UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549








FORM 10-K/A

(Amendment No. 2)








xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934



For the fiscal year ended December 31, 2011



OR



oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934



For the transition period from   
        to



Commission File Number 001-34422







CHINA MARINE FOOD GROUP LIMITED

(Exact name of registrant as specified in
its charter)



|NEVADA                          |  | 87-0640467                       
|------------------------------- |  | ---------------------------------
|(State or other jurisdiction of |  | (IRS Employer Identification No.)
|Incorporation or organization)  |  |                                  



Da Bao Industrial Zone, Shishi City

Fujian, China

362700

(Address of principal executive offices)



86-595-8898-7588

(Issuer's telephone number, including area
code)



Securities registered pursuant to Section
12(b) of the Act:

COMMON STOCK



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

NONE



Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes o Nox



Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o Nox



Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.    Yesx      No ̈



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).



Yesx    
 No ̈



Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. ̈



Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer”
in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ̈ 
         Accelerated filer  ̈     
      Non-accelerated filer  ̈         
 Smaller Reporting Companyx



Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).    Yes ̈ Nox



The aggregate market value of the registrant’s
common stock held by non-affiliates of the registrant was $47,125,093 based on the June 30, 2011 closing sale price of $2.73 as
reported on the NYSE AMEX.



As of March 26, 2012, there were 29,697,976
shares of common stock outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



XBRL Exhibits 101 incorporated by
reference from Form 10-K/A filed March 28, 2012.















Explanatory Note



This amendment No.2 on Form 10-K/A (“Amendment
No.2”) amends the Annual Report on Form 10-K/A (“Amendment No.1”) for the year ended December 31, 2011, which
was filed with the Securities and Exchange Commission (the “SEC”) on March 28, 2012. We are filing this Amendment No.2
solely to revise the disclosure on “Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters” to remove TradeLink Securities, LLC as a beneficial owner of more than 5% of the registrant’s Common Stock.
Except for this change, no other change has been made to the Amendment No.1, including the financial statements. This Amendment
No. 2 does not reflect subsequent events occurring after the original filing date of the Amendment No.1 or modify or update disclosures
made in the Amendment No.1.



China Marine Food Group Limited



FORM 10-K/A

(Amendment No. 2)



For the Year Ended December 31, 2011



TABLE OF CONTENTS



|PART I     |  |                                                                                                                  |           
|---------- |  | ---------------------------------------------------------------------------------------------------------------- | ----------
|ITEM 1.    |  | Business                                                                                                         | 4         
|ITEM 1A.   |  | Risk Factors                                                                                                     | 28        
|ITEM 1B.   |  | Unresolved Staff Comments                                                                                        | 41        
|ITEM 2.    |  | Properties                                                                                                       | 41        
|ITEM 3.    |  | Legal Proceedings                                                                                                | 43        
|ITEM 4.    |  | Mine Safety Disclosures                                                                                          | 43        
|           |  |                                                                                                                  |           
|PART II    |  |                                                                                                                  |           
|ITEM 5.    |  | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
    Purchases of Equity Securities | 43        
|ITEM 6.    |  | Selected Financial Data                                                                                          | 44        
|ITEM 7.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                            | 44        
|ITEM 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                       | 63        
|ITEM 8.    |  | Financial Statements                                                                                             | F-1 – F-28
|ITEM 9.    |  | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure                             | 64        
|ITEM 9A.   |  | Controls and Procedures                                                                                          | 65        
|ITEM 9B.   |  | Other Information                                                                                                | 65        
|           |  |                                                                                                                  |           
|PART III   |  |                                                                                                                  |           
|ITEM 10.   |  | Directors and Executive Officers of the Registrant and Corporate Governance                                      | 66        
|ITEM 11.   |  | Executive Compensation                                                                                           | 69        
|ITEM 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   | 73        
|ITEM 13.   |  | Certain Relationships and Related Transactions, and Director Independence                                        | 75        
|ITEM 14.   |  | Principal Accountant Fees and Services                                                                           | 76        
|           |  |                                                                                                                  |           
|PART IV    |  |                                                                                                                  |           
|ITEM 15    |  | Exhibits, Financial Statement                                                                                    | 77        
|           |  |                                                                                                                  |           
|SIGNATURES |  |                                                                                                                  | 81        



2







INFORMATION REGARDING FORWARD-LOOKING
STATEMENTS



This Annual Report on Form 10-K contains
forward-looking statements. These statements relate to future events or our future financial performance. These statements involve
known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or
implied by forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential" or "continue," the negative of such terms or other comparable terminology.
These statements are only predictions. Actual events or results may differ materially.



Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking
statements. We undertake no duty to update any of the forward-looking statements after the date of this report to conform such
statements to actual results or to changes in our expectations.



Readers are also urged to carefully review
and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business,
including without limitation the disclosures made inPART I. ITEM 1A. “Risk Factors” andPART II. ITEM 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" included herein.



3







PART I.



| | ITEM 1. | Business
| | ------- | --------



Overview



Through our direct, wholly owned subsidiary,
Ocean Technology (China) Company Limited (“Ocean Technology’) and its subsidiaries, Shishi Rixiang Marine Food Co.,
Ltd. (“Rixiang”), Shishi Huabao Jixiang Water Products Co., Ltd.(“Jixiang”), Shishi Huabao Mingxiang Foods
Co., Ltd. (“Mingxiang”) and Shishi Xianglin Trading Co., Ltd. (“Xianglin”), we engage in the business of
processing, distribution and sale of processed seafood-based snack foods, as well as the sale of fresh and frozen marine catch.
In 2010, we also became a manufacturer of algae-based soft drinks through our acquisition of Shishi Xianghe Food Science and Technology
Co., Ltd. (“Xianghe”), which is also an operating subsidiary of Ocean Technology. Our objective is to establish ourselves
as a leading producer of processed seafood and algae-based beverage products in the PRC and overseas markets.



Our dried and flavored seafood-based snack
foods are predominantly sold under our registered trademark, the “Mingxiang” brand. These products are sold to 18 exclusive
distributors in five provinces in the PRC, including Fujian, Guangdong, Shandong, Zhejiang and Liaoning in turn sub-distributed
to about 3,200 retail points in the PRC (including major supermarkets and retailers such as Wal-Mart and Carrefour) throughout
these provinces. Founded in 1994, China Marine has grown steadily and positioned its "Mingxiang" brand as a category
leader. We have received "Famous Brand" and "Green Food" awards. Our marine catch is sold to trading companies
and distributors in Fujian, Shandong and Liaoning provinces, and overseas customers in the Philippines and Indonesia.



Our business premises, including our production
plant, cold storage facility, office tower and staff dormitory, are located close to Xiangzhi Port, the largest fishing port in
Fujian Province, which is one of the largest coastal provinces in the PRC and a vital navigation hub between the East China Sea
and the South China Sea.



On January 1,
2010, Mingxiang acquired shares representing 80% of the registered capital stock of Xianghe. Xianghe is a manufacturer of
the branded Hi-Power algae-based soft drinks. Xianghe developed a network of distributors, initially in Fujian and later in Zhejiang
provinces. The distributors, who have exclusive territories, sell Hi-Power to retail food stores, restaurants food supply dealers
and the hospitality industry. The algae-based beverage products are sold to seven exclusive distributors and in turn sub-distributed
to about 15,000 retail points inFujian and Zhejiang provinces.



Our principal executive offices are located
at Da Bao Industrial Zone, Shishi City, Fujian, China, 362700, and our telephone number at that location is 86-595-8898-7588.



Our Corporate Structure



We are a holding company organized under
the laws of Nevada and Ocean Technology is a holding company organized under the laws of Hong Kong. The other subsidiaries
are organized under the laws of the PRC. All subsidiaries are wholly-owned except for Xianghe, the beverage company, in which we
own an 80% interest.



4











Our Corporate History



We were incorporated in the State of Nevada
on October 1, 1999 under the name New Paradigm Productions, Inc. to engage in the production and marketing of meditation music
and related supplies. Pursuant to a registration statement on Form SB-2 that was declared effective on October 26, 2000, we sold
77,000 shares of our common stock, raising a total of $77,000 in gross proceeds. We discontinued our principal operations as of
December 2002.



On September 13, 2007, we entered into
a Stock Purchase Agreement (“SPA”) with Halter Financial Investments, L.P., a Texas limited partnership (“HFI”)
pursuant to which we agreed to sell to HFI, 1,005,200 shares of our post reverse stock-split common stock for $400,000. After consummation
of the transaction, HFI became the holder of 1,005,200 shares of our common stock, or 87.5% of the 1,148,826 shares of our then
outstanding common stock. Effective on September 25, 2007, we effectuated a 7.5 to 1 reverse stock split and increased our authorized
shares of common stock to 100,000,000.



Acquisition of Ocean Technology and
Related Financing



On November 17, 2007, we completed a reverse
acquisition transaction with Ocean Technology through a share exchange with Ocean Technology’s former stockholders. Pursuant
to the share exchange agreement, the shareholders of Ocean Technology exchanged 100% of their outstanding capital stock in Ocean
Technology for approximately 15,624,034 shares of our common stock, or approximately 93.15% shares of our outstanding common stock
after the share exchange. In connection with the share exchange, we changed our name from New Paradigm Productions, Inc. to China
Marine Food Group Limited on January 9, 2008. Concurrently with the closing of the reverse acquisition on November 17, 2007,
we completed a private placement of units consisting one share of common stock and a warrant to purchase one-fifth of one share
of our common stock. We sold an aggregate of 6,199,441 shares of our common stock and warrants to purchase an aggregate of 1,239,888
shares of our common stock at $3.214 per unit. Each warrant issued to the investors had a term of three years and as exercisable
for a price equal to $4.1782 in cash or on a cashless exercise basis.



5







In connection with the private placement,
our principal stockholder, Pengfei Liu, entered into a make good agreement pursuant to which Mr. Liu agreed, subject to certain
conditions discussed below, to place into an escrow account, 6,199,441 shares of common stock of the Company.  Since the net
income target of $10.549 million for 2008 and $14.268 million for 2009 were met, no transfer of the escrowed shares was made to
the private placement investors.



For accounting purposes, the share exchange
transaction was treated as a reverse acquisition with Ocean Technology as the acquirer and China Marine Food Group Limited as the
acquired party. When we refer herein to business and financial information for periods prior to the consummation of the reverse
acquisition, we are referring to the business and financial information of Ocean Technology on a consolidated basis unless the
context suggests otherwise.



On January 25, 2010, we sold an aggregate
of 4,615,388 shares of common stock for an aggregate purchase price of $30,000,022 at a price of $6.50 per share pursuant to a
shelf registration statement on Form S-3.



Background History of Ocean Technology



Prior to the establishment of Mingxiang,
Pengfei Liu, our founder, Executive Chairman and CEO of our Company, was engaged in the trading of marine catch from 1983 to 1994.
He bought marine catch from local suppliers and sold them to seafood traders in other regions such as Zhejiang province.



In March 1994, Mr. Liu, through his company
Shishi City Xiangzhi Dabao Seafood Processing Factory, entered into a joint venture with Zhoushan Fishery Processing Factory to
establish Mingxiang, to engage in the processing and sale of seafood products. Mingxiang established its place of business close
to Xiangzhi (Shishi) Port, which is one of the largest fishing ports in the Fujian Province, occupying premises with a land area
of about 3,300 sq. m. Mingxiang then commenced business as a small enterprise processing and supplying roasted file fish to customers
in Fujian and Zhejiang provinces.



Our business grew steadily between 1994
and 1997. In 1997, to protect the goodwill that had been built up for our products sold under our “Mingxiang (明祥)”
brand, we registered the “Mingxiang” brand in the PRC as a trademark. The trademark covers marine food products such
as dried fish slices, roasted shelled prawns and shredded squid.



In 1998, we added shredded roasted squid
to our range of products and expanded our production facilities to occupy a land area of about 8,000 sq. m. At that time, we employed
about 40 employees. We also commenced the construction of cold storage facilities occupying a land area of about 2,000 sq. m. and
with a storage capacity of 1,000 tons.



In 1999, we completed the construction
of our cold storage facilities. The new cold storage facilities increased the shelf-life of and enabled the prolonged storage of
the raw materials, works-in-progress and finished products of our processed seafood products. With the cold storage facilities,
we became less susceptible to seasonal fluctuations in market demand and supply of raw materials and products. This significantly
increased our processed seafood production capacity.



In 2000, we expanded our product range
to include roasted prawns. We also acquired an additional land of about 7,300 sq. m. at our business premises to build additional
production facilities as well as office and staff dormitory facilities.



Through a series of equity transfers agreements
from 1996, Mr. Liu and his spouse Yazuo Qiu acquired full control of Mingxiang in 2001. With the change in shareholders’
control and the expanded scope of business to include export activities, we obtained a new business license for Mingxiang on April
9, 2001. In the same year, we obtained an import-export license from the Fujian Province International Trade Cooperation Bureau.
We believe we were one of the first domestic companies in the processed seafood industry in Quanzhou City, Fujian Province to obtain
this license. This was a significant milestone in our history as the license allowed us to export these products to foreign markets.



In 2002, our “Mingxiang” brand
was recognized as a “Fujian Province Famous Brand”. In June of the same year, we commenced our marine catch business,
through the chartering of two fishing vessels with an aggregate net tonnage of 44 tons.



In May 2004, Ocean Technology, a company
incorporated in Hong Kong and wholly-owned by Mr. Liu, established Rixiang, a limited liability company with a registered capital
of US$1,000,000. Rixiang carried on the main businesses of processing and storage of marine food and marine catch. Since January
2005, Rixiang has been the operating subsidiary of our Company.



In 2003, we also completed the construction
of additional cold storage facilities. The new cold storage facilities increased our cold storage capacity from 1,000 tons to 2,020
tons.



In April 2006, our subsidiary Rixiang entered
into a memorandum of understanding for research and development collaboration with the Ocean University of China in order to further
develop our product development capabilities. We continue to collaborate with the university.



6







In November
2009, Mingxiang won the auction for the purchase of the 40-year use right of a land parcel in Shishi City, Fujian.  Covering
an area of 8,691.4 sq. m., the land is located alongside the fishing port and near the Company’s processing facilities in
Shishi City. In the third quarter of 2010, we commenced building a new cold storage facility on the land with a capacity of approximately
20,000 tons. The construction is expected to be completed in the first half of 2012.See “Description
of Business - Production Facilities and Process.”



In November 2009, Mingxiang entered into
a Credit or Share Purchase Option Agreement (the “Option Agreement”) with Qiu Shang Jing, the former sole shareholder
of Xianghe. Under the Option Agreement, Mingxiang loaned Xianghe RMB180,500,000 (approximately $26,400,000). In consideration
for the loan, Mingxiang received the option to buy shares from Mr. Qiu representing eighty percent (80%) of Xianghe. The purchase
price payable to Mr. Qiu consisted of RMB9,500,000 (approximately $1,400,000) payable by Mingxiang and RMB180,500,000 (approximately
$26,400,000) payable by Xianghe. On January 1, 2010, Mingxiang exercised its option to acquire eighty percent (80%) of the registered
capital stock of Xianghe. Xianghe began operations in June 2009. We expanded the distribution of Hi-Power in both Fujian and
Zhejiang provinces to about 15,000 retail points by the end of 2011.



We have grown from a domestic market-oriented
seafood enterprise with over 80 employees in 2003 into a medium-sized nationwide seafood enterprise with advanced processing facilities
and equipment. As of December 31, 2011, we had 848 employees.



OUR PRINCIPAL PRODUCTS AND THE MARKET



We are a seafood producer engaged in the
processing, distribution and sale of processed seafood products under our “Mingxiang” brand, as well as the trading
of marine catch. In 2010, we also became a manufacturer of algae-based soft drinks through our acquisition of Xianghe.



Our business philosophy may be summarized
in the following phrase:



“To achieve
benefits through innovation, and to develop new markets through branding”



Algae-based Beverage Product



Our branded
“Hi-Power” algae-based soft beverage product was developed by the Yellow Sea Fisheries Research Institute Chinese Academy
of Fishery Science in coordination with Xianghe’s founder, Qiu Shang Jing. Hi-Power beverage is marketed as a high-protein
drink, low in calories and fat. Our target market focuses on middle class health-conscious consumers in China’s fast-growing
beverage market. We have developed a network of exclusive distributors in China’s Fujian and Zhejiang provinces, which sell
our Hi-Power beverage product to retail food stores, restaurant food supply dealer and hospitality industry in their respective
distribution territories. The algae-based beverage products are sold to seven exclusive distributors and in turn sub-distributed
to about 15,000 retail pointslocated in two provinces. We intend to expand distribution of the Hi-Power soft drinks to
other parts of the PRC.



Our objective is to establish ourselves
as a leading producer of processed seafood and algae-based beverage products in the PRC and overseas markets.



Processed Seafood Products



Using a combination of Japanese traditional
seafood processing methods and modern scientific seafood processing techniques, as of December 31, 2011, our product development
efforts have yielded 32 processed seafood products comprising dried seafood products such as roasted squid, roasted file fish,
roasted prawns, shredded roasted squid, barbecued squid, sliced barbecued squid, sliced roasted octopus, spicy sliced octopus,
spicy baby squid, spicy sliced squid and spicy squid head. Our production facilities are located at Dabao Industrial Zone, Xiangzhi
Town, Shishi City, Fujian Province, occupying a total land area of 17,600 sq. m. This includes cold storage facilities with a capacity
of 2,020 tons. We have four production lines for the processing of our roasted file fish, roasted prawns, shredded roasted squid
and roasted squid and one production line for frozen processed seafood products.



We have established sales networks in various large and medium
sized cities in the PRC. Although we have not had any export sales since 2009, we believe we will have opportunities to trade with
overseas customers in the future. Our dried processed seafood products are mainly sold in supermarkets in Fujian and Zhejiang provinces
and theirsurrounding areas, and through our sales network through 18 distributors, each of whom have its own sales network
and are authorized by us to distribute our products exclusively in a specific vicinity. We intend to continue our marketing efforts
in the PRC in view of its potential opportunities and attractive returns.



Our dried processed seafood products are
predominantly sold under our registered trademark, the “Mingxiang” brand.



We discontinued sales of frozen processed
seafood products in 2009 because management decided to focus on domestic sales of our products and the demand for the frozen processed
seafood products was primarily from overseas. We maintain our production line for frozen processed seafood products and may
sell the products again in the future.



7







With respect to preparation of our products,
a portion of our frozen processed seafood products are consumed directly by end-consumers with little or no additional processing.
All our dried and frozen processed seafood products are manufactured free of preservatives. We use ingredients such as sugar, salt
and spices in the production of our dried processed seafood products. The raw materials for our processed seafood products are
obtained through fresh marine catch and not from seafood breeding farms.



We have obtained the “Green Food”
awards in respect of our roasted file fish, frozen fish, roasted king prawns and shredded squid. We are committed to the highest
standards of quality control in the production of our processed seafood products, as evidenced by our ISO9001, ISO14001, HACCP
certification and the EU export registration.



Our credit-worthiness, quality and processed
seafood products have received considerable acknowledgement and favorable feedback from the public. Please refer to the section
“Awards and Certification” for further details of the awards and certifications that we have received.



Although we didn’t have significant
export sales since 2009, we may have opportunities to trade with overseas customers in the future. We are a State-designated base
for quality assurance testing of marine products. Please see the section “Quality Assurance” for more details.



Marine Catch



Starting from 2008, we did not charter
any fishing vessels nor harvest the marine catch ourselves. Instead, we buy the marine catch from the suppliers and then sell to
customers or trading companies on a direct basis. Trading of marine catch is performed as opportunistic purchases and sales of
frozen seafood materials and therefore the sales volume could fluctuate significantly. The marine catch is predominantly sold to
trading companies and distributors in Fujian, Shandong and Liaoning provinces and to overseas customers in the Philippines and
Indonesia.



Our Products



Our products can be divided into three
main categories, namely (1) processed seafood products; (2) marine catch; and (3) “Hi-Power” algae-based beverage product.
The production of the processed seafood products, marine catch and algae-based beverage products are either undertaken by our subsidiaries,
Rixiang or Mingxiang.



The following table sets out some of our
main products, as well as the main markets in which they are sold:



|Products                                |  | Products / Species                                                                                                                                                                                                                     |  | Main Markets in the PRC                                                                                                                                                  |  | Foreign Markets                      
|--------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------
|                                        |  |                                                                                                                                                                                                                                        |  |                                                                                                                                                                          |  |                                      
|Dried processed seafood products        |  | Roasted file fish, shredded roasted squid, roasted squid, roasted
        prawn, barbecued squid, sliced barbecued squid, sliced roasted octopus, spicy sliced octopus, spicy baby squid, spicy sliced squid,
        spicy squid head |  | Zhejiang Province
        Fujian Province
        Shandong Province
        Greater Shanghai Region till April 2011
        Guangdong Province
        Liaoning Province |  | Japan in 2008                        
|                                        |  |                                                                                                                                                                                                                                        |  |                                                                                                                                                                          |  |                                      
|Marine Catch                            |  | Cuttlefish (Sepia esculenta), hairtail fish (Trichiurus japonicus), Japanese butter fish (Psenepis Anomala), squid (Loligo bleekeri), horse mackerel                                                                                   |  | Fujian Province
        Shandong Province
        Lianoing Province                                                                                                      |  | The Philippines
        and Indonesia
|                                        |  |                                                                                                                                                                                                                                        |  |                                                                                                                                                                          |  |                                      
|“Hi-Power” Algae-Based Beverage Product |  |                                                                                                                                                                                                                                        |  | Fujian Province
        Zhejiang Province                                                                                                                                |  | Nil                                  



8







Processed Seafood Products



|                  |               |               | 
|----------------- | ------------- | ------------- | 
|                  |               |               | 
|Roasted file fish | Roasted squid | Roasted prawn | 



We purchase fresh seafood, the primary
ingredient from which our dried processed seafood products are manufactured, from fishermen and traders. Our raw materials are
primarily stored in cold storage facilities located at our production facilities. The production processes of our dried processed
seafood products are described in further detail under the section “Production Facilities and Process”.



The main dried processed seafood products
manufactured by us are roasted file fish, shredded roasted squid, roasted squid and roasted prawn.



The ingredients used in the production
of our dried processed seafood products are fresh seafood (such as fish, prawns and cuttlefish), natural flavoring, sugar, salt
and spices.



Marine Catch



The principal species of marine catch sold
by our Company are as follows:



|Cuttlefish (Sepia esculenta)            |  |                                                                                                                                                                                                
|--------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                        |  |                                                                                                                                                                                                
|                                        |  | Cuttlefish is commonly found in the East China Sea and the Taiwan Strait. Cuttlefish is often processed and sold as fresh sushi and snacks.                                                    
|                                        |  |                                                                                                                                                                                                
|Hairtail Fish (Trichiurus japonicus)    |  |                                                                                                                                                                                                
|                                        |  |                                                                                                                                                                                                
|                                        |  | Hairtail fish, usually found in the East China Sea and the Taiwan Strait, is one of the best-selling marine catch in the PRC. It is a regular dish for home working and fine-dining restaurants
|                                        |  |                                                                                                                                                                                                
|Japanese Butter Fish (Psenepis Anomala) |  |                                                                                                                                                                                                
|                                        |  |                                                                                                                                                                                                
|                                        |  | Japanese butter fish is usually found in
        the East China Sea and the Taiwan Strait between September and November every year.                                                           



9







|Squid (Loligo bleekeri) |  |                                                                                                                                                                                                                                                            
|----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                        |  |                                                                                                                                                                                                                                                            
|                        |  | Squids are commonly found in the seas of the Taiwan Strait and Pacific Ocean. Squid contains many nutrients such as proteins, fats, carbohydrate, calcium and phosphorus. Its fine taste and springy texture makes the squid a popular food with consumers.



“Hi-Power”
Algae-Based Beverage Product



| |  | “Hi Power” drink is high in protein and low in calories and fat, which provides the consumers a combination of immune system benefits, improved digestion and reductions in hyperglycemia and hypertension.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Production Facilities and Process



The production of our dried and frozen
processed seafood products is carried out at our production facilities in Dabao Industrial Zone, Xiangzhi Town, Shishi City, Fujian
Province. At December 31, 2011, we own four production lines for the manufacture of dried processed seafood products and one production
line for the manufacture of frozen processed seafood products. After the upgrade of our production facilities in 2009, the maximum
annual production capacities of our production lines increased to about 19,000 tons of dried processed seafood products and 1,000
tons of frozen processed seafood products. The construction of our new facilities was completed and commenced full operation by
the third quarter end of 2009. We also own cold storage facilities with cold storage capacity of 2,020 tons.



On November
6, 2009, Mingxiang won the auction for the purchase of the 40-year use right of a land parcel in Shishi City, Fujian. Covering
an area of 8,691.4 sq. m., the land is located alongside the fishing port and near our processing facilities in Shishi City. The
fishing port in Shishi is one of the five largest fishing ports in the PRC. The purchase price for the land use right is RMB 15.55
million ($2.28 million). We are building cold storage facilities on the land, with a capacity of approximately 20,000 tons, to
take advantage of its proximity to the port where we obtain fresh seafood catch to be processed into seafood products. The facility
will increase our cold storage capacity from 2,000 tons to 22,000 tons. We are financing the total estimated $26.5 million in land
use right and construction costs from funds generated by operations and expect to complete the construction in the first half of
2012.A small delay was experienced due to adverse weather conditions and the shortage of labor during the Chinese Lunar
New Year period.



We place great emphasis on quality assurance
at every stage of our production process and have clearly defined procedures to manufacture products of consistently high quality.
Please refer to the section “Quality Assurance” for more details.



10







Dried Processed Seafood Products



The key stages of our production process
for our dried processed seafood products are as follows:







| | 1. | Receiving and storing raw and packaging materials. All raw materials undergo visual inspection
to ensure freshness and firmness before they are accepted and stored. Inspection is carried out by way of random sampling.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Samples are taken from each
batch of raw materials and sent to the quality control department where physical (e.g. visual inspection), chemical and micro-organism
tests are conducted. Raw materials which do not adhere to our requirements are rejected.



Our other ingredients such as
salt, sugar and spices are sourced from suppliers within the PRC. They are stored in warehouses or temperature-controlled facilities
after inspection and approval.



Our packaging materials
are kept in a warehouse after they have been inspected and approved.



| | 2. | Ice-packing. To maintain the freshness of our raw materials, a portion of the raw materials
is packed in ice and transported directly to our production facilities for processing, whereas the remaining raw materials are
packed in ice and transported to our cold storage facilities for storage at minus two to two degrees Celsius in less than 24 hours
from purchase. The raw materials will remain frozen in our cold storage facilities until they must be delivered to the production
facilities for processing.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Cleaning. At the production facilities, the raw materials are cleaned by removing unwanted
portions such as heads, innards and shells.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------



| | 4. | Slicing. The raw materials are then sliced on stainless steel tables.
| | -- | ---------------------------------------------------------------------



11







| | 5. | Washing and draining. The raw materials are then sent to the washing pool for washing so
as to remove oil, blood stains, remnant innards and other stains. After washing, the raw materials are drained to remove excess
water content.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. | Marinating and adding flavoring. Other ingredients such as salt, sugar and spices are then
added in the required amounts according to our recipes, left to marinate for a set period and mixed at stipulated intervals.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. | Steam-drying / Roasting. The raw materials are arranged on wire mesh trays, which are stacked
in trolleys and rolled into a heating machine. Roasting takes place under controlled temperatures via a roasting conveyor belt,
where moisture levels are monitored. Depending on the product, we will slice or shred the raw materials after roasting.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8. | Weighing, packaging and metal detection. The dried processed seafood products are then packed
into their respective packaging materials and sealed. After a calibrated metal detector to ensure that the products do not contain
any traces of metal particles. Metal contamination might have been inherent in the raw materials or caused by production process
of which some stages are automated.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 9. | Packing and delivery. The packets of dried processed seafood products are then packed into
boxes, which are then stored in our warehouse. Our products are delivered to customers on a “first in, first out” basis.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



“Hi-Power” Algae-Based Beverage
Products



The “Hi-Power”
beverage products are produced for us by twomanufacturers. The key stages of our production
process for our “Hi-Power” algae-based beverage products are as follows:







| | 1. | Procurement of raw materials. Choose and buy natural algaes as raw materials from unpolluted sea areas.
| | -- | -------------------------------------------------------------------------------------------------------



Samples are taken from each
batch of raw materials by way of random sampling and sent to the quality control department where physical (e.g. visual inspection),
chemical and micro-organism tests are conducted. Raw materials which cannot meet our requirements are rejected.



12







| | 2. | Cleaning. The algaes are cleaned to remove sediment and impurities.
| | -- | -------------------------------------------------------------------



| | 3. | Stewing. The algaes are stewed in water at ratio of 30:70 at 80°C for 3 to 5 hours.
| | -- | -----------------------------------------------------------------------------------



| | 4. | Enzymolysis. Adding a certain amount of enzyme into stewed algae juice for enzymolysis at 50-60°C
for 1 to 2 hours.
| | -- | -------------------------------------------------------------------------------------------------------------------



| | 5. | Filtration and decolorization. After enzymolysis, the stewed algae juice will
go through a process of filtration in the ultrafiltration machine. The filtered algae juice will become clear, transparent
and free from impurities. The transparent algae juice will then be pumped into the resin tank for process of decolorization.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. | Blending. The processed algae juice should be blended with the extract of honeysuckle, bamboo
leaves, licorice and other auxiliary materials in accordance with a pre-defined formula.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. | Heating and homogenizing. Using the tubular heater to heat the blended algae juice at 80-90°C
for 5-10 seconds and then put it into the homogenizer at 20Mpa.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8. | Filtration. Put the drinks into 1μ filter for filtration.
| | -- | ---------------------------------------------------------



| | 9. | Canning. Washing the can, before canning and sealing by using the automated canning machine.
| | -- | --------------------------------------------------------------------------------------------



| | 10. | Sterilization. Sterilizing the canned drinks with a sterilizing pot. Temperature should
be controlled at 125°C for 15 minutes.
| | --- | ------------------------------------------------------------------------------------------------------------------------------



| | 11. | Cooling. Cooling the drinks by using the spray cooling method at 30-40°C. Tune the production
date and shelf life. Regular check on coding and ensure the accuracy of coding position. Packaging should refer to the specification
of daily order requests.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 12. | Delivery. The drinks can be sold and delivered.
| | --- | -----------------------------------------------



Awards and Certifications



As testimony to the quality of our products,
our credit worthiness in the PRC business community as well as our management capabilities, we have received several awards and
certification in the course of our history, as listed below:



|Year                    |  | Subsidiary |  | Award                             |  | Period                          |  | Awarding Body                                             |  | Significance                                                                 
|----------------------- |  | ---------- |  | --------------------------------- |  | ------------------------------- |  | --------------------------------------------------------- |  | -----------------------------------------------------------------------------
|                        |  |            |  |                                   |  |                                 |  |                                                           |  |                                                                              
|September,
        2011 |  | Mingxiang  |  | Fujian Province Famous Brand      |  | September 2011 - September 2014 |  | Fujian Province Branded Products Authentication Committee |  | Recognition of our brand and our branding efforts                            
|                        |  |            |  |                                   |  |                                 |  |                                                           |  |                                                                              
|May 17, 2010            |  | Mingxiang  |  | Green Food - roasted file fish    |  | May 2010 - May 2013             |  | China Green Food Development Centre                       |  | Recognition of environmental awareness, non-pollution in our production chain
|                        |  |            |  |                                   |  |                                 |  |                                                           |  |                                                                              
|May 17, 2010            |  | Mingxiang  |  | Green Food - dried shredded squid |  | May 2010 - May 2013             |  | China Green Food Development Centre                       |  | Recognition of environmental awareness, non-pollution in our production chain
|                        |  |            |  |                                   |  |                                 |  |                                                           |  |                                                                              
|May 17, 2010            |  | Mingxiang  |  | Green Food - frozen fish          |  | May 2010 - May 2013             |  | China Green Food Development Centre                       |  | Recognition of environmental awareness, non-pollution in our production chain



13







|May 17, 2010 |  | Mingxiang |  | Green Food - roasted king prawn     |  | May 2010 - May 2013 |  | China Green Food Development Centre |  | Recognition of environmental awareness, non-pollution in our production chain
|------------ |  | --------- |  | ----------------------------------- |  | ------------------- |  | ----------------------------------- |  | -----------------------------------------------------------------------------
|             |  |           |  |                                     |  |                     |  |                                     |  |                                                                              
|May 17, 2010 |  | Rixiang   |  | Green Food - roasted file fish      |  | May 2010 - May 2013 |  | China Green Food Development Centre |  | Recognition of environmental awareness, non-pollution in our production chain
|             |  |           |  |                                     |  |                     |  |                                     |  |                                                                              
|May 17, 2010 |  | Rixiang   |  | Green Food - dried shredded squid   |  | May 2010 - May 2013 |  | China Green Food Development Centre |  | Recognition of environmental awareness, non-pollution in our production chain
|             |  |           |  |                                     |  |                     |  |                                     |  |                                                                              
|May 17, 2010 |  | Rixiang   |  | Green Food - roasted yellow croaker |  | May 2010 - May 2013 |  | China Green Food Development Centre |  | Recognition of environmental awareness, non-pollution in our production chain
|             |  |           |  |                                     |  |                     |  |                                     |  |                                                                              
|May 17, 2010 |  | Rixiang   |  | Green Food - roasted prawn          |  | May 2010 - May 2013 |  | China Green Food Development Centre |  | Recognition of environmental awareness, non-pollution in our production chain
|             |  |           |  |                                     |  |                     |  |                                     |  |                                                                              
|May 17, 2010 |  | Rixiang   |  | Green Food - roasted shredded squid |  | May 2010 - May 2013 |  | China Green Food Development Centre |  | Recognition of environmental awareness, non-pollution in our production chain
|             |  |           |  |                                     |  |                     |  |                                     |  |                                                                              
|May 17, 2010 |  | Rixiang   |  | Green Food - roasted fish bones     |  | May 2010 - May 2013 |  | China Green Food Development Centre |  | Recognition of environmental awareness, non-pollution in our production chain
|             |  |           |  |                                     |  |                     |  |                                     |  |                                                                              
|May 17, 2010 |  | Rixiang   |  | Green Food - roasted squid          |  | May 2010 - May 2013 |  | China Green Food Development Centre |  | Recognition of environmental awareness, non-pollution in our production chain
|             |  |           |  |                                     |  |                     |  |                                     |  |                                                                              
|May 17, 2010 |  | Rixiang   |  | Green Food - squid slices           |  | May 2010 - May 2013 |  | China Green Food Development Centre |  | Recognition of environmental awareness, non-pollution in our production chain



14







|May 17, 2010    |  | Rixiang   |  | Green Food - roasted searobin fillet                     |  | May 2010 - May 2013 |  | China Green Food Development Centre                                                                                             |  | Recognition of environmental awareness, non-pollution in our production chain                                  
|--------------- |  | --------- |  | -------------------------------------------------------- |  | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------
|                |  |           |  |                                                          |  |                     |  |                                                                                                                                 |  |                                                                                                                
|September, 2008 |  | Mingxiang |  | Key Leading Enterprise (Province level)                  |  | 2008 - 2009         |  | Fujian Province Agriculture Industrialization Leading Group                                                                     |  | Recognition of our efforts and contribution in the development of processed agricultural products              
|                |  |           |  |                                                          |  |                     |  |                                                                                                                                 |  |                                                                                                                
|December , 2006 |  | Mingxiang |  | A-Grade Tax Payer Credit Enterprise                      |  | 2004 - 2005         |  | Quanzhou National Tax Bureau, Quanzhou District Tax Bureau                                                                      |  | Recognition of our tax creditworthiness                                                                        
|                |  |           |  |                                                          |  |                     |  |                                                                                                                                 |  |                                                                                                                
|December, 2004  |  | Mingxiang |  | National Foodstuff Industry Excellent Leading Enterprise |  | 2003 - 2004         |  | China Foodstuff Industry Association                                                                                            |  | Recognition of quality of our products                                                                         
|                |  |           |  |                                                          |  |                     |  |                                                                                                                                 |  |                                                                                                                
|January, 2004   |  | Mingxiang |  | Civilized and Creditworthy Enterprise                    |  | 2002 -2003          |  | Shishi City Government Civilization Bureau, Shishi City Economic Bureau, Shishi National Tax Bureau, Shishi District Tax Bureau |  | Recognition of our regard for integrity in our operations, our creditworthiness and contribution to the economy



DISTRIBUTION



PROCESSED SEAFOOD PRODUCTS



Sales and Marketing



Our sales and marketing team comprises
39 employees, headed by our Executive Chairman, Director and CEO Mr. Pengfei Liu. The team is responsible for monitoring domestic
sales, which includes co-coordinating orders from customers as well as distributing our products to the customers.



Distribution Network



We have established a wide distribution
network which allows us to maintain our competitiveness in the industry. As of December 31, 2011, we have 18 distributors in six
provinces in the PRC, including Fujian, Guangdong, Shandong, Zhejiang and Liaoning, as follows:



|Province  |  | No. of Distributors
|--------- |  | -------------------
|Fujian    |  | 7                  
|Guangdong |  | 1                  
|Shandong  |  | 2                  
|Zhejiang  |  | 6                  
|Liaoning  |  | 1                  
|Other     |  | 1                  
|Total     |  | 18                 



15







These distributors in turn sub-distribute
our dried processed seafood products to about 3,200 retail points (including major supermarkets and retailers such as Wal-Mart
and Carrefour) throughout these provinces.



One of our main considerations when appointing
distributors is the purchasing and consumer spending power in the particular region in which we intend to distribute our products.



Before we appoint new distributors or extend
the distribution arrangement with existing distributors to distribute our products in a particular region or country, the potential
distributor or existing distributor is subject to our stringent selection or review process. We will only appoint distributors
who are able to meet our sales target requirements.



We select each distributor based on four
criteria:



| | a. | Strong Financial Background. We require the distributor to provide us with its most
recent audited financial statements so we may verify whether its financial status is strong and healthy. We further require
the distributor to settle the bills in cash, without offering any credit terms, in the first year of doing business with us.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Strong Distribution Network. The distributor should have a strong, well-established
marketing and distribution network in the corresponding region.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Good Reputation and Track Record. We only select those distributors with good
reputations in the industry in regard to their business background, marketing experience and distribution network. In particular,
the distributor should have a track record in developing and maintaining the brand images of the products it distributes.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Marketing Strategy. We require the distributor to implement our overall marketing
strategy for our products and to supplement it by designing its own marketing plans specifically for the respective region. The
distributor should be able to assist us in building our brand image and achieving a significant market share in a said period
of time.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We appoint different distributors for different
products in different regions in the PRC.



We usually appoint one exclusive distributor
to cover a specific county, district, city or province. Under the distributorship agreements, our distributors are obliged to price
and sell our products in accordance with the indicative prices which we provide, and are not permitted to arbitrarily adjust the
sale price of the products except in accordance with product promotions. The distributors must also duly carry out market operation
activities and promotional methods which are jointly developed with us, and to bear the costs of its own advertisements and marketing
activities. The distributorship agreements also contain provisions for the protection of our intellectual property rights.



Our sales and marketing team is also responsible
for marketing our products within the PRC. The team contacts and visits our customers regularly to obtain feedback and suggestions
on our products, and to foster and build our relationships with them. We normally sign distributorship agreements with a one-year
term. Our agreements stipulate the price range in which the distributors may sell our products and also stipulate sales targets
which our distributors have to achieve before the agreements are renewed.



