UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington, D.C.
20549









FORM
10-K





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


EXCHANGE
ACT OF 1934


For the
fiscal year ended December 31, 2008





OR




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


EXCHANGE
ACT OF 1934





For the
transition period
from             
to




Commission File Number
333-40790











CHINA
MARINE FOOD GROUP LIMITED


(Exact
name of registrant as specified in its charter)




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




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 oNox





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 oNo
x










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 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 x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes  ̈No x





As of
December 31, 2008, the aggregate market value of the registrant’s common
stock held by non-affiliates of the registrant was $16,971,961 based on the
closing sale price of $1.52 as reported on the Over-the-Counter Bulletin Board.
As of March 18, 2009, there were 23,026,301 shares of common stock
outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE





None








China
Marine Food Group Limited




FORM
10-K





For the
Year Ended December 31, 2008





TABLE
OF CONTENTS





PART
      IITEM
      1.
                              
                              Business
                              5ITEM
      1A.
                              
                              Risk
      Factors
                              31ITEM
      1B.
                              
                              Unresolved
      Staff Comments
                              43ITEM
      2.
                              
                              Properties
                              43ITEM
      3.
                              
                              Legal
      Proceedings
                              44ITEM
      4.
                              
                              Submission
      of Matters to a Vote of Security Holders
                              44PART
      IIITEM
      5.
                              
                              Market
      for Registrant’s Common Equity, Related Stockholder Matters and
      IssuerPurchases
      of Equity Securities
                              45ITEM
      6.
                              
                              Selected
      Financial Data
                              46ITEM
      7.
                              
                              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                              47ITEM
      7A.
                              
                              Quantitative
      and Qualitative Disclosures About Market Risk
                              67ITEM
      8.
                              
                              Financial
      Statements and Supplementary Data
                              F-1
      – F-28ITEM
      9.
                              
                              Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure
                              69ITEM
      9A.
                              
                              Controls
      and Procedures
                              70ITEM
      9B.
                              
                              Other
      Information
                              70PART
      IIIITEM
      10.
                              
                              Directors
      and Executive Officers of the Registrant
                              71ITEM
      11.
                              
                              Executive
      Compensation
                              74ITEM
      12.
                              
                              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                              78ITEM
      13.
                              
                              Certain
      Relationships and Related Transactions
                              78ITEM
      14.
                              
                              Principal
      Accountant Fees and Services
                              81PART
      IVITEM
      15
                              
                              Exhibits,
      Financial Statement Schedules
                              82SIGNATURES
                              
                              
                              84


3





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 in PART I. ITEM 1A:. Risk
Factors and PART  II. ITEM
6  "Management's Discussion and Analysis or Plan of Operation"
included herein.


4


PART I.





ITEM
1.           Business





BUSINESS
DEVELOPMENT & ORGANIZATION WITHIN LAST FIVE YEARS





Overview





We are a
holding company whose primary business operations are conducted through our
direct, wholly owned subsidiary, Nice Enterprise Trading H.K. Co., Ltd. (“Nice
Enterprise”), and its subsidiaries – Shishi Rixiang Marine Food Co., Ltd.
(“Rixiang”), Shishi Huabao Jixiang Water Products Co., Ltd. (“Jixiang”) and
Shishi Huabao Mingxiang Foods Co., Ltd. (“Mingxiang”). We engage in the business
of processing, distribution and sale of processed seafood products, as well as
the sale of marine catch. Our objective is to establish ourselves as a leading
producer of processed seafood products in the PRC and overseas
markets.





Our
Corporate Structure











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.





Starting
January 1, 2000, we commenced a private placement of our common stock in
reliance upon an exemption from registration under Section 4(2) of the
Securities Act and Regulation D promulgated thereunder. We offered 100,000
shares of our common stock at $.35 per share to certain accredited investors.
The offering closed in March 2000 and we raised gross proceeds in the amount of
$35,000. As a result of the offering, our issued and
outstanding common stock increased from 900,000 shares to 1,000,000
shares.





On July
5, 2000, we filed a registration statement on Form SB-2 with the Securities and
Exchange Commission or the SEC under the Securities Act, to register shares of
our common stock (Registration Statement No. 333-40790). The registration
statement was declared effective on October 26, 2000. We sold 77,000 shares of
our common stock pursuant to registration statement, raising a total of $77,000
in gross proceeds. As a result of the offering, our issued and outstanding
common stock increased to 1,077,000 shares.


5


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. In addition, the terms of
the SPA required us to declare and pay a special cash dividend of $0.364 per
post stock-split share to our shareholders of record as of September 12, 2007.
Stockholders holding a total of 1,077,000 shares received a special cash
dividend in the total amount of $392,028 which amount was funded with proceeds
from the stock sale. 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.





Upon the
closing of the HFI transaction, Jody St. Clair resigned as our sole director and
executive officer and in anticipation of her resignation, she appointed Richard
Crimmins as our sole director, President, Secretary-Treasurer, Chief Executive
Officer, Chief Operating Officer and Chief Financial Officer.





We
discontinued our principal operations as of December 2002 and have been, until
our reverse acquisition with Nice Enterprise on November 17, 2007 described
below, investigating potential acquisitions or opportunities.





Acquisition
of Nice Enterprise and Related Financing





On
November 17, 2007, we completed a reverse acquisition transaction with Nice
Enterprise through a share exchange with Nice Enterprise’s former stockholders.
Pursuant to the share exchange agreement, the shareholders of Nice Enterprise
exchanged 100% of their outstanding capital stock in Nice Enterprise 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, a majority of our shareholders of record as of November
16, 2007 approved a resolution by our board of directors to change our name from
New Paradigm Productions, Inc. to China Marine Food Group Limited. The name
change became effective on January 9, 2008 upon the filing of a Certificate of
Amendment to our Amended Articles of Incorporation with the State of Nevada on
the twentieth day following the mailing of a Definitive Information Statement to
our shareholders. 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 units consisting one share of
common stock and a warrant to purchase one-fifth of one share of our common
stock. The investors subscribed for 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. The units were offered and sold pursuant to exemptions
from registration under the Securities Act, including without limitation,
Regulation D and Regulation S promulgated under the Securities Act. Each warrant
issued to the investors has a term of three years and is exercisable at any time
for a price equal to $4.1782 in cash or on a cashless exercise
basis.





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 he beneficially owns. If we do not
generate net income of $10.549 million for the fiscal year ending December 31,
2008 and $14.268 million for the fiscal year ending December 31, 2009, the
shares held in escrow will be transferred to the private placement investors, on
a pro rata basis in accordance with the following formula: If the 2008 net
income threshold is not achieved then an amount of shares equal to (($10.549
million – 2008 adjusted net income)/$10.549 million) multiplied by 50% of
the escrowed shares will be transferred to the private placement investors. If
the 2009 net income threshold is not achieved then an amount of shares equal to
(($14.268 million – 2009 adjusted net income)/$14.268 million) multiplied by 50%
of the escrowed shares will be transferred to the private placement investors.
In the event that the net income for 2008 and 2009 meet the minimum net income
thresholds for those respective years, then no transfer of the escrowed shares
shall be made to the private placement investors and the shares will then be
returned to Mr. Liu.





Additionally,
upon the close of the reverse acquisition, Richard Crimmins, our sole director,
submitted his resignation letter pursuant to which he resigned from all offices
of the Company he holds which resignations will become effective immediately.
Mr. Liu replaced him as our Chief Executive Officer and Interim Secretary
effective on the close of the reverse acquisition. Prior to the effective date
of the reverse acquisition, Mr. Liu served at Nice Enterprise as its Chief
Executive Officer.


6


On
January 11, 2008 we filed a request with the National Association of Securities
Dealers (NASD) to change its name and symbol. Our new trading symbol is CMFO.
The change of name and new symbol became effective on January 22,
2008.





For
accounting purposes, the share exchange transaction was treated as a reverse
acquisition with Nice Enterprise as the acquirer and China Marine Food Group
Limited as the acquired party.





Background
History of Nice Enterprise





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, where he bought marine catch from local suppliers and sold them to seafood
traders in other regions such as Zhejiang Province.




In March
1994, Pengfei 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 shareholder’s
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 the
same year, we commenced the export of our processed seafood products to
Japan.





We also
established Jixiang in 2001. Jixiang is our property-holding company, and owns
the building ownership rights to all our properties save for two properties
which are owned by Mingxiang.





All our
land use rights and properties, including production plant, cold storage
facility, office tower and staff dormitory, are managed by these two property
holding companies, Mingxiang and Jixiang. In particular, Mingxiang is
responsible for the rental income related to the collection on the 33 shop
spaces at our factory in Dabao Industrial Zone. The rental contracts are based
on 1-year lease term. The operations of these two property holding companies are
solely property management.


7


In 2002,
our “Mingxiang” brand was recognised 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 2003,
we commenced the export of our dried processed seafood products to the Russian
market. In May 2004, Nice Enterprise Trading H.K. Co., Ltd., a company
incorporated in Hong Kong and wholly-owned by Pengfei 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.




We also
started selling frozen processed seafood products, which include frozen whole
squids and fishes in 2003. Since then, our frozen processed seafood product
range has expanded to include readily consumable products, including squid rings
and slices and octopus cuts and slices.





In 2003
and 2004, the processing of our frozen seafood products involved only basic
processing (such as cleaning, washing, sorting and packing). From 2005, our
frozen processed seafood products processes shifted to more advanced processing
as we observed a growing market in processed seafood products such as squid
slice, octopus cuts, octopus slices and squid rings.




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 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, and more than 600 employees in 2008. Our
employees currently include 9 research and development staff.





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 sale of marine
catch.





Our
business philosophy may be summarized in the following phrase:





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





Our dried
processed seafood products are predominantly sold under our registered
trademark, the “Mingxiang (明祥)” brand. These
products are sold to 18 distributors in various provinces in the PRC such as
Fujian, Guangdong, Jiangsu, Shandong and Zhejiang and in turn sub-distributed to
over 1,400 retail points (including major supermarkets and retailers such as
Wal-Mart and Carrefour) throughout these provinces. Our frozen processed seafood
products are sold to both domestic and overseas customers. Our marine catch is
sold to customers in Fujian and Shandong Provinces, some of whom directly export
the marine catch to Japan, South Korea and Taiwan.





Our
business premises are located close to Xiangzhi (Shishi) Port, the largest
fishing port in Fujian Province and one of the state-level fishing port centres.
We have also been designated as a state base for the quality control testing of
marine products in Fujian Province.





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


8


Processed
Seafood Products





Using a
combination of Japanese traditional seafood processing methods and modern
scientific seafood processing techniques, our product development efforts during
the period under review have yielded 21 processed seafood products comprising
dried seafood products such as roasted squid, roasted file fish, roasted prawns,
shredded roasted squid and smoked eel as well as frozen processed seafood
products. Our frozen processed seafood products include frozen Japanese butter
fish, frozen octopus and frozen squid rings. 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 total storage capacity of 2,020 tons. We have five production
lines for the processing of our roasted file fish, roasted prawns, shredded
roasted squid, roasted squid and smoked seafood products.





We have
established sales networks in various large and medium sized cities in the PRC
and our export markets, such as Japan and Russia. We believe our products are
sold by some of our distributors to end-consumers in South Korea, Taiwan and
Ukraine. Our dried processed seafood products are mainly sold in supermarkets in
Fujian and Zhejiang Provinces and theirsurrounding areas, and
through our sales network of 18 distributors, each of whom has its own sales
network and is authorized by us to distribute our products exclusively in a
specific vicinity.




Our sales
to domestic and foreign markets for the fiscal years ended December 31, 2008,
2007 and 2006 are set out below:





Year ended December 31,Dried Processed Seafood Products
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006(%)
                  
                  
                  (%)
                  
                  
                  (%)PRC
      sales
                  
                  
                  99.2
                  
                  
                  
                  99.3
                  
                  
                  
                  98.8Export
      sales (1)
                  
                  
                  0.8
                  
                  
                  
                  0.7
                  
                  
                  
                  1.2




Notes:


(1) The
decrease in export sales was mainly due to our increased marketing efforts in
the PRC, which resulted in higher domestic sales.




Year ended December 31,Frozen Processed Seafood Products
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006(%)
                  
                  
                  (%)
                  
                  
                  (%)PRC
      sales (1)
                  
                  
                  48.9
                  %
                  
                  
                  100.0
                  
                  
                  
                  97.3Export
      sales (2)
                  
                  
                  51.1
                  %
                  
                  
                  0.0
                  
                  
                  
                  2.7





Notes:


(1)         
These comprise sales to local distributors made on an ad hoc basis.


(2)        
 These comprise sales to foreign distributors.





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





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.


9


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” on Page 15 for further details
of the awards and certifications that we have received.





Today,
our products are exported to many countries including Japan, Philippines and
Papua New Guinea. We are a State-designated base for quality assurance testing
of marine products. Please see the section “Quality Assurance” on Page 28 for
more details.





Marine
Catch





In 2006
and 2007, we engaged in the sale of marine catch. We worked with local fishermen
and charter six fishing vessels with an aggregate net tonnage of 256 tons, to
harvest marine catch from the East China Sea and the Taiwan Strait. Our marine
catch was harvested from the deep seas and was not bred through
aquaculture.





The
marine catch was sold to seafood traders in Fujian and Shandong Provinces, the
PRC, some of whom directly exported the marine catch to Japan, South Korea, and
Taiwan. To preserve the freshness of the marine catch sold to our customers, we
constantly packed the harvested marine catch in ice and endeavor to deliver the
marine catch to our customers within the shortest time practicable. Upon the
return of the vessels to Xiangzhi (Shishi) Port, a small proportion of the
marine catch was sold to our customers at Xiangzhi (Shishi) Port itself, and the
rest was transported back to our business premises at Dabao Industrial Zone,
Xiangzhi Town, Shishi City, Fujian Province for further sorting and packing.
Thereafter, most of our marine catch was collected by our customers at our
business premises, and a small proportion was transported to our customers at
their respective destinations.





Due to
the nature of the fishing operations, the size of a customer’s order typically
depends on the volume of marine catch that the fishing vessels harvest in a
fishing trip. A customer therefore typically places an order only after
receiving information as to the volume of marine catch harvested in a fishing
trip. Our marine catch is priced based on market price, fishing yield and
seasonality. We are of the view that these factors do not cause substantial
fluctuations in the prices of our marine catch.





Starting
from 2008, we do not charter any fishing vessels nor harvest the marine catch
ourselves. Instead, we simply buy the marine catch from the suppliers and then
sell to the customers on a direct basis. The marine catch is predominantly sold
to overseas customers and distributors in Fujian, Shandong and Liaoning
provinces, some of whom directly export the marine catch to South Korea and
Taiwan.





Our
Products





Our
products can be divided into two main categories, namely (1) processed seafood
products; and (2) marine catch. All of our production is undertaken by our
subsidiary, Rixiang.





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





Processed
      Seafood
                    Products
                  
                  Products
      / Species
                  
                  Main
      Markets
                    Markets
      in the PRC
                  
                  Foreign
      Markets(a)
      Dried processed seafood products
                  
                  Roasted
      file fish, shredded roasted squid, roasted squid, smoked eel, roasted
      prawn, Jingdu roasted fish
                  
                  Zhejiang
      Province
                    
                    Fujian
      Province
                    
                    Shandong
      Province
                    
                    Greater
      Shanghai Region
                    
                    Guangdong
      Province
                  
                  Japan,
      Russia and Ukraine(b)
      Frozen processed seafood products
                  
                  Cuttlefish,
      octopus, pomfret, shelled prawns, sliced squid
                  
                  Shandong
      Province (for sale in South Korea)
                    
                    Fujian
      Province (for sale in Taiwan)
                    
                    Liaoning
      Province
                  
                  Japan




10




Processed
      Seafood
                      Products
                    
                    Products
      / Species
                    
                    Main
      Markets
                      Markets
      in the PRC
                    
                    Foreign
      MarketsMarine
      Catch
                    
                    Cuttlefish
      (Sepia
      esculenta),  hairtail fish (Trichiurus japonicus),
      Japanese butter fish (Psenepis Anomala),
      squid (Loligo
      bleekeri), horse mackerel
                    
                    Fujian
      Province (for sale in Taiwan)
                      
                      Shandong
      Province (for sale in South Korea and Japan)
                    
                    Philippines
      and Papua New
Guinea





Processed
Seafood Products





We
purchase fresh seafood, the primary ingredient from which our dried and frozen
processed seafood products are manufactured, from fishermen and traders. Our raw
materials are stored in cold storage facilities located at our production
facilities. The production processes of our dried and frozen processed seafood
products are described in further detail under the section “Production
Facilities and Process” on Page 12.





Dried Processed Seafood
Products





Roasted
      file fish
                    
                    Roasted
      squid
                    
                    Roasted
      prawn
                    
                    Smoked
      eel





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





Frozen Processed Seafood
Products





Pomfret
                    
                    Octopus
                    
                    Shelled
      prawns
                    
                    Sliced
      squid





Our
frozen processed seafood products comprise cuttlefish, octopus, pomfret, shelled
prawns and sliced squid. Some of our frozen seafood products (such as cuttlefish
and squid) are packaged and can be consumed without additional processing. Our
other frozen processed seafood products are intermediate products sold to our
customers for further processing before sale to the end-consumer. Our frozen
processed seafood products are mainly exported to Japan and South Korea directly
or through our customers.


11


Marine
Catch





The
principal species of marine catch harvested in the East China Sea and Taiwan
Strait and 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 restaurantsJapanese
      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.Squid
      (Loligo
      bleekeri)Squids
      are commonly found in the seas of the Taiwan Strait. 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.




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. As at December 31, 2008, we own five 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 2008, the maximum annual production capacities of our
production lines are increased to about 7,500 tons of dried processed seafood
products and 2,500 tons of frozen processed seafood products. We also own cold
storage facilities with cold storage capacity of 2,020 tons.




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” on Page 28 for more
details.


12


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 for no longer than 24 hours, upon which 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.





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.


13


6.
            Marinating and adding
      flavouring.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.





Frozen Processed Seafood
Products





Part of
the production of our frozen processed seafood products is carried out in a
sterile sealed production unit. The key stages of our production process for our
frozen processed seafood products are as follows:











1.
            Receiving and storing raw
      materials.As with our dried processed seafood products,
      all the raw materials for our frozen processed seafood products undergo
      inspection and approval 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.





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


14


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 for no longer than 24 hours, upon which they
      must be delivered to the production facilities for processing. These raw
      materials are removed from cold storage only immediately prior to
      processing.





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





4.
            Selection.The
      raw materials are selected based on weight for further
      processing.





5.
            Slicing and
      shaping.The raw materials are then cut into slices and
      trimmed in order to attain the desired
  dimensions.





6.
            Cleaning and
      sterilizing.The raw materials then undergo further
      cleaning and sterilizing in order to remove
  bacteria.





7.
            Grooving.Where
      necessary for some of our sliced products, grooves are made on the slices.
      The grooves enable better absorption of condiments during
      consumption.





8.
            Arranging and
      packaging.The slices are then placed in neat
      arrangements in designated packs.





9.
            Quick
      freezing.The slices are then sent for quick freezing to
      a temperature of minus thirty-five degrees
  Celsius.





10.
            Metal
      detection.The products are then passed through a metal
      detector to ensure they do not contain any metal
  particles.





11.
            Packing and
      delivery.The products are then packed and sealed. All
      the packaged products are then stored immediately in our cold storage
      facilities, where they are delivered in a “first in, first out” basis. Our
      products are transported in refrigerated containers which must comply with
      required standards of cleanliness and hygiene. Delivery is provided by a
      third-party logistics company using refrigeration containers at below
      minus 18 degrees Celsius.





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
                
                SignificanceNovember
      2001
                
                Mingxiang
                
                Branded
      Products (fresh roasted prawn, roasted file fish, shredded
      squid)
                
                2001
                
                2001
      China International Agriculture Expo
                
                Recognition
      of our brand and our branding effortsDecember
      2001
                
                Mingxiang
                
                National
      Brand-making Leading Enterprise
                
                -
                
                Ministry
      of Agriculture, China
                
                Recognition
      of our efforts to create our brand and increase  brand-awareness
      of our productsJanuary
      2002
                
                Mingxiang
                
                Green
      Consumer Recommendation
                
                2002
      - 2003
                
                Fujian
      Consumer Committee
                
                Recognition
      of our product quality, environmental friendly products, integrity in our
      dealings with consumersApril
      2003
                
                Mingxiang
                
                Leading
      Corporation in Processing Agricultural Products (Province
      level)
                
                -
                
                Fujian
      Village Enterprise Bureau
                
                Recognition
      of our efforts and contribution in the development of processed
      agricultural
products


15





Year
                
                Subsidiary
                
                Award
                
                Period
                
                Awarding
      Body
                
                SignificanceApril
      2003
                
                Mingxiang
                
                A-Grade
      Tax Payer
                
                2004 –
      2005
                
                Quanzhou
      District Tax BureauAugust
      2003
                
                Mingxiang
                
                Quanzhou
      Contract-Abiding Creditworthy Enterprise
                
                2001
      - 2002
                
                Quanzhou
      Civil Administration
                
                Recognition
      of integrity in our operations and commercial dealingsSeptember
      2003
                
                Mingxiang
                
                Fujian
      Province Aquatic Industrialization Leading Enterprise
                
                2003
      – 2004
                
                Fujian
      Province Marine Fisheries Bureau, Fujian Department of
Finance
                
                Recognition
      of our efforts and contribution in the development of processed
      agricultural productsMay
      1, 2007
                
                Mingxiang
                
                Green
      Food – roasted file fish
                
                May
      2007 – May 2010
                
                China
      Green Food Development Centre
                
                Recognition
      of  environmental awareness, non-pollution in our production
      chainMay
      1, 2007
                
                Mingxiang
                
                Green
      Food – dried shredded squid
                
                May
      2007 – May 2010
                
                China
      Green Food Development Centre
                
                Recognition
      of  environmental awareness, non-pollution in our production
      chainMay
      1, 2007
                
                Mingxiang
                
                Green
      Food – frozen fish
                
                May
      2007 – April 2010
                
                China
      Green Food Development Centre
                
                Recognition
      of  environmental awareness, non-pollution in our production
      chainMay
      1, 2007
                
                Mingxiang
                
                Green
      Food – roasted king prawn
                
                May
      2007 – May 2010
                
                China
      Green Food Development Centre
                
                Recognition
      of  environmental awareness, non-pollution in our production
      chainMay
      17, 2007
                
                Rixiang
                
                Green
      Food – roasted file fish
                
                May
      2007 – May 2010
                
                China
      Green Food Development Centre
                
                Recognition
      of  environmental awareness, non-pollution in our production
      chainMay
      17, 2007
                
                Rixiang
                
                Green
      Food – dried shredded squid
                
                May
      2007 – May 2010
                
                China
      Green Food Development Centre
                
                Recognition
      of  environmental awareness, non-pollution in our production
      chainMay
      17, 2007
                
                Rixiang
                
                Green
      Food – roasted yellow croaker
                
                May
      2007 – May 2010
                
                China
      Green Food Development Centre
                
                Recognition
      of  environmental awareness, non-pollution in our production
      chain


16





Year
                
                Subsidiary
                
                Award
                
                Period
                
                Awarding
      Body
                
                SignificanceMay
      17, 2007
                
                Rixiang
                
                Green
      Food – roasted prawn
                
                May
      2007 – May 2010
                
                China
      Green Food Development Centre
                
                Recognition
      of  environmental awareness, non-pollution in our production
      chainMay
      17, 2007
                
                Rixiang
                
                Green
      Food – roasted shredded squid
                
                May
      2007 – May 2010
                
                China
      Green Food Development Centre
                
                Recognition
      of  environmental awareness, non-pollution in our production
      chainMay
      17, 2007
                
                Rixiang
                
                Green
      Food – roasted fish bones
                
                May
      2007 – May 2010
                
                China
      Green Food Development Centre
                
                Recognition
      of  environmental awareness, non-pollution in our production
      chainMay
      17, 2007
                
                Rixiang
                
                Green
      Food – roasted squid
                
                May
      2007 – May 2010
                
                China
      Green Food Development Centre
                
                Recognition
      of  environmental awareness, non-pollution in our production
      chainMay
      17, 2007
                
                Rixiang
                
                Green
      Food – squid slices
                
                May
      2007 – May 2010
                
                China
      Green Food Development Centre
                
                Recognition
      of  environmental awareness, non-pollution in our production
      chainMay
      17, 2007
                
                Rixiang
                
                Green
      Food – roasted searobin fillet
                
                May
      2007 – May 2010
                
                China
      Green Food Development Centre
                
                Recognition
      of  environmental awareness, non-pollution in our production
      chainJanuary
      2004
                
                Mingxiang
                
                Civilised
      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 economyJanuary
      2004
                
                Mingxiang
                
                Quanzhou
      Agricultural Industrialization Leading Enterprise
                
                For
      January 2004 – December 2006
                
                Quanzhou
      Department of Agriculture, Quanzhou Finance Bureau
                
                Recognition
      of our efforts and contribution in the development of processed
      agricultural productsSeptember
      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


17





Year
                  
                  Subsidiary
                  
                  Award
                  
                  Period
                  
                  Awarding
      Body
                  
                  SignificanceDecember
      2006
                  
                  Mingxiang
                  
                  A-Grade
      Tax Payer Credit Enterprise
                  
                  2004
      - 2005
                  
                  Quanzhou
      National Tax Bureau, Quanzhou District Tax Bureau
                  
                  Recognition
      of our tax creditworthinessDecember
      2004
                  
                  Mingxiang
                  
                  National
      Foodstuff Industry Excellent Leading Enterprise
                  
                  2003
      – 2004
                  
                  China
      Foodstuff Industry Association
                  
                  Recognition
      of quality of our productsMay
      2008
                  
                  Mingxiang
                  
                  2007
      “AAA” bank-rated Creditworthy Enterprise
                  
                  Valid
      until April 30, 2008
                  
                  China
      Agricultural Bank, Fujian Branch
                  
                  Recognition
      of the quality of our enterprise, economic standing, operational
      efficiency and potential for growthSeptember
                    2008
                  
                  Mingxiang
                  
                  Fujian
      Province Famous Brand
                  
                  Valid
      for 3 years
                  
                  Fujian
      Province Branded Products Authentication Committee
                  
                  Recognition
      of our brand and our branding
efforts





DISTRIBUTION





Sales
and Marketing





Our sales
and marketing team comprises 23 employees, headed by our Executive Chairman,
Director and CEO 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. Our products are exported to various countries,
including Japan, Philippines and Papua New Guinea. We believe our products are
sold by some of our distributors to end-consumers in South Korea, Taiwan and
Japan.





As of
December 31, 2008, we have 18 distributors in six provinces in the PRC, namely
Fujian, Guangdong, Jiangsu, Shandong, Zhejiang and Liaoning, as
follows:





Province
                    
                    No.
      of DistributorsFujian
                    
                    6Guangdong
                    
                    1Jiangsu
                    
                    1Shandong
                    
                    2Zhejiang
                    
                    7Liaoning
                    
                    1Total
                    
                    18





These
distributors in turn sub-distribute our dried processed seafood products to over
1,400 retail points (including major supermarkets and retailers such as Wal-Mart
and Carrefour) throughout these provinces.


18


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 requirements such as sales target.





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 and in the various overseas markets.




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.





For our
export sales, we sell our products through sales agents or traders in the PRC or
directly to distributors in the overseas market.





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 in supermarket brochures, 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.





NEW
PRODUCTS





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 for the development of: (1) bioactive peptide products from leftovers
of aquatic processed products; and (2) collagen protein and collagen peptide
protein products from fish skin. For details, please see “Research and
Development.”


19


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 CompetitorsDried
      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 operationsSale
      of Marine Catch
                  
                  (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





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 and
vice
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 which allows us to maintain our
competitiveness in the industry. We have 18 distributors in various
provinces in the PRC such as Fujian, Guangdong, Jiangsu, Shandong, Zhejiang and
Liaoning. These distributors in turn sub-distribute our dried processed seafood
products to over 1,400 retail points (including major supermarkets and
retailers such as Wal-Mart and Carrefour) throughout these provinces. We also
have a strong overseas customer base in various countries including Japan,
Philippines and Papua New Guinea. Please refer to the section “Major
Customers” on Page 23 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” on Page 15. We believe such accolades attest to our
established reputation in the industry.





We also
believe that our established track record in the processed seafood industry
instills confidence in our products and attracts new customers from South Korea,
Japan, Taiwan, Russia and Ukraine, and potential customers from the European
Union. Our stable customer base and large distributor network in Fujian Province
and Zhejiang Province 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.


20


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.





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 8 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 1,000 retailers and a sales workforce of about 60
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 1,000 retailers and a sales workforce of about 60
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 300 retailers and a sales workforce of about 20
people.





Regarding
the percentage of sales represented by each party listed above; please refer to
the section “Major Customers” on Page 23 for details.





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.


21


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
consumers. These products include our crispy fish-bone snacks, roasted squid and
roasted prawns.





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.





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 2008,
2007 and 2006:





AsaPercentageofOurPurchasesofRawMaterials
                      (%)YearendedDecember31,2008
                    
                    
                    2007
                    
                    
                    2006Shishi
      City Tianwang Seafood Products Trading Proprietor
                    
                    
                    23.6
                    
                    
                    
                    21.8
                    
                    
                    
                    14.3Shishi
      City Fugui Seafood Products Trading Proprietor
                    
                    
                    20.5
                    
                    
                    
                    18.5
                    
                    
                    
                    11.7Dalian
      Xinghai Import & Export Co., Ltd.
                    
                    
                    17.9
                    
                    
                    
                    -
                    
                    
                    
                    -Jinjiang
      City Shenhu Town Hongyuan Seafood Products Trading
    Proprietor
                    
                    
                    17.0
                    
                    
                    
                    17.6
                    
                    
                    
                    7.9Shishi
      City Huali Seafood Products Trading Proprietor
                    
                    
                    11.8
                    
                    
                    
                    16.4
                    
                    
                    
                    10.0Shishi
      City Nanfu Seafood Products Wholesale Proprietor
                    
                    
                    -
                    
                    
                    
                    15.6
                    
                    
                    
                    18.6TOTAL
                    
                    
                    90.8
                    
                    
                    
                    89.9
                    
                    
                    
                    62.5


22


Trading
in fresh fish and other seafood is mainly carried out by individual fishermen,
who ply their trade in and around various fishing ports in Shishi City, Fujian
Province. 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.





Before
2005, we mainly sourced for supplies of fresh fish and other seafood directly
from various fishermen when their trawlers docked at the ports. For convenience
and greater savings in procurement expenses, from 2005 onwards we sourced our
supplies from the five major suppliers, Therefore the percentage of our
purchases from the above 5 major suppliers increased significantly in
2005.




Though
certain of our major suppliers accounted for more than 10% of our total
purchases for the fiscal year ended December 31, 2008, 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, save 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 in 2008, 2007 and 2006:





As a Percentage of Our Sales (%)Year ended December 31,Products
                      
                      2008
                      
                      
                      2007
                      
                      
                      2006Wenling City Xingfeng
      Foodstuff Co., Ltd. (1)
                      
                      Dried
      processed seafood products
                      
                      
                      10.4
                      
                      
                      
                      8.9
                      
                      
                      
                      9.7Wenzhou Rixin
      Foodstuff Co., Ltd. (2)
                      
                      Dried
      processed seafood products
                      
                      
                      9.5
                      
                      
                      
                      9.8
                      
                      
                      
                      14.0Fuzhou Chaohui
      Foodstuff Company (3)
                      
                      Dried
      processed seafood products
                      
                      
                      9.0
                      
                      
                      
                      7.9
                      
                      
                      
                      5.3Zhejiang Ruian Laodu
      Seafood Wholesale Proprietor (4)
                      
                      Dried
      and frozen processed seafood products
                      
                      
                      8.7
                      
                      
                      
                      9.3
                      
                      
                      
                      7.9Qingdao Haizhan
      Seafood Co., Ltd (5)
                      
                      Dried
      and frozen processed seafood products
                      
                      
                      7.3
                      
                      
                      
                      9.9
                      
                      
                      
                      14.3Shenjiamen
      Liyizhougan Seafood Products Trading Proprietor (6)
                      
                      Dried
      and frozen processed seafood products
                      
                      
                      6.6
                      
                      
                      
                      -
                      
                      
                      
                      -Zhoushan City Maoyuan
      Foodstuff Import and Export Co., Ltd. (7)
                      
                      Dried
      and frozen processed seafood products
                      
                      
                      5.9
                      
                      
                      
                      -
                      
                      
                      
                      -Zhouriyu Seafood
      Products Trading Proprietor (8)
                      
                      Dried
      and frozen processed seafood products
                      
                      
                      5.4
                      
                      
                      
                      -
                      
                      
                      
                      -Shishi City Junxu
      Seafood Products Trading Proprietor (9)
                      
                      Marine
      catch, namely cuttlefish, squid, hairtail fish
                      
                      
                      -
                      
                      
                      
                      4.3
                      
                      
                      
                      7.5Shihuazhou Marine
      Products Wholesale Proprietor (10)
                      
                      Marine
      catch, namely cuttlefish, squid, hairtail fish
                      
                      
                      -
                      
                      
                      
                      4.1
                      
                      
                      
                      7.8Qingdao Xinqinghua
      Seafood Products Company (11)
                      
                      Marine
      catch, namely cuttlefish, squid, hairtail fish
                      
                      
                      -
                      
                      
                      
                      3.9
                      
                      
                      
                      11.0TOTAL
                      
                      
                      
                      
                      62.8
                      
                      
                      
                      58.1
                      
                      
                      
                      77.5


23


Notes:





1)
            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 700 retailers. It has been our customer since
      1997. Our sales to Wenling City Xingfeng Foodstuff Co Ltd increased due to
      the expansion of their geographic distribution coverage from county to
      city-level in Wenling City, Zhejiang
Province.





2)
            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 1,000 retailers. It was one of our first
      distributors and has been our key business partner since 1994. Our sales
      to Wenzhou Rixing Foodstuff Co., Ltd. increased due to the expansion of
      its geographic distribution coverage from the city to the suburban
      areas.





3)
            Fuzhou
      Chaohui Foodstuff Co., Ltd. is a distributor of dried processed seafood
      products located in Fuzhou City, Fujian Province.  It became one
      of our major customers in 2005 and ours sales to Fuzhou Chaohui Foodstuff
      Co., Ltd. increased substantially during the past two
    years.





4)
            Zhejiang
      Ruian Laodu Seafood Wholesale Proprietor is a large distributor of dried
      seafood in Ruian City, Zhejiang Province. It has been our customer since
      2005 but has increased its purchases from us due to the expansion of its
      distribution network which covers, to the best of our knowledge, 300
      retailers.





5)
            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 1,000
      retailers. It has been our customer since 1996. The company is
      wholly-owned by another of our major customer, Qingdao Xinqinghua Seafood
      Products Company, and its associates. Our sales to Qingdao Haizhan Seafood
      Co., Ltd. have increased from 2005 to 2006 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.





6)
            Shenjiamen
      Liyizhougan Seafood Products Trading Proprietor is a distributor of dried
      and frozen seafood products in Zhoushan City, Zhejiang Province, and has,
      to the best of our knowledge, a distribution network of about 273
      retailers and a sales workforce of about 45 people. It has been our
      customer since 2000. Our sales to Shenjiamen Liyizhougan Seafood Products
      Trading Proprietor increased due to the expansion of their distribution
      network in Zhoushan City, Zhejiang Province, which have resulted in
      increased orders from them.





7)
            Zhoushan
      City Maoyuan Foodstuff Import and Export Co., Ltd. is a distributor
      of dried and frozen seafood products in Zhoushan City, Zhejiang Province,
      and has, to the best of our knowledge, a distribution network of about 51
      retailers and a sales workforce of about 18 people. It has been our
      customer since 2003. Our sales to Zhoushan City Maoyuan Foodstuff Import
      and Export Co., Ltd. increased due to the expansion of their distribution
      network in Zhoushan City, Zhejiang Province, which have resulted in
      increased orders from them.





8)
            Zhouriyu
      Seafood Products Trading Proprietor is a distributor of dried and frozen
      seafood products in Wenzhou City, Zhejiang Province, and has, to the best
      of our knowledge, a distribution network of about 132 retailers and a
      sales workforce of about 57 people. It has been our customer since 1997.
      Our sales to Zhouriyu Seafood Products Trading Proprietor increased due to
      the expansion of their distribution network in Wenzhou City, Zhejiang
      Province, which have resulted in increased orders from
    them.





9)
            Shishi
      City Junxu Seafood Products Trading Proprietor is a trader of fresh
      seafood in Quanzhou City, Fujian Province. It sources and purchases
      supplies for Taiwanese fishery companies in the seafood business, and has
      been our customer since 2002.





10)
            Shihuazhou
      Marine Products Wholesale Proprietor is a trader of fresh seafood in
      Quanzhou City, Fujian Province. It sources and purchases supplies for
      Taiwanese fishery companies in the seafood business, and has been our
      customer since 2002.


24


11)
            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.





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, save 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” on
Page 22. 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 dried seafood
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:




Trademark
      (1)
                          
                          Class
                          
                          Place
      of
                            Registration
                          
                          Status
      / Validity
                            PeriodClass
      40 covering processed seafood, agricultural foods, processed teas,
      processed herbs, chemical testing and processing
                          
                          PRC
                          
                          Registered
      / January 28, 2003 to January 27,
2013





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.





Registered
Packaging Designs





We hold
registered packaging designs in respect of the packaging of the majority of our
processed seafood products. The details are as follows:





DescriptionofRegisteredPackagingDesigns
                      
                      PlaceofRegistration
                      
                      Status/ValidityofPeriodPackaging
      for Sakura squid
                      
                      PRC
                      
                      10
      years from March 28, 2003Packaging
      for roasted squid
                      
                      PRC
                      
                      10
      years from April 11,
2001





As at
December 31, 2008, we are in the process of application for our three new
products being launched during the year for their respective registered
packaging designs.





Save as
disclosed above, as at the date of this Form 10-K, our business or profitability
is not materially dependent on any other trademarks, copyrights, registered
designs, patents, grant of licenses from third parties, new manufacturing
processes and intellectual property rights.


25


GOVERNMENT
REGULATIONS





The
following is a description of the material licenses and permits issued to
companies in 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:




Subsidiary
                                
                                Name of 
      Certificate
                                
                                Description of 
      License/Permit
                                
                                Issuing Authority
                                
                                Period of 
      ValidityMingxiang
                                
                                Hygiene
      License
                                
                                Permit
      to process seafood products
                                
                                Shishi
      City Hygiene Bureau
                                
                                May
      18, 2008 to May 17, 2012Rixiang
                                
                                Hygiene
      License
                                
                                Permit
      to process seafood and agricultural products, research and processing
      biochemical products.
                                
                                Shishi
      City Hygience Bureau
                                
                                May
      18, 2008 to May 17, 2012Rixiang
                                
                                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, 2006 to May 31,
2009





Other
Licenses and Permits





Our other
licenses and permits are as follows:





Subsidiary
                                
                                Name of 
      Certificate
                                
                                Description of 
      License/Permit
                                
                                Issuing Authority
                                
                                Period of 
      ValidityMingxiang
                                
                                National
      Industrial Product Manufacturing License
                                
                                Permit
      to process seafood (dried)
                                
                                Fujian
      Province Quality Technology Supervisory Bureau
                                
                                November
      10, 2005 to November 10, 2008 [Examination passed on February 12, 2009 and
      awaiting issuance of formal license]Rixiang
                                
                                National
      Industrial Product Manufacturing License
                                
                                Permit
      to process seafood (dried)
                                
                                Fujian
      Province Quality Technology Supervisory Bureau
                                
                                April
      16, 2007 to April 15, 2010Rixiang
                                
                                Customs
      Registration Certificate
                                
                                Permit
      to file import-export documents with China Customs
                                
                                China
      Customs
                                
                                December
      14, 2004 to July 14, 2009Mingxiang
                                
                                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
                                
                                Valid
      from September 4, 2000; no expiration dateRixiang
                                
                                EU
      Export Registration
                                
                                Approval
      for Rixiang to export marine products to EU
                                
                                European
      Commission
                                
                                Valid
      from October 6, 2006; no expiration
date





Save 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.


26


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 at December
31, 2008, our research and development team comprises 9 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;





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, and (4) 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. For the
period under review, we have through our research and development introduced 21
new processed seafood products, including smoked eel, Sakura squid, and sliced
squid. 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 will
allow 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
collaboration with Ocean University of China since April 2006 have been focused
on developing new products and by-products from raw marine catch used in the
processing of seafood products, in particular (1) the development of bioactive
peptide products from leftovers of aquatic processed products; and (2) the
development of collagen protein and collagen peptide protein products from fish
skin:





1.
            Development of bioactive
      peptideproducts
      from leftovers of processed seafood
  products





Bioactive
peptide protein found in aquatic products is used to produce angiotensin
converting enzyme (ACE) inhibitors. ACE is a compound which increases the
pressure within blood vessels, thereby causing high blood pressure. An ACE
inhibitor helps slow the activity of the ACE. Using Bioactive peptide protein
developed ACE inhibitors avoids the harmful side effects associated with using
synthetic medicine for lowering hypertension.





2.
            Development of collagen
      protein and collagen peptide protein products from fish
      skin





This
technique involves the extraction of collagen protein from fish skin. The
collagen protein is then converted into marine biological collagen peptide
protein using a directional enzyme hydrolysis technology and velum separation
technology. Fish-skin collagen protein is mainly used as an ingredient for
cosmetic products and health food products. We note that some cosmetics
manufacturers have begun to use marine biological collagen peptide protein and
collagen protein in their products.


27


The Ocean
University of China would provide technical and training support in the
development of production techniques and commercialization of the above said
products. The research and development activities are conducted at our
production facilities at Dabao Industrial Zone, Xiangzhi Town, Shishi City,
Fujian Province.





Our
research and development expenses amounted to approximately $87,000, $33,000 and
$98,000 for 2008, 2007 and 2006 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” brand 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/CertificationBody
                    
                    ValidityPeriodRixiang
                    
                    Validation
      of conformity with HACCP standards(1)
      for the export of marine products to the US
                    
                    CIQ
                    
                    November
      13, 2007 to November 13, 2008 [Renewal application accepted and awaiting
      issuance of formal certification]Rixiang
                    
                    EU(2)
      export registration for export of our marine products to the
      EU
                    
                    European
      Commission
                    
                    No
      validity periodMingxiang
                    
                    ISO9001:2000(3)
      quality management system certification
                    
                    CNAB
      & CCIC Quality Certification Centre
                    
                    December
      5, 2006 to December 4, 2009Mingxiang
                    
                    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
      27, 2008 to November 26,
2011





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-recognised 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.


28


3)
            ISO9001:2000
      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” on Page 15 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 ISO9001:2000 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.





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.


29


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.




ENVIRONMENTAL
LAW COMPLIANCE





On
December 15, 2005, 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
00108E20847ROM/3502. The certificate is renewed in 2008 which is valid until
November 26, 2011.





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.





EMPLOYEES





We set
out below the total number of our employees and the various functions which they
serve as at December 31, 2007, 2006 and 2005 respectively.




AsatDecember31,Functions
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006Sales
      and Marketing
                          
                          
                          23
                          (3)
                          
                          
                          19
                          
                          
                          
                          16Finance
      and Administration
                          
                          
                          35
                          (3)
                          
                          
                          20
                          
                          
                          
                          17Fishing
      and Procurement (1)
                          
                          
                          4
                          
                          
                          
                          102
                          (2)
                          
                          
                          135Production,
      Research & Development, and Quality Control
                          
                          
                          549
                          (3)
                          
                          
                          493
                          
                          
                          
                          492TOTAL
                          
                          
                          611
                          
                          
                          
                          634
                          
                          
                          
                          660





Note:





1)
            These
      figures include those fishermen who operated the fishing vessels that we
      chartered for our marine catch business in 2006 and 2007, who
      were paid by our Company. Starting from 2008, we no longer charter
      any fishing vessels but simply source those raw materials from suppliers
      per customers’ requests.





2)
            The
      decrease in number of employees was mainly due to the reduction in number
      of chartered vessels from nine (9) in 2006 to six (6) as at December 31,
      2007.





3)
            The
      increase in number of employees was in line with the expansion on our
      production capacities and marketing efforts 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.


30




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 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 Proxy Statements for
our Annual Stockholder Meetings are also available through our Internet website.
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.





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, 90.9%, 76.5% and 60.3%
of our sales in the fiscal years ended December 31, 2008, 2007 and 2006
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 environmental factors, the availability of
seafood stock, weather conditions, 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.





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 77.9%, 74.3% and
64.9% of our total cost of sales of processed seafood products in the fiscal
years ended December 31, 2008, 2007 and 2006 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.




31


We
are dependent on five 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 44.9%, 45.8% and 56.9% of our
sales in the fiscal years ended December 31, 2008, 2007 and 2006 respectively.
In the event these and other major customers do not continue to purchase from us
or reduce their purchases from us or develop their own ability 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 will be affected. Please see the section
“Major Customers” on Page 23 for more details.





We
are dependent on five 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 seafood products, we rely on our major suppliers for
a significant portion of the supply of fresh seafood. Purchases from our top
five suppliers of raw materials accounted for approximately 90.8%, 89.9% and
62.5% of our total purchases of raw materials in the fiscal years ended December
31, 2008, 2007 and 2006 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”
on Page 22 for more details.





A
significant portion of our business activities is transacted in cash and our
internal controls in relation to cash management may not be able to address all
the risks associated with the handling of cash and cash
transactions.





Due to
the nature of our business, our procurement of raw materials is fully transacted
on a cash basis and a significant portion of our sales are transacted in cash.
Our cash payment for the procurement of raw materials accounted for the whole of
our total cost of sales for each of the fiscal years ended December 31, 2006 and
2005. Starting from 2007, we have requested our major suppliers to open bank
accounts and thus we could settle the purchases through bank
instructions. Sales transacted in cash accounted for 2.0%, 1.6% and 42.9%
of our total sales for the fiscal years ended December 31, 2008, 2007 and 2006
respectively.





The
internal controls in relation to cash management that we have put in place may
not be able to address all the risks associated with the handling of cash and
cash transactions. We may therefore be exposed to risks such as loss, theft,
misappropriation and forgery of the cash used in our transactions. In the event
such risks materialize, our financial position, business and results of
operations may be materially and adversely affected.





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.





The
seafood processing industry is highly competitive. The growth potential of the
seafood processing industry is dependant on population growth and consumer
preferences. therefore believe that our profitability and continued growth is
dependant on 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”
on Page 27 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.


32


We may be exposed to potential risks
relating to our internal controls over financial reporting and our ability to
have those controls attested to by our independent auditors.





As
directed by Section 404 of the Sarbanes-Oxley Act of 2002 or SOX 404, the SEC
adopted rules requiring public companies to include a report of management on
the company’s internal controls over financial reporting in their annual
reports, including Form 10-K. In addition, the independent registered public
accounting firm auditing a company’s financial statements must also attest to
and report on management’s assessment of the effectiveness of the company’s
internal controls over financial reporting as well as the operating
effectiveness of the company’s internal controls. We were not subject to these
requirements for the fiscal year ended December 31, 2007; accordingly, we have
not evaluated our internal control systems in order to allow our management to
report on, and our independent auditors to attest to, our internal controls as
required by these requirements of SOX 404. Under current law, we will be subject
to these requirements beginning with our annual report for the fiscal year
ending December 31, 2009. We can provide no assurance that we will comply with
all of the requirements imposed thereby. There can be no assurance that we will
receive a positive attestation from our independent auditors. In the event we
identify significant deficiencies or material weaknesses in our internal
controls that we cannot remediate in a timely manner or we are unable to receive
a positive attestation from our independent auditors with respect to our
internal controls, investors and others may lose confidence in the reliability
of our financial statements.





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 and expanding our production facilities. Our expansion
plans involve a number of risks, including inter 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.





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 marine catch and processed seafood products as a percentage of our
total sales for the period under review were as follows:





Year
      ended December 31,Products
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006(%)
                  
                  
                  (%)
                  
                  
                  (%)Processed
      seafood products
                  
                  
                  90.9
                  
                  
                  
                  76.5
                  
                  
                  
                  60.3Marine
      catch
                  
                  
                  9.1
                  
                  
                  
                  23.5
                  
                  
                  
                  39.7





Shifts in
consumer preferences or eating habits away from processed seafood products will
materially affect our business. 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. Please see the section “Other Licenses
and Permits” on Page 26 for further details. 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.


33


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 and frozen 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.





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.


34


In
addition, the CIQ makes random inspections on the processed seafood products
that we export. Failure to meet the required standards of hygiene may affect our
ability to export our processed seafood products and meet our customers’ orders
on time. It may also lead to a restriction on our ability to export our
processed seafood 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 5% of
our total sales. 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.





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, 2008, our distribution network is comprised of 18
distributors located in six provinces. These distributors sub-distribute our
dried processed seafood products to over 1,400 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 “Competition” in this Form 10-K for further details as to our present
competitors.


35


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 Taiwan Straight,
which is also the place where we conduct our marine catch
operations.





In 2004,
an undersea earthquake occurred off the west coast of Sumatra Indonesia. This
earthquake triggered a series of devastating tsunamis along the costs of most
landmasses boarding the Indian Ocean. More than 225,000 people in 11 countries
were killed, and coastal communities were inundated with waves up to 100
feet.





In May
2008, there was an 8.0 magnitude scale earthquake occurred at Sichuan Province
of China. It was also known the Wenchuan earthquake, which by any name killed at
least 69,000 people, and over 374,000 injured, with 18,000 listed as missing.
The earthquake left about 4.8 million people homeless, thought the number could
be as high as 11 million. It was the deadliest earthquake to hit China since the
1976 Tangshan earthquake.





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.


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 the practice of 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.





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 34, 27 and 33 days in 2008, 2007
and 2006 respectively. Our allowances for doubtful trade receivables as at
December 31, 2008, 2007, and 2006 were approximately $24,000, $21,000 and $6,000
respectively, and at about 0.5% of our gross trade receivables.





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.


36


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





We sell
our dried processed seafood products, frozen processed seafood products and
marine catch mainly to local customers. Direct exports as a percentage of our
sales ranged between 0.5% to 4.9% during the period under review. Our sales are
denominated in RMB and US$, while our purchases are denominated in
RMB.





For the
period under review, the percentages of our sales denominated in RMB and US$
were as follows:





Year
      ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006(%)
                    
                    
                    (%)
                    
                    
                    (%)RMB
                    
                    
                    95.1
                    
                    
                    
                    99.5
                    
                    
                    
                    99.1US$
                    
                    
                    4.9
                    
                    
                    
                    0.5
                    
                    
                    
                    0.9





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, 2008, the
closing exchange rate was approximately US$1.00 to 6.8542. There is no assurance
that the PRC’s foreign exchange policy will not be further altered. In the event
that the PRC’s policy is altered, significant fluctuations in the exchange rates
of RMB against the US$ 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.





We
currently do not have a formal hedging policy with respect to our foreign
exchange exposure as our foreign exchange gains and losses over the past three
fiscal years ended December 31, 2008, 2007 and 2006 respectively, have been
relatively low. We will continue to monitor our foreign exchange exposure in the
future and will consider hedging any material foreign exchange exposure should
the need arise.





Please
refer to the section “Foreign Exchange Exposure” of this Form 10-K 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” on Page 25. 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.





The
United States has been in a recession since December, 2007. Business activity
across a wide range of industries and regions is greatly reduced, and many
businesses and local governments are experiencing serious difficulty in
remaining profitable due to the lack of consumer spending and the lack of
liquidity in the credit markets. Unemployment has increased significantly. Since
mid-2007, and particularly during the second half of 2008, the financial
services industry and the securities markets generally were materially and
adversely affected by significant declines in the values of nearly all asset
classes and by a serious lack of liquidity.


37


As a
result of this economic downturn, many lending institutions, including us, have
experienced declines in the performance of their loans, including commercial
loans, commercial real estate loans and consumer loans. Moreover, competition
among depository institutions for deposits and quality loans has increased
significantly. In addition, the values of real estate collateral supporting many
commercial loans and home mortgages have declined and may continue to decline.
Bank and bank holding company stock prices have been negatively affected, and
the ability of banks and bank holding companies to raise capital or borrow in
the debt markets has become more difficult compared to recent years. There is
also the potential for new federal or state laws and regulations regarding
lending and funding practices and liquidity standards, and bank regulatory
agencies are expected to be very aggressive in responding to concerns and trends
identified in examinations, including the expected issuance of many formal or
informal enforcement actions or orders. The impact of new legislation in
response to those developments, may negatively impact our operations by
restricting our business operations, including our ability to originate or sell
loans, and adversely impact our financial performance or our stock
price.





In
addition, further 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 and others in the
financial services industry.


Overall,
during the past year, the general business environment has had an adverse effect
on our business, and there can be no assurance that the environment will improve
in the near term. Until conditions improve, we expect our business, financial
condition and results of operations to be adversely affected.





In recent
months, worldwide economic conditions have deteriorated significantly in the
United States and other countries, and 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, in the United
States, or in our industry. These and other economic factors could have a
material adverse effect on our financial condition and operating
results.





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 and marine catch 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-owed 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.


38


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.





PRC
foreign exchange control may limit our ability to utilize our cash effectively
and affect our ability to receive dividends and other payments from our PRC
subsidiaries.





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 2008 and 2007, approximately 95.1%
and 99.5% 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.





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.


39


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 will be 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.





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.


40





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.





Future
inflation in China may inhibit our ability to conduct business in
China.





In recent
years, the Chinese economy has experienced periods of rapid expansion and highly
fluctuating rates of inflation. During the past ten years, the rate of inflation
in China has been as high as 20.7% and as low as -2.2%. These factors have led
to the adoption by the Chinese government, from time to time, of various
corrective measures designed to restrict the availability of credit or regulate
growth and contain inflation. High inflation may in the future cause the Chinese
government to impose controls on credit and/or prices, or to take other action,
which could inhibit economic activity in China, and thereby harm the market for
our products.





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 U.S. dollars, 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 will have significant influence over the outcome of matters submitted to
Shareholders for approval.





Mr. Liu
currently owns approximately 51.3% of our authorized share capital. As a result,
he will be able to 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.


41


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;





·
            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 OTC Bulletin Board 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 processes 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 “Competition” on Page 19. We have also
established a track record in the processed seafood industry which instills
confidence in our products and attracts new customers from South Korea, Japan,
Taiwan, Russia and Ukraine, as well as potential customers from the European
Union. 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.


42


Our
common stock is quoted on the OTC Bulletin Board which may have an unfavorable
impact on our stock price and liquidity.





Our
common stock is quoted on the OTC Bulletin Board under the symbol CMFO. The OTC
Bulletin Board is a significantly more limited market than the New York Stock
Exchange or NASDAQ system. The quotation of our shares on the OTC Bulletin Board
may result in a less liquid market available for existing and potential
stockholders to trade shares of our common stock, could depress the trading
price of our common stock and could have a long-term adverse impact on our
ability to raise capital in the future.





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





As at
December 31, 2008, we owned the following land-use rights in Dabao Industrial
Zone, Xiangzhi Town, Shishi City, Fujian Province:





Certificate
                                ReferenceNo.
                              
                              Location
                              
                              Use
                              
                              DateofExpiration
                                ofTenure
                              
                              LandArea
                                (squaremeters)
                              
                              EncumbranceShiXiangGuoYong
                              
                              Plot
      0005 (2006),
                              
                              Industrial
                              
                              December
      31, 2052
                              
                              3,374.05
                              
                              Nil(2006)
      No. 0005
                              
                              Dabao
      IndustrialZone,
      XiangzhiTown,
      Shishi City,Fujian
      ProvinceSiXiangGuoYong
                              
                              Plot
      0006 (2001),
                              
                              Industrial
                              
                              March
      11, 2052
                              
                              3,638.25
                              
                              Nil(2001)
      No. 0006
                              
                              Dabao
      IndustrialZone,
      XiangzhiTown,
      Shishi City,Fujian
      ProvinceShiXiangGuoYong
                              
                              Plot
      0007, Dabao
                              
                              Industrial
                              
                              December
      31, 2052
                              
                              3,960.32
                              
                              Nil(2001)
      No. 0007
                              
                              Industrial
      Zone,Xiangzhi
      Town,Shishi
      City, FujianProvinceShiXiangGuoYong
                              
                              Plot
      0009, Dabao
                              
                              Industrial
                              
                              December
      2, 2052
                              
                              6,723.08
                              
                              Nil.(2002)
      No. 0009
                              
                              Industrial
      Zone,Xiangzhi
      Town,Shishi
      City, FujianProvince




43


BUILDINGS





As at
December 31, 2008, 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)
                          
                          EncumbranceShiXiang
      (2001)
                          
                          Block
      A at Plot 0006
                          
                          Production
      and
                          
                          June
      5, 2051
                          
                          705.60/1,489.60
                          
                          NilNo.0016
                          
                          (2001),
      Dabao Industrial
                          
                          packagingZone,
      Xiangzhi Town,
                          
                          facilitiesShishi
      City, FujianProvinceShiXiang
      (2001)
                          
                          Block
      B at Plot 0006
                          
                          Boiler
      facilities
                          
                          June
      5, 2051
                          
                          145.38/145.38
                          
                          NilNo.
      0017
                          
                          (2001),
      Dabao IndustrialZone,
      Xiangzhi Town,Shishi
      City, FujianProvinceShiXiang
      (2001)
                          
                          Block
      C at Plot 0006
                          
                          Production
      and
                          
                          June
      5, 2051
                          
                          934.46/1,991.29
                          
                          NilNo.
      0018
                          
                          (2001),
      Dabao Industrial
                          
                          cutting/slicingZone,
      Xiangzhi Town,
                          
                          facilitiesShishi
      City, FujianProvinceShiXiang
      (2001)
                          
                          Cold
      storage facility at
                          
                          Cold
      Storage
                          
                          June
      5, 2051
                          
                          1,224.84/1,289.29
                          
                          NilNo.
      0019
                          
                          Plot
      007(2001), DabaoIndustrial
      Zone,Xiangzhi
      Town, ShishiCity,
      Fujian ProvinceShiXiang
      (2001)
                          
                          Block
      A at Plot 0009
                          
                          Staff
      dormitory
                          
                          June
      5, 2051
                          
                          1,561.17/3,347.54
                          
                          Nilno.
      0020 (1)
                          
                          (2002),
      Dabao IndustrialZone,
      Xiangzhi Town,Shishi
      City, FujianProvinceShiFangQuan
                          
                          Block
      B at Plot 0009
                          
                          Office
                          
                          September
      28,
                          
                          942.19/3,268.41
                          
                          NilZhengXiangZhi
                          
                          (2002),
      Dabao Industrial
                          
                          
                          
                          2052No. 00018(1)
                          
                          Zone,
      Xiangzhi Town,Shishi
      City, FujianProvinceShiFangQuan
                          
                          Block
      A at Plot 0005
                          
                          Factory
      Space
                          
                          December
      31,
                          
                          620.00/620.00
                          
                          NilZheng
                          
                          (2006),
      Dabao Industrial
                          
                          
                          
                          2052XiangZhi
                          
                          Zone,
      Xiangzhi Town,No.
      00567
                          
                          Shishi
      City, FujianProvinceShiFangQuan
                          
                          Block
      B at Plot 0005
                          
                          Factory
      Use
                          
                          December
      31,
                          
                          670.56/670.56
                          
                          NilZheng
                          
                          (2006),
      Dabao Industrial
                          
                          
                          
                          2052XiangZhi
                          
                          Zone,
      Xiangzhi Town,No.
      00568
                          
                          Shishi
      City, FujianProvince





Note:





1)
            Mingxiang
      owned the building ownership rights to these two properties. Jixiang owned
      the building ownership rights to the other
  properties.


2)
            As
      at December 31, 2008, we are in the process of application for building
      ownership rights for the new production facilities and staff dormitory
      with floor areas at about 3,000 and 2,850 square meters
      respectively.





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.            Submission
of Matters to a Vote of Security Holders





There
were no matters submitted to a vote of security holders from January 1, 2008 to
December 31, 2008.


44





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 quoted on OTC Bulletin Board, under the trading symbol CMFO. The
CUSIP number is 16943R 106. The market for our stock is highly volatile. We
cannot assure you that there will be a market in the future for our common
stock. The OTC Bulletin Board securities are not listed and traded on the floor
of an organized national or regional stock exchange. Instead, OTC Bulletin Board
securities transactions are conducted through a telephone and computer network
connection dealers in stocks. OTC Bulletin Board Stocks are traditionally
smaller companies that do not meet the financial and other listing requirements
of a regional or national stock exchange.





The
following table shows the high and low prices of our common shares on the OTC
Bulletin Board for each quarter within the last two fiscal years.


High
                  
                  
                  LowFiscal
      2008First
      Quarter
                  
                  $
                  6.00
                  
                  
                  $
                  3.55Second
      Quarter
                  
                  $
                  6.00
                  
                  
                  $
                  3.15Third
      Quarter
                  
                  $
                  3.35
                  
                  
                  $
                  2.00Fourth
      Quarter
                  
                  $
                  2.21
                  
                  
                  $
                  1.45Fiscal
      2007First
      Quarter
                  
                  $
                  0.75
                  
                  
                  $
                  0.75Second
      Quarter
                  
                  $
                  0.75
                  
                  
                  $
                  0.80Third
      Quarter
                  
                  $
                  15.00
                  
                  
                  $
                  0.80Fourth
      Quarter
                  
                  $
                  4.78
                  
                  
                  $
                  2.55





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 18, 2009, there were 61 holders of record of our common
stock.





DIVIDENDS





Pursuant
to a Stock Purchase Agreement with Halter Financial Investments, L.P. dated
September 13, 2007, we paid a special cash dividend in the aggregate amount of
$392,028, or $$0.364 per share, to holders of our common stock outstanding on
September 12, 2007.





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 at the moment. 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.


45


ITEM
6.            Selected
Financial Data





The
following tables summarize the consolidated financial data of China Marine for
the periods presented. You should read the following financial information
together with the information under “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our consolidated financial
statements and the related notes to these consolidated financial statements
appearing elsewhere herein. The selected consolidated statements of operations
data for the financial years ended December 31, 2008; and the selected
consolidated balance sheet data as of December 31, 2008 are derived from our
consolidated financial statements, which are included elsewhere herein, and have
been audited by ZPCPA Company Limited (formerly Zhong Yi (Hong Kong) C.P.A.
Company Limited), an independent registered public accounting firm, as indicated
in their report. Whereas the selected consolidated statements of operations data
for the financial years ended December 31, 2007 and 2006; and the selected
consolidated balance sheet data as of December 31, 2007 are derived from our
consolidated financial statements, which are included elsewhere herein, and have
been audited by Cordovano and Honeck LLP, an independent registered public
accounting firm, as indicated in their report.





Yearended December
      31,2008
                      
                      
                      2007
                      
                      
                      2006(in
      thousands)Revenue
                      
                      $
                      48,799
                      
                      
                      $
                      36,425
                      
                      
                      $
                      27,442Cost
      of sales
                      
                      
                      (33,607)
                      
                      
                      
                      (25,649)
                      
                      
                      
                      (19,730)Gross
      profit
                      
                      
                      15,192
                      
                      
                      
                      10,776
                      
                      
                      
                      7,712Depreciation
      and amortization
                      
                      
                      (58)
                      
                      
                      
                      (37)
                      
                      
                      
                      (32)Sales
      and marketing expenses
                      
                      
                      (608)
                      
                      
                      
                      (149)
                      
                      
                      
                      (94)General
      and administrative expenses
                      
                      
                      (2,068)
                      
                      
                      
                      (598)
                      
                      
                      
                      (388)Other
      income
                      
                      
                      647
                      
                      
                      
                      223
                      
                      
                      
                      110Interest
      expense
                      
                      
                      (319)
                      
                      
                      
                      (333)
                      
                      
                      
                      (272)Income
      before income tax
                      
                      
                      12,786
                      
                      
                      
                      9,882
                      
                      
                      
                      7,036Income
      tax expense
                      
                      
                      (1,663)
                      
                      
                      
                      (1,221)
                      
                      
                      
                      -Net
      income attributable to the Shareholdersof
      the Company
                      
                      $
                      11,123
                      
                      
                      $
                      8,661
                      
                      
                      $
                      7,036Earnings per Share—basic (US$) (1)
                      
                      $
                      0.48
                      
                      
                      $
                      0.38
                      
                      
                      $
                      0.45Earnings per Share—diluted (US$) (2)
                      
                      $
                      0.48
                      
                      
                      $
                      0.34
                      
                      
                      $
                      0.45Weighted average shares
      outstanding - basic (1)
                      
                      
                      23,011
                      
                      
                      
                      22,972
                      
                      
                      
                      15,624Weighted average shares outstanding -
      diluted (2)
                      
                      
                      23,011
                      
                      
                      
                      25,142
                      
                      
                      
                      15,624





Note:


(1)
            Basic
      earnings per share is computed using the weighted average number of the
      ordinary shares outstanding during the
year.


(2)
            Diluted
      earnings per share is computed using the weighted average number of the
      ordinary shares and ordinary share equivalents outstanding during the year
      plus 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.




As at December
      31,2008
                      
                      
                      2007Balance
      Sheet Data:
                      (in
      thousands)Cash
      and cash equivalents
                      
                      $
                      31,640
                      
                      
                      $
                      24,477Total
      current assets
                      
                      
                      43,466
                      
                      
                      
                      30,013Total
      assets
                      
                      
                      51,646
                      
                      
                      
                      34,130Short-term
      borrowings
                      
                      
                      4,289
                      
                      
                      
                      772Total
      current liabilities
                      
                      
                      6,626
                      
                      
                      
                      2,602Total
      stockholders’ equity
                      
                      
                      45,020
                      
                      
                      
                      31,528




46





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





Forward
Looking Statements





The
information in this discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements involve risks and uncertainties, including statements regarding our
capital needs, business strategy and expectations. Any statements contained
herein that are not statements of historical facts may be deemed to be
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may", "will", "should", "expect", "plan",
"intend", "anticipate", "believe", "estimate", "predict", "potential" or
"continue", the negative of such terms or other comparable terminology. Actual
events or results may differ materially. We disclaim any obligation to publicly
update these statements, or disclose any difference between its actual results
and those reflected in these statements. The information constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.





OVERVIEW





We are a
holding company whose primary business operations are conducted through our
direct, wholly owned subsidiary, Nice Enterprise, and its subsidiaries, Shishi
Rixiang Marine Foods Co. Ltd. (“Rixiang”), which is incorporated in the PRC. We
engage in the business of processing, distribution and sale of processed seafood
products, as well as the sale of marine catch. Our objective is to establish
ourselves as a leading producer of processed seafood products in the PRC and
overseas markets.





Reverse
acquisition and private placement





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





Pursuant
to the share exchange agreement, the shareholders of Nice Enterprise exchanged
100% of their outstanding capital stock in Nice Enterprise 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, a majority of our shareholders of record as of November 16, 2007
approved a resolution by our board of directors to change our name from New
Paradigm Productions, Inc. to China Marine Food Group Limited (“China Marine”).
The name change became effective on January 9, 2008 upon the filing of a
Certificate of Amendment to our Amended Articles of Incorporation with the State
of Nevada on the twentieth day following the mailing of a Definitive Information
Statement to our shareholders.





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 units consisting one share of common stock and a warrant to
purchase one-fifth of one share of our common stock. The investors subscribed
for 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. The
units were offered and sold pursuant to exemptions from registration under the
Securities Act, including without limitation, Regulation D and Regulation S
promulgated under the Securities Act. Each warrant issued to the investors has a
term of three years and is exercisable at any time for a price equal to $4.1782
in cash or on a cashless exercise basis.





Upon the
close of the reverse acquisition, Richard Crimmins, our sole director, submitted
his resignation letter pursuant to which he resigned from all offices of the
Company he holds which resignations will become effective immediately. Mr. Liu
replaced him as our Chief Executive Officer and Interim Secretary effective on
the close of the reverse acquisition. Prior to the effective date of the reverse
acquisition, Mr. Liu served at Nice Enterprise as its Chief Executive
Officer.





For
accounting purposes, the share exchange transaction was treated as a reverse
acquisition with Nice Enterprise as the acquirer and China Marine 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 Nice Enterprise on a consolidated
basis unless the context suggests otherwise.


47


Sales





We are a
seafood producer engaged in the processing, distribution and sale of seafood
products, as well as the sale of marine catch. Our two other subsidiaries,
Shishi Huabao Mingxiang Foods Co., Ltd (“Mingxiang”) and Shishi Huabao Jixiang
Water Products Co., Ltd (“Jixiang”) are property holding companies. These two
companies operate solely to manage our land use rights and properties, including
our production plant, cold storage facility, office tower and staff
dormitory.





Our dried
processed seafood products include dried prawns, dried squids, dried file fish,
roasted prawns, shredded roasted squids, roasted squids, roasted file fish,
roasted sea eels and other seafood items. 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, who in turn distribute them to
major supermarkets and retailers throughout these provinces.





Our
frozen processed seafood products include frozen Japanese butter fish, frozen
octopus and frozen squid rings. These are sold directly to wholesalers within
the PRC and overseas, either through direct export or through export agents. Our
products are sold to overseas market such as Japan, South Korea, Taiwan
and Philippines.





In 2007,
we worked with local fishermen and chartered a number of fishing vessels to
harvest marine catch from the East China Sea and the Taiwan Strait. Our marine
catch mainly consisted of four main species, namely squid, hairtail fish,
Japanese butter fish and cuttlefish. All the harvest from our marine catch was
sold to customers on a direct basis. We did not use any of our own marine catch
for the production of our processed seafood products. Instead, the raw
materials for our processed seafood products are solely purchased from
independent fishermen in nearby markets for further processing.





Starting
from 2008, we do not charter any fishing vessels nor harvest the marine catch
ourselves. Instead, we simply buy the marine catch from the suppliers and then
sell to the customers on a direct basis. The marine catch is predominantly sold
to overseas customers and distributors in the Fujian and Shandong provinces,
some of whom directly export the marine catch to South Korea and
Taiwan.





Sales of
our processed seafood products accounted for approximately 90.9%, 76.5% and
60.3% of our total sales in year 2008, 2007 and 2006 respectively. Sales of our
marine catch accounted for approximately 9.1%, 23.5% and 39.7% of our total
sales in year 2008, 2007 and 2006 respectively. Having recognized that the
processed seafood segment has significant growth potential and better profit
margin comparing to the trading of marine catch, we will continue to focus our
resources on the processed seafood segment going forward.





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 77.9%, 74.3%
      and 64.9% of our total cost of sales of processed seafood products in
      year 2008, 2007 and 2006 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, 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 in the supply of or increase in the prices of the raw materials for our
processed seafood products will adversely affect our sales.


48





·
            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.





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, the PRC. We have five production lines for the
processing of dried processed seafood products: roasted file fish, roasted
prawns, shredded roasted squid, roasted squids and smoked products, and one
production line for the processing of frozen seafood products.





As at
December 31, 2008, we employed 611 employees.





Seasonality





We do not
experience any significant seasonality in relation to sales for our processed
seafood products. However, sales are usually higher before and during the
Chinese New Year. In 2008, we also experienced a strong sales demand before the
Olympics games being held in Beijing in August. As for the trading of marine
catch, sales may be lower in June and July due to the reduced supplies as a
result of the restriction on fishing in the Taiwan Strait during these two
months.





RESULTS
OF OPERATIONS





We derive
our sales from the sales of processed seafood products and marine catch, 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, 2008, 2007 and
2006 are set out below:





Breakdown
of our past performance by principal products and geographical
regions


Sales
by product





Year
      ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006US$’000
                  
                  
                  %
                  
                  
                  US$’000
                  
                  
                  %
                  
                  
                  US$’000
                  
                  
                  %Processed
      seafood products
                  
                  
                  44,370
                  
                  
                  
                  90.9
                  
                  
                  
                  27,863
                  
                  
                  
                  76.5
                  
                  
                  
                  16,551
                  
                  
                  
                  60.3Marine
      catch
                  
                  
                  4,429
                  
                  
                  
                  9.1
                  
                  
                  
                  8,562
                  
                  
                  
                  23.5
                  
                  
                  
                  10,891
                  
                  
                  
                  39.7Total
                  
                  
                  48,799
                  
                  
                  
                  100.0
                  
                  
                  
                  36,425
                  
                  
                  
                  100.0
                  
                  
                  
                  27,442
                  
                  
                  
                  100.0




49


Sales
by geographical region





Year
      ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006US$’000
                    
                    
                    %
                    
                    
                    US$’000
                    
                    
                    %
                    
                    
                    US$’000
                    
                    
                    %PRCShandong
                    
                    
                    4,306
                    
                    
                    
                    8.8
                    
                    
                    
                    5,047
                    
                    
                    
                    13.9
                    
                    
                    
                    6,613
                    
                    
                    
                    24.1Zhejiang
                    
                    
                    22,342
                    
                    
                    
                    45.8
                    
                    
                    
                    14,131
                    
                    
                    
                    38.8
                    
                    
                    
                    9,129
                    
                    
                    
                    33.3Fujian
                    
                    
                    14,600
                    
                    
                    
                    29.9
                    
                    
                    
                    16,041
                    
                    
                    
                    44.0
                    
                    
                    
                    11,025
                    
                    
                    
                    40.2Guangdong/
      Shenzhen
                    
                    
                    1,805
                    
                    
                    
                    3.7
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Jiangsu/
      Shanghai
                    
                    
                    1,699
                    
                    
                    
                    3.5
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Others
                    
                    
                    1,650
                    
                    
                    
                    3.4
                    
                    
                    
                    1,011
                    
                    
                    
                    2.8
                    
                    
                    
                    425
                    
                    
                    
                    1.5Total
      PRC (1)
                    
                    
                    46,402
                    
                    
                    
                    95.1
                    
                    
                    
                    36,230
                    
                    
                    
                    99.5
                    
                    
                    
                    27,192
                    
                    
                    
                    99.1Asia
      (2)
                    
                    
                    2,397
                    
                    
                    
                    4.9
                    
                    
                    
                    97
                    
                    
                    
                    0.2
                    
                    
                    
                    99
                    
                    
                    
                    0.4Others
      (3)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    98
                    
                    
                    
                    0.3
                    
                    
                    
                    151
                    
                    
                    
                    0.5Total
                    
                    
                    48,799
                    
                    
                    
                    100.0
                    
                    
                    
                    36,425
                    
                    
                    
                    100.0
                    
                    
                    
                    27,442
                    
                    
                    
                    100.0





Notes:





(1)
            Sales
      to PRC include sales to local PRC distributors who in turn sell our
      products to Taiwan, Japan and South Korea. Such sales amounted to $2.3
      million, $6.1 million and $8.5 million in year 2008, 2007 and 2006
      respectively.


(2)           Sales
to Asia mainly relate to exports to Japan, Philippines and Papua New
Guinea.


(3)
            Export
      sales to other countries include sales to Russia and
    Ukraine.





Year
2008 compared to Year 2007, and


Year
2007 compared to Year 2006





Sales





Our
revenue increased by approximately $12.4 million or 34.0% from $36.4 million in
2007 to $48.8 million in 2008. The increase in revenue was due to the continued
growth in sales of our processed seafood products, which was partially offset by
the decrease in sales of our marine catch segment. Sales of our processed
seafood products increased by $16.5 million or 59.2%, whereas sales of our
marine catch segment dropped by $4.1 million or 48.3%.





Comparing
results in 2006 and 2007, our revenue increased by approximately $9.0 million or
32.7% from $27.4 million in 2006 to $36.4 million 2007. Sales of our processed
seafood products increased by $11.3 million or 68.3%, whereas sales of our
marine catch segment dropped by $2.3 million or 21.4%.





The
processed seafood products operations continued to be the growth driver for us
as our products continue to gain market acceptance, particularly in Fujian and
Zhejiang provinces. The higher sales in the processed seafood products segment
were due to the continued sales and marketing effort in these two provinces. We
also penetrated into two new neighborhood markets, Jiangsu and Guangdong
provinces, in the second quarter of 2008. Accordingly, the number of sales staff
has further increased from 19 in 2007 to 23 as at December 31,
2008.





In 2006
and 2007, we worked with local fishermen and chartered a number of fishing
vessels to harvest marine catch from the East China Sea and the Taiwan Strait.
All the harvest from our marine catch was sold to customers on a direct basis.
We did not use any of our own marine catch for the production of our processed
seafood products.





Starting
from 2008, we do not charter any fishing vessels nor harvest the marine catch
ourselves. Instead, we simply buy the marine catch from the suppliers and then
sell to the customers on a direct basis. The marine catch is predominantly sold
to overseas customers and distributors in Fujian, Shandong and Liaoning
provinces, some of whom directly export the marine catch to South Korea and
Taiwan.




50


Having
recognized that the processed seafood segment has significant growth potential,
we will continue to focus our resources on the processed seafood segment going
forward. We believe the growth of sales driven by the processed seafood segment
will continue to outweigh the decrease in sales of marine catch.





Cost
of sales





Our cost
of sales comprises the cost of our processed seafood operations and the cost of
our marine catch. The breakdown is as follows:





Year
      ended December 31,US$
      ’000
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006Processed
      seafood products
                  
                  
                  29,617
                  
                  
                  
                  18,798
                  
                  
                  
                  11,364Marine
      catch
                  
                  
                  3,990
                  
                  
                  
                  6,851
                  
                  
                  
                  8,366Total
                  
                  
                  33,607
                  
                  
                  
                  25,649
                  
                  
                  
                  19,730





Cost
of sales – Processed seafood products





Our cost
of sales comprises mainly raw materials, packaging materials, direct labor and
manufacturing overheads. The following table sets out details of our cost of
sales:





Year
      ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006US$’000
                  
                  
                  %
                  
                  
                  US$’000
                  
                  
                  %
                  
                  
                  US$’000
                  
                  
                  %Raw
      materials
                  
                  
                  23,070
                  
                  
                  
                  77.9
                  
                  
                  
                  13,964
                  
                  
                  
                  74.3
                  
                  
                  
                  7,375
                  
                  
                  
                  64.9Packaging
      materials
                  
                  
                  2,982
                  
                  
                  
                  10.1
                  
                  
                  
                  1,339
                  
                  
                  
                  7.1
                  
                  
                  
                  1,063
                  
                  
                  
                  9.3Direct
      labor
                  
                  
                  1,526
                  
                  
                  
                  5.1
                  
                  
                  
                  1,507
                  
                  
                  
                  8.0
                  
                  
                  
                  1,312
                  
                  
                  
                  11.6Manufacturing
      overheads
                  
                  
                  2,039
                  
                  
                  
                  6.9
                  
                  
                  
                  1,988
                  
                  
                  
                  10.6
                  
                  
                  
                  1,614
                  
                  
                  
                  14.2Total
                  
                  
                  29,617
                  
                  
                  
                  100.0
                  
                  
                  
                  18,798
                  
                  
                  
                  100.0
                  
                  
                  
                  11,364
                  
                  
                  
                  100.0





Raw
materials





Raw
materials comprise mainly seafood such as fish, prawns, squids, salt, sugar and
other seasonings. 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, which are relatively stable as 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.





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.





Raw
material costs accounted for approximately 77.9%, 74.3% and 64.9% of our cost of
sales in year 2008, 2007 and 2006 respectively. The percentage of raw materials
cost as a proportion of the total cost of sales is affected by the product mix
for the relevant financial year and the market price of the raw materials. We
mitigate the fluctuation in pricing 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.





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


51





Packaging
materials





Packaging
materials accounted for approximately 10.1%, 7.1% and 9.3% of our cost of
sales in year 2008, 2007 and 2006 respectively.





The
increase in packaging material costs for the years under review was mainly due
to the increased production and sales of processed seafood products. We did
experience a little bit price increase in packaging materials in 2008 due to
inflation and use of individual packages for some of our new products but
believe that it will not bring material impact on the overall gross profit
margin because we will continue to enjoy economies of scale in material costs
along with the increase in production volume.





Direct
labor





Direct
labor costs accounted for 5.1% to 11.6% of our cost of sales for the years under
review. 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 the direct labor costs as
a percentage of costs of sales is dependent on the degree of processing required
for the end 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 as at December 31, 2008 has decreased to 611 from 634 as at the end of
2007. The decrease was mainly due to a reduction in number of workers for the
fishing vessels which were no longer chartered by us in 2008, which was
partially offset by the increase in number of production headcount due to
increased scale of production along the year.





Manufacturing
overheads





Manufacturing
overheads comprise depreciation, water, electricity and other fuel costs which
are used directly in the production of finished goods.





Cost
of sales - Marine catch





Year
      ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006US$’000
                  
                  
                  %
                  
                  
                  US$’000
                  
                  
                  %
                  
                  
                  US$’000
                  
                  
                  %Raw
      materials
                  
                  
                  3,642
                  
                  
                  
                  91.3
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Rental
      / charter hires
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  930
                  
                  
                  
                  13.6
                  
                  
                  
                  1,085
                  
                  
                  
                  13.0Crew
      salaries and wages
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  437
                  
                  
                  
                  6.4
                  
                  
                  
                  378
                  
                  
                  
                  4.5Bunker
      fuel
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,484
                  
                  
                  
                  50.8
                  
                  
                  
                  4,532
                  
                  
                  
                  54.2Repair
      & maintenance
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,154
                  
                  
                  
                  16.8
                  
                  
                  
                  1,213
                  
                  
                  
                  14.5Other
      expenses
                  
                  
                  348
                  
                  
                  
                  8.7
                  
                  
                  
                  846
                  
                  
                  
                  12.4
                  
                  
                  
                  1,158
                  
                  
                  
                  13.8Total
                  
                  
                  3,990
                  
                  
                  
                  100.0
                  
                  
                  
                  6,851
                  
                  
                  
                  100.0
                  
                  
                  
                  8,366
                  
                  
                  
                  100.0





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 overseas customers and
distributors in Liaoning, Fujian and Shandong provinces, some of whom directly
export the marine catch to South Korea and Taiwan.





Rental
/ charter hires





We
commenced our marine catch operation in September 2002, with the chartering of
two fishing vessels with an aggregate net tonnage of 44 tons. In December 2007,
we have a fleet of six chartered fishing vessels with an aggregate net tonnage
of 256 tons. However, taking into consideration of the significant growth
potential in the processed seafood segment and the deteriorating gross profit
margin for the sales of marine catch due to higher fuel and operating costs, we
decided to focus our resources on the processed seafood segment going forward.
In this connection, all the chartering agreements with the fishermen have been
terminated by us at the end of 2007. We are not subject to any penalties for
terminating these chartering agreements which are about to be ended in 2008 or
2009.


52





Starting
from 2008, we simply buy the marine catch from the suppliers and then sell to
the customers on a direct basis.





Crew
salaries and wages





We have
entered into agreements with the owners of fishing vessels, from whom we have
chartered six fishing vessels for our marine catch operations by the end of
2007. The size of the fishing crew has increased over the last few years as we
increased the number of fishing vessels. Pursuant to the agreements, we are
required to bear the salaries and wages of the fishing crew.





Bunker
fuel





Our main
cost of operations was the cost of bunker fuel for the operation of the
chartered vessels. The price of bunker fuel was dependent on world oil price
which has been increased significantly during the years under
review.





Repair
and maintenance





Repair
and maintenance costs relate to the repair of the vessels and the fishing nets
used for our marine catch operations. The vessels require regular maintenance
both during their voyages and when they are back to the port.





Other
expenses





Other
expenses mainly relate to the costs of packaging materials and ice required to
keep the freshness of the marine catch. The fishes are sorted and packed in ice
boxes and then sent directly to customers upon reaching the port.





Gross
profit by product





Year
      ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006US$’000
                  
                  
                  %
                  
                  
                  US$’000
                  
                  
                  %
                  
                  
                  US$’000
                  
                  
                  %Processed
      seafood products
                  
                  
                  14,753
                  
                  
                  
                  97.1
                  
                  
                  
                  9,065
                  
                  
                  
                  84.1
                  
                  
                  
                  5,186
                  
                  
                  
                  67.2Marine
      catch
                  
                  
                  439
                  
                  
                  
                  2.9
                  
                  
                  
                  1,711
                  
                  
                  
                  15.9
                  
                  
                  
                  2,526
                  
                  
                  
                  32.8Total
                  
                  
                  15,192
                  
                  
                  
                  100.0
                  
                  
                  
                  10,776
                  
                  
                  
                  100.0
                  
                  
                  
                  7,712
                  
                  
                  
                  100.0





Gross
profit margin by profit





Year
      ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006%
                    
                    
                    %
                    
                    
                    %Processed
      seafood products
                    
                    
                    33.2
                    
                    
                    
                    32.5
                    
                    
                    
                    31.3Marine
      catch
                    
                    
                    9.9
                    
                    
                    
                    20.0
                    
                    
                    
                    23.2Total
                    
                    
                    31.1
                    
                    
                    
                    29.6
                    
                    
                    
                    28.1





Gross
profit





Gross
profit grew by 41.0% or $4.4 million, from $10.8 million in 2007 to
$15.2 million in 2008. Gross profit margin improved by 1.5 percentage point from
29.6% in 2007 to 31.1% in 2008. Gross profit margin for the processed seafood
products operations was increased from 32.5% to 33.2%, whereas gross profit
margin for the marine catch segment was reduced from 20.0% to 9.9% for the same
years under review.


53





Gross
profit grew by 39.7% or $3.1 million, from $7.7 million in 2006 to
$10.8 million in 2007. Gross profit margin improved by 1.5 percentage point from
28.1% in 2006 to 29.6% in 2007.





The
increase in gross profit margin for our processed seafood products during the
years under review was mainly due to the increase in our selling prices and the
cost savings in terms of material costs and overheads stemming from better
utilization of our facilities as we enjoy economies of scale from higher
production volume.





The
decline in gross profit margin of our marine catch segment from 2006 to 2007 was
mainly due to higher bunker fuel and operational costs for running the fishing
vessels. Starting from 2008, we no longer charter any vessels and simply trade
the marine catch to the distributors. As a result, the gross profit margin
earned from this business segment was lower comparing to prior
years.





Having
recognized that the processed seafood segment has significant growth
potential and better profit margin comparing to the trading of marine
catch, we will continue to focus our resources on the processed seafood segment
going forward. We believe the growth of gross margin earned from the
processed seafood segment will continue to outweigh the decrease in gross margin
earned from sales of marine catch.





Sales
and marketing expenses





Our sales
and marketing expenses comprise mainly salaries of sales and marketing staff,
costs in participating in exhibitions, freight charges, advertisement and
product and hygiene inspection costs by the General Administration of Quality
Supervision, Inspection and Quarantine of the PRC, Health and Food Safety
Authority, Quality and Technical Supervision Board.





Our sales
and marketing expenses accounted for approximately 1.2%, 0.4% and 0.3% of our
total revenue in year 2008, 2007 and 2006 respectively. The increase in the
sales and marketing expenses in 2008 was mainly due to the hiring of an investor
relations firm and the increase of advertising and exhibition costs in 2008 so
as to strengthen our brand position in both existing and new markets.
Accordingly, the number of sales staff has further increased from 19 in
2007 to 23 in 2008.





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 4.2%, 1.6% and
1.4% of our total revenue in year 2008, 2007 and
2006 respectively. The increase in the general and administrative
expenses from 2007 to 2008 was mainly attributable by the higher payroll costs
at about $517,000 as a result of hiring some experienced professional staff
so as to cope with the expanding operations and distributing the bonuses to the
executive directors, the higher traveling and entertainment expenses at about
$122,000 mainly attributable to more overseas traveling like attending road
shows, some losses on disposal or replacement of fixed assets at about $147,000
to enhance the overall production capacity, the higher R&D costs at about
$87,000 for development of new products and the higher legal and professional
fees at about $192,000 after we went public in the last quarter of
2007.





Other
income





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





Rental
income relates to the collection of rental on the 33 shop spaces at our factory
in Dabao Industrial Zone. The rental contracts are based on one year lease term.
The government subsidies relate to grants by the government for accreditations
like the National Spark Program funding and the EU export certification
undertaken by us. Interest income is earned from higher cash balances with banks
as a result of strong operational cash inflow and net proceeds from the private
placement taken place in November 2007, which also contributed the most to the
increase in other income from 2007 to 2008.





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 0.7%, 0.9% and 1.0% of our total revenue in
year 2008, 2007 and 2006 respectively. Interest expense in 2008 decreased
slightly when comparing to prior year which was in line with the decline in bank
borrowing rates in the last quarter of 2008.


54





Income
before income tax





Our
income before income tax increased by $2.9 million or 29.4%, from $9.9 million
in 2007 to $12.8 million in 2008. The increase was mainly due to the increase in
sales of 34.0% and improved gross profit margin by 1.5 percentage point as a
whole, which was partially offset by the increase in the selling and
distribution expenses and the general and administrative expenses, as a result
of the factors described above.





Comparing
2006 and 2007 results, our income before income tax increased by $2.8
million or 40.4%, from $7.0 million in 2006 to $9.9 million in 2007 due to
similar reasons as explained per above.





Income
tax expense





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





Prior to
January 2005, our business was carried out under Mingxiang which was
incorporated as a PRC limited liability company and thus was subjected to an
Enterprise Income Tax rate of 33% of its taxable income.





According
to the Income Tax Law of the PRC for Enterprises with Foreign Investment and
Foreign Enterprises, foreign investment enterprises (“FIE”) engaged in
production established in coastal economic open zones or in the old urban
districts of cities where the special economic zones or the economic and
technological development zones are located may pay income taxes at a reduced
rate of 24%. In addition, foreign investment enterprises engaged in production
having a period of operation of not less than 10 years shall be exempted from
income tax for the first 2 profit-making years and a 50% reduction in the income
tax payable for the next 3 years.





In March
2007, the Chinese government enacted the Corporate Income Tax Law, and
promulgated related regulations, which were effective January 1,
2008.  The Corporate Income Tax Law, among other things, imposes a
unified income tax rate of 25% for both domestic and foreign invested
enterprises.  For enterprises engaged in production established in
coastal economic open zones or in the old urban districts of cities where the
special economic zones or the economic and technological development zones enjoy
a favorable tax rate of 24%, the income tax rate will change to 25% with
effective from January 1, 2008.  However, the new provision allows
these enterprises to continue to enjoy their unexpired tax holiday under the
previous income tax laws and rules.





With
effect from January 1, 2005, Rixiang acquired the business operations of
Mingxiang, which subsequently became a property holding company. Rixiang was
incorporated as a FIE and was granted the tax incentives for FIEs, and was
exempted from income tax for 2005 and 2006.  Rixiang is therefore
subject to PRC state income tax of 12% for 2007 and then 12.5% for 2008 and
2009.





Jixiang
is also a property holding company and is not subject to tax.





The lower
effective tax rates for the financial years under review were mainly due to tax
exemption granted under the tax incentives. However, such tax incentives may be
withdrawn in the future without prior notice.





REVIEW
OF FINANCIAL POSITION





Current
assets





As at
December 31, 2007, our current assets amounted to $30.0 million, representing
87.9% of our total assets of $34.1 million. It comprised cash and cash
equivalents of $24.5 million, accounts receivable of $4.2 million, inventories
of $1.2 million and other receivables and prepayments of $0.1
million.





As at
December 31, 2008, our current assets increased to $43.4 million, representing
84.2% of our total assets of $51.6 million. It comprised cash and cash
equivalents of $31.6 million, accounts receivable of $4.8 million, inventories
of $6.7 million and other receivables and prepayments of $0.3
million.





Increase
in cash and cash equivalents was mainly due to strong operational cash inflow
and net proceeds from the private placement taken place in November 2007, which
was partially offset by the increase in inventories and the addition of fixed
assets and construction in progress in 2008.


55





Accounts
receivable were mainly represented by amounts due from distributors and
wholesalers. Our Company 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.





Inventories
were mainly related to raw materials comprising mainly frozen prawns, frozen
fish and squids which would be either traded in the market or used for the
production and processing of dried and frozen products. In particular, a
significant portion of them accounted for $4.3 million as at December 31, 2008
would be sold in the market when price goes up in the future due to limited
supplies. Our inventories also included some finished goods, work-in-progress
and packaging materials.





Non-current
assets





As at
December 31, 2008, our non-current assets amounted to $8.2 million and accounted
for approximately 15.8% of our total assets. Our non-current assets comprised
mainly property, plant and equipment, land use rights and construction in
progress. In 2008, we increased our production capacity by 50% in the fourth
quarter of the year and therefore fixed assets and construction in progress have
been increased accordingly.





As at
December 31, 2008, our property, plant and equipment amounting to $5.9 million
were made up mainly of buildings amounting to $3.7 million and plant and
machinery amounting to $1.7 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. Whereas construction in progress amounting to $1.6 million related to
our new processing plant and staff quarter under construction at the year
end.





Current
liabilities





As at
December 31, 2007, our current liabilities of $2.6 million comprised short-term
bank loans of $0.8 million, accounts payable of $0.4 million, amount due to a
shareholder of $0.3 million, income tax payable of $0.3 million and other
payables of $0.8 million.





Our
current liabilities of $6.6 million as at December 31, 2008 comprised short-term
bank loans of $4.3 million, accounts payable of $0.4 million, amount due to a
shareholder of $0.2 million, income tax payable of $0.3 million and other
payables of $1.4 million.





The
short-term bank loans were used for our working capital requirements. The
weighted average effective interest rate on the borrowing is about 7.85% per
annum in 2008. We have negotiated with the bank for more favourable interest
rate on loans and thus we have repaid part of the loans in December 2007 and
then borrowed the same amount in January 2008 for the said
arrangement.





Regarding
the accounts payable, the related turnover day was about a week 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.





Stockholders’
equity





As at
December 31, 2007, our stockholders’ equity amounted to $31.5 million and
comprised additional paid-in capital of $16.6 million, statutory reserve of $3.1
million, accumulated other comprehensive income of $1.2 million and retained
earnings of $10.6 million.





Our
stockholders’ equity of $45.0 million as at December 31, 2008 comprised
additional paid-in capital of $16.8 million, statutory reserve of $4.9 million,
accumulated other comprehensive income of $3.4 million and retained earnings of
$19.9 million.





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.


56





We
declared a final dividend of $4.6 million in 2007 and it was fully paid during
the same year, whereas we did not distribute any dividend in 2008.





LIQUIDITY
AND CAPITAL RESOURCES





Our
operations are funded through a combination of stockholders’ equity, borrowings
and internally generated funds from our operations. Our cash and cash
equivalents as at December 31, 2008 amounted to approximately $31.6 million and
our total indebtedness which comprises short-term bank loans was $4.3
million.





A summary
of our cash flows for 2008, 2007 and 2006 is as follows:





Year
      ended December 31,US$’000
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006Net
      cash provided by operating activities
                  
                  
                  6,000
                  
                  
                  
                  6,701
                  
                  
                  
                  9,375Net
      cash (used in) investing activities
                  
                  
                  (4,179
                  )
                  
                  
                  (21
                  )
                  
                  
                  (1
                  )Net
      cash provided by/ (used in) financing activities
                  
                  
                  3,364
                  
                  
                  
                  7,959
                  
                  
                  
                  (3,024
                  )Foreign
      currency translation adjustment
                  
                  
                  1,978
                  
                  
                  
                  656
                  
                  
                  
                  210Net
      change in cash and cash equivalents
                  
                  
                  7,163
                  
                  
                  
                  15,295
                  
                  
                  
                  6,560Cash
      and cash equivalents at the beginning of the year
                  
                  
                  24,477
                  
                  
                  
                  9,182
                  
                  
                  
                  2,622Cash
      and cash equivalents at the end of the year
                  
                  
                  31,640
                  
                  
                  
                  24,477
                  
                  
                  
                  9,182





Year
2008





Net
cash provided by operating activities





Our net
cash provided by operating activities in 2008 amounted to approximately $6.0
million, which was a decrease of $0.7 million when comparing to net cash
provided by operating activities in 2007. The decrease was mainly attributable
to the increase in the inventories of $5.5 million in 2008, partially offset by
the higher net income earned in the same year and the significant increase
of accounts receivable recorded in 2007.





We
purchased much more raw materials in 2008 and a significant portion of them
accounted for $5.3 million could be sold in the market when price goes up in the
future due to limited supplies.





Net
cash used in investing activities





In 2008,
our net cash used in investing activities was approximately $4.2
million which was attributable to the addition of fixed assets and
construction in progress at about $4.2 million in total, mainly for the
development of new processing plant, the associated machineries and staff
quarter. In this connection, our production capacity has been increased by 50%
in the fourth quarter of 2008.





Net
cash provided by financing activities





Our net
cash provided by financing activities was approximately $3.4 million in 2008,
which was a decrease of $4.6 million when comparing to net cash provided by
financing activities in 2007. The decrease was mainly due to the increase in
additional paid-in capital of $15.9 million which was raised from the
transaction of reverse acquisition and private placement taken place in November
2007, and was partially offset by the dividend being paid of $4.6 million
and net repayment of bank loans of $3.0 million in 2007.





Year
2007





Net
cash provided by operating activities





In 2007,
our net cash provided by operating activities amounted to approximately $6.7
million. The major source of cash inflow from operating activities was from net
income of $8.7 million. Changes in operating assets and liabilities included
cash outflow resulting from increase in accounts receivable of $2.9 million and
other receivables of $0.1 million. This was offset by cash inflow from cash
received from increase in accounts payable of $0.2 million, other payables of
$0.3 million and income tax payable of $0.3 million.


57





Net
cash used in investing activities





In 2007,
our net cash used in investing activities was approximately $21,000 which arose
from the acquisition of production and office equipment.





Net
cash provided by financing activities





In 2007,
our cash provided by financing activities was approximately $8.0 million. This
comprised mainly the increase in additional paid-in capital of $15.9 million
which was raised from the transaction of reverse acquisition and private
placement taken place in November 2007, net of offering costs of $4.0 million.
This was offset by the dividend being paid of $4.6 million, repayment of bank
loans of $3.0 million and decrease in amount due to a shareholder of $0.4
million.





Year
2006





Net
cash provided by operating activities





In 2006,
our net cash provided by operating activities amounted to approximately $9.4
million. The major source of cash inflow from operating activities was from net
income of $7.0 million. Changes in operating assets and liabilities included
cash inflow resulting from cash received from accounts receivable of $2.4
million, increase in accounts payable of $0.2 million and other payables of $0.1
million. This was offset by cash outflow from higher inventories of 0.6
million.





Net
cash used in investing activities





In 2006,
our net cash used in investing activities was approximately $1,000 which arose
from the acquisition of office equipment.





Net
cash used in financing activities





In 2006,
our cash used in financing activities was approximately $3.0 million. This
comprised a net increase in bank loans taken up by us for our working capital
requirements of $0.5 million, which was offset by repayment of amount due to a
shareholder of $3.5 million.





Use
of proceeds





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 meet up with our current operating expenditures.





Having
that said, we do have the expansion plan in 2009 for the use of proceeds being
raised from the private placement taken place on November 17, 2007. The
construction of our new facilities which will bring in an additional of 100%
production capacity are now underway. We expect that the new facilities will be
up and running in the third quarter of 2009. The total anticipated capital
expenditures for this new facility expansion, including all necessary equipment,
are expected to be less than $5 million.





After the
private placement, the relative cost of capital resources would decrease
correspondingly given the increase in the equity financing and the similar level
of bank borrowings.





Apart
from the expansion plan discussed above and the commitments set out in the
section of “Commitments and Contingencies” herein, 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. We do not have any fund raising plan at
the moment.


58





CAPITAL
EXPENDITURE AND INVESTMENTS





A summary
of our capital expenditure for the last three financial years ended December 31,
2008, 2007 and 2006 is as follows:





Year
      ended December 31,US$’000
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006Land
      use rights
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Buildings
                    
                    
                    3,496
                    
                    
                    
                    -
                    
                    
                    
                    -Plant
      and machinery
                    
                    
                    308
                    
                    
                    
                    20
                    
                    
                    
                    -Office
      equipment
                    
                    
                    22
                    
                    
                    
                    1
                    
                    
                    
                    1Motor
      vehicles
                    
                    
                    367
                    
                    
                    
                    -
                    
                    
                    
                    -4,193
                    
                    
                    
                    21
                    
                    
                    
                    1





In 2008,
total capital expenditures of $4.2 million were attributable to the addition of
fixed assets at about $2.6 million and the addition of construction in progress
at about $1.6 million, mainly for the development of new processing plant, the
associated machineries and staff quarter. In this connection, our production
capacity has been increased by 50% in the fourth quarter of 2008.





In
October 2008, we placed certain facilities into service and began depreciating
the plant at that time when the assets are substantially complete and ready for
their intended use. The Company reclassified approximately $1.9 million from
construction in progress to property, plant and equipment accordingly. The
construction is expected to be fully completed till 2009. The capacity will be
doubled after the completion of the said new facilities in 2009.





COMMITMENTS
AND CONTINGENCIES





Operating
lease commitments





Nice
Enterprise 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, 2011, and generally did not contain significant renewal options.
Total rent expenses for the year ended December 31, 2008 was approximately
$77,000. Future minimum rental payments due under the non-cancelable operating
lease agreement are approximately $165,000 in total in the following three
years.





Capital
commitment





In 2008,
Jixiang entered into a number of agreements with an independent third party in
relation to the upgrade and construction of the new processing plant, inventory
storage facility and staff quarter. The construction is expected to be fully
completed till 2009. Total estimated construction costs are approximately $4.6
million. As of December 31, 2008, Jixiang has paid $3.5 million to the third
party contractor and it was recorded either as fixed assets or construction in
progress. Hence the aggregate contingent payments related to the third party
contractor are approximately $1.1 million as of December 31, 2008.





Guarantee





As of
December 31, 2008, Mingxiang is contingently liable as guarantor with respect to
a loan of approximately $729,000 of Shishi Yu Ching Knitting and Clothing
Company (“Shishi Yu Ching”), an unrelated third party. The term of the guarantee
is through January 11, 2008, with a renewal provision of 2 years, to January 10,
2010. At any time through that date, should Shishi Yu Ching fail to make its due
debt payment, 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 approximately $729,000. The related indebtedness was
fully repaid in February 2009 and the guarantee was expired
accordingly.





In
accordance with FIN 45 “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others”, 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
indemnification fair value to be insignificant. As of December 31, 2008, the
Company has not recorded any liabilities for this agreement.


59





ISSUANCE
OF COMMON STOCK





During
the second quarter of 2008, we issued 54,000 new shares of common stock in total
to the following parties.





On July
26, 2007, the Company entered into an Employment Agreement with its CFO in which
the Company agreed to provide restricted common stock award totaling 24,000
shares, upon the successful listing of the Company on a US stock exchange. The
shares of common stock were valued at $77,136 (RMB 580,000) or $3.214 per
share.





On
February 20, 2008, the Company entered into an Investor Relations Consulting
Agreement with Hayden Communications International, Inc (''HCI'') in exchange
for consulting services to the Company. The Company agreed to provide 30,000
shares of restricted common stock to HCI upon the effectiveness of a
registration statement on Form S-1. The shares of common stock were valued at
$96,420 or $3.214 per share.





CRITICAL
ACCOUNTING POLICIES & RECENT ACCOUNTING PRONOUNCEMENTS





l
              Basis
      of presentation





These
accompanying financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America (“US
GAAP”).





l
              Basis
      of consolidation





The
consolidated financial statements include the financial statements of China
Marine and its subsidiaries.





All
significant intercompany balances and transactions within the Company have been
eliminated upon consolidation.





l
              Use
      of estimates





In
preparing these financial statements, management makes estimates and assumptions
that affect the reported amounts of assets and liabilities in the balance sheets
and revenues and expenses during the years reported. Actual results could differ
from these estimates.





l
              Cash
      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 $31,640,307 and $24,476,647 as of December 31, 2008
and 2007, respectively.





l
              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.





As of
December 31, 2008 and 2007, the allowance for doubtful accounts was $24,218 and
$21,022, respectively.





l
              Inventories




60


Inventories
consist of frozen products from marine catch, processed seafood 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 fishes, 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, 2008 and 2007, the Company did not record an allowance for obsolete
inventories, nor have there been any write-offs.
 
 l
                Property,
      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 valueBuildings
                      
                      30-50
      years
                      
                      
                      10
                      %Plant
      and machinery
                      
                      10-30
      years
                      
                      
                      10
                      %Office
      equipments
                      
                      8-10
      years
                      
                      
                      10
                      %Motor
      vehicles
                      
                      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.
 
 l
                Construction
      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.
 
 l
                Land
      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.
 
 l
                Impairment
      of long-lived assets
 
 In
accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, all long-lived assets such as property,
plant and equipment, land use rights and construction in progress 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, 2008 and 2007.
 
 l
                Revenue
      recognition
 
 In
accordance with the SEC’s Staff Accounting Bulletin No. 104, “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 collectibility is reasonably
assured.
  61
 
 The
Company derives revenues from the processing, distribution and sale of processed
seafood products and sale of marine catch. The Company 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 products upon delivery to the
customers and the transfer of title and risk of loss. The Company experienced no
product returns and has recorded no reserve for sales returns for the years
ended December 31, 2008 and 2007.
 
 The
Company has distributor arrangements with certain parties for sale of its
processed seafood products. The distributor agreements do not provide
chargeback, price protection, or stock rotation rights. Accordingly, the Company
records the revenue, net of VAT incurred when products are delivered to and
received by the distributors.
 
 Rental
income from operating leases on real estate properties is recognized on a
straight-line basis over the lease period.
 
 l
                Cost
      of revenue
 
 Cost of
revenue consists primarily of purchase cost of raw fishes, direct labor,
depreciation and manufacturing overheads, which are directly attributable to the
manufacture of processed seafood products. Shipping and handling costs,
associated with the distribution of seafood products to customers, are recorded
in cost of revenue and are recognized when the related seafood product is
shipped to the customer.
 
 l
                Government
      subsidy income
 
 Subsidy
income is received at a discretionary amount as determined by the local PRC
government. Subsidy income is recognized at their fair value where there is a
reasonable assurance that the subsidy will be received and the Company will
comply with applicable conditions. Subsidy income is recognized in the
accompanying consolidated statements of operations at the period when it was
received from the local PRC government.
 
 l
                Advertising
      expenses
 
 Advertising
costs are expensed as incurred in accordance with the American Institute of
Certified Public Accountants (“AICPA”) Statement of Position 93-7,“Reporting for Advertising
Costs”. Advertising expenses for the years ended December 31, 2008 and
2007 were $151,177 and $22,856, respectively.
 
 l
                Research
      and development
 
 Research
and development costs are expensed when incurred in the development of new
products or processes including significant improvements and refinements of
existing products. Such costs mainly relate to labor and material cost. The
Company incurred $87,327 and $32,651 of such costs for the years ended December
31, 2008 and 2007, respectively.
 
 l
                Retirement
      plan costs
 
 Contributions
to retirement schemes (which are defined contribution plans) are charged to
general and administrative expenses in the accompanying consolidated statements
of operation and comprehensive income as the related employee service is
provided.
 
 l
                Comprehensive
      income
 
 SFAS No.
130, “Reporting Comprehensive
Income”, establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income as defined
includes all changes in equity during a period from non-owner sources.
Accumulated other comprehensive income, as presented in the accompanying
statement of changes in stockholders’ 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.
  62
  l
                Income
      taxes
 
 The
Company accounts for income tax using SFAS No. 109 “Accounting for Income
Taxes”, which requires the asset and liability approach for financial
accounting and reporting for income taxes. Under this approach, deferred income
taxes are provided for the estimated future tax effects attributable to
temporary differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases, and for the expected future tax
benefits from loss carry-forwards and provisions, if any. Deferred tax assets
and liabilities are measured using the enacted tax rates expected in the years
of recovery or reversal and the effect from a change in tax rates is recognized
in the statement of operations and comprehensive (loss) income in the period of
enactment. A valuation allowance is provided to reduce the amount of deferred
tax assets if it is considered more likely than not that some portion of, or all
of the deferred tax assets will not be realized.
 
 The
Company also adopted Financial Accounting Standards Board Interpretation
(“FASB”) No. 48, “Accounting
for Uncertainty in Income Taxes” (“FIN 48”), on January 1, 2007. FIN 48
prescribes a more likely than not threshold for financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return.
This Interpretation also provides guidance on derecognition of income tax assets
and liabilities, classification of current and deferred income tax assets and
liabilities, accounting for interest and penalties associated with tax
positions, accounting for income taxes in interim periods, and income tax
disclosures. The Company did not have any adjustment to the opening balance of
retained earnings as of January 1, 2007 as a result of the implementation of FIN
48. In accordance with FIN 48, the Company also adopted the policy of
recognizing interest and penalties, if any, related to unrecognized tax
positions as income tax expense. For the years ended December 31, 2008 and 2007,
the Company did not have any interest and penalties associated with tax
positions. As of December 31, 2008 and 2007, 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.
 
 l
                Net
      income per share
 
 The
Company calculates net income per share in accordance with SFAS No. 128,“Earnings per Share.” Basic
income per share is computed by dividing the net income by the weighted-average
number of common shares outstanding during the period. Diluted income per share
is computed similar to basic income 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.
 
 l
                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 operation 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 SFAS No. 52, “Foreign
Currency Translation”, 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 stockholders’
equity.
  63
  Translation
of amounts from RMB into US$1 has been made at the following exchange rates for
the respective year:
 2008
                  
                  
                  2007Year-end
      rates RMB:US$1 exchange rate
                  
                  
                  6.8542
                  
                  
                  
                  7.3141Average
      yearly rates RMB:US$1 exchange rate
                  
                  
                  6.9623
                  
                  
                  
                  7.5633
 
 l
                Stock-based
      compensation
 
 The
Company adopts SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS
No. 123R") using the fair value method. Under SFAS No. 123(R), 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.
 
 l
                Related
      parties
 
 Parties,
which can be a corporation or individual, are considered to be related if the
Company has the ability, directly or indirectly, to control the other party or
exercise significant influence over the other party in making financial and
operational decisions. Companies are also considered to be related if they are
subject to common control or common significant influence.
 
 l
                Segment
      reporting
 
 SFAS No.
131 “Disclosures about Segments of an
Enterprise and Related Information” 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 years
ended December 31, 2008 and 2007, the Company operates in two principal
reportable segments: sale of processed seafood products and sale of marine
catch.
 
 l
                Fair
      value of financial
instruments
 
 The
Company values its financial instruments as required by SFAS No. 107, “Disclosures about Fair Value of
Financial Instruments”. The estimated fair value amounts have been
determined by the Company, using available market information and appropriate
valuation methodologies. The estimates presented herein are not necessarily
indicative of amounts that the Company could realize in a current market
exchange.
 
 The
Company’s financial instruments primarily include cash and cash equivalents,
accounts receivable, prepaid expenses and other current assets, short-term
borrowings, accounts payable, amount due to a stockholder, income tax payable,
accrued liabilities and other payable.
 
 As of the
balance sheet date, the estimated fair values of financial instruments were not
materially different from their carrying values as presented due to short
maturities of these instruments.
 
 l
                Registration
      payment arrangements
 
 The
Company accounts for registration payment arrangement in accordance with FASB
Staff Position EITF 00-19-2, “AccountingforRegistrationPaymentArrangements”(“FSP EITF 00-19-2”)
which provides guidance on the
accounting for registration payment arrangements. FSP EITF
00-19-2 specifies that the contingent obligation to make future payments or
otherwise transfer consideration under a registration payment arrangement,
whether issued as a separate agreement or included as a provision of a financial
instrument or other agreement, should be separately recognized and measured in
accordance with FASB Statement No. 5, “Accounting for
Contingencies”. A registration payment arrangement is defined in FSP EITF
00-19-2 as an arrangement with both of the following characteristics: (1) the
arrangement specifies that the issuer will endeavor (a) to file a registration
statement for the resale of specified financial instruments and/or for the
resale of equity shares that are issuable upon exercise or conversion of
specified financial instruments and for that registration statement to be
declared effective by the Securities and Exchange Commission within a specified
grace period, and/or (b) to maintain the effectiveness of the registration
statement for a specified period of time (or in perpetuity); and (2) the
arrangement requires the issuer to transfer consideration to the counterparty if
the registration statement for the resale of the financial instrument or
instruments subject to the arrangement is not declared effective or if
effectiveness of the registration statement is not maintained.
  64
  l
                Recently
      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.
 
 In
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS“) No. 157,
"Fair Value Measurements"("SFAS
No. 157"). SFAS
No. 157 defines fair value, establishes a framework for measuring fair
value and enhances disclosures about fair value measures required under other
accounting pronouncements, but does not change existing guidance as to whether
or not an instrument is carried at fair value. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007. In February 2008, the
FASB deferred SFAS No. 157's effective date for all non-financial assets
and liabilities, except those items recognized or disclosed at fair value on an
annual or more frequently recurring basis, until years beginning after
November 15, 2008. The Company does not have financial assets and
liabilities that accounted for using fair value measures in 2008.
 
 In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial
Assets and Financial
Liabilities"("SFAS No. 159"). SFAS No. 159 permits
entities to choose to measure, on an item-by-item basis, specified financial
instruments and certain other items at fair value. Unrealized gains and losses
on items for which the fair value option has been elected are required to be
reported in earnings at each reporting date. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007, the provisions of which are
required to be applied prospectively. The Company has not elected fair value
measurement for any of its assets and liabilities in 2008.
 
 In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business Combinations"("SFAS No. 141R"). SFAS No. 141R will change the accounting for business
combinations. Under SFAS No. 141R, an acquiring entity will be required to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS No. 141R will
change the accounting treatment and disclosure for certain specific items in a
business combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Accordingly, any business combinations the Company engages in will be recorded
and disclosed following existing GAAP until January 1, 2009. The Company
believes that SFAS No. 141R will have no material impact on the financial
position or results of operations.
 
 In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements--An Amendment of ARB No. 51, or SFAS No.
160" ("SFAS No. 160"). SFAS No. 160 establishes new accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company believes that SFAS No. 160
will have no material impact on the financial position or results of
operations.
 
 In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS No. 161"). SFAS No. 161
requires companies with derivative instruments to disclose information that
should enable financial-statement users to understand how and why a company uses
derivative instruments, how derivative instruments and related hedged items are
accounted for under FASB Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities"and how derivative instruments and
related hedged items affect a company's financial position, financial
performance and cash flows. SFAS No. 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008.
The adoption of SFAS No. 161 is not expected to have a material effect on the
Company's future financial position or results of operations.
 
 In May,
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles",("SFAS No. 162"). SFAS No. 162 identifies
the sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles (GAAP) in the United States (the GAAP hierarchy). SFAS No. 162 will
be effective 60 days following the SEC's approval of the Public Company
Accounting Oversight Board's amendments to AU Section 411, "The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles". The
FASB has stated that it does not expect SFAS No. 162 will result in a change in
current practice. The application of SFAS No. 162 will have no effect on the
Company's financial position, results of operations or cash
flows.
  65
 
 Also in
May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee
Insurance Contracts--an interpretation of FASB Statement No. 60"("SFAS
No. 163").SFAS
No. 163 interprets Statement 60 and amends existing accounting pronouncements to
clarify their application to the financial guarantee insurance contracts
included within the scope of that Statement. SFAS No. 163 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year ended
December 31, 2009. The Company is currently evaluating the impact of SFAS No.
163 on its financial statements but does not expect it to have an effect on the
Company's financial position, results of operations or cash flows.
 
 In May
2008, the FASB issued FSP APB 14-1, "Accounting for Convertible Debt
Instruments that may be Settled in Cash upon Conversion (Including Partial Cash
Settlement)" ("FSP APB 14-1"). FSP APB 14-1 applies to convertible debt
securities that, upon conversion, may be settled by the issuer fully or
partially in cash. FSP APB 14-1 specifies that issuers of such instruments
should separately account for the liability and equity components in a manner
that will reflect the entity's nonconvertible debt borrowing rate when interest
cost is recognized in subsequent periods. FSP APB 14-1 is effective for
financial statements issued for fiscal years after December 15, 2008, and
must be applied on a retrospective basis. Early adoption is not permitted. The
adoption of this statement is not expected to have a material effect on the
Company's future financial position or results of operations.
 
 In June
2008, the FASB issued FASB Staff Position ("FSP") EITF 03-6-1, "Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities"
("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting,
and therefore need to be included in the earnings allocation in computing
earnings per share under the two-class method as described in SFAS No. 128,
Earnings per Share. Under the guidance of FSP EITF 03-6-1, unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of earnings-per-share pursuant to the two-class
method. FSP EITF 03-6-1 is effective for financial statements issued for fiscal
years beginning after December 15, 2008 and all prior-period earnings per share
data presented shall be adjusted retrospectively. Early application is not
permitted. The Company is assessing the potential impact of this FSP on the
earnings per share calculation.
 
 In June
2008, the FASB ratified EITF No. 07-5, "Determining Whether an Instrument
(or an Embedded Feature) is Indexed to an Entity's OwnStock" ("EITF 07-5"). EITF
07-5 provides that an entity should use a two-step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument's contingent exercise and
settlement provisions. EITF 07-5 is effective for financial statements issued
for fiscal years beginning after December 15, 2008. Early application is not
permitted. The Company is assessing the potential impact of this EITF 07-5 on
the financial condition and results of operations.
 
 In
September 2008, the FASB issued FSP 133-1 and FIN 45-4, “Disclosures about Credit Derivatives
and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No.
161” (“FSP FAS 133-1” and “FIN 45-4”). SP 133-1 and FIN 45-4 amends
disclosure requirements for sellers of credit derivatives and financial
guarantees. It also clarifies the disclosure requirements of SFAS No. 161 and is
effective for quarterly periods beginning after November 15, 2008, and fiscal
years that include those periods. The adoption of FSP FAS 133-1 and FIN 45-4
does not have a material impact on the Company’s current financial position,
results of operations or cash flows.
 
 In
October 2008, the FASB issued Staff Position (“FSP”) No. 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active” (“FSP FAS
157-3.”) FSP FAS 157-3 clarifies the application of SFAS No. 157 in an inactive
market. It illustrated how the fair value of a financial asset is determined
when the market for that financial asset is inactive. FSP FAS 157-3 was
effective upon issuance, including prior periods for which financial statements
had not been issued. The adoption of FSP FAS 157-3 does not have a material
impact on the Company’s current financial position, results of operations or
cash flows.
 
 FOREIGN
EXCHANGE EXPOSURE
 
 Our sales
are denominated in RMB and US dollars whilst our purchases and operating
expenses are all 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 future, particularly as we penetrate into overseas markets, our
financial results may be subject to fluctuations between those foreign
currencies and RMB.
  66
 
 The
percentage of our sales denominated in RMB and US dollars are as
follows:
 
 Year
      ended December 31,(%)
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006SalesRMB
                    
                    
                    95.1
                    
                    
                    
                    99.5
                    
                    
                    
                    99.1US
      dollars
                    
                    
                    4.9
                    
                    
                    
                    0.5
                    
                    
                    
                    0.9Total
                    
                    
                    100.0
                    
                    
                    
                    100.0
                    
                    
                    
                    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,
2008, the exchange rate was approximately US$1.00 to RMB6.8542. 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 gains or losses for the last three financial years ended
December 31, 2008, 2007 and 2006 are as follows:
 
 Year
      ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Net
      foreign exchange (losses)/ gains (US$’000)
                    
                    
                    (19
                    )
                    
                    
                    14
                    
                    
                    
                    1As
      a percentage of income before tax (%)
                    
                    
                    0.15
                    
                    
                    
                    0.14
                    
                    
                    
                    0.02
 
 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 foreign exchange
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 period under review, inflation did not have a material impact on our
financial performance.
 
 Web Site Access to Our Periodic SEC
Reports
 
 You may
read and copy any public reports we filed with the SEC at the SEC’s Public
Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC also maintains an Internet site http://www.sec.gov
that contains reports and information statements, and other information that we
filed electronically.
 
 ITEM
      7A.
              Quantitative
      and Qualitative Disclosures about Market
Risks
  Interest
Rate Risk
 
 We are
exposed to interest rate risk primarily with respect to our short-term bank
loans. Although the interest rates are fixed at the benchmark lending
rate for the terms of the loans, the terms are typically twelve months and
interest rates are subject to change upon renewal. Interest rates for our
short-term bank loans have been decreased quite significantly in the last
quarter of 2008 from 7.47% to 6.66%. A hypothetical 1.0% increase in the annual
interest rates for all of our credit facilities at $4.3 million would decrease
net income before provision for income tax by approximately $43,000 per annum.
Management monitors the banks’ interest rates in conjunction with our cash
requirements to determine the appropriate level of debt balances relative to
other sources of funds. We have not entered into any hedging transactions in an
effort to reduce our exposure to interest rate risk.
  67
  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 cost of our product and overhead costs may
adversely affect our operating results. Although we do not believe that
inflation has had a material impact on our financial position or results of
operations to date, a high rate of inflation in the future may have an adverse
effect on our ability to maintain current levels of gross margin and selling and
distribution, general and administrative expenses as a percentage of net
revenues if the selling prices of our products do not increase to cope with
these increased costs.
  68
  ITEM
      8.
              Financial
      Statements and Supplementary Data
 
 CHINA
MARINE FOOD GROUP LIMITED
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
  PageReport
      of Independent Registered Public Accounting Firm, ZYCPA Company Limited
      (Formerly Zhong Yi (Hong Kong) C.P.A. Company Limited)
                                            
                                            F-1Report
      of Independent Registered Public Accounting Firm, Cordovano and Honeck
      LLP
                                            
                                            F-2Consolidated
      Balance Sheets
                                            
                                            F-3Consolidated
      Statements of Operation and Comprehensive Income
                                            
                                            F-4Consolidated
      Statements of Cash Flows
                                            
                                            F-5Consolidated
      Statements of Changes in Stockholders’ Equity
                                            
                                            F-6Notes
      to Consolidated Financial Statements
                                            
                                            F-7
      –
F-28
  
  
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 The Board
of Directors and stockholders of
 China
Marine Food Group Limited
 
 We have
audited the accompanying consolidated balance sheet of China Marine Food Group
Limited and its subsidiaries (“the Company”) as of December 31, 2008 and the
related consolidated statement of operation and comprehensive income, cash flows
and changes in stockholders’ equity for the year ended December 31, 2008. The
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
 
 We
conducted our audit 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
consolidated 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 audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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
audit provides a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 2008 and the results of their operation and their cash flows for the year
then ended and in conformity with accounting principles generally accepted in
the United States of America.
 
 /s/ ZYCPA Company LimitedZYCPA
      Company Limited(Formerly
      Zhong Yi (Hong Kong) C.P.A. Company Limited)Certified
      Public Accountants
 
 Hong
Kong, China
 March 20,
2009
  
 F-1
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 The Board
of Directors and stockholders of
 China
Marine Food Group Limited
 
 We have
audited the accompanying consolidated balance sheet of China Marine Food Group
Limited (“the Company”) as of December 31, 2007 and the related consolidated
statements of income, cash flows and stockholders’ equity for the year ended
December 31, 2007.  The consolidated financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
 
 We
conducted our audit 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 consolidated 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 include
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such
opinion.  An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 2007 and the results of their operations and their cash flows for the year
ended December 31, 2007 in conformity with accounting principles generally
accepted in the United States of America.
  
 Cordovano
and Honeck LLP
 Englewood,
Colorado USA
 March 20,
2008
  F-2
  CHINA
MARINE FOOD GROUP LIMITED
 CONSOLIDATED
BALANCE SHEETS
 AS
OF DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))
 
 As
      of December 31,2008
                                  
                                  
                                  2007ASSETSCurrent
      assets:Cash
      and cash equivalents
                                  
                                  $
                                  31,640,307
                                  
                                  
                                  $
                                  24,476,647Accounts
      receivable, net
                                  
                                  
                                  4,819,434
                                  
                                  
                                  
                                  4,183,437Inventories
                                  
                                  
                                  6,679,488
                                  
                                  
                                  
                                  1,187,335Prepaid
      expenses and other current assets
                                  
                                  
                                  326,977
                                  
                                  
                                  
                                  165,528Total
      current assets
                                  
                                  
                                  43,466,206
                                  
                                  
                                  
                                  30,012,947Property,
      plant and equipment, net
                                  
                                  
                                  5,944,515
                                  
                                  
                                  
                                  3,510,837Land
      use rights, net
                                  
                                  
                                  630,150
                                  
                                  
                                  
                                  605,823Construction
      in progress
                                  
                                  
                                  1,604,855
                                  
                                  
                                  
                                  -TOTAL
      ASSETS
                                  
                                  $
                                  51,645,726
                                  
                                  
                                  $
                                  34,129,607LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short-term
      borrowings
                                  
                                  $
                                  4,289,341
                                  
                                  
                                  $
                                  772,481Accounts
      payable, trade
                                  
                                  
                                  416,463
                                  
                                  
                                  
                                  436,620Amount
      due to a stockholder
                                  
                                  
                                  170,091
                                  
                                  
                                  
                                  262,388Income
      tax payable
                                  
                                  
                                  362,326
                                  
                                  
                                  
                                  341,094Accrued
      liabilities and other payable
                                  
                                  
                                  1,387,427
                                  
                                  
                                  
                                  788,852Total
      current liabilities
                                  
                                  
                                  6,625,648
                                  
                                  
                                  
                                  2,601,435Commitments
      and contingencies (see Note 18)Stockholders’
      equity:Preferred
      stock, $0.001 par value; 1,000,000 shares authorized; 0 shares issued and
      outstanding as of December 31, 2008 and 2007
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Common
      stock, $0.001 par value; 100,000,000 shares authorized; 23,026,301 and
      22,972,301 shares issuedand
      outstanding as of December 31, 2008 and 2007
                                  
                                  
                                  23,026
                                  
                                  
                                  
                                  22,972Additional
      paid-in capital
                                  
                                  
                                  16,752,945
                                  
                                  
                                  
                                  16,579,443Statutory
      reserve
                                  
                                  
                                  4,883,700
                                  
                                  
                                  
                                  3,110,266Accumulated
      other comprehensive income
                                  
                                  
                                  3,448,436
                                  
                                  
                                  
                                  1,252,896Retained
      earnings
                                  
                                  
                                  19,911,971
                                  
                                  
                                  
                                  10,562,595Total
      stockholders’ equity
                                  
                                  
                                  45,020,078
                                  
                                  
                                  
                                  31,528,172TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                                  
                                  $
                                  51,645,726
                                  
                                  
                                  $
                                  34,129,607
  See
accompanying notes to consolidated financial statements.
  F-3
  CHINA
MARINE FOOD GROUP LIMITED
 CONSOLIDATED
STATEMENTS OF OPERATION AND COMPREHENSIVE INCOME
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”), except for number of
shares)
 
 Years
      ended December 31,2008
                                    
                                    
                                    2007Revenue,
      net
                                    
                                    $
                                    48,798,804
                                    
                                    
                                    $
                                    36,425,327Cost of revenue
      (inclusive of depreciation and amortization)
                                    
                                    
                                    (33,606,972
                                    )
                                    
                                    
                                    (25,649,518
                                    )Gross
      profit
                                    
                                    
                                    15,191,832
                                    
                                    
                                    
                                    10,775,809Operating
      expenses:Depreciation
      and amortization
                                    
                                    
                                    (58,310
                                    )
                                    
                                    
                                    (37,013
                                    )Sales
      and marketing
                                    
                                    
                                    (608,259
                                    )
                                    
                                    
                                    (148,840
                                    )General
      and administrative
                                    
                                    
                                    (2,067,802
                                    )
                                    
                                    
                                    (597,767
                                    )Total
      operating expenses
                                    
                                    
                                    (2,734,371
                                    )
                                    
                                    
                                    (783,620
                                    )Income
      from operations
                                    
                                    
                                    12,457,461
                                    
                                    
                                    
                                    9,992,189Other
      income (expenses):Other
      income
                                    
                                    
                                    -
                                    
                                    
                                    
                                    13,533Subsidy
      income
                                    
                                    
                                    68,225
                                    
                                    
                                    
                                    62,142Rental
      income
                                    
                                    
                                    73,941
                                    
                                    
                                    
                                    68,066Interest
      income
                                    
                                    
                                    505,173
                                    
                                    
                                    
                                    79,183Interest
      expense
                                    
                                    
                                    (319,229
                                    )
                                    
                                    
                                    (332,816
                                    )Income
      before income taxes
                                    
                                    
                                    12,785,571
                                    
                                    
                                    
                                    9,882,297Income
      tax expense
                                    
                                    
                                    (1,662,761
                                    )
                                    
                                    
                                    (1,220,942
                                    )NET
      INCOME
                                    
                                    $
                                    11,122,810
                                    
                                    
                                    $
                                    8,661,355Other
      comprehensive income:-
      Foreign currency translation gain
                                    
                                    
                                    2,195,540
                                    
                                    
                                    
                                    1,188,929COMPREHENSIVE
      INCOME
                                    
                                    $
                                    13,318,350
                                    
                                    
                                    $
                                    9,850,284Net
      income per share – basic
                                    
                                    $
                                    0.48
                                    
                                    
                                    $
                                    0.38Net
      income per share – diluted
                                    
                                    $
                                    0.48
                                    
                                    
                                    $
                                    0.34Weighted
      average shares outstanding – basic
                                    
                                    
                                    23,010,842
                                    
                                    
                                    
                                    22,972,301Weighted
      average shares outstanding – diluted
                                    
                                    
                                    23,010,842
                                    
                                    
                                    
                                    25,142,105
  See
accompanying notes to consolidated financial statements.
  F-4
 
 CHINA
MARINE FOOD GROUP LIMITED
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))
 
 Years
      ended December 31,2008
                                  
                                  
                                  2007Cash
      flows from operating activities:Net
      income
                                  
                                  $
                                  11,122,810
                                  
                                  
                                  $
                                  8,661,355Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                                  
                                  
                                  237,400
                                  
                                  
                                  
                                  224,293Loss
      on disposal of property, plant and equipment
                                  
                                  
                                  156,681
                                  
                                  
                                  
                                  -Stock
      issued to an executive
                                  
                                  
                                  77,136
                                  
                                  
                                  
                                  -Stock
      issued for service
                                  
                                  
                                  96,420
                                  
                                  
                                  
                                  -Allowance
      for doubtful accounts
                                  
                                  
                                  3,196
                                  
                                  
                                  
                                  14,581Changes
      in operating assets and liabilities:Accounts
      receivable
                                  
                                  
                                  (639,193
                                  )
                                  
                                  
                                  (2,908,349
                                  )Inventories
                                  
                                  
                                  (5,492,153
                                  )
                                  
                                  
                                  (51,249
                                  )Prepaid
      expenses and other current assets
                                  
                                  
                                  (161,449
                                  )
                                  
                                  
                                  (130,644
                                  )Accounts
      payable, trade
                                  
                                  
                                  (20,157
                                  )
                                  
                                  
                                  208,527Income
      tax payable
                                  
                                  
                                  21,232
                                  
                                  
                                  
                                  341,094Accrued
      liabilities and other payable
                                  
                                  
                                  598,575
                                  
                                  
                                  
                                  340,975Net
      cash provided by operating activities
                                  
                                  
                                  6,000,498
                                  
                                  
                                  
                                  6,700,583Cash
      flows from investing activities:Purchase
      of property, plant and equipment
                                  
                                  
                                  (634,069
                                  )
                                  
                                  
                                  (21,079
                                  )Proceeds
      from disposal of property, plant and equipment
                                  
                                  
                                  13,906
                                  
                                  
                                  
                                  -Cash
      paid to construction in progress
                                  
                                  
                                  (3,558,441
                                  )
                                  
                                  
                                  -Net
      cash used in investing activities
                                  
                                  
                                  (4,178,604
                                  )
                                  
                                  
                                  (21,079
                                  )Cash
      flows from financing activities:Repayment
      of amount due to a stockholder
                                  
                                  
                                  (92,297
                                  )
                                  
                                  
                                  (383,706
                                  )Proceeds
      from short-term borrowings
                                  
                                  
                                  8,844,844
                                  
                                  
                                  
                                  772,481Payment
      on short-term borrowings
                                  
                                  
                                  (5,388,690
                                  )
                                  
                                  
                                  (3,792,640
                                  )Proceeds
      from private placement, net of offering expenses
                                  
                                  
                                  -
                                  
                                  
                                  
                                  15,925,000Payment
      on dividends
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (4,562,044
                                  )Net
      cash provided by financing activities
                                  
                                  
                                  3,363,857
                                  
                                  
                                  
                                  7,959,091Effect
      of exchange rate changes in cash and cash equivalents
                                  
                                  
                                  1,977,909
                                  
                                  
                                  
                                  655,813NET
      CHANGE IN CASH AND CASH EQUIVALENTS
                                  
                                  
                                  7,163,660
                                  
                                  
                                  
                                  15,294,408CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
                                  
                                  
                                  24,476,647
                                  
                                  
                                  
                                  9,182,239CASH
      AND CASH EQUIVALENTS, END OF YEAR
                                  
                                  $
                                  31,640,307
                                  
                                  
                                  $
                                  24,476,647SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid for income taxes
                                  
                                  $
                                  1,641,529
                                  
                                  
                                  $
                                  879,848Cash
      paid for interest expenses
                                  
                                  $
                                  319,229
                                  
                                  
                                  $
                                  332,816SUPPLEMENTAL
      DISCLOSURE OF NONCASH INVESTING AND FINANCING TRANSACTIONSWarrant
      shares granted for offering costs
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  1,941,014
 See
accompanying notes to consolidated financial statements.
  F-5
  CHINA
MARINE FOOD GROUP LIMITED
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”), except for number of
shares)
 
 AccumulatedAdditional
                                          
                                          
                                          
                                          
                                          
                                          other
                                          
                                          
                                          
                                          
                                          
                                          TotalCommon
      stock
                                          
                                          
                                          paid-in
                                          
                                          
                                          Statutory
                                          
                                          
                                          comprehensive
                                          
                                          
                                          Retained
                                          
                                          
                                          stockholder’sNo
      of share
                                          
                                          
                                          Par
      value
                                          
                                          
                                          capital
                                          
                                          
                                          reserve
                                          
                                          
                                          income
                                          
                                          
                                          earnings
                                          
                                          
                                          equityBalance
      as of December 31, 2006
                                          
                                          
                                          15,624,034
                                          
                                          
                                          $
                                          15,624
                                          
                                          
                                          $
                                          661,791
                                          
                                          
                                          $
                                          1,724,269
                                          
                                          
                                          $
                                          63,967
                                          
                                          
                                          $
                                          7,849,281
                                          
                                          
                                          $
                                          10,314,932Shares
      issued for reverse acquisition
                                          
                                          
                                          1,148,826
                                          
                                          
                                          
                                          1,149
                                          
                                          
                                          
                                          (1,149
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Proceeds
      from private placement (net of offering expenses of $5,941,014 cash and
      warrants granted)
                                          
                                          
                                          6,199,441
                                          
                                          
                                          
                                          6,199
                                          
                                          
                                          
                                          15,918,801
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          15,925,000Net
      income for the year
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          8,661,355
                                          
                                          
                                          
                                          8,661,355Distribution
      of dividends
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (4,562,044
                                          )
                                          
                                          
                                          (4,562,044
                                          )Appropriation
      to statutory reserve
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,385,997
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (1,385,997
                                          )
                                          
                                          
                                          -Foreign
      currency translation adjustment
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,188,929
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,188,929Balance
      as of December 31, 2007
                                          
                                          
                                          22,972,301
                                          
                                          
                                          $
                                          22,972
                                          
                                          
                                          $
                                          16,579,443
                                          
                                          
                                          $
                                          3,110,266
                                          
                                          
                                          $
                                          $1,252,896
                                          
                                          
                                          $
                                          10,562,595
                                          
                                          
                                          $
                                          31,528,172Stock
      issued to an executive
                                          
                                          
                                          24,000
                                          
                                          
                                          
                                          24
                                          
                                          
                                          
                                          77,112
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          77,136Stock
      issued for service
                                          
                                          
                                          30,000
                                          
                                          
                                          
                                          30
                                          
                                          
                                          
                                          96,390
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          96,420Net
      income for the year
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          11,122,810
                                          
                                          
                                          
                                          11,122,810Appropriation
      to statutory reserve
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,773,434
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (1,773,434
                                          )
                                          
                                          
                                          -Foreign
      currency translation adjustment
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2,195,540
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2,195,540Balance
      as of December 31, 2008
                                          
                                          
                                          23,026,301
                                          
                                          
                                          $
                                          23,026
                                          
                                          
                                          $
                                          16,752,945
                                          
                                          
                                          $
                                          4,883,700
                                          
                                          
                                          $
                                          3,448,436
                                          
                                          
                                          $
                                          19,911,971
                                          
                                          
                                          $
                                          45,020,078
 
 See
accompanying notes to consolidated financial statements.
  F-6
  CHINA
MARINE FOOD GROUP LIMITED
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF DECEMBER 31, 2008 AND 2007
 (Currency
expressed in United States Dollars (“US$”))
 
 1.
                ORGANIZATION
      AND BUSINESS BACKGROUND
 
 China
Marine Food Group Limited (“China Marine” or “the Company”) was incorporated in
the State of Nevada on October 1, 1999 in the former name of New Paradigm
Productions, Inc. On November 16, 2007, the Company changed its current name to
“China Marine Food Group Limited”.
 
 China
Marine, through its subsidiaries, mainly engages in the manufacture and
distribution of seafood products, including dried and frozen seafood products,
and trades with customers in domestic and overseas markets, with its principal
place of business in Shishi City, Fujian Province, China.
 
 Recapitalization
and reorganization
 
 On
November 17, 2007, China Marine completed a stock exchange transaction with the
stockholders of Nice Enterprise Trading H.K. Co., Limited (“Nice Enterprise”),
whereby 15,624,034 shares of the Company’s common stock were issued to the
stockholders of Nice Enterprise in exchange for 100% of their outstanding
capital stock in Nice Enterprise. As a result of the stock exchange, the former
stockholders of Nice Enterprise owned approximately 93.15% of the issued and
outstanding shares of common stock of the Company.
 
 Concurrently
with the closing of the stock exchange on November 17, 2007, China Marine
completed a private placement of securities to certain accredited investors who
subscribed to units consisting of one share of common stock and one warrant to
purchase one-fifth of one share of the common stock. The investors subscribed to
an aggregate of 6,199,441 units, consisting of 6,199,441 shares of the Company’s
common stock and warrants to purchase an aggregate of 1,239,888 shares of the
common stock at $3.214 per unit. The units were offered and sold pursuant to
exemptions from registration under the Securities Act of 1933, including without
limitation, Regulation D and Regulation S promulgated under the Securities Act.
The gross cash proceeds from the private placement totaled $19,925,000 less
estimated offering expenses of $5,941,014 cash and warrant shares granted. Also
in connection with this stock exchange and private placement transactions, China
Marine granted 929,916 warrant shares to certain agents and consultants
exercisable at $4.1782 per share for a term of 3 years.
 
 On
November 16, 2007, China Marine approved to change to its current name with a
new stock symbol "CMFO”.
 
 Upon
completion of the stock exchange and private placement transactions, Nice
Enterprise became a wholly-owned subsidiary of China Marine. The stock exchange
transaction has been accounted for as a reverse acquisition and recapitalization
of China Marine whereby Nice Enterprise 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 Nice Enterprise, 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 Nice Enterprise.
  F-7
 
 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
                    heldNice
      Enterprise Trading H.K. Co., Limited (“Nice Enterprise”)
                  
                  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
                  
                  $11,000,000
                  
                  100%Shishi
      Huabao Jixiang Water Products Co., Ltd (“Jixiang”)
                  
                  The
      PRC, a limited liability company
                  
                  Property
      holding
                  
                  RMB4,500,000
                  
                  100%Shishi
      Huabao Mingxiang Foods Co., Ltd (“Mingxiang”)
                  
                  The
      PRC, a limited liability company
                  
                  Property
      holding
                  
                  RMB30,000,000
                  
                  100%
 
 China
Marine and its subsidiaries are hereinafter referred to as “the
Company”.
 
 2.
                SUMMARY
      OF SIGNIFICANT ACCOUNTING
POLICIES
 
 l
                Basis
      of presentation
 
 These
accompanying financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America (“US
GAAP”).
 
 l
                Basis
      of consolidation
 
 The
consolidated financial statements include the financial statements of China
Marine and its subsidiaries.
 
 All
significant intercompany balances and transactions within the Company have been
eliminated upon consolidation.
 
 l
                Use
      of estimates
 
 In
preparing these financial statements, management makes estimates and assumptions
that affect the reported amounts of assets and liabilities in the balance sheets
and revenues and expenses during the years reported. Actual results could differ
from these estimates.
  F-8
 
 l
                Cash
      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 $31,640,307 and $24,476,647 as of December 31, 2008
and 2007, respectively.
 
 l
                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.
 
 As of
December 31, 2008 and 2007, the allowance for doubtful accounts was $24,218 and
$21,022, respectively.
 
 l
                Inventories
 
 Inventories
consist of frozen products from marine catch, processed seafood 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 fishes, 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, 2008 and 2007, the Company did not record an allowance for obsolete
inventories, nor have there been any write-offs.
 
 l
                Property,
      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 valueBuildings
                      
                      30-50
      years
                      
                      
                      10
                      %Plant
      and machinery
                      
                      10-30
      years
                      
                      
                      10
                      %Office
      equipments
                      
                      8-10
      years
                      
                      
                      10
                      %Motor
      vehicles
                      
                      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.
 F-9
  l
                Construction
      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.
 
 l
                Land
      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.
 
 l
                Impairment
      of long-lived assets
 
 In
accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, all long-lived assets such as property,
plant and equipment, land use rights and construction in progress 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, 2008 and 2007.
 
 l
                Revenue
      recognition
 
 In
accordance with the SEC’s Staff Accounting Bulletin No. 104, “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 collectibility is reasonably assured.
 
 The
Company derives revenues from the processing, distribution and sale of processed
seafood products and sale of marine catch. The Company 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 products upon delivery to the
customers and the transfer of title and risk of loss. The Company experienced no
product returns and has recorded no reserve for sales returns for the years
ended December 31, 2008 and 2007.
 
 The
Company has distributor arrangements with certain parties for sale of its
processed seafood products. The distributor agreements do not provide
chargeback, price protection, or stock rotation rights. Accordingly, the Company
records the revenue, net of VAT incurred when products are delivered to and
received by the distributors.
 
 Rental
income from operating leases on real estate properties is recognized on a
straight-line basis over the lease period.
  F-10
 
 l
                Cost
      of revenue
 
 Cost of
revenue consists primarily of purchase cost of raw fishes, direct labor,
depreciation and manufacturing overheads, which are directly attributable to the
manufacture of processed seafood products. Shipping and handling costs,
associated with the distribution of seafood products to customers, are recorded
in cost of revenue and are recognized when the related seafood product is
shipped to the customer.
 
 l
                Government
      subsidy income
 
 Subsidy
income is received at a discretionary amount as determined by the local PRC
government. Subsidy income is recognized at their fair value where there is a
reasonable assurance that the subsidy will be received and the Company will
comply with applicable conditions. Subsidy income is recognized in the
accompanying consolidated statements of operations at the period when it was
received from the local PRC government.
 
 l
                Advertising
      expenses
 
 Advertising
costs are expensed as incurred in accordance with the American Institute of
Certified Public Accountants (“AICPA”) Statement of Position 93-7,“Reporting for Advertising
Costs”. Advertising expenses for the years ended December 31, 2008 and
2007 were $151,177 and $22,856, respectively.
 
 l
                Research
      and development
 
 Research
and development costs are expensed when incurred in the development of new
products or processes including significant improvements and refinements of
existing products. Such costs mainly relate to labor and material cost. The
Company incurred $87,327 and $32,651 of such costs for the years ended December
31, 2008 and 2007, respectively.
 
 l
                Retirement
      plan costs
 
 Contributions
to retirement schemes (which are defined contribution plans) are charged to
general and administrative expenses in the accompanying consolidated statements
of operation and comprehensive income as the related employee service is
provided.
 
 l
                Comprehensive
      income
 
 SFAS No.
130, “Reporting Comprehensive
Income”, establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income as defined
includes all changes in equity during a period from non-owner sources.
Accumulated other comprehensive income, as presented in the accompanying
statement of changes in stockholders’ 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.
 
 l
                Income
      taxes
 
 The
Company accounts for income tax using SFAS No. 109 “Accounting for Income
Taxes”, which requires the asset and liability approach for financial
accounting and reporting for income taxes. Under this approach, deferred income
taxes are provided for the estimated future tax effects attributable to
temporary differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases, and for the expected future tax
benefits from loss carry-forwards and provisions, if any. Deferred tax assets
and liabilities are measured using the enacted tax rates expected in the years
of recovery or reversal and the effect from a change in tax rates is recognized
in the statement of operations and comprehensive (loss) income in the period of
enactment. A valuation allowance is provided to reduce the amount of deferred
tax assets if it is considered more likely than not that some portion of, or all
of the deferred tax assets will not be realized.
  F-11
 
 The
Company also adopted Financial Accounting Standards Board Interpretation
(“FASB”)No. 48,
“Accounting for Uncertainty in
Income Taxes” (“FIN 48”), on January 1, 2007. FIN 48 prescribes a more
likely than not threshold for financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on derecognition of income tax assets and
liabilities, classification of current and deferred income tax assets and
liabilities, accounting for interest and penalties associated with tax
positions, accounting for income taxes in interim periods, and income tax
disclosures. The Company did not have any adjustment to the opening balance of
retained earnings as of January 1, 2007 as a result of the implementation of FIN
48. In accordance with FIN 48, the Company also adopted the policy of
recognizing interest and penalties, if any, related to unrecognized tax
positions as income tax expense. For the years ended December 31, 2008 and 2007,
the Company did not have any interest and penalties associated with tax
positions. As of December 31, 2008 and 2007, 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.
 
 l
                Net
      income per share
 
 The
Company calculates net income per share in accordance with SFAS No. 128,“Earnings per Share.” Basic
income per share is computed by dividing the net income by the weighted-average
number of common shares outstanding during the period. Diluted income per share
is computed similar to basic income 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.
 
 l
                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 operation 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 SFAS No. 52, “Foreign
Currency Translation”, 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 stockholders’
equity.
 
 Translation
of amounts from RMB into US$1 has been made at the following exchange rates for
the respective year:
 
 2008
                    
                    
                    2007Year-end
      rates RMB:US$1 exchange rate
                    
                    
                    6.8542
                    
                    
                    
                    7.3141Average
      yearly rates RMB:US$1 exchange rate
                    
                    
                    6.9623
                    
                    
                    
                    7.5633
 
 l
                Stock-based
      compensation
 
 The
Company adopts SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS
No. 123R") using the fair value method. Under SFAS No. 123(R), 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.
  F-12
 
 l
                Related
      parties
 
 Parties,
which can be a corporation or individual, are considered to be related if the
Company has the ability, directly or indirectly, to control the other party or
exercise significant influence over the other party in making financial and
operational decisions. Companies are also considered to be related if they are
subject to common control or common significant influence.
 
 l
                Segment
      reporting
 
 SFAS No.
131 “Disclosures about Segments of an
Enterprise and Related Information” 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 years
ended December 31, 2008 and 2007, the Company operates in two principal
reportable segments: sale of processed seafood products and sale of marine
catch.
 
 l
                Fair
      value of financial
instruments
 
 The
Company values its financial instruments as required by SFAS No. 107, “Disclosures about Fair Value of
Financial Instruments”. The estimated fair value amounts have been
determined by the Company, using available market information and appropriate
valuation methodologies. The estimates presented herein are not necessarily
indicative of amounts that the Company could realize in a current market
exchange.
 
 The
Company’s financial instruments primarily include cash and cash equivalents,
accounts receivable, prepaid expenses and other current assets, short-term
borrowings, accounts payable, amount due to a stockholder, income tax payable,
accrued liabilities and other payable.
 
 As of the
balance sheet date, the estimated fair values of financial instruments were not
materially different from their carrying values as presented due to short
maturities of these instruments.
 
 l
                Registration
      payment arrangements
 
 The
Company accounts for registration payment arrangement in accordance with FASB
Staff Position EITF 00-19-2, “AccountingforRegistrationPaymentArrangements”(“FSP EITF 00-19-2”)
which provides guidance on the
accounting for registration payment arrangements. FSP EITF
00-19-2 specifies that the contingent obligation to make future payments or
otherwise transfer consideration under a registration payment arrangement,
whether issued as a separate agreement or included as a provision of a financial
instrument or other agreement, should be separately recognized and measured in
accordance with FASB Statement No. 5, “Accounting for
Contingencies”. A registration payment arrangement is defined in FSP EITF
00-19-2 as an arrangement with both of the following characteristics: (1) the
arrangement specifies that the issuer will endeavor (a) to file a registration
statement for the resale of specified financial instruments and/or for the
resale of equity shares that are issuable upon exercise or conversion of
specified financial instruments and for that registration statement to be
declared effective by the Securities and Exchange Commission within a specified
grace period, and/or (b) to maintain the effectiveness of the registration
statement for a specified period of time (or in perpetuity); and (2) the
arrangement requires the issuer to transfer consideration to the counterparty if
the registration statement for the resale of the financial instrument or
instruments subject to the arrangement is not declared effective or if
effectiveness of the registration statement is not maintained.
  F-13
 
 l
                Recently
      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.
 
 In
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS“) No. 157,
"Fair Value Measurements"("SFAS
No. 157"). SFAS
No. 157 defines fair value, establishes a framework for measuring fair
value and enhances disclosures about fair value measures required under other
accounting pronouncements, but does not change existing guidance as to whether
or not an instrument is carried at fair value. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007. In February 2008, the
FASB deferred SFAS No. 157's effective date for all non-financial assets
and liabilities, except those items recognized or disclosed at fair value on an
annual or more frequently recurring basis, until years beginning after
November 15, 2008. The Company does not have financial assets and
liabilities that are accounted for using fair value measures in
2008.
 
 In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities"("SFAS No. 159"). SFAS No. 159 permits
entities to choose to measure, on an item-by-item basis, specified financial
instruments and certain other items at fair value. Unrealized gains and losses
on items for which the fair value option has been elected are required to be
reported in earnings at each reporting date. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007, the provisions of which are
required to be applied prospectively. The Company has not elected fair value
measurement for any of its assets and liabilities in 2008.
 
 In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business Combinations"("SFAS No. 141R"). SFAS No. 141R will change the accounting for business
combinations. Under SFAS No. 141R, an acquiring entity will be required to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS No. 141R will
change the accounting treatment and disclosure for certain specific items in a
business combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Accordingly, any business combinations the Company engages in will be recorded
and disclosed following existing GAAP until January 1, 2009. The Company
believes that SFAS No. 141R will have no material impact on the financial
position or results of operations.
 
 In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements--An Amendment of ARB No. 51, or SFAS No.
160" ("SFAS No. 160"). SFAS No. 160 establishes new accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company believes that SFAS No. 160
will have no material impact on the financial position or results of
operations.
 
 In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS No. 161"). SFAS No. 161
requires companies with derivative instruments to disclose information that
should enable financial-statement users to understand how and why a company uses
derivative instruments, how derivative instruments and related hedged items are
accounted for under FASB Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities"and how derivative instruments and
related hedged items affect a company's financial position, financial
performance and cash flows. SFAS No. 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008.
The adoption of SFAS No. 161 is not expected to have a material effect on the
Company's future financial position or results of operations.
  F-14
 
 In May,
2008, the FASB issued SFAS No. 162, "The Hierarchy of
Generally Accepted
Accounting Principles",("SFAS No. 162"). SFAS No. 162 identifies
the sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles (GAAP) in the United States (the GAAP hierarchy). SFAS No. 162 will
be effective 60 days following the SEC's approval of the Public Company
Accounting Oversight Board's amendments to AU Section 411, "The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles". The
FASB has stated that it does not expect SFAS No. 162 will result in a change in
current practice. The application of SFAS No. 162 will have no effect on the
Company's financial position, results of operations or cash flows.
 
 Also in
May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee
Insurance Contracts--an interpretation of FASB Statement No. 60"("SFAS
No. 163").SFAS
No. 163 interprets Statement 60 and amends existing accounting pronouncements to
clarify their application to the financial guarantee insurance contracts
included within the scope of that Statement. SFAS No. 163 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year ended
December 31, 2009. The Company is currently evaluating the impact of SFAS No.
163 on its financial statements but does not expect it to have an effect on the
Company's financial position, results of operations or cash flows.
 
 In May
2008, the FASB issued FSP APB 14-1, "Accounting for Convertible Debt
Instruments that may be
Settled in Cash upon Conversion (Including Partial Cash Settlement)"
("FSP APB 14-1"). FSP APB 14-1 applies to convertible debt securities that, upon
conversion, may be settled by the issuer fully or partially in cash. FSP APB
14-1 specifies that issuers of such instruments should separately account for
the liability and equity components in a manner that will reflect the entity's
nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. FSP APB 14-1 is effective for financial statements issued
for fiscal years after December 15, 2008, and must be applied on a retrospective
basis. Early adoption is not permitted. The adoption of this statement is not
expected to have a material effect on the Company's future financial position or
results of operations.
 
 In June
2008, the FASB issued FASB Staff Position ("FSP") EITF 03-6-1, "Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities"
("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting,
and therefore need to be included in the earnings allocation in computing
earnings per share under the two-class method as described in SFAS No. 128,
Earnings per Share. Under the guidance of FSP EITF 03-6-1, unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of earnings-per-share pursuant to the two-class
method. FSP EITF 03-6-1 is effective for financial statements issued for fiscal
years beginning after December 15, 2008 and all prior-period earnings per share
data presented shall be adjusted retrospectively. Early application is not
permitted. The Company is assessing the potential impact of this FSP on the
earnings per share calculation.
 
 In June
2008, the FASB ratified EITF No. 07-5, "Determining Whether an Instrument
(or an Embedded Feature)is Indexed to an Entity's Own
Stock" ("EITF 07-5"). EITF 07-5 provides that an entity should use a
two-step approach to evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including evaluating the
instrument's contingent exercise and settlement provisions. EITF 07-5 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early application is not permitted. The Company is assessing
the potential impact of this EITF 07-5 on the financial condition and results of
operations.
  F-15
 
 In
September 2008, the FASB issued FSP 133-1 and FIN 45-4, “Disclosures about Credit Derivatives
and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45;
and Clarification of the Effective Date of FASB Statement No. 161” (“FSP
FAS 133-1” and “FIN 45-4”). SP 133-1 and FIN 45-4 amends disclosure requirements
for sellers of credit derivatives and financial guarantees. It also clarifies
the disclosure requirements of SFAS No. 161 and is effective for quarterly
periods beginning after November 15, 2008, and fiscal years that include those
periods. The adoption of FSP FAS 133-1 and FIN 45-4 does not have a material
impact on the Company’s current financial position, results of operations or
cash flows.
 
 In
October 2008, the FASB issued Staff Position (“FSP”) No. 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active” (“FSP FAS
157-3.”) FSP FAS 157-3 clarifies the application of SFAS No. 157 in an inactive
market. It illustrated how the fair value of a financial asset is determined
when the market for that financial asset is inactive. FSP FAS 157-3 was
effective upon issuance, including prior periods for which financial statements
had not been issued. The adoption of FSP FAS 157-3 does not have a material
impact on the Company’s current financial position, results of operations or
cash flows.
 
 3.
                ACCOUNTS
      RECEIVABLE
 
 The
majority of the Company’s sales are on open credit terms and in accordance with
terms specified in the contracts governing the relevant transactions. The
Company evaluates the need of an allowance for doubtful accounts based on
specifically identified amounts that management believes to be uncollectible. If
actual collections experience changes, revisions to the allowance may be
required.
 
 Accounts
receivable consisted of the following:
 
 As
      of December 31,2008
                        
                        
                        2007Accounts
      receivable, at cost
                        
                        $
                        4,843,652
                        
                        
                        $
                        4,204,459Less:
      allowance for doubtful accounts
                        
                        
                        (24,218
                        )
                        
                        
                        (21,022
                        )Accounts
      receivable, net
                        
                        $
                        4,819,434
                        
                        
                        $
                        4,183,437
 
 For the
years ended December 31, 2008 and 2007, the Company provided the allowance for
doubtful accounts of $3,196 and $14,581, respectively.
 
 4.
                INVENTORIES
 
 Inventories
consisted of the following:
 
 As
      of December 31,2008
                        
                        
                        2007Raw
      materials
                        
                        $
                        5,076,881
                        
                        
                        $
                        863,675Work-in-process
                        
                        
                        1,262,854
                        
                        
                        
                        88,528Finished
      goods
                        
                        
                        126,300
                        
                        
                        
                        136,197Packaging
      materials
                        
                        
                        213,453
                        
                        
                        
                        98,935Total
                        
                        $
                        6,679,488
                        
                        
                        $
                        1,187,335
 
 For the
years ended December 31, 2008 and 2007, the Company recorded no allowance for
slow-moving and obsolete inventories.
  F-16
 
 5.
                PROPERTY,
      PLANT AND EQUIPMENT
 
 Property,
plant and equipment, net, consisted of the following:
 
 As
      of December 31,2008
                          
                          
                          2007Buildings
                          
                          $
                          4,008,018
                          
                          
                          $
                          2,160,070Plant
      and machinery
                          
                          
                          3,162,665
                          
                          
                          
                          2,787,017Office
      equipments
                          
                          
                          43,994
                          
                          
                          
                          20,721Motor
      vehicles
                          
                          
                          561,279
                          
                          
                          
                          178,9417,775,956
                          
                          
                          
                          5,146,749Less:
      accumulated depreciation
                          
                          
                          (1,831,441
                          )
                          
                          
                          (1,635,912
                          )Property,
      plant and equipment, net
                          
                          $
                          5,944,515
                          
                          
                          $
                          3,510,837
 
 As of
December 31, 2008 and 2007, certain property, plant and equipment with the net
book value of $2,380,187 and $1,362,297, respectively, were pledged as
securities in connection with the outstanding short-term borrowings, as
described in more details in Note 8.
 
 Depreciation
expenses for the years ended December 31, 2008 and 2007 were $221,327 and
$209,501 respectively, which included $168,847 and $177,854 in cost of
revenue.
 
 Certain
property, plant and equipment with original costs of $749,260 and $643,673 have
become fully depreciated as of December 31, 2008 and 2007,
respectively.
 
 6.
                LAND
      USE RIGHTS
 
 Land use
rights consisted of the following:
 As
      of December 31,2008
                          
                          
                          2007Land
      use rights, at cost
                          
                          $
                          803,938
                          
                          
                          $
                          753,387Less:
      accumulated amortization
                          
                          
                          (173,788
                          )
                          
                          
                          (147,564
                          )Land
      use rights, net
                          
                          $
                          630,150
                          
                          
                          $
                          605,823
 
 As of
December 31, 2008, certain land use rights with the net book value of $411,088
were pledged as securities in connection with the outstanding short-term
borrowings, as described in Note 8.
 
 Amortization
expenses for the years ended December 31, 2008 and 2007 were $16,073 and $14,792
respectively, in which $10,243 and $9,426 were included in cost of revenue.
Estimated aggregate future amortization expense for the succeeding 5 years and
thereafter as of December 31, 2008 is as follows:
 
 Years
      ending December 31,2009
                          
                          $
                          16,0732010
                          
                          
                          16,0732011
                          
                          
                          16,0732012
                          
                          
                          16,0732013
                          
                          
                          16,073Thereafter
                          
                          
                          549,785Total
                          
                          $
                          630,150
  F-17
 
 7.
                CONSTRUCTION
      IN PROGRESS
 
 During
2008, the Company was constructing the new production facilities for business
expansion, including the development and improvement of the processing plant,
staff quarters and storage warehouses for seafood products manufacture. In
October 2008, the Company placed certain facilities into service and began
depreciating the plant at that time when the assets are substantially complete
and ready for their intended use. The Company reclassified $1,953,586 from
construction in progress to property, plant and equipment accordingly. The whole
development is scheduled to be fully completed in 2009. As of December 31, 2008,
the Company incurred and capitalized $1,604,855 as construction in
progress.
  8.
                SHORT-TERM
      BORROWINGS
 
 Short-term
borrowings consisted of the following:
 
 As
      of December 31,2008
                      
                      
                      2007Bank
      loans, payable to a financial institution in the PRC:Equivalent
      to RMB5,260,000, due on August 20, 2008
                      
                      $
                      -
                      
                      
                      $
                      719,159Equivalent
      to RMB390,000, due on October 24, 2008
                      
                      
                      -
                      
                      
                      
                      53,322Equivalent
      to RMB5,400,000, due on February 2, 2009
                      
                      
                      787,839
                      
                      
                      
                      -Equivalent
      to RMB3,000,000, due on February 17, 2009
                      
                      
                      437,688
                      
                      
                      
                      -Equivalent
      to RMB5,000,000, due on February 19, 2009
                      
                      
                      729,479
                      
                      
                      
                      -Equivalent
      to RMB4,000,000, due on February 25, 2009
                      
                      
                      583,584
                      
                      
                      
                      -Equivalent
      to RMB5,000,000, due on February 21, 2009
                      
                      
                      729,479
                      
                      
                      
                      -Equivalent
      to RMB3,000,000, due on April 7, 2009
                      
                      
                      437,688
                      
                      
                      
                      -Equivalent
      to RMB4,000,000, due on May 18, 2009
                      
                      
                      583,584
                      
                      
                      
                      -Total
      borrowings
                      
                      $
                      4,289,341
                      
                      
                      $
                      772,481
 
 The
Company’s wholly-owned subsidiary, Mingxiang obtained short-term bank loans in
the aggregate amount of $4,289,341 and $772,481 as of December 31, 2008 and 2007
respectively with Agricultural Bank of China, a registered financial institution
in the PRC. The weighted average effective interest rate per annum was 7.85% and
8.66% for 2008 and 2007 respectively, payable quarterly. All bank borrowings
were guaranteed by the major shareholder and the director of the Company, Mr.
Pengfei Liu (“Mr. Liu”) and his associate, Ms. Yazuo Qiu and secured by certain
land use rights, property, plant and equipment with an aggregate net book value
of $2,791,275 as of December 31, 2008 (2007: $1,362,297).
 
 Among all
these short-term borrowings, of which $787,839 (equivalent to RMB5,400,000) was
guaranteed by an unrelated party, Shishi Yu Ching Knitting and Clothing Company
(“Shishi Yu Ching”) and was fully repaid in February 2009 (see Note
18(c)).
  F-18
 
 9.
                AMOUNT
      DUE TO A STOCKHOLDER
 
 As of
December 31, 2008 and 2007, the amounts of $170,091 and $262,388 represented
temporary advances for working capital purposes from a major stockholder, Mr.
Liu, which was unsecured, interest free and repayable on demand.
 
 10.
                ACCRUED
      LIABILITIES AND OTHER PAYABLE
 
 Accrued
liabilities and other payable consisted of the following:
 
 As
      of December 31,2008
                            
                            
                            2007Value-added
      tax payable
                            
                            $
                            582,010
                            
                            
                            $
                            230,196Accrued
      payroll and benefits
                            
                            
                            547,956
                            
                            
                            
                            345,319Accrued
      construction cost
                            
                            
                            94,549
                            
                            
                            
                            -Accrued
      operating expenses
                            
                            
                            76,866
                            
                            
                            
                            11,879Accrued
      professional expenses
                            
                            
                            79,457
                            
                            
                            
                            198,002Other
      payable
                            
                            
                            6,589
                            
                            
                            
                            3,456$
                            1,387,427
                            
                            
                            $
                            788,852
 
 11.
              STOCKHOLDERS’
      EQUITY
 
 (a)         Issuance
of common stock
 
 On
February 20, 2008, 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 30,000 shares of restricted common stock to HCI upon the
effectiveness of a registration statement on Form S-1. The shares of common
stock were valued at $96,420 or $3.214 per share.
 
 On
February 20, 2008, the Company granted 24,000 shares of restricted common stock
to the Chief Financial Officer as stock award upon the successful listing of the
Company on a US stock exchange under the Employment Agreement dated July 26,
2007. These shares were valued at $3.214 per share or a total value of
$77,136.
 
 (b)         Private
placement offering
 
 On
November 17, 2007, the Company completed a private placement of securities to
certain accredited investors who subscribed to units consisting of one share of
common stock and one warrant to purchase one-fifth of one share of the Company’s
common stock. The investors subscribed to an aggregate of 6,199,441 units,
consisting of 6,199,441 shares of common stock and warrants of the Company to
purchase an aggregate of 1,239,888 shares of the common stock at $3.214 per
unit. The units were offered and sold pursuant to exemptions from registration
under the Securities Act, including without limitation, Regulation D and
Regulation S promulgated under the Securities Act. The gross cash proceeds from
the private placement totaled $19,925,000 less estimated offering expense of
$5,941,014, which includes the fair value of warrants granted to consultants and
agents, as discussed below.
 F-19
  On
November 17, 2007, in connection with the securities purchase agreement, the
Company also entered into a registration rights agreement, under which it agreed
to use its commercially reasonable efforts to cause the common stock issued and
issuable upon exercise of the warrants issued to the investors, placement agent,
and consultants, to be registered for resale on an appropriate form for
registration to be filed with the SEC within 30 days following the closing. If
the registration statement is not filed within such 30 day period or does not
become effective within 180 days after closing, the Registrant is subject to a
monthly penalty of 1% of the offering amount, up to a maximum of $1,000,000.
Upon the effectiveness of the registration statement, the Registrant will also
maintain the effectiveness of the registration statement for a specified period
of time. The registration statement has declared effective on December 14, 2007,
therefore no penalty was accrued.
 
 Additionally,
the Company’s principal stockholder and director, Mr. Liu, entered into a
Lock-Up Agreement with the investors whereby Mr. Liu agreed that he will not (i)
sell, offer to sell, contract or agree to sell, hypothecate, hedge, pledge grant
any option to purchase or otherwise dispose of or agree to dispose of, directly
or indirectly, any shares or warrants or other rights to purchase the shares or
other shares of common stock, or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the common stock, or warrants or other rights to purchase shares
of common stock, whether any such transaction is to be settled by delivery of
such securities, in cash or otherwise, during the period beginning on November
17, 2007 through and including the date which is 6 months after the closing of
the effective registration statement.
 
 Pursuant
to a Make Good Agreement signed between Mr. Liu and the investors on November
17, 2007, Mr. Liu agreed to transfer an aggregate 6,199,441 shares of the
Company’s common stock into an escrow account, which he beneficially owned and
is subject to the automatic release upon the attainment of certain
performance-based goals. If the Company does not generate net income of $10.549
million for the fiscal year ending December 31, 2008 and $14.268 million for the
fiscal year ending December 31, 2009, the shares held in escrow will be
transferred to the private placement investors, on a pro rata basis in
accordance with the following formula: If the 2008 net income threshold is not
achieved then an amount of shares equal to (($10.549 million - 2008 adjusted net
income)/$10.549 million) multiplied by 50% of the escrowed shares will be
transferred to the private placement investors. If the 2009 net income threshold
is not achieved then an amount of shares equal to (($14.268 million - 2009
adjusted net income)/$14.268 million) multiplied by 50% of the escrowed shares
will be transferred to the private placement investors. In the event that the
net income for 2008 and 2009 meet the minimum net income thresholds for those
respective years, then no transfer of the escrowed shares shall be made to the
private placement investors and the shares will then be returned to Mr. Liu.
Management has determined that the thresholds for the year ended December 31,
2008 have been met.
 
 (c)         Warrants
granted, accounted for under the fair value method
 
 In
connection with the private placement offering, the Company granted to
consultants and agents warrants to purchase an aggregate of 929,916 shares of
the Company’s common stock at an exercise price of $4.1782 per share or on a
cashless exercise basis. The warrants vested immediately and will expire on
November 16, 2010. The market price of the stock was $4.1782 per share on the
grant date. The Company valued the warrants at $2.0873 per share, or $1,941,014,
in accordance with SFAS No. 123R, which was recorded as offering expense in
additional paid-in capital in the accompanying consolidated financial statements
for the year ended December 31, 2007.
 
 The fair
value of the warrants was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
 
 Risk
      free interest rate
                    
                    
                    3.49
                    %Dividend
      yield
                    
                    
                    0.00
                    %Expected
      life of warrants granted (years)
                    
                    
                    0.87Expected
      volatility of warrants granted
                    
                    
                    13.00
                    %
  F-20
 
 A summary
of the status of the Company’s outstanding common stock warrants as of December
31, 2008 and 2007:
 
 Number
      of
                              warrants
                            
                            
                            Weighted
                              average
                              exercise
      price
                            
                            
                            Remaining
                              contractual
                              term
      (year)
                            
                            
                            Aggregate
                              intrinsic
                              valueOutstanding
      and exercisable as of December 31, 2007
                            
                            
                            2,169,804
                            
                            
                            $
                            4.1782
                            
                            
                            
                            2.87
                            
                            
                            $
                            -Granted
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Exercised
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Forfeited
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Expired
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Outstanding
      and exercisable as of December 31, 2008
                            
                            
                            2,169,804
                            
                            
                            $
                            4.1782
                            
                            
                            
                            1.87
                            
                            
                            $
                            -
 
 (e)         Distribution
of dividends
 
 For the
year ended December 31, 2007, a subsidiary, Rixiang declared an interim dividend
of $4,562,044 (equivalent to RMB35,000,000) to Mr. Liu, a principal stockholder
and was fully paid in 2007. The Company did not declare any dividends for the
year ended December 31, 2008.
 
 As of
December 31, 2008, the number of authorized shares and outstanding shares of the
Company’s common stock was 100,000,000 shares and 23,026,301 shares,
respectively.
 
 12.
                NET
      INCOME PER SHARE
 
 Basic net
income per share is computed using the weighted average number of the ordinary
shares outstanding during the year. Diluted net income per share is computed
using the weighted average number of ordinary shares and ordinary share
equivalents outstanding during the year. Pursuant to stock exchange transaction
taken place on November 17, 2007, the weighted average number of common shares
issued and outstanding was adjusted to account for the effects of the stock
exchange transaction as a reverse acquisition.
  The
following table sets forth the computation of basic and diluted net income per
share for the years ended December 31, 2008 and 2007:
 
 Years
      ended December 31,2008
                    
                    
                    2007Basis
      and diluted net income per share calculationNumerator:-
      Net income in computing basic and diluted net income per
    share
                    
                    $
                    11,122,810
                    
                    
                    $
                    8,661,355Denominator:-
      Weighted average ordinary shares outstanding
                    
                    
                    23,010,842
                    
                    
                    
                    22,972,301-
      Warrant shares outstanding
                    
                    
                    -
                    
                    
                    
                    2,169,804Shares
      used in computing basic and diluted net income per share
                    
                    
                    23,010,842
                    
                    
                    
                    25,142,105Basic
      net income per share
                    
                    $
                    0.48
                    
                    
                    $
                    0.38Diluted
      net income per share
                    
                    $
                    0.48
                    
                    
                    $
                    0.34
 
 For the
year ended December 31, 2008, warrants exercisable to 2,169,804 shares of common
stock were excluded from the diluted earnings per share calculation as the
exercise price of the warrants was higher than the average market price of the
stock during the period, thereby making the warrants anti-dilutive under the
treasury method.
  F-21
 
 13.
                INCOME
      TAXES
 
 For the
years ended December 31, 2008 and 2007, the local (“United States of America”)
and foreign components of income (loss) before income taxes were comprised of
the following:
 
 Years
      ended December 31,2008
                          
                          
                          2007Tax
      jurisdiction from:–
      Local
                          
                          $
                          (6,703
                          )
                          
                          $
                          -–
      Foreign
                          
                          
                          12,792,274
                          
                          
                          
                          9,882,297Income
      before income taxes
                          
                          $
                          12,785,571
                          
                          
                          $
                          9,882,297
 
 The
provision for income taxes consisted of the following:
 Years
      ended December 31,2008
                          
                          
                          2007Current:–
      Local
                          
                          $
                          -
                          
                          
                          $
                          -–
      Foreign
                          
                          
                          1,662,761
                          
                          
                          
                          1,220,942Deferred:–
      Local
                          
                          
                          -
                          
                          
                          
                          -–
      Foreign
                          
                          
                          -
                          
                          
                          
                          -Income
      tax expense
                          
                          $
                          1,662,761
                          
                          
                          $
                          1,220,942
 
 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, 2008, China Marine incurred $6,703 of net operating losses
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 $2,312 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.
 
 Hong
Kong
 
 The
Company’s subsidiary, Nice Enterprise is subject to Hong Kong Profits Tax at the
statutory rate of 16.5% and 17.5% on its assessable income for the years ended
December 31, 2008 and 2007, respectively. For the year ended December 31, 2008,
Nice Enterprise incurred an operating loss of $227,735 for income tax
purposes.
 
 The
PRC
 
 The
Company generated all of its net income from subsidiaries operating in the PRC
for the years ended December 31, 2008 and 2007. Rixiang, Jixiang and Mingxiang
are subject to the Corporate Income Tax governed by the Income Tax Law of the
People’s Republic of China, at a statutory rate of 33%, which is comprised of a
30% national income tax and 3% local income tax.
  F-22
 
 Rixiang,
Jixiang and Mingxiang are approved as a foreign investment enterprise and
entitled to, starting from the first profitable year, a two-year exemption from
corporate income tax and a 50%-reduction in its preferential corporate income
tax rate of 24% for the following three years ("Tax Holiday"). Such Tax Holiday
of Jixiang and Mingxiang were expired in prior years and Rixiang continues to
enjoy the Tax Holiday expiring through fiscal year 2009.
 
 On March
16, 2007, the National People’s Congress approved the Corporate Income Tax Law
of the People’s Republic of China (the “New CIT Law”). The new CIT Law, among
other things, imposes a unified income tax rate of 25% for both domestic and
foreign invested enterprises with effect from January 1, 2008. Hence, Rixiang
will continue to enjoy to the unexpired Tax Holiday of 50%-reduction on the
unified income tax through 2010, subject to a transitional policy under the
Corporate Income Tax Law. Jixiang and Mingxiang are subject to the unified
income rate of 25% on the taxable income.
 
 The
reconciliation of income tax rate to the effective income tax rate based on
income before income taxes for PRC operation for the years ended December 31,
2008 and 2007 is as follows:
 
 Years
      ended December 31,2008
                    
                    
                    2007Income
      before income taxes
                    
                    $
                    13,019,994
                    
                    
                    $
                    9,874,823Statutory
      income tax rate
                    
                    
                    25
                    %
                    
                    
                    24
                    %Income
      taxes at statutory rate
                    
                    
                    3,254,998
                    
                    
                    
                    2,369,958Tax
      effect on net operating loss from Jixiang and Mingxiang
                    
                    
                    70,524
                    
                    
                    
                    78,384Effect
      from Tax Holiday
                    
                    
                    (1,662,761
                    )
                    
                    
                    (1,227,400
                    )Income
      taxes at effective rate
                    
                    $
                    1,662,761
                    
                    
                    $
                    1,220,942
 
 As of
December 31, 2008, the PRC operation incurred $1,522,793 of net operating losses
carryforward 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 $380,698 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
following table sets forth the significant components of the aggregate net
deferred tax assets of the Company as of December 31, 2008 and
2007:
 
 As
      of December 31,2008
                            
                            
                            2007Deferred
      tax assets:Net
      operating loss carryforwards from–
      Local
                            
                            $
                            2,312
                            
                            
                            $
                            -–
      Hong Kong
                            
                            
                            44,221
                            
                            
                            
                            8,377–
      PRC
                            
                            
                            380,698
                            
                            
                            
                            297,768427,231
                            
                            
                            
                            306,145Less:
      valuation allowance
                            
                            
                            (427,231
                            )
                            
                            
                            (306,145
                            )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 $427,231 and $306,145
as of December 31, 2008 and 2007, respectively. During 2008, the valuation
allowance increased by $121,086, primarily relating to net operating loss
carryforwards.
  F-23
 
 14.
                CHINA
      CONTRIBUTION PLAN
 
 Under the
PRC Law, full-time employees of the Company’s subsidiaries in the PRC, Rixiang,
Jixiang and Mingxiang 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 $364,184 and $260,138 for the years ended December 31, 2008 and 2007,
respectively.
  15.
                STATUTORY
      RESERVE
 
 Under the
PRC Law, the Company’s subsidiaries in the PRC, Rixiang, Jixiang and Mingxiang
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, 2008, and 2007, Rixiang contributed $1,773,434 and
$1,385,997 to statutory reserve, respectively. Both Jixiang and Mingxiang made
no appropriation to the statutory reserve since they did not generate after-tax
net income during these periods.
  16.
                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 two operating and reporting segments for
the years ended December 31, 2008 and 2007 which are sale of processed seafood
products and sale of marine catch.
 
 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, 2008 and 2007.
 
 Summarized
financial information concerning the Company’s reportable segments is shown in
the following table for the years ended December 31, 2008 and 2007:
 
 Year ended December 31, 2008Processed seafood
                        products
                      
                      
                      Marine catch
                      
                      
                      TotalRevenue,
      net
                      
                      $
                      44,370,010
                      
                      
                      $
                      4,428,794
                      
                      
                      $
                      48,798,804Cost
      of revenue
                      
                      
                      (29,617,071
                      )
                      
                      
                      (3,989,901
                      )
                      
                      
                      (33,606,972
                      )Gross
      profit
                      
                      $
                      14,752,939
                      
                      
                      $
                      438,893
                      
                      
                      $
                      15,191,832Expenditure
      for long-lived assets
                      
                      $
                      4,192,510
                      
                      
                      $
                      -
                      
                      
                      $
                      4,192,510
 F-24
  Year ended December 31, 2007Processed seafood
                          products
                        
                        
                        Marine catch
                        
                        
                        TotalRevenue,
      net
                        
                        $
                        27,863,397
                        
                        
                        $
                        8,561,930
                        
                        
                        $
                        36,425,327Cost
      of revenue
                        
                        
                        (18,798,071
                        )
                        
                        
                        (6,851,447
                        )
                        
                        
                        (25,649,518
                        )Gross
      profit
                        
                        $
                        9,065,326
                        
                        
                        $
                        1,710,483
                        
                        
                        $
                        10,775,809Expenditure
      for long-lived assets
                        
                        $
                        21,079
                        
                        
                        $
                        -
                        
                        
                        $
                        21,079
 
 (b)         Geographic
information
 
 The
Company’s operations are located in three main geographical areas. The Company’s
sales by geographical market are analyzed as follows:
 
 Years
      ended December 31,2008
                              
                              
                              2007Revenue,
      net:The
      PRC
                              
                              $
                              46,401,415
                              
                              
                              $
                              36,230,926Asia
                              
                              
                              2,397,389
                              
                              
                              
                              96,578Others
                              
                              
                              -
                              
                              
                              
                              97,823Total
      revenue, net
                              
                              $
                              48,798,804
                              
                              
                              $
                              36,425,327
 
 All the
Company’s long-lived assets are located in the PRC in both years.
 
 17.
                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, 2008 and 2007 and their outstanding balances at year-end dates.
 
 Year
      ended December 31, 2008
                          
                          
                          December
      31, 2008Customers
                          
                          Revenue
                          
                          
                          Percentage
                            of
      total
                            revenue
                          
                          
                          Accounts
                            receivable,
      netCustomer
      A
                          
                          $
                          5,088,870
                          
                          
                          
                          10
                          %
                          
                          $
                          469,639
 
 Year
      ended December 31, 2007
                              
                              
                              December
      31, 2007Customers
                              
                              Revenue
                              
                              
                              Percentage
                                of
      total
                                revenue
                              
                              
                              Accounts
                                receivable,
      netCustomer
      B
                              
                              $
                              3,618,819
                              
                              
                              
                              10
                              %
                              
                              $
                              390,146Customer
      C
                              
                              
                              3,563,492
                              
                              
                              
                              10
                              %
                              
                              
                              395,054Total
                              
                              $
                              7,182,311
                              
                              
                              
                              20
                              %
                              
                              $
                              785,200
  F-25
 
 (b)         Major
vendors
 
 The
following is a table summarizing the purchases from vendors that individually
represents greater than 10% of the total purchases for the years ended December
31, 2008 and 2007 and their outstanding balances as at year-end
dates.
 
 Year
      ended December 31, 2008
                          
                          
                          December
      31, 2008Vendors
                          
                          Purchases
                          
                          
                          Percentage
                            of
      total
                            purchases
                          
                          
                          Accounts
                            payable,
      tradeVendor
      A
                          
                          $
                          7,481,338
                          
                          
                          
                          22
                          %
                          
                          $
                          40,069Vendor
      B
                          
                          
                          6,488,740
                          
                          
                          
                          19
                          %
                          
                          
                          15,535Vendor
      C
                          
                          
                          5,664,055
                          
                          
                          
                          17
                          %
                          
                          
                          -Vendor
      D
                          
                          
                          5,389,778
                          
                          
                          
                          16
                          %
                          
                          
                          -Vendor
      E
                          
                          
                          3,752,759
                          
                          
                          
                          11
                          %
                          
                          
                          27,398Total
                          
                          $
                          28,776,670
                          
                          
                          
                          85
                          %
                          
                          $
                          83,002
 
 Year
      ended December 31, 2007
                          
                          
                          December
      31, 2007Vendors
                          
                          Purchases
                          
                          
                          Percentage
                            of
      total
                            purchases
                          
                          
                          Accounts
                            payable,
      tradeVendor
      F
                          
                          $
                          3,483,613
                          
                          
                          
                          14
                          %
                          
                          $
                          -Vendor
      A
                          
                          
                          3,215,352
                          
                          
                          
                          13
                          %
                          
                          
                          29,978Vendor
      B
                          
                          
                          2,731,895
                          
                          
                          
                          11
                          %
                          
                          
                          64,489Vendor
      D
                          
                          
                          2,588,709
                          
                          
                          
                          10
                          %
                          
                          
                          25,315Total
                          
                          $
                          12,019,569
                          
                          
                          
                          48
                          %
                          
                          $
                          119,782
 
 (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)       Interest
rate risk
 
 As the
Company has no significant interest-bearing assets, the Company’s income and
operating cash flows are substantially independent of changes in market interest
rates.
 
 The
Company’s interest-rate risk arises from bank borrowings. Borrowings issued at
variable rates expose the Company to cash flow interest rate risk. The Company
manages interest rate risk by varying the issuance and maturity dates variable
rate debt, limiting the amount of variable rate debt, and continually monitoring
the effects of market changes in interest rates. As of December 31, 2008, all of
borrowings were at variable rates. The interest rates and terms of repayment of
bank borrowings are disclosed in Note 8.
  F-26
 
 (e)         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.
 
 (f)         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.
 
 18.
              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, 2011, and generally did not contain significant renewal options.
Total rent expenses for the year ended December 31, 2008 was $76,882. Future
minimum rental payments due under the non-cancelable operating lease agreement
are as follows:
 
 Years
      ending December 31:2009
                    
                    $
                    77,1452010
                    
                    
                    77,1452011
                    
                    
                    10,332Total
                    
                    $
                    164,622
 
 (b)         Capital
commitment
 
 During
2008, the Company’s subsidiary, Jixiang entered into a number of agreements with
an independent third party in relation to the construction of the new processing
plant, inventory storage facility and staff quarter. The construction is
expected to be fully completed till 2009. Total estimated construction costs are
approximately $4.6 million. As of December 31, 2008, the Company incurred
approximately $3.5 million and recorded either as property, plant and equipment
or construction in progress. Hence the aggregate contingent payments related to
the third party contractor are approximately $1.1 million as of December 31,
2008.
 
 (c)         Guarantee
 
 As of
December 31, 2008, the Company’s subsidiary, Mingxiang is contingently liable as
guarantor with respect to $729,479 (equivalent to RMB5,000,000) of indebtedness
of Shishi Yu Ching, an unrelated third party. The term of the guarantee is
through January 11, 2008, with a renewal provision of 2 years, to January 10,
2010. At any time through that date, should Shishi Yu Ching fail to make its due
debt payment, 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 $729,479 (equivalent to RMB5,000,000). This
indebtedness of $729,479 was fully repaid in February 2009 and the guarantee was
expired accordingly.
  F-27
 
 In
accordance with FIN 45“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others”, 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 indemnification fair value to be insignificant. As of
December 31, 2008, the Company has not recorded any liabilities for this
agreement.
 
 19.
              COMPARATIVE
      FIGURES
 
 Certain
amounts presented in the prior period have been reclassified to conform to the
current period financial statement presentation.
  F-28
 
 ITEM
      9.
              Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure
 
 On
January 27, 2009, we dismissed Cordovano and Honeck LLP (“CHLLP”) as its
independent registered public accounting firm. The decision to dismiss CHLLP was
approved by our Board of Directors.
 
 The
reports of CHLLP on our balance sheet as of December 31, 2007  and the
related statement of operations, stockholders’ equity and cash flows for the
year ended December 31, 2007, did not contain an adverse opinion or a disclaimer
of opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
 
 During
the fiscal year ended December 31, 2007 and each of the quarters ended March 31,
2008, June 30, 2008 and September 30, 2008, there were no disagreements with
CHLLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of CHLLP, would have caused it to make reference to the subject
matter of the disagreement in connection with their reports on the Company’s
balance sheets as of December 31, 2007 and the related statements of operations,
stockholders’ equity and cash flows for each of the quarters in the year ended
December 31, 2007.
 
 During
the fiscal year ended December 31, 2007 and each of the quarters ended March 31,
2008, June 30, 2008 and September 30, 2008, there were no reportable events as
defined in Item 304(a)(1)(v) of Regulation S-K.
 
 We
furnished a copy of the above disclosures to CHLLP and requested that CHLLP
furnish the Company with a letter addressed to the Securities and Exchange
Commission stating whether or not CHLLP agrees with the above statements. A copy
of such letter dated January 27, 2009 is attached as Exhibit 16.1 to this
Current Report on Form 8-K filed on February 3, 2009
 
 Concurrently,
we engaged ZYCPA Company Limited (formerly Zhong Yi (Hong Kong) C.P.A. Company
Limited) (“ZYCPA”) as its new independent registered public accounting firm to
audit our financial statements for the year ended December 31, 2008. During our
two most recent fiscal years, ZYCPA has been engaged as an independent
accountant to audit our significant subsidiaries located in Hong Kong and the
People’s Republic of China.
 
 Prior to
ZYCPA’s engagement, we did not consult with ZYCPA regarding any matters
described in Item 304(a)(2)(i) or Item 304(a)(2)(ii) of
Regulation S-K.
 
 On
January 23, 2008, concurrent with the decision to dismiss ZYCPA as its
independent auditor, the board of directors unanimously voted to engage
Cordovano and Honeck, LLP as its new independent auditor. ZYCPA is the
affiliated firm of Cordovano and Honeck, LLP’s in Asia.
 
 We
furnished a copy of this disclosure to ZYCPA and requested ZYCPA furnish us with
a letter addressed to the SEC stating whether it agrees with the statements made
by us herein in response to Item 304(1) of Regulation S-K and, if not, stating
the reason in which it does not agree. A copy of this letter was filed by us as
Exhibit 16 to our current report on Form 8-K, filed on January 31,
2008.
 
 On
January 27, 2009, concurrent with the decision to dismiss Cordovano and Honeck,
LLP, as its independent auditor, the Board of Directors unanimously voted to
engage ZYCPA as its new independent auditor.  ZYCPA is the affiliated
firm of Cordovano and Honeck LLP in Asia.
 
 We
furnished a copy of this disclosure to Cordovano and Honeck, LLP and requested
Cordovano and Honeck, LLP furnish us with a letter address to the SEC stating
whether it agrees with the statements made by us herein in response to Item
304(1) of Regulation S-K and, if not, stating the reason in which it does not
agree.  A copy of this letter was filed by us as Exhibit 16 to our
current report on Form 8-K filed on February 2, 2009.
 
 During
the two most recent financial years ended December 31, 2007 and 2008 to the date
of this statement, there were no disagreements with Cordovano and Honeck, LLP
and ZYCPA or any matter of accounting principals or practices, financial
disclosures, or auditing scope or procedure. There were no reportable events, as
described in Item 304(a)(1)(v) of Regulation S-K, during our two most recent
financial years ended December 31, 2007 and 2008 to the date of this
statement.
  69
 
 ITEM
      9A.
              Controls
      and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 Based on
their evaluation as of December 31, 2008, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended) were effective to ensure that the information required to be
disclosed by us in this Annual Report on Form 10-K was recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
instructions for Form 10-K.
 
 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, 2008.  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, 2008, our internal control
over financial reporting is effective based on these criteria
 
 There
were no changes in our internal controls over financial reporting during the
year ended December 31, 2008 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
 
 On
October 2, 2008, the Company filed with the Commission a Form 8-K stating that
the Company had approved the repurchase of up to US$3,000,000 of its
stock.  The amount and timing of specific repurchases are subject to
market conditions, applicable legal requirements and other factors deemed
appropriate by the Registrant’s CEO and President. The Registrant plans on
repurchasing its stock through open-market transactions and privately negotiated
transactions. Currently, the Registrant has approximately 23.0 million shares of
common stock outstanding and approximately 11.2 million shares in the public
float. Any shares repurchased by the Registrant in this program will be retired
to the treasury while reducing the number of outstanding shares of its common
stock.
 
 On
October 29, 2008, the Company filed with the Commission a Form 8-K stating it
had entered into Independent Director Agreements with Xiaochuan Li, Changhu Xue
and Honkau Wan.  The Company also stated it had increased the number
of seats on the Board of Directors from three (3) to six (6).
 
 On
January 5, 2009, the Company filed with the Commission a Form 8-K stating that
it had received the resignation of Shaobin Yang as our Executive Director and
Deputy Chief Executive Officer effective December 28, 2008.  Mr. Yang
is resigning for personal reasons and has no disagreements with the Company, its
Board of Directors or management.
  70
 
 PART
III.
  ITEM 10.
              Directors and Executive
      Officers of the Registrant
  DIRECTORS
AND OFFICERS
 
 The
following sets forth the name and position of each of our current executive
officers and directors.
 
 DirectorsName
                
                Age
                
                Position
      heldPengfei
      Liu
                
                53
                
                CEO,
      Secretary and DirectorShaobin
      Yang (1)
                
                41
                
                Deputy
      CEOMarco
      Hon Wai Ku
                
                35
                
                Chief
      Financial OfficerWeipeng
      Liu
                
                32
                
                Executive
      DirectorXiaochuan
      Li
                
                64
                
                Independent
      DirectorChanghu
      Xue
                
                44
                
                Independent
      DirectorHonkau
      Wan
                
                35
                
                Independent
      Director
 
 (1)
              –
      Mr. Shaobin Yang resigned as the Deputy CEO on December 28,
      2008.  The Company filed with the Commission a Form 8-K on
      January 5, 2009.
 
 Pengfei Liuis our CEO,
Secretary and Director. 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.  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 public company.
 
 Shaobin Yangis our Deputy CEO
and Director. Mr Yang joined our Company in October 2006 and is responsible for
the overall business and market development of our Company. In July 1987, Mr
Yang graduated from the Fujian Agriculture and Forestry University with a
bachelor degree in agricultural economics management. He later obtained a PhD in
Economics (major in Finance) from Xiamen University in 2002.
 
 Prior to
joining our Company, Mr Yang was an officer at the Fujian Province Shishi City
Tax Bureau from January 1989 to July 1995.  From 1995 to 2002, Mr.
Yang attended Xiamen University and earned his PhD in Economics.  He
then served as an officer at the Fujian Province Shishi City State Tax Bureau
from December 2002 to October 2003; an officer at the Fujian Province Quanzhou
City State Tax Bureau from October 2003 to July 2005; and an officer at the
Fujian Province State Tax Bureau from July 2005 to September 2006. Mr. Yang is
not a director of any public company.
 
 Marco Hon Wai Kuis 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.
  71
 
 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 public company.
 
 Weipeng Liu is our Executive
Director and is responsible for overseeing the construction, operation and
maintenance of our equipment and production facilities. After graduating with a
degree in mechanical design and manufacturing and automation from Fuzhou
University in 1997, Mr Liu joined our Company as Mingxiang and Rixiang’s
facilities manager. He was appointed to serve as an executive director of
Rixiang in October 2006. .Mr. Liu is not a
director of any public company.
 
 Xiaochuan 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 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.
 
 Changhu Xue is 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.
 
 Honkau 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.
  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.
  72
 
 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 five 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;
 
 ·
              Any
      conviction in a criminal proceeding or being subject to a pending criminal
      proceeding (excluding traffic violations and other minor
      offenses);
 
 ·
              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.
 
 BOARD
COMMITTEES
 
 Our board
of directors is currently composed of six directors: Mr. Pengfei Liu, Mr.
Shaobin Yang, 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
December 28, 2008, Mr. Shaobin Yang resigned from his position on the Board of
Directors and Deputy Chief Executive Officer for personal reasons.  As
of December 29, 2008 through the date of this filing, the Board of Directors is
composted of five directors: Mr. Pengfei Liu, Mr. Weipeng Liu, Mr. Xiaochuan Li,
Mr. Changhu Xue and Mr. Honkau Wan.
 
 We
currently do not have standing audit, nominating or compensation
committees.  Our entire board of directors handles the functions that
would otherwise be handled by each of the committees.  We intend,
however, to establish an audit committee, a nominating committee and a
compensation committee of the board of directors as soon as
practicable.  We envision that the audit committee will be primarily
responsible for reviewing the services performed by our independent auditors,
evaluating our accounting policies and our system of internal
controls.  The nominating committee would be primarily responsible for
nominating directors and setting policies and procedures for the nomination of
directors.  The nominating committee would also be responsible
for overseeing the creation and implementation of our corporate governance
policies and procedures.  The compensation committee will be primarily
responsible for reviewing and approving our salary and benefit policies
(including equity plans), including compensation of executive
officers.
 
 CODE
OF ETHICS
 
 We
adopted a Code of Ethics pursuant to Section 406 of the Sarbanes-Oxley Act of
2002 on January 24, 2008.  The Code is designed to deter wrongdoing
and to promote:
  ·
              Honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships;
 
 ·
              Full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that we file with, or submit to, the SEC, and in other public
      communications that we made;
 
 ·
              Compliance
      with applicable governing laws, rules and
  regulations;
 
 ·
              The
      prompts internal reporting of violations of the Code to the appropriate
      person or persons; and
 
 ·
              Accountability
      for adherence to this Code.
  73
 
 This Code
requires the highest standard of ethical conduct and fair dealing of its Chief
Financial Officers.  While, per Sarbanes-Oxley, this policy is
intended to only cover the actions of the CFO, we expect our other officers,
directors and employees to also review the Code and abide by its
provisions.  We believe that our reputation is a valuable asset and
must continually be guarded by all associated with us so as to earn the trust,
confidence and respect of our suppliers, customers and
stockholders.
 
 Our CFO
is committed to conducting business in accordance with the highest ethical
standards.  The CFO must comply with all applicable laws, rules and
regulations.  Furthermore, the CFO must not commit an illegal or
unethical act, or instruct or authorize others to do so.
 
 ITEM
      11.
              Executive
      Compensation
 
 COMPENSATION
DISCUSSION AND ANALYSIS
 
 Background
and Compensation Philosophy
 
 Our board
of directors consists of six individuals:  (1) Pengfei Liu, our Chief
Executive Officer and beneficial owner of 51.3% of our common stock; (2) Shaobin
Yang, our Deputy CEO; (3) Weipeng Liu, our Executive Director; (4) Xiaochuan Li;
(5) Changhu Xue; and (6) Honkau Wan.  Our board of directors have
historically determined 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 as HQ Sustainable Maritime Industries, Inc., Zhongpin Inc. and
American Dairy, 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
when it is established, 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 have not adopted or established a formal policy or procedure for
determining the amount of compensation paid to our executive
officers.  Mr. Pengