quality products.  American Dairy believes that this reputation has spread
principally  by  word-of-mouth and also as a result of favorable press coverage.
American  Dairy  has  also  increased  its  marketing  efforts  through national
television.  Pursuant  to  its marketing plan, American Dairy will seek to build
upon  the  reputation of its products and create strong brand identities, making
its  products  more  widely  recognizable.

     American  Dairy  will  seek  to  extend the distribution of its products to
contiguous  markets  with high population concentrations.  If American Dairy can
successfully  implement  its  growth  strategy, American Dairy will also seek to
enter other markets through joint ventures, licensing or other arrangements with
local  dairy  farms  which  it believes would benefit significantly from selling
their  raw  milk  to  newly established local dairies that will produce and sell
American  Dairy  brand  milk powder products and soybean products in their local
markets.  The  key  elements  of  American  Dairy's growth strategy to reach its
goal,  include:


                                        8
<PAGE>

     *    emphasizing  local  production and distribution. Its marketing efforts
          will  continue  to  emphasize the local production and distribution of
          its  products,  which  begins  with  purchasing  raw  milk  from local
          farmers,  resulting  in  premium  quality  milk  powder  products.

     *    increasing  regional  and  national  television  advertising to better
          establish  the "Feihe" brand name and increase the scope of its market
          area.

Brand  Development  and  Marketing
----------------------------------

     Brand  Identity.  American  Diary's  marketing  will  emphasize  the  local
production  and  national  distribution of its products, which begins with local
dairy  herds  and  results in premium quality products to a national market.  It
believes  that its story adds legitimacy to its marketing claim that it produces
farm  fresh  products  and  helps  to  instill confidence in consumers as to the
purity  and  wholesomeness  of  its  products.

     American Dairy also seeks to convey its story through the packaging it uses
for  its  products.  Its  products  have also received marketing benefits from a
considerable  volume  of   favorable  press  and  other  publications   of  mass
circulation  which  has  rated  its  products  highly.

     American  Dairy's  marketing  and  promotional  efforts  will  include:

     *    Redesigning  packaging  of  non-fluid  products  to  promote a premium
          quality  image.
     *    Refining and targeting its message, which to date has largely been the
          product  of  work-of-mouth  and  product  reviews.
     *    Developing  trade material, including four-color trade sell sheets and
          brochures.
     *    Further  distinguishing  its  products  from  other  dairy  products.
     *    Expanding  retail  advertising,  including print advertising televised
          advertising  and  focused  public  relations.

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

                                        9
<PAGE>


     General.  The  food business is highly competitive and, therefore, American
Dairy faces substantial competition in connection with the marketing and sale of
its  milk  powder  products and soybean products. Its products are positioned as
premium  products  and,  accordingly,  are  generally priced higher than certain
similar  competitive  products.  American  Dairy  believes  that  the  principal
competitive  factors  in  marketing  its products are quality, taste, freshness,
price  and  product  recognition. While American Dairy believes that it competes
favorably  in  terms  of  quality,  taste  and  freshness, its products are more
expensive and less well known than certain other established brands. Its premium
products  may  also  be considered in competition with non-premium quality dairy
products  for  discretionary  food  dollars.

Government  Regulation
----------------------

     American  Dairy is  regulated under national and county laws in China.  The
following information summarizes certain aspects of those regulations applicable
to  American  Dairy  and  is  qualified  in  its  entirety  by  reference to all
particular  statutory  or  regulatory  provisions.

     Regulations  at  the  national,  province  and county levels are subject to
change.  To  date,  compliance  with  governmental  regulations  has  not  had a
material  impact  on American Dairy's level of capital expenditures, earnings or
competitive  position,  but, because of the evolving nature of such regulations,
management  is  unable  to  predict  the  impact such regulation may have in the
foreseeable  future.

     As  a  manufacturer  and  distributor  of  food products, American Dairy is
subject to regulations of China's Agricultural Ministry.  This regulatory scheme
governs  the  manufacture  (including  composition  and  ingredients), labeling,
packaging  and  safety  of  food.  It  also  regulates  manufacturing practices,
including  quality  assurance  programs,  for  foods  through  its  current good
manufacturing practices regulations, and specifies the standards of identity for
certain foods, including the products sold by American Dairy, and prescribes the
format  and  content  of many of the products sold by American Dairy, prescribes
the  format  and  content of certain nutrition information required to appear on
food  products  labels  and  approves and regulates claims of health benefits of
food  products.

     In  addition,  China's Agricultural Ministry authorizes regulatory activity
necessary  to  prevent  the introduction, transmission or spread of communicable
diseases.  These  regulations  require,  for example, pasteurization of milk and
milk products.  American Dairy and its products are also subject to province and
county regulations through such measures as the licensing of dairy manufacturing
facilities,  enforcement  of  standards  for  its  products,  inspection  of its
facilities  and regulation of its trade practices in connection with the sale of
dairy  products.

Properties
----------

     American  Dairy's  principal executive offices are presently located at 1st
Qingxiang  Street,  Kedong  County,  Heilongjiang  Province 164800, China.   The
executive  office building is located on the same property as its Sanhao Dairy's
milk  processing  facilities.  Although American Dairy owns the building and the
equipment,  its  land  rights  are  based  upon  long-term  land-use rights.

     American  Dairy  presently operates three milk powder processing plants and
various  warehouses  in  northern  China, known as Feihe Dairy, Sanhao Dairy and
BaiQuan  Dairy.


                                       10
<PAGE>

     There  is no private ownership of land in the PRC and all land ownership is
held  by  the  government  of  the  PRC, its agencies and collectives.  Land use
rights are obtained from the government for periods ranging from 50 to 70 years,
and are typically renewable. Land use rights can be transferred upon approval by
the  land  administrative  authorities  of  the  PRC  (State Land Administration
Bureau)  upon  payment  of  the  required  land  transfer  fees.

Borrowing  Policies
-------------------

     American Dairy may borrow at competitive rates of interest.  Borrowed funds
will  not  be  used  for  dividends  to  the  shareholders.

     The  precise amount, if any, borrowed by American Dairy will depend in part
upon the availability of financing, and prevailing interest rates and other loan
costs.  There  is no assurance that such financing, if any, will be available to
American  Dairy  in the amounts desired or on terms considered reasonable by the
Board  of  Directors.

     Loan  agreements  may require that American Dairy maintain certain reserves
or  compensating  balances  and  may impose other obligations on American Dairy.
Moreover,  since  a  significant  proportion of American Dairy's revenues may be
reserved  for  repayment  of debt, the use of financing may reduce the cash that
might  otherwise  be  available for dividends until the debt has been repaid and
may  reduce  total  cash  flow  for  a  significant  period.

     American  Dairy  may,  under  appropriate  circumstances,  attempt to cause
American Dairy to borrow funds at fixed interest rates.  However, American Dairy
may  borrow funds at rates that vary with a "prime" or "base" rate, particularly
on an interim basis or when interest rates are believed to be trending downward.
A rise in the indexed rate may increase borrowing costs and reduce the amount of
its  income  and cash available for distribution. In past years, the prime rates
charged  by  major banks have fluctuated significantly; as a result, the precise
amount of interest that American Dairy might be charged cannot be predicted with
any  certainty.

Risk  Factors
-------------

     Expansion Risks.  American Dairy anticipates that its proposed expansion of
its  milk  processing  plants may  include the construction of new or additional
facilities.  American  Dairy's cost estimates and projected completion dates for
construction  of  new  production  facilities  may  change  significantly as the
projects  progress.   In  addition,  American  Dairy's   projects   will  entail
significant  construction  risks,  including  shortages  of materials or skilled
labor,  unforeseen  environmental or engineering problems, weather interferences
and  unanticipated  cost  increases,  any of which could have a material adverse
effect  on  the  projects  and could delay their scheduled openings.  A delay in
scheduled  openings  will  delay  American  Dairy's  receipt  of increased sales
revenues.

     New  Projects.  The  projects  of  American  Dairy to finance, develop, and
expand its milk processing facilities will be subject to the many risks inherent
in  the  rapid  expansion  of  a  high  growth  business  enterprise,  including
unanticipated  design,  construction, regulatory and operating problems, and the
significant  risks commonly associated with implementing a marketing strategy in

                                       11
<PAGE>

changing  and  expanding  markets.  There  can be no assurance that any of these
projects  will become operational within the estimated time frames and projected
budgets  at  the  time  American Dairy enters into a particular agreement, or at
all.  In  addition,  American Dairy may develop projects as joint ventures in an
effort  to reduce its financial commitment to individual projects.  There can be
no  assurance  that  the  significant  expenditures  required to expand its milk
processing  plants  will  ultimately  result  in  the establishment of increased
profitable  operations.

     When  American  Dairy's  future  expansion   projects  become  operational,
American  Dairy  will  be  required  to  add  and  train  personnel,  expand its
management information systems and control expenses.  If American Dairy does not
successfully  address  American  Dairy's  increased management needs or American
Dairy  otherwise  is  unable  to manage its growth effectively, American Dairy's
operating  results  could  be  materially  and  adversely  affected.

     Uncertainty  of  Market Acceptance. American Dairy is currently selling its
products  principally  in  northern  China.   Achieving  market  acceptance  for
American Dairy's products, particularly in new markets, will require substantial
marketing efforts and the expenditure of significant funds. There is substantial
risk  that any new markets may not accept or be as receptive to American Dairy's
products.  Market  acceptance  of American Dairy's current and proposed products
will  depend,  in  large  part,  upon  the  ability  of American Dairy to inform
potential  customers  that  the distinctive characteristics of its products make
them superior to competitive products and justify their pricing. There can be no
assurance  that  American Dairy's current and proposed products will be accepted
by  consumers  or that any of American Dairy's current or proposed products will
be  able  to  compete  effectively  against  other  premium or non-premium dairy
products.  Lack  of  market acceptance of American Dairy's products would have a
material  adverse  effect  on  American  Dairy.

     Changing  Consumer  Preferences.  As  is  the  case  with  other  companies
marketing  dairy  products,  American  Dairy  is  subject  to  changing consumer
preferences and nutritional and health-related concerns. American Dairy believes
that  minimal processing and the absence of preservatives, additives, artificial
sweeteners or artificial flavorings increases the attractiveness of its products
to  consumers.  American  Dairy's business could be affected by certain consumer
concerns  about  dairy  products, such as the fat, cholesterol, calorie, sodium,
lactose  content  or  contamination  of  such  products.  There is a significant
percentage  of  customers in China who are lactose intolerant, and may therefore
prefer  other  beverages.  American  Dairy  could  become  subject  to increased
competition  from companies whose products or marketing strategies address these
consumer  concerns  more  effectively.

     Effect  of  Adverse  Medical Research Relating to Milk and Demand for Milk.
Periodically,  medical  and  other  studies  are  released  and announcements by
medical and other groups are made which raise concerns over the healthfulness of
cow's  milk in the human diet. To date, American Dairy does not believe that any
such  studies  have  had  a  material effect on milk consumption rates in China.
However,  a  study  may  be  published  or  an  announcement made concerning the
healthfulness  of  cow's milk which may result in a decrease in demand for dairy
products  in  China.

     Production Capacity. There is no assurance that American Dairy will be able
to  increase  its  production capacity to a level sufficient to meet anticipated
increased  demand for its products associated with its marketing and promotional
efforts.  American  Dairy  currently manufactures dairy products at a rate which
utilizes  approximately  123,000  tons  of  raw  milk  per  year. American Dairy
believes  that  it  currently  has  the  capacity,  based  on  an assumed mix of


                                       12
<PAGE>

products,  to  manufacture dairy products at a rate which utilizes approximately
1,531 tons of raw milk per week.  American Dairy plans to purchase equipment and
make  improvements  to  its dairy plants which, it believes, should increase its
capacity  to  manufacture  products to a rate which utilizes approximately 5,404
tons of raw milk per week. There is no assurance, however, that American Dairy's
contemplated  improvements to its dairy plants will increase production capacity
to  the  level  anticipated  or  that  production  can  be  increased  at a rate
sufficient  to  meet anticipated increased demand for its products. There can be
no  assurance,  further,  that  the product mix which American Dairy anticipates
achieving  and,  therefore,  which  it  has  used  in  determining the equipment
requirements  of  its  dairy processing plants will prove to be accurate, making
uncertain  the  future  capacity  of  its  dairy plant. Failure to meet possible
increased  demand  for  its  products,  on a timely basis, could have a material
adverse  effect  on  American  Dairy's  business,  operations  and  finances.

     Impact  of  Growth on Quality of Dairy Products. American Dairy's  products
are  manufactured  in  small  batches with milk from the farms of local farmers.
American  Dairy  believes that the small batch production methods it employs and
the  quality  of  the  raw  milk  it uses contribute to the quality of its dairy
products.  There  can be no assurance that the quality of American Dairy's dairy
products  will  be  maintained  at  increased  levels  of  production. Increased
production  levels  may cause American Dairy to modify its current manufacturing
methods  and  will necessitate the use of milk from other additional sources.  A
decline  in  the  quality  of  American  Dairy's  products could have a material
adverse  effect  on  American  Dairy's  business,  operations  and  finances.

     Sales  Force.  American  Dairy  has hired additional sales personnel during
2003.  There  is  no  assurance  that  hiring these additional sales people will
result  in  increased  sales. American Dairy anticipates using independent dairy
distributors  to  sell  and  distribute its products in new contiguous expansion
markets,  including  Beijing.  American  Dairy cannot predict whether it will be
able to obtain and maintain satisfactory sales and distribution arrangements and
the  failure  to  do  so  could  have a material adverse effect on its business,
operations  and  finances.

     Limited  Delivery  Capacity;  Delays  in  Delivery  of  Products.  If sales
increase,  there  is  no  assurance  that American Dairy will be able to deliver
increased  product  volumes on a timely and efficient basis.  Further, there can
be no assurance that American Dairy will be able to deliver its products "fresh"
to  customers  on a consistent basis, especially with increased product volumes,
and  a  failure  to  do so could have a material adverse effect on its business,
operations  and  finances.

     Supply  of  Raw  Milk.  The  raw  milk used in our products is supplied  to
American  Dairy  by  numerous  local  farms  under  output  contracts.  American
Dairy's farmers are currently producing 30 tons of milk per day.  American Dairy
believes  that  its  farmers  can more than double their production of raw milk.
American Dairy further believes, however, that this supply may not be sufficient
to meet increased demand for its products associated with its proposed marketing
efforts.  American  Dairy  believes that the supply of raw milk from its farmers
should  satisfy  its  requirements for raw milk for at least the next 12 months.
Though American Dairy believes that additional raw milk is available locally, if
needed,  there  is  no  assurance that American Dairy will be able to enter into
arrangements  with  the  producers  of such milk on terms acceptable to American
Dairy,  if at all. An inadequate supply of raw milk will have a material adverse
effect  on  its  business,  operations  and  finances.

     Possible  Volatility  of Raw Milk Costs.  The current policy of China since
the  mid-1990s  has  focused  on  moving  the industry in a more market oriented
direction.  These  reforms  have  resulted  in  the  potential for greater price
volatility  relative  to  past  periods,  as  prices  are more responsive to the
fundamental  supply  and  demand aspects of the market. These changes in China's


                                       13
<PAGE>

dairy  policy could increase the risk of price volatility in the dairy industry.
There  can be no assurance that a significant volatility in milk prices will not
occur  or  that  any such volatility would not have a material adverse effect on
its  business,  operations  and  finances.

     Geographic  Concentration;  Fluctuations  in  Regional Economic Conditions.
Nearly  all  of  American Dairy's sales are concentrated in the northern area of
China.  Accordingly,  American  Dairy  is  susceptible  to  fluctuations  in its
business caused by adverse economic conditions in this region.  American Dairy's
products  are  priced  higher than non-premium quality dairy products.  Although
American  Dairy  believes  that  the  quality,  freshness, flavor and absence of
artificial  ingredients  in its products compensate for this price differential,
there  can  be  no assurance that consumers will be willing to pay more for such
products  in  unfavorable  economic  conditions,  or  at all. Difficult economic
conditions  in  other  geographic areas into which American Dairy may expand may
also  adversely  affect  its  business,  operations  and  finances.

     Dependence  on  Executives.  American  Dairy  is  highly  dependent  on the
services  of Leng You-Bin and Liu Hua, and the loss of their services would have
a  material  adverse impact on the operations of American Dairy.  They have been
primarily  responsible for the development of American Dairy and the development
and  marketing  of its products. American Dairy has not applied for key-man life
insurance  on  the  lives  of  these  executives,  but  may do so in the future.

     Competition.  The  milk  business  is  highly  competitive  and, therefore,
American  Dairy  faces  substantial competition in connection with the marketing
and  sale  of  its  products.  In general, milk products are price sensitive and
affected by many factors beyond the control of American Dairy, including changes
in  consumer  tastes,  fluctuating commodity prices and changes in supply due to
weather, production, feed costs and natural disasters. American Dairy's products
compete  with  other  premium  quality  dairy  brands as well as less expensive,
non-premium  brands.  American  Dairy's  milk faces competition from non-premium
milk  producers  distributing  milk  in its marketing area; other milk producers
packaging  their milk in glass bottles, and other special packaging, which serve
portions  of  its marketing area.  Most of American Dairy's competitors are well
established,  have  greater financial, marketing, personnel and other resources,
have  been  in business for longer periods of time than American Dairy, and have
products  that  have  gained  wide  customer acceptance in the marketplace.  The
largest  competitors  of  American  Dairy  are  state-owned dairies owned by the
government  of  China.   Large foreign milk companies have also entered the milk
industry  in  China.  The  greater  financial resources of such competitors will
permit  them  to  procure  retail  store  shelf space and to implement extensive
marketing  and  promotional  programs,  both generally and in direct response to
advertising claims by American Dairy. The milk industry is also characterized by
the  frequent   introduction  of  new   products,  accompanied   by  substantial
promotional  campaigns.  There  can  be no assurance that American Dairy will be
able to compete successfully or that competitors will not develop products which
will have superior qualities or which will gain wider market acceptance than its
products.

     Consolidation  of  Dairy  Industry.   American  Dairy established its dairy
plants  at  a time when local dairies were being consolidated into large dairies
due to the market and the efficiencies of larger operations.  This consolidation
trend  is  continuing  and  the  forces  responsible for it, including increased
efficiencies  and economies of scale that are present in large regional dairies,
may  put  American  Dairy  at  a  competitive  disadvantage.

     Lack  of  Property and General Liability Insurance.  American Dairy and its
subsidiaries  are  self-insured,  and  they do not carry any property insurance,


                                       14
<PAGE>

general  liability  insurance,  or  any other insurance that covers the risks of
their  business  operations.  As  a  result,  any material loss or damage to its
properties  or  other  assets,  or  personal  injuries arising from its business
operations  would  have a material adverse affect on its financial condition and
operations.

     Potential  Product Liability Associated with Food Products.  American Dairy
faces  the risk of liability in connection with the sale and consumption of milk
products  and  soybean  products  should  the consumption of such products cause
injury,  illness  or  death.  Such  risks may be particularly great in a company
undergoing  rapid  and significant growth. American Dairy currently maintains no
product  liability insurance.  There can be no assurance that any insurance will
be sufficient to cover potential claims or that the level of such coverage to be
acquired  and  maintained by American Dairy will be available in the future at a
reasonable  cost.  A  partially or completely uninsured successful claim against
American  Dairy  could  have  a  material  adverse  effect  on  American  Dairy.

     Government  Regulation.  American  Dairy is subject to extensive regulation
by  China's  Agricultural Ministry, and by other county and local authorities in
jurisdictions  in  which  its  products  are  processed  or  sold, regarding the
processing,  packaging,  storage,  distribution  and  labeling  of its products.
Applicable  laws  and regulations governing its products may include nutritional
labeling and serving size requirements.  American Dairy was awarded the ISO 9002
Quality  Assurance Certificate in October 2000 and is in compliance with the ISO
9002  requirements  with  respect to its production processes.  American Dairy's
processing  facilities  and  products  are  subject  to  periodic  inspection by
national,  county  and  local  authorities.  American  Dairy believes that it is
currently  in  substantial  compliance  with  all material governmental laws and
regulations  and  maintains  all  material  permits and licenses relating to its
operations.  Nevertheless,  there  can  be no assurance that American Dairy will
continue  to  be in substantial compliance with current laws and regulations, or
whether  American  Dairy  will  be  able  to  comply  with  any  future laws and
regulations. To the extent that new regulations are adopted, American Dairy will
be  required to conform its activities in order to comply with such regulations.
Failure  by  American Dairy to comply with applicable laws and regulations could
subject  American Dairy to civil remedies, including fines, injunctions, recalls
or  seizures,  as  well  as  potential  criminal  sanctions,  which could have a
material  adverse  effect  on  its  business,  operations  and  finances.

     Doing  Business  in  China.  Doing business in China involves various risks
including internal and international political risks, evolving national economic
policies  as  well  as  financial  accounting  standards,  expropriation and the
potential  for  a  reversal  in  economic conditions.  Since the late 1970s, the
government  of  the  PRC  has been reforming the Chinese economic system.  These
reforms  have  resulted  in  significant  economic  growth  and social progress.
Although  we  believe  that  economic  reform and the macroeconomic policies and
measures  adopted  by  the  current  Chinese  government will continue to have a
positive  effect  on  economic development in China and that we will continue to
benefit  from  such  policies and measures.  These policies and measure may from
time  to  time  be modified or revised.  Adverse changes in economic policies of
the  Chinese  government  or  in  the laws and regulations, if any, could have a
material  adverse  effect  on  the  overall  economic growth of China, and could
adversely  affect  our  business  operations.

     The  Chinese  currency,  "Renminbi",  is not a freely convertible currency,
which  could  limit our ability to obtain sufficient foreign currency to support
our  business  operations  in  the  future.

     We  rely  on the Chinese government's foreign currency conversion policies,
which  may  change  at  any  time, in regard to our currency exchange needs.  We


                                       15
<PAGE>

receive  substantially  all  of  our  revenues  in Renminbi, which is not freely
convertible into other foreign currencies.  In China, the government has control
over  Rennminbi  reserves  through, among other things, direct regulation of the
conversion or Renminbi into other foreign currencies and restrictions on foreign
imports.  Although  foreign  currencies which are required for "current account"
transactions  can  be  bought  freely  at  authorized  Chinese banks, the proper
procedural  requirements  prescribed  by  Chinese  law must be met.  At the same
time,  Chinese  companies  are  also  required  to  sell  their foreign exchange
earnings  to authorized Chinese banks and the purchase of foreign currencies for
capital  account  transactions  still  requires  prior  approval  of the Chinese
government.  This  type of heavy regulation by the Chinese government of foreign
currency  exchange  restricts certain of our business operations and a change in
any  of these government policies, or any other, could further negatively impact
our  operations.

     Fluctuations  in  the  exchange  rate  between the Chinese currency and the
United  States  dollar  could  adversely  affect  our  operating  results.

     The  functional currency of our operations in China is "Renminbi".  Results
of  our  operations  are translated at average exchange rates into United States
dollars  for  purposes  of  reporting  results.  As  a  result,  fluctuations in
exchange  rates  may  adversely affect our expenses and results of operations as
well  as  the  value  of our assets and liabilities.  Fluctuations may adversely
affect  the  comparability  of  period-to-period  results.  Although  we may use
hedging  techniques in the future (which we currently do not use), we may not be
able  to  eliminate  the  effects of currency fluctuations.  Thus, exchange rate
fluctuations  could  have a material adverse impact on our operating results and
stock  prices.

     As  a  company based in China, our shareholders may have greater difficulty
in obtaining information about us on a timely basis than would shareholders of a
U.S.-based  company.  Our  operations will continue to be conducted in China and
shareholders  may have difficulty in obtaining information about us from sources
other than us.  Information available from newspapers, trade journals, or local,
regional  or  national  regulatory  agencies  such  as  issuance of construction
permits,  contract  awards  for  development  projects, etc. will not be readily
available  to  shareholders.  Shareholders will be dependent upon our management
for  reports  of  our  progress,  development,  activities  and  expenditure  of
proceeds.

     In  order  for the China subsidiaries of American Dairy to pay dividends to
American  Dairy,  a  conversion of Renminbi  into US dollars is required.  Under
current  Chinese law, the conversion of Renminbi into foreign currency generally
requires  government  consent.  Government  authorities  may impose restrictions
that  could  have  a negative impact in the future on the conversion process and
upon  the ability of American Dairy to meet its cash needs, and to pay dividends
to  its shareholders.  However, the subsidiaries of American Dairy are presently
classified  as  a  wholly owned foreign enterprise ("WOFE") in the PRC that have
verifiable  foreign  investment  in the PRC, funding having been made through an
official  PRC  banking  channel.  Because  the  subsidiaries  of  American Dairy
qualify  for  treatment  as  a  WOFE, the subsidiaries can declare dividends and
their  funds  can  be  repatriated  to American Dairy in the United States under
current  laws  and  regulations  in  the  PRC.

     Limited  Trademark  Protection.  American  Dairy  has   obtained  trademark
registrations  for  the use of its tradename "Feihe",  which has been registered
with  the Trademark Bureau of the State Administration for Industry and Commerce
with  respect  to  its  milk products.  American Dairy believes its trademark is
important to the establishment of consumer recognition of its products. However,


                                       16
<PAGE>

there  can  be  no  assurance as to the breadth or degree of protection that the
trademarks may offer American Dairy, that American Dairy will have the financial
resources  to  defend  the  trademarks  against  any  infringement, or that such
defense  will  be successful. Moreover, any events or conditions that negatively
impact  its  trademarks  could  have  a material adverse effect on its business,
operations  and  finances.

     Proprietary Knowledge and Absence of Patent Protection.  American Dairy has
no  patents  covering  its  products or production processes and expects to rely
principally  on  know-how and the confidentiality of its formulae and production
processes for its products and its flavoring formulae in producing a competitive
product  line. There is no assurance that any of these factors can be maintained
or  that  they  will  afford  American Dairy a meaningful competitive advantage.

Note:  In  addition  to  such  risks,  businesses are often subject to risks not
foreseen or fully appreciated by management.  In reviewing this Form 10-KSB, the
reader  should  keep  in  mind  that  other  possible  risks  may  exist.

Item  2.  Description  of  Property

     American  Dairy's principal  executive offices are located at 1st Qingxiang
Street, Kedong County, Heilongjiang Province 164800, in The People's Republic of
China.  Although  American  Dairy  owns the building and the equipment, its land
rights  are  based  upon  long-term land use rights granted by the government of
China

     American  Dairy  intends to move its principal executive offices to Beijing
in  the PRC during 2004, including the establishment of new warehouse facilities
and  marketing  offices  comprised of approximately 25,000 square feet. American
Dairy  has  entered into a Sale and Purchase Agreement dated September 28, 2003,
to  purchase  land use rights to a property in Beijing for these new offices and
facilities  for  $1,200,861.  American Dairy has made three installment payments
totaling  $481,055  during 2003, and intends to finance the remaining balance of
the  purchase  price  of  $719,806  through  a  bank  mortgage  loan.

Item  3.  Legal  Proceedings

     From time to time, American Dairy may become involved in various claims and
lawsuits  incidental  to  its  business.  There  are presently no material legal
proceedings  pending  or  threatened  against  American  Dairy.

     American  Dairy is not a party to any material litigation, and there are no
material  outstanding  claims  against  American  Dairy  or  its  assets.

Item  4.  Submission  of  Matters  to  a  Vote  of  Security  Holders

     On  May  7, 2003, the stockholders of American Dairy held a special meeting
by  written  consent of a majority of its stockholders (approximately 66% of the
outstanding  shares  of  Common  Stock).  The  shareholders  approved:

     1.  an  amendment  to  the  Articles  of Incorporation of American Dairy to
change  its  corporate  name  to  "American  Dairy,  Inc.";
     2.  a  one-for-nineteen  (1-for-19)  reverse  split  of the Common Stock of
American  Dairy;  and


                                       17
<PAGE>

     3.  the  establishment  of its 2003 Stock Incentive Plan covering 3,000,000
shares  of Common Stock for its key employees, including officers and employees,
directors  and  consultants.

                                    PART II

Item  5.  Market  for  Common  Equity  and  Other  Shareholder  Matters

     American  Dairy  is  authorized to issue 50,000,000 shares of Common Stock,
$.001  par  value per share.  At December 31, 2003, there were 11,750,970 shares
of  Common  Stock  issued  and outstanding that were held by 260 stockholders of
record.

     The  Common  Stock  of  American  Dairy  is  traded  on the NASD Electronic
Bulletin  Board over-the-counter market (OTC-BB), and is quoted under the symbol
"ADIY".

Common  Stock
-------------

     Holders of Common Stock are entitled to one vote for each share held on all
matters  voted  upon  by stockholders, including the election of directors.  The
holders  of  Common Stock have no preemptive rights to purchase or subscribe for
any  stock  of  American  Dairy  now  or  hereafter authorized or for securities
convertible  into such stock.  All of the outstanding shares of Common Stock are
fully  paid  and  nonassessable.  Upon  any  liquidation  of American Dairy, the
holders  of  Common  Stock are entitled to share ratably in assets available for
distribution  to  such  stockholders.  Holders  of  Common Stock are entitled to
receive  dividends out of assets legally available therefor at such times and in
such  amounts  as  the  Board  of  Directors  may  from  time to time determine.

     Shareholders are not entitled to cumulative voting rights, and accordingly,
the  holders  of  a  majority  of  the voting power of the shares voting for the
election of directors can elect the entire class of directors to be elected each
year  if  they  choose to do so and, in that event, the holders of the remaining
shares  will  not  be  able  to  elect  any  person as a director of such class.

Dividend  Restrictions
----------------------

     The  terms of the instruments governing the future indebtedness of American
Dairy  may  contain  restrictions  on the payment of dividends and the making of
distributions on its capital stock (other than stock dividends) and the purchase
or  redemption  of  outstanding  capital  stock of American Dairy.  By reason of
these  restrictions, American Dairy may be unable to pay dividends on its Common
Stock  for  some  period  in  the  future,  which cannot presently be estimated.
     American  Dairy  has not declared or paid any dividends on its Common Stock
and  presently does not presently expect to declare or pay any such dividends in
the foreseeable future.  American Dairy has not yet formulated a future dividend
policy  in  the  event restrictions on its ability to pay dividends are created.

Transfer  Agent  and  Registrar
-------------------------------


                                       18
<PAGE>

     The  transfer  agent  and  registrar  for American Dairy is Interwest Stock
Transfer  Co.,  1981  E. Murray Road, #100, Halladay, Utah 84117-5148; telephone
(801)  272-9294.

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

     The following table sets forth the range of high and low closing bid prices
per  share  of  the  Common  Stock  (trading  symbol  ADIY) of American Dairy as
reported  by  Pink  Sheets,  L.L.C.  for  the  periods  indicated  (reflecting
inter-dealer  prices without retail mark-up, mark-down or commission and may not
represent  actual  transactions)  on  the  NASD  Electronic  Bulletin  Board
over-the-counter  market.
<TABLE>
<CAPTION>
                                          High  Closing         Low  Closing
                                        Bid Prices (1)(2)      Bid Prices (1)
                                        -----------------      --------------
Year  Ended  December  31,  2002
<S>                                           <C>                  <C>
     1st  Quarter                             $0.05                $0.04
     2nd  Quarter                             $0.06                $0.03
     3rd  Quarter                             $0.06                $0.05
     4th  Quarter                             $0.08                $0.06
--------------------------------
Year  Ended  December  31,  2003
     1st  Quarter                             $0.11                $0.05
     2nd  Quarter  (1)                        $2.00(2)             $0.01
     3rd  Quarter                             $1.30                $0.10
     4th  Quarter                             $3.00                $1.30
---------------------------------
</TABLE>

(1)  On  May  7,  2003, American Dairy had a one-for-nineteen (1-for-19) reverse
     stock  split  of  its  Common  Stock.
(2)  The  closing  bid  price of the Common Stock of American Dairy on March 29,
     2004  was  $2.00  per  share.

     If  the  trading  price of American Dairy's Common Stock is below $5.00 per
share,  the  Common Stock is considered to be "penny stocks" that are subject to
rules  promulgated  by the Securities and Exchange Commission (Rule 15-1 through
15g-9)  under  the   Securities  Exchange  Act  of  1934.   These  rules  impose
significant  requirements  on  brokers under these circumstances, including: (a)

                                       19
<PAGE>

delivering  to customers the Commission's standardized risk disclosure document;
(b)  providing  customers  with  current  bid  and ask prices; (c) disclosing to
customers  the  broker-dealer's  and sales representatives compensation; and (d)
providing  to  customers  monthly  account  statements.

Stock  Option,  SAR  and  Stock  Bonus  Plan
--------------------------------------------

     Effective  May  7,  2003,  the  shareholders  of American Dairy adopted and
approved  its  2003  Incentive  Stock Plan (the "Plan") which reserved 3,000,000
shares of Common Stock for issuance under the Plan.  The Plan allows us to issue
awards  of incentive non-qualified stock options, stock appreciation rights, and
stock  bonuses  to  directors,  officers,  employees and consultants of American
Dairy  which  may be subject to restrictions.  As of December 31, 2003, American
Dairy  had  not  granted  any  stock options, stock appreciation rights or stock
bonuses  under  the  Plan.

Sale  of  Unregistered  Securities
----------------------------------

     During  December  2003,  American Dairy issued 500,000 shares of restricted
Common  Stock  at  $2.00  per  share  to  residents and citizens of The People's
Republic of China and private investors in  reliance upon Rule 506 of Regulation
D  and  Regulation  S  under  the  Securities  Act  of  1933.

     On  August  28,  2003, American Dairy issued warrants to purchase 1,142,856
shares  of  its  Common  Stock  to American Eastern Securities, Inc. and Belmont
Capital  Group  Limited  that  are exercisable for $1.75 per share for a term of
three  years.

Item  6.  Management's  Discussion  and  Analysis  or  Plan  of  Operations

Forward  Looking  Statements
----------------------------

     This  Form  10-KSB annual report of American Dairy contains forward-looking
statements  that  involve substantial risks and uncertainties.  You can identify
these  statements  by  forward-looking  words  such  as "may", "will", "expect",
"plans",  "intends",  "anticipate",  "believe",  "estimate"  and  "continue"  or
similar  words.  You  should  read statements that contain these words carefully
because  they discuss its future expectations, contain projections of its future
results   of  operations   or  of  its   financial  condition   or  state  other
"forward-looking"  information.  American Dairy believes that it is important to
communicate  its  future  expectations  to its investors.  However, there may be
events  in  the  future that American Dairy is not able to accurately predict or
control.  This  Form 10-KSB provides examples of risks, uncertainties and events
that  may  cause  American  Dairy's actual results to differ materially from the
expectations  American  Dairy  describes in its forward-looking statements.  You
should  be aware that the occurrence of the events described as risk factors and
elsewhere  in  this  Form  10-KSB  could  have  a material adverse effect on its
business,  operating  results  and  financial  condition.

Significant  Accounting  Estimates  and  Policies
-------------------------------------------------

     The  discussion  and  analysis  of  our  financial condition and results of
operations  is  based upon our consolidated financial statements which have been
prepared  in  accordance  with  accounting  principles generally accepted in the
United  States.  The  preparation  of  these financial statements requires us to


                                       20
<PAGE>

make  estimates  and  judgments  that  affect  the  reported  amounts of assets,
liabilities,  revenue  and expenses, and related disclosure of contingent assets
and liabilities.   On an on-going basis, we evaluate our estimates including the
allowance  for   doubtful  accounts,  the   saleability  and  recoverability  of
inventory,  income taxes and contingencies.  We base our estimates on historical
experience  and  on  various  other assumptions that we believe to be reasonable
under  the  circumstances,  the  results  of  which  form  our  basis for making
judgments  about  the  carrying  values  of  assets and liabilities that are not
readily  apparent  from  other  sources.  Actual  results  may differ from these
estimates  under  different  assumptions  or  conditions.

     We  must  make  estimates of the collectability of accounts receivable.  We
analyze  historical  write-offs,  changes  in  our  internal credit policies and
customer  concentrations  when  evaluating  the  adequacy  of  our allowance for
doubtful  accounts.  Differences may result in the amount and timing of expenses
for  any  period  if  we  make  different judgments or use difference estimates.

     As  part of the process of preparing our consolidated financial statements,
we  are required to estimate our income taxes.  This process involves estimating
our current tax exposure together with assessing temporary differences resulting
from  differing  treatment  of  items  for  tax  and accounting purposes.  These
differences  result in deferred tax assets and liabilities.  We must then assess
the  likelihood  that  our  deferred  tax  assets  will be recovered from future
taxable  income,  and,  to the extent we believe that recovery is not likely, we
must  establish  a  valuation  allowance.  To  the  extent  that  we establish a
valuation  allowance  or  increase this allowance in a period, we must include a
tax provision or reduce our tax benefit in the statements of operations.  We use
our  judgment  to  determine our provision or benefit for income taxes, deferred
tax  assets and liabilities and any valuation allowance recorded against our net
deferred  tax  assets.  We  believe,  based  on  a  number  of factors including
historical  operating  losses, that we will not realize the future benefits of a
significant  portion  of  our  net  deferred  tax assets and we have accordingly
provided  a  full valuation allowance against our deferred tax assets.  However,
various  factors  may  cause  those  assumptions  to  change  in  the near term.

     We  cannot  predict  what  future laws and regulations might be passed that
could have a material effect on our results of operations.  We assess the impact
of significant changes in laws and regulations on a regular basis and update the
assumptions  and estimates used to prepare our financial statements when we deem
it  necessary.

Comparison  of  Years  Ended  December  31,  2003  and  2002
------------------------------------------------------------

     The  following  table  sets  forth  certain operating information regarding
American  Dairy,  including  its subsidiaries.  The 2002 numbers include the pro
forma activities of American Flying Crane Corporation (formerly called "American
Dairy  Holdings  Inc.")  prior  to its reverse merger with American Dairy during
2003:

<TABLE>
<CAPTION>
                                     Year  Ended          Year  Ended
                                  December 31, 2003     December 31, 2002
                                  -----------------     -----------------
<S>                                  <C>                  <C>
     Revenues                        $19,059,357          $12,172,815
     Cost  of  goods  sold           $ 8,156,165          $ 7,915,998
     Distribution  expenses          $ 7,899,265          $ 3,271,864
     General  and  administrative    $ 1,669,435          $   783,816
     Depreciation                    $   131,302          $     2,613
     Other  Income                   $ 1,196,939          $   135,108
     Interest  expense               $    24,809          $     2,882
     Net  Income                     $ 2,036,807          $   325,257
</TABLE>


                                       21
<PAGE>

     Net  income  increased  by  526%  from  $325,257 in 2002 to  $2,036,807 for
2003.  This  increase  in  net income is attributable primarily to the following
factors:  (1)  a  57%  increase  in  sales;  (2)  a 23% increase in gross profit
margins from 35% in 2002 to 58% in 2003; and (3) a 141% increase in distribution
expenses,  offset  in part by: (i) a 113% increase in general and administrative
expenses,  and  (ii)  a  $333,020  increase  in  enterprise  income tax expense.

     Revenues.   Revenues  increased  by  $6,886,542  or 57% from $12,172,815 in
2002 to $19,059,357 in 2003. This increase was due primarily to expanding market
areas  and adding new value added products.  Unit sales prices remained constant
during  the  year.

     Cost  of  Goods  Sold.  Cost  of  goods  sold increased 3% or $240,167 from
$7,915,998  in  2002 to $8,156,165 in 2003. This increase is due primarily  to a
57% increase in sales volume offset in part by a 23% improvement in gross profit
margins from 35% in 2002 to 58% in 2003.  The improved gross profit margins were
due  in  part  to  an overall 17% decrease in the cost of raw materials combined
with  improved  manufacturing efficiencies which were obtained as new processing
facilities  came  on  line  during  the  year.

     Distribution  Expenses.  Distribution  expenses for the year ended December
31,  2003  were  $7,899,265,  an  increase  of $4,627,401 or 141% from the prior
year's  distribution  expenses  of  $3,271,864.  The  principal  reasons for the
increase  were  substantial  increases  in  advertising  expense,  distribution
salaries, and transportation expense which were incurred to expand market areas.

     General  and  Administrative Expenses.  General and administrative expenses
for the year ended December 31, 2003 were $1,669,435, an increase of $885,619 or
113% from the prior year's general and administrative expenses of $783,816.  The
principal  reasons  for  the  increase  was $228,000 in consulting fees incurred
at  the  parent  company  level  during  2003.

     Depreciation  Expense.  Depreciation  expense  for  the year ended December
31,  2003  was  $131,302,  an   increase  of  $128,689  from  the  prior  year's
depreciation  expense  of  $2,613.  This  increase is  due primarily to property
additions  during  2003.

                                       22
<PAGE>

     Interest  Expense.  Interest  expense  for the year ended December 31, 2003
was  $24,809  as  compared to only $2,882 for the prior year.  This increase was
due  primarily  to  interest  incurred  on  loans  made from banks and financial
institutions  during  2003  to   finance  the   BaiQuan  Dairy  acquisition  and
operations.

     Income  Taxes.  Income  tax  expense  increased  by $333,020 from $5,493 in
2002  to  $338,513  in  2003.

Liquidity  and  Capital  Resources

     Operating  Activities.  Net cash flows provided by operating activities for
the year ended December 31, 2003 was $6,131,568 compared with combined pro forma
net cash flows provided by operating activities of $1,204,368 for the year ended
December  31,  2002.  This  increase in cash flows from operating activities was
attributable  primarily to net income of $2,036,807, and augmented by a decrease
in  accounts  receivable  of  $1,776,027,  increases  of  $3,531,577 in accounts
payable  and  $2,071,175  in  deferred income and offset in part by increases in
advances  to suppliers of $630,226, inventories in the amount of $3,086,370, and
tax  refunds  due  of  $457,811.

     Sale  of  Stock.  During  the fiscal year ended December 31, 2003, American
Dairy  realized  $1,500,000 from the sale of its restricted Common Stock made in
reliance upon Rule 506 of Regulation D and Regulation S under the Securities Act
of  1933, as amended.  During 2003, American Dairy reduced debt in the amount of
$1,8886,312  by  cancelling  such debt in exchange for issuing 943,156 shares of
its  restricted  Common  Stock.

     Working  Capital - At December 31, 2003, the Company had a negative working
capital  of  $(622,315).

     Contract  Obligations  -  As  of  December  31,  2003,  the Company had the
following  contractual  obligations:


<TABLE>
<CAPTION>
Contractual                             Less than      One to        Four to      After Five
Obligations                  Total       one year     Three Years    Five Years     Years
------------             -----------   ------------   -----------   -----------   -----------
<S>                      <C>           <C>            <C>           <C>           <C>
Notes  Payable           $   483,092   $    483,092   $      ---    $       ---   $       ---

Purchase obligation on
land  and building           362,318         72,464      289,854            ---           ---

Lease  obligations           279,092          6,697       16,880         11,960       243,555

Commitments on
construction in progress   2,241,174      2,241,174          ---            ---           ---


                                       23
<PAGE>

Obligation to purchase
land and building            719,809        719,809          ---            ---           ---

Commitments  for
advertising                1,657,556      1,657,556          ---            ---           ---
                         -----------    -----------   ----------    -----------   -----------

Totals                   $ 5,743,041    $ 5,180,792   $  306,734    $    11,960   $   243,555
                         ===========    ===========   ==========    ===========   ===========
</TABLE>

Restrictions  on  Transfer  of  Funds  from  China
--------------------------------------------------

     Under current law in the PRC, a conversion of Renminbi into U.S. dollars or
other  foreign  currency  usually  requires the consent of the government of the
PRC.  These  restrictions  could  have  a  negative  impact in the future on the
conversion  process,  and cause restrictions on the ability of American Dairy to
meet  its  cash needs and on its ability to pay dividends to its stockholders in
the future.  However, under current law in the PRC, the subsidiaries of American
Dairy  in the PRC are qualified as a "wholly owned foreign enterprise" ("WOFE"),
which  permits  such  subsidiaries  to convert Renminbi into U.S. dollars and to
repatriate  such  funds  to  American  Dairy  in  the  United  States.

New  Accounting  Pronouncements
-------------------------------

     In  August  2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143, Accounting for Obligations Associated
with  the  Retirement  of Long-Lived Assets (SFAS 143).  In April and June 2002,
the  Financial  Accounting  Standards  Board  issued Standard No. 145, Reporting
Gains  and  Losses from Extinguishment of Debt (SFAS 145), and Standard No. 146,
Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146).  In
December 2002, the Financial Accounting Standards Board issued Standard No. 148,
Accounting  for Stock-Based Compensation - Transition and Disclosure (SFAS 148).
     SFAS  143  establishes   accounting   standards  for  the  recognition  and
measurement  of  an  asset  retirement  obligation   and  its  associated  asset
retirement  cost.  It  also  provides  accounting guidance for legal obligations
associated  with  the  retirement  of  tangible  long-lived  assets. SFAS 143 is
effective  in  fiscal  years  beginning after June 15, 2002, with early adoption
permitted.  The  provisions  of  SFAS  143  do not have a material impact on our
consolidated  results of operations and financial position.  We adopted SFAS 143
effective  January  1,  2003.

     SFAS  145  rescinds No.4, Reporting Gains and Losses from Extinguishment of
Debt,  SFAS  No. 44, Accounting for Intangible Assets of Motor Carriers and SFAS
No.  64,  Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements. SFAS
145  amends  SFAS  No.  13, Accounting for Leases, to eliminate an inconsistency
between  the  required  accounting  for sale-leaseback transactions. SFAS 145 is
effective  in  fiscal  years  beginning  after May 15, 2002, with early adoption
permitted.  The  provisions  of  SFAS  145  do not have a material impact on our
consolidated  results  of operations and financial position. We adopted SFAS 145
effective  January  1,  2003.

     SFAS  146, Accounting for Costs Associated with Exit or Disposal Activities
addresses  the  accounting  and  reporting  for  costs  associated  with exit or
disposal  activities.  SFAS  146 requires that a liability for a cost associated
with  an exit or disposal activity be recognized when the liability is incurred.


                                       24
<PAGE>

Previously,  under  Emerging  Issues Task Force (ETIF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity  (including  Certain Costs Insured in a Restructuring), a liability for
an  exit  cost  was  recognized at the date of an entity's commitment to an exit
plan.  Under  SFAS  146,  an  entity's commitment to a plan, by itself, does not
create  a present obligation to others that meets the definition of a liability.
Therefore,  SFAS 146 eliminates the definition of exit costs in Issue 94-3. SFAS
146 also establishes that fair value is the objective for initial measurement of
the  liability.  The  provisions  of SFAS 146 are effective for exit or disposal
activities  that  are  initiated  after  December  31, 2002, with early adoption
permitted.  The  provisions  of  SFAS  146  do not have a material impact on our
consolidated  results  of operations and financial position. We adopted SFAS 146
effective  January  1,  2003.

     SFAS  148,  Accounting  for   Stock-Based  Compensation  -  Transition  and
Disclosure,  amends No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value based
method  of  accounting  for stock-based employee compensation. In addition, SFAS
148  amends  the  disclosure  requirements  of SFAS No. 123 to require prominent
disclosures  in both annual and interim financial statements about the method of
accounting  for  stock-based  employee compensation and the effect of the method
used  in  reported  financial  results.  SFAS  148,  paragraphs 2(a) - 2(e), are
effective  for  financial  statements for fiscal years ending after December 15,
2002. SFAS 148, paragraph 2(f), and the amendment to APB Opinion No. 28, Interim
Financial  Reporting,  shall  be  effective  for  financial  reports  containing
condensed  financial statements for interim periods beginning after December 15,
2002.  Earlier  adoption  is  permitted.

     We  adopted  the  disclosure  provisions of SFAS 148 effective December 31,
2002.  As  permitted  under  SFAS  148,  we  continue  to  apply the recognition
provisions  of  APB Opinion No. 25, Accounting for Stock Issued to Employees, in
determining  our  compensation  expense.

Item  7.  Financial  Statements

     Financial  statements include the consolidated balance sheet as of December
31,  2003,  the  consolidated statements of operations, shareholders' equity and
cash flows for the year ended December 31, 2003. Also included are statements of
operations,  shareholders' equity and cash flows for the year ended December 31,
2002,  along  with proforma adjustments to include the activities of Feihe Dairy
during  the  year  ended  December  31,  2002.














                                       25
<PAGE>




                              AMERICAN DAIRY, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2003

























<PAGE>



                              AMERICAN DAIRY, INC.



                                TABLE OF CONTENTS



                                                                           Page
                                                                           ----

Independent Auditors' Report                                                F-1

Consolidated Balance Sheet                                                  F-2

Consolidated Statements of Operations                                       F-4

Consolidated Statements of Stockholders' Equity                             F-5

Consolidated Statements of Cash Flows                                       F-6

Notes to the Consolidated Financial Statements                              F-8

















<PAGE>



INDEPENDENT  AUDITORS'  REPORT

TO  THE  BOARD  OF  DIRECTORS
AMERICAN  DAIRY,  INC.


We  have  audited the accompanying consolidated balance sheet of American Dairy,
Inc.  and  subsidiaries  (the "Company") as of December 31, 2003 and the related
consolidated  statements  of operations, stockholders' equity and cash flows for
the  year  ended December 31, 2003.  These consolidated financial statements are
the  responsibility  of  the  Company's  management.  Our  responsibility  is to
express  an  opinion  on  these  consolidated  financial statements based on our
audit.

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

In  our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Dairy, Inc.
and subsidiaries as of December 31, 2003 and the results of their operations and
cash  flows  for  the  year  then ended in conformity with accounting principles
generally  accepted  in  the  United  States  of  America.




/s/Murrell,  Hall,  McIntosh  &  Co.,  PLLP
MURRELL,  HALL,  MCINTOSH  &  CO.,  PLLP

Oklahoma  City,  Oklahoma
February  28,  2004


                                      F-1

<PAGE>

                              AMERICAN DAIRY, INC.
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2003



                                     ASSETS
<TABLE>
<CAPTION>
CURRENT  ASSETS:
<S>                                                                <C>
  Cash                                                             $  3,040,600
  Accounts  receivable  trade,  net  of  allowance
    for  doubtful  accounts  of  $445,237                             1,733,525
  Accounts  receivable  -  employees  and  other                        138,182
  Note  receivable  -  secured                                          237,923
  Advances  to  suppliers                                               630,226
  Inventories                                                         5,074,471
  Prepaid  expenses                                                   1,237,780
  Refundable  taxes                                                     559,944
                                                                   ------------

      Total  current  assets                                         12,652,651
                                                                   ------------

PROPERTY  AND  EQUIPMENT:
  Land  and  building                                                 1,452,401
  Plant  and  machinery                                               2,493,123
  Transportation  equipment                                             278,236
  Computer  equipment                                                    22,221
                                                                   ------------

                                                                      4,245,981
  Accumulated  depreciation                                            (165,348)
                                                                   ------------

                                                                      4,080,633
  Construction  in  progress                                          2,034,891
                                                                   ------------

                                                                      6,115,524
                                                                   ------------

OTHER  ASSETS
  Goodwill                                                                7,000
  Deposits  on  land,  building,  and  equipment                        417,678
                                                                   ------------

                                                                        424,678
                                                                   ------------

      Total  Assets                                                $ 19,192,853
                                                                   ============
</TABLE>

                                      F-2

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


<PAGE>

                              AMERICAN DAIRY, INC.
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2003



                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT  LIABILITIES:
<S>                                                                <C>
  Accounts  payable                                                $  6,198,169
  Current  portion  of  purchase  obligation                             72,464
  Notes  payable                                                        483,092
  Deferred  revenue                                                   4,867,745
  Advances  from  employees                                             537,560
  Amount  due  to  shareholder                                          846,229
  Taxes  payable                                                        269,707
                                                                   ------------

      Total  current  liabilities                                    13,274,966
                                                                   ------------

PURCHASE OBLIGATION, net of current portion shown above                 289,854
                                                                   ------------

STOCKHOLDERS'  EQUITY:
  Common  stock,  $0.001  par  value  50,000,000  shares
    authorized;  11,750,970  shares  issued                              11,751
  Additional  paid-in  capital                                        3,235,298
  Retained  Earnings                                                  2,380,984
                                                                   ------------

      Total  stockholders'  equity                                    5,678,033
                                                                   ------------

      Total  Liabilities  and  Stockholders'  Equity               $ 19,242,853
                                                                   ============
</TABLE>







                                      F-3

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


<PAGE>

                              AMERICAN DAIRY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>
                                                         2003          2002
                                                    ------------   ------------
<S>                                                 <C>            <C>
SALES                                               $ 19,059,357   $ 12,172,815

COST  OF  GOODS  SOLD                                  8,156,165      7,915,998
                                                    ------------   ------------

     Gross  Profit                                    10,903,192      4,256,817
                                                    ------------   ------------

OPERATING AND ADMINISTRATIVE EXPENSES:
  Distribution  expenses                               7,899,265      3,271,864
  General and administrative expenses                  1,669,435        764,798
  Depreciation                                           131,302          2,613
                                                    ------------   ------------

                                                       9,700,002      4,039,275
                                                    ------------   ------------

INCOME  FROM  OPERATIONS                               1,203,190        217,542
                                                    ------------   ------------

OTHER  INCOME  (EXPENSES):
  Tax  incentives  and  other  income                  1,196,939        135,010
  Interest  expense                                      (24,809)        (2,882)
                                                    ------------   ------------

                                                       1,172,130        132,128
                                                    ------------   ------------

INCOME  BEFORE  INCOME  TAXES                          2,375,320        349,670

INCOME  TAXES:
  Current  tax  expense - Foreign                        338,513          5,493
                                                    ------------   ------------

NET  INCOME                                         $  2,036,807   $    344,177
                                                    ============   ============

BASIC  EARNINGS  PER  SHARE                         $       0.19   $       0.04
                                                    ============   ============

AVERAGE  COMMON  AND  COMMON
  EQUIVALENT  SHARES  OUTSTANDING                     10,535,964     9,650,000
                                                    ============   ===========
</TABLE>


                                      F-4

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


<PAGE>

                              AMERICAN DAIRY, INC.
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


<TABLE>
<CAPTION>
                                       Common Stock
                                   --------------------
                                    Number     $0.001      Additional                      Total
                                      of         par        Paid-In       Retained      Shareholders'
                                    Shares      Value       Capital       Earnings         Equity
                                  ----------   --------   -----------   -----------    --------------
<S>                               <C>          <C>        <C>           <C>            <C>
Balance,  December  31,  2001      9,650,000   $  9,650   $   (35,794)  $         -    $    (26,144)

Net omcp,e  for  the  year
  ended December  31,  2002                -          -             -       344,177         344,177
                                  ----------   --------   -----------   -----------    ------------

Balance,  December  31,  2002      9,650,000      9,650       (35,794)      344,177         318,033

Recapitalization                     135,530        135        11,148             -          11,283

Shares issued for
  consulting  services               240,000        240       269,760             -         270,000

Shares issued in exchange for
  conversion  of  shareholder
  loans                              933,155        933     1,865,379             -       1,866,312

Stock  issued  for  cash             792,285        793     1,499,207             -       1,500,000

Less  offering  costs  other
  syndication  costs                       -          -      (374,402)            -        (374,402)

Net  income  for  the year
  ended December  31,  2003                -          -             -     2,036,807       2,036,807
                                  ----------   --------   -----------   -----------    ------------

Balance, December 31, 2003        11,750,970   $ 11,751   $ 3,235,298   $ 2,380,984    $  5,628,033
                                  ==========   ========   ===========   ===========    ============
</TABLE>


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



                                      F-5

<PAGE>

                              AMERICAN DAIRY, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>
                                                         2003          2002
                                                    ------------   -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                  <C>           <C>
  Net income                                         $  2,036,807  $    344,177
  Adjustments  to  reconcile  net
    income to operating  activities -
    Depreciation                                          131,302        21,764
    Provision for doubtful accounts                       426,124       124,585
    Consulting fees                                       179,982             -
    Gain on disposal of fixed assets                            -          (802)
    Changes in assets and liabilities:
      (Increase)  decrease  in  -
        Accounts receivable                             1,776,027    (1,151,631)
        Advances to suppliers                            (630,226)            -
        Inventories                                    (3,086,370)     (751,725)
        Prepaid expenses                                  (11,472)     (648,849)
        Refundable taxes                                 (457,811)     (102,133)
        Amounts due to/from directors                           -       583,073
      Increase  (decrease)  in  -
        Accounts payable and accrued
          liabilities                                   3,531,577       287,225
        Deferred income                                 2,071,175     2,617,771
        Taxes payable                                     164,453      (113,364)
                                                     ------------  ------------

  Net  cash  provided  by  (used  in)
    operating activities                                6,131,568     1,210,091
                                                     ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Cash acquired during merger                              17,906             -
  Sales proceeds on disposal of
    fixed assets                                                -        10,870
  Deposits on land, buildings
    and equipment                                        (417,678)            -
  Purchases of property
    and equipment                                      (3,671,926)      (93,568)
  Purchase of business, net of
    cash acquired                                               -        42,248
  Disposal of assets                                       87,974             -
  Investment in construction in
    progress                                           (2,034,891)            -
  Issuance of note receivable -
    secured                                               (94,807)     (143,116)
                                                     ------------   -----------

  Net cash used in investing activities                (6,113,422)     (183,566)
                                                     ------------   -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of common stock for cash                     1,500,000             -
  Payment of syndication costs
    and other                                            (396,264)
  Proceeds from notes payable                             483,092             -
  Proceeds advanced from a shareholder                          -       102,093
  Purchase obligation                                     362,318
  Repayment of advances from
    a shareholder                                          (52,515)      (2,795)
                                                      ------------  -----------
  Net cash provided by
    financing activities                                 1,896,631       99,298
                                                      ------------  -----------

NET INCREASE (DECREASE) IN CASH
  AND  CASH EQUIVALENTS                               $  1,914,777  $ 1,125,823
</TABLE>





                                      F-6

<PAGE>

                              AMERICAN DAIRY, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


<TABLE>
<CAPTION>
                                                         2003          2002
                                                    ------------   -------------
CASH  AND  CASH  EQUIVALENTS,
<S>                                                  <C>            <C>
  BEGINNING OF PERIOD                                $  1,125,823   $         -
                                                     ------------   -----------

CASH  AND  CASH  EQUIVALENTS,
  END OF PERIOD                                      $  3,040,600   $ 1,125,823
                                                     ============   ===========

SUPPLEMENTAL  DISCLOSURES  OF
  CASH  FLOW  INFORMATION:
  Interest paid, net of capitalized
    amounts                                          $     19,630   $         -
                                                     ============   ===========

  Income taxes paid                                  $    338,513   $     5,493
                                                     ============   ===========
</TABLE>

SUPPLEMENTAL  DISCLOSURE  OF  NON-CASH  INVESTING  AND  FINANCING  ACTIVITIES:
During  the  year  ended  December  31, 2003, the Company converted loans from a
shareholder  totaling  $1,866,311  into  933,155  shares  of  common  stock.

During  the  year  ended December 31, 2003, the Company issued 240,000 shares of
its  common  stock  valued  at $270,000  for  consulting  services.

During  the  period ended December 31, 2002, the Company assigned a note payable
in  the  amount  of  $142,888  to  a  director  of  the  Company.

During  the  year  ended  December  31, 2002, the director settled advances from
employees  and  staff  guarantee fund, included in accounts payable, of $251,319
and  $63,853,  respectively,  on  behalf  of  Feihe  Dairy.



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









                                      F-7

<PAGE>

                              AMERICAN DAIRY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


1.   Description  of  business

     Organizational  structure

     American  Dairy,  Inc. ("American Dairy" or the "Company") was incorporated
     in  the  State  of  Utah  on December 31, 1985, originally with the name of
     Gaslight,  Inc.  It  was  inactive until March 30, 1988 when it changed its
     corporate  name  to Lazarus Industries, Inc. and engaged in the business of
     manufacturing  and  marketing  medical  devices.  This line of business was
     discontinued  in  1991, and it became a non-operating public company shell.
     During  2003,  the  Company changed  its  name  to  American  Dairy,  Inc.

     Effective  May 7, 2003, American Dairy completed the acquisition of 100% of
     the  issued  and outstanding capital stock of American Dairy Holdings, Inc.
     ("ADH"),  a  Delaware  corporation.  As a result, ADH became a wholly owned
     subsidiary  of American  Dairy.

     In  preparation for this acquisition, which was treated as a reverse merger
     for  financial  reporting  purposes,  American  Dairy  completed  a 1 to 19
     reverse  stock  split  reducing  the  number  of  shares  of  common  stock
     outstanding   from  7,485,147  to  394,168.  In  addition,  American  Dairy
     shareholders  canceled  258,638  shares   reducing  the  number  of  shares
     outstanding  at  the  acquisition  date  to 135,530  shares.

     American  Dairy  purchased all of the outstanding capital stock of ADH from
     its  shareholders  in  exchange  for  9,650,000 shares of restricted common
     stock.  This  acquisition was treated as a purchase for financial reporting
     purposes  with  ADH  being  the  purchaser  and  American  Dairy  being the
     purchased  entity.  This  purchase  resulted  in  the creation of $7,000 in
     goodwill.

     ADH  was  incorporated  on  January  15,  2002 in Delaware, with 50,000,000
     authorized  shares  of common stock at a par value of $0.0001 per share and
     10,000 of which authorized shares are currently issued and outstanding. ADH
     owns  100%  of  the  registered  capital  of  Heilongjiang Feihe Dairy Co.,
     Limited ("Feihe Dairy") and Feihe Dairy in turn owns 100% of the registered
     shares  of  Heilongjiang  Sanhao  Dairy  Co.,  Limited ("Sanhao Dairy") and
     BaiQuan  Feihe  Dairy  Co.  Limited ("BiaQuan  Dairy").

     Currently, the principal core activity of ADH is investment holdings, while
     the  principal  core  activities  of  Feihe Dairy, Sanhao Dairy and BiaQuan
     Dairy  are manufacturing and distribution of dairy products under the Feihe
     trademarks.  The  subsidiaries'  principal  country  of  operations  is the
     People's  Republic  of  China ("PRC").

     Heilongjiang  Feihe  Dairy  Co.  Limited  ("Feihe Dairy") was registered in
     Heilongjiang  Province,  in  the  People's  Republic  of China ("PRC") as a
     limited  liability  company on August 21, 1996 with a registered capital of
     $894,226  (Rmb.  7,404,193).  Feihe  Dairy's  wholly-owned  subsidiaries,
     Heilongjiang  Sanhao  Dairy  Co. Limited ("Sanhao Dairy") was registered in
     Heilongjiang  Province  in  the  People's  Republic  of  China as a limited
     liability  company  on  March  28, 2001 with registered capital of $433,110
     (Rmb.3,586,150) and a defined period of existence of four years to February
     28,  2005  and  BaiQuan  Feihe  Dairy  Co.  Limited  ("BaiQuan Dairy") were
     registered  on  September  16,  2002  with a registered capital of $120,773
     (Rmb.1,000,000)  and a defined period of existence of one year to September
     15,  2003.  Upon  an  application  by  the Company, BaiQuan Dairy's defined
     period  of  existence  was  extended for a further period of three years to
     October 20,  2006.

     Included  in  the  consolidated  financial  statements  are  the  following
     subsidiaries:


                                      F-8

<PAGE>
                              AMERICAN DAIRY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


     -  American  Dairy  Holdings,  Inc.
     -  Heilongjiang  Feihe  Dairy  Co.,  Limited
     -  Heilongjiang  Sanhao  Dairy  Co.,  Limited
     -  BaiQuan  Feihe  Dairy  Co.,  Limited.

     As  of  December 31, 2003, Feihe Dairy had a new production facility, Feihe
     Industrial  Park,  under construction. Construction is expected to complete
     by  September  1,  2004.

2.   Basis  of  preparation  of  financial  statements

     The  Company's  consolidated  financial  statements include the accounts of
     American  Dairy,  Inc. and its wholly owned subsidiaries, ADH, Feihe Dairy,
     Sanhao  Dairy, and BaiQuan Dairy. The consolidated financial statements are
     prepared in accordance with accounting principles generally accepted in the
     United  States  of  America.  The  consolidated  financial  statements  are
     prepared  using  the  historical  cost convention. This basis of accounting
     differs  from  that  used  in  the  preparation  of the Company's statutory
     financial  statements  which  are  prepared  in  accordance  with generally
     accepted  accounting  principles  and  the  relevant  financial regulations
     applicable  to  enterprises  in  the  PRC.

     On May 7, 2003, American Dairy, Inc. acquired all of the outstanding common
     stock  of  American  Flying Crane Corporation. For accounting purposes, the
     acquisition has been treated as a recapitalization of American Flying Crane
     Corporation  with  American  Flying  Crane Corporation as the acquirer. The
     historical financial statements prior to Mary 7, 2003 are those of American
     Flying  Crane  Corporation.

     The  following  table reflects the unaudited pro forma condensed statements
     of operations and cash flows for the year ended December 31, 2002 as if the
     acquisition  had  taken  place  on  January  1,  2002:
<TABLE>
<CAPTION>
                                     Pro-Forma Condensed Statement of Operations
                                        For the Year Ended December 31, 2002
                                     -------------------------------------------
<S>                                                 <C>
       Sales                                        $12,172,815
       Cost of sales                                  7,915,998
                                                    -----------
       Gross profit                                   4,256,817
                                                    -----------
       Operating and administrative
         Expenses                                     4,058,293
       Other (income) expense                          (132,226)
                                                    -----------
       Net income before taxes                          330,750
       Income taxes expense                               5,493
                                                    -----------
       Net Income                                   $   325,257
                                                    ===========

       Earnings per share                           $       .03
                                                    ===========

       Pro Forma common
         Share outstanding                            9,785,530
                                                    ===========
</TABLE>

                                      F-9
<PAGE>

                              AMERICAN DAIRY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


2.   Basis  of  preparation  of  financial  statements (continued)

<TABLE>
<CAPTION>
                                     Pro-Forma Condensed Statement of Operations
                                        For the Year Ended December 31, 2002
                                     -------------------------------------------
<S>                                                 <C>
       Cash flows from operating activities:        $1,204,368
       Cash flows (used in) investing activities      (183,566)
       Cash flows from financing activities             99,298
                                                    ----------

         Net increase in cash                        1,120,100

         Cash - beginning                               23,629
                                                    ----------

       Cash - End of period                         $1,143,729
                                                    ==========
</TABLE>

3.   Summary  of  significant  accounting  policies

     The  following  is  a  summary  of  significant  accounting  policies:

     Consolidation  policy  -  All  significant  inter-company  transactions and
     balances  within  the  Company  are  eliminated  on  consolidation.

     Cash  and  equivalents  -  The  Company  considers  all  highly liquid debt
     instruments  purchased  with  maturity period of three months or less to be
     cash  equivalents.  The  carrying  amounts  reported  in  the  accompanying
     consolidated  balance sheet for cash and cash equivalents approximate their
     fair  value.

     Accounts  receivable - Provision is made against accounts receivable to the
     extent which they are considered to be doubtful. Accounts receivable in the
     balance  sheet  is  stated  net of such provision. As of December 31, 2003,
     provision  for  doubtful  accounts  totaled  $445,237.

     Inventories  -  Inventories  comprise  raw materials, consumables and goods
     held  for  resale and are stated at the lower of cost or market value. Cost
     is  calculated  using the weighted average method and includes any overhead
     costs  incurred  in  bringing the inventories to their present location and
     condition.

     Market  value represents the estimated selling price in the ordinary course
     of  business  less  the  estimated  costs  necessary  to complete the sale.

     Construction-in-progress  -  All  facilities  purchased  for  installation,
     self-made  or  subcontracted are accounted for as construction-in-progress.
     Construction-in-progress is recorded at acquisition cost, including cost of
     facilities,  installation  expenses and the interest capitalized during the
     course  of  construction  for  the  purpose  of financing the project. Upon
     completion  and  readiness  for  use  of  the  project,  the  cost  of
     construction-in-progress  is  to  be transferred  to  fixed  assets.

     Long-lived  assets  and  depreciation  -  The Company recognizes impairment
     losses  on  long-lived assets used in operations when impairment indicators


                                      F-10

<PAGE>

     are  present  and  the undiscounted cash flows estimated to be generated by
     these  assets  are  less than their carrying values. Long-lived assets held
     for  disposal are valued at the lower of carrying amount or fair value less
     cost  to  sell.

     The  cost  of property, plant and equipment less anticipated salvage values
     of  10%  is  being  depreciated on a straight-line basis over the estimated
     useful  lives of the related assets. Land use rights are being amortized on
     a  straight-line basis over the term of the use agreement. Estimated useful
     lives  used  for  computing  depreciation  are  as  follows:
<TABLE>
<CAPTION>
<S>                                          <C>
          Buildings                          30  years
          Plant  and  machinery              18  years
          Motor  vehicles                     8  years
          Computers  and  equipment           5  years
</TABLE>

     Deferred  Revenues  -  Revenue  from  the  sale  of  goods  or  services is
     recognized  when  goods are delivered or services are rendered. Receipts in
     advance  for  goods  to  be  delivered  or  services  to be rendered in the
     subsequent  year  are carried  forward  as  deferred  revenue.

     Revenue  recognition  - Revenue from the sale of goods is recognized on the
     transfer  of risks and rewards of ownership, which generally coincides with
     the  time  when  the  goods  are  delivered  to customers and the title has
     passed.

     Interest  income  is  recognized  when  earned,  taking  into  account  the
     principal  amounts  outstanding  and  the  interest  rates  applicable.

     Sundry  income  includes  compensations  received  from the State Bureau as
     incentive  to  relocate from the previous factory premises, profit from the
     sales  of raw materials to third parties and write back of long outstanding
     trade  payables.

     Foreign  currencies  -  The financial position and results of operations of
     the  Company are determined using the local currency ("Renminbi" or "Yuan")
     as  the  functional currency. Foreign currency transactions during the year
     are  converted at the average rate of exchange during the reporting period.
     Monetary  assets  and  liabilities denominated in foreign currencies at the
     balance  sheet date are translated at the market rate of exchange ruling at
     that  date.  All  exchange  differences are dealt with in the statements of
     operation. The Company's principal country of operations is in The People's
     Republic  of  China.

     The  registered  equity  capital  and  fixed  assets  denominated  in  the
     functional  currency  are  translated at the historical rate of exchange at
     the time of capital contribution and purchases of fixed assets and exchange
     differences  arising  from  translating  equity capital, reserves and fixed
     assets at the exchange rate ruling at the balance sheet date are dealt with
     as  an  exchange  fluctuation  reserve  in  shareholders'  equity.

     Taxation  -  Taxation  on  overseas  profits  has  been  calculated  on the
     estimated  assessable  profits  for  the  year  at  the  rates  of taxation
     prevailing  in  the  country  in  which  the  Company  operates.

     Provision for the PRC income tax is calculated at the prevailing rate based
     on  the  estimated  assessable profits less available tax relief for losses
     brought forward.

     Enterprise  income  tax

     Under  the  Provisional  Regulations  of  the  PRC Concerning Income Tax on
     Enterprises  promulgated by the State Council and which came into effect on


                                      F-11

<PAGE>
                              AMERICAN DAIRY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


     January  1,  1994, income tax is payable by enterprises at a rate of 33% of
     their  taxable  income. Preferential tax treatment may, however, be granted
     pursuant  to  any  law  or regulations from time to time promulgated by the
     State  Council.

     Enterprise  income  tax  ("EIT")  is provided on the basis of the statutory
     profit  for  financial  reporting purposes, adjusted for income and expense
     items,  which  are  not  assessable  or deductible for income tax purposes.
     Under  the  Business  Promotion  Policy  Concerning  Income  Tax on Foreign
     Enterprises  promulgated by the QiQiHaEr City Municipal Government, foreign
     owned enterprises registered in QiQiHaEr City are entitled to a tax holiday
     of  seven  years  for  full  EIT  exemption as though the EIT has been paid
     during  the  tax  holiday  periods.  The  preferential  tax  treatment will
     commence when the Company commences to generate assessable income after all
     accumulated  tax  losses  have  been  deducted  from the assessable income.

     Value  added  tax

     The  Provisional  Regulations  of  the  PRC  Concerning  Value  Added  Tax
     promulgated by the State Council came into effect on January 1, 1994. Under
     these regulations and the Implementing Rules of the Provisional Regulations
     of  the PRC Concerning Value Added Tax, value added tax is imposed on goods
     sold  in or imported into the PRC and on processing, repair and replacement
     services  provided  within  the PRC.

     Value  added  tax payable in the PRC is charged on an aggregated basis at a
     rate  of  13%  or 17% (depending on the type of goods involved) on the full
     price  collected  for  the  goods  sold or, in the case of taxable services
     provided,  at  a  rate  of  17%  on  the  charges  for the taxable services
     provided,  but excluding, in respect of both goods and services, any amount
     paid  in  respect  of value added tax included in the price or charges, and
     less  any  deductible  value  added  tax  already  paid  by the taxpayer on
     purchases  of  goods  and  services  in  the  same financial  year.

     Deferred  taxes  - Deferred taxes are accounted for at the current tax rate
     in  respect  of  timing differences between profit as computed for taxation
     purposes  and  profit  as  stated  in  the  accounts  to  the extent that a
     liability  or  asset  is  expected  to  be  payable  or  receivable  in the
     foreseeable  future.

     Advertising  costs  -  Advertising  costs, except for costs associated with
     direct-response  advertising,  are charged to operations when incurred. The
     costs of direct-response advertising are capitalized and amortized over the
     period  during  which  future  benefits  are  expected  to  be  received.
     Advertising  expenses  of  the Company were $1,627,458 and $246,864 in 2003
     and  2002,  respectively.

     Retirement  benefit  cost  -  According  to  the People's Republic of China
     regulations  on  pension,  a  company contributes to a defined contribution
     retirement  scheme  organized  by  municipal  government in the province in
     which  the  Company was registered and all qualified employees are eligible
     to participate in the scheme. Contributions to the scheme are calculated at
     20%  of  the  employees'  salaries  above  a fixed threshold amount and the
     employees  contribute  4%  while  the  Company  contributes  the  balance
     contribution  of  16%.  Wholly  owned foreign enterprises are exempted from
     contribution  to  the  retirement  scheme.

     Fair  value  of  financial  statements  -  The  carrying amounts of certain
     financial  instruments,  including  cash,  accounts  receivable,  note
     receivable, other receivables, accounts payable, accrued expenses, advances
     from  staff, notes payable and other payables approximate their fair values
     as  of  December  31, 2003 because of the relatively short-term maturity of
     these  instruments.


                                      F-12

<PAGE>
                              AMERICAN DAIRY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


     Use  of  estimates  - The preparation of financial statements in accordance
     with  generally  accepted  accounting principles require management to make
     estimates  and  assumptions  that  affect  reported  amounts  of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of  the  financial statements and reported amounts of revenues and expenses
     during  the  reporting  period.  Actual  results  could  differ  from those
     estimates.

     Recent  accounting  pronouncements  - In May 2003, the Financial Accounting
     Standards  Board  issued  SFAS  No.  150  "Accounting for Certain Financial
     Instruments  with  Characteristics  of  both  Liability  and  Equity.  This
     standard  establishes  standards  for how an issuer classifies and measures
     certain  financial instruments with characteristics of both liabilities and
     equity.

     In April 2003, the Financial Accounting Standards Board issued SFAS No. 149
     "Amendment  of  Statement  133  on  Derivative  Instruments  and  Hedging
     Activities.  This  statement  amends and clarifies financial accounting and
     reporting for derivative instruments and for hedging actives under FASB No.
     133  "Accounting  for  Derivative  Instruments  and  Hedging  Activities

     In  December 2002, the Financial Accounting Standards Board issued SFAS No.
     148  "Accounting  for  Stock-Based Compensation- Transition and Disclosure.
     This  statement  amends  SFAS  No.  123  "Accounting  for  Stock  Based
     Compensation", to provide alternative methods of transition for a voluntary
     change  to  the  fair  value  based  method  of  accounting for stock-based
     employee  compensation.

     In  October  2002, the Financial Accounting Standards Board issued SFAS No.
     147 "Acquisition  of  Certain  Financial  Institutions.

     In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
     No.  146, Accounting for Costs Associated with Exit or Disposal Activities.
     SFAS  No.  146  addresses  significant  issues  regarding  the recognition,
     measurement  and  reporting  of  costs  associated  with  exit and disposal
     activities, including restructuring activities. SFAS No. 146 also addresses
     recognition  of certain costs related to terminating a contract that is not
     a  capital  lease,  costs to consolidate facilities, relocate employees and
     termination  benefits provided to employees that are involuntary terminated
     under  the  terms  of a one-time benefit arrangement that is not an ongoing
     benefit  arrangement  or an individual deferred-compensation contract. SFAS
     No.  146  was  issued  in  June  2002.

     In  April  2002, the FASB issued Statement of Financial Accounting Standard
     No.  145,  Rescission  of  FASB Statements No. 44, and No. 64, Amendment of
     FASB  Statement No. 13, and Technical Corrections, which updates, clarifies
     and  simplifies  existing  accounting  pronouncements.  SFAS  No.  4, which
     required  all  gains  and  losses  from  the  extinguishment  of debt to be
     aggregated  and  , if material, classified as an extraordinary item, net of
     related  tax effect was rescinded, as a result, SFAS 64, which amended SFAS
     No.  4,  was  rescinded as it was no longer necessary. SFAS No. 145 amended
     SFAS  No.  13 to eliminate an inconsistency between the required accounting
     for  sale-leaseback  transactions  and  the required accounting for certain
     lease  modifications  that  have  economic  effects  that  are  similar  to
     sale-leaseback  transactions.

     In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
     or  Disposal of Long-Lived Assets, which supersedes SFAS Statement No. 121,
     Accounting  for  the  Impairment  of  Long-Lived  Assets and for Long-Lived
     Assets  to  be  Disposed  Of.  This  new  statement also supersedes certain
     aspects  of the Accounting Principles Board Opinion (APB) No. 30, Reporting
     the  Results of Operations - Reporting the Effects of Disposal of a Segment


                                      F-13

<PAGE>
                              AMERICAN DAIRY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


     of a Business, and Extraordinary, Unusual and Infrequently Occurring Events
     and  Transactions,  with regard to reporting the effects of a disposal of a
     segment  of  a  business  and will require expected future operating losses
     from  discontinued  operations to be reported in discontinued operations in
     the  period  incurred  (rather than estimated as of the measurement date as
     was  required by APB No. 30). The Company adopted the provisions of FAS No.
     144  during  the  fiscal  year  ended  December  31, 2001.

     Management  believes  adoption  of  these  new statements will not have any
     significant  effect  on  the  Company's  financial  condition or results of
     operations.

4.   Concentrations  of  business  and  credit  risk

     The  Company  maintains  certain  bank  accounts  in  the PRC which are not
     protected  by  FDIC  insurance  or  other  similar  insurance.

     The Company provides credit in the normal course of business. Substantially
     all  customers  are  located  in The Peoples Republic of China. The Company
     performs  ongoing  credit  evaluations  of  its  customers  and  maintains
     allowances  for  doubtful  accounts based on factors surrounding the credit
     risk  of  specific  customers,  historical  trends,  and other information.

     The  Company  is  self  insured  for  all risks and carries no liability or
     property  coverage  of  any  kind.

5.   Notes  receivable  -  secured

     As  of  December  31,  2003,  the  Company held commercial notes receivable
     totaling  $237,923  that  were  issued  or  endorsed  by a third party. The
     commercial  notes  are  drawn  against  various banks with varying maturity
     periods  of  four  and  five months.

     The  commercial  notes,  which  bear  no  interest  and  are  receivable on
     maturity,  are endorsable  to  third  parties.

6.   Inventories

     Inventories  consist  of  the  following  as  of  December  31,  2003:
<TABLE>
<CAPTION>
<S>                                                            <C>
     Raw materials                                             $     1,435,816
     Work-in-progress                                                1,467,760
     Consumables, tooling and packaging                                367,888
     Finished goods                                                  1,803,007
                                                               ---------------
                                                               $     5,074,471
                                                               ===============
</TABLE>

7.   Tax  refundable

     Tax  refundable  represents  valued-added  tax  refundable  from  the local
government.


                                      F-14

<PAGE>
                              AMERICAN DAIRY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


8.   Transactions  with  directors
<TABLE>
<CAPTION>
                                                          Maximum
                                                        outstanding
                                     December 31,         balance       Security
                                   ---------------
     Name                          2003       2002    during the year     held
     ----                          ----       ----    ---------------     ----
<S>                             <C>        <C>           <C>              <C>
     Leng Youbin (Director)     $ 12,189   $ 10,690      $ 12,189         none
     Zhu  Tianlong  (Director)         -      8,364         8,364         none
     Wang  Yuehui  (Director)          -      7,866         7,866         none
     Ma Jinyan (Director)              -        121           121         none
     Piao  Longjun  (Director          -       (123)         (123)        none
     Lu Guang (Director)               -     (2,909)    $  (2,909)        none
                                ---------  --------

                                $ 12,189   $ 24,009
                                ========   ========
</TABLE>

     The  amounts  due  are unsecured, interest free and have no fixed repayment
     terms.  The amounts are advances to the directors are for business expenses
     to  be  incurred  on  behalf  of  the  Company.

9.   Fixed  assets
<TABLE>
<CAPTION>
                                             Plant and     Motor    Computers &
                               Buildings     machinery    vehicles   equipment      Total
                              -----------   -----------   --------  -----------  -----------
     Cost:
<S>                           <C>           <C>           <C>        <C>         <C>
     At January 1, 2003       $   331,288   $   302,039   $ 27,907   $ 7,002     $   668,236
     Additions                  1,121,113     2,285,265    250,329    15,219       3,671,926
     Disposals                          -       (94,181)         -         -         (94,181)
                              -----------   -----------   --------   -------     -----------

     At December 31, 2003       1,452,401     2,493,123    278,236    22,221       4,245,981
                              -----------   -----------   --------   -------     -----------

     Accumulated depreciation:

     At  January  1,  2003         17,544        22,007        137       565          40,253
     Charge for the year           28,358        94,915      5,243     2,786         131,302
     Written back on disposals          -        (6,207)         -         -          (6,207)
                              -----------   -----------   --------   -------     -----------

     At December 31, 2003          45,902       110,715      5,380     3,351         165,348
                              -----------   -----------   --------   -------     -----------

     Net  book  value
     at December 31, 2003     $ 1,406,499   $ 2,382,408   $272,856   $18,870     $ 4,080,633
                              ===========   ===========   ========   =======     ===========
</TABLE>

     As of December 31, 2003, net book values of buildings of $432,402 and plant
     and  machinery  of  $482,847  are  pledged  as  security  by  a subsidiary,
     Heilongjiang  Sanhao Dairy Co., Limited to secure short-term loans extended
     by  a  bank  and  a  financial  institution.

10.  Construction-in-progress


                                      F-15

<PAGE>
                              AMERICAN DAIRY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


<TABLE>
<CAPTION>
<S>                                                  <C>
     Balance  at  January  1,  2003                  $             -
     Add/(less):
     Expenditures during the year                          2,034,891
                                                     ---------------

     Balance at December 31, 2003                    $     2,034,891
                                                     ===============
</TABLE>

     Kedong  County  Beibei  Food  Industry  ( ) agreed to sell a land use right
     together  with  a  factory  at  a  total  consideration  of  $400,966 (Rmb.
     3,320,000)  to  Heilongjiang  Feihe  Diary  Co.,  Limited ( ) who agreed to
     purchase  the  property.  Based  on  an  appraisal report issued by An Luan
     Certified  Public  Accountants  in  QiQiHaEr  City,  the land use right and
     factory  were  evaluated  at  Rmb.  8,310,000  ($1,003,623).

     In  accordance  with  the  terms  and  conditions  of the Sale and Purchase
     Agreement  (the  "Agreement")  dated  July  25,  2003, the consideration is
     payable  in  one  lump  sum  on  or before July 25, 2004. If Feihe Dairy is
     unable  to  repay  the  consideration  within one year from the date of the
     Agreement,  it  has  agreed  to  procure  the issuance of 200,000 shares of
     Common  Stock  of  its  ultimate  holding company, American Dairy, Inc., at
     $2.00  per  share  in  full and final settlement of the consideration. This
     purchase is not reflected on the Company's financial statements at December
     31,  2003  as  the  transaction  has  not  yet  been  finalized.


11.  ADVANCES FROM EMPLOYEES

     Advances  from  employees  represented  temporary  funding  by employees to
     finance  a  temporary working capital shortfall experienced by the Company.
     The  advances  were unsecured, interest free and repayable within one year.

12.  DEFERRED INCOME

     Receipts  in  advance  represent  advances from new customers and for which
     goods  have  not  been  delivered as of the balance sheet date. Receipts in
     advance  for  goods  to  be  delivered  or  services  to be rendered in the
     subsequent  year  are  carried  forward  as  deferred  revenue.

13.  TAX PAYABLES

     Tax  payables  consist  of  the  following  as  of  December  31,  2003:
<TABLE>
<CAPTION>
<S>                                                        <C>
     Enterprise income tax                                 $   261,621
     Value added tax                                               259
     City construction tax and education surcharge               7,827
                                                           -----------
                                                           $   269,707
                                                           ===========
</TABLE>

14.  NOTES  PAYABLE

     As  of  December  31,  2003, the Company had the following short-term notes
     payable:
<TABLE>
<CAPTION>
                                                               2003
                                                           -----------
<S>                                                        <C>
     Banks                                                 $   362,319
     Financial  institution                                    120,773
                                                           -----------
                                                           $   483,092
                                                           ===========
</TABLE>


                                      F-16

<PAGE>
                              AMERICAN DAIRY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


     As  of  December  31,  2003,  notes payable to banks bear interest at rates
     ranging  from  6.9035%  and  5.7525% per annum, respectively. The loans are
     secured  by  the  Company's buildings and plant and machinery. The December
     31,  2003,  outstanding loan balance represents the maximum amount borrowed
     from  banks  at  any period during the fiscal year ended December 31, 2003.

15.  PURCHASE  OBLIGATION

     Pursuant  to a Sale and Purchase Agreement dated January 3, 2003, between a
     wholly  owned  subsidiary,  Heilongjiang  Feihe  Dairy Co., Limited ("Feihe
     Dairy") and BaiQuan County Economic Planning Council (the "Council"), Feihe
     Dairy  agreed  to  acquire all the fixed assets including the factory site,
     production  facilities,  land  use rights and buildings from BaiQuan County
     Dairy  Factory  at  a  consideration of $700,482 (Rmb. 5,800,000), which is
     payable  in  two  installments  of $603,864 (Rmb. 5.0 million) on or before
     March  31, 2003 and the second installment of $96,618 (Rmb. 800,000) is due
     on  or before March 31, 2004. As of December 31, 2003, Feihe Dairy has paid
     $338,164  (Rmb.  2.8 million) of the consideration to the Council. Pursuant
     to a supplemental agreement with the Council on March 31, 2003, Feihe Dairy
     agreed  to  repay  the  balance  of the consideration of $362,318 (Rmb. 3.0
     million)  as  follows:
<TABLE>
<CAPTION>
<S>                                            <C>
               2004                            $  72,464
               2005                               96,618
               2006                               96,618
               2007                               96,618
                                               ---------

                                               $ 362,318
                                               =========
</TABLE>

16.  CAPITAL  STOCK

     The  Company  has  50,000,000  shares of authorized Common Stock with a par
     value  of  $.001 per share. During 2003, the Company had stock transactions
     as  detailed below:

     In  anticipation  of  the  merger with ADH, the Company affected a 1 for 19
     reverse  stock  split,  which decreased the number of shares of outstanding
     common  stock  from  7,485,147  to  394,168.  Then  certain  shareholders
     contributed  258,638  shares  of  common  stock back to the Company further
     reducing  the  outstanding  shares  to 135,530.

     The  Company issued 9,640,000 shares of restricted common stock in exchange
     for  all  of  the  outstanding  capital  stock  of  ADH.

     The  Company also issued 240,000 shares of common stock and paid $60,000 in
     cash  plus the obligation to pay another $12,000 in cash in connection with
     a  consulting agreement entered into with existing shareholders. This stock
     was  valued  at  $420,000  for financial reporting purposes. The consulting
     agreement  is  to  cover  a  period of one year commencing May 7, 2003. For
     financial reporting purposes $328,000 was charged to consulting fee expense
     in  2003 with the balance of $164,000 being treated as a prepaid expense at
     December  31,  2003.

     A shareholder converted advances to the Company in the amount of $1,866,311
     into  933,155  shares  of  common  stock.

     Additionally,  a  total  of  792,285 shares of common stock were sold for a
     total  cash  consideration  of  $1,500,000.  Offering and syndication costs
     totaling  $374,402 were treated as reductions in additional paid-in capital
     for  financial  reporting  purposes.


                                      F-17

<PAGE>
                              AMERICAN DAIRY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


     As  of December 31, 2003, the Company had 11,750,970 of shares common stock
     issued  and  outstanding.

17.  STOCK  OPTIONS  AND  WARRANTS

     Effective  May 7, 2003, the Company adopted and approved its 2003 Incentive
     Stock Plan (the "Plan") which reserved 3,000,000 shares of Common Stock for
     issuance  under  the  Plan.  The Plan allows the Company to issue awards of
     incentive non-qualified stock options, stock appreciation rights, and stock
     bonuses  to  directors,  officers, employees and consultants of the Company
     which  may  be  subject  to  restrictions.  The  Company applies APB 25 and
     related  interpretations  in  accounting  for  its  plan.  Compensation for
     services  that  a  corporation  receives  under  APB 25 through stock-based
     compensation  plans  should  be  measured by the quoted market price of the
     stock  at the measurement date less the amount, if any, that the individual
     is  required  to  pay. No compensation expense was recorded during the year
     ended  December  31, 2003 related to its stock option plan under APB 25. As
     of  December  31,  2003,  the  Company  had not granted any incentive stock
     options,  stock  appreciation  rights,  or  stock  bonuses  under the plan.

     As  of December 31, 2003, the Company had 1,042,856 warrants outstanding at
     an  exercise price of $1.75 per warrant for one share each of the Company's
     common  stock.  The  warrants will expire August 28, 2006. Information with
     respect  to  outstanding  warrants  to  service  providers  are as follows:

<TABLE>
<CAPTION>
                                                                   2003
                                                           --------------------
                                                                       Average
                                                                       Exercise
                                                            Shares       Price
                                                           ---------   --------
<S>                                                        <C>           <C>
     Outstanding  warrants  at  beginning  of  year                -     $   -
     Warrants  granted                                     1,042,856      1.75
     Exercised                                                     -         -
     Expired                                                       -         -
                                                           ---------     -----

     Outstanding  warrants  at  the  end  of  year         1,042,856     $1.75
                                                           =========     =====
</TABLE>

<TABLE>
<CAPTION>
         Warrants  Outstanding               Warrants  Exercisable
        --------------------------   ------------------------------------
          Shares        Average      Average         Shares      Average
        Outstanding    Remaining     Exercise     Outstanding    Exercise
          12/31/03    Life (Years)    Price         12/31/03      Price
        -----------   ------------   --------     -----------    --------
<S>                       <C>        <C>           <C>            <C>
         1,042,856        3.0        $  1.75       1,042,856      $  1.75
         =========        ===        =======       =========      =======
</TABLE>

18.  INCOME TAX

     Income  tax  expense  is  made  up  of  the  following  components:


                                      F-18

<PAGE>
                              AMERICAN DAIRY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


<TABLE>
<CAPTION>
                                   Year Ended December  31,  2003
                             ------------------------------------------
                               U.S.     Foreign     State
                             Federal      PRC      and local    Total
                             --------   --------   ---------   --------
<S>                          <C>        <C>        <C>         <C>
     Current  tax  expense   $      -   $338,513   $      -    $338,513

     Deferred tax expense           -          -          -           -
                             --------   --------   --------    --------

                             $      -   $338,513   $      -    $338,513
                             ========   ========   ========    ========

                                   Year Ended December  31,  2002
                             ------------------------------------------
                               U.S.     Foreign     State
                             Federal      PRC      and local    Total
                             --------   --------   ---------   --------
     Current  tax  expense   $      -   $  5,943   $      -    $  5,943

     Deferred tax expense           -          -          -           -
                             --------   --------   --------    --------

                             $      -   $  5,943   $      -    $  5,943
                             ========   ========   ========    ========
</TABLE>

     Pretax  income  (loss)  for  2003  was $3,103,046  from foreign sources and
     ($727,726) from  U.S.  sources.  Pretax income (loss) for 2002 was $349,670
     from  foreign  sources  and  ($18,920)  from  U.S.  sources.

     A  reconciliations of tax at the statutory rates to the Company's effective
     rate are  as  follows:
<TABLE>
<CAPTION>
                                                    Years  Ended  December  31,
                                                    ---------------------------
                                                           2003        2002
                                                        ---------   ---------
<S>                                                     <C>         <C>
     Computed  expected  tax  expense                   $ 902,622   $ 125,685

     Increases  (reductions)  in  taxes
       result  from:

     Add  back  effect  of  U.S.  losses                  276,535       7,190

     Foreign  income  subject  to  foreign
       income  tax  but  not  expected  to  be
       subject  to  U.S.  tax  in  foreseeable
       future  -  Adjustment  due  to  change
       in  effective  tax  rates                         (155,152)    (17,483)

     Foreign  income  subject  to  foreign
       tax holiday but not expected to be
       subject  to  U.S.  tax  in  foreseeable
       future                                            (685,492)   (109,899)
                                                        ---------   ---------

     Actual  income tax expense                         $ 338,513   $   5,493
                                                        =========   =========
</TABLE>

                                      F-19

<PAGE>
                              AMERICAN DAIRY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


     Under  the  Provisional  Regulation  of  the  PRC, income tax is payable by
     enterprises  at a rate of 33% of their taxable income. Feihe Dairy has been
     granted a tax holiday of seven years for full enterprise income paid during
     that  period. This tax holiday will expire in April of 2009. The enterprise
     taxes paid during 2003 and 2002 were paid by Sanhao Dairy and BaiQuan Dairy
     as follows:

<TABLE>
<CAPTION>
                                                    Years  Ended  December  31,
                                                    ---------------------------
                                                           2003        2002
                                                        ---------   ---------
<S>                                                     <C>         <C>
     Sanhao  Dairy                                      $  76,892   $   5,493
     BaiQuan  Dairy                                       261,621           -
                                                        ---------   ---------

       Total                                            $ 338,513   $   5,493
                                                        =========   =========
</TABLE>

     The  tax  holiday resulted in tax savings of $685,492 or $.06 basic benefit
     per  share  in  2003  and $109,899 or $.01 basic benefit per share in 2002.

     The  Company  has  a  U.S  net operating loss carryforward of approximately
     $214,000  which  will  begin  expiring  in  2023.  For  financial reporting
     purposes  the  deferred  tax  asset  of  $81,320  associated with this loss
     carryforward  is  fully reserved  as  of  December  31,  2003.

     Although it is not anticipateD in the foreseeable future, should the parent
     company  receive  dividends  from its foreign subsidiaries, these dividends
     would  be  fully  taxable,  subject to an  offset for foreign taxes paid on
     these  earnings.  The  Company  has  not  provided  any accrual for any tax
     liabilities  that  might  be incurred for the receipt of dividends from its
     foreign  subsidiaries.

19.  COMMITMENTS

     As  of  December  31,  2003,   the  Company  has  future  commitments   for
     construction-in-progress  of  $2,241,174,  to  acquire  land  and buildings
     totaling  $1,120,772,   and  to   pay  future  advertising  costs  totaling
     $1,657,556.

     Minimum future rental payments under non-cancelable operating leases having
     remaining  terms  in excess of one year as of December 31, 2003 for each of
     the  next  five  year  and  in  the  aggregate  are:
<TABLE>
<CAPTION>
<S>                                             <C>
          December 31, 2004                     $     6,697
          December 31, 2005                           5,064
          December 31, 2006                           5,908
          December 31, 2007                           5,908
          December 31, 2008                           5,908
          Thereafter                                249,607
                                                -----------

                                                $   279,092
                                                ===========
</TABLE>

     Rent  expense  incurred  during  the years ended December 31, 2003 and 2002
     totalled  $5,967  and  $5,967,  respectively.


                                      F-20

<PAGE>
                              AMERICAN DAIRY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

     In  accordance  with  the  terms  of  a  Sale  and Purchase Agreement dated
     September  28,  2003, the Company has agreed to purchase land use rights in
     Beijing for a total consideration of $1,200,861 of which three installments
     totaling  $481,055  have  been paid as of December 31, 2003. The balance of
     $719,806  shall  be settled through a mortgage loan expected to be arranged
     with  a  bank.

     In  accordance  with  the  terms  and  conditions  of  a  Sale and Purchase
     Agreement  dated  July 25, 2003, the Company has agreed to acquire land use
     rights  and  a  factory  in  Kedong  County  for  a  total consideration of
     $400,966.  If  payment is not made by July 24, 2004, the Company has agreed
     to issue 200,000 shares of its common stock in full and final settlement of
     the  consideration.  This  transaction  was  not  recorded on the Company's
     financial  statements at December 31, 2003 as the transactions had not been
     finalized  at  that  date.



















                                      F-21

<PAGE>

Item  8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting and
Financial  Disclosure

     There  have  been  no  disagreements  regarding  accounting  and  financial
disclosure matters with the independent certified public accountants of American
Dairy.

     On  August  5,  2003,  HJ  &  Associates, L.L.C., the independent certified
public  accountants  and  auditors of American Dairy, Inc. for fiscal 2002, were
dismissed  by  American  Dairy from further audit services to it.  The dismissal
was  approved  by  the Board of Directors of American Dairy.  For the two fiscal
years ended December 31, 2002, and the subsequent interim period ended March 31,
2003,  there  were  no disagreements between American Dairy and HJ & Associates,
L.L.C.  on  any matter of accounting principles of practice, financial statement
disclosure,  or  auditing  scope  or  practices  which  if  not  resolved to the
satisfaction  of  HJ  &  Associates,  L.L.C.  would  have caused disagreement in
connection  with its reports.  Effective August 5, 2003, American Dairy retained
Weinberg  &  Company,  P.A., located at 6100 Glades Road, Suite 314, Boca Raton,
Florida  33434  as  its  independent  auditor.

     On  November  10, 2003, Weinberg & Company, P.A., the independent certified
public  accountants  and  auditors of American Dairy, Inc. for fiscal 2003, were
dismissed  by  American  Dairy  from  further  services  to American Dairy.  The
dismissal  was approved by the Board of Directors of American Dairy.  During the
fiscal year ended December 31, 2003, and the interim period ended June 30, 2003,
there  were no disagreements between American Dairy and Weinberg & Company, P.A.
on  any  matter  of  accounting  principles  of  practice,  financial  statement
disclosure,  or  auditing  scope  or  practices  which  if  not  resolved to the
satisfaction  of   Weinberg  &  Company,  P.Awould  have  caused disagreement in
connection  with  its  reports.

     Effective  November  10, 2003, Murrell, Hall, McIntosh & Co., PLLP, located
at  2601  N.W.  Expressway,  Suite  800  East, Oklahoma City, Oklahoma 73112 was
engaged  by  American  Dairy  to  audit the consolidated financial statements of
American  Dairy  for  its  fiscal year ending December 31, 2003, and the related
statements  of  income,  stockholders'  equity, and cash flows for the year then
ending.

                                    PART III

Item  9.  Directors  and  Executive  Officers

     Directors and Officers.  The following table sets forth certain information
regarding  the executive officers and directors of American Dairy.  All officers
serve  at  the  pleasure  of  the Board of Directors.  Directors serve until the
election  and  qualification  of  their  successors.
<TABLE>
<CAPTION>
Name              Age              Position
----              ---              --------
<S>                <C>       <C>
Leng You-Bin       34        Director, Chairman of the Board, Chief Executive
                             Officer and  President

Liu  Hua           31        Director,  Chief  Financial Officer, Secretary and
                             Treasurer

Liu  Sheng-Hui     33        Director

Hui-Lan  Lee       54        Director
</TABLE>

     The  officers and directors of American Dairy were elected to their current
positions  on  May  7,  2003.  The  following  information reflects the business
background  and  experience  of  each  director  and  officer:


                                       26
<PAGE>

     Leng  You-Bin  is  the  Chairman,  Chief  Executive Officer, President, and
General  Manager  of  American  Dairy and Feihe Dairy. He is responsible for the
overall  strategic planning, management and business development of Feihe Dairy.
Mr. Leng has been in the dairy industry for more than 13 years.  He obtained his
Bachelor  of  Science  degree  in  Food  Engineering  from Northeast Agriculture
University,  China.  From  1989  to  1997,  Mr. Leng acted as technician, deputy
director  and director of Zhaoguang Dairy Plant, the predecessor of Feihe Dairy.
From  1997  to 2000, Mr. Leng was the General Manager of Feihe Dairy.  He became
the  Chairman  and  General Manager in 2000.  He has researched and patented the
"liver  protection  milk  powder"  (GanBao  Milk  Powder).

     Liu Hua is the Chief Financial Officer, Secretary, Treasurer and a director
of  American  Dairy,  and  has  been  the  Financial Officer of Feihe Dairy from
November 2000 to the present.  From June 1998 to November 2000, he was the Chief
Executive  Officer  of  Shenzhen  Cima  Limited.  From September 1993 to January
1996, he was the Chief Executive Officer of Zhengzhou Huacheng Limited.  Mr. Liu
received  a  degree  from  Xian  Traffic  University  in  1993.

     Liu  Sheng-Hui  is  a director of American Dairy. He is responsible for the
overall  financial  planning  and  management  of Feihe Dairy. He graduated from
Northeast Agriculture University with a Bachelor of Economics degree in Economic
Management  in 1992. Mr. Liu has 10 years experience in the areas of finance and
accounting.  He  joined  Feihe  Dairy in 1992.  He has held his current position
since  1998.

     Hui-Lan  Lee  (also  known  as  "Tracy  Lee")  has   been   Assistant  Vice
President-Taxation  of  Countrywide  Home  Loan,  Inc.  from  April  2003 to the
present.  She  was  the Tax Manager of Watson Pharmaceuticals, Inc. from October
26,  1996  to  March  2003.  From  1979  to  1996, Ms. Lee was employed by major
fortune  500  companies  including    The  Flying  Tiger  Line  Inc.   (a  Tiger
International  Company),  Quotron  Systems, Inc. (a subsidiary of the Citigroup,
Inc.)  and  Lear Siegler, Inc. in various management positions.  Ms. Lee holds a
Master  of  Science degree in Taxation from Golden Gate University, and a Master
of  Business  Administration  degree  from  Indiana  University.

Consultants
-----------

     American  Dairy  intends  to retain consultants to the extent necessary and
appropriate.  American  Dairy will not delegate its authority and responsibility
to  make management decisions to consultants or any other persons, nor shall any
consultant  have  any  discretionary authority or the authority to bind American
Dairy  in  any  material  respect.

     In  connection  with  the  closing  of the Exchange Agreement with American
Dairy  Holding,  Inc.  on  May 7, 2003, American Dairy entered into a consulting
agreement  (the  "Consulting  Agreement")  with  Danbury Properties, LLC, a Utah
limited  liability  company  ("Danbury"),  of  which Jack M. Gertino, the former
President  of  American  Dairy and James C. Lewis, a former director of American
Dairy, are members.  During the one year period of Danbury's engagement, Danbury
has  agreed  to  provide American Dairy with consulting services in the areas of
financial  and  management planning, financing assistance and capital formation.
In  exchange  for  such  services,   Danbury  will  receive   $60,000  in   cash
compensation,  and 240,000 restricted shares of  Common Stock of American Dairy.
In  addition,  American  Dairy  agreed  to  pay  the  sum  of  $12,000  for  the
cancellation  of all outstanding options held by Messrs. Gertino and Lewis.  For
financial  reporting purposes, $228,011 of this consulting agreement was charged
to operations in 2003 with the balance of $113,989 treated as prepaid expense at
December  31,  2003.

Item  10.  Executive  Compensation

     All  executive  officers, for services in all capacities to American Dairy,
received  the  following  compensation during the fiscal year ended December 31,
2003.

                                       27
<PAGE>

Compensation  of  Executive  Officers
-------------------------------------

     The  officers  and directors of American Diary received compensation during
its  fiscal  year  ended  December  31,  2003,  as  follows:

<TABLE>
<CAPTION>
                                                         SUMMARY  COMPENSATION  TABLE
                                      ANNUAL  COMPENSATION(1)(2)                LONG  TERM  COMPENSATION
                                      --------------------------              AWARDS                   PAYOUTS
                                                                          ---------------------------------------
                                                         OTHER       RESTRICTED   SECURITIES                  ALL
NAME  AND               Fiscal                           ANNUAL        STOCK      UNDERLYING     LTIP        OTHER
PRINCIPAL                Year      SALARY     BONUS   COMPENSATION     AWARDS     OPTIONS/SARs   PAYOUTS   COMPESATION
POSITION
                        ------     ------     -----   ------------   ----------   ------------   -------   ------------
<S>                     <C>        <C>        <C>       <C>           <C>            <C>         <C>           <C>
Jack  M.  Gertino       2003       $    0     $   0     $        0    $       0      $       0   $     0       $      0
former  Chief
Executive  Officer
and  President

Leng  You-Bin,          2003       $6,884     $   0     $        0    $       0      $       0   $     0       $      0
Director,  Chief
Executive  Officer
and  President
</TABLE>
------------------------------------------------------------
(1)  Personal  benefits  received  by  American  Dairy's  executive officers are
     valued  below the levels which would otherwise require disclosure under the
     rules  of  the  U.S.  Securities  and  Exchange  Commission.
(2)  American  Dairy does not currently provide any contingent or deferred forms
     of  compensation  arrangements,  annuities, pension or retirement benefits.

      American Dairy presently has no employment agreements with its officers or
key  employees,  but  may  enter  into  such  agreements  in  the  future.

      American Dairy presently has no employment agreements with its officers or
key  employees,  but  may  enter  into  such  agreements  in  the  future.

Benefit  Plans
--------------

     American  Dairy  does not have any profit sharing plan or similar plans for
the  benefit  of  its officers, directors or employees.  However, American Dairy
reserves  the  right  to  establish  any  such  plans  in  the  future.

     American  Dairy  has  contributed  to  a  retirement  plan  organized  by a
municipal  government  for  the  benefit  of  its  eligible  employees in China.
Contributions  to the plan are calculated at 20% of the employees salaries above
a  threshold amount and employees contribute 4% while American Dairy contributes
16%.  However, as wholly owned foreign enterprises of American Dairy in the PRC,
Feihe  Dairy,  Sanhao  Dairy  and  BaiQuan  Dairy have been exempted from making
contributions  under  the  plan.

Incentive  Stock  Plan
----------------------

     Effective  May  7,  2003,  American  Dairy  adopted  and  approved its 2003
Incentive  Stock Plan (the "Plan") which reserves 3,000,000 shares of its Common
Stock  for  issuance  under  the  Plan.   The  Plan allows us to issue awards of
incentive  or  non-qualified stock options, stock appreciation rights, and stock
bonuses which may be subject to restrictions.  No awards of stock options, stock
appreciation  rights,  or  stock  bonuses have been granted under the Plan as of
December  31,  2003.


                                       28
<PAGE>

Board  Compensation
-------------------

     Directors  of  American  Dairy who do not serve as officers thereof are not
currently compensated by American Dairy for meeting attendance or otherwise, but
will  be  entitled  to  reimbursement for their travel expenses.  American Dairy
plans  to provide its non-management directors, if any, a competitive directors'
compensation  package  comparable  to  programs  offered  by  similarly situated
corporations.

Limited  Liability  and  Indemnification
----------------------------------------

     Section  16-10a-840  of  the  Utah  Revised  Business  Corporation Act (the
"URBC")  requires  directors  and officers to perform their duties in good faith
and  with  the  care  that  an  ordinary  person  would  exercise  under similar
circumstances  in a manner reasonably believed to be in the best interest of the
corporation.  A  director  or  officer  of  a  corporation  is not liable to the
corporation,  its  shareholders or others for any action taken or any failure to
act  as  an officer or director unless he has breached or failed  to perform his
duties as described above and the breach or failure to perform constitutes gross
negligence,  wilful  misconduct,  or  intentional  infliction  of  harm  on  the
corporation  or  its  shareholders.

     Section  16-10a-841 of the URBC provides that the articles of incorporation
of  a Utah corporation may eliminate or limit the liability of a director to the
corporation or its shareholders for monetary damages, except for (I) a financial
benefit  to  which  he  is not entitled; (ii) an intentional infliction of harm;
(iii)  unlawful  distributions  of  the  corporation constituting a violation of
Section  16-10a-842  of  the  URBC; or (iv) an intentional violation of criminal
law.

     Section  16-10a-902  of  the  URBC  permits a Utah corporation to indemnify
directors  made  a  party to a proceeding because he is or was a director if (I)
his conduct was in, or not opposed to, the corporation's best interest; and (ii)
he  reasonably believed his conduct was in, or not opposed to, the corporation's
best  interests;  and  (iii)  in  the  case  of a criminal proceeding, he had no
reasonable  cause  to  believe  his  conduct  was  unlawful.  However,  a  Utah
corporation  may  not  indemnify  a  director  if  he was adjudged liable to the
corporation,  or  if  he  was  adjudged  liable  on the basis that he derived an
improper personal benefit; and such indemnification in any action brought by the
corporation  is  limited  to reasonable expenses incurred in connection with the
proceedings.

     Article VI of the Articles of Incorporation and Article VIII of the By-Laws
of  American  Dairy provide for the indemnification of directors and officers of
American  Dairy.  Indemnification  is  mandatory  regarding  reasonable expenses
incurred  in  connection with proceedings or claims with respect to which he has
been  successful.

     Officers,  employees,  fiduciaries  and agents of a Utah corporation may be
entitled  to  indemnification  to  a  greater  extent  than  directors,  if  not
inconsistent  with  public   policy,  if  provided   for  in  the   Articles  of
Incorporation, By-Laws, the general or specific action of its board of directors
or  contract.

Compliance  with  Section  16(a)  of  the  Securities  Exchange  Act
--------------------------------------------------------------------

     Section  16(a)  of  the  Exchange  Act  requires American Dairy's executive
officers  and  directors, and persons who beneficially own more than ten percent
(10%)  of  its  equity  securities,  to file reports of ownership and changes in
ownership with the U.S. Securities and Exchange Commission.  Officers, directors


                                       29
<PAGE>

and  greater  than  ten  percent  shareholders are required by SEC regulation to
furnish  American  Dairy  with  copies  of  all  Section  16(a) forms they file.

     Based  on  its  review of the copies of such forms received by it, American
Dairy  believes  that  during  the year ended December 31, 2003, all such filing
requirements  applicable to its officers, directors and 10% owners of its Common
Stock  were  complied  with.

Item  11.  Security  Ownership  of  Certain  Beneficial  Owners  and  Management

     The  following  table  sets  forth  certain   information  concerning   the
beneficial  ownership  of  American  Dairy's  shares  of  Common  Stock held  by
directors  and  officers of American Dairy, and by each person known to American
Dairy  to  be a beneficial owner of five percent (5%) or more of its outstanding
Common  Stock  as  of  December  31,  2003.

<TABLE>
<CAPTION>
                                                                  Percentage
                                                Number  of     of Total  Shares
   Name and Address                              Shares(1)       Outstanding
   ----------------                             ----------     ----------------
<S>                                              <C>                 <C>
Leng  You-Bin  (4)                               8,987,535           76.5%
1st  Qingziang  Street
Kedong  County
Heilongjiang Province
The People's Republic of China

Liu  Hua                                                 0              0%
1st  Qingxiang  Street
Kedong  County
Heilongjiang  Province
The People's Republic of China

Hui-Lan  Lee                                             0              0%
232  Alabama  Street
San Gabriel, California 91775

Liu  Sheng-Hui                                     387,476            3.3%

1st  Qingxiang  Street
Kedong  County
Heilongjiang Province
The People's Republic of China

American  Eastern  Securities,  Inc.               654,475(2)         5.6%
865 S. Figueroa Street, Suite 3340 Los
Angeles,  California  90071


                                       30
<PAGE>

Belmont  Capital  Group  Limited                   913,358(2)         7.8%
Suites  A-C  Neich  Tower
128  Gloucester  Road,  Wanchai
Hong  Kong,  China

All  executive  officers  and                    9,375,011           79.8%
directors  as  a  group
(4  persons)
</TABLE>

(1)  They have sole voting and dispositive power with respect to their shares of
     Common  Stock  of  American  Dairy,  except  as  otherwise  indicated.
(2)  These shares include warrants to purchase 571,428 shares of Common Stock of
     American  Dairy  at  $1.75 per share for a term of three years which shares
     are  deemed  to  be  beneficially  owned  by  the  holder.

Item  12.  Certain  Relationships  and  Related  Transactions

     In  May  2003,  American  Dairy  entered  into  a consulting agreement (the
"Consulting  Agreement")  with Danbury Properties, LLC, a Utah limited liability
company  ("Danbury"),  of  which  Jack  M.  Gertino,  the former President and a
director  of  American  Dairy, and James C. Lewis, a former director of American
Dairy, are members.  During the one-year period of Danbury's engagement, Danbury
has  agreed  to  provide  to  American Dairy consulting services in the areas of
financial  and  management planning, financing assistance and capital formation.
In  exchange  for  such  services,  Danbury  will  receive  $60,000  in  cash
compensation,  and  240,000  shares  of  post-split  Common Stock.  In addition,
American  Dairy has agreed to pay the sum of $12,000 for the cancellation of all
outstanding  options held by Messrs. Gertino and Lewis.  This transaction cannot
be  considered  the  result  of  arms'  length  negotiations.









                                       31
<PAGE>

     Effective  May  7,  2003, Mr. Leng You-Bin and Mr. Liu Sheng-Hui, directors
and  officers  of  American Dairy, received 8,129,032 shares and 387,476 shares,
respectively, of the Common Stock of American Dairy in exchange for all of their
registered  capital  stock of American Dairy Holdings, Inc. under the terms of a
stock  exchange  agreement.

     Effective  May  7,  2003,  American  Dairy acquired 100% of American Flying
Crane  Corporation  (formerly  "American  Dairy  Holdings,  Inc.")  ("AFC") in a
stock-for-stock  exchange.  AFC had previously acquired 100% of the ownership of
the  registered capital of Heilongjiang Feihe Dairy Co., Limited ("Feihe Diary")
in  February  2002  for  $2,586,311  (U.S.)  from the registered owners of Feihe
Dairy,  owned  primarily  by  Mr. Leng You-Bin who is the principal stockholder,
director,  Chief Executive Officer and President of American Dairy.  As a result
of this acquisition, AFC owed approximately $1,866,311 to Mr. Leng You-Bin after
approximately  $700,000  having been paid to him by American Dairy.  During June
200,  American Dairy and Mr. Leng You-Bin agreed to cancel the remaining debt of
$1,866,311  in  exchange  for  the issuance of  943,156 shares of the restricted
Common  Stock  of  American  Dairy.

Item  13.  Exhibits  and  Reports  on  Form  8-K

     (a)  Reports  on  Form  8-K

     On  November 17, 2003, American Dairy filed a Form 8-K current report (Item
4  and  Item 7) to report a change in its independent auditors to Murrell, Hall,
McIntosh  &  Co.,  P.L.L.P.

     (b)  Exhibits
<TABLE>
<CAPTION>
<S>     <C>                               <C>
2.1     Stock Exchange Agreement          Stock Exchange Agreement dated January
                                          15, 2003, is  incorporated  herein  by
                                          reference to  Exhibit 2.1 to  American
                                          Dairy's  Form  8-K  current  report as
                                          filed with the Securities and Exchange
                                          Commission on January  21,  2003.

2.2     Amendment to Stock Exchange
        Agreement                         Amendment to Stock  Exchange Agreement
                                          dated March 5,  2003  is  incorporated
                                          herein  by reference to Exhibit 2.2 of
                                          American  Dairy's  Form  8-K   current
                                          report  as  filed  with the Securities
                                          and Exchange Commission  on  March  5,
                                          2003.

3.1     Articles  of  Incorporation       Articles  of Incorporation of American
                                          Dairy,  as  amended,  are incorporated
                                          herein  by  reference  to  Exhibit 3.1
                                          to  its registration statement on Form
                                          10-SB,  as  filed  with the Securities
                                          and Exchange Commission  on  September
                                          16,  1999.

3.2     Amendment  to  Articles  of
        Incorporation                     Amendment to Articles of Incorporation
                                          of American Dairy dated May  6,  2003.


                                       32
<PAGE>

3.3     By-Laws                           By-Laws    of    American    Dairy are
                                          incorporated  herein  by  reference to
                                          Exhibit 3.2    to   its   registration
                                          statement  on   Form 10-SB,  as  filed
                                          with  the  Securities   and   Exchange
                                          Commission on September 16, 1999.

10.  Material  Contracts

10.1    Consulting  Agreement             Consulting  Agreement  by  and between
                                          American   Dairy,   American   Dairy
                                          Holdings, Inc. and Danbury Properties,
                                          L.L.C.,  dated    March  28,  2003, is
                                          incorporated  herein  by  reference to
                                          Exhibit 10.3 to the Form 10-KSB annual
                                          report of Lazarus Industries, Inc. for
                                          its  fiscal  year  ended  December 31,
                                          2002.

10.2    Stock  Purchase Agreement         Stock  Purchase  Agreement dated March
                                          28,  2003,  by  and  between  American
                                          Dairy  and  American  Diary  Holdings,
                                          Inc.  and   certain   American  Dairy
                                          shareholders  is  incorporated  herein
                                          by reference to Exhibit 10.4  to  the
                                          Form 10-KSB annual report of Lazarus
                                          Industries, Inc. for its  fiscal  year
                                          ended  December  31,  2002.

16.1    Letter  on  change
        in  certifying accountant         Letter  of  HJ  &  Associates,  L.L.C.
                                          dated August 6, 2003,  is incorporated
                                          herein by reference to Exhibit 16 to
                                          the Form 8-K  current  report  of
                                          American  Dairy  filed  on  August  6,
                                          2003.

16.2    Letter on change in certifying
        accountant                        Letter of  Weinberg  &  Company,  P.A.
                                          dated November  13, 2003 is
                                          incorporated herein by reference to
                                          Exhibit 16 to the Form 8-K  current
                                          report  of  American  Dairy  filed  on
                                          November  17,  2003.

23.1    Consent  of  Murrell,  Hall,
        McIntosh                          Consent  of  Murrell,  Hall, McIntosh
                                          &  Co.,  PLLP


</TABLE>

Item  14.  Controls  and  Procedures

     Evaluation  of  Disclosure  Controls and Procedures. American Dairy's Chief
Executive  Officer  and  American  Dairy's  principal  financial  officer, after
evaluating  the  effectiveness  of  American  Dairy's  disclosure  controls  and
procedures  (as defined in the Securities Exchange Act of 1934 Rule 13a-14(c)and
15d-14(c)  as of a date within 90 days of the filing date of this report on Form
10-KSB  for  its  fiscal year ended December 31, 2003, have concluded that as of


                                       33
<PAGE>

the  Evaluation  Date,  American Dairy's disclosure controls and procedures were
adequate  and effective to ensure that material information relating to American
Dairy and American Dairy's consolidated subsidiaries would be made known to them
by  others  within  those entities, particularly during the period in which this
annual  report  on  Form  10-KSB  was  being  prepared.

     Changes  in  Internal  Controls.  There  were  no  significant  changes  in
American  Dairy's internal controls or in other factors that could significantly
affect  American  Dairy's  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,
no  corrective  actions  were  taken.

Item  15.  Principal  Accountant  Fees  and  Services

     Fees  paid  to  principal  accountants  are  as  follows:
<TABLE>
<CAPTION>
Name                        Audit Fees     Audit Related Fees     Tax Fees     All Other Fees

HJ  &  Associates
for  fiscal  year  ended
<S>                            <C>                 <C>               <C>              <C>
December 31, 2002              $ 3,524             $  ----           $----            $----
December 31, 2003              $  ----             $  ----           $----            $----

Weinberg & Company, P.A.
for  fiscal  year  ended
December 31, 2002              $  ----             $  ----           $----            $----
December 31, 2003              $23,513             $11,045           $----            $----

Murrell,  Hall,  McIntosh
for  fiscal  year  ended
December 31, 2002              $  ----             $  ----           $----            $----
December 31, 2003              $ 3,770             $  ----           $----            $----
</TABLE>














                                       34
<PAGE>

                                   SIGNATURES

          In accordance with Section 13 or 15(d) of the Securities Exchange Act,
the registrant caused this report to be signed on its behalf by the undersigned,
hereunto  duly  authorized.

April  1,  2004                 AMERICAN  DAIRY,  INC.

                                By:/s/  Leng  You-Bin
                                   ---------------------------------------------
                                   Len  You-Bin,  Chief  Executive
                                   Officer,  and  President

                                By:/s/  Liu  Hua
                                   ---------------------------------------------
                                   Liu  Hua,  Chief  Financial  Officer,
                                   Principal  Accounting  and Financial Officer,
                                   and  Treasurer

     In  accordance  with the Exchange Act, this report has been signed below by
the  following  persons on behalf of the registrant and in the capacities and on
the  dates  indicated.

April  1,  2004                 By:/s/  Leng  You-Bin
                                   --------------------------------------------
                                   Leng  You-Bin,  Director,  Chief
                                   Executive  Officer  and  President

                                By:/s/  Liu  Hua
                                   --------------------------------------------
                                   Liu  Hua,  Director,  Chief  Financial
                                   Officer,  Principal  Accounting  and
                                   Financial  Officer,  Secretary and Treasurer

                                By:/s/  Liu  Sheng-Hui
                                   --------------------------------------------
                                   Liu  Sheng-Hui,  Director

                                By:/s/  Hui-Lan  Lee
                                   --------------------------------------------
                                   Hui-Lan  Lee,  Director



                                       35
<PAGE>

                           INDEX OF EXHIBITS ATTACHED

Exhibit                         Description
-------                         -----------

3.2                              Amendment  to  Articles of  Incorporation dated
                                 May 6, 2003.

21.    Subsidiaries  of
       American Dairy            Description of the subsidiaries of  American
                                 Dairy.

23.1   Consent of Murrell,
       Hall, McIntosh  &
       Co.,  PLLP                Consent of Murrell, Hall, McIntosh & Co., PLLP,
                                 independent  auditor

99.1   Certification of
       Leng  You-Bin
       and  Liu  Hua

99.2   Certification  of
       Leng  You-Bin

99.3   Certification  of
       Liu  Hua
















                                       36
<PAGE>