We advertise our products regularly through
supermarket brochures, free tasting and outdoor billboards. We also participate in exhibitions in the PRC such as the China Export
Trade Fair and the China Seafood Exposition, as well as overseas exhibitions such as those in South Korea, Japan and Boston, USA.



“HI-POWER” ALGAE-BASED BEVERAGE
PRODUCTS



Sales and Marketing



Our sales and marketing team comprises
134 employees, headed by our Executive Chairman, Director and CEO Mr. Pengfei Liu. The team is responsible for developing and implementing
the Company’s overall development and promotional strategy for our algae-based beverage products, which includes co-coordinating
orders from customers as well as distributing our products to the customers.



Distribution Network



We have developed a network of distributors
with exclusive territories in Fujian and Zhejiang provinces, which sell Hi-Power to retail food stores, restaurant food supply
dealers and the hospitality industry. Distributors of our algae-based drink must adhere to the same stringent selection process
used for dried seafood distributors.



16







NEW PRODUCTS



We rely on our own research and development
team and strategic collaboration with Ocean University of China for the development of new processes and products that are well-received
by consumers which is vital to our continued success. From time to time, we may launch new products to the market depending on
market demand, current competition and our production capacity through a series of stringent research and development processes
and market research. For details, please refer to the section “Research and Development”.



COMPETITION



We operate in a competitive environment
and we expect to face more intense competition from our existing competitors and new market entrants in the future. We believe
that the principal competitive factors in our industry include,inter alia, brand awareness, product range and quality,
customer and supplier relationships, cost and quality of raw materials, technical expertise in production and pricing. Of these
factors, we believe that product quality is the most important.



To the best of our knowledge, our principal
competitors within the PRC are the following major seafood product manufacturers in the PRC:



|Business                                    |  | Principal Competitors                                                                                                              
|------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------
|Dried and Frozen Processed Seafood Products |  | (1)  China Aquatic Zhoushan Marine Fisheries Corporation;
        and
        (2)  Liaoning Dalian Seafood Industry Group Co., Ltd.
|                                            |  |                                                                                                                                    
|                                            |  | Both in terms of their size and operations.                                                                                        
|                                            |  |                                                                                                                                    
|Marine Catch Products                       |  | (1) Fujian Seafood Industry Co., Ltd; and
        (2) Fujian Huayang Aquatic Products Group Co., Ltd.                              
|                                            |  |                                                                                                                                    
|                                            |  | Both in terms of their geographical proximity to our customer base.                                                                
|                                            |  |                                                                                                                                    
|“Hi-Power” Algae-Based Beverage Product     |  | No direct competitor.                                                                                                              



There may be companies based in other countries
which offer a similar product range as we do but which currently operate in different markets from us. In the future, we may face
competition from these companies as we expand into their markets andvice versa.



Competitive Strengths



We believe that our competitive strengths
are as follows:



|1. | We have a wide distribution network
|-- | -----------------------------------



We have established a wide distribution
network for our processed seafood products which allows us to maintain our competitiveness in the industry. We have 18 exclusive
distributors in five provinces in the PRC such as Fujian, Guangdong, Shandong, Zhejiang and Liaoning. These distributors in turn
sub-distribute our dried processed seafood products to about 3,200 retail points (including major supermarkets and retailers such
as Wal-Mart and Carrefour) throughout these provinces.



Besides, we has developed a network of
distributors with exclusive territories in Fujian and Zhejiang provinces which in turn sub-distribute Hi-Power to about 15,000
retail points, including retail food stores, restaurants food supply dealers and the hospitality industry.



Please refer to the section “Major
Customers” for further details.



|2. | We have an established brand name and track record
|-- | --------------------------------------------------



We have been involved in the production
of processed seafood products since commencing our operations in 1994. Our “Mingxiang” brand has been conferred the
“Famous Brand” award. In addition, we have also obtained the “Green Food” award in respect of our
roasted file fish, shredded roasted squid, roasted king prawn and frozen fish products. This attests to the established standing
of our “Mingxiang” brand and the high quality of our products. We have also received several other awards and accreditations
as described in the section “Awards and Certifications”. We believe such accolades attest to our established reputation
in the industry.



17







We also believe that our established track
record in the processed seafood industry instills confidence in our products and attracts new customers from domestic and overseas
markets. Our stable customer base and large distributor network in Fujian and Zhejiang provinces have enabled our Company to introduce
new products into these markets in a shorter time and gain quicker market acceptance and recognition.



|3. | We develop high quality products
|-- | --------------------------------



We use fresh seafood as the primary ingredient
for our processed seafood products. Our superior recipes and production know-how enable us to develop and produce products with
high-quality taste and texture and which are well-received by end-consumers.



We have been awarded HACCP certification
and have obtained the EU export registration, which enable us to export our products to the US and the EU, respectively. In addition,
our products, namely our roasted file fish, shredded roasted squid, roasted squid, roasted prawn and frozen fish have been certified
as “Green Food”, a recognition that the production of our products is carried out under certain sanitary conditions
with limited use of chemical additives. We believe we are one of the first companies in the seafood industry in Fujian province
to be awarded this certification, which is a further testament to the quality of our products.



|4. | We have a strong leadership as well as a dedicated and experienced management and procurement team
|-- | --------------------------------------------------------------------------------------------------



Our Company is led by our Executive Chairman
and CEO, Pengfei Liu, who has more than 30 years of experience in the seafood industry. Mr. Liu’s drive and passion have
been instrumental in our success to-date. He has conceptualized and implemented our strategies in the past and successfully led
us in our transition from a small and local seafood enterprise to a nationwide seafood enterprise with advanced seafood processing
facilities.



Mr. Liu is ably supported by a team of
experienced managers, most of whom have an average of five to ten years’ experience in their respective fields. These personnel
support our Executive Chairman and CEO in charting and managing our growth. We believe the members of our procurement team have
a strong grasp and good understanding of industry trends, market cycles and seasonal factors, and have the ability to discern and
procure high-quality seafood at reasonable prices.



The management team receives regular training
in the course of our Company obtaining and renewing our ISO and HACCP qualifications. The training, which is conducted over 10
to 15 days every year, involves process management, quality control, sanitary and hygiene operating procedures and standards. We
believe that such training raises our competence and environmental / sanitary awareness, and places us in an advantageous position
compared to other operators in the seafood industry who do not undergo such training.



Besides, Hi-Power was developed by the
Yellow Sea Fisheries Research Institute Chinese Academy of Fishery Sciences in coordination with the founder, Qiu Shang Jing, who
had been engaged in the natural algae industry for over 10 years time and he had a profound expertise on algae products prior to
his sale of Xianghe to us. We relied on executives and managers with extensive beverage knowledge and experience to run the business.



|5. | We have established strong relationships with our customers / distributors
|-- | --------------------------------------------------------------------------



We have maintained close working relationships
with our customers who are reputable distributors of processed seafood products. Our relationships with some of our PRC customers
and distributors have been established for more than ten years. In particular, we have enjoyed good relationships with, among others,
Qingdao Haizhan Seafood Co., Ltd. (“Qingdao Haizhan”), Wenzhou Rixin Foodstuff Co., Ltd. (“Wenzhou Rixin”),
and Zhejiang Ruian Laodu Seafood Wholesale Proprietor (“Zhejiang Ruian Laodu”), for an average of approximately 15
years.



Qingdao Haizhan is in the business of distributing
dried and frozen seafood products. To the best of our knowledge, Qingdao Haizhan has a distribution network of over 1,100
retailers and a sales workforce of about 92 people.



Wenzhou Rixin is a distributor of dried
seafood in Wenzhou City, Zhejiang Province. To the best of our knowledge, Wenhou Rixin has a distribution network of about
1,100 retailers and a sales workforce of about 102 people.



Zhejiang Ruian Laodu is a large distributor
of dried seafood in Ruian City, Zhejiang Province. To the best of our knowledge, Zhejiang Ruian Laodu has a distribution network
of about 600 retailers and a sales workforce of about 71 people.



Regarding the percentage of sales represented
by each party listed above, please refer to the section “Major Customers” for details.



18







We view our customers as long-term business
partners who are important in the strategic growth of our operations and broadening the geographic reach of our products.



|6. | We are strategically located
|-- | ----------------------------



We are based in Fujian province which is
situated in southeast China on the coast of the East China Sea. Fujian is one of the nine coastal provinces in the PRC and is a
vital navigation hub between the East China Sea and the South China Sea. It is also rich in agricultural and marine resources.



Our main raw materials for our marine catch
business come from the Taiwan Strait, which is also where we conduct our marine catch operations. The Taiwan Strait is rich in
marine resources. Our business operations and production facilities are located at Shishi City, Fujian Province, where Xiangzhi
(Shishi) Port has been designated as one of the national-level fishing ports. It is the largest port in Fujian province and is
one of the five largest fishing ports in the PRC in terms of supply of marine catch and tonnage of fishing vessels. Fujian province
is rich in agricultural and marine resources, which enables our procurement of raw materials for our processed seafood business
at low cost. We believe our strategic location gives us access to an abundant supply of fresh marine products and hence allows
us to manage our costs more effectively.



|7. | We have strong research and development capabilities
|-- | ----------------------------------------------------



We place strong emphasis on the quality
of our products and on our ability to develop new products. To ensure that our products are well-received by our customers and
consumers, we have carried out research and development to improve the taste, texture and packaging of our processed seafood products.
Through our research and development efforts, we have developed new products and improved the quality of our existing products,
which have been well-received by our customers and end consumers. These products include our crispy fish-bone snacks, roasted squid
and roasted prawns, spicy sliced octopus, spicy baby squid, spicy sliced squid and spicy squid head.



Our strong product development capabilities
allow us to constantly introduce new products into the market and maintain consumer interest and loyalty in our “Mingxiang”
brand products. We believe that our strategic collaboration with the Ocean University of China will further strengthen our
research and development capabilities.



Besides, Hi-Power was developed by the
Yellow Sea Fisheries Research Institute Chinese Academy of Fishery Sciences in coordination with the founder. We will leverage
the strong research and development capabilities from the Yellow Sea Fisheries Research Institute Chinese Academy of Fishery Sciences
together with the Ocean University of China on product development going forward.



|8. | We are a designated National Marine Products Quality Assurance Testing Base
|-- | ---------------------------------------------------------------------------



We have been designated as a quality assurance
testing base by the National Marine Foods Quality Supervision Testing Centre and our testing base is the only assessment base in
the southern provinces of the PRC. We test the hygiene and quality of ingredients and products according to industrial standards.
Our testing base caters to seafood processing companies from Fujian, Guangdong, Guangxi and Zhejiang provinces, the PRC. We believe
our role in quality assurance testing further strengthens our reputation as a producer of quality processed seafood products.



For the above reasons, we believe that
we will be able to maintain our market position and competitive edge over our competitors.



MAJOR SUPPLIERS



The following table sets out our five major
suppliers of raw materials for processed seafood products, marine catch and algae-based beverage products for the years ended December
31, 2011 and 2010:



19







|                                                                       |  | As a Percentage of Our Purchases of Raw Materials (%) |     
|---------------------------------------------------------------------- |  | ----------------------------------------------------- | ----
|                                                                       |  | Year Ended December 31,                               |     
|                                                                       |  | 2011                                                  |     
|                                                                       |  |                                                       |     
|Dalian Ocean Fishery Group of Corporations                             |  |                                                       | 38.2
|                                                                       |  |                                                       |     
|Dalian Kangwei Trading Company Limited                                 |  |                                                       | 17.2
|                                                                       |  |                                                       |     
|Shishi City Dongfan Seafood Products Trading Proprietor                |  |                                                       | 14.4
|                                                                       |  |                                                       |     
|Shishi City Fugui Seafood Products Trading Proprietor                  |  |                                                       | 11.0
|                                                                       |  |                                                       |     
|Shishi City Tianwang Seafood Products Trading Proprietor               |  |                                                       | 7.2 
|                                                                       |  |                                                       |     
|Jinjiang City Shenhu Town Hongyuan Seafood Products Trading Proprietor |  |                                                       | -   
|                                                                       |  |                                                       |     
|TOTAL                                                                  |  |                                                       | 88.0



Trading in fresh fish and other seafood
is mainly carried out by fishing companies and individual fishermen, who ply their trade in and around various fishing ports in
the PRC. Some of the above major suppliers are fish and seafood traders in markets in and surrounding Shishi City, Fujian Province.
We procure from these suppliers for fresh fish and other seafood, which are used as raw materials in the production of our processed
seafood products. These suppliers also supply fresh fish and other seafood to other companies.



Though certain of our major suppliers accounted
for more than 10% of our total purchases individually for the fiscal year ended December 31, 2011, we believe we are able to source
our raw materials from alternative suppliers should the need arise.



None of our directors, executive officers and controlling shareholders
is related to or has any interest in any of our major suppliers listed above. To the best of our knowledge, same as disclosed above,
none of our major suppliers is related to or has any interest in one another, and none of our major suppliers is related to or
has any interest in the customers stated in the section “Major Customers” below.



MAJOR CUSTOMERS



The following table sets out our major customers accounting
for 5.0% or more of our Company’s sales of processed seafood products, marine catch and algae-based beverage products for
the years ended December 31, 2011 and 2010:



|                                                               |  |                                                       |  | As a Percentage of Our Sales (%) |     
|-------------------------------------------------------------- |  | ----------------------------------------------------- |  | -------------------------------- | ----
|                                                               |  |                                                       |  | Year Ended December 31,          |     
|                                                               |  | Products                                              |  | 2011                             |     
|                                                               |  |                                                       |  |                                  |     
|Dalian Jiyang Import and Export Co., Ltd. (1)                  |  | Marine catch, namely cuttlefish, squid, hairtail fish |  |                                  | 25.3
|                                                               |  |                                                       |  |                                  |     
|Qingdao Xinqinghua Seafood Products Company (2)                |  | Marine catch, namely cuttlefish, squid, hairtail fish |  |                                  | 9.2 
|                                                               |  |                                                       |  |                                  |     
|Fuzhou Xinxutai Trading Ltd. (3)                               |  | Dried processed seafood and beverage products         |  |                                  | 6.6 
|                                                               |  |                                                       |  |                                  |     
|Xiamen Wansong Commercial and Trading Ltd. (4)                 |  | Dried processed seafood and beverage products         |  |                                  | 6.1 
|                                                               |  |                                                       |  |                                  |     
|Qingdao Haizhan Seafood Co., Ltd (2)                           |  | Dried and frozen processed seafood products           |  |                                  | -   
|                                                               |  |                                                       |  |                                  |     
|Wenling City Xingfeng Foodstuff Co., Ltd. (5)                  |  | Dried processed seafood products                      |  |                                  | -   
|                                                               |  |                                                       |  |                                  |     
|Jinjiang City Dongshun Seafood Products Trading Proprietor (6) |  | Marine catch, namely cuttlefish, squid, hairtail fish |  |                                  | -   
|                                                               |  |                                                       |  |                                  |     
|Wenzhou Rixin Foodstuff Co., Ltd. (7)                          |  | Dried processed seafood products                      |  |                                  | -   
|                                                               |  |                                                       |  |                                  |     
|TOTAL                                                          |  |                                                       |  |                                  | 47.2



20







Notes:



|1) | Dalian Jiyang Import and Export Co., Ltd. is a trader of goods and import of technology in China, and has, to the best of our knowledge, a distribution network of about 19 retailers and a sales workforce of about 8 people. It has been our customer since 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|2) | Qingdao Xinqinghua Seafood Products Company is a trader of fresh seafood in Qingdao City, Shandong Province. It sources and purchases supplies for Korean fishery companies and has been our customer since 1996. Besides, the company holds 100% of Qingdao Haizhan Seafood Co., Ltd., another of our major customer. Qingdao Haizhan Seafood Co., Ltd. deals in dried and frozen seafood products and, to the best of our knowledge, has a distribution network of over 1,108 retailers and a sales workforce of about 92 people. It has been our customer since 1996. Our sales to Qingdao Haizhan Seafood Co., Ltd. have increased as it expanded its sales network to include supermarkets, which have resulted in increased orders from them. We believe that we will be less reliant on Qingdao Haizhan Seafood Co., Ltd. and Qingdao Xinqinghua Seafood Products Company for our sales in future, as we enter new markets and increase market penetration of existing markets.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|3) | Fuzhou Xinxutai Trading Ltd. is a distributor of dried seafood and drinks, and has, to the best of our knowledge, a distribution network of about 206 retailers and a sales workforce of about 63 people. It has been our customer since 2010. Our sales to Fuzhou Xinxutai Trading Ltd. have increased as it expanded its sales network to meet growing market demand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|4) | Xiamen Wansong Commercial and Trading Ltd.is a distributor of dried seafood and drinks, and has, to the best of our knowledge, a distribution network of about 115 retailers and a sales workforce of about 58 people. It has been our customer since 2010. Our sales to Xiamen Wansong Commercial and Trading Ltd.have increased as it expanded its sales network to meet growing market demand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|5) | Wenling City Xingfeng Foodstuff Co., Ltd. is a distributor of dried seafood in Wenling City, Zhejiang Province, and has, to the best of our knowledge, a distribution network of over 846 retailers and a sales workforce of about 79 peoples. It has been our customer since 1997.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|6) | Jinjiang City Dongshun Seafood Products Trading Proprietor is a wholesaler of seafood products, has, to the best of our knowledge, a distribution network of about 2 retailers and a sales workforce of about 9 people. It has been our customer since 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|7) | Wenzhou Rixin Foodstuff Co., Ltd. is a distributor of dried seafood in Wenzhou City, Zhejiang Province, and has, to the best of our knowledge, a distribution network of about 1,139 retailers and a sales workforce of about 102 people. It was one of our first distributors and has been our key business partner since 1994.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



None of our directors, executive officers
and controlling shareholders is related to or has any interest in any of our major customers listed above. To the best of our knowledge,
same as disclosed above, none of our major customers is related to or has any interest in one another, and none of our major customers
is related to or has any interest in the suppliers stated in the section “Major Suppliers”. We are not dependent on
any one of our major customers as we are able to sell our fresh fish and seafood range, as well as our processed seafood and algae-based
beverage products to other customers.



INTELLECTUAL PROPERTY



Except as disclosed below, we are not dependent on nor do we
own any registered trademark or patent or any other intellectual property rights:



Trademarks



Our brand name distinguishes our products
from that of our competitors and increase consumer awareness of our products. We have currently registered the following trademarks:



21







|Trademark |  | Class                                                                                                                                                                                                                                                                |  | Place of
        Registration |  | Status / Validity
        Period                                                            
|--------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- |  | --------------------------------------------------------------------------------------------
|(1)       |  | Class 40 covering processed seafood, agricultural foods, processed
        teas, processed herbs, chemical testing and processing                                                                                                                                    |  | PRC                           |  | Registered / January 28, 2003 to January 27, 2013                                           
|          |  |                                                                                                                                                                                                                                                                      |  |                               |  |                                                                                             
|          |  | Class 29 covering meat, fish, poultry and game; meat extracts; preserved, dried and cooked fruits and vegetables; jellies, jams, compotes; eggs, milk and milk products; edible oils and fats                                                                        |  | PRC                           |  | Registered under the name of Mingxiang on July 8, 2009 and awaiting approval confirmation   
|          |  |                                                                                                                                                                                                                                                                      |  |                               |  |                                                                                             
|          |  | Class 30 covering coffee, tea, cocoa, sugar, rice, tapioca, sago, artificial coffee; flour and preparations made from cereals, bread, pastry and confectionery, ices; honey, treacle; yeast, baking-powder; salt, mustard; vinegar, sauces (condiments); spices; ice |  | PRC                           |  | Registered under the name of Mingxiang on July 8, 2009 and awaiting approval confirmation   
|          |  |                                                                                                                                                                                                                                                                      |  |                               |  |                                                                                             
|          |  | Class 32 covering beers; mineral and aerated waters and other non-alcoholic drinks; fruit drinks and fruit juices; syrups and other preparations for making beverages                                                                                                |  | PRC                           |  | Registered under the name of Mingxiang on July 8, 2009 and awaiting approval confirmation   
|          |  |                                                                                                                                                                                                                                                                      |  |                               |  |                                                                                             
|          |  | Class 32 covering beers; mineral and aerated waters and other non-alcoholic drinks; fruit drinks and fruit juices; syrups and other preparations for making beverages                                                                                                |  | PRC                           |  | Registered under the name of Mingxiang on August 27, 2009 and awaiting approval confirmation



Note:



| | 1) | The above “Mingxiang” trademark was originally registered under the name of “Fujian Province Shishi City Huabao Mingxiang Foods Development Co.” on January 14, 1997. In a Confirmation of Approval to Trademark Transfer dated June 14, 2001, the PRC Trademark Bureau approved the transfer of this trademark to Mingxiang and the trademark is now registered in Mingxiang’s name under a Trademark Registration Certificate No. 930539.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We intend to further develop our “Mingxiang” brand
image in the markets where we currently operate, and to promote it in new markets. In that regard, we intend to apply for registration
of our trademark in the overseas markets where we conduct our sales, as we consider appropriate.



Save as disclosed above, our business or
profitability is not materially dependent on any other trademarks, copyrights, patents, grant of licenses from third parties, new
manufacturing processes and intellectual property rights.



GOVERNMENT REGULATIONS



The following is a description of the material
licenses and permits issued to subsidiaries of our Company in order for us to carry out our operations, other than those pertaining
to general business registration requirements:



Hygiene Certificates



We view hygiene control as a critical aspect
of food production operations and place great emphasis on the hygienic preparation of our processed seafood products to ensure
they are safe for consumption. We have received the following hygiene certificates in relation to our operations:



22







|Subsidiary |  | Name of  Certificate                |  | Description of  License/Permit                                                                                                                                                                                |  | Issuing Authority                            |  | Period of  Validity             
|---------- |  | ----------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------- |  | --------------------------------
|           |  |                                     |  |                                                                                                                                                                                                               |  |                                              |  |                                 
|Mingxiang  |  | Hygiene License                     |  | Permit to process seafood products                                                                                                                                                                            |  | Shishi City Hygiene Bureau                   |  | May 18, 2008 to May 17, 2012 (1)
|           |  |                                     |  |                                                                                                                                                                                                               |  |                                              |  |                                 
|Rixiang    |  | Hygiene License                     |  | Permit to process seafood and agricultural products, research and processing biochemical products.                                                                                                            |  | Shishi City Hygience Bureau                  |  | May 18, 2008 to May 17, 2012 (1)
|           |  |                                     |  |                                                                                                                                                                                                               |  |                                              |  |                                 
|Rixiang    |  | Certificate of Hygiene Registration |  | Registration of conformity with hygiene standards for the export of the following food products: frozen processed seafood products (excluding double-shelled categories and dried processed seafood products) |  | National Accreditation Supervision Committee |  | May 31, 2009 to May 31, 2012 (1)



Note:



| | (1) | The renewal of such certificates with related authorities in PRC is under process for additional four-year terms.
| | --- | -----------------------------------------------------------------------------------------------------------------



Other Licenses and Permits



Our other licenses and permits are as follows:



|Subsidiary |  | Name of  Certificate                                                                                |  | Description of  License/Permit                                                             |  | Issuing Authority                                     |  | Period of  Validity                  
|---------- |  | --------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | ----------------------------------------------------- |  | -------------------------------------
|           |  |                                                                                                     |  |                                                                                            |  |                                                       |  |                                      
|Mingxiang  |  | National Industrial Product Manufacturing License                                                   |  | Permit to process seafood (dried)                                                          |  | Fujian Province Quality Technology Supervisory Bureau |  | November 1, 2011 to October 31, 2014 
|           |  |                                                                                                     |  |                                                                                            |  |                                                       |  |                                      
|Rixiang    |  | National Industrial Product Manufacturing License                                                   |  | Permit to process seafood (dried)                                                          |  | Fujian Province Quality Technology Supervisory Bureau |  | June 1, 2010 to April 15, 2013       
|           |  |                                                                                                     |  |                                                                                            |  |                                                       |  |                                      
|Rixiang    |  | Customs Registration Certificate                                                                    |  | Permit to file import-export documents with China Customs                                  |  | China Customs                                         |  | June 20, 2009 to June 19, 2012       
|           |  |                                                                                                     |  |                                                                                            |  |                                                       |  |                                      
|Mingxiang  |  | Certificate of Approval for Enterprises with Foreign Trade Rights in the People’s Republic of China |  | To import-export company’s products and technologies, raw materials, facilities, equipment |  | Fujian Foreign Trade Economic Cooperation Department  |  | September 4, 2000; no expiration date
|           |  |                                                                                                     |  |                                                                                            |  |                                                       |  |                                      
|Rixiang    |  | EU Export Registration                                                                              |  | Approval for Rixiang to export marine products to EU                                       |  | European Commission                                   |  | October 6, 2006; no expiration date  



Same as disclosed above, as at the date
of this Form 10-K, our business or profitability is not materially dependent on any other licenses and permits.



RESEARCH AND DEVELOPMENT



We believe that constant innovation in
developing new processes and products that are well-received by consumers is vital to our continued success. As of December 31,
2011, our research and development team comprised 8 personnel. The focus of our research and development is directed towards satisfying
the preferences of consumers, with the following objectives:



| | 1. | To improve our products in the areas of safety and quality (of taste, texture, hygiene and packaging);
| | -- | ------------------------------------------------------------------------------------------------------



| | 2. | To develop new products;
| | -- | ------------------------



| | 3. | To achieve full customer satisfaction;
| | -- | --------------------------------------



23







| | 4. | To reduce costs and create value; and
| | -- | -------------------------------------



| | 5. | To develop products for low-value fish types and to increase the value of processing by-products.
| | -- | -------------------------------------------------------------------------------------------------



Our main research and development activities
include: (1) experimenting with various small fish species for the production of fish mash, (2) improving the taste and texture
of our dried processed seafood products, (3) finding new uses for leftovers such as fish heads, prawn heads and shells which would
otherwise be disposed, (4) developing natural high energy beverage using advanced bio-engineering technology, and (5) developing
new products, including marine health products. Our research and development efforts enable us to develop efficient production
processes which lower the cost of production, yet produce superior-quality products.



Some of the highlights of our research
and development activities are set out below.



Product Development



Through our research and development activities,
we have developed products which have been well-received by consumers and improved our production processes. We have through our
research and development introduced 32 processed seafood products, including Sakura squid, sliced squid, spicy sliced octopus,
spicy baby squid, spicy sliced squid and spicy squid head. We believe that our constant product innovation has led to our increasing
reputation as a producer of processed natural seafood products.



Collaboration with Ocean University of China



On April 28, 2006, our subsidiary Rixiang
entered into a memorandum of understanding for collaboration with the Ocean University of China’s Food Sciences and Engineering
Institute. The Ocean University of China is one of the renowned institutions in the PRC for ocean studies. The collaboration with
Ocean University of China allows us to tap into its technical know-how, to acquire new technical knowledge and processing techniques.
In turn, we serve as a research base of the research and development work of Ocean University of China. We believe that we will
benefit from the exchange of information and technological know-how.



The Ocean University of China provides
technical and training support in the development of production techniques upon request. The research and development activities
are conducted at our production facilities at Dabao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province.



Hi-Power was developed by the Yellow Sea
Fisheries Research Institute Chinese Academy of Fishery Sciences in coordination with the founder, Qiu Shang Jing, who was engaged
in the natural algae industry for over 10 years and had significant expertise on algae products.



Our research and development expenses amounted
to approximately $85,000 and $213,000 for 2011 and 2010, respectively. Research and development expenses are presented as part
of general and administrative expenses in the financial statements.



QUALITY ASSURANCE



We believe that the quality of our products
is the key to our continued growth and success. We place great emphasis on quality assurance and the consistent quality of our
products at all stages of our production processes. We attribute our success to date to our commitment to and production of quality
products. As such, we believe that good quality control has been a key competitive strength of our Company. Our aim is that our
“Mingxiang” and “Hi-Power” brands should continue to be identified with tasty and high-quality processed
marine seafood products.



As a testimony to our commitment to quality products and processes,
we have been awarded the following awards and certifications:



|Subsidiary |  | Award/Certification                                                                                                                                                                |  | Awarding/Certification Body                         |  | Validity Period                                                                                                                 
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------
|Rixiang    |  | Validation of conformity with HACCP standards(1) for the export of marine products to the US                                                                                       |  | CIQ                                                 |  | November 5, 2010 to November 4, 2011 (renewal of certificate was applied for the third quarter of 2011 and is now under process)
|           |  |                                                                                                                                                                                    |  |                                                     |  |                                                                                                                                 
|Rixiang    |  | EU(2) export registration for export of our marine products to the EU                                                                                                              |  | European Commission                                 |  | No validity period                                                                                                              
|           |  |                                                                                                                                                                                    |  |                                                     |  |                                                                                                                                 
|Mingxiang  |  | ISO9001:2008(3) quality management system certification                                                                                                                            |  | CNAB & CCIC Quality Certification Centre            |  | December 9, 2009 to December 8, 2012                                                                                            
|           |  |                                                                                                                                                                                    |  |                                                     |  |                                                                                                                                 
|Mingxiang  |  | ISO14001:2004(4)  environmental management system certification in respect of the processing of fish and prawn-type marine food products and the relevant environmental management |  | CNAB & CCIC Conformity Assessment Services Co, Ltd. |  | November 21, 2011 to November 20, 2014                                                                                          



24







Notes:



|1) | Under the PRC’s Regulations on Administration of Certification of Hazard Analysis and Critical Control Point System (HACCP), applicants for the HACCP certification have to apply to CNAB-recognized certification and accreditation entities and comply with domestic and international sanitary criteria set out in various legislation including the PRC Sanitary Requirements for Export Food Manufacturing Enterprises and the HACCP System and Guidelines for its Application by the Codex Alimentarius Commission. CIQ, a HACCP-certification authority, will verify an exporter’s HACCP certification if (a) the product to be exported falls within one of the following categories, namely (1) canned food, (2) marine food products (excluding live, fresh, dry and marinated products), (3) meat and meat products, (4) frozen vegetables, (5) fruit or vegetable juice, (6) instant frozen food containing meat or marine food products; or (b) where such verification is required by authorities in the destination country. We believe that the HACCP certification enables our products to be more widely accepted by our domestic and international customers and aid to increase the export of our products.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2) | The EU certification process ensures that the product conforms to the appropriate provisions and relevant legislation which implements certain European Directives.  In the case of marine food products, the applicable European Directives include 91/493/EEC and 94/356/EC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|3) | ISO9001:2008 is an international standard for quality management developed by the International Organization for Standardization.  It sets requirements as to how an organization should manage its processes that influence product quality, and evaluates an organization’s resource management, process management and evaluation process that ensure its products conform to customer and applicable regulatory requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4) | ISO14001:2004 is an internationally recognized standard for environment management systems, including energy management, waste management and process improvement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



Please refer to the section “Awards
and Certifications” for further details of awards and certifications which we have obtained in respect of our products. To
attain and maintain these accreditations, we have set up a quality control program in accordance with ISO9001:2008 standards. We
have a comprehensive document management system in respect of our quality control system manuals, program documents, records and
related documentation, which encompasses issuance, amendment, filing, recovery and destruction of the documents. Our quality control
measures are designed to ensure we meet the standards under Sanitation Standard Operating Procedures (“SSOP”), Good
Manufacturing Practice (“GMP”) and HACCP quality assurance systems, production control and product quality specifications.
SSOP is an action plan that details procedures to maintain sanitary conditions throughout a food processing facility. This includes
procedures on food handling and sanitation practices such as proper thawing methods, prevention of contamination and certain aspects
of employee and environmental hygiene. GMP includes regulations promulgated by the U.S. Food and Drug Administration under the
authority of the Federal Food, Drug and Cosmetic Act, which requires manufacturers, processors and packagers of drugs, medical
devices and food to take proactive steps to ensure that their products are safe, pure and effective.



Our quality control program requires our
employees to undergo training conducted internally in relation to our quality control policies, targets and procedures, as well
as production and processing techniques and operational procedures.



We have established the following quality
control procedures to ensure the high standard of quality of our processed seafood products:



In-coming



All incoming raw materials are inspected
and approved by our quality control department. The quality control checks include hygiene, freshness and safety checks and dimensional
checks (for packaging materials) to ensure that the raw materials conform to our health, freshness and safety standards and required
specifications. Inspection is carried out by way of random sampling. Samples are extracted from each batch of raw materials and
sent to the quality control department, where physical and chemical tests are conducted in our laboratory.



25







Raw materials that pass the quality control
checks are then sent for storage in the cold storage facilities until they are required in the production process.



In-process



At each stage in the production process,
we have quality inspectors who are responsible for sieving out inferior products, and to do random selection of products for testing
in our laboratory. In our laboratory, these samples are tested for micro-organisms and to ensure that they fulfill hygiene and
safety standards. Our machinery and equipment are also inspected regularly to ensure that they are in good working condition.



Finished products



The finished products undergo a final round
of inspection before they are sent to the warehouse for storage to await delivery to our customers. Random samples are selected
and brought to our laboratory for testing to ensure that they fulfill hygiene, safety and product standards. In respect of product
standards, for example, we test our dried processed products to ensure that there is adequate but not excessive water content.
Our finished products also go through a specially calibrated metal detector to ensure that products are not contaminated by metal
particles from the production equipment.



After-sales



Our quality control department is also
responsible for after-sales service, to address customers’ feedback or complaints.



Quality Assurance Testing Base



In January 2001, we were designated as
a quality assurance testing base by the National Marine Foods Quality Supervision Testing Centre. The National Marine Foods Quality
Supervision Testing Centre was established in 1986 and is based in Qingdao City, Shandong Province. This testing body is responsible
for quality testing of the state’s designated products, research and development and grading of marine products, including
fresh, frozen, dried and pickled marine processed products. As a designated testing base, we test the hygiene and quality of ingredients
and products according to industrial standards. Our testing base caters to seafood processing companies from Fujian, Guangdong,
Guangxi and Zhejiang provinces, all in the PRC. We believe that we benefit in the provision of such services, as we are kept informed
of industry news and technological developments. Currently we do not charge a fee for such services.



TAXATION



On March 16, 2007, the National People's
Congress of China passed a new Enterprise Income Tax Law, or EIT Law, and on November 28, 2007, the State Council of China passed
its implementing rules, which took effect on January 1, 2008. Before the implementation of the EIT Law, foreign invested enterprises,
or FIEs, established in the PRC, unless granted preferential tax treatments by the PRC government, were generally subject to an
earned income tax, or EIT, rate of 33.0%, which included a 30.0% state income tax and a 3.0% local income tax. The EIT Law and
its implementing rules impose a unified EIT of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain
limited exceptions.



In addition to the changes to the current
tax structure, under the EIT Law, an enterprise established outside of China with “de facto management bodies” within
China is considered a resident enterprise and will normally be subject to an EIT of 25% on its global income. The implementing
rules define the term “de facto management bodies” as “an establishment that exercises, in substance, overall
management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.” If the PRC tax
authorities subsequently determine that we should be classified as a resident enterprise, then our organization’s global
income will be subject to PRC income tax of 25%. For detailed discussion of PRC tax issues related to resident enterprise status,
see Item 1A, “Risk Factors-Risks Related to Doing Business in China-Under the New Enterprise Income Tax Law, we may be classified
as a ‘resident enterprise’ of China. Such classification will likely result in unfavorable tax consequences to us and
our non-PRC stockholders.



In addition, the EIT Law and its implementing
rules generally provide that a 10% withholding tax applies to China-sourced income derived by non-resident enterprises for PRC
enterprise income tax purposes unless the jurisdiction of incorporation of such enterprises’ shareholder has a tax treaty
with China that provides for a different withholding arrangement. Mingxiang and Rixiang are considered FIEs and are either directly
or indirectly held by our subsidiary in Hong Kong. According to a 2006 tax treaty between the Mainland and Hong Kong, dividends
payable by an FIE in China to the company in Hong Kong who directly holds at least 25% of the equity interests in the FIE will
be subject to a no more than 5% withholding tax. We expect that such 5% withholding tax will apply to dividends paid to Ocean Technology,
if any, but this treatment will depend on our status as a non-resident enterprise.



26







ENVIRONMENTAL LAW COMPLIANCE



On December 16, 2010, we received a Certificate
of Environment Management System, certifying that we have been assessed and are in compliance with the environment management standard
ISO14001: 2004. The scope of certification is for the production and the relative environmental management activity of fish, shrimp
and other marine food. The registration number of the certificate is 00111E21827R1M/3502. The certificate is renewed in 2011 which
is valid until November 20, 2014.



When our production plant was constructed,
it was designed to comply with these environmental laws by directly disposing of the use water to a nearby sewage treatment plant
for further handling. Because our production plant was built to comply with these environmental laws, we are not required to pay
for any ongoing fees to the sewage treatment plant, nor has there been any material effects on our capital expenditures, earnings
and competitive position.



Since China does not have additional environmental
regulations dealing with climate change that apply to our operations, we have not planned material capital expenditures for environmental
control facilities or changes in our business practices specific to climate change.



EMPLOYEES



We set out below the total number of our
employees and the various functions which they serve with respect to our processed seafood products, marine catch and algae-based
beverage products as at December 31, 2011 and 2010, respectively.



|                                                       |  | As at December 31, |    
|------------------------------------------------------ |  | ------------------ | ---
|Functions                                              |  | 2011               |    
|Sales and Marketing                                    |  |                    | 173
|Finance and Administration                             |  |                    | 81 
|Procurement                                            |  |                    | 4  
|Production, Research & Development and Quality Control |  |                    | 590
|TOTAL                                                  |  |                    | 848



Note:



| | 1) | The increase in number of employees was in line with
the expansion of our production capacities and marketing efforts since the acquisition of the beverage operation.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | The decrease in number of employees mainly resulted from the downsizing of the sales of our processed
seafood products due to consumers’ perception of food safety in relation to the nuclear radiation leaks in Japan during the
year.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Almost all of our employees are based in
the PRC. Our PRC permanent employees are unionized. We have not experienced any strikes, labor disputes or work stoppages by our
employees and believe our relationship with our employees is good.



Staff Training



We view our human resource as one of our
key assets and place great emphasis on staff training that not only imparts job skills but also inculcates desirable working attitudes.



Therefore, our employees at all levels
are required to undergo training relevant for their positions. The training includes technical training which is conducted by both
internal and external trainers. Training aspects include quality control, export trading procedures, permits, quality standards
and compliance with quality standards, as well as management training.



In addition, a new employee undergoes orientation
on hygiene requirements, compliance with company policies and procedures as well as the required technical skills before taking
up his appointment.



Website Access to our SEC Reports



You may obtain a copy of the following
reports, free of charge through the SEC’s website at www.sec.gov as soon as reasonably practicable after electronically filing
them with, or furnishing them to, the SEC: our previous Annual Reports on Form 10-K; our Quarterly Reports on Form 10-Q; our Current
Reports on Form 8-K; and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Our internet website and the information contained therein or connected thereto
are not intended to be incorporated into this Annual Report on Form 10-K.



27







The public may also read and copy any materials
filed with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The Public Reference Room
may be contact at (800) SEC-0330. You may also access our other reports via that link to the SEC website.



ITEM 1A.         Risk Factors



RISKS RELATED TO OUR BUSINESS



We are dependent on the supply of
fresh seafood in our production of processed seafood products and disruptions in the supply of fresh seafood could adversely affect
our business operations.



We use fresh seafood as the primary ingredient
in our processed seafood products. Our processed seafood products accounted for approximately 41.0% and 57.4% of our sales in the
fiscal years ended December 31, 2011 and 2010, respectively. Our production of processed seafood products is largely dependent
on the continuous supply of fresh seafood, which in turn could be affected by a large number of factors, including but not limited
to, environmental factors, the availability of seafood stock, weather conditions, water contamination, the policies and regulations
of the governments of the relevant territories where such fishing is carried out, the ability of the fishing companies and fishermen
that supply us to continue their operations and pressure from environmental or animal rights groups.



Specifically, fishing activities in waters
around the PRC are restricted in certain months to ensure sustainable aquatic resources. In particular, the PRC Ministry of Agriculture
imposes restrictions against fishing in the South China Sea in the months of June and July. There is no assurance that the PRC
government may not impose more stringent fishing regulations, including but not limited to longer or more frequent periods that
restrict fishing. Such restrictions against fishing or unfavorable weather conditions have a direct impact on the availability
of the raw materials required for the production of our processed seafood products, and could lead to a shortage and/or an increase
in the prices of our raw materials. Any shortage in the supply of or increase in the prices of the raw materials for our processed
seafood products will adversely affect our business, profitability and financial condition.



The nuclear disaster in Japan that occurred
in 2011, can also affect the continuous supply and pricing of our supply of the fresh materials although we have not experienced
any material problems with the supply or pricing of such supply to date.



Our profitability will be affected
by fluctuations in the prices of our major raw materials.



Our financial performance may be affected
by changes in production costs brought about by fluctuations in the prices of our raw materials. Our major raw materials are fresh
seafood which accounted for approximately 72.9% and 75.4% of our total cost of revenue of processed seafood products in the fiscal
years ended December 31, 2011 and 2010, respectively. The prices of our major raw materials may fluctuate due to changes in supply
and demand conditions. Any shortage in supply or upsurge in demand of our major raw materials may lead to an increase in prices,
which may adversely affect our profitability due to increased production costs and lower profit margins.



We are dependent on several major
customers. In the event any one of these major customers ceases to purchase or reduce their purchases from us, and we are unable
to secure new contracts, our sales will be adversely affected.



Our top five major customers accounted
for approximately 51.6% and 36.4% of our sales in the fiscal years ended December 31, 2011 and 2010, respectively. The largest
customer accounted for 25.3% and 12.5% of our sales in the fiscal years ended December 31, 2011 and 2010, respectively. In the
event these customers do not continue to purchase from us or reduce their purchases from us or develop their own abilities to manufacture
the products that we sell to them, and we are unable to secure new contracts or new customers that can replace the loss of these
customers within a short time frame, our business and profitability may be adversely affected. Please see the section “Major
Customers” for more details.



We are dependent on certain major
suppliers for our raw materials. In the event we are no longer able to secure raw materials from these suppliers and are unable
to find alternative sources of supply at similar or more competitive rates, our operations and profitability will be adversely
affected.



For the production
of our processed seafoodand algae-based beverage products, we rely on our major suppliers for
a significant portion of the supply ofraw materials. Purchases from our top five suppliers of
raw materials accounted forapproximately88.0% and 81.7% of our total purchases of raw materials
in the fiscal years ended December 31, 2011 and 2010, respectively. In the event that we are unable to secure our raw materials
from these suppliers and we are unable to find alternative sources of supply at similar or more competitive rates, our business
and operations will be adversely affected. Please see the section “Major Suppliers” for more details.



Our profitability and continued growth
is dependent on our ability to yield commercially viable products, to enhance our product range and expand our customer base.



28







The seafood
processing industry is highly competitive. The growth potential of the seafood processing industry isdependenton population growth and consumer preferences.Therefore, we believe that our profitability and
continued growth isdependenton our ability to expand our customer base in existing and new
markets by introducing new products that are fast growing and profitable in the populations that we serve, as well as our ability
to develop commercially viable products through our product development efforts. If we do not succeed in these efforts, the growth
of our sales may slow down and adversely affect our profitability. Please refer to the section “Research and Development”
for further details of our research and development efforts.



Since we do not have long-term contracts
with our suppliers and customers there is no guarantee that our suppliers will continue to supply us with raw materials, or that
our customers will continue to purchase our products.



We do not have long-term contracts with
our suppliers and our customers. Accordingly, there can be no assurance that we will continue to be able to obtain sufficient quantities
of raw materials in a timely manner from our existing suppliers on acceptable terms, or that our existing customers will continue
to purchase our products on terms that are acceptable to us or at all. In the event that we are unable to source for new suppliers
or new customers on terms that are acceptable to us, our business and operations will be adversely affected.



There is no assurance that we will
be able to execute our future plans successfully, or that our future plans will result in commercial success.



We intend to,inter alia and expand our operations and production capacity in the PRC by constructing new cold storage facilities. There
can be no assurance that the construction of the new cold storage facility will be completedand start operating inthe first half of 2012 as expected. Our expansion plans involve a number of risks, includinginter alia the costs of investment
in fixed assets, costs of working capital tied up in inventories, as well as other working capital requirements.



Our expansion will also depend on our ability
to secure new customers and/or sufficient orders. Failure to secure new customers or sufficient orders or to meet our customers’
orders would materially and adversely affect our business and financial performance. There is no assurance that our future plans
will result in commercial success. If we are unable to execute our expansion plans successfully, our business and financial performance
would be materially and adversely affected.



The construction of our new cold
storage facility will be subject to a number of development risks, which could cause cost overruns and delays or prevent completion
of the project .



Construction
of our new cold storage facility in Shishi City with a capacity of approximately 20,000 tons is scheduled to be completed in the
first half of 2012 but there can be no assurance that the construction, which was originally scheduled to be completed by December
31, 2011, will be completed by such date.A small delay was experienced due to adverse weather conditions and the shortage
of labor during the Chinese Lunar New Year period. Delays in the construction of the new cold storage
facility project beyond the estimated development periods, as well as cost overruns, could increase the cost of completion beyond
the amounts that we estimate. Any delay in completion of the new cold storage facility project may also reduce or delay in the
receipt of revenues projected from the expansion project. As a result, any significant construction delay, whatever the cause,
could have a material adverse effect on our business, results of operations, financial condition and prospects.



Changes in consumer preferences or
discretionary consumer spending could adversely impact our results.



Our continued
growth and success depends in part on the popularity of our products. Sales of our processed seafood products, marine catchand
algae-based beverage productsas a percentage of our total sales for the period under review were as
follows:



|                              |  | Year Ended December 31, |     
|----------------------------- |  | ----------------------- | ----
|Products                      |  | 2011                    |     
|                              |  | (%)                     |     
|                              |  |                         |     
|Processed seafood products    |  |                         | 41.0
|                              |  |                         |     
|Marine catch                  |  |                         | 38.4
|                              |  |                         |     
|Algae-based beverage products |  |                         | 20.6



29







Shifts in consumer
preferences ordietinghabitsin the PRCaway from processed
seafoodproducts or algae-based beverageproducts will materially affect our business.Consumer
preferences regarding health and food safety are evolving in the PRC and the success of our food products depends on our ability
to identify the tastes and dietary habits of consumers and to offer products that appeal to their preferences, including concerns
of consumers regarding health and wellness, food safety, product attributes, and ingredients. In addition,
our continued success depends, in general, on the economic conditions, disposable income and consumer confidence in the countries
in which we sell our products, all of which can affect discretionary consumer spending in such countries. Adverse changes in these
factors would reduce the flow of customers and limit our pricing which will reduce our profitability.



Our business activities are subject
to certain laws and regulations and our operations may be affected if we should fail to have in force the requisite licenses and
permits.



We are required to obtain various licenses
and permits in order to conduct our business of production and export of processed seafood products. These include the Hygiene
Registration Certificate, which is a requirement in order to carry on the production of food products in the PRC, as well as the
HACCP certificate and EU export registration, which is a requirement in order to export our processed seafood products to certain
countries. Our business is also subject to applicable laws and regulations. Please see the section “Government Regulations”
of this Form 10-K for a summary of the material laws and regulations that apply to our Company.



Any failure to comply with the conditions
stipulated in our licenses and permits may lead to their revocation or non-renewal. Any failure to observe the applicable laws
and regulations may lead to the termination or suspension of some or all of our business activities or penalties being imposed
on us. The occurrence of any of these events may adversely affect our business, financial condition and results of operations.



Our processed seafood products may
be illegally tampered with such that they are rendered unfit for consumption and have to be recalled and destroyed.



Our processed seafood products are packed
in plastic materials that can be illegally tampered with. Illegal tampering of our processed seafood products could result
in such products being rendered unfit for consumption or cause them to fail to meet customer specifications, health and/or safe
handling requirements. This may lead to a loss of customer confidence in our products, affect our reputation, cause product recalls
and/or product destruction. In addition, we may incur substantial litigation costs and may be ordered to compensate consumers in
the event of any illness or death caused by the consumption of an illegally tampered seafood product.



In the event that our processed seafood
products are recalled or destroyed as a result of illegal tampering or a claim is made against us arising from the consumption
of our products, our reputation, business goodwill and sales will be adversely affected.



Product or raw material deterioration
will lead to loss of sales, higher costs, negative publicity, and payment of compensation to our customers and/or product liability
claims.



Our raw materials, frozen and processed
seafood products, being perishable in nature, may deteriorate due to various reasons such as malfunctioning cold storage facilities,
delivery delays or poor handling. This may lead to a delay in production or delivery of our products, a loss in revenue, costs
incurred in the purchase of replacement raw materials and payment of compensation to our customers. Any deterioration in our raw
materials or processed seafood products could have a material adverse effect on our business, operations and reputation.



Currently, we do not have any product liability
insurance in respect of our products. We believe that premiums for product liability insurances are high compared to the risk of
claims. In the event that the consumption of our processed seafood products causes harm, illness or death to a consumer of our
products, whether as a result of product deterioration, spoiling, sabotage, willful action, omission or negligence, we may be liable
to complaints, lawsuits and claims from consumers of our products which in turn could generate negative publicity and materially
and adversely affect our business, financial condition and our operations.



Outbreak of disease or widespread
contamination in any of the raw materials that we use in our production or any food scares may lead to a loss in consumer confidence
and reduce the demand for our processed seafood products.



One of our competitive strengths is our
established brand name and track record. We have received several awards and certificates for our high quality products, including
the “Green Food” award. Any outbreak of disease or widespread contamination in any of the raw materials that we use
in the production of our products or food scares in the markets in which our processed seafood products are manufactured or sold
may have an adverse impact on our business as it may lead to a loss in consumer confidence and reduce the demand of our processed
seafood products. It may also affect our sources of supply and we may have to look for alternative sources of supply which may
be more costly, or which may not be available. If this develops into actual events, our operations and profitability will be adversely
affected.



30







Any failure to meet food safety regulation
may result in the suspension of licenses, accreditations or the loss of our ability to sell our products.



The manufacture and marketing of food products
is heavily regulated in the PRC under the Food Safety Law enacted in 2009. If we fail to comply with the Food Safety Law or any
other applicable laws and regulations, we may be subject to investigations, criminal sanctions or civil remedies, including fines,
injunctions, prohibitions on exporting, seizures or debarments from government contracts or the loss of liquor licenses. The cost
of compliance or the consequences of non-compliance, including debarments, could have a material adverse effect on our business
and results of operations. In addition, governmental units may make changes in the regulatory frameworks within which we operate
that may require either the corporation as a whole or individual businesses to incur substantial increases in costs in order to
comply with such laws and regulations.



In May 2011, inspectors of the government
of Taiwan detected dangerous levels of industrial plasticizers in sports drinks and soft drinks, used to substitute for palm oil
as clouding agents in drinks, with levels far in excess of the daily allowed intake. One plasticizer, known as DEHP, is a possible
carcinogen, and thought capable of wreaking havoc with children’s reproductive organs. Since then, the plasticizers have
been found in a range of foods and drinks. China, Hong Kong, South Korea and the Philippines have recalled beverage bottles suspected
of contamination imported from Taiwan. Although none of our products were subject to the recall, the beverage products sector in
the East Asia region was adversely affected by the food scandal, and new legislation with higher food safety standard of beverage
products may be implemented in the PRC. The DEHP crisis may affect our beverage products business as a result of any
failure to comply with the new standard or adverse changes in the beverage products sector.



Any failure to meet health and hygiene
standards may result in the suspension of licenses, accreditations or the loss of our ability to import and export our products.



We are subject to annual checks carried
out by the General Administration of Quality Supervision, Inspection and Quarantine of the PRC (CIQ). The CIQ’s annual check
encompasses the inspection of food preparation, production and processing operations, as well as health checks on our employees.
Failure to meet the required standards may result in our being required to take remedial measures to meet the health and hygiene
standards, or in extreme cases, the cancellation or suspension of the license(s) and accreditation(s) required for us to carry
on our operations. In the event that this should occur, our operations and financial condition will be materially and adversely
affected and could lead to a loss in customer confidence in our products.



In addition, the CIQ makes random inspections
on the processed seafood and algae-based beverage products that we export. Failure to meet the required standards of hygiene may
affect our ability to export our processed seafood and algae-based beverage products and meet our customers’ orders on time.
It may also lead to a restriction on our ability to export our processed seafood and algae-based beverage products which will materially
and adversely affect our business, financial condition and operations.



We bear the risk of loss in shipment
of our products and have no insurance to cover such loss.



Under the shipping terms of our standard
customer contracts, we bear the risk of loss in shipment of our products and do not insure this risk. Since management considers
the risk of loss to be minimal, with export sales representing less than 0.4% of our total sales for the years ended December 31,
2011 and 2010, respectively. Moreover, we believe that the shipping companies that we use carry adequate insurance or are sufficiently
solvent to cover any loss in shipment. Nevertheless, there can be no assurance that we will be adequately reimbursed upon the loss
of a significant shipment of our products.



We are dependent on our Executive
Directors and Executive Officers. Any loss in their services without suitable replacement may adversely affect our operations.



Our success to date has been largely due
to the contribution of Pengfei Liu, our Executive Chairman and CEO. Mr. Liu is the founder of our Company, and has spearheaded
our expansion and growth. He is responsible for our operations, marketing, public relations, strategic planning and development
of new products and markets. Our continued success is dependent, to a large extent, on our ability to retain his services.



The continued success of our business is
also dependent on our key management and operational personnel. We rely on their experience in the processed seafood and marine
catch industry, product development, sales and marketing and on their relationships with our customers and suppliers.



31







The loss of the services of any of our
executive directors or executive officers without suitable replacement or the inability to attract and retain qualified personnel
will adversely affect our operations and hence, our revenue and profits.



We are dependent on our customers’
ability to maintain and expand their sales and distribution channels. Should these distributors be unsuccessful in maintaining
and expanding their distribution channels, our results of operations will be adversely affected.



Demand for our
products from end-consumers and our prospects depend on the retail growth and penetration rate of our products to end-consumers.
Sales of our products are conducted mainly through distributors, over whom we have limited control. As of December 31, 2011, our
distribution network is comprised of 18 exclusive distributorsfor our dried processed seafood products located
in five provincesand seven exclusive distributors for our algae-based beverage products located in two provinces.
These distributors sub-distribute our dried processed seafood products to about 3,200 retail points and our algae-based
beverage products to about 15,000 retail points,including major supermarkets. We are thus dependent
on the sales and distribution channels of our distributors for broadening the geographic reach of our products. Should these distributors
be unable to maintain and expand their distribution channels, our results of operations and financial position will be adversely
affected.



Failure to compete effectively in
a competitive environment may affect our profitability.



We operate in the highly competitive processed
seafood industry. We believe that our major competitors include international and domestic seafood processors. Some of these competitors
may have significantly greater financial, technical and marketing resources, stronger brand name recognition and larger existing
customer base than we do.



We also believe that these competitors
may have the ability to respond more quickly to new or emerging technologies or may adapt more quickly to changes in customer
requirements or may devote greater resources to the development, promotion and sales of their products than us.



There is no assurance that we will be able
to continue competing successfully against present and future competitors. We believe that important factors to achieving success
in our industry include maintaining customer loyalty by cultivating long-term customer relationships, achieving consistent product
renewal and maintaining the quality of our products. If we are unable to attain these, we may lose our customers to our competitors
and this will adversely affect our market share. Increased competition may also force us to lower our prices, thus reducing our
profit margins and affecting our financial performance and condition. Such competition may have a material adverse effect on our
business, financial position and results of operations. Please refer to the section captioned “Description of Business -
Competition” for further details as to our present competitors.



Any outbreak of earthquake, tsunami,
adverse weather or oceanic conditions or other calamities may result in disruption in our operations and could adversely affect
our sales.



We are based
in Fujian province which is situated in southeast China on the coast of the East China Sea. Fujian is a vital navigation hub between
the East China Sea and South China Sea, and is also rich in agricultural and marine resources. Our main raw materials for our marine
catch business come from the TaiwanStrait, which is also
where we conduct our marine catch operations.



In March 2011, the northern region of Japan
experienced a severe earthquake followed by a tsunami. The earthquake and tsunami caused extensive and severe structural damage
in Japan, including heavy damage to roads and railways as well as fires in many areas, and damage to several nuclear reactors.
Although to date the damage caused by the earthquake tsunami or radiation leaks have not significantly damaged our access to or
price of materials or the quality of such raw materials, there can be no assurance that such access, price or quality may not be
affected. In addition, public concern about seafood contamination can also adversely affect our sales of seafood products as a
result of consumers’ perception of food safety issues resulting from nuclearradiation
leaksin Japan.



Due to the location of our business, we
may be at risk of experiencing another tsunami, earthquake or other adverse weather or oceanic conditions. This may result in the
breakdown of our facilities, such as our cold storage facilities, which will in turn lead to deterioration of our products with
the potential for spoilage. This could adversely affect our ability to fulfill our sales orders and adversely affect our profitability.



Adverse weather conditions affecting the
fishing grounds where the fishing vessels chartered by us operate such as storms, cyclones and typhoons or cataclysmic events such
as tsunamis may also decrease the volume of our fish catches or may even hamper our fishing operations. Our operations may also
be adversely affected by major climatic disruptions such as El Nino which in the past has caused significant decreases in seafood
catches worldwide.



32







We may be affected by global climate
change or by legal, regulatory or market responses to such changes.



The growing political and scientific sentiment
is that increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere are influencing global weather
patterns. Fresh products, including seafood products used as our raw materials, are vulnerable to adverse weather conditions, including
windstorms, floods, drought and temperature extremes, which are quite common but difficult to predict and may be influenced by
global climate change. Similarly, changing weather patterns, along with the increased frequency or duration of extreme weather
conditions, could impact the availability or increase the cost of key raw materials that we use to produce our products.



Concern over climate change, including
global warming, has led to legislative and regulatory initiatives directed at limiting greenhouse gas (GHG) emissions. For example,
proposals that would impose mandatory requirements on GHG emissions may be considered by policy makers in the territories that
we operate. Laws enacted that directly or indirectly affect our production, distribution, packaging, cost of raw materials, fuel,
ingredients, and water could all impact our business and financial results.



We are in the business of processing,
distributing and selling processed seafood products and marine catch. Thus, a dramatic reduction in fish resources may adversely
affect our business.



We are in the business of processing, distributing,
and selling processed seafood products, as well as selling marine catch. As such, 100% of our raw materials are obtained through
fishing. Due to over-fishing, the stocks of certain species of fish may be dwindling and to counteract such over-fishing, governments
may take action that may be detrimental to our ability to conduct our operations. If the solution proffered or imposed by the governments
controlling the fishing grounds either restrict our ability to procure seafood supply or if such action limits the types,
quantities and species of fish that we are able to procure or catch, our operations and prospects may be adversely affected.



Our purchase of the beverage business
involves the risks of entering into a new business.



On January 1, 2010, we purchased Xianghe,
a beverage company, and entered into a new business segment where we needed to rely on the current management for the business acquired.
Xianghe is a Fujian based manufacturer of the branded Hi-Power algae-based soft drinks. We did not have prior experience in
the beverage business and the success of Xianghe is subject to all of the uncertainties regarding the development of a new business. Although
we have started integrating the product into Mingxiang’s distribution network and further expanded the distribution into
other untapped areas, there can be no assurance regarding the successful distribution and market acceptance of the beverage products.



We may not be able to respond successfully
to changes in the highly competitive beverage marketplace domestically and internationally.



We operate in the highly competitive beverage
industry and face strong competition from other general and specialty beverage companies. Our response to continued and increased
competitor and customer consolidations and marketplace competition may result in lower than expected net pricing of our products.
Our ability to gain or maintain share of sales or gross margins may be limited by the actions of our competitors, who may have
advantages in setting their prices because of lower costs. Competitive pressures in the markets in which we operate may cause channel
and product mix to shift away from more profitable channels and packages.



The beverage industry is highly competitive.
The principal areas of competition are pricing, packaging, development of new products and flavors and marketing campaigns. Our
products will compete with a wide range of drinks produced by a relatively large number of manufacturers, any of which have substantially
greater financial, marketing and distribution resources than we do.



Important factors affecting our ability
to compete successfully include taste and flavor of products, trade and consumer promotions, rapid and effective development of
new, unique cutting edge products, attractive and different packaging, branded product advertising and pricing. We will also compete
for distributors who will concentrate on marketing our products over those of our competitors, provide stable and reliable distribution
and secure adequate shelf space in retail outlets. Competitive pressures in the healthy beverage market could cause our products
to be unable to gain market share, or we could experience price erosion, which could have a material adverse effect on our business
and results.



We compete with major international beverage
companies that operate in multiple geographic areas, as well as numerous firms that are primarily local in operation. Our ability
to gain or maintain share of sales or gross margins in the Chinese markets and ability to grow the business in global market may
be limited as a result of actions by competitors.



We compete not only for customer acceptance
but for maximum marketing efforts by multi-brand licensed bottlers, brokers and distributors, many of which have a principal affiliation
with competing companies and brands. Certain large companies such as The Coca-Cola Company and Pepsico Inc. market and/or distribute
products in that market segment.



33







Our beverage business is dependent
on sales in Fujian province and any significant disruption in sales in this province could adversely affect our beverage business.



During the year ended December 31, 2011,
approximately 85.9% of our sales of the beverage product were in Fujian province. Although we have experienced strong growth in
sales in Fujian province and have expanded our sales to Zhejiang province and intend to expand our sales to other provinces, any
significant disruption in sales in Fujian could adversely affect our beverage business.



Our beverage business is heavily
regulated by China State Food and Drug Administration (“SFDA”) and other government agencies for the production and
packaging of beverage products, and failure to comply these regulation may adversely affected our beverage business.



The production, distribution and sale in
China of our beverage products are the production, distribution and sale in the Chinese market of our products are subject to the
PRC State Food, Drug, and Cosmetic Act, state consumer protection laws, the Occupational Safety and Health Act, various environmental
statutes; and various other state and local statutes and regulations applicable to the production, transportation, sale, safety,
packaging, advertising, labeling and ingredients of such products. Although we expect that we will comply with all relevant regulations
and rules in our production and distribution of beverage products, there is risk that those regulations may be violated and capital
expenditures, net income or competitive position as a result of the violation may be adversely affected.



Water scarcity and poor quality could
negatively impact our beverage production costs and capacity.



Water is the main ingredient in our beverage
product. It is also a limited resource in many parts of the world, facing unprecedented challenges from overexploitation, increasing
pollution and poor management. As demand for water continues to increase in China and as the quality of available water deteriorates,
our system may incur increasing production costs or face capacity constraints which could adversely affect our profitability or
net operating revenues in the long run.



Changes in the nonalcoholic beverages
business environment could impact our financial results.



The nonalcoholic beverages business environment
is rapidly evolving as a result of, among other things, changes in consumer preferences, changes in consumer lifestyles, increased
consumer information and competitive product and pricing pressures. If we are unable to successfully adapt to this rapidly changing
environment, our net income, share of sales and volume growth could be negatively affected.



Adverse weather conditions could
reduce the demand for our beverage products.



The sales of our beverage products are
influenced to some extent by weather conditions in the markets in which we operate. Unusually cold weather during the summer months
may have a temporary effect on the demand for our beverage products and contribute to lower sales, which could have an adverse
effect on our results of operations for those periods.



We are dependent on certain major
manufacturers for production of beverage products.



For the production of our beverage products,
we rely on two manufacturers for all of the production of our beverage products. We believe that alternate manufacturers are available
but there may be some disruption in supplies until we can obtain product from such manufacturers. In the event we are no longer
able to secure product from these manufacturers, our operations and profitability of the beverage business will be adversely affected.



We are exposed to the credit risk
of our customers which may cause us to make larger allowances for doubtful trade receivables or incur bad debt write-offs.



Our customers may default on their payments
to us. Although we review the credit risk of our customers regularly, such risks will nevertheless arise from events or circumstances
that are difficult to anticipate or control, such as an economic downturn.



Our trade receivables turnover days were
approximately 81 and 71 days in 2011 and 2010, respectively. Our allowances for doubtful trade receivables as at December 31, 2011
and 2010 were approximately $345,000 and $244,000, respectively; and at about 0.5% of our gross trade receivables.



34







As a result of this credit risk exposure
of our customers defaulting on their payments to us, we may have to make larger allowances for doubtful trade receivables or incur
bad debt write-offs, both of which may have an adverse impact on our profitability.



We may be subject to foreign exchange
risk and may incur losses arising from exchange differences upon settlement.



We sell our
processed seafood products, marine catchand algae-based beverage productsmainly to local customers.
Direct exports as a percentage of our sales ranged between 0.1% to 2.6% during the period under review. Our sales are denominated
in RMB and US$, while our purchases are denominated in RMB.



For the fiscal year of 2011 and 2010, the
percentages of our sales denominated in RMB and US$ were as follows:



|    |  | Year Ended December 31, |     
|--- |  | ----------------------- | ----
|    |  | 2011                    |     
|    |  | (%)                     |     
|    |  |                         |     
|RMB |  |                         | 99.9
|    |  |                         |     
|US$ |  |                         | 0.1 



We may incur losses arising from exchange
differences upon settlement. To the extent that our sales, purchases and expenses are not naturally matched in the same currency
and there are timing differences between collections and payments, we will be exposed to any adverse fluctuations in the exchange
rates between the various foreign currencies and the RMB. Any restrictions over the conversion or timing of conversion of foreign
currencies may also expose us to adverse fluctuations in exchange rates. As a result, our earnings may be materially and adversely
affected.



On July 21, 2005, the Renminbi was unpegged
against the US$ and pegged against a basket of currencies on a “managed float currency regime”. As at December 31,
2011, the closing exchange rate was approximately US$1.00 to 6.3523. There is no assurance that the PRC’s foreign exchange
policy will not be further altered. In the event that the PRC’s policy is altered, significant fluctuations in the exchange
rates of RMB against the US$ will arise. As a result, we will be subject to significant foreign exchange exposure and in the event
that we incur foreign exchange losses, our financial performance will be adversely affected.



Please refer to the section “Description
of Business - Foreign Exchange Exposure” for further details.



Our products and brand name may be
replicated or counterfeited which will in turn have an adverse effect on our Company and we may be affected by intellectual property
rights disputes.



We have registered certain trademarks in
the PRC, details of which are set out in the section “Intellectual Property” of our Form 10-K. Despite the protection
of our trademark under the intellectual property laws of the PRC, such laws may not be adequate or effectively enforced against
third parties who may violate our proprietary rights by illegally using our trademarks or our brand name. Our products and brand
names may be replicated or counterfeited, which in turn may adversely affect our reputation and brand image.



Policing unauthorized use of our trademarks
or brand is difficult and costly, particularly in countries where the laws may not fully protect our proprietary rights. There
can be no assurance that our means of protecting our proprietary rights will be adequate. Any unauthorized use of our trademarks
and brand may damage our brand, recognition and reputation. This may lead to our customers losing confidence in our brand and products,
which, in turn, may lead to a loss in our business and hence sales.



Our business may be adversely affected
by conditions in the financial markets and economic conditions generally.



Negative market developments may affect
consumer confidence levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates,
which may impact our charge-offs and provision for credit losses. A worsening of these conditions would likely exacerbate the adverse
effects of these difficult market conditions on us. Furthermore, should China’s economic growth slow or should China’s
economy contract, or the economies of the provinces that are our principal markets experience slower growth or economic contraction,
consumer demand for our products and/or our ability to charge desired prices for our products could be adversely affected.



35







Worldwide economic conditions may remain
depressed for the foreseeable future. These conditions make it difficult for us to accurately forecast and plan future business
activities, and could cause us to slow or reduce spending on our research and development activities. Furthermore, during challenging
economic times, we may face issues gaining timely access to financings or capital infusion, which could result in an impairment
of our ability to continue our business activities. We cannot predict the timing, strength or duration of any economic slowdown
or subsequent economic recovery, worldwide, Europe, United States, or in our industry. These and other economic factors could have
a material adverse effect on our financial condition and operating results.



During 2008 and 2009, worldwide economic
conditions deteriorated in many countries and regions, resulting in weak equity markets, tightening of business credit and liquidity,
a contraction of consumer credit, business failures, increased unemployment and declines in consumer confidence and spending. Despite
more positive trends beginning in the second half of 2009, the current turmoil in the sovereign debt markets as a result of the
European debt crisis from 2011 has resulted in general market uncertainty and in worsening economic conditions particularly in
Europe. If global economic and financial market conditions remain uncertain and/or weak for an extended period of time, any of
the following factors, among others, could have a material adverse effect on our financial condition and results of operations:



| | · | slower consumer spending may result in reduced demand for our products, reduced orders from customers for our products, order
cancellations, lower revenues, increased inventories, and lower gross margins;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | continued volatility in the global markets and fluctuations in exchange rates for foreign currencies and contracts in foreign
currencies could negatively impact our reported financial results and condition;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | continued volatility in the prices for commodities and raw materials we use in our products could have a material adverse effect
on our costs, gross margins, and ultimately our profitability;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | if our customers experience declining revenues, or experience difficulty obtaining financing in the capital and credit markets
to purchase our products, this could result in reduced orders for our products, order cancellations, inability of customers to
timely meet their payment obligations to us, extended payment terms, higher accounts receivable, reduced cash flows, greater expense
associated with collection efforts and increased bad debt expense;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a severe financial difficulty experienced by our customers may cause them to become insolvent or cease business operations,
which could reduce the availability of our products to consumers; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | any difficulty or inability on the part of manufacturers of our products or other participants in our supply chain in obtaining
sufficient financing to purchase raw materials or to finance general working capital needs may result in delays or non-delivery
of shipments of our products.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



RISKS RELATED TO DOING BUSINESS IN CHINA



Our operations in the PRC are subject
to the laws and regulations of the PRC and any changes in the laws or policies of the PRC may have a material impact on our operations
and financial performance.



As our processed
seafood products, marine catchand algae-based beverage products businesses are carried out in
the PRC, we are subject to and have to operate within the framework of the PRC legal system. Any changes in the laws or policies
of the PRC or the implementation thereof, for example in areas such as foreign exchange controls, tariffs, trade barriers, taxes,
export license requirements and environmental protection, may have a material impact on our operations and financial performance.



The corporate affairs of our companies
in the PRC are governed by their articles of association and the corporate and foreign investment laws and regulations of the PRC.
The principles of the PRC laws relating to matters such as the fiduciary duties of directors and other corporate governance matters
and foreign investment laws in the PRC are relatively new. Hence, the enforcement of investors or shareholders' rights under the
articles of association of a PRC company and the interpretation of the relevant laws relating to corporate governance matters remain
largely untested in the PRC.



Introduction of new laws or changes
to existing laws by the PRC government may adversely affect our business if stricter regulations are imposed on the overseas business
practices of PRC companies.



Our operations are carried out through
our wholly-owned subsidiaries which are located in the PRC. As such, the laws of the PRC govern our businesses and operations.
The PRC legal system is a codified system of written laws, regulations, circulars, administrative directives and internal guidelines.
The PRC government is still in the process of developing its legal system to encourage foreign investment and to align itself with
global practices and standards. As the PRC economy is undergoing development at a faster rate than the changes to its legal system,
some degree of uncertainty exists in connection with whether and how existing laws and regulations apply to certain events and
circumstances. Some of the laws and regulations and the interpretation, implementation and enforcement of such laws and regulations
are also at an experimental stage and are subject to policy changes. Hence, precedents on the interpretation, implementation and
enforcement of certain PRC laws are limited and court decisions in the PRC do not have binding effect on lower courts. Accordingly,
the outcome of dispute resolutions and litigation may not be as consistent or predictable as in other more developed jurisdictions
and it may be difficult to obtain swift and equitable enforcement of the laws in the PRC, or to obtain enforcement of a judgment
by a court or another jurisdiction.



36







In particular, on August 8, 2006, six PRC
regulatory bodies, including the Ministry of Commerce (MOFCOM) and the China Securities Regulatory Commission (“CSRC”),
jointly promulgated the new “Regulations on Foreign Investors Merging with or Acquiring Domestic Enterprises”, which
took effect on September 8, 2006 (“2006 M&A Rules”). The 2006 M&A Rules regulate,inter alia, the acquisition
of PRC domestic companies by foreign investors.



On September 21, 2006, the CSRC promulgated
the “Guidelines on Domestic Enterprises Indirectly Issuing or Listing and Trading their Stocks on Overseas Stock Exchanges”
(the “CSRC Guidelines”).



Under the 2006 M&A Rules and the CSRC
Guidelines, the listing of overseas special purpose vehicles (“SPV”) which are controlled by PRC entities or individuals
are subject to the prior approval of the CSRC.



The 2006 M&A Rules and the CSRC Guidelines
do not provide any express requirement for an SPV to retroactively obtain CSRC approval where the restructuring steps had been
completed prior to September 8, 2006.



Yuan Tai Law Offices, our Legal Adviser
on PRC Law, is of the opinion that (i) we have obtained all the necessary governmental approvals from PRC authorities for the restructuring
of our subsidiaries prior to September 8, 2006, (ii) we do not need to obtain CSRC approval and (iii) it is not necessary for us
to comply retroactively with the requirement of obtaining the prior approval of the CSRC for our public listing in the U.S.



There is no assurance that these PRC authorities
will not issue further directives, regulations, clarifications or implementation rules requiring us to obtain further approvals
in relation to our public listing in the U.S.



Restrictions under PRC law on our
PRC subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our ability to
grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our
business.



Substantially all of our sales are earned
by our PRC subsidiaries. However, PRC regulations restrict the ability of our PRC subsidiaries to make dividends and other payments
to their offshore parent company. PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of their
accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries
are also required under PRC laws and regulations to allocate at least 10% of their annual after-tax profits determined in accordance
with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of our registered capital. Allocations
to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances,
or cash dividends. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely
limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise
fund and conduct our business.



Furthermore, our PRC subsidiaries, which
are foreign investment entities (“FIEs”), are subject to the PRC rules and regulations on currency conversion. In the
PRC, the State Administration of Foreign Exchange (“SAFE”) regulates the conversion of the RMB into foreign currencies.
Currently, foreign investment enterprises (including wholly foreign-owned enterprises) are required to apply to the SAFE for “Foreign
Exchange Registration Certificates for FIEs”. With such registration certification (which have to be renewed annually), FIEs
are allowed to open foreign currency accounts including the “current account” and “capital account”. Currently,
transactions within the scope of the "current account" (for example, remittance of foreign currencies for payment of
dividends) can be effected without requiring the approval of the SAFE. However, conversion of currency in the “capital account”
(for example, for capital items such as direct investments, loans and securities) still requires the approval of the SAFE. Our
PRC operating subsidiary Rixiang has obtained the "Foreign Exchange Registration Certificates for FIEs", which is subject
to annual review.



There is no assurance that the PRC regulatory
authorities will not impose restrictions on the convertibility of the RMB for FIEs. In 2011 and 2010, approximately 99.9% and 99.6%
of our sales, respectively, was denominated in RMB. As such, any future restrictions on currency exchanges may limit our ability
to utilize funds generated in the PRC to fund any potential business activities outside the PRC or to distribute dividends to our
shareholders.



37







Our subsidiaries, operations and
significant assets are located outside the U.S. Shareholders may not be accorded the same rights and protection that would be accorded
under the Securities Act. In addition, it could be difficult to enforce a U.S. judgment against our Directors and officers.



Our subsidiaries, operations and assets
are mostly located in the PRC. Our subsidiaries are therefore subject to the relevant laws in the PRC. U.S. law may provide shareholders
with certain rights and protection which may not have corresponding or similar provisions under the laws of the PRC. As such, investors
in our common stock may or may not be accorded the same level of shareholder rights and protection that would be accorded under
the Securities Act. In addition, all our current executive directors are non-residents of the U.S. and the assets of these persons
are mainly located outside the U.S. As such, there may be difficulty for our shareholders to affect service of process in the U.S.,
or to enforce a judgment obtained in the U.S. against any of these persons.



We are subject to the PRC's environmental
laws and regulations and in the event stricter rules are imposed to protect the environment, we may have to incur higher costs
to comply with such rules.



Our production facilities in the PRC are
subject to environmental laws and regulations imposed by the PRC authorities,inter alia, in respect of air protection,
waste management and water protection. In the event stricter rules are imposed on air protection, waste management and water protection
by the PRC authorities, we may have to incur higher costs to comply with such rules. Accordingly, our financial performance may
be adversely affected. In addition, we require license for the discharge of pollutants for our operations, which is subject to
annual review and renewal. In the event that we fail to renew our license with the relevant authority, our operations and financial
performance will be adversely affected.



The outbreak of avian influenza and/or
other communicable diseases, if uncontrolled, could affect our financial performance and prospects.



The avian influenza virus is a virus found
chiefly in birds, but infections with these viruses can occur in humans. In January of 2004, the first case of the avian influenza
was reported in Guangxi, Hunan and Hubei provinces. Later reports also came from Anhui, Liaoning, Shanghai and Guangdong provinces.
Since 2003, there have been 37 recorded cases of the avian influenza in the PRC.



Because our operations are carried out
through our wholly-owned subsidiaries located in the PRC, the outbreak of avian influenza and/or other communicable diseases, if
uncontrolled, can have an adverse effect on business sentiments and environment. In addition, if any of our employees, our customers
or our suppliers, is affected by the outbreak of communicable diseases, it can adversely affect, among others, our operations,
our customers’ orders and our supply of raw materials. Accordingly, our sales and profitability will be materially and adversely
affected.



Changes in China’s political
or economic situation could harm us and our operating results.



Economic reforms adopted by the Chinese
government have had a positive effect on the economic development of the country, but the government could change these economic
reforms or any of the legal systems at any time. This could either benefit or damage our operations and profitability. Some of
the things that could have this effect are:



| | · | Level of government involvement in the economy;
| | - | -----------------------------------------------



| | · | Control of foreign exchange;
| | - | ----------------------------



| | · | Methods of allocating resources;
| | - | --------------------------------



| | · | Balance of payments position;
| | - | -----------------------------



| | · | International trade restrictions; and
| | - | -------------------------------------



| | · | International conflict.
| | - | -----------------------



The Chinese economy differs from the economies
of most countries belonging to the Organization for Economic Cooperation and Development, or OECD, in many ways. As a result of
these differences, we may not develop in the same way or at the same rate as might be expected if the Chinese economy were similar
to those of the OECD member countries.



38







The Chinese government exerts substantial
influence over the manner in which we must conduct our business activities. Government action in the future may require us to divest
ourselves of any interest we hold in Chinese properties.



China only recently has permitted provincial
and local economic autonomy and private economic activities. The Chinese government has exercised and continues to exercise substantial
control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to continue to operate
in China may be affected by changes in its laws and regulations, including those relating to taxation, import and export tariffs,
environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material
compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions
in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional
expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.



Accordingly, government actions in the
future including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy
or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions
in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties
or joint ventures.



Price inflation in China could affect
our results of operations if we are unable to pass along production cost price increases to our customers.



Inflation in China has recently increased
substantially. The annual inflation rate in China was reported at 4.1 percent in December 2011. These factors have led to the adoption
by the Chinese government, of various corrective measures designed to restrict the availability of credit or regulate growth and
contain inflation. Price inflation can affect our results of operations if we are unable to pass along production cost price increases
to customers. Similarly, the cost of the ongoing construction of our new facility and the installation of our equipment may
increase as a result of these recent inflationary trends, which are expected to continue in the near future. Accordingly,
inflation in China may weaken our competitiveness domestically or in international markets.



Restrictions on currency exchange
may limit our ability to receive and use our revenues effectively.



The majority of our revenues will be settled
in Renminbi, and any future restrictions on currency exchanged may limit our ability to use revenue generated in Renminbi to fund
any future business activities outside China or to make dividend or other payments in the U.S. dollars. Although the Chinese government
introduced regulations in 1996 to allow greater convertibility of the Renminbi for current account transactions, significant restrictions
still remain, including primarily the restriction that foreign-invested enterprises may only buy, sell or remit foreign currencies
after providing valid commercial documents, at those banks in China authorized to conduct foreign exchange business. In addition,
conversion of Renminbi for capital account items, including direct investment and loans, is subject to governmental approval in
China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot
be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the Renminbi.



The value of our securities will
be affected by the foreign exchange rate between U.S. dollars and Renminbi.



The value of our common stock will be affected
by the foreign exchange rate between U.S. dollars and Renminbi, and between those currencies and other currencies in which our
sales may be denominated. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operational needs
and should the Renminbi appreciate against the U.S. dollar at that time, our financial position, the business of the company, and
the price of our common stock may be harmed. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose
of declaring dividends on our common stock or for other business purposes and the U.S. dollar appreciates against the Renminbi,
the U.S. dollar equivalent of our earnings from our subsidiaries in China would be reduced.



RISKS RELATED TO THE MARKET FOR OUR
STOCK



Pengfei Liu has significant influence
over the outcome of matters submitted to Shareholders for approval.



As of December
31, 2011, Mr. Liu owns approximately 41.0% of ouroutstanding common stock. As a result, he can
exercise significant influence over all matters requiring shareholder approval, including the appointment of our directors and
the approval of significant corporate transactions.His ownership and control may also have the effect of delaying or preventing
a future change in control, impeding merger, consolidation, takeover or other business combination or discourage a potential acquirer
from making a tender offer.



Our share price may be volatile,
which can result in substantial losses for investors who purchase our common stock.



The market price of our common stock may
be highly volatile and can fluctuate significantly and rapidly in response to,inter alia, the following factors, some of
which are beyond our control:



| | · | Variations in our operating results;
| | - | ------------------------------------





39







| | · | Success or failure of our management team in implementing business and growth strategies;
| | - | -----------------------------------------------------------------------------------------



| | · | Gain or loss of an important business relationship or adverse financial performance by a significant customer or group of customers;
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | · | Changes in securities analysts’ recommendations, perceptions or estimates of our financial performance;
| | - | -------------------------------------------------------------------------------------------------------



| | · | Changes in conditions affecting the seafood packaging and processing industry, the general economic conditions or stock market
sentiments or other events or factors in the PRC;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Changes or developments in laws, regulations or taxes in the seafood processing and packaging industry in the PRC;
| | - | ------------------------------------------------------------------------------------------------------------------



| | · | The temporary or permanent loss of our seafood processing and packaging facilities due to casualty, weather or any extended
or extraordinary maintenance or inspection that may be required.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Changes in market valuations and share prices of companies with similar businesses that may be listed in the U.S. or anywhere
else in the world;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Additions or departures of key personnel;
| | - | -----------------------------------------



| | · | Fluctuations in stock market prices and volume; or
| | - | --------------------------------------------------



| | · | Involvement in litigation.
| | - | --------------------------



Additional funds raised through issue
of new shares for our future growth will dilute Shareholders’ equity interests.



Although we have identified our expansion
plans as avenues to pursue growth in our business, we may also find other opportunities to grow, including acquisitions which cannot
be predicted at this juncture. Under such circumstances, we may seek to sell additional equity or debt securities or obtain a credit
facility. If new shares placed to new and/or existing shareholders are issued in the future, they may be priced at a discount to
the then prevailing market price of our shares trading on the NYSE/AMEX or any other stock exchanges, in which case, existing shareholders'
equity interest will be diluted. If we fail to utilize the new equity to generate a commensurate increase in earnings, our earnings
per share will be diluted and this could lead to a decline in our share price. Any additional debt financing may, apart from increasing
interest expense and gearing, contain restrictive covenants with respect to dividends, future fund raising exercises and other
financial and operational matters.



Negative publicity may adversely
affect our share price.



One of our competitive strengths is our
established brand name and track record. We have been involved in the production of processed seafood products since commencing
our operations in 1994. Our “Mingxiang” brand has been conferred the “Famous Brand” award, and our products
have received several other awards such as the “Green Food” award. Please see “Description of Business - Competition”.
We have also established a track record in the processed seafood industry which instills confidence in our products and attracts
new customers from domestic and overseas markets. Negative publicity involving us, any of our directors or executive officers may
adversely affect our stock market price whether or not such negative publicity is justified.



If we become directly subject to
the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant
resources to investigate and resolve the matter which could harm our business operations, stock price and reputation and could
result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.



Recently, U.S. public companies that have
substantially all of their operations in China, particularly companies like us which have completed reverse merger transactions,
have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory
agencies, such as the United States Securities and Exchange Commission. Much of the scrutiny, criticism and negative publicity
has centered around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial
accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As
a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has
sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to
shareholder lawsuits, SEC enforcement actions and are conducting internal and external investigations into the allegations. It
is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our Company, our business and
our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or
untrue, we will have to expend significant resources to investigate such allegations and/or defend our Company.  This
situation will be costly and time consuming and distract our management from growing our Company. If such allegations are
not proven to be groundless, our Company and business operations will be severely impacted and your investment in our stock could
be rendered worthless.



40







Certain provisions of our Amended
Articles of Incorporation may make it more difficult for a third party to effect a change in control.



Our Amended Articles of Incorporation authorizes
our Board of Directors to issue up to 1,000,000 shares of preferred stock. The preferred stock may be issued in one or more series,
the terms of which may be determined at the time of issuance by our Board of Directors without further action by the stockholders.
These terms may include voting rights including the right to vote as a series on particular matters, preferences as to dividends
and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish
the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights
granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party.
The ability of our Board of Directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make
it more costly to acquire or effect a change-in-control, which in turn could prevent the stockholders from recognizing a gain in
the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.



| | ITEM 1B. | Unresolved Staff Comments
| | -------- | -------------------------



Not applicable.



| | ITEM 2. | Properties
| | ------- | ----------



LAND USE RIGHTS



There is no private ownership of land in
China and all urban land ownership is held by the government of the PRC, its agencies and collectives. Land use rights can be obtained
from the government for a period of up to 50 years for industrial usage, 40 years for commercial usage and 70 years for residential
usage, 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 fee.



On November 6, 2009, our subsidiary Mingxiang
won the auction for the purchase of the 40-year use right of a land in Shishi City, Fujian. Covering an area of 8,691.4 square
meters, the land parcel is located alongside the fishing port and near the Registrant’s processing facilities in Shishi City.
The fishing port in Shishi is one of the five largest fishing ports in the PRC. The purchase price for the land use right was RMB
15.55 million ($2.28 million).



As of December 31, 2011, we owned the following
land-use rights in Dabao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province:



|Certificate
        Reference No. |  | Location             |  | Use        |  | Date of Expiration
        of  Tenure |  | Land Area
        (square meters) |  | Encumbrance
|--------------------------------- |  | -------------------- |  | ---------- |  | ------------------------------------- |  | --------------------------------- |  | -----------
|Shi Xiang Guo Yong                |  | Dabao Industrial     |  | Industrial |  | December 31, 2052                     |  | 3,374.05                          |  | Nil        
|(2006)  No. 0005                  |  | Zone, Xiangzhi       |  |            |  |                                       |  |                                   |  |            
|                                  |  | Town, Shishi City,   |  |            |  |                                       |  |                                   |  |            
|                                  |  | Fujian Province      |  |            |  |                                       |  |                                   |  |            
|                                  |  |                      |  |            |  |                                       |  |                                   |  |            
|Shi Di Xiang Guo Yong             |  | Plot II,             |  | Industrial |  | December 31, 2052                     |  | 3,638.25                          |  | Nil        
|(2007)  No. 0004                  |  | Dabao Industrial     |  |            |  |                                       |  |                                   |  |            
|                                  |  | Zone, Xiangzhi       |  |            |  |                                       |  |                                   |  |            
|                                  |  | Town, Shishi City,   |  |            |  |                                       |  |                                   |  |            
|                                  |  | Fujian Province      |  |            |  |                                       |  |                                   |  |            
|                                  |  |                      |  |            |  |                                       |  |                                   |  |            
|Shi Di Xiang Guo Yong             |  | Plot III,            |  | Industrial |  | December 31, 2052                     |  | 3,955.84                          |  | Nil        
|(2007)  No. 0003                  |  | Dabao Industrial     |  |            |  |                                       |  |                                   |  |            
|                                  |  | Zone, Xiangzhi       |  |            |  |                                       |  |                                   |  |            
|                                  |  | Town, Shishi City,   |  |            |  |                                       |  |                                   |  |            
|                                  |  | Fujian Province      |  |            |  |                                       |  |                                   |  |            
|                                  |  |                      |  |            |  |                                       |  |                                   |  |            
|Shi Di Xiang Guo Yong             |  | Dabao Industrial     |  | Industrial |  | December 31, 2052                     |  | 6,721.40                          |  | Nil        
|(2007)  No. 0002                  |  | Zone, Xiangzhi       |  |            |  |                                       |  |                                   |  |            
|                                  |  | Town, Shishi City,   |  |            |  |                                       |  |                                   |  |            
|                                  |  | Fujian Province      |  |            |  |                                       |  |                                   |  |            
|                                  |  |                      |  |            |  |                                       |  |                                   |  |            
|Shi Di Xiang Guo Yong             |  | Central Fishing Port |  | Commercial |  | January 6, 2050                       |  | 8,691.40                          |  | Nil        
|(2010)  No. 0005                  |  | Xiangzhi Town,       |  |            |  |                                       |  |                                   |  |            
|                                  |  | Shishi City,         |  |            |  |                                       |  |                                   |  |            
|                                  |  | Fujian Province      |  |            |  |                                       |  |                                   |  |            



41







BUILDINGS



As at December 31, 2011, we owned the following
building ownership rights in Dabao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province:



|Reference No.                                                                   |  | Location                                                                                                                                     |  | Use                                                       |  | Date of
        Expiry
        of Tenure |  | Land/Floor Area
        (square meters) |  | Encumbrance
|------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------- |  | ---------------------------------------- |  | --------------------------------------- |  | -----------
|Shi Jian Fang
        Quan Zheng
        Xiang Zhi Zi
        No. 00109         |  | Block A at Plot II
        Dabao Industrial
        Zone, Xiangzhi Town,
        Shishi City,                                                |  | Production and
        packaging
        facilities       |  | June 5, 2051                             |  | 705.60/1,489.60                         |  | Nil        
|                                                                                |  | Fujian Province                                                                                                                              |  |                                                           |  |                                          |  |                                         |  |            
|                                                                                |  |                                                                                                                                              |  |                                                           |  |                                          |  |                                         |  |            
|Shi Jian Fang
        Quan Zheng
        Xiang Zhi Zi
        No. 00110         |  | Block B at Plot II
        Dabao Industrial
        Zone, Xiangzhi Town,
        Shishi City,                                                |  | Boiler facilities                                         |  | June 5, 2051                             |  | 145.38/145.38                           |  | Nil        
|                                                                                |  | Fujian Province                                                                                                                              |  |                                                           |  |                                          |  |                                         |  |            
|                                                                                |  |                                                                                                                                              |  |                                                           |  |                                          |  |                                         |  |            
|Shi Jian Fang
        Quan Zheng
        Xiang Zhi Zi
        No. 00111         |  | Block C at Plot II
        Dabao Industrial
        Zone, Xiangzhi Town,
        Shishi City,
        Fujian Province                        |  | Production and
        cutting/slicing
        facilities |  | June 5, 2051                             |  | 934.46/1,991.29                         |  | Nil        
|                                                                                |  |                                                                                                                                              |  |                                                           |  |                                          |  |                                         |  |            
|Shi Jian Fang
        Quan Zheng
        Xiang Zhi Zi
        No. 00112         |  | Cold storage facility at
        Plot III
        Dabao Industrial
        Zone, Xiangzhi Town,
        Shishi City,
        Fujian Province |  | Cold Storage                                              |  | June 5, 2051                             |  | 1,224.84/1,214.16                       |  | Nil        
|                                                                                |  |                                                                                                                                              |  |                                                           |  |                                          |  |                                         |  |            
|Shi Jian Fang
        Quan Zheng
        Xiang Zhi Zi
        No. 00114         |  | Block A at
        Daobao Industrial
        Zone, Xiangzhi Town,
        Shishi City, Fujian
        Province                               |  | Staff dormitory                                           |  | June 5, 2051                             |  | 1,561.17/3,413.79                       |  | Nil        
|                                                                                |  |                                                                                                                                              |  |                                                           |  |                                          |  |                                         |  |            
|Shi Jian Fang
        Quan Zheng
        Xiang Zhi Zi
        No. 00115         |  | Block B at
        Daobao Industrial
        Zone, Xiangzhi Town,
        Shishi City, Fujian
        Province                               |  | Office                                                    |  | September 28, 2052                       |  | 942.19/3,268.41                         |  | Nil        
|                                                                                |  |                                                                                                                                              |  |                                                           |  |                                          |  |                                         |  |            
|Issuance of Property Ownership
        Certificate is now
        under process |  | Additional floor of
        Block A at
        Daobao Industrial
        Zone, Xiangzhi Town,
        Shishi City, Fujian
        Province   |  | Staff dormitory                                           |  | June 5, 2051                             |  | 1,561.17/About 1,670.00                 |  | Nil        



42







| | ITEM 3. | Legal Proceedings
| | ------- | -----------------



From time to time, we may become involved
in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently
not aware of any pending legal proceedings which involve us or any of our properties or subsidiaries.



| | ITEM 4 | Mine Safety Disclosure
| | ------ | ----------------------



Not applicable.





PART II.



ITEM 5.             Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities



MARKET INFORMATION



Our common stock is currently quoted on NYSE AMEX and, prior
to August 14, 2009, was quoted on OTC Bulletin Board, under the trading symbol CMFO. The CUSIP number is 16943R 106. The following
table shows the high and low prices of our common shares on the NYSE AMEX and OTC Bulletin Board for each quarter within the last
three fiscal years.



|                             |  | High ($) |      |  | Low ($) | 
|---------------------------- |  | -------- | ---- |  | ------- | 
|Year Ended December 31, 2011 |  |          |      |  |         | 
|First Quarter                |  |          | 5.21 |  |         | 
|Second Quarter               |  |          | 4.10 |  |         | 
|Third Quarter                |  |          | 3.55 |  |         | 
|Fourth Quarter               |  |          | 1.85 |  |         | 
|                             |  |          |      |  |         | 
|Year Ended December 31, 2010 |  |          |      |  |         | 
|First Quarter                |  |          | 8.63 |  |         | 
|Second Quarter               |  |          | 6.94 |  |         | 
|Third Quarter                |  |          | 6.53 |  |         | 
|Fourth Quarter               |  |          | 7.15 |  |         | 



The above quotations for our common stock reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.



HOLDERS



As of March 26, 2012, there were 37 holders
of record of our common stock.



RECENT SALES OF UNREGISTERED SECURITIES



On April 1, 2011, the Company granted compensatory
stock awards totaling 700,000 common shares to certain of its officers, directors and employees. These stock awards vested
in full on the date of the grant but are subject to forfeiture in full if the grantee ceases to be employed by the Company for
any reason within one year from the date of the grant, pursuant to stock award agreements between the Company and grantees dated
April 1, 2011. Based on the closing stock price of the grant date, the fair value of these stock awards are estimated to be approximately
$2.7 million, which will be recognized as compensation expense, using the straight-line method, over the service period of one
year from April 1, 2011 to March 31, 2012.



On February 15, 2011, the Company entered
into an Investor Relations Consulting Agreement with Hayden Communications International, Inc (“HCI”) to provide consulting
services for the Company. In connection with such service, the Company agreed to issue 20,000 shares of restricted common stock
to HCI. The shares of common stock were valued at $51,800 or $2.59 per share and issued on July 14, 2011.



DIVIDENDS



During the year ended December 31, 2010,
the Company’s subsidiary, Xianghe, declared final dividend of $1,313,080 (equivalent to RMB 8,901,106) relating to the pre-acquisition
result for the fiscal year 2009 to Mr. Qiu and was fully paid in April 2010.



43







Other than the cash dividend describe above,
we have never paid or declared dividends. However, holders of our common stock are entitled to dividends if declared by our Board
of Directors out of funds legally available. We do not, however, anticipate the declaration or payment of any dividends in the
foreseeable future. We intend to retain earnings, if any, to finance the development and expansion of our business. Future dividend
policy will be subject to the discretion of our Board of Directors and will be contingent upon future earnings, if any, our financial
condition, capital requirements, general business conditions and other factors. Therefore, there can be no assurance that any dividends
of any kind will ever be paid.



| | ITEM 6. | Selected Financial Data
| | ------- | -----------------------



Not Applicable



| | ITEM 7. | Management's Discussion and Analysis of Financial Condition
and Results of Operation
| | ------- | ------------------------------------------------------------------------------------



Forward Looking Statements



You should read the following discussion
and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and
the related notes included elsewhere in this document. The following discussion contains forward-looking statements. China Marine
Food Group Limited is referred to herein as “we”, “us”, “our”, or the “Company.”



The words or phrases “would be,”
“will allow,” “expect to”, “intends to,” “will likely result,” “are expected
to,” “will continue,” “is anticipated,” “estimate,” or similar expressions are intended
to identify forward-looking statements. Such statements include, among others, those statements concerning our expected financial
performance, our corporate strategy and operational plans. Actual results could differ materially from those projected in the forward-looking
statements as a result of a number of risks and uncertainties, including, among others: (a) those risks and uncertainties related
to general economic conditions in China, including regulatory factors that may affect such economic conditions; (b) whether we
are able to manage our planned growth efficiently and operate profitable operations, including whether our management will be able
to identify, hire, train, retain, motivate and manage required personnel or that management will be able to successfully manage
and exploit existing and potential market opportunities; (c) whether we are able to generate sufficient revenues or obtain financing
to sustain and grow our operations; and (d) whether we are able to successfully fulfill our primary requirements for cash which
are explained below under “Liquidity and Capital Resources”. Unless otherwise required by applicable law, we do not
undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments,
unanticipated events or any other circumstances after the date of such statement unless required by law. For additional information
regarding these risks and uncertainties, see “Risk Factors”. Our consolidated financial statements have been prepared
in accordance with U.S. GAAP.



OVERVIEW



We are a holding company whose primary
business operations are conducted through our direct, wholly owned subsidiary, Ocean Technology (China) Company Limited (“Ocean
Technology”), and its subsidiaries, Shishi RixiangMarine Foods Co., Ltd. (“Rixiang”)
and Shishi Huabao Mingxiang Foods Co., Ltd. (“Mingxiang”), Shishi Huabao Jixiang Water Products Co., Ltd. (“Jixiang”),
and Shishi Xianglin Trading Co., Ltd. (“Xianglin”), which are incorporated in the PRC. We engage in the business of
processing, distribution and sale of processed seafood products and algae-based beverage products, as well as the trading of marine
catch. Our objective is to establish ourselves as a leading producer of processed seafood products and algae-based beverage products
in the PRC and overseas markets.



Reverse acquisition and private placement



On November 17, 2007, we completed a reverse
acquisition transaction with Ocean Technology through a share exchange with Ocean Technology’s former stockholders.



Pursuant
to the Share Exchange Agreement, the former shareholders of Ocean Technology exchanged
100% of their outstanding capital stock
in Ocean Technology for approximately 15,624,034 shares of our common stock, or
approximately93.15% of our outstandingshares ofcommon stock after the share exchange.



Concurrently with the closing of the reverse
acquisition on November 17, 2007, we completed a private placement of
our securities to certain accredited investors who subscribed for an aggregate
of6,199,441 shares of our common stock and warrants to purchase an aggregate of1,239,888 shares of ourcommon stock at
$3.214 per unit, each unit consisting of one share of common stock and a warrant to purchase
one-fifth of one share of our common stock.Each warrant issued to the investors
had a term of three years and all unexercised warrants expired in November 2010.



44







Sales



We are a seafood producer engaged in the
processing, distribution and sale of seafood products and algae-based beverage products, as well as the trading of marine catch.
In 2010, we became a manufacturer of algae-based soft drinks through our acquisition of an 80% interest in Xianghe, which is also
an operating subsidiary of Ocean Technology.



All rental income, which is relatively
immaterial compared to our principal revenues from sale of processed seafood products, beverage products and trading of marine
catch, is recognized as "Other Income" in our financial statements. In particular, Mingxiang and Jixiang are responsible
for the rental income related to the collection on the 31 and 6 shop spaces, respectively, at our factory in Dabao Industrial Zone.
The rental contracts are based on a one-year lease term.



Our dried processed seafood products include
dried prawns, dried squids, dried file fish, roasted prawns, shredded roasted squids, roasted squids, roasted file fish and other
seafood items. The raw materials for our processed seafood products are solely purchased from independent fishermen in nearby markets
for further processing. Our dried processed seafood is predominantly sold under our registered trademark, the “Mingxiang”
brand name. Our brand name has been awarded the “Fujian Famous Brand” award by the Fujian Commerce Authority. Our dried
processed seafood products are mainly sold to distributors in Fujian and Zhejiang provinces, as well other nearby provinces, who
in turn distribute them to major supermarkets and retailers throughout these provinces.



For marine catch, we buy the marine catch
from the suppliers and then sell to either trading companies or distributors on a direct basis as opportunistic purchases and sales
according to the seasonality of respective seafood species. The marine catch is predominantly sold to distributors in Liaoning,
Fujian and Shandong provinces, and overseas customers in the Philippines and Indonesia.



Our branded “Hi-Power” was
developed by the Yellow Sea Fisheries Research Institute at Chinese Academy of Fishery Sciences in coordination with the founder,
Qiu. Hi-Power is marketed as a high-protein content drink, low in calories and fat, which provides the consumers a combination
of immune system benefits, improved digestion and reductions in hyperglycemia and hypertension. Hi-Power’s target market
focuses on health-conscious consumers in China’s fast-growing beverage market. Xianghe has a network of distributors in Fujian
and Zhejiang which sell Hi-Power to retail food stores, restaurants, food supply dealers and the hospitality industry.



Sales of our processed seafood products
accounted for approximately 41.0% and 57.4%of our total sales in 2011 and 2010, respectively. Trading of our marine catch accounted
for approximately 38.4% and 21.4%of our total sales in 2011 and 2010, respectively. Sales of our algae-based beverage products
accounted for approximately 20.6% and 21.2% of our total sales in 2011 and 2010, respectively. We expect the sales of our algae-based
beverage products will remain strong in the coming years given our continuous expansion into untapped areas and contribution over
the related sales and marketing campaigns since our acquisition at the beginning of 2010.



A detailed breakdown of our sales by major
geographical markets is set out in the section “Results of Operations” herein.



Factors that can affect our sales are as
follows:



| | · | The level of sales is dependent on the supply of raw materials on a timely basis. Raw material
costs accounted for approximately 72.9% and 75.4% of our total cost of revenue of processed seafood products in year 2011 and 2010,
respectively. The availability of these raw materials could be affected by a large number of factors, including, inter alia,
the availability of fish stock, weather conditions, water contamination, government policies and regulations where such fishing
is carried out, the stability of supplies from fishermen and pressure from environmental or animal rights groups.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Specifically, fishing activities in waters around the PRC are restricted in June and July each
year to ensure sustainable aquatic resources. As such, some of our suppliers such as fishermen are restricted from fishing during
this period due to the restrictions against fishing along the Taiwan Strait imposed by the PRC’s Ministry of Agriculture.
There is no assurance that the PRC government may not impose more stringent fishing regulations, including but not limited to longer
or more frequent periods that restrict fishing.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Any shortage or contamination in the supply of or increase in the prices of the raw materials for
our processed seafood and algae-based beverage products will adversely affect our sales and profit margins.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



45







| | · | In March2011, the northern region of Japan experienced a severe
earthquake followed by a tsunami. The earthquake and tsunami caused extensive and severe structural damage in Japan, including
heavy damage to roads and railways as well as fires in many areas, and a dam collapse and damage to several nuclear reactors. Although
to date the damage caused by the earthquake and tsunami have not damaged our access to raw materials, there can be no assurance
that such access may not be affected. Even thoughgovernment officials and health experts in
Japan and China stated the doses of nuclear radiation leaks are low and not a threat to human health unless the tainted products
are consumed inabnormally excessive quantities, concern of
seafood contamination adversely affected our sales of seafood and algae-based beverage products as a result of consumers’
perception of food safety in relation to the nuclearradiation leaksin Japan.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In May 2011, inspectors of the government of Taiwan detected dangerous levels of industrial plasticizers
in sports drinks and soft drinks, used to substitute for palm oil as clouding agents in drinks, with levels far in excess of the
daily allowed intake. One plasticizer, known as DEHP, is a possible carcinogen, and thought capable of wreaking havoc with children’s
reproductive organs. Since then, the plasticizers have been found in a range of foods and drinks. China, Hong Kong, South Korea
and the Philippines have recalled beverage bottles suspected of contamination imported from Taiwan. The beverage products sector
in the East Asia region was adversely affected by the food scandal, and new legislation with higher food safety standard of beverage
products may be implemented in the PRC. The DEHP crisis may affect our beverage products business as a result of any failure to
comply with the new standard or adverse changes in the beverage products sector.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our ability to maintain existing accreditations such as HACCP, ISO9001:2000, ISO14001:2004 and
the EU Export Certification accreditations will affect our ability to maintain our presence in our existing market and to expand
into new market territories.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our ability to price our products competitively against existing competitors and new market entrants
by achieving economies of scale.
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | · | Our ability to build on our established track record and reputation as a supplier of high quality
processed seafood products and capability to deliver products in a timely manner.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our ability to maintain existing business relationships and to secure new customers, which may
be affected by the general economic or political conditions in our local and overseas markets.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our ability to introduce new products to capture a wider group of consumers and to cater to different
and changing consumers’ preferences.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our purchase of the beverage business involves the risk of entering into a new business.
| | - | ----------------------------------------------------------------------------------------



| | · | Our ability to respond successfully to changes in the highly competitive beverage marketplace domestically
and internationally.
| | - | -------------------------------------------------------------------------------------------------------------------------------



Please refer to the section “Risk
Factors” herein for further information on other factors that may affect our revenue.



Production facilities and employees





Our production facilities are located at
Dabao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province, in the PRC. We have four production lines for the processing
of dried processed seafood products: roasted file fish, roasted prawns, shredded roasted squid and roasted squids, and one production
line for the processing of frozen seafood products.



As at December
31, 2011, we employed 848 employees.



Seasonality



We do not experience any significant seasonality
in relation to sales for our processed seafood and algae-based beverage products. However, sales for our processed seafood products
are usually higher before and during the Chinese New Year and lower during summer time. Sales for our algae-based beverage products
are expected to be higher before and during the Chinese New Year and during summer time.



46







NEW BUSINESS DEVELOPMENT



Development of cold storage facilities



On November
6, 2009, we won the auction for the purchase of the 40-year use right of a land in Shishi City, Fujian. In September 2010, we entered
into an agreement with a third party contractor and began to build cold storage facilities on the land with a capacity of approximately
20,000 tons, to take advantage of its proximity to the port where we obtain fresh marine catch to be processed into seafood products.
We are financing the total estimated $26.5 million in land use rights and construction costs from funds generated by operations.
The facilities are expected to be operational in the first half of 2012. We have paid approximately $22.9 million in relation to
the construction costs as at December 31, 2011 and the total estimated construction costsare approximately $24.2 million.



We intend to provide high standard, modernized
cold storage, freezing and ice making services to the port area through the exclusive cold storage facilities. We may utilize certain
cold storage spaces on our own going forward which will not only help to reduce storage costs but also expect to improve margins
for our current seafood segments as a result of bulk purchases at favorable prices.



RESULTS OF OPERATIONS



We derive our sales from the sales of processed
seafood products, marine catch and algae-based beverage products, the breakdown of our sales and gross profit by product, as well
as by geographical location of our customers for the years ended December 31, 2011 and 2010 are set out below:



Breakdown of our past performance by principal products and
geographical region



Sales by product



|                              |  | Year Ended December 31, |        
|----------------------------- |  | ----------------------- | -------
|                              |  | 2011                    |        
|                              |  | US$’000                 |        
|                              |  |                         |        
|Processed seafood products    |  |                         | 58,967 
|Marine catch                  |  |                         | 55,304 
|Algae-based beverage products |  |                         | 29,677 
|Total                         |  |                         | 143,948



Sales by geographical region



|                    |  | Year Ended December 31, 2011 |       
|------------------- |  | ---------------------------- | ------
|                    |  |                              |       
|                    |  | Processed seafood products   |       
|                    |  | US$’000                      |       
|PRC                 |  |                              |       
|Shandong            |  |                              | 5,223 
|Zhejiang            |  |                              | 24,699
|Fujian              |  |                              | 25,085
|Guangdong/ Shenzhen |  |                              | 2,866 
|Jiangsu/ Shanghai   |  |                              | 1,090 
|Sichuan/ Chongqing  |  |                              | -     
|Others (1)          |  |                              | 4     
|Total PRC (2)       |  |                              | 58,967
|Asia (3)            |  |                              | -     
|Total               |  |                              | 58,967



47







|                    |  | Year Ended December 31, 2010 |       
|------------------- |  | ---------------------------- | ------
|                    |  | Processed seafood products   |       
|                    |  | US$’000                      |       
|PRC                 |  |                              |       
|Shandong            |  |                              | 6,040 
|Zhejiang            |  |                              | 30,870
|Fujian              |  |                              | 23,372
|Guangdong/ Shenzhen |  |                              | 4,478 
|Jiangsu/ Shanghai   |  |                              | 3,939 
|Sichuan/ Chongqing  |  |                              | 1,761 
|Others (1)          |  |                              | 7     
|Total PRC (2)       |  |                              | 70,467
|Asia (3)            |  |                              | -     
|Total               |  |                              | 70,467



| | (1) | Sales to PRC Others mainly relate to the trading of marine catch transacted in Liaoning province.
| | --- | -------------------------------------------------------------------------------------------------

| | (2) | Sales to PRC include sales to local PRC distributors who in turn sell our products to Taiwan and
South Korea. Such sales amounted to $0.01 million and $0.4 million in year 2011 and 2010, respectively.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Sales to Asia mainly relate to exports
to the Philippines andIndonesia.
| | --- | -----------------------------------------------------------------------



Year 2011 compared to Year 2010



Sales



Our revenue increased by approximately
$21.2 million or 17.3% from $122.7 million in 2010 to $143.9 million in 2011. The increase in revenue was mainly due to the increase
in sales of marine catch and the newly acquired algae-based beverage business, partially offset by the decrease in sales of our
processed seafood products. Sales of our processed seafood products decreased by $11.5 million or 16.3% year over year to $59.0
million, whereas sales of algae-based beverage products increased by $3.7 million or 14.1% to $29.7 million. Sales of our marine
catch segment increased by $29.1 million or 111.1% for the same periods under review.



The processed seafood products operations
continued to grow significantly in the first quarter of 2011 as our products continue to gain market acceptance, particularly in
Fujian and Zhejiang provinces. As a result of consumers’ perception of food safety in relation to the nuclear radiation leaks
in Japan which occurred in March 2011, sales of processed seafood products have been significantly affected since the second quarter
of 2011. However, we believe that our sales have stabilized by the end of third quarter in 2011. While we are confident that the
seafood we use to produce our processed seafood products are safe, it is unclear how long it will take for consumer confidence
in seafood products to normalize.



This is the second year to recognize sales
of our algae-based beverage products since the acquisition on January 1, 2010. In 2010, our distribution network for the beverage
segment was solely Fujian province. After gaining experience in Fujian in the prior year, we expanded our distribution into Zhejiang
province in the second quarter of 2011. The growth from Zhejiang was offset due to the public concern over the plasticizer contamination
in the beverage industry in the second half of 2011, as well as the lower-than-expected temperature in the southern regions during
the summer time. However, given our continuous contribution to the related sales and marketing campaigns and our expansion plan
into more untapped areas, we expect the sales of our beverage segment to remain strong in the coming years. Accordingly, the number
of sales staff has increased significantly since January 1, 2010 from 23 to a staff of 134, as of December 31, 2011.



Trading of marine catch is deemed as opportunistic
purchases and sales of frozen seafood materials and therefore the sales volume fluctuates significantly from period to period.
We intend to buy marine catch in blocks from suppliers when their supplies are high and sell the stocks to customers when market
prices go up. Usually the inventory cycle will be less than a year. Though the profit margin from the trading segment is relatively
lower compared to that of both processed seafood and algae-based beverage products, the trading segment is a good source of revenue
and profit given our expertise in the seafood industry and surplus cash in hand.



Cost of revenue



Our cost of revenue comprises the cost
of our processed seafood and algae-based beverage products operations, as well as the cost of our marine catch. The breakdown is
as follows:



48







|                              |  | Year Ended December 31, |        
|----------------------------- |  | ----------------------- | -------
|US$ ’000                      |  | 2011                    |        
|                              |  |                         |        
|Processed seafood products    |  |                         | 41,412 
|Marine catch                  |  |                         | 53,058 
|Algae-based beverage products |  |                         | 17,754 
|Total                         |  |                         | 112,224



Cost of revenue – Processed
seafood products



Our cost of revenue comprises mainly raw materials, packaging
materials, direct labour and manufacturing overhead. The following table sets out details of our cost of revenue:



|                       |  | Year Ended December 31, |       
|---------------------- |  | ----------------------- | ------
|                       |  | 2011                    |       
|                       |  | US$’000                 |       
|                       |  |                         |       
|Raw materials          |  |                         | 30,181
|Packaging materials    |  |                         | 4,977 
|Direct labor           |  |                         | 2,928 
|Manufacturing overhead |  |                         | 3,326 
|Total                  |  |                         | 41,412



Raw materials



Raw materials comprise mainly seafood such
as fish, prawns and squids. We use seafood which are fished from the open sea and not bred through aquaculture. The costs of these
raw materials are dependent on the prevailing market prices. There is a stable and abundant supply from the existing market. We
are located close to the Xiangzhi (Shishi) fishing port, which is one of the largest fishing ports in Fujian province, and one
of the state-level fishing port centres in the PRC.



We believe our strategic location allows
us to have up-to-date information on the market price of our raw materials and this has allowed us to purchase our raw materials
at the best available price. Our proximity to our suppliers has also allowed us to have fresh supplies of raw materials and this
has enabled us to ensure freshness and quality in our finished products. The proximity has also enabled us to reduce raw material
transportation costs and lead-time to obtain our supplies.



Since the nuclear disaster in Japan earlier
this year, there was an upward pressure on the prices of our raw materials, including small-sized seafood materials, as a result
of fiercer competition with the breeding farms where the small-sized seafood materials are used as feeds.



Raw material costs accounted for approximately
72.9% and 75.4% of our cost of revenue in year 2011 and 2010, respectively. The decrease was primarily because the percentage of
increase in direct labor costs and manufacturing overhead was higher than that in raw material costs for the periods under review.



The decrease in raw material costs for
the periods under review was mainly due to our decreased production and sales of processed seafood products, whereas direct labor
and manufacturing overhead are relatively considered as invariable cost factors comparing to raw materials and packaging materials.



The percentage of raw materials cost as
a proportion of the total cost of revenue is affected by the product mix of the relevant financial year and the market price of
the raw materials. We mitigate the fluctuation in market prices of raw materials by bulk purchasing and stock management. We are
able to stock up our raw materials when prices are lower, as we have our own cold storage facility and we can also utilize other
nearby facilities for storage when needs arise. This will ensure a steady supply of raw materials for the processing of seafood
products throughout the year.



49







Packaging materials



Packaging materials accounted for approximately
12.0% and 12.9% of our cost of revenue in year 2011 and 2010, respectively. The decrease was primarily because the percentage of
increase in direct labor costs and manufacturing overhead was higher than that in packaging costs for the periods under review.
The decrease in packaging material costs for the periods under review was mainly due to the decreased production and sales of processed
seafood products.



Direct labor



Direct labor
costs accounted for approximately 7.1% and 5.2% of our cost of revenue for the year ended 2011 and 2010, respectively. Direct labor
includes mainly salaries and wages paid to employees who are involved in the production process. Direct labor costs are dependent
on factors such as production volume, number of employees, wage rate and applicable government regulations (including minimum wage
requirements, statutory welfare and insurance fund contributions). The fluctuation in direct labor costs as a percentage of costs
of sales is dependent on the degree of processing required for theend products. The increase in our production scale over
the past few years has enabled us to enjoy economies of scale and higher productivity through job specialization
and training.



The total headcount for the processed seafood
segment as at December 31, 2011 has decreased to 582 from 682 as at the end of 2010. The increase in direct labor costs for the
year ended 2011 was mainly due to the increased wage rates since April 2011 to cope with the market standard.



Manufacturing overhead



Manufacturing overhead comprises depreciation,
water, electricity and other fuel costs which are used directly in the production of finished goods. The increase in manufacturing
overhead for the years under review was mainly due to the increased costs from the expansion of production facilities along the
years for increased production



Cost of revenue - Marine catch



|               |  | Year Ended December 31, |       
|-------------- |  | ----------------------- | ------
|               |  | 2011                    |       
|               |  | US$’000                 |       
|               |  |                         |       
|Raw materials  |  |                         | 52,785
|Other expenses |  |                         | 273   
|Total          |  |                         | 53,058



Raw materials



We buy the marine
catch from the suppliers and then sell to the customers on a direct basis. The marine catch is predominantly sold to distributors
in Liaoning, Fujian and Shandong provinces, and overseas customers in the Philippines and Indonesia. The
cost of the raw material is based on the market price at the time of purchase. The increase in raw material costs for the years
ended are in line with the increased revenue from sales of marine catch.



Other expenses



Other expenses mainly relate to the costs
of packaging materials and ice required to keep the marine catch fresh.



Cost of revenue - Algae-based beverage
products



Our cost of revenue comprises mainly raw
materials, packaging materials and manufacturing overhead. The following table sets out details of our cost of revenue:



|                       |  | Year Ended December 31, |       
|---------------------- |  | ----------------------- | ------
|                       |  | 2011                    |       
|                       |  | US$’000                 |       
|                       |  |                         |       
|Raw materials          |  |                         | 2,517 
|Packaging materials    |  |                         | 12,134
|Manufacturing overhead |  |                         | 3,103 
|Total                  |  |                         | 17,754



50







Raw materials



Raw materials comprise mainly the algae
extracts and other beverage ingredients such as herbal powder and sugar. The costs of these raw materials are dependent on the
prevailing market prices, which are relatively stable as there is a stable and abundant supply from the existing market.



Raw material costs accounted for approximately
14.2% and 16.8% of our cost of revenue in year 2011 and 2010, respectively. The percentage of raw materials cost as a proportion
of the total cost of revenue is affected by changes in ingredient mix from time to time and the market price of the raw materials.



Packaging materials



Packaging materials comprise iron and aluminium
foils, which are used to produce the cans, and paper boxes. The costs of these raw materials are dependent on the prevailing market
prices with a stable and abundant supply from the existing market.



Packaging materials accounted for approximately
68.3% and 66.3% of our cost of revenue in year 2011 and 2010, respectively. The increase in the percentage of packaging materials
cost as a proportion of the total cost of revenue during the years was mainly due to the increased packaging materials cost.



Manufacturing overhead



We utilize two third party manufacturers
to produce our algae-based beverage products. Manufacturing costs are charged based on the production volume. We are going to use
a number of manufacturers going forward so as to mitigate the concentration risks. The increase in the percentage of manufacturing
overhead as a proportion of the total cost of revenue during the years was mainly due to the increased manufacturing costs.



Gross profit by product



|                              |  | Year Ended December 31, |       
|----------------------------- |  | ----------------------- | ------
|                              |  | 2011                    |       
|                              |  | US$’000                 |       
|                              |  |                         |       
|Processed seafood products    |  |                         | 17,555
|Marine catch                  |  |                         | 2,246 
|Algae-based beverage products |  |                         | 11,923
|Total                         |  |                         | 31,724



Gross profit margin by profit



|                              |  | Year Ended December 31, |     
|----------------------------- |  | ----------------------- | ----
|                              |  | 2011                    |     
|                              |  | %                       |     
|                              |  |                         |     
|Processed seafood products    |  |                         | 29.8
|Marine catch                  |  |                         | 4.1 
|Algae-based beverage products |  |                         | 40.2
|Total                         |  |                         | 22.0



Gross profit



Gross profit dropped by 15.3% or $5.7 million,
from $37.4 million in 2010 to $31.7 million in 2011. Overall gross profit margin dropped by 8.5% from 30.5% in 2010 to 22.0% in
2011. Gross profit margin for the processed seafood products operations decreased from 34.5% in 2010 to 29.8% this year which was
mainly due to the decreased scale of production and the increased costs of raw materials, packaging materials, direct labor and
manufacturing overhead. Gross profit margin for the marine catch segment dropped from 9.4% in 2010 to 4.1% this year. Marine catch
sales are deemed as opportunistic trading of frozen seafood in blocks and therefore the corresponding profit margin is dependent
on the prevailing market conditions which could be fluctuated significantly from time to time. Gross profit margin for the algae-based
beverage segment decreased from 41.0% to 40.2% for the same years under review mainly due to the increased costs of packaging materials
and manufacturing overhead.



51







Depreciation and amortization



Depreciation and amortization accounted
for approximately 1.9% and 2.1% of our total revenue in year 2011 and 2010, respectively. Depreciation and amortization was mainly
related to the amortization of intangible assets associated with the acquisition of the beverage business declared effective at
the beginning of 2010. The algae-based beverage know-how is amortized over its estimated useful life of 10 years, on a straight-line
basis, at a yearly amortization charge of approximately $2.5 million.



Sales and marketing expenses



Our sales and marketing expenses comprise
mainly salaries of sales and marketing staff, investor relations fees, advertising and promotional costs.



Our sales and marketing expenses accounted
for approximately 9.8% and 5.2% of our total revenue in year 2011 and 2010, respectively. The increase in the sales and marketing
expenses in 2011 was mainly due to the increase of advertising and promotional costs so as to strengthen brand position and improve
market awareness in both existing and new markets and cope with the marketing strategies associated with the newly acquired beverage
products. Accordingly, the number of sales staff has increased from 47 in 2010 to 173 as at December 31, 2011, of which 134 were
related to the beverage products segment.



General and administrative expenses



Our general and administrative expenses
comprise mainly salaries and staff benefits for employees, legal and professional fees, research and development costs, traveling
and entertainment expenses.



Our general and administrative expenses
accounted for approximately 1.8% and 2.6% of our total revenue in year 2011 and 2010, respectively. The decrease in the general
and administrative expenses from 2010 to 2011 was mainly attributable by the lower R&D costs due to the softness of seafood
demand and the reduced discretionary bonus for the executive directors for the year of 2011.



Stock-based compensation



On April 1, 2011, the Company granted compensatory
stock awards totaling 700,000 common shares to certain of its officers, directors and employees.  Based on the closing
stock price of the grant date, the fair value of these stock awards are estimated to be approximately $2.7 million, which is recognized
as compensation expense, using the straight-line method, over the service period of one year from April 1, 2011 to March 31, 2012.



Other income



Other income relates mainly to rental income,
government subsidies and interest income.



Rental income
relates to the collection of rent on the 37 shop spaces at our factory in Dabao Industrial Zone. The rental contracts are based
on a one year lease term. The government subsidies mainly relates to grants byShishi City Municipal People's Government
for the achievement of Key Leading Enterprise of Agricultural Industrialization in 2011. Interest income
is earned from cash balances with banks as a result of operational cash inflow and registered direct offering of common stock which
took place in January 2010.



Interest expense



Our interest expense relates to interest
costs incurred on the various short-term bank borrowings taken by us for working capital requirements. Our interest expense accounted
for approximately 0.01% and 0.03% of our total revenue in year 2011 and 2010, respectively. In the fourth quarter of 2011, a short-term
loan of $2.5 million was drawn down for working capital needs and to maintain the effectiveness of the facility line with the bank.



Income before income tax



Our income before income tax decreased
by $15.0 million or 58.5%, from $25.6 million in 2010 to $10.6 million in 2011. The decrease was mainly due to the combination
of the decrease in sales of 17.3% for the processed seafood segment, the decrease in corresponding gross profit margin by 4.7%,
and the increase in the sales and marketing expenses and the stock-based compensation costs, which was partially offset by the
increase in sales of 14.1% for the algae-based beverage segment and the lower general and administrative expenses, as a result
of the factors described above.



52







Income tax expense



Our profit is subject to the prevailing
tax rate applicable to the respective jurisdictions in which we operate.



Rixiang, Jixiang, Mingxiang, Xianghe and
Xianglin are subject to the Corporate Income Tax governed by the Income Tax Law of the People’s Republic of China, at a unified
income tax rate of 25%.



In 2009, Mingxiang received a notice of
recognition as an enterprise of new and high technology in 2009, which was jointly issued by The Science and Technology Department
of Fujian, The Finance Department of Fujian, The State Tax Bureau of Fujian and The Local Taxation Bureau of Fujian for the Company
engaged in advanced food processing technologies for the Fujian province. As a new and high technology company, Mingxiang is qualified
for a reduced tax rate of 15% on its assessable income for the period of three years, through 2012.



Income tax expenses for the years ended
December 31, 2011 and 2010 and were approximately $2.0 million and $4.5 million, respectively. The effective tax rates were 19.3%
and 17.4%, respectively, for those years.



REVIEW OF FINANCIAL POSITION



Current
assets



As
at December 31, 2010, our current assets increased to $74.2 million, representing 59.9% of our total assets of $123.8 million.
Current assets were consisted of cash and cash equivalents of $15.6 million, accounts receivable of $48.5 million, inventories
of $10.0 million and other receivables and prepayments of $0.1 million.



As
at December 31, 2011, our current assets increased to $79.0 million, representing 56.9% of our total assets of $138.9 million.
Current assets were consisted of cash and cash equivalents of $0.6 million, accounts receivable of $68.6 million, inventories of
$8.9 million and other receivables and prepayments of $0.9 million.



The decrease in cash and cash equivalents
as at December 31, 2011 was mainly due to increased accounts receivable related to significant marine catch sales of $47.2 million
during the fourth quarter of 2011 and the addition of fixed assets and construction in progress during the year.



Accounts
receivable were mainly represented by amounts due from distributors and wholesalers. We usually extended unsecured credit period
to long established customers up to 3 months. Since our practice is to perform constant credit checks and pursue the past due accounts
proactively, there was no material uncollectible debts identified in the past. Increase in accounts receivable was mainly in line
with the increase in sales volume of the last quarter of 2011.



Inventories
were mainly related to raw materials and work-in-progress comprising mainly frozen prawns, fish and squids which would be used
for the production of processed seafood products. Our inventories also included some finished goods and packaging materials.



Non-current
assets



As
at December 31, 2011, our non-current assets amounted to $59.9 million and accounted for approximately 43.1% of our total assets.
Our non-current assets comprised mainly property, plant and equipment of $11.2 million, land use rights of $3.0 million, and construction
in progress of $22.9 million. As of December 31, 2011, the carrying value of intangible assets and goodwill were approximately
$20.2 million and $2.6 million, respectively.



As
at December 31, 2011, our property, plant and equipment amounting to $11.2 million were made up mainly of buildings amounting to
$8.7 million and plant and machinery amounting to $2.0 million. Buildings related to our production plant, cold room, office buildings
and workers’ dormitories. Plant and machinery related mainly to our production lines, freezing machines, roasting and drying
machines. The remaining $0.5 million related to office equipment and motor vehicles.



The
increase in non-current assets relates to the cold storage facility we are building on the land we purchased in 2009. The facility
is expected to be operational in the first half of 2012 and therefore the associated construction costs are being recognized as
construction in progress as at December 31, 2011. Total estimated construction costs are approximately $24.2 million. As of December
31, 2011 and 2010, the Company recorded approximately $22.9 million and $11.6 million, respectively, as construction in progress.



53







Current
liabilities



As at December 31, 2010, our current liabilities
amounted to $9.4 million and comprised accounts payable of $3.8 million, amount due to a shareholder of $0.3 million, income tax
payable of $0.5 million and other payables of $4.8 million.



As at December 31, 2011 our current liabilities
of $8.8 million comprised of short-term borrowing of $2.5 million, accounts payable of $2.6 million, amount due to a shareholder
of $0.1 million, income tax payable of $0.2 million and other payables of $3.4 million.



The short-term bank loans were used for
our working capital requirements. The weighted average effective interest rate
on the borrowing is about 5.49% and 5.31% per annumin 2011 and2010, respectively.



Regarding the accounts payable, the related
turnover day was less than two weeks due to the short credit period allowed by the fishermen which was consistent with the market
practice.



The amount due to a shareholder was unsecured,
interest free and with no fixed terms of repayment.



The decrease in other payables from 2011
to 2010 mainly relates to the decrease of value-added tax provision.



Shareholders’ equity



As at December 31, 2010, our shareholders’
equity amounted to $114.4 million and consisted of additional paid-in capital of $47.4 million, statutory reserve of $9.3 million,
accumulated other comprehensive income of $7.4 million, retained earnings of $49.9 million and non-controlling interests of $0.4
million.



Our shareholders’ equity of $130.1
million as at December 31, 2011 consisted of additional paid-in capital of $50.1 million, statutory reserve of $9.7 million, accumulated
other comprehensive income of $11.9 million, retained earnings of $58.0 million and non-controlling interests of $0.4 million.



The increase in shareholders’ equity
from 2010 to 2011 is due to the current operating profit of $8.6 million, increased in additional paid in capital of $2.7 million
for stock awards and increase in other comprehensive income of $4.5 million due to translation adjustments.



Statutory reserve is established for the
purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in
liquidation. Under the PRC law, appropriation to the statutory reserve should be at least 10% of the after-tax net income until
the reserve is equal to 50% of the registered capital. We appropriated about 15% of our after-tax net income to the reserve on
a yearly basis.



LIQUIDITY AND CAPITAL RESOURCES



Our operations are funded through a combination
of shareholders’ equity, borrowings and internally generated funds from our operations. Our cash and cash equivalents as
at December 31, 2011 amounted to approximately $0.6 million, with a new short-term loan of $2.5 million being drawn down in the
fourth quarter of 2011.



A summary of our cash flows for 2011 and 2010 is as follows:



|                                                       |  | Year Ended December 31, |        
|------------------------------------------------------ |  | ----------------------- | -------
|US$’000                                                |  | 2011                    |        
|                                                       |  |                         |        
|Net cash used in operating activities                  |  |                         | (8,431 
|Net cash used in investing activities                  |  |                         | (11,005
|Net cash provided by financing activities              |  |                         | 2,339  
|Net change in cash and cash equivalents                |  |                         | (17,097
|Foreign currency translation adjustment                |  |                         | 2,127  
|Cash and cash equivalents at the beginning of the year |  |                         | 15,557 
|Cash and cash equivalents at the end of the year       |  |                         | 587    



Year 2011



Net cash used in operating activities



In 2011, our net cash used in operating
activities amounted to approximately $8.4 million. The major source of cash inflow from operating activities was from net income
of $8.6 million. Changes in operating assets and liabilities included cash outflow resulting from increase in accounts receivable
of $20.1 million. This was partially offset by cash inflow from a decrease in inventories of $1.1 million and non-cash amortization
of intangible assets of $2.5 million.



54







The increase in accounts receivable was
mainly due to the block sales of marine catch trading materials of $47.2 million in the fourth quarter of 2011, which was collected
during the first quarter of 2012.



Our trade receivables turnover days were
approximately 81 and 71 days in 2011 and 2010, respectively. Our allowances for doubtful trade receivables as at December 31, 2011
and 2010 were approximately $345,000 and $244,000, respectively; and were about 0.5% of our gross trade receivables.



Net cash used in investing activities



In 2011, our net cash used in investing
activities was approximately $11.0 million, which was mainly attributable to the addition of construction in progress of $11.0
million for the development of the cold storage facilities.



Net cash provided by financing activities



In 2011, our cash provided by financing
activities was approximately $2.3 million. The increase was mainly attributable to the proceeds from short-term borrowing of $2.5
million, partially offset by the repayment of amounts due to a shareholder of $0.2 million.



Year 2010



Net cash used in operating activities



In 2010, our net cash used in operating
activities amounted to approximately $6.3 million. The major source of cash inflow from operating activities was from net income
of $21.1 million. Changes in operating assets and liabilities included cash outflow resulting from increase in accounts receivable
of $29.8 million and inventories of $6.1 million. This was partially offset by the increase in accounts payable of $2.9 million
and other payables of $2.5 million.



The increase in accounts receivable was
mainly due to the extension of the credit period to our major customers so as to cope with the current market practice and the
block sales of marine catch trading materials of $25.3 million in December 2010, which was collected during the first quarter of
2011. The increase in inventory related to the build of product for the expected sales for the Chinese New Year, which occurred
in February 2011.



Net cash used in investing activities



In 2010, our net cash used in investing
activities was approximately $12.8 million, which was mainly attributable to addition of fixed assets of $0.2 million and construction
in progress of $13.4 million for the development of the cold storage facilities, partially offset by the acquisition of a subsidiary
of $1.0 million.



Net cash provided by financing activities



In 2010, our cash provided by financing
activities was approximately $24.8 million. The increase was mainly attributable to the net proceeds of $28.3 million from the
registered direct offering of common stock taken place in January 2010 and the proceeds from cash exercise of warrants of $1.9
million, partially offset by the repayment of short-term bank loans during the first quarter of 2010 of $4.1 million and dividend
paid related to the pre-acquisition result for the fiscal year 2009 to a non-controlling shareholder of a subsidiary amounting
to $1.3 million.



Capital resources



We believe that
after taking into account of our cash position, available bank facilities and cash generated from operating activities, we have
adequate working capital to satisfy our current operating expenditures for the next twelve months.From time to time, we
may identify new expansion opportunities for which there will be a need to use cash. We manage our cash based on thorough consideration
of our corporate strategy as well as the macro economic situation. Factors we take into account when managing our cash include
interest rates, foreign currency fluctuation as well as the flexibility in executing our acquisition and operational strategies.



We are financing the total estimated $26.5
million in land use rights and construction costs for our new cold storage facility from available funds and expect to run the
new facility in the first half of 2012. We have paid approximately $22.9 million in relation to the construction costs as at December
31, 2011.



After the registered direct offering of
common stock and repayment of bank loans during 2010, the relative cost of capital resources decreased correspondingly given the
increase in the equity financing and reduced level of debt borrowings.



55







In the fourth quarter of 2011, a short-term
loan of $2.5 million was drawn down for working capital needs and to maintain the effectiveness of the facility line with the bank.



Apart from the expansion plan discussed
above and the commitments set out in the section of “Commitments and Contingencies”, we do not have any other material
commitments for capital expenditures and other expenditures. We believe that the current operating activities would be able to
generate adequate cash flows supporting the daily operations for the next twelve months. We do not have present plans to raise
additional funds.



CAPITAL EXPENDITURES AND INVESTMENTS



A summary of our capital expenditures for
the last three financial years ended December 31, 2011 and 2010 is as follows:



|                    |  | Year Ended December 31, |       
|------------------- |  | ----------------------- | ------
|US$’000             |  | 2011                    |       
|                    |  |                         |       
|Land use rights     |  |                         | -     
|Buildings           |  |                         | 609   
|Plant and machinery |  |                         | 10,376
|Office equipment    |  |                         | 20    
|Motor vehicles      |  |                         | -     
|                    |  |                         | 11,005



In 2010, total capital expenditures of
$13.7 million were mainly attributable to the construction of cold storage facilities and an additional floor at the existing staff
quarter.



In 2011, total
capital expenditures of $11.0 million were mainly attributable to the construction of cold storage facilities, an additional floor
at the existing staff quarter andan algae extraction equipment line.



COMMITMENTS AND
CONTINGENCIES



Operating lease commitments



Ocean Technology leased certain office
space under a non-cancellable operating lease agreement with a term of 3 years with fixed monthly rentals expiring on February
17, 2014, and generally not containing significant renewal options. Total rent expenses for the years
ended December 31, 2011 and 2010 was $79,618 and $77,145, respectively. Future minimum rental
payments due under the non-cancelable operating lease agreement are approximately $171,000 in total in the following three years.



Capital commitments



In 2010, Mingxiang entered into an agreement
with an independent third party (the “Third Party Contractor”) in relation to the construction of a cold storage facility.
A supplementary agreement was then entered into between Mingxiang and the Third Party Contractor in September 2011 related to additional
gross areas, machineries and equipment required for the facility. The construction is expected to be completed in the first half
of 2012. Total estimated construction costs are expected to be approximately $24.2 million. As of December 31, 2011, the Company
recorded approximately $22.9 million as construction in progress. Hence the aggregated contingent payments related to the Third
Party Contractor are approximately $1.3 million as of December 31, 2011.



Guarantees



As of December 31, 2011, Mingxiang was
contingently liable as guarantor with respect to the loan of $472,270 (equivalent to RMB3,000,000) to an unrelated third party,
Shishi Han Jiang Hua Lian Knitting and Clothing Factory (“Han Jiang Hua Lian”). The term of this guarantee is for the
period from November 2008 through December 2017. Pursuant to the loan agreement, Han Jiang Hua Lian will repay the loan by installments
and be fully settled by December 31, 2017. Should Han Jiang Hua Lian fail to make its debt payments due at any time from the date
of guarantee, Mingxiang will be obligated to perform under the guarantee by primarily making the required payments, including late
fees and penalties. The maximum potential amount of future payments that the Mingxiang is required to make under the guarantee
is $472,270 (equivalent to RMB3,000,000).



56







As of December 31, 2010, Mingxiang was
contingently liable as guarantor with respect to the loans of $787,116 (equivalent to RMB 5,000,000) to an unrelated third party,
Shishi Yu Ching Knitting and Clothing Company (“Yu Ching”). The term of this guarantee is for the period from January
2009 through January 2011. During 2011, Yu Ching repaid the principal amount of the loan in the amount of $787,116 (equivalent
to RMB 5,000,000) but left the amount of loan interest unsettled due to a disagreement between Yu Ching and the creditor in relation
to the calculation of the loan interest. Should Yu Ching fail to make its loan interest payments due at any time from the date
of guarantee, Mingxiang will be obligated to perform under the guarantee by primarily making the required payments, including late
fees and penalties.



According to the Personal Guarantee Agreement
between Mingxiang and Mr. Liu, CEO, Mr. Liu agreed to bear all liabilities and costs incurred from a direct claim by the creditor
if either Han Jiang Hua Lian or Yu Ching fails to make payments to the creditor upon due dates.



In accordance with Accounting Standard
Codification (“ASC”) 460-10 “Guarantees”, a guarantor must recognize a liability for the fair value of
the obligations it assumes under certain guarantees. Mingxiang did not receive any consideration for the guarantee and has determined
the fair value of the indemnification to be insignificant. As of December 31, 2011, the Company has not recorded any liabilities
under these guarantees.



ISSUANCE OF COMMON
STOCK



On April 1, 2011, the Company granted compensatory
stock awards totaling 700,000 common shares to certain of its officers, directors and employees. These stock awards vested
in full on the date of the grant but are subject to forfeiture in full if the grantee ceases to be employed by the Company for
any reason within one year from the date of the grant, pursuant to stock award agreements between the Company and grantees dated
April 1, 2011. Based on the closing stock price of the grant date, the fair value of these stock awards are estimated to be approximately
$2.7 million, which will be recognized as compensation expense, using the straight-line method, over the service period of one
year from April 1, 2011 to March 31, 2012.



On February 15, 2011, the Company entered
into an Investor Relations Consulting Agreement with Hayden Communications International, Inc (“HCI”) to provide consulting
services for the Company. In connection with such service, the Company agreed to issue 20,000 shares of restricted common stock
to HCI. The shares of common stock were valued at $51,800 or $2.59 per share and issued on July 14, 2011.



CRITICAL ACCOUNTING
POLICIES & RECENT ACCOUNTING PRONOUNCEMENTS



| | · | Non-controlling interest
| | - | ------------------------



Non-controlling interests in our subsidiaries
are recorded in accordance with the provisions of ASC 810, “Consolidation”, and are reported as a component of our
equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control
are accounted for as equity transactions. Results of operations attributable to the non-controlling interests are included in our
consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, If any, will be
reported at fair value with any gain or loss recognized in earnings.



Under
ASC 810-10-45-21, losses attributable to the parent and the non-controlling interest in a subsidiary may exceed their interests
in the subsidiary’s equity. The excess, and any further losses attributable to the parent and the non-controlling interest,
shall be attributed to those interests. That is, the non-controlling interest shall continue to be attributed its share of losses
even if that attribution results in a deficit non-controlling interest balance.



| | · | Use of estimates
| | - | ----------------



The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and also requires disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates
made by management include revenue recognition estimates, valuation of equity instruments and allowance for doubtful accounts.



57







| | · | Accounts receivable and allowance for doubtful accounts
| | - | -------------------------------------------------------



Accounts receivable are recorded at the
invoiced amount and do not bear interest. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing
basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s
financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered
necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.



| | · | Inventories
| | - | -----------



Inventories consist of frozen products
from marine catch, processed seafood products, algae-based beverage products and materials used in the manufacture of the Company’s
products. Inventories are stated at the lower of cost or net realizable value, with cost being determined on a weighted average
basis. Costs include purchased cost of raw materials, direct labor, packaging and manufacturing overhead
costs. The Company periodically reviews historical sales activity to determine excess, slow moving
items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. The Company provides
inventory allowances based on excess and obsolete inventories determined principally by customer demand.



As of December 31, 2011 and 2010, the Company
did not record an allowance for obsolete inventories, nor have there been any write-offs.



| | · | Goodwill and intangible assets
| | - | ------------------------------



Goodwill and intangible assets were the
result of the acquisition of Xianghe. Goodwill represents the cost of the acquired algae-based drink business in excess of the
fair value of identifiable tangible and intangible net assets purchased. Intangible assets include trademarks and algae-based beverage
know-how and are recorded at cost less accumulated amortization and any recognized impairment loss. The algae-based beverage know-how
is amortized over its estimated useful life of 10 years on a straight-line basis, which coincides with the timing provided from
the PRC protection guidelines for our product. For the year ended December 31, 2011, the Company engaged an independent valuation
expert to assist in determining the fair value of the identifiable tangible and intangible net assets of the acquired business.



The Company
evaluates the valuation of its goodwill according to the provisions of Accounting Standards Codification (“ASC”) 350
to determine if the current value of goodwill has been impaired. The Company has also adopted Accounting Standard Update (ASU) No. 2011-08,
Intangibles-Goodwill and Other (Topic 350).With ASU No. 2011-08, an entity is given the option to make a qualitative
evaluation of goodwill impairment to determine whether it should calculate the fair value of its reporting unit. The Company made
its qualitative evaluation of its goodwill considering, among other things, the general macroeconomic conditions, industry and
market considerations, cost factors, overall financial performance and other relevant entity-specific events. Based on this qualitative
evaluation, the Company concluded that it was more likely than not that its goodwill was not impaired and it wasn’t required
to calculate the fair value of its reporting unit as of December 31, 2011.Goodwill of a reporting unit will be tested for
impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value
of the reporting unit below its carrying amount. We performed our annual goodwill impairment during the fourth quarter of each
calendar year.



In accordance
with ASC Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, the Company engaged a third party valuation
firm to review the Company’s algae-based intangible assets for impairment. The Company performed its annual impairment test
for its intangible assets during the fourth quarter of each calendar year. The intangible assets balance related to the algae-based
drink business reporting unit. The test involved the assessment of the fair market value of the Company’s
intangible assets, using a form of the income approach known as the excess earnings method and concludes that a discount rate of
21.5% is considered appropriate for valuing the Company. The market and cost approaches were not applied due to the lack of information
deemed to be reliably indicative of value using either approach. The result of the assessment of the Company’s intangible
assets indicated that its fair values exceeded its carrying amounts.



In particular, the Company provided a forecasted
discounted cash flows analysis for the reporting unit based on discrete fifteen-year financial forecasts developed by management
for planning purposes. Cash flows beyond the fifteen-year discrete forecasts were estimated using a terminal value calculation,
which incorporated historical and forecasted financial trends for the reporting unit and considered long-term earnings growth rates
for publicly traded peer companies.



The key assumptions used in determining
the fair value of the reporting unit are:



| | - | The financial projections were prepared by the Management with due care and consideration reflecting
the reasonable estimate of future relevant events.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



58







| | - | All information provided by the Management is true, accurate and complete.
| | - | --------------------------------------------------------------------------



| | - | There will be no major changes in the existing political, legal, fiscal and economic conditions
in countries in which the Company will carry on its business.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | There will be no major changes in the current taxation law in countries in which the Company operates.
| | - | ------------------------------------------------------------------------------------------------------



| | - | Future exchange rates and interest rates will not differ materially from those prevailing market
expectations.
| | - | --------------------------------------------------------------------------------------------------------------



| | - | The availability of finance will not be a constraint on the future growth of the Company’s
operation.
| | - | -----------------------------------------------------------------------------------------------------



| | - | The Company will retain and have competent management, key personnel, and technical staff to support
its ongoing operation.
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | - | Industry trends and market conditions for related industries will not deviate significantly from
economic forecasts.
| | - | --------------------------------------------------------------------------------------------------------------------



| | - | The forecasted average annual growth rate of revenue is 3% to 70% from 2012 to 2026. This reflects
the following assumptions:
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | 1) | Increased market penetration into six provinces;
| | -- | ------------------------------------------------



| | 2) | Increased demand in China for health related drinks; and
| | -- | --------------------------------------------------------



| | 3) | A long term growth rate into perpetuity has been determined to be 3% with reference to the birth
rate, market penetration and other related factors.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Cost of goods sold is forecasted to grow by 3% to 72% from 2012 to 2026.
| | - | ------------------------------------------------------------------------



| | - | The discount rate applied to the cash flows is based on the weighted average cost of capital (“WACC”)
of the Company. WACC is the weighted average of the estimated rate of return required by equity and debt holders for an investment
of this type. Our analysis concluded that a discount rate of 21.5% is considered appropriate for valuing
the Company.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Publicly available information regarding our market capitalization was also considered in assessing
the reasonableness of the cumulative fair values of our reporting units estimated using the excess earnings method.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Based upon the valuation report prepared
by an independent valuation expert, it is concluded that the fair value of the intangible asset as of December 31, 2011 is reasonably
stated by the amount of $21,173,433. During the years ended December 31, 2011 and 2010, we determined that there had been
no impairment of intangible assets.



| | · | Revenue recognition
| | - | -------------------



In accordance with the ASC Topic 605, “Revenue
Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has
occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.



The Company
derives revenues from the processing, distribution and sale of processed seafoodproducts, sale of marine catch, and the
sale and distribution of algae-based beverage products. TheCompany recognizes its revenues net of value-added
taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the products at the rate ranging from
13% to 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input
VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.



The Company recognizes revenue from the
sale of processed seafood products and algae-based beverage products upon receipt of the delivery confirmation provided by the
distributor’s carrier and the title and risk of loss of the product has transferred to the distributor. The distributor agreements
do not provide chargeback,price protection, or stock rotation rights. The Company recognizes revenue
from marine catch when title has transferred to the buyer.The Company experienced no product returns and recorded no reserve
for sales returns for the years ended December 31, 2011 and 2010.





59













The Company offers sales incentives to
customers based on yearly sales targets. These are non-cash incentives and are solely used for promotional activities purposes.
These amounts are accrued as sales and marketing expenses during the same month revenue is recognized.



Rental income from operating leases on
real estate properties is recognized on a straight-line basis over the lease period.



| | · | Income taxes
| | - | ------------



The provision for income taxes is determined
in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.



ASC 740 prescribes a comprehensive model
for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken
or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements
when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must
initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.



For the years ended December 31, 2011 and
2010, the Company did not have any interest and penalties associated with tax positions. As of December 31, 2011 and 2010, the
Company did not have any significant unrecognized uncertain tax positions.



The Company conducts major businesses in
the PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that
are subject to examination by the foreign tax authority.



| | · | Foreign currencies translation
| | - | ------------------------------



Transactions denominated in currencies
other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of
the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into
the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are
recorded in the consolidated statement of operations and comprehensive income.



The reporting currency of the Company is
the United States Dollars ("US$"). The Company's subsidiaries in the PRC maintain their books and records in its local
currency, the Renminbi Yuan ("RMB"), which is functional currency as being the primary currency of the economic environment
in which these entities operate.



In general, for consolidation purposes,
assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with
ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues
and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial
statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement
of changes in shareholders’ equity.



Translation of amounts from RMB into US$1
has been made at the following exchange rates for the respective years:



|                                       |  | 2011 |        |  | 2010 | 
|-------------------------------------- |  | ---- | ------ |  | ---- | 
|Year-end exchange rates RMB:US$1       |  |      | 6.3523 |  |      | 
|Average yearly exchange rates RMB:US$1 |  |      | 6.4544 |  |      | 



The RMB is not freely convertible into foreign currency and
all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts
could have been, or could be, converted into US$ at the rates used in translation.



| | · | Stock-based compensation
| | - | ------------------------



The Company adopts ASC
Topic 718-20, "Compensation - Stock Compensation" ("ASC 718-20"),using the fair value method.
Under ASC 718-20, stock-based compensation cost is measured at the grant date based on the fair value
of the award or using the Black-Scholes pricing model and is recognized as expense over the appropriate service period.



60







On April 1, 2011, the Company granted compensatory
stock awards totaling 700,000 common shares to certain of its officers, directors and employees. These stock awards vested
in full on the date of the grant but are subject to forfeiture in full if the grantee ceases to be employed by the Company for
any reason within one year from the date of the grant, pursuant to stock award agreements between the Company and grantees dated
April 1, 2011.



Based on the closing stock price of the
grant date, the fair value of these stock awards are estimated to be approximately $2.6 million, which are recognized as compensation
expense, using the straight-line method, over a period of one year from April 1, 2011 to March 31, 2012.



| | · | Fair value measurement
| | - | ----------------------



ASC Topic 820-10, “Fair Value
Measurements and Disclosures” ("ASC 820-10") establishes a new framework for measuring fair value and expands
related disclosures. Broadly, ASC 820-10 framework requires fair value to be determined based on the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants. ASC 820-10 establishes a three-level valuation hierarchy based
upon observable and non-observable inputs. These tiers include: Level 1, defined as observable inputs
such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore
requiring an entity to develop its own assumptions.



For financial assets and liabilities, fair
value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market
participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements
involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent
with what market participants would use in a hypothetical transaction that occurs at the measurement date.



| | · | Recent accounting pronouncements
| | - | --------------------------------



The Company has reviewed all recently issued,
but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected
to cause a material impact on its financial condition or the results of its operations.



During December 2011, the Financial
Accounting Standards Board (“FASB”) issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities.”
The amendments in ASU 2011-11 require an entity to disclose information about offsetting and related arrangements to enable
users of its financial statements to understand the effect of those arrangements on its financial position. The adoption of
ASU 2011-11 results in changes to presentation and disclosure only and is not expected to have an impact on our
consolidated results of operations and financial condition.



During September 2011, the FASB issued
ASU 2011-08, “Testing Goodwill for Impairment.” The amendments in ASU 2011-08 are intended to reduce the cost and complexity
associated with goodwill impairment tests required under the Accounting Standard Codification Topic 350 Intangibles - Goodwill
and Other. The update permits an entity to first assess qualitative factors to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform
the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood
of more than 50 percent. The amendments in this update are effective for annual and interim goodwill impairment tests performed
for fiscal years beginning after December 15, 2011. The Company elected to early adopt ASU 2011-08, which resulted in the
elimination of the additional requirements under Topic 350.



During June 2011, the FASB issued ASU 2011-05,
“Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to report other comprehensive income and
its components in the statement of changes in stockholders’ equity and requires an entity to present the total of comprehensive
income, the components of net income and the components of other comprehensive income either in a single continuous statement or
in two separate but consecutive statements. Effective December 31, 2011, the Company elected to early adopt ASU No. 2011-05. The
Company's early adoption of this new guidance only resulted in a change in how the Company presents the components of comprehensive
income, which is currently presented within the consolidated statements of operations and comprehensive (loss) income.



During May 2011, the FASB issued ASU No. 2011-04,
“Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial
Reporting Standards (“IFRS”).” This pronouncement was issued to provide a consistent definition of fair value
and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04 changes
certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements.
This pronouncement is effective for reporting periods beginning on or after December 15, 2011. The adoption of ASU 2011-04
is not expected to have a significant impact to our consolidated financial position or results of operations.



61







During January 2010, the FASB issued ASU
No. 2010-6 to improve the disclosure and transparency of fair value measurements. These amendments clarify the level of disaggregation
required, and the necessary disclosures about the valuation techniques and inputs used to measure fair value for both recurring
and nonrecurring fair value measurements. We adopted this ASU beginning January 1, 2011 and it did not have a significant
impact on our consolidated financial position or results of operations.



FOREIGN EXCHANGE EXPOSURE



Our sales are denominated in RMB and US
dollars whilst our purchases and operating expenses are mostly denominated in RMB. As such, we may be exposed to any significant
transactional foreign exchange exposure for our operations. However, to the extent that we may enter into transactions in currencies
other than RMB in the future, particularly as we penetrate into overseas markets, our financial results may be subject to fluctuations
among those foreign currencies and RMB.



The percentage of our sales denominated
in RMB and US dollars are as follows:



|           |  | Year Ended December 31, |      
|---------- |  | ----------------------- | -----
|(%)        |  | 2011                    |      
|Sales      |  |                         |      
|RMB        |  |                         | 99.9 
|US dollars |  |                         | 0.1  
|Total      |  |                         | 100.0



On July 21, 2005, the RMB was unpegged
against the US dollars and pegged against a basket of currencies on a “managed-float currency regime”. As at December
31, 2011, the exchange rate was approximately US$1.00 to RMB6.3523. There is no assurance that the PRC's foreign exchange policy
will not be further altered. In the event that the PRC's policy is altered, significant fluctuations in the exchange rates of RMB
against US dollars may arise. As a result, we will be subject to significant foreign exchange exposure and in the event that we
incur foreign exchange losses, our financial performance will be adversely affected.



Our net foreign exchange losses for the
last two financial years ended December 31, 2011 and 2010 are as follows:



|                                         |  | Year Ended December 31, |     
|---------------------------------------- |  | ----------------------- | ----
|                                         |  | 2011                    |     
|                                         |  |                         |     
|Net foreign exchange losses (US$’000)    |  |                         | (3  
|As a percentage of income before tax (%) |  |                         | 0.03



We do not have
a formal hedging policy with respect to our foreign exchange exposure as our foreign exchange gains/ losses for the period under
review have been relatively insignificant. We will continue to monitor our foreign exchange exposure in the future and will consider
hedging any material foreignexchange exposure should the need arise. Should we enter into any hedging transaction in the
future, such transaction shall be subject to review by our
Board of Directors. In addition, should we establish any formal hedging policy in the future, such policy shall be
subject to review and approval by our board prior to implementation.



INFLATION



During the periods under review, inflation
has a moderate impact on our financial performance as a result of
increased raw materials, direct labor, packaging materials and other overhead costs. If prices for our products do not rise at
a rate that is sufficient to fully absorb inflation-driven increases in our costs of supplies in the future, our profitability
can be further adversely affected.



62







| | ITEM 7A. | Quantitative and Qualitative Disclosures about Market Risks
| | -------- | -----------------------------------------------------------



Foreign Exchange Risk



While our reporting currency is the US
dollar, almost all of our consolidated revenues and consolidated costs and expenses are denominated in RMB. All of our assets are
denominated in RMB except for some cash and cash equivalents and accounts receivables. As a result, we are exposed to foreign exchange
risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between US dollar and RMB.
If the RMB depreciates against the US dollar, the value of our RMB revenues, earnings and assets as expressed in our US dollar
financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign
exchange risk.



Inflation



Inflationary
factors such as increases in the costs of our products and overhead costs may adversely affect our operating results.Inflation
in China has recently increased substantially. The inflation rate in China was reported at 4.1 percent in December 2011. These
factors have led to the adoption by the Chinese government, of various corrective measures designed to restrict the availability
of credit or regulate growth and contain inflation. Price inflation can affectour ability to maintain
current levels of gross margin and selling and distribution, general and administrative expenses as a percentage of net revenues
ifwe are unable to pass along raw material price increases to customers. Similarly, the cost of the ongoing construction
of our new facility and the installation of our equipment may increase as a result of these recent inflationary trends, which are
expected to continue in the near future. Accordingly, inflation in China may weaken our competitiveness domestically or in
international markets.



63







| | ITEM 8. | Financial Statements
| | ------- | --------------------



CHINA MARINE FOOD GROUP LIMITED



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





|                                                                                                                                                | Page      
|----------------------------------------------------------------------------------------------------------------------------------------------- | ----------
|                                                                                                                                                |           
|Report of Independent Registered Public Accounting Firm, BDO China Dahua CPA Co., Ltd.(Formerly known as BDO China Li Xin Da Hua CPA Co., Ltd.) | F-2       
|                                                                                                                                                |           
|Audited Consolidated Balance Sheets as of December 31, 2011 and 2010                                                                            | F-3       
|                                                                                                                                                |           
|Audited Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2011 and 2010                           | F-4       
|                                                                                                                                                |           
|Audited Consolidated Statements of Cash Flows for the Years Ended December 31, 2011 and 2010                                                    | F-5       
|                                                                                                                                                |           
|Audited Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2011 and 2010                                          | F-6       
|                                                                                                                                                |           
|Notes to Consolidated Financial Statements as of December 31, 2011 and 2010                                                                     | F-7 - F-28





F-1









Report of Independent Registered Public
Accounting Firm





Board of Directors and Shareholders

China Marine Food Group Limited

Shishi City, Fujian, China



We have audited the accompanying
consolidated balance sheets of China Marine Food Group Limited as of December 31, 2011 and 2010 and the related consolidated statements
of income and comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended December
31, 2011 and 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of China Marine Food Group Limited
at December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2011 and 2010, in conformity with accounting principles generally accepted in the United States of America.





/s/ BDO China Dahua CPA Co., Ltd.(Formally
known as BDO China Li Xin Da Hua CPA Co., Ltd.)





Shenzhen, P.R. China

March 27, 2012





F-2









CHINA MARINE FOOD GROUP LIMITED

CONSOLIDATED BALANCE SHEETS

(Currency expressed in United States
Dollars (“US$”), except for number of shares)



|                                                                                                                                                        |  | December 31, |            
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -----------
|                                                                                                                                                        |  | 2011         |            
|ASSETS                                                                                                                                                  |  |              |            
|Current assets:                                                                                                                                         |  |              |            
|Cash and cash equivalents                                                                                                                               |  | $            | 586,914    
|Accounts receivable, net                                                                                                                                |  |              | 68,643,678 
|Inventories                                                                                                                                             |  |              | 8,886,234  
|Prepaid expenses and other current assets                                                                                                               |  |              | 849,419    
|                                                                                                                                                        |  |              |            
|Total current assets                                                                                                                                    |  |              | 78,966,245 
|                                                                                                                                                        |  |              |            
|Property, plant and equipment, net                                                                                                                      |  |              | 11,199,244 
|Land use rights, net                                                                                                                                    |  |              | 3,023,569  
|Construction in progress                                                                                                                                |  |              | 22,923,143 
|Intangible assets, net                                                                                                                                  |  |              | 20,225,220 
|Goodwill                                                                                                                                                |  |              | 2,553,757  
|TOTAL ASSETS                                                                                                                                            |  | $            | 138,891,178
|                                                                                                                                                        |  |              |            
|LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                    |  |              |            
|Current liabilities:                                                                                                                                    |  |              |            
|Short-term borrowings                                                                                                                                   |  | $            | 2,550,257  
|Accounts payable, trade                                                                                                                                 |  |              | 2,583,549  
|Amount due to a shareholder                                                                                                                             |  |              | 50,361     
|Income tax payable                                                                                                                                      |  |              | 174,525    
|Accrued liabilities and other payables                                                                                                                  |  |              | 3,424,288  
|                                                                                                                                                        |  |              |            
|Total current liabilities                                                                                                                               |  |              | 8,782,980  
|                                                                                                                                                        |  |              |            
|Commitments and contingencies (see Note 21)                                                                                                             |  |              |            
|                                                                                                                                                        |  |              |            
|Shareholders’ equity:                                                                                                                                   |  |              |            
|Common stock, $0.001 par value; 100,000,000 shares authorized; 29,697,976 and 28,977,976 shares issued and outstanding as of December 31, 2011 and 2010 |  |              | 29,698     
|Additional paid-in capital                                                                                                                              |  |              | 50,074,952 
|Statutory reserve                                                                                                                                       |  |              | 9,696,177  
|Accumulated other comprehensive income                                                                                                                  |  |              | 11,897,382 
|Retained earnings                                                                                                                                       |  |              | 58,053,435 
|Total China Marine Food Group Limited shareholders’ equity                                                                                              |  |              | 129,751,644
|Non-controlling interests                                                                                                                               |  |              | 356,554    
|Total shareholders’ equity                                                                                                                              |  |              | 130,108,198
|TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                              |  | $            | 138,891,178



See accompanying notes to consolidated financial
statements





F-3









CHINA MARINE FOOD GROUP LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME

(Currency expressed
in United States Dollars (“US$”), except for number of shares)



|                                                                     |  | Year Ended December 31, |             
|-------------------------------------------------------------------- |  | ----------------------- | ------------
|                                                                     |  | 2011                    |             
|REVENUE, NET                                                         |  |                         |             
|Processed seafood products                                           |  | $                       | 58,967,200  
|Marine catch                                                         |  |                         | 55,304,114  
|Algae-based beverage products                                        |  |                         | 29,676,358  
|                                                                     |  |                         | 143,947,672 
|                                                                     |  |                         |             
|COST OF REVENUE (inclusive of depreciation and amortization)         |  |                         |             
|Processed seafood products                                           |  |                         | (41,411,881 
|Marine catch                                                         |  |                         | (53,057,915 
|Algae-based beverage products                                        |  |                         | (17,753,909 
|                                                                     |  |                         | (112,223,705
|                                                                     |  |                         |             
|GROSS PROFIT                                                         |  |                         | 31,723,967  
|                                                                     |  |                         |             
|OPERATING EXPENSES:                                                  |  |                         |             
|Depreciation and amortization                                        |  |                         | (2,714,603  
|Sales and marketing                                                  |  |                         | (14,045,894 
|General and administrative                                           |  |                         | (2,576,019  
|Stock-based compensation                                             |  |                         | (2,034,197  
|TOTAL OPERATING EXPENSES                                             |  |                         | (21,370,713 
|                                                                     |  |                         |             
|                                                                     |  |                         |             
|INCOME FROM OPERATIONS                                               |  |                         | 10,353,254  
|                                                                     |  |                         |             
|OTHER INCOME (EXPENSES):                                             |  |                         |             
|Subsidy income                                                       |  |                         | 14,719      
|Rental income                                                        |  |                         | 101,326     
|Interest income                                                      |  |                         | 154,515     
|Interest expense                                                     |  |                         | (11,483     
|INCOME BEFORE INCOME TAXES                                           |  |                         | 10,612,331  
|INCOME TAX EXPENSE                                                   |  |                         | (2,048,956  
|                                                                     |  |                         |             
|NET INCOME                                                           |  |                         | 8,563,375   
|                                                                     |  |                         |             
|Less: net loss (income) attributable to non-controlling interests    |  |                         | 240         
|                                                                     |  |                         |             
|NET INCOME ATTRIBUTABLE TO CHINA MARINE FOOD GROUP LIMITED           |  | $                       | 8,563,615   
|                                                                     |  |                         |             
|Other comprehensive income:                                          |  |                         |             
|- Foreign currency translation gain                                  |  |                         | 4,494,800   
|                                                                     |  |                         |             
|COMPREHENSIVE INCOME                                                 |  | $                       | 13,058,415  
|Net income per share attributable to China Marine Food Group Limited |  |                         |             
|- Basic                                                              |  | $                       | 0.29        
|- Diluted                                                            |  | $                       | 0.29        
|                                                                     |  |                         |             
|Weighted average shares outstanding - Basic                          |  |                         | 29,514,744  
|- Diluted                                                            |  |                         | 29,514,744  



See accompanying notes to consolidated financial
statements





F-4







CHINA MARINE FOOD GROUP LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Currency expressed
in United States Dollars (“US$”))



|                                                                              |  | Year Ended December 31, |            
|----------------------------------------------------------------------------- |  | ----------------------- | -----------
|                                                                              |  | 2011                    |            
|                                                                              |  |                         |            
|CASH FLOWS FROM OPERATING ACTIVITIES:                                         |  |                         |            
|Net income                                                                    |  | $                       | 8,563,375  
|Adjustments to reconcile net income to net cash used in operating activities: |  |                         |            
|Depreciation and amortization                                                 |  |                         | 3,014,783  
|Stock issued to an executive                                                  |  |                         | -          
|Stock issued for service                                                      |  |                         | 51,800     
|Allowance for doubtful accounts                                               |  |                         | 101,071    
|Loss on disposal of property, plant and equipment                             |  |                         | 22,045     
|Compensatory stock awards                                                     |  |                         | 2,646,000  
|Changes in operating assets and liabilities:                                  |  |                         |            
|Accounts receivable                                                           |  |                         | (20,214,210
|Inventories                                                                   |  |                         | 1,106,636  
|Prepaid expenses and other current assets                                     |  |                         | (743,779   
|Accounts payable, trade                                                       |  |                         | (1,181,173 
|Income tax payable                                                            |  |                         | (363,226   
|Accrued liabilities and other payables                                        |  |                         | (1,434,406 
|                                                                              |  |                         |            
|Net cash used in operating activities                                         |  |                         | (8,431,084 
|                                                                              |  |                         |            
|CASH FLOWS FROM INVESTING ACTIVITIES:                                         |  |                         |            
|Purchase of property, plant and equipment                                     |  |                         | (36,717    
|Cash paid to construction in progress                                         |  |                         | (10,968,232
|Addition to land use right                                                    |  |                         | -          
|Net cash received from acquisition of a subsidiary                            |  |                         | -          
|                                                                              |  |                         |            
|Net cash used in investing activities                                         |  |                         | (11,004,949
|                                                                              |  |                         |            
|CASH FLOWS FROM FINANCING ACTIVITIES:                                         |  |                         |            
|(Repayment of) Advance from amount due to a shareholder                       |  |                         | (211,428   
|Advance to a non-controlling shareholder of a subsidiary                      |  |                         | -          
|Proceeds from the registered direct offering, net of expenses                 |  |                         | -          
|Proceeds from exercise of warrants                                            |  |                         | -          
|Proceeds from short-term borrowings                                           |  |                         | 2,550,257  
|Repayment on short-term borrowings                                            |  |                         | -          
|Dividends paid                                                                |  |                         | -          
|                                                                              |  |                         |            
|Net cash provided by financing activities                                     |  |                         | 2,338,829  
|                                                                              |  |                         |            
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                       |  |                         | (17,097,204
|                                                                              |  |                         |            
|Effect of exchange rate changes in cash and cash equivalents                  |  |                         | 2,127,346  
|                                                                              |  |                         |            
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                  |  |                         | 15,556,772 
|                                                                              |  |                         |            
|CASH AND CASH EQUIVALENTS, END OF YEAR                                        |  | $                       | 586,914    
|                                                                              |  |                         |            
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                              |  |                         |            
|Cash paid for income taxes                                                    |  | $                       | 2,412,182  
|Cash paid for interest                                                        |  | $                       | 11,483     



|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS
|------------------------------------------------------------------------
|Transfer from prepayment to land use rights                             
|Transfer from construction in progress to property, plant and equipment 
|                                                                        



|ACQUISITION OF XIANGHE                                          
|----------------------------------------------------------------
|Transfer from note receivable to paid for acquisition of Xianghe
|Consideration paid by Xianghe on behalf of Mingxiang            



See accompanying notes to consolidated financial
statements





F-5







CHINA MARINE FOOD GROUP LIMITED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY

(Currency expressed
in United States Dollars (“US$”), except for number of shares)





|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | China
    Marine Food Group Limited shareholders’ equity |           
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------- | ----------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                          |           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                          |           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Common
    stock                                         |           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | No.
    of shares                                        |           
|Balance
    as of December 31, 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                          | 23,413,639
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                          |           
|Stock
    issued under the registered direct offering, net of expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                          | 4,792,388 
|Stock issued to an executive                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                                          | 30,000    
|Stock issued for service                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                                          | 17,500    
|Cashless
    exercise of warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                          | 266,427   
|Cash
    exercise of warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                          | 458,022   
|Net income for the year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                          | -         
|Appropriation
    to statutory reserve                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                          | -         
|Distribution
    of dividend to a non-controlling shareholder                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                          | -         
|Share
    of non-controlling interests from business combination, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                                          | -         
|Foreign
    currency translation adjustment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                          | -         
|Balance
                                                                                                                                                                                                                                         as
                                                                                                                                                                                                                                         of
                                                                                                                                                                                                                                         December
                                                                                                                                                                                                                                         31,
                                                                                                                                                                                                                                         2010                                                                                                                    |  |                                                          | 28,977,976
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                          |           
|Compensatory stock awards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                          | 700,000   
|Stock issued for service                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                                          | 20,000    
|Net income / (loss) for the
    year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                          | -         
|Appropriation to statutory
    reserve                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                          | -         
|Foreign
    currency translation adjustment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                          | -         
|Balance
                                                                                                                                                                                                                                                                as
                                                                                                                                                                                                                                                                of
                                                                                                                                                                                                                                                                December
                                                                                                                                                                                                                                                                31,
                                                                                                                                                                                                                                                                2011 |  |                                                          | 29,697,976





See accompanying notes to condensed consolidated
financial statements.





F-6







CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



1.ORGANIZATION AND BUSINESS BACKGROUND



China Marine Food Group Limited (“China
Marine” or “the Company”), formerly known as New Paradigm Productions, Inc., was incorporated in the State of
Nevada on October 1, 1999. The Company is headquartered and the principal operations are in Shishi City, Fujian Province, People
Republic of China (“PRC”). The Company, through its subsidiaries, manufactures and distributes processed seafood products
and algae-based beverage products. The Company also trades marine catch sporadically throughout the year based on opportunities.
The Company’s customers are located in domestic provinces in the PRC and overseas markets. The
Company is publicly traded on the AMEX under the symbol “CMFO” and can be found on the worldwide web atwww.china-marine.cn.



Recapitalization and reorganization



On November 17, 2007, China Marine completed
a stock exchange transaction with the shareholders of Ocean Technology (China) Company Limited (“Ocean Technology”),
whereby 15,624,034 shares of the Company’s common stock were issued to the shareholders of Ocean Technology in exchange for
100% of their outstanding capital stock in Ocean Technology. As a result of the stock exchange, the former shareholders of Ocean
Technology owned approximately 93.15% of the issued and outstanding shares of common stock of the Company.



Ocean Technology became a wholly-owned
subsidiary of China Marine. The stock exchange transaction was accounted for as a reverse acquisition and recapitalization of China
Marine whereby Ocean Technology is deemed to be the accounting acquirer (legal acquiree) and China Marine to be the accounting
acquiree (legal acquirer). The accompanying consolidated financial statements are in substance those of Ocean Technology, with
the assets and liabilities, and revenues and expenses, of China Marine being included effective from the date of stock exchange
transaction. China Marine is deemed to be a continuation of the business of Ocean Technology.



As of December 31, 2011, China Marine’s
majority-owned subsidiaries were as follows



Business history of subsidiaries



|Name                                                          |  | Place of incorporation
        and kind of
        legal entity |  | Principal activities
        and place of operation                                                                                  |  | Particulars of issued/
        registered share
        capital |  | Effective interest
        Held
|------------------------------------------------------------- |  | --------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------- |  | -------------------------------
|                                                              |  |                                                                 |  |                                                                                                                                      |  |                                                                 |  |                                
|Ocean Technology (China) Company Limited (“Ocean Technology”) |  | Hong Kong, a limited liability company                          |  | Investment holding in Hong Kong                                                                                                      |  | 10,000 issued shares of HK$1 each                               |  | 100%                           
|                                                              |  |                                                                 |  |                                                                                                                                      |  |                                                                 |  |                                
|Shishi Rixiang Marine Foods Co., Ltd.
        (“Rixiang”)     |  | The PRC, a limited liability company                            |  | Trading and distribution of
        marine products in the PRC and overseas                                                          |  | $33,000,000                                                     |  | 100%                           
|                                                              |  |                                                                 |  |                                                                                                                                      |  |                                                                 |  |                                
|Shishi Huabao Mingxiang Foods Co., Ltd (“Mingxiang”)          |  | The PRC, a limited liability company                            |  | Trading and distribution of marine products in the PRC and overseas;
        Sales and distribution of algae-based beverage products |  | RMB50,000,000                                                   |  | 100%                           
|Shishi Huabao Jixiang Water Products Co., Ltd (“Jixiang”)     |  | The PRC, a limited liability company                            |  | Property holding                                                                                                                     |  | RMB4,500,000                                                    |  | 100%                           





F-7











CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



|Name                                                             |  | Place of incorporation
        and kind of
        legal entity |  | Principal activities
        and place of operation    |  | Particulars of issued/
        registered share
        capital |  | Effective interest
        Held
|---------------------------------------------------------------- |  | --------------------------------------------------------------- |  | ------------------------------------------------------ |  | --------------------------------------------------------------- |  | -------------------------------
|                                                                 |  |                                                                 |  |                                                        |  |                                                                 |  |                                
|Shishi Xianghe Food Science and Technology Co., Ltd. (“Xianghe”) |  | The PRC, a limited liability company                            |  | Sale and distribution of algae-based beverage products |  | RMB5,000,000                                                    |  | 80%                            
|                                                                 |  |                                                                 |  |                                                        |  |                                                                 |  |                                
|Shishi Xianglin Trading Co., Ltd. (“Xianglin”)                   |  | The PRC, a limited liability company                            |  | Dormant                                                |  | RMB800,000                                                      |  | 100%                           
|                                                                 |  |                                                                 |  |                                                        |  |                                                                 |  |                                

China Marine and its subsidiaries are hereinafter
referred to as “the Company”.



2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



lBasis of consolidation



These accompanying consolidated financial
statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US
GAAP”). The audited consolidated financial statements include the financial statements of China Marine and its subsidiaries.
All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.



lNon-controlling interest



Non-controlling interests in our subsidiaries
are recorded in accordance with the provisions of Accounting Standard Codification (“ASC”) 810, “Consolidation”,
and are reported as a component of our equity, separate from the parent’s equity. Purchase or sale of equity interests that
do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling
interests are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest
retained, If any, will be reported at fair value with any gain or loss recognized in earnings.



Under
ASC 810-10-45-21, losses attributable to the parent and the non-controlling interest in a subsidiary may exceed their interests
in the subsidiary’s equity. The excess, and any further losses attributable to the parent and the non-controlling interest,
shall be attributed to those interests. That is, the non-controlling interest shall continue to be attributed its share of losses
even if that attribution results in a deficit non-controlling interest balance.



lUse of estimates



The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and also requires disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates
made by management include revenue recognition estimates, valuation of equity instruments and allowance for doubtful accounts.



lCash and cash equivalents



Cash and cash equivalents are carried at
cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments
with an original maturity of three months or less as of the purchase date of such investments.



The Company maintains cash and cash equivalent
balances at a financial institution in the PRC, which are insured by the People’s Bank of China. The Company had cash concentration
risk of $538,132 and $14,364,156 as of December 31, 2011 and 2010, respectively, which amounts exclude Ocean Technology.





F-8









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



lAccounts receivable and allowance for doubtful accounts



Accounts receivable are recorded at the
invoiced amount and do not bear interest. Management reviews the adequacy of the allowance for doubtful accounts on an ongoing
basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s
financial condition, credit history, and the current economic conditions to make adjustments in the allowance when it is considered
necessary. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.



lInventories



Inventories consist of frozen products
from marine catch, processed seafood products, algae-based beverage products and materials used in the manufacture of the Company’s
products. Inventories are stated at the lower of cost or net realizable value, with cost being determined on a weighted average
basis. Costs include purchased cost of raw materials, direct labor and manufacturing overhead costs.
The Company periodically reviews historical sales activity to determine excess, slow moving items and
potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. The Company provides inventory
allowances based on excess and obsolete inventories determined principally by customer demand.As of December 31, 2011 and
2010, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.



lProperty, plant and equipment



Property, plant and equipment are stated
at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line
basis over the following expected useful lives from the date on which they become fully operational and after taking into account
their estimated residual values:



|                    | Depreciable life |  | Residual value
|------------------- | ---------------- |  | --------------
|Buildings           | 30-50 years      |  | 10%           
|Plant and machinery | 5-30 years       |  | 10%           
|Motor vehicles      | 8-10 years       |  | 10%           
|Office equipments   | 5 years          |  | 10%           



Expenditure for repairs and maintenance
is expensed as incurred. When assets have retired or sold, the cost and related accumulated depreciation are removed from the accounts
and any resulting gain or loss is recognized in the results of operations.



lConstruction in progress



Construction in progress is stated at cost,
which includes the cost of construction, acquisition of plant and equipment and other direct costs attributable to the construction.
Construction in progress is not depreciated until such time as the assets are completed and put into operational use. No capitalized
interest is incurred during the period of construction.



lLand use rights



All lands in the PRC are owned by the PRC
government. The government in the PRC, according to the relevant PRC law, may sell the right to use the land for a specified period
of time. Thus, all of the Company’s land purchases in the PRC are considered to be leasehold land and are stated at cost
less accumulated amortization and any recognized impairment loss. Amortization is provided over the term of the land use right
agreements on a straight-line basis, which is 50 years and they will expire in 2052.





F-9









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



lGoodwill and intangible assets



Goodwill and intangible assets were the
result of the acquisition of Xianghe. Goodwill represents the cost of the acquired algae-based drink business in excess of the
fair value of identifiable tangible and intangible net assets purchased. Intangible assets include trademarks and algae-based beverage
know-how and are recorded at cost less accumulated amortization and any recognized impairment loss. The algae-based beverage know-how
is amortized over its estimated useful life of 10 years on a straight-line basis, which coincides with the timing provided from
the PRC protection guidelines for our product. For the year ended December 31, 2011, the Company engaged an independent valuation
expert to assist in determining the fair value of the identifiable tangible and intangible net assets of the acquired business.



The Company
evaluates the valuation of its goodwill according to the provisions of Accounting Standards Codification (“ASC”) 350
to determine if the current value of goodwill has been impaired. The Company has also adopted Accounting Standard Update (ASU) No. 2011-08,
Intangibles-Goodwill and Other (Topic 350).With ASU No. 2011-08, an entity is given the option to make a qualitative
evaluation of goodwill impairment to determine whether it should calculate the fair value of its reporting unit. The Company made
its qualitative evaluation of its goodwill considering, among other things, the general macroeconomic conditions, industry and
market considerations, cost factors, overall financial performance and other relevant entity-specific events. Based on this qualitative
evaluation, the Company concluded that it was more likely than not that its goodwill was not impaired and it wasn’t required
to calculate the fair value of its reporting unit as of December 31, 2011.Goodwill of a reporting unit will be tested for
impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value
of the reporting unit below its carrying amount. We performed our annual goodwill impairment during the fourth quarter of each
calendar year.



In accordance with ASC Topic 360-10-5,
“Impairment or Disposal of Long-Lived Assets”, the Company engaged a third party valuation firm to review the
Company’s algae-based intangible assets for impairment. The Company performed its annual impairment test for its intangible
assets during the fourth quarter of each calendar year. The intangible assets balance related to the algae-based drink business
reporting unit. The test involved the assessment of the fair market value of the Company’s intangible
assets, using a form of the income approach known as the excess earnings method and concludes that a discount rate of 21.5% is
considered appropriate for valuing the Company. The market and cost approaches were not applied due to the lack of information
deemed to be reliably indicative of value using either approach. The result of the assessment of the Company’s intangible
assets indicated that its fair values exceeded its carrying amounts.



In particular, the Company provided a forecasted
discounted cash flows analysis for the reporting unit based on discrete fifteen-year financial forecasts developed by management
for planning purposes. Cash flows beyond the fifteen-year discrete forecasts were estimated using a terminal value calculation,
which incorporated historical and forecasted financial trends for the reporting unit and considered long-term earnings growth rates
for publicly traded peer companies.



The key assumptions used in determining
the fair value of the reporting unit are:



| | - | The financial projections were prepared by the Management
with due care and consideration reflecting the reasonable estimate of future relevant events.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | All information provided by the Management is true,
accurate and complete.
| | - | --------------------------------------------------------------------------



| | - | There will be no major changes in the existing political,
legal, fiscal and economic conditions in countries in which the Company will carry on its business.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | There will be no major changes in the current taxation
law in countries in which the Company operates.
| | - | ------------------------------------------------------------------------------------------------------



| | - | Future exchange rates and interest rates will not differ
materially from those prevailing market expectations.
| | - | --------------------------------------------------------------------------------------------------------------



| | - | The availability of finance will not be a constraint
on the future growth of the Company’s operation.
| | - | -----------------------------------------------------------------------------------------------------



| | - | The Company will retain and have competent management,
key personnel, and technical staff to support its ongoing operation.
| | - | ---------------------------------------------------------------------------------------------------------------------------





F-10









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



| | - | Industry trends and market conditions for related industries
will not deviate significantly from economic forecasts.
| | - | --------------------------------------------------------------------------------------------------------------------



| | - | The forecasted average annual growth rate of revenue
is 3% to 70% from 2012 to 2026. This reflects the following assumptions:
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | 1) | Increased market penetration into six provinces;
| | -- | ------------------------------------------------



| | 2) | Increased demand in China for health related drinks;
and
| | -- | --------------------------------------------------------



| | 3) | A long term growth rate into perpetuity has been determined
to be 3% with reference to the birth rate, market penetration and other related factors.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Cost of goods sold is forecasted to grow by 3% to 72%
from 2012 to 2026.
| | - | ------------------------------------------------------------------------



| | - | The discount rate applied to the cash flows is based
on the weighted average cost of capital (“WACC”) of the Company. WACC is the weighted average of the estimated rate
of return required by equity and debt holders for an investment of this type. Our analysis concluded that a discount
rate of 21.5% is considered appropriate for valuing the Company.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Publicly available information regarding our market
capitalization was also considered in assessing the reasonableness of the cumulative fair values of our reporting units estimated
using the excess earnings method.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Based upon the valuation report prepared
by an independent valuation expert, it is concluded that the fair value of the intangible asset as of December 31, 2011, is reasonably
stated by the amount of $21,173,433. During the years ended December 31, 2011 and 2010, we determined that there had been
no impairment of intangible assets.



lImpairment of long-lived assets



In accordance with the provisions of ASC
Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant
and equipment, land use rights and intangible assets held and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held
and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows expected to be generated
by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which
the carrying amounts of the assets exceed the fair value of the assets. There has been no impairment as of December 31, 2011 and
2010.



lRevenue recognition



In accordance with the ASC Topic 605, “Revenue
Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has
occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.



The Company
derives revenues from the processing, distribution and sale of processed seafoodproducts, sale of marine catch, and the
sale and distribution of algae-based beverage products. TheCompany recognizes its revenues net of value-added
taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the products at the rate ranging from
13% to 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input
VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.



The Company recognizes revenue from the
sale of processed seafood products and algae-based beverage products upon receipt of the delivery confirmation provided by the
distributor’s carrier and the title and risk of loss of the product has transferred to the distributor. The distributor agreements
do not provide chargeback,price protection, or stock rotation rights. The Company recognizes revenue
from marine catch when title has transferred to the buyer.The Company experienced no product returns and recorded no reserve
for sales returns for the years ended December 31, 2011 and 2010.





F-11











CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



The Company offers sales incentives to
customers based on yearly sales targets. These are non-cash incentives and are solely used for promotional activities purposes.
These amounts are accrued as sales and marketing expenses during the same month revenue is recognized.



Rental income
from operating leases on real estate properties is recognized on a straight-line basis over the lease period.



lAdvertising costs



Advertising costs are expensed as incurred
under ASC Topic 720-35,“Advertising Costs”. The Company incurred advertising expense of $3,234,492 and $1,069,402
for the years ended December 31, 2011 and 2010, respectively.



lComprehensive income or loss



ASC Topic 220, “Comprehensive
Income”, establishes standards for reporting and display of comprehensive income or loss, its components and accumulated
balances. Comprehensive income or loss as defined includes all changes in equity during a period from non-owner sources. Accumulated
other comprehensive income or loss, as presented in the accompanying statement of changes in shareholders’ equity, consists
of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation
of income tax expense or benefit.



lIncome taxes



The provision for income taxes is determined
in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.



ASC 740 prescribes a comprehensive model
for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken
or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements
when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must
initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.



For the years ended December 31, 2011 and
2010, the Company did not have any interest and penalties associated with tax positions. As of December 31, 2011 and 2010, the
Company did not have any significant unrecognized uncertain tax positions.



The Company conducts major businesses in
the PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that
are subject to examination by the foreign tax authority.



lEarnings per share



The Company calculates earnings per share
in accordance with ASC Topic 260,“Earnings per Share.” Basic earnings per share is computed by dividing the
net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed
similar to basic earnings per share except that the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares
were dilutive.



lForeign currencies translation



Transactions denominated in currencies
other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of
the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into
the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are
recorded in the consolidated statement of operations and comprehensive income.





F-12









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



The reporting currency of the Company is
the United States Dollars ("US$"). The Company's subsidiaries in the PRC maintain their books and records in its local
currency, the Renminbi Yuan ("RMB"), which is functional currency as being the primary currency of the economic environment
in which these entities operate.



In general, for consolidation purposes,
assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with
ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues
and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial
statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement
of changes in shareholders’ equity.



Translation of amounts from RMB into US$1
has been made at the following exchange rates for the respective years:



|                                       |  | 2011 |        |  | 2010 | 
|-------------------------------------- |  | ---- | ------ |  | ---- | 
|Year-end exchange rates RMB:US$1       |  |      | 6.3523 |  |      | 
|Average yearly exchange rates RMB:US$1 |  |      | 6.4544 |  |      | 



The RMB is not freely convertible into foreign currency and
all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts
could have been, or could be, converted into US$ at the rates used in translation.



lStock-based compensation



The Company adopts ASC
Topic 718-20, "Compensation - Stock Compensation" ("ASC 718-20"),using the fair value method.
Under ASC 718-20, stock-based compensation cost is measured at the grant date based on the fair value
of the award or using the Black-Scholes pricing model and is recognized as expense over the appropriate service period.



lSegment reporting



ASC Topic 280,“Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent
with the Company’s internal organization structure as well as information about geographical areas, business segments and
major customers in financial statements. For the year ended December 31, 2011, the Company operates in three principal reportable
segments: sale of processed seafood products, trading of marine catch and sale of algae-based beverage products in the PRC.



lFair value measurement



ASC Topic 820-10, “Fair Value
Measurements and Disclosures” ("ASC 820-10") establishes a new framework for measuring fair value and expands
related disclosures. Broadly, ASC 820-10 framework requires fair value to be determined based on the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants. ASC 820-10 establishes a three-level valuation hierarchy based
upon observable and non-observable inputs. These tiers include: Level 1, defined as observable inputs
such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore
requiring an entity to develop its own assumptions.



For financial assets and liabilities, fair
value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market
participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements
involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent
with what market participants would use in a hypothetical transaction that occurs at the measurement date.





F-13











CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



lFinancial instruments



Cash and cash equivalents, accounts receivable,
prepaid expenses and other current assets, accounts payable, amount due to a shareholder, income tax payable and accrued liabilities
and other payables are carried at cost which approximates fair value. The estimated fair value of short-term borrowing was $2.5
million and $nil million as of December 31, 2011 and 2010, respectively, based on current market prices or interest rates.



lRecent accounting pronouncements



The Company has reviewed all recently issued,
but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected
to cause a material impact on its financial condition or the results of its operations.





During December 2011, the Financial
Accounting Standards Board (“FASB”) issued ASU
2011-11, “Disclosures about Offsetting Assets and Liabilities.” The amendments in ASU 2011-11 require an entity to
disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect
of those arrangements on its financial position. The adoption of ASU 2011-11 results in changes to presentation and disclosure
only and is not expected to have an impact on our consolidated results of operations and financial condition.



During September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment.” The amendments in ASU
2011-08 are intended to reduce the cost and complexity associated with goodwill impairment tests required under the
Accounting Standard Codification Topic 350 Intangibles – Goodwill and Other. The update permits an entity to first
assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less
than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test
described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The
amendments in this update are effective for annual and interim goodwill impairment tests performed for fiscal years beginning
after December 15, 2011. The Company elected to early adopt ASU 2011-08, which resulted in the elimination of the
additional requirements under Topic 350.



During June 2011, the FASB issued ASU 2011-05,
“Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to report other comprehensive income and
its components in the statement of changes in stockholders’ equity and requires an entity to present the total of comprehensive
income, the components of net income and the components of other comprehensive income either in a single continuous statement or
in two separate but consecutive statements. Effective December 31, 2011, the Company elected to early adopt ASU No. 2011-05. The
Company's early adoption of this new guidance only resulted in a change in how the Company presents the components of comprehensive
income, which is currently presented within the consolidated statements of operations and comprehensive (loss) income.



During May 2011, the FASB issued ASU No. 2011-04,
“Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial
Reporting Standards (“IFRS”).” This pronouncement was issued to provide a consistent definition of fair value
and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04 changes
certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements.
This pronouncement is effective for reporting periods beginning on or after December 15, 2011. The adoption of ASU 2011-04
is not expected to have a significant impact to our consolidated financial position or results of operations.



During January 2010, the FASB issued ASU
No. 2010-6 to improve the disclosure and transparency of fair value measurements. These amendments clarify the level of disaggregation
required, and the necessary disclosures about the valuation techniques and inputs used to measure fair value for both recurring
and nonrecurring fair value measurements. We adopted this ASU beginning January 1, 2011 and it did not have a significant
impact on our consolidated financial position or results of operations.





F-14









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



3.ACQUISITION OF BRANDED ALGAE-BASED BEVERAGE COMPANY



On November
27, 2009, the Company entered into a Credit or Share Purchase Option Agreement (the “Option Agreement”) with Qiu Shang
Jing (“Qiu”) and Shishi Xianghe Food Science and Technology Co., Ltd. (“Xianghe”). The Option Agreement
provided the Company to make a loan to Xianghe in the amount of approximately $26.4 million to be used for working capital purposes,
of which the maturity date was January 26, 2010. In consideration for the loan, the Company received
the option to buy shares representing eighty percent (80%) of Xianghe from its sole shareholder, Qiu. The interest rate on the
loan is 5.0% per annum. Qiu agreed to pledge all of his shares in Xianghe to guarantee the performance by Xianghe under the Option
Agreement. The Company funded the loan from the currently available cash.



Xianghe is a Fujian based manufacturer
of the branded Hi-Power algae-based soft drinks. Hi-Power was developed by the Yellow Sea Fisheries Research Institute Chinese
Academy of Fishery Sciences in coordination with the founder, Qiu. Hi-Power is marketed as a high-protein content drink, low in
calories and fat, which provides the consumers a combination of immune system benefits, improved digestion and reductions in hyperglycemia
and hypertension. Hi-Power’s target market focuses on health-conscious consumers in China’s fast-growing beverage market.
Xianghe has developed a network of distributors in Fujian, Zhejiang, Guangdong and Hunan which sell Hi-Power to retail food stores,
restaurants food supply dealers and the hospitality industry.



On January 1, 2010, the Company exercised
the option to acquire shares representing eighty percent (80%) of the registered capital stock (the “Shares”) of Xianghe
pursuant to the terms of a Share Purchase Agreement (the “Purchase Agreement”). The Shares were purchased from Qiu
and the purchase price for the Shares was approximately $27.8 million, paid as follows:



| | (i) | Approximately $26.4 million, which Xianghe owed to
the Company, was transferred to be the consideration for the purchase of the Shares of Xianghe which the Company shall pay to
Qiu.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Approximately $1.4 million shall be paid by the Company
to Qiu within 30 days after completion of the audit report of Xianghe for the year ended December 31, 2009, which was then fully
settled.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Purchase Agreement grants the Company
a right of first refusal to purchase the 20% of the registered capital stock of Xianghe retained by Qiu for a maximum price of
approximately $7.0 million if Qiu intends to sell his shares. The Purchase Agreement also provides that if Xianghe has any funding
requirement from the shareholders, the Company and Qiu shall provide the capital into Xianghe on a pro rata basis according to
respective shareholdings.





F-15







CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



The following table summarizes the fair
value of the assets acquired and liabilities assumed at the date of acquisition. The allocation of the purchase price consideration
is presented as below:

|                                       |  |   |           
|-------------------------------------- |  | - | ----------
|Acquired assets:                       |  |   |           
|Cash and cash equivalents              |  | $ | 435,933   
|Accounts receivable, net               |  |   | 1,391,457 
|Inventories                            |  |   | 10,871    
|Amount due from an owner               |  |   | 1,442,623 
|Property, plant and equipment, net     |  |   | 395       
|Intangible assets, net                 |  |   | 8,596     
|                                       |  |   |           
|Total assets acquired                  |  |   | 3,289,875 
|                                       |  |   |           
|Less: liabilities assumed              |  |   |           
|Accounts payable, trade                |  |   | 402,982   
|Income tax payable                     |  |   | 225,180   
|Accrued liabilities and other payables |  |   | 240,808   
|                                       |  |   |           
|Total liabilities assumed              |  |   | 868,970   
|                                       |  |   |           
|Less: non-controlling interests        |  |   | 484,181   
|                                       |  |   |           
|Net assets acquired                    |  |   | 1,936,724 
|Algae-based drink know-how             |  |   | 23,471,410
|Goodwill                               |  |   | 2,391,866 
|                                       |  |   |           
|Purchase price consideration           |  | $ | 27,800,000



Pursuant to the Purchase Agreement, the
aggregate purchase price was approximately $27,800,000 (equivalent to RMB190,000,000), in which approximately $26,400,000 was payable
by Xianghe upon the conversion of its short-term loan and approximately $1,400,000 was payable by the Company’s subsidiary,
Mingxiang. Algae-based drink know-know acquired from the business combination was determined at its fair value, based upon the
independent valuation report.



At the closing date of business acquisition
on January 1, 2010, Mingxiang entered into a business transfer agreement with Qiu. Pursuant to the business transfer agreement,
Qiu agreed to transfer the algae-based soft drinks business from Xianghe to Mingxiang as part of the business restructuring of
Xianghe. It was also agreed that Qiu would not share any of the results of the algae-based soft drinks business operated under
Mingxiang in the future. As a result, Mingxiang fully integrated the business operation of algae-based soft drinks from Xianghe
and allowed 100% of the operating results generated from the algae-based soft drinks business, subject to the precedent condition.
Upon the completion of the business acquisition and business transfer, Xianghe became a dormant company.



In connection with the business transfer,
it was also agreed between both parties that Xianghe still assumed $83,260 in revenue and $2,459 in net income which mainly came
from the algae-based soft drinks business during the transitional period in January 2010 and as a result, $570 in net income was
attributed to the non-controlling interests as of the year end of 2010. Non-controlling interests from the business combination
mainly represented the 20% share of pre-acquisition equity in Xianghe as of December 31, 2009 in the consolidated balance sheet.





F-16









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



4.ACCOUNTS RECEIVABLE, NET



Accounts receivable consisted of the following:



|                                      |  | December 31, |           
|------------------------------------- |  | ------------ | ----------
|                                      |  | 2011         |           
|                                      |  |              |           
|Account receivable, at cost           |  | $            | 68,988,621
|Less: allowance for doubtful accounts |  |              | (344,943  
|Account receivable, net               |  | $            | 68,643,678



As of December 31, 2011 and 2010, the allowance
for doubtful accounts was $344,943 and $243,872, respectively.



Increase in accounts receivable was mainly
due to the block sales of marine catch trading in the fourth quarter of 2011.



Changes in the allowance for doubtful accounts
are as follows:



|                                |  | December 31, |        
|------------------------------- |  | ------------ | -------
|                                |  | 2011         |        
|                                |  |              |        
|Beginning balance               |  | $            | 243,872
|Provision for doubtful accounts |  |              | 101,071
|Amounts written off             |  |              | -      
|Ending balance                  |  | $            | 344,943



5.INVENTORIES



Inventories consisted of the following:



|                    |  | December 31, |          
|------------------- |  | ------------ | ---------
|                    |  | 2011         |          
|                    |  |              |          
|Raw materials       |  | $            | 3,982,617
|Work-in-process     |  |              | 3,941,723
|Finished goods      |  |              | 804,880  
|Packaging materials |  |              | 157,014  
|Total               |  | $            | 8,886,234
|                    |  |              |          



For the years ended December 31, 2011 and
2010, the Company recorded no allowance for slow-moving and obsolete inventories.





F-17











CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))





6.PROPERTY, PLANT AND EQUIPMENT



Property, plant and equipment, net, consisted
of the following:

|                                   |  | December 31, |           
|---------------------------------- |  | ------------ | ----------
|                                   |  | 2011         |           
|                                   |  |              |           
|Buildings                          |  | $            | 9,335,450 
|Plant and machinery                |  |              | 3,992,725 
|Office equipments                  |  |              | 127,048   
|Motor vehicles                     |  |              | 713,327   
|                                   |  |              | 14,168,550
|Less: accumulated depreciation     |  |              | (2,969,306
|Property, plant and equipment, net |  | $            | 11,199,244
|                                   |  |              |           



Depreciation expense for the years ended
December 31, 2011 and 2010 were $447,174 and $349,234, respectively, which included $289,133 and $261,378 in cost of revenue.



Certain property, plant and equipment
with original costs of $1,050,947 and $1,027,588 have become fully depreciated as of December 31, 2011 and 2010, respectively.



7.LAND USE RIGHTS



Land use rights consisted of the following:

|                               |  | December 31, |          
|------------------------------ |  | ------------ | ---------
|                               |  | 2011         |          
|                               |  |              |          
|Land use rights, at cost       |  | $            | 3,390,052
|Less: accumulated amortization |  |              | (366,483 
|Land use rights, net           |  | $            | 3,023,569





As of December 31, 2011 and 2010, certain
land use rights with the net book value of $409,898 and $nil, respectively, were pledged as securities in connection with the outstanding
short-term borrowings, as described in Note 7.



Amortization expense for the years ended
December 31, 2011 and 2010 were $79,404 and $75,604, respectively, in which $11,047 and $10,518 were included in cost of revenue.
Estimated aggregate future amortization expense for the succeeding 5 years and thereafter as of December 31, 2011 is as follows:

|Years ending December 31, |  |   |          
|------------------------- |  | - | ---------
|2012                      |  | $ | 79,404   
|2013                      |  |   | 79,404   
|2014                      |  |   | 79,404   
|2015                      |  |   | 79,404   
|2016                      |  |   | 79,404   
|Thereafter                |  |   | 2,626,549
|Total                     |  | $ | 3,023,569





F-18









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



8.CONSTRUCTION IN PROGRESS



In 2010, Mingxiang entered into an agreement
with an independent third party in relation to the construction of an additional floor at the existing staff quarter. Total construction
costs are approximately $2.2 million. The construction was completed in the first quarter of 2011 and transferred to property,
plant and equipment accordingly.



In 2010, Mingxiang entered into an agreement
with an independent third party in relation to the construction of an algae extraction equipment line. Total equipment costs are
approximately $0.2 million. The equipment was completed in the first quarter of 2011 and transferred to property, plant and equipment
accordingly.



During 2010, Mingxiang entered into an
agreement with an independent third party (the “Third Party Contractor”) in relation to the construction of a cold
storage facility. A supplementary agreement was then entered into between Mingxiang and the Third Party Contractor in September
2011 related to additional gross areas, machineries and equipment required for the facility. The construction is expected to be
completed in the first half of 2012. Total estimated construction costs are approximately $24.2 million. As of December 31, 2011,
the Company recorded approximately $22.9 million as construction in progress.



9.INTANGIBLE ASSETS



Intangible assets consisted of the following:

|                               |  | December 31, |           
|------------------------------ |  | ------------ | ----------
|                               |  | 2011         |           
|                               |  |              |           
|Intangible assets, at cost     |  | $            | 25,281,788
|Less: accumulated amortization |  |              | (5,056,568
|Intangible assets, net         |  | $            | 20,225,220





Amortization expense for the years ended
December 31, 2011 and 2010 were $2,488,205 and $2,369,116, respectively. Using the current exchange rate, the estimated annual
amortization expense is $2,528,069 for each of the five succeeding years.



10.SHORT-TERM BORROWINGS



The Company’s wholly-owned subsidiary,
Mingxiang, obtained short-term bank loans in the aggregate amount of $2,550,257 and $nil as of December 31, 2011
and 2010, respectively, from the Agricultural Bank of China, a registered financial institution in the PRC. The
weighted average effective interest rate per annum was 5.49% and 5.31% for 2011 and 2010, respectively, payable quarterly.
Interest expenses for the years ended December 31, 2011 and 2010 were $11,483 and $40,032, respectively and none of the interest
incurred was capitalized.



11.AMOUNT DUE TO A STOCKHOLER



As of December 31, 2011 and 2010, the amounts
of $50,361 and $261,789 represented temporary advances for working capital purposes from a major shareholder and CEO, Mr.
Liu, which were unsecured, interest free and repayable on demand.



F-19









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



12.ACCRUED LIABILITIES AND OTHER PAYABLES



Accrued liabilities and other payables
consisted of the following:



|                              |  | December 31, |          
|----------------------------- |  | ------------ | ---------
|                              |  | 2011         |          
|                              |  |              |          
|Value-added tax payable       |  | $            | 948,107  
|Accrued payroll and benefits  |  |              | 967,450  
|Accrued operating expenses    |  |              | 1,209,821
|Accrued professional expenses |  |              | 295,833  
|Other payables                |  |              | 3,077    
|                              |  | $            | 3,424,288



13.SHAREHOLDERS’ EQUITY



(a)Compensatory stock awards



On April 1, 2011, the Company granted compensatory
stock awards totaling 700,000 common shares to certain of its officers, directors and employees. These stock awards vested
in full on the date of the grant but are subject to forfeiture in full if the grantee ceases to be employed by the Company for
any reason within one year from the date of the grant, pursuant to stock award agreements between the Company and grantees dated
April 1, 2011.



Based on the closing stock price of the
grant date, the fair value of these stock awards are estimated to be approximately $2.7 million, which will be recognized as compensation
expense, using the straight-line method, over the service period of one year from April 1, 2011 to March 31, 2012.



For the year ended December 31, 2011, therecognized stock-based compensation expenses and related tax benefits were $2,034,197and $305,130, respectively.



The unrecognized stock-based compensation
expense as of December 31, 2011 is $611,803, and the remaining expected term for this expense to be recognized is 3 months.



(b)	Issuance of common stock



On February 15, 2011, the Company entered
into an Investor Relations Consulting Agreement with Hayden Communications International, Inc (“HCI”) to provide consulting
services for the Company. In connection with such service, the Company agreed to issue 20,000 shares of restricted common stock
to HCI. The shares of common stock were valued at $51,800 or $2.59 per share and issued on July 14, 2011.



(c)	Distribution of dividends



The Company did not declare any dividends
for the years ended December 31, 2011 and 2010.



As of December 31, 2011, the number of
authorized and outstanding shares of the Company’s common stock was 100,000,000 shares and 29,697,976 shares, respectively.





F-20









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



14.NON-CONTROLLING INTERESTS



Non-controlling interests consisted of
the following:



|                                                               |  | December 31, 2011 |         
|-------------------------------------------------------------- |  | ----------------- | --------
|                                                               |  |                   |         
|20% share of equity interest in Xianghe                        |  | $                 | 508,057 
|Less: advance to a non-controlling shareholder of a subsidiary |  |                   | (151,503
|Net amount                                                     |  | $                 | 356,554 



Advance to a non-controlling shareholder
of the Company’s subsidiary, Xianghe, was unsecured, interest free and repayable on demand.



15.INCOME TAXES



For the years ended December 31, 2011 and
2010, the local (“United States of America”) and foreign components of income (loss) before income taxes were comprised
of the following:



|                           |  | Year Ended December 31, |           
|-------------------------- |  | ----------------------- | ----------
|                           |  | 2011                    |           
|Tax jurisdiction from:     |  |                         |           
|– Local                    |  | $                       | (4,021    
|– Foreign                  |  |                         | 10,616,352
|Income before income taxes |  | $                       | 10,612,331





The provision for income taxes consisted
of the following:



|                   |  | Year Ended December 31, |          
|------------------ |  | ----------------------- | ---------
|                   |  | 2011                    |          
|Current:           |  |                         |          
|– Local            |  | $                       | -        
|– Foreign          |  |                         | 2,048,956
|                   |  |                         |          
|Deferred:          |  |                         |          
|– Local            |  |                         | -        
|– Foreign          |  |                         | -        
|Income tax expense |  | $                       | 2,048,956



The effective tax rate in the years presented
is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Company
has subsidiaries that operate in various countries: Hong Kong and the PRC that are subject to tax in the jurisdictions in which
they operate, as follows:



United States of America



China Marine is registered in the State
of Nevada and is subjected to United States of America tax law.



As of December 31, 2011, China Marine incurred
$21,865 of net operating loss carryforwards available for federal tax purposes that may be used to offset future taxable income
and will begin to expire in 2028, if unutilized. The Company has provided for a full valuation allowance against the deferred tax
assets of $7,543 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is
more likely than not that these assets will not be realized in the future.





F-21









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



Hong Kong



The Company’s subsidiary, Ocean Technology,
is subject to Hong Kong Profits Tax at the statutory rate of 16.5% on its assessable income for the periods ended December 31,
2011 and 2010, respectively. As of December 31, 2011, Ocean Technology incurred $694,371 of net operating loss carryforwards available
for income tax purposes. The Company has provided for a full valuation allowance against the deferred tax assets of $114,571 on
the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not
that these assets will not be realized in the future.



The PRC



The Company generated all of its net income
from subsidiaries operating in the PRC for the years ended December 31, 2011 and 2010. Rixiang, Jixiang, Mingxiang, Xianghe and
Xianglin are subject to the Corporate Income Tax governed by the Income Tax Law of the People’s Republic of China, at a unified
income tax rate of 25%.



On October 15, 2009, Mingxiang has received
a notice of recognition as an enterprise of new and high technology, which was jointly issued by the Science and Technology Department
of Fujian, the Finance Department of Fujian, the State Tax Bureau of Fujian and the Local Taxation Bureau of Fujian, for a company
engaged in advanced food processing technologies for the Fujian Province. As a new and high technology company, Mingxiang is qualified
for a reduced income tax rate of 15% on its income before tax for a period of three years, expiring in 2012.



The reconciliation of income tax rate to
the effective income tax rate for the years ended December 31, 2011 and 2010 is as follows:



|                                                                |  | Year Ended December 31, |           
|--------------------------------------------------------------- |  | ----------------------- | ----------
|                                                                |  | 2011                    |           
|                                                                |  |                         |           
|Income before income taxes from PRC subsidiaries                |  | $                       | 10,762,969
|Statutory income tax rate                                       |  |                         | 25        
|Income tax expense at statutory tax rate                        |  |                         | 2,690,742 
|                                                                |  |                         |           
|Tax effect on utilization of net operating losses carryforwards |  |                         | -         
|Tax effect from Tax Holiday                                     |  |                         | (1,319,986
|Tax effect on net operating losses from PRC subsidiaries        |  |                         | 2,081     
|Tax effect on non-taxable income                                |  |                         | 18,438    
|Tax effect on non-deductible expenses                           |  |                         | 657,681   
|Income taxes at effective rate                                  |  | $                       | 2,048,956 



As of December 31, 2011, the PRC operation
incurred $119,728 of net operating loss carryforwards available for income tax purposes that may be used to offset future taxable
income and will begin to expire in 5 years from the year of incurrence, if unutilized. The Company has provided for a full valuation
allowance against the deferred tax assets of $29,932 on the expected future tax benefits from the net operating loss carryforwards
as the management believes it is more likely than not that these assets will not be realized in the future. The entities in the
PRC do not file a consolidated return, so only the entity that generated the losses can utilize them.





F-22









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



The following table sets forth the significant
components of the aggregate net deferred tax assets of the Company as of December 31, 2011 and 2010:



|                                      |  | December 31, |         
|------------------------------------- |  | ------------ | --------
|                                      |  | 2011         |         
|Deferred tax assets:                  |  |              |         
|Net operating loss carryforwards from |  |              |         
|– Local                               |  | $            | 7,543   
|– Hong Kong                           |  |              | 114,571 
|– PRC                                 |  |              | 29,932  
|                                      |  |              | 152,046 
|Less: valuation allowance             |  |              | (152,046
|Deferred tax assets                   |  | $            | -       



Management believes that it is more likely
than not that the net deferred assets will not be fully realizable in the future. Accordingly, the Company provided for a full
valuation allowance against its net deferred tax assets of $152,046 and $124,771 as of December 31, 2011 and 2010, respectively.
During 2011, the valuation allowance increased by $27,275, primarily relating to net operating loss carryforwards.



Tax Holiday





Income before income tax expense was $10,612,331
and $25,594,689 for the years ended December 31, 2011 and 2010 and was mainly attributed to subsidiaries with operations in China.
Income tax related to China income for the years ended December 31, 2011 and 2010 was $2,048,956 and $4,455,167. The combined pro
forma effects of the income tax expense exemptions and reductions available to us are as follows:







|                                                 |  | Year Ended December 31, |          
|------------------------------------------------ |  | ----------------------- | ---------
|                                                 |  | 2011                    |          
|Amount of tax holiday effect                     |  | $                       | 1,319,986
|Tax holiday effect on basic earnings per share   |  | $                       | 0.04     
|Tax holiday effect on diluted earnings per share |  | $                       | 0.04     







16.CHINA CONTRIBUTION PLAN



Under the PRC Law, full-time employees
of the Company’s subsidiaries in the PRC, Rixiang, Jixiang, Mingxiang and Xianghe are entitled to staff welfare benefits
including medical care, welfare subsidies, unemployment insurance and pension benefits through a China government-mandated multi-employer
defined contribution plan. The Company is required to accrue for these benefits based on certain percentages of the employees’
salaries. The total contributions made for such employee benefits were $778,644 and $727,067 for the years ended December 31, 2011
and 2010, respectively.





F-23









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



17.EARNINGS PER SHARES



Reconciliation from basic earnings
per share to diluted earnings per share:



|                                                   |  | Year Ended December 31, |           
|-------------------------------------------------- |  | ----------------------- | ----------
|                                                   |  | 2011                    |           
|                                                   |  |                         |           
|Earnings for the years                             |  | $                       | 8,563,615 
|                                                   |  |                         |           
|Determination of shares:                           |  |                         |           
|Basic weighted average common shares outstanding   |  |                         | 29,514,744
|Assumed exercise of warrants                       |  |                         | -         
|                                                   |  |                         |           
|Diluted weighted average common shares outstanding |  |                         | 29,514,744
|                                                   |  |                         |           
|Basic earnings per share                           |  | $                       | 0.29      
|Diluted earnings per share                         |  | $                       | 0.29      



18.STATUTORY RESERVE



Under the PRC Law, the Company’s
subsidiaries in the PRC, Rixiang, Jixiang, Mingxiang, Xianghe and Xianglin are required to make appropriation at the end of each
fiscal year to the statutory reserve based on after-tax net earnings and determined in accordance with generally accepted accounting
principles of the People’s Republic of China (the “PRC GAAP”). Appropriation to the statutory reserve should
be at least 10% of the after-tax net income until the reserve is equal to 50% of the registered capital. The statutory reserve
is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable
other than in liquidation.



For the years ended December 31, 2011,
and 2010, Rixiang contributed $5,967 and $267,589 to statutory reserve, respectively, whereas Mingxiang contributed $426,969 and
$3,381,135. Jixiang, Xianghe and Xianglin made no appropriation to the statutory reserve since they did not generate after-tax
net income during these periods.



19.SEGMENT REPORTING, GEOGRAPHICAL INFORMATION



(a)Business information



The Company’s chief operating decision
maker has been identified as chairman, Mr. Liu, who reviews consolidated results when making decisions about allocating resources
and assessing performance of the Company. Based on this assessment, the Company has determined that it has three operating and
reporting segments for the years ended December 31, 2011 and 2010 which are processed seafood products, marine catch and algae-based
beverage products.



The accounting policies of the segments
are the same as those described in the summary of significant accounting policies (see Note 2). The Company had no inter-segment
sales for the years ended December 31, 2011 and 2010.





F-24









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



Summarized financial information concerning
the Company’s reportable segments is shown in the following table for the years ended December 31, 2011 and 2010:



|                                  |  | Year Ended December 31, 2011 |            
|--------------------------------- |  | ---------------------------- | -----------
|                                  |  | Processed seafood            |            
|                                  |  | products                     |            
|                                  |  |                              |            
|Revenue, net                      |  | $                            | 58,967,200 
|Cost of revenue                   |  |                              | (41,411,880
|Gross profit                      |  | $                            | 17,555,320 
|                                  |  |                              |            
|Expenditure for long-lived assets |  | $                            | 11,004,949 



|                                  |  | Year Ended December 31, 2011 |            
|--------------------------------- |  | ---------------------------- | -----------
|                                  |  | Processed seafood            |            
|                                  |  | products                     |            
|                                  |  |                              |            
|Revenue, net                      |  | $                            | 70,466,645 
|Cost of revenue                   |  |                              | (46,140,571
|Gross profit                      |  | $                            | 24,326,074 
|                                  |  |                              |            
|Expenditure for long-lived assets |  | $                            | 13,711,967 



Expenditure for long-lived assets incurred
for the years ended December 31, 2011 and 2010 mainly relates to the construction of a cold storage facility which will be used
for both processed seafood products and marine catch segments.



(b)Geographic information



The Company’s operations are located
in two main geographical areas. The Company’s sales by geographical market are analyzed as follows:

|                   |  | Year Ended December 31, |             
|------------------ |  | ----------------------- | ------------
|                   |  | 2011                    |             
|Revenue, net:      |  |                         |             
|The PRC            |  | $                       | 14 3,801,671
|Asia               |  |                         | 146,001     
|                   |  |                         |             
|Total revenue, net |  | $                       | 143,947,672 



All the Company’s long-lived assets
are located in the PRC in both periods.



20.CONCENTRATIONS OF RISK



The Company is exposed to the following
concentrations of risk:



(a)	Major customers



The following is a table summarizing the
revenue from customers that individually represents greater than 10% of the total revenue for the years ended December 31, 2011
and 2010 and their outstanding balances as at year-end dates.





F-25









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



|           |  | Year Ended December 31, 2011 |           
|---------- |  | ---------------------------- | ----------
|Customer   |  | Revenue                      |           
|           |  |                              |           
|Customer A |  | $                            | 36,353,325
|           |  |                              |           
|Total:     |  | $                            | 36,353,325



|           |  | Year Ended December 31, 2010 |           
|---------- |  | ---------------------------- | ----------
|Customer   |  | Revenue                      |           
|           |  |                              |           
|Customer B |  | $                            | 15,334,932
|           |  |                              |           
|Total:     |  | $                            | 15,334,932



(b)	Major vendors



The following is a table summarizing the
purchases of raw materials from vendor that individually represents more than 10% of the total purchases for the years ended December
31, 2011 and 2010 and their outstanding balances as at year-end dates.



|         |  | Year Ended December 31, 2011 |           
|-------- |  | ---------------------------- | ----------
|Vendors  |  | Purchases                    |           
|         |  |                              |           
|Vendor A |  | $                            | 32,753,228
|Vendor B |  |                              | 14,771,657
|Vendor C |  |                              | 12,291,558
|Vendor D |  |                              | 9,447,849 
|         |  |                              |           
|Total:   |  | $                            | 69,264,292



|         |  | Year Ended
    Decemb er 31, 2010 |           
|-------- |  | --------------------------------- | ----------
|Vendors  |  | Purchases                         |           
|         |  |                                   |           
|Vendor C |  | $                                 | 13,682,806
|Vendor D |  |                                   | 12,622,622
|Vendor E |  |                                   | 12,335,243
|Vendor B |  |                                   | 8,864,852 
|Vendor F |  |                                   | 6,876,567 
|         |  |                                   |           
|Total:   |  | $                                 | 54,382,090
|         |  |                                   |           





F-26









CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



(c)	Credit risk



Financial instruments that are potentially
subject to credit risk consist principally of trade receivables. The Company believes the concentration of credit risk in its trade
receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company
does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical trends and other information.



(d)	Exchange rate risk



The reporting currency of the Company is
US$, to date the majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities
are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations
may be affected by fluctuations in the exchange rate between US$ and RMB. If the RMB depreciates against US$, the value of the
RMB revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivatives or other
financial instruments that expose to substantial exchange rate risk.



(e)	Economic and political risks



Substantially all of the Company’s
products are processed in the PRC. The Company’s operations are subject to various political, economic, and other risks and
uncertainties inherent in the PRC and not typically associated with companies in North America and Western Europe. Among other
risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and
embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political
conditions and governmental regulations in the PRC.



21.COMMITMENTS AND CONTINGENCIES



(a)Operating lease commitments



The Company
leased certain office space under a non-cancellable operating lease agreement with a term of 3 years with fixed monthly rentals,
expiring on February 17, 2014, and generally not containing significant renewal options. Total rent expenses for the years
ended December 31, 2011 and 2010 was $79,618 and $77,145, respectively. Future minimum rental payments
due under the non-cancelable operating lease agreement are as follows:



|Years ending December 31: |  |   |         | 
|------------------------- |  | - | ------- | 
|2012                      |  | $ | 80,000  | 
|2013                      |  |   | 80,000  | 
|2014                      |  |   | 10,714  | 
|                          |  |   |         | 
|Total                     |  | $ | 170,714 | 



(b)Capital commitments



In 2010, Mingxiang entered into an agreement
with an independent third party (the “Third Party Contractor”) in relation to the construction of a cold storage facility.
A supplementary agreement was then entered into between Mingxiang and the Third Party Contractor in September 2011 related to additional
gross areas, machineries and equipment required for the facility. The construction is expected to be completed by the first quarter
end of 2012. Total estimated construction costs are approximately $24.2 million. As of December 31, 2011, the Company recorded
approximately $22.9 million as construction in progress.





F-27







CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 AND 2010

(Currency expressed in United
States Dollars (“US$”))



(c)Guarantees



As of December 31, 2011, Mingxiang was
contingently liable as guarantor with respect to the loan of $472,270 (equivalent to RMB 3,000,000) to an unrelated third party,
Shishi Han Jiang Hua Lian Knitting and Clothing Factory (“Han Jiang Hua Lian”). The term of this guarantee is for the
period from November 2008 through December 2017. Pursuant to the loan agreement, Han Jiang Hua Lian will repay the loan by installments
and be fully settled by December 31, 2017. Should Han Jiang Hua Lian fail to make its debt payments due at any time from the date
of guarantee, Mingxiang will be obligated to perform under the guarantee by primarily making the required payments, including late
fees and penalties. The maximum potential amount of future payments that the Mingxiang is required to make under the guarantee
is $472,270 (equivalent to RMB 3,000,000).



As of December 31, 2010, Mingxiang was
contingently liable as guarantor with respect to the loans of $787,116 (equivalent to RMB 5,000,000) to an unrelated third party,
Shishi Yu Ching Knitting and Clothing Company (“Yu Ching”). The term of this guarantee is for the period from January,
2009 through January, 2011. During 2011, Yu Ching repaid the principal amount of the loan in the amount of $787,116 (equivalent
to RMB 5,000,000) but left the amount of loan interest unsettled due to a disagreement between Yu Ching and the creditor in relation
to the calculation of the loan interest. Should Yu Ching fail to make its loan interest payments due at any time from the date
of guarantee, Mingxiang will be obligated to perform under the guarantee by primarily making the required payments, including late
fees and penalties.



According to the Personal Guarantee Agreement
between Mingxiang and Mr. Liu, Mr. Liu agreed to bear all liabilities and costs incurred from a direct claim by the creditor if
either Han Jiang Hua Lian or Yu Ching fails to make payments to the creditor upon due dates.



In accordance with ASC 460-10 “Guarantees”,
a guarantor must recognize a liability for the fair value of the obligations it assumes under certain guarantees. Mingxiang did
not receive any consideration for the guarantee and has determined the fair value of the indemnification to be insignificant. As
of December 31, 2011, the Company has not recorded any liabilities under these guarantees.



22.SUBSEQUENT EVENT



In accordance with ASC 855 “Subsequent
Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued, we have evaluated all events or transactions that occurred after December 31,
2011 up through the date we issued the condensed consolidated financial statements. During this period, we did not have any material
recognizable subsequent events.





F-28









ITEM 9.	            Changes In and
Disagreements with Accountants on Accounting and Financial Disclosure



On October 29, 2010, the Company engaged
BDO China Dahua CPA Co., Ltd. (formerly known as BDO China Li Xin Da Hua CPA Co., Ltd.) (“BDO
China”) as the Company’s new independent accountant. During the two most recent years ended December 31, 2009 and 2008,
and any subsequent interim period through October 29, 2010, the Company did not consult with BDO China, the newly engaged accountant,
regarding any matter described in Item 304(a)(2) of Regulation SK, including any issue related to the Company’s financial
statements, subject of a disagreement, any reportable event or the type of audit opinion that might be rendered for the Company.
The change of independent accountant was approved by the Audit Committee of the Board of Directors of the Company.



On October 29, 2010, the Company’s
former independent accountant, ZYCPA Company Limited(“ZYCPA”) resigned as independent
accountant of the Company. The former independent accountant’s reports on the Company’s financial statements for the
last two fiscal years did not contain any adverse opinions or disclaimer of opinions, nor were the reports qualified or modified
as to uncertainty, audit scope or accounting principles. Furthermore, the accountant’s reports did not include any disclosure
of uncertainty regarding the Company’s ability to continue as a going concern.



During the fiscal years ended December
31, 2010 and 2011, there were no disagreements between the Company and ZYCPA, the former independent
accountant,on any matter of accounting principles or practices, financial statement disclosure or auditing scope and procedure
which, if not resolved to the satisfaction of the former accountant, would have caused it to make reference to the subject matter
of the disagreement in connection with its report.



64









ITEM 9A.	             Controls and Procedures



Evaluation of Disclosure Controls and
Procedures



Under the supervision and with the participation
of our management, including our Chief Executive Officer, Pengfei Liu, and Principal Financial Officer, Marco Hon Wai Ku, we evaluated
the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the "Exchange Act") as of Decmeber 31, 2011.



Under Rule 13a-15(e) and 15d-15(e), the
term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure
that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C.
78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's
management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate
to allow timely decisions regarding required disclosure.



Based upon that evaluation, our Chief Executive
Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of December 31, 2011 were effective
such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated
to our management to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however,
that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have been detected.



Management’s Report on Internal
Control over Financial Reporting



Our management is responsible for establishing
and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934, as amended). Our management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2011.



Our internal control over financial reporting
is a process designed by or under the supervision of our principal executive and principal financial officers to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our internal control over financial reporting includes policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions
and dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being
made only in accordance with authorizations of management and the directors of the Company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could
have a material effect on our financial statements.



In making this assessment, our management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in ‘Internal
Control – Integrated Framework’. Our management has concluded that, as of December 31, 2011, our internal control
over financial reporting is effective based on these criteria.



This annual report does not include an
attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's
report was not subject to attestation by the company's registered public accounting firm pursuant to rules of the Securities and
Exchange Commission that permit the company to provide only management's report in this annual report.



There were no changes in our internal controls
over financial reporting during the year ended December 31, 2011 that have materially affected, or are reasonably likely to
materially affect our internal controls over financial reporting.



Our management, including our Chief Executive
Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will
prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within China Marine Food Group Limited have been detected.



ITEM 9B.	            Other Information



None



65







PART III.



ITEM 10.	            Directors and
Executive Officers of the Registrant, and Corporate Governance



DIRECTORS AND OFFICERS



The following sets forth the name and position of each of our
current executive officers and directors.



|                 |  |     |  |                            
|---------------- |  | --- |  | ---------------------------
|Name             |  | Age |  | Position held              
|                 |  |     |  |                            
|Pengfei LIU      |  | 56  |  | CEO, Secretary and Director
|                 |  |     |  |                            
|Marco Hon Wai KU |  | 38  |  | Chief Financial Officer    
|                 |  |     |  |                            
|Weipeng LIU      |  | 35  |  | Director                   
|                 |  |     |  |                            
|Xiaochuan LI     |  | 67  |  | Independent Director       
|                 |  |     |  |                            
|Changhu XUE      |  | 47  |  | Independent Director       
|                 |  |     |  |                            
|Honkau WAN       |  | 38  |  | Independent Director       



None of the Directors and Executive Officers
is related to each other or the Substantial Shareholder.



Pengfei Liu has served as the CEO
and Secretary and as a Director of China Marine Food Group Limited since November 2007. He is the founder of our Company, and has
been spearheading the expansion and growth of our Company. Mr. Liu is responsible for our operations, marketing, public relations,
strategic planning and development of new products and markets and overall running of our Company.



From 1975 to 1981, Mr. Liu served as a
seaman with the Zhejiang East Ocean Navy. From 1981 to 1993, he worked as a trader in seafood. In 1994, Mr. Liu established Mingxiang
and has been employed full time as its Chief Executive Officer ever since. In October 2003, Mr. Liu was elected as member
of the executive committee of the China Aquatic Products Processing and Marketing Association (CAPPMA). In December 2003, Mr. Liu
was appointed committee member of the Shishi Committee (Fujian Province) of the Chinese People’s Political Consultative Conference.
In January 2005, Mr. Liu was elected vice-chairman of the executive committee of Quanzhou Food Products Industry Association. In
December 2005, Mr. Liu was appointed as a member of the executive committee of the China Chamber of International Commerce, Shishi
Chamber of Commerce. In August 2006, Mr. Liu was appointed executive member of the general meeting of the Fujian Aquatic Products
Processing and Marketing Association (FAPPMA). Mr. Liu is not a member of the board of directors for any other public company or
any investment company, neither has he been a member of the board of directors for such companies for the past five years.The
Board believes that Mr. Liu has the experience, qualifications, attributes and skills necessary to serve on the Board because of
his over 30 years of experience in the seafood industry, his having provided leadership and strategic direction to the Company
as its founder and his unparalleled knowledge of the Company and its business.



Marco Hon Wai Ku is our Chief Financial
Officer and joined our Company in July 2007. He is responsible for the corporate finance function of our Company and oversees matters
relating to accounting, financial administration and the compliance and reporting obligations of our Company. Mr. Ku obtained a
bachelor’s degree in Finance from the Hong Kong University of Science and Technology in 1996, and is currently a Fellow Member
of the Hong Kong Institute of Certified Public Accountants.



Prior to joining
us, from 1996 to 2000, Mr. Ku was with KPMG, where he last held the position as Assistant Manager. From August 2000 to February
2003, he was the Manager - Corporate Services in Logistics Information Network Enterprise (HK) Limited, a subsidiary of Hutchison
Port Holdings Ltd., where he later worked as Manager - Management Accounting from March 2003 to September 2004. From October 2004
to September 2005, he worked as a Financial Controller for Hongkong.com Company Limited (a Hong Kong listed company within the
China.com Group). And from October 2005 to April 2007, he co-founded KISS Catering Group, which is a food and beverage business
in Beijing. Mr. Ku is not a director of any other public company or any investment company, neither has he been a member of the
board of directors for such companies for the past five years.



66







Weipeng Liuhas served as a Director
of the Company since November 2007. Mr. Liu oversees the construction, operation and maintenance of our equipment and production
facilities in the capacity of Manager of Operations, a position he has held since 1997. In 1997, Mr. Liu joined our Company as
Mingxiang and Rixiang’s facilities manager. He was appointed to serve as a director of Rixiang in October 2006.Mr.
Liu graduated with a degree in mechanical design and manufacturing and automation from Fuzhou University in 1997. Mr. Liu is not
a member of the board of directors of any other public company or any investment company, neither has he been a member of the board
of directors for such companies for the past five years.The Board believes that Mr. Liu has the experience, qualifications,
attributes and skills necessary to serve on the Board because of his over 10 years of experience with the Company and his knowledge
of our equipment and production facilities.



Xiaochuan Li has served as an independent
Director of the Company since October 2008. Mr. Li has been the Director of the Division for Test of the Safety and Quality of
Aquatic Products in the Yellow Sea Fisheries Research Institute of the Chinese Academy of Fishery Sciences since 1978, where he
is responsible for the marine products processing technology research and carrying out coordination in terms of both quality and
quantity examination and formulating related standards. From 1987 to 2005, Mr. Li was also the Center Director of the National
Center for Quality Supervision and Test of Aquatic Products. During his tenure, Mr. Li was responsible for overseeing the daily
operation of the laboratory and inspection center. Mr. Li is not a member of the board of directors of any other public company
or any investment company, neither has he been a member of the board of directors for such companies for the past five years.



The Board believes that Mr. Li has the
experience, qualifications, attributes and skills necessary to serve on the Board because of his over 30 years of experience with
the seafood industry, his management skills as the Director of the Division for Test of the Safety and Quality of Aquatic Products
in the Yellow Sea Fisheries Research Institute of the Chinese Academy of Fishery Sciences and for his experience in testing and
quality control of seafood products.



Changhu Xue has served as an independent
Director of the Company since October 2008. Since 1990, Mr. Xue has been a professor of Aquatic Product Processing and Preserving
Engineering at the Ocean University of China. Mr. Xue is a Council Member of China Society of Fisheries and the Chairman of the
Fish Processing and Comprehensive Utilization Sub-committee of the China Society of Fisheries. He is also the Chief Secretary of
the Steering Committee for Light Industry and Food Education in the Ministry of Education for the People’s Republic of China.
Mr. Xue’s major focus of research has been in aquatic product processing and fisheries chemistry. Mr. Xue has completed over
20 state and provincial research projects including the research schemes in the National Natural Science Foundation of China and
has published over 100 papers and articles in academic journals. In 1990, Mr. Xue was the first recipient of a doctoral degree
in Agriculture and Aquatic Products in China. Mr. Xue has obtained 8 patent certificates and 2 technological achievements awarded
by the provincial authority. Mr. Xue is not a member of the board of directors of any other public company or any investment company,
neither has he been a member of the board of directors for such companies for the past five years.The Board believes that
Mr. Xue has the experience, qualifications, attributes and skills necessary to serve on the Board because of his extensive academic
knowledge of the seafood industry and research accomplishments.



Honkau Wan has served as an independent
Director of the Company since October 2008. Mr. Wan has practiced as a certified public accountant (“CPA”) since 2003.
His firm provides professional auditing, consultancy and secretarial services to his clients on a variety of industries. From 2000
to 2002, Mr. Wan served in a multi-national company as an internal auditor, where he participated in evaluating the internal control
systems of the group companies and made recommendations to the management. The multi-national company was involved in the following
industries: financial institutions, property development, airline and security broker in Hong Kong, China, United States and other
Asia Pacific countries. From 1996 to 1999, Mr. Wan was with KPMG auditing financial institutions. Mr. Wan received a BBA in Accounting,
with Honors, from the Hong Kong Polytechnic University in 1996. Mr. Wan is not a member of the board of directors of any other
public company or any investment company, neither has he been a member of the board of directors for such companies for the past
five years.The Board believes that Mr. Wan has the experience, qualifications, attributes and skills necessary to serve
on the Board because of his over 15 years of relevant experience in finance and accounting.



There are no agreements or understandings
for any of our executive officers or directors to resign at the request of another person, and no officer or director is acting
on behalf of nor will any of them act at the direction of any other person.



SIGNIFICANT EMPLOYEES



Other than the officers described above,
we do not expect any other individuals to make a significant contribution to our business.



FAMILY RELATIONSHIPS



There are no family relationships among
our officers, directors, persons nominated for such positions, or significant shareholders.



INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS



None of our directors, executive officers,
or control persons have been involved in any of the following events during the past ten years:



| | · | Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either
at the time of bankruptcy or within two years prior to that time; or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



67







| | · | Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and
other minor offenses); or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business,
securities or banking activities; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Being found by a court of competent jurisdiction (in a civil violation), the SEC or the Commodity Future Trading Commission
to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Being the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged violation of: any Federal or State securities or commodities
law or regulation; or any law or regulation respecting financial institutions or insurance companies including, but not limited
to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist
order, or removal or prohibition order; or any law or regulation prohibiting mail or wire fraud or fraud in connection with any
business entity. This violation does not apply to any settlement of a civil proceeding among private litigants; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in
Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization
that has disciplinary authority over its members or persons associated with a member.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



BOARD COMMITTEES



The Board of Directors is composed of five
directors: Mr. Pengfei Liu, Mr. Weipeng Liu, Mr. Xiaochuan Li, Mr. Changhu Xue and Mr. Honkau Wan. All board action requires the
approval of a majority of directors in attendance at a meeting at which a quorum is present.



On June 18, 2009, the Company established
an Audit Committee of the Board with the responsibility for assisting the Board in fulfilling its oversight role regarding the
Company’s financial reporting process, its system of internal control and its compliance with applicable laws, regulations
and company policies. Honkau Wan, Xiaochuan Li, and Changhu Xue were elected to be members of the Audit Committee and shall
serve the Committee until their successors are duly elected and qualified. On June 18, 2009, the Company also established a Governance
Committee and a Compensation Committee, and elected Xiaochuan Li and Changhu Xue as members to each Committee.



The Audit Committee is primarily responsible
for reviewing the services performed by our independent auditors, evaluating our accounting policies and our system of internal
controls. The Company’s Board of Directors has determined that the registrant has one audit committee financial expert, Honkau
Wan, serving on its Audit Committee. Honkau Wan has been CPA since 2003 and understands the generally accepted accounting principles
and financial statements. He is considered as independent director as defined in the listing standards applicable to the Registrant.
His relevant experiences are disclosed in the above content in Item 10 of this Form 10-K.



The Governance Committee is primarily responsible
for nominating directors and setting policies and procedures for the nomination of directors. The Governance Committee is also
responsible for overseeing the creation and implementation of our corporate governance policies and procedures. The Company
does not have procedures by which security holders may recommend nominees to the Company’s Board of Directors.



The Compensation Committee is primarily
responsible for reviewing and approving our salary and benefit policies (including equity plans), including compensation of
executive officers.



COMPLIANCE EITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934



Section 16(a) of the Securities and Exchange
Act of 1934 requires our executive officers and directors and persons who own more than 10% of a registered class of our equity
securities, to file with the SEC initial statements of beneficial ownership on Form 3, reports of changes in ownership on Form
4 and annual reports concerning their ownership on Form 5. Executive officers, directors and greater than 10% stockholders are
required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file.



68







CODE OF ETHICS



We adopted a Code of Ethics pursuant to
Section 406 of the Sarbanes-Oxley Act of 2002 on January 24, 2008. Our Standards of Business Conduct and Finance Code of Professional
Conduct apply to our officers, directors and all employees. Our Standard of Business Conduct provides guidelines to employees to
report any suspected or known violations of the Finance Code of Professional Conduct, the Standards of Business Conduct, or other
China Marine policies. Under the Code of Ethics and Standards of Business Conduct, all employees will:



| | · | Act with honesty and integrity, avoiding actual or apparent conflicts of interest in their personal and professional relationships.
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| | · | Provide shareholders with information that is accurate, complete, objective, fair, relevant, timely, and understandable, including
information in our filings with and other submissions to the U.S. Securities and Exchange Commission and other public bodies.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Comply with rules and regulations of federal, state, provincial and local governments, and of other appropriate private and
public regulatory agencies.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Action in good faith, responsibly, with due care, competence, and diligence, without misrepresenting material facts or allowing
one’s independent judgment to be subordinated.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Respect the confidentiality of information acquired in the course of one’s work except when authorized or otherwise legally
obligated to disclose.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Not use confidential information acquired in the course of one’s work for personal advantage.
| | - | ---------------------------------------------------------------------------------------------



| | · | Share knowledge and maintain professional skills importance and relevancy to shareholders’ needs.
| | - | -------------------------------------------------------------------------------------------------



| | · | Proactively promote and be an example of ethical behavior as a responsible individual among peers, in the working environment
and the community.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Exercise responsible use, control, and stewardship over all China Marine assets and resources that are employed by or entrusted
to us.
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | · | Not coerce, manipulate, mislead, or unduly influence any authorized audit or interfere with any auditor engaged in the performance
of an internal or independent audit of China Marine’s system of internal controls, financial statements, or accounting books
and records.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



This Finance Code of Professional Conduct
embodies principles which we are expected to adhere to and advocate. These principles of ethical business conduct encompass rules
regarding both individual and peer responsibilities, as well as responsibilities to China Marine shareholders and the public. The
CEO, CFO, and all employees are expected to abide by this Code. Any violations of the China Marine’s Finance Code of Professional
Conduct may result in disciplinary action, up to and including termination of employment.



ITEM 11.            Executive
Compensation



COMPENSATION DISCUSSION AND ANALYSIS



Background and Compensation Philosophy



Our Compensation
Committee consists of Xiaochuan Li and Changhu Xue, both independent directors. The Compensation Committee determines the
compensation to be paid to our executive officers based on our financial and operating performance and prospects, the level of
compensation paid to similarly situated executives in comparably sized companies, such asChina Green Agriculture,
Inc., Zhongpin Inc., American Dairy, Inc., Converted Organics Inc. and Agfeed Industries Inc., and contributions made by the officers’
to our success. Each of the named officers will be measured by a series of performance criteria by the Board of Directors,
or the compensation committee, on a yearly basis. Such criteria will be set forth based on certain objective parameters such
as job characteristics, required professionalism, management skills, interpersonal skills, related experience, personal performance
and overall corporate performance.



Our Board of Directors and Compensation
Committee have not adopted or established a formal policy or procedure for determining the amount of compensation paid to our executive
officers. The Compensation Committee makes an independent evaluation of appropriate compensation to key employees, with input from
management. The Compensation Committee has oversight of executive compensation plans, policies and programs.



69







Our compensation
program for our executive officers and all other employees is designed such that it will not incentivize unnecessary risk-taking.
The base salary component of our compensation program is a fixed amount and does not depend on performance. Our cash incentive
program takes into account multiple metrics, thus diversifying the risk associated with any single performance metric, and we believe
it does not incentivize our executive officers to focus exclusively on short-term outcomes. Pursuant to their Service Agreements
with the Company, Pengfei Liu and Weipeng Liu can receive a bonus based on the Company’s profitability before taxes (“PBT”).
This is our first time to grant equity awards as incentive bonuses under our 2010 Stock Award Plan in April 2011. Our equity awards
are subject to vesting to align the long-term interests of our executive officers with those of ourstockholders.



On November 18, 2011, at the 2011 annual
meeting of shareholders, our shareholders approved the non-binding advisory proposal regarding the Company's executive compensation
and approved a proposal that the non-binding advisory shareholder vote on executive compensation to be held every three years.



Elements of Compensation



We provide our executive officers with
a base salary, bonuses, and equity incentives to compensate them for services rendered during the year.



Base Salary



The 2010 base salary for Mr. Pengfei Liu,
Mr. Marco Ku and Mr. Weipeng Liu is about $142,000, $142,000 and $44,000, respectively. The 2011 base salary for Mr. Pengfei
Liu, Mr. Marco Ku and Mr. Weipeng Liu is about $149,000, $149,000 and $47,000, respectively. All such amounts were paid in
cash. The value of base salary reflects each executive’s skill set and the market value of that skill set in the sole
discretion of our Board of Directors and/or our executive officers. The compensation paid to our each independent director Xiaochuan
Li, Changhu Xue, and Honkau Wan for 2011 is $9,500, $9,500, and $7,700, respectively.



Bonuses



Incentive bonuses for Mr. Pengfei Liu and
Mr. Weipeng Liu are based on a fixed formula as more fully described below under “Bonuses and Deferred Compensation”
and are based upon our PBT, where “PBT” refers to the audited combined profit from our operations and before income
tax and before any dividend distribution (excluding non-recurring exceptional items and extraordinary items) and before minority
interests for the relevant financial year. Since the PBT for the year ended December 31, 2011 was less than the threshold
of US$12,394,646, Mr. Pengfei Liu and Mr. Weipeng Liu were not eligible to receive any discretionary bonus for 2011 according to
the calculation basis as detailed in the section “Bonuses and Deferred Compensation”.



We have determined and provided our other
executive officers with cash or equity bonuses at the end of each fiscal year. Our Compensation Committee reviews the necessity
of such bonuses on a yearly basis based on our financial and operating performance and prospects, the level of compensation paid
to similarly situated executives in comparably sized companies and contributions made by the officers’ to our success.



Equity Incentives



In December 2010, the Board of Directors
approved the 2010 Stock Award Plan (the "Plan") covering 2,800,000 shares. The shares underlying the Plan were subsequently
registered pursuant to a form S-8 under the Securities Act. The Plan was approved by the Company’s shareholders at the 2011
annual meeting of shareholders.



The Plan is intended to benefit the stockholders
of the Company by providing a means to attract, retain and reward individuals who can and do contribute to the longer-term financial
success of the Company.  Further, the recipients of stock-based awards under the Plan should identify their success with
that of the company's shareholders and therefore will be encouraged to increase their proprietary interest in the Company. The
Compensation Committee (the “Committee”) administers the Plan.



On April 1, 2011, the Company granted compensatory
stock awards totaling 700,000 common shares, under the terms of the Plan to certain of its officers, directors and employees. These
stock awards vested in full on the date of the grant but are subject to forfeiture in full if the grantee ceases to be employed
by the Company for any reason within one year from the date of the grant, pursuant to stock award agreements between the Company
and grantees dated April 1, 2011. The stock awards were approved by the Committee on March 31, 2011, on the basis that the Company
seeks to align the long-term interests of the employees with those of shareholders and the long-term success of the Company. The
Committee considered several factors, including the recognition that it had not previously authorized stock awards to employees
or directors, the employees’ length of service to the Company and the Company's historical financial and operational performance.



70







The stock awards were granted to the following
directors and officers; Mr. Pengfei Liu, Chief Executive Officer and Chairman of the Board, was granted 130,000 shares of common
stock (2010: Nil); Mr. Weipeng Liu, a Director who is also our Facilities and Procurement Manager with responsibility for overseeing
the construction, operation and maintenance of our equipment and production facilities, was granted 100,000 shares of common stock
(2010: Nil); Mr. Hon Wai Ku, Chief Financial Officer of the Company, was granted 50,000 shares of common stock (2010: 30,000 shares). The
balance of the shares issued were given to directors of sales and marketing for Mingxiang® foods and Hi-Power beverages,  production
and quality control managers at both locations and certain employees.



In the future, we may adopt and establish
more equity incentive plans pursuant to which awards may be granted if our Committee determines that it is in the best interests
of our stockholders and the Company to do so.



Option Grants in the Last Fiscal
Year



We did not grant any options or stock appreciation
rights to our named executive officers or directors in the fiscal year 2011. As of December 31, 2011, none of our executive
officers or directors owned any of our derivative securities.



Retirement Benefits



Our executive officers are not presently
entitled to company-sponsored retirement benefits.



Perquisites



We have not provided our executive officers
with any material perquisites and other personal benefits and, therefore, we do not view perquisites as a significant or necessary
element of our executive’s compensation.



Deferred Compensation



We do not provide our executives the opportunity
to defer receipt of annual compensation.



The following table sets forth information
for the period indicated with respect to the persons who served as our CEO, CFO and other most highly compensated executive officers
who served on our Board of Directors.



SUMMARY COMPENSATION TABLE



|Name and Position     |  | Year |      | Salary ($) |  | Bonus ($) |         | Stock Awards ($) |  | Option Awards ($) |         | Non-Equity Incentive Plan Compensation ($) |  | Nonqualified Deferred Compensation Earnings ($) |         | All Other Compensation ($) |  | Total ($)
|--------------------- |  | ---- | ---- | ---------- |  | --------- | ------- | ---------------- |  | ----------------- | ------- | ------------------------------------------ |  | ----------------------------------------------- | ------- | -------------------------- |  | ---------
|                      |  |      |      |            |  |           |         |                  |  |                   |         |                                            |  |                                                 |         |                            |  |          
|Pengfei Liu, CEO      |  |      | 2010 |            |  |           | 142,000 |                  |  |                   | 264,000 |                                            |  |                                                 | -       |                            |  |          
|                      |  |      | 2011 |            |  |           | 149,000 |                  |  |                   | -       |                                            |  |                                                 | 491,400 |                            |  |          
|                      |  |      |      |            |  |           |         |                  |  |                   |         |                                            |  |                                                 |         |                            |  |          
|Marco Hon Wai Ku, CFO |  |      | 2010 |            |  |           | 142,000 |                  |  |                   | -       |                                            |  |                                                 | 143,100 |                            |  |          
|                      |  |      | 2011 |            |  |           | 149,000 |                  |  |                   | -       |                                            |  |                                                 | 189,000 |                            |  |          
|                      |  |      |      |            |  |           |         |                  |  |                   |         |                                            |  |                                                 |         |                            |  |          
|Weipeng Liu, Director |  |      | 2010 |            |  |           | 44,000  |                  |  |                   | 50,000  |                                            |  |                                                 | -       |                            |  |          
|                      |  |      | 2011 |            |  |           | 47,000  |                  |  |                   | -       |                                            |  |                                                 | 378,000 |                            |  |          



SERVICE AGREEMENTS WITH DIRECTORS AND
EXECUTIVE OFFICERS



On November 17, 2007, we entered into separate
service agreements (“Service Agreements”) with our executive directors, namely, Pengfei Liu and Weipeng Liu, on substantially
similar terms. The Service Agreements were for initial three year terms, which were subsequently renewed through December 31, 2013. Each
of the Service Agreements may be terminated if any of the executive directors commits a breach of his Service Agreement, such as
being convicted of any offence involving fraud or dishonesty or being adjudicated bankrupt. There are no benefits payable
to an executive director upon termination of his Service Agreement. The Service Agreement covers the terms of employment,
such as salary and bonus.



We also have entered into a service agreement
with Marco Hon Wai Ku who joined the Company as our chief financial officer in July 2007. The compensation and benefits for
Mr. Ku is reviewed by the Compensation Committee on an annual basis. The service agreement may be terminated by either party giving
not less than two months’ notice in writing to the other and may also be terminated if Mr. Ku commits a breach of the agreement,
such as being convicted of any offence involving fraud or dishonesty or being adjudicated bankrupt. The service agreement
covers the terms of employment, such as salary and bonus. Under the service agreement, Mr. Ku has also agreed not to enter
into businesses that will compete with us for a period of six months after the termination of the service agreement.



71







Bonuses and Deferred Compensation



Pursuant to the Service Agreements, we
will pay to each of Pengfei Liu and Weipeng Liu an incentive bonus based on our PBT.



The amount of incentive bonus that Pengfei
Liu is expected to receive in each fiscal year will be determined as follows:



|PBT                                                                  |  | Rate of Incentive Bonus                                                                                                                                                          
|-------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                     |  | Pengfei Liu                                                                                                                                                                      
|Where the PBT is between $ 12,394,646 and $ 15,493,307               |  | 0.75% of the PBT                                                                                                                                                                 
|                                                                     |  |                                                                                                                                                                                  
|Where the PBT is $ 15,493,307 or more but not more than $ 18,591,968 |  | 0.75% of the PBT for the first $ 15,493,307 of PBT; and
        1.0% on the amount over $ 15,493,307                                                                             
|                                                                     |  |                                                                                                                                                                                  
|Where the PBT is $ 18,591,968 and above                              |  | 0.75% of the PBT for the first $ 15,493,307 of PBT;
        1.0% on the $ 3,098,661 after the first $ 15,493,307 of PBT;
        and
        1.5% on the amount over $ 18,591,968



The amount of incentive bonus that Weipeng Liu is expected to
receive in each fiscal year will be determined as follows:



|PBT                                                    |  | Rate of Incentive Bonus                                                                              
|------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------
|                                                       |  | Weipeng Liu                                                                                          
|Where the PBT is between $ 12,394,646 and $ 15,493,307 |  | 0.15% of the PBT                                                                                     
|                                                       |  |                                                                                                      
|Where the PBT is above $ 15,493,307                    |  | 0.15% of the PBT for the first $ 15,493,307 of PBT; and
        0.25% on the amount over $ 15,493,307



The incentive
bonuses will be paid in the first quarter of the year following the year of assessment. This particular performance metric
was chosen by the Board of Directors because they believed that such scheme would help in measuring the rewards provided to the
senior executives and the directors in an open, fair, and measurable manner given the bonuses were tied in with the performance
of the group. A progressive basis was selected because the senior executives and the directors could be highly motivated under
the said scheme and we believe this should improve long-termstockholder value over time. This
particular performance metric was arbitrarily determined by the Board of Directors after considering our historical business performance
and the expected returns which could be possibly achieved if the business strategies and development plans could be implemented
and well managed by the management. This performance metric will be consistently reviewed by the Compensation Committee.



We do not have any deferred compensation
or retirement plans.



Director Compensation



We also have entered into Independent Director
Agreements (the “Agreements”) with Xiaochuan Li, Changhu Xue and Honkau Wan (“Director” or “Directors”).
The Agreements shall terminate on the date of the Director’s removal or resignation with each 12-month period ending on the
anniversary date of the Director’s appointment constituting a Service Year. Compensation for Xiaochuan Li and Changhu Xue
is RMB 60,000 and Honkau Wan is HK $60,000 per Service Year, respectively. Further, the Company reimburses the Directors for expenses
incurred in good faith in the performance of the Director’s duties for the Company.



72







The following table sets forth the total
compensation paid to each independent Board member in 2011:



Director Compensation For 2011



|             |  | Fees Earned |       |     |        |  |      
|------------ |  | ----------- | ----- | --- | ------ |  | -----
|             |  | or paid     |       |     | Stock  |  |      
|Name         |  | in Cash     |       |     | Awards |  | Total
|Xiaochuan LI |  | $           | 9,445 | (1) |        |  |      
|Changhu XUE  |  | $           | 9,445 | (1) |        |  |      
|Honkau WAN   |  | $           | 7,692 | (2) |        |  |      
|TOTAL        |  |             |       |     |        |  |      



(1)  This amount is based on the exchange rate as of December
31, 2011 of US$1 equal to RMB6.3523.



(2)  This amount is based on the exchange rate of US$1
equal to HK$7.80.



Except as disclosed herein, we have no other existing or proposed
service agreement with any of our directors.



INDEMNIFICATION OF DIRECTORS AND EXECUTIVE
OFFICERS



Our Articles of Incorporation provide for
the indemnification of our present and prior directors and officers or any person who may have served at our request as a director
or officer of another corporation in which we own shares of capital stock or of which we are a creditor, against expenses actually
and necessarily incurred by them in connection with the defense of any actions, suits or proceedings in which they, or any of them,
are made parties, or a party, by reason of being or having been director(s) or officer(s) of us or of such other corporation, in
the absence of negligence or misconduct in the performance of their duties. This indemnification policy could result in substantial
expenditure by us, which we may be unable to recoup.



Insofar as indemnification by us for liabilities
arising under the Securities Exchange Act of 1934 may be permitted to our directors, officers and controlling persons pursuant
to provisions of the Amended Articles of Incorporation and Bylaws, or otherwise, we have been advised that in the opinion
of the SEC, such indemnification is against public policy and is, therefore, unenforceable. In the event that a claim for indemnification
by such director, officer or controlling person of us is in the successful defense of any action, suit or proceeding is asserted
by such director, officer or controlling person in connection with the securities being offered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by us is against public policy as expressed in the Act and will be governed by the final adjudication
of such issue.



There is no pending litigation or proceeding
involving a director, officer, employee or other agent of ours in which indemnification would be required or permitted. We are
not aware of any threatened litigation or proceeding which may result in a claim for such indemnification.



ITEM 12.              
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters



The following
tables set forth information regarding beneficial ownership of  29,697,976 outstanding shares of common stock as of March
26, 2012 (i) by each person who is known to us to beneficially own more than 5% of our common stock; (ii) by each of our officers
and directors; and (iii) by all of our officers and directors as a group. Beneficial ownership is determined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934 and does not necessarily bear on the economic incidents of ownership or the
rights to transfer the shares described below. Unless otherwise indicated eachstockholder has
sole voting power and dispositive power with respect to the indicated shares.



Unless otherwise specified, the address
of each of the persons set forth below is in care of Da Bao Industrial Zone, Shishi City, Fujian, China, 362700.



73









|Title of Class                |  | Name & Address of Beneficial Owner                                                                    |  | Office, If Applicable |  | Amount and Nature of Beneficial Ownership |     | Percent of Class |     
|----------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | --------------------- |  | ----------------------------------------- | --- | ---------------- | ----
|Common Stock $0.001 par value |  | Pengfei LiuDabao Industrial Zone, Shishi City, Fujian Province, China                                 |  | CEO                   |  | 12,182,037                                | (1) |                  | 41.0
|                              |  |                                                                                                       |  |                       |  |                                           |     |                  |     
|Common Stock $0.001 par value |  | Marco Hon Wai KuDabao Industrial Zone, Shishi City, Fujian Province, China                            |  | CFO                   |  | 134,000                                   | (1) |                  | 0.5 
|                              |  |                                                                                                       |  |                       |  |                                           |     |                  |     
|Common Stock $0.001 par value |  | Weipeng LiuDabao Industrial Zone, Shishi City, Fujian Province, China                                 |  | Director              |  | 100,000                                   | (1) |                  | 0.3 
|                              |  |                                                                                                       |  |                       |  |                                           |     |                  |     
|Common Stock $0.001 par value |  | Jayhawk Private Equity Fund, LP (1)
        5410 West 61st Place, Suite 100
        Mission, KS 66205 |  |                       |  | 1,497,275                                 | (2) |                  | 5.0 
|                              |  |                                                                                                       |  |                       |  |                                           |     |                  |     
|Common Stock $.001 par value  |  | All officers and directors as a group                                                                 |  |                       |  | 12,416,037                                |     |                  | 41.8





| | (1) | Certain shares of common stock are subject to forfeiture if the owner ceases to be employed by
the Company before the vesting date of April 1, 2012: Pengfei Liu - 130,000 shares, Weipeng Liu - 100,000 shares, and Marco Hon
Wai Ku - 50,000 shares;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Jayhawk Private Equity GP, L.P. is the general partner of Jayhawk Private Equity Co-Invest Fund,
L.P. Jayhawk Private Equity Co-Invest Fund, L.P. that directly and indirectly owns the shares identified by this footnote in Table.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





74











CHANGES OF CONTROL



There are currently no arrangements which
would result in a change in control.



ITEM 13.            Certain
Relationships and Related Transactions, and Director Independence



INTERESTED PERSON TRANSACTIONS



Except as disclosed herein, we have
not entered into any related transaction with any of our directors, executive officers or controlling shareholder or their affiliates.



The transactions discussed in this section
were not available to third parties. Pengfei Liu was the principal beneficial owner of Xianglin, Jixiang, Mingxiang and Rixiang
when each of the transactions took place. Therefore, Pengfei Liu and his wife, Yazuo Qiu, would provide financing for the companies
in advance and provide guarantees without any consideration.



Details of the material interested person
transactions for the fiscal year ended December 31, 2011 are set forth below:



|Year of
        Transaction |  | Acquirer         |  | Acquiree                                     |  | Nature/Amount of Property
        Acquired or to be Acquired |  | Terms of Transaction                                         
|--------------------------- |  | ---------------- |  | -------------------------------------------- |  | ------------------------------------------------------------ |  | -------------------------------------------------------------
|                            |  |                  |  |                                              |  |                                                              |  |                                                              
|2011                        |  | Ocean Technology |  | Pengfei Liu, CEO and Controlling Shareholder |  | $50,361 advance                                              |  | Advance was unsecured, repayable on demand and interest-free.



As of December 31, 2011, Mingxiang was
contingently liable as guarantor with respect to the loan of $472,270 (equivalent to RMB 3,000,000) to an unrelated third party,
Shishi Han Jiang Hua Lian Knitting and Clothing Factory (“Han Jiang Hua Lian”). The term of this guarantee is for the
period from November 2008 through December 2017. Pursuant to the loan agreement, Han Jiang Hua Lian will repay the loan by installments
and be fully settled by December 31, 2017. Should Han Jiang Hua Lian fail to make its debt payments due at any time from the date
of guarantee, Mingxiang will be obligated to perform under the guarantee by primarily making the required payments, including late
fees and penalties. The maximum potential amount of future payments that the Mingxiang is required to make under the guarantee
is $472,270 (equivalent to RMB 3,000,000).



75







As of December 31, 2010, Mingxiang was
contingently liable as guarantor with respect to the loans of $787,116 (equivalent to RMB 5,000,000) to an unrelated third party,
Shishi Yu Ching Knitting and Clothing Company (“Yu Ching”). The term of this guarantee is for the period from January,
2009 through January, 2011. During 2011, Yu Ching repaid the principal amount of the loan in the amount of $787,116 (equivalent
to RMB 5,000,000) but left the amount of loan interest unsettled due to a disagreement between Yu Ching and the creditor in relation
to the calculation of the loan interest. Should Yu Ching fail to make its loan interest payments due at any time from the date
of guarantee, Mingxiang will be obligated to perform under the guarantee by primarily making the required payments, including late
fees and penalties.



According to the Personal Guarantee Agreement
between Mingxiang and Mr. Liu, Mr. Liu agreed to bear all liabilities and costs incurred from a direct claim by the creditor if
either Han Jiang Hua Lian or Yu Ching fails to make payments to the creditor upon due dates.



In accordance with ASC 460-10 “Guarantees”,
a guarantor must recognize a liability for the fair value of the obligations it assumes under certain guarantees. Mingxiang did
not receive any consideration for the guarantee and has determined the fair value of the indemnification to be insignificant. As
of December 31, 2011, the Company has not recorded any liabilities under these guarantees.



REVIEW, APPROVAL OR RATIFICATION OF
TRANSACTIONS WITH RELATED PERSONS



All ongoing and future transactions between
us and any of our officers and directors and their respective affiliates, including loans by our officers and directors, will be
on terms believed by us to be no less favorable than are available from unaffiliated third parties. Such transactions or loans,
including any forgiveness of loans, will require prior approval by the Corporate Governance and Nominating Committee (whose members
are “independent” directors) and by a majority of our disinterested “independent” directors (to the extent
we have any) or the members of our board who do not have an interest in the transaction, in either case who had access, at our
expense, to our attorneys or independent legal counsel. We will not enter into any such transaction unless our disinterested (“independent”)
directors determine that the terms of such transaction are no less favorable to us than those that would be available to us with
respect to such a transaction from unaffiliated third parties. We will not enter into a business combination or invest alongside
any of our directors, officers, any affiliate of ours or of any of our directors or officers or a portfolio company of any affiliate
of our directors or officers.



POTENTIAL CONFLICTS OF INTERESTS



Save as disclosed below and under the section
“Interested Person Transactions”, during the past three financial years:



| | a) | None of our directors, executive officers or controlling shareholder or their affiliates have had any interest, direct or indirect, in any material transaction to which we are a party.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | None of our directors, executive officers or controlling shareholder or their affiliates has had any interest, direct or indirect, in any company that carries the same business or similar trade which competes materially and directly with our existing business.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | None of our directors, executive officers or controlling shareholder or their affiliates has had any interest, direct or indirect, in any enterprise or company that is our major customer or supplier of goods or services.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | None of our directors, executive officers
        or controlling shareholder or their affiliates has had any interest, direct or indirect, in any material transaction we have undertaken
        within the last three years.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 14.            Principal
Accountant Fees and Services



The following is a summary of the fees
billed to us by BDO China Dahua CPA Co., Ltd. (formerly known as BDO China Li Xin Da Hua CPA Co., Ltd.) for the fiscal years ended
December 31, 2011 and 2010.



|Services  (US$’000) |  | 2011 |     |  | 2010 |  
|------------------- |  | ---- | --- |  | ---- | -
|                    |  |      |     |  |      |  
|Audit Fees          |  | $    | 234 |  |      | $
|                    |  |      |     |  |      |  
|Tax Fees            |  |      | 4   |  |      |  
|                    |  |      |     |  |      |  
|All Other Fees      |  |      | -   |  |      |  
|                    |  |      |     |  |      |  
|TOTAL               |  | $    | 238 |  |      | $



76







In the above table, in accordance with
the SEC’s definitions and rules, audit fees consist of the aggregate fees billed for services rendered for the audit of our
annual financial statements, the reviews of the financial statements included in our Forms 10-Q and for any other services that
are normally provided by our independent auditors in connection with our statutory and regulatory filings or engagements.



Audit related fees consist of the aggregate
fees billed for professional services rendered for assurance and related services that reasonably related to the performance of
the audit or review of our financial statements that were not otherwise included in audit fees.



Tax fees consist of the aggregate fees
billed for professional services rendered for tax compliance, tax advice and tax planning. These services include assistance regarding
federal, state and local tax compliance and consultation in connection with various transactions and acquisitions.



All other fees consist of the aggregate
fees billed for products and services provided by our independent auditors and not otherwise included in audit fees, audit related
fees or tax fees.



PART IV.



ITEM 15.              Exhibits,
Financial Statement



(a) Financial Statements



The financial statements are set forth
under Item 8 of this Annual Report on Form 10-K. Financial statement schedules have been omitted since they are either not
required, not applicable, or the information is otherwise included.



(b) Exhibits



|2.1  | Share Exchange Agreement, dated November 17, 2007 by and among the Registrant, Ocean Technology and its stockholders. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 2.1)  
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                       
|3.1  | Amended Articles of Incorporation of the Registrant as filed with the Secretary of State of Nevada, as amended to date. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 3.1)
|     |                                                                                                                                                                                                       
|3.2  | Amended and Restated Bylaws of the Registrant. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 3.2)                                                                         
|     |                                                                                                                                                                                                       
|4.1  | Form of Registration Rights Agreement dated November 17, 2007. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 4.1)                                                         
|     |                                                                                                                                                                                                       
|4.2  | Form of Common Stock Purchase Warrant issued to Investors dated November 17, 2007. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 4.2)                                     
|     |                                                                                                                                                                                                       
|4.3  | Form of Common Stock Purchase Warrant issued to Sterne Agee & Leach, Inc. and its designee. (Filed with the Commission on Form 8-K/A dated November 30, 2007 as Exhibit 4.3)                          
|     |                                                                                                                                                                                                       
|4.4  | Form of Common Stock Purchase Warrant issued
        to Yorkshire Capital Limited and its designee. (Filed with the Commission on Form 8-K/Adated November 30, 2007 as Exhibit 4.4)                   
|4.5  | China Marine Food Group Limited 2010 Stock
        Award Plan. (Filed with the Commission on Form S-8 dated December 14, 2010 as Exhibit 4.1)                                                         
|4.6  | Form of Stock Award Agreement dated April 1, 2011(Filed
with the Commission on Form 8-K dated April 5, 2011).                                                                                         
|     |                                                                                                                                                                                                       
|10.1 | Form of Securities Purchase Agreement dated November 17, 2007. (Filed with the Commission on Form 8-K/A on November 30, 2007 as Exhibit 10.1)                                                         



77







|10.2 | Closing Escrow Agreement dated November 17, 2007, by and among the Registrant, Sterne Agee & Leach, Inc. and Thelen Reid Brown Raysman & Steiner, LLP. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.3)
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                       
|10.3 | Employment Contract dated November 17, 2007, between the Registrant and Pengfei Liu. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.5)                                                                  
|     |                                                                                                                                                                                                                                       
|10.4 | Employment Contract dated November 17, 2007, between the Registrant and Shaobin Yang. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.7)                                                                 
|     |                                                                                                                                                                                                                                       
|10.5 | Employment Contract dated November 17, 2007, between the Registrant and Weipeng Liu. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.6)                                                                  
|     |                                                                                                                                                                                                                                       
|10.6 | Employment Contract dated July 26, 2007, between Ocean Technology and Marco Hon Wai Ku. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.8)                                                               
|     |                                                                                                                                                                                                                                       
|10.7 | Consulting Agreement dated January 1, 2007 between Yorkshire Capital Ltd. and Ocean Technology (China) Company Limited (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.9)                                



|10.8  | Common Stock Purchase Agreement dated September 13, 2007, by and between New Paradigm Productions, Inc. and Halter Financial Investments, L.P. (Filed with the Commission on Form 8-K dated September 14, 2007 as Exhibit 10.1)                  
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                  
|10.9  | Loan Contract by and between Huabao Mingxiang Foods Co., Ltd. And Shishi Subranch Agricultural Bank of China dated October 26, 2006. (Filed with the Commission on Form S-1 (Amendment No. 2) dated March 13, 2008 as Exhibit 10.9)              
|      |                                                                                                                                                                                                                                                  
|10.10 | Loan Contract by and between Huabao Mingxiang Foods Co., Ltd. And Shishi Subranch Agricultural Bank of China dated April 18, 2007. (Filed with the Commission on Form S-1 (Amendment No. 2) dated March 13, 2008 as Exhibit 10.9)                
|      |                                                                                                                                                                                                                                                  
|10.11 | Loan Contract by and between Huabao Mingxiang Foods Co., Ltd. And Shishi Subranch Agricultural Bank of China dated April 29, 2007. (Filed with the Commission on Form S-1 (Amendment No. 2) dated March 13, 2008 as Exhibit 10.9)                
|      |                                                                                                                                                                                                                                                  
|10.12 | Loan Contract by and between Huabao Mingxiang Foods Co., Ltd. And Shishi Subranch Agricultural Bank of China dated June 3, 2007. (Filed with the Commission on Form S-1 (Amendment No. 2) dated March 13, 2008 as Exhibit 10.9)                  
|      |                                                                                                                                                                                                                                                  
|10.13 | Loan Contract by and between Huabao Mingxiang Foods Co., Ltd. And Shishi Subranch Agricultural Bank of China dated June 13, 2007. (Filed with the Commission on Form S-1 (Amendment No. 2) dated March 13, 2008 as Exhibit 10.9)                 
|      |                                                                                                                                                                                                                                                  
|10.14 | Loan Contract by and between Huabao Mingxiang Foods Co., Ltd. And Shishi Subranch Agricultural Bank of China dated July 2, 2007. (Filed with the Commission on Form S-1 (Amendment No. 2) dated March 13, 2008 as Exhibit 10.9)                  
|      |                                                                                                                                                                                                                                                  
|10.15 | Loan Contract by and between Huabao Mingxiang Foods Co., Ltd. And Shishi Subranch Agricultural Bank of China dated August 21, 2007. (Filed with the Commission on Form S-1 (Amendment No. 2) dated March 13, 2008 as Exhibit 10.9)               
|      |                                                                                                                                                                                                                                                  
|10.16 | Make Good Escrow Agreement dated November 17, 2007, by and among the Registrant, Sterne Agee & Leach, Inc., Mr. Pengfei Liu, and Interwest Transfer Company, Inc. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.2)



78







|10.17 | Lock-up Agreement dated November 17, 2007, by and among the Registrant and Mr. Pengfei Liu. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.4)                                                                                         
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                     
|10.18 | Investor Relations Consulting Agreement, by and between the Registrant and Hayden Communications International, Inc. dated February 20, 2008. (Filed with the Commission on Form 8-K dated March 21, 2008 as Exhibit 10.1)                                          
|      |                                                                                                                                                                                                                                                                     
|10.19 | Employment Supplementary Agreement between Ocean Technology (China) Company Limited, and Marco Hon Wai Ku dated July 26, 2009                                                                                                                                       
|      |                                                                                                                                                                                                                                                                     
|10.20 | Executed Auction Confirmation Letter dated November 6, 2009 by Shishi Huabao Mingxiang Foods Co., Ltd and Fujian Jiafu Auction Firm Limited Liability Company. (Filed with the Commission on Form 8-K dated November 12, 2009)                                      
|      |                                                                                                                                                                                                                                                                     
|10.21 | Credit or Share Purchase Option Agreement amongst Shishi Huabao Mingxiang Food Co., Ltd., Qiu Shang Jing and Shishi Xianghe Food Science and Technology Co., Ltd. November 27, 2009. (Filed with the Commission on Form 8-K dated December 2, 2009).                
|      |                                                                                                                                                                                                                                                                     
|10.22 | Share Purchase Agreement dated January 1, 2010 amongst Shishi Huabao Mingxiang Foods Co., Ltd. Qiu Shang Jing and Shishi Xianghe Food Science and Technology Co., Ltd. (Filed with the Commission on Form 8-K dated January 5, 2010).                               
|      |                                                                                                                                                                                                                                                                     
|10.23 | Form of Securities Purchase Agreement between the Company and each Purchaser dated as of January 20, 2010 (Filed with the Commission on Form 8-K dated January 20, 2010).                                                                                           
|      |                                                                                                                                                                                                                                                                     
|10.24 | Form of Escrow Agreement between the Company, Global Hunter Securities LLC, Brean Murray, Carret & Co. LLC, Sichenzia Ross Friedman Ference LLP and certain purchasers dated as of January 20, 2010. (Filed with the Commission on Form 8-K dated January 20, 2010).
|      |                                                                                                                                                                                                                                                                     
|10.25 | Placement Agent Agreement between the Company, Global Hunter Securities and Brean Murray, Carret & Co., LLC dated as of January 15, 2010.  (Filed with the Commission on Form 8-K dated January 20, 2010).                                                          
|      |                                                                                                                                                                                                                                                                     
|10.26 | Independent Director Agreement with Xiaochuan Li dated October 1, 2008 (Filed
with the Commission on Form 8-K dated October 30, 2008).                                                                                                                              
|      |                                                                                                                                                                                                                                                                     
|10.27 | Independent Director Agreement with Changhu Xue dated October 1, 2008 (Filed
with the Commission on Form 8-K dated October 30, 2008).                                                                                                                               
|10.28 | Independent Director Agreement with Honkau Wan dated October 1, 2008 (Filed
with the Commission on Form 8-K dated October 30, 2008).                                                                                                                                
|10.29 | Letter of Consent between the Company and Pengfei Liu dated as of January 1, 2011(Filed with the Commission on Form 10-K dated March 27, 2012)                                                                                                                      
|10.30 | Letter of Consent between the Company andWeipeng Liu dated as of January 1, 2011 (Filed with the Commission on Form 10-K dated March 27, 2012)                                                                                                                      
|14.1  | Business Code of Conduct (Filed with the Commission on Form 8-K dated January 24, 2008 as Exhibit 14.1 and Form 8-K dated August 17, 2009 as Exhibit 5.05.1)                                                                                                        
|      |                                                                                                                                                                                                                                                                     
|14.2  | Financial Code of Conduct (Filed with the Commission on Form 8-K dated January 24, 2008 as Exhibit 14.2 and Form 8-K dated August 17, 2009 as Exhibit 5.05.2)                                                                                                       
|      |                                                                                                                                                                                                                                                                     
|14.3  | Amendments to the By-Laws (Filed with the Commission on Form 8-K dated August 17, 2009 as Exhibit 5.03)                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                     
|14.4  | Charter for the Audit Committee (Filed with the Commission on Form 8-K dated August 17, 2009 as Exhibit 5.05.1)                                                                                                                                                     
|      |                                                                                                                                                                                                                                                                     
|14.5  | Charter for the Corporate Governance and Nominating Committee (Filed with the Commission on Form 8-K dated August 17, 2009 as Exhibit 5.05.2)                                                                                                                       



79







|14.6 | Charter for the Compensation Committee (Filed with the Commission on Form 8-K dated August 17, 2009 as Exhibit 5.05.3)
|---- | ----------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                       
|16.1 | Letter from ZYCPA (Filed with the Commission on Form 8-K dated October 29, 2010 as Exhibit 16.1)                      
|     |                                                                                                                       
|16.2 | Letter from Coddovano and Honeck LLP (Filed with the Commission on Form 8-K dated January 27, 2009 as Exhibit 16.1)   
|     |                                                                                                                       
|21.1 | Subsidiaries List (Filed with the Commission on Form 10-K dated March 23, 2009 as Exhibit 21)                         
|     |                                                                                                                       
|31.1 | Certification of Chief Executive Officer pursuant to 13a-14 and 15d-14 of the Exchange Act (Filed
herewith)           
|     |                                                                                                                       
|31.2 | Certification of Chief Financial Officer pursuant to 13a-14 and 15d-14 of the Exchange Act (Filed
herewith)           
|     |                                                                                                                       
|32.1 | Certificate pursuant to 18 U.S.C. ss. 1350 for Pengfei Liu, Chief Executive Officer (Filed
herewith)                  
|     |                                                                                                                       
|32.2 | Certificate pursuant to 18 U.S.C. ss. 1350 for Marco Hon Wai Ku , Chief Financial Officer (Filed
herewith)            
|     |                                                                                                                       
|99.1 | Press release dated January 20, 2010 by the Company (Filed with the Commission on Form 8-K dated January 20, 2010).   





XBRL Exhibit



101.INS† XBRL Instance Document. *

101.SCH† XBRL Taxonomy Extension Schema Document.*

101.CAL† XBRL Taxonomy Extension Calculation Linkbase
Document.*

101.DEF† XBRL Taxonomy Extension Definition Linkbase
Document.*

101.LAB† XBRL Taxonomy Extension Label Linkbase Document.*

101.PRE† XBRL Taxonomy Extension
Presentation Linkbase Document*



*Incorporated by reference from Form 10K/A
filed on March 28, 2012.







80







SIGNATURES



In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this
Amendment No. 2 to the Annual Report on Form 10-K/A to be
signed on its behalf by the undersigned, thereunto duly authorized.



|                         | CHINA MARINE FOOD GROUP LIMITED                               
|------------------------ | --------------------------------------------------------------
|                         |                                                               
|                         | /s/ Pengfei Liu                                               
|Dated: December 13, 2012 | Pengfei Liu, Chief Executive Officer                          
|                         | (Principal executive officer)                                 
|                         |                                                               
|                         | /s/ Marco Hon Wai Ku                                          
|                         | Marco Hon Wai Ku, Chief Financial Officer                     
|Dated: December 13, 2012 | (Principal financial officer and principal accounting officer)







81







Pursuant to the requirements of the Securities Act of 1934,
this report has been signed by the following persons on behalf of the registrant and in the capacities indicated.



|                         |  | /s/ Pengfei Liu                                                                                                 
|------------------------ |  | ----------------------------------------------------------------------------------------------------------------
|Dated: December 13, 2012 |  | Pengfei Liu, Chief Executive Officer, Secretary & Director                                                      
|                         |  | (Principal executive officer)                                                                                   
|                         |  |                                                                                                                 
|                         |  | /s/ Marco Hon Wai Ku                                                                                            
|Dated: December 13, 2012 |  | Marco Hon Wai Ku, Chief Financial Officer
        (Principal financial officer and principal accounting officer)
|                         |  |                                                                                                                 
|                         |  | /s/ Weipeng Liu                                                                                                 
|Dated: December 13, 2012 |  | Weipeng Liu, Director                                                                                           
|                         |  |                                                                                                                 
|                         |  | /s/ Xiaochuan Li                                                                                                
|Dated: December 13, 2012 |  | Xiaochuan Li, Independent Director                                                                              
|                         |  |                                                                                                                 
|                         |  | /s/ Changhu Xue                                                                                                 
|Dated: December 13, 2012 |  | Changhu Xue, Independent Director                                                                               
|                         |  |                                                                                                                 
|                         |  | /s/ Honkau Wan                                                                                                  
|Dated: December 13, 2012 |  | Honkau Wan, Independent Director                                                                                







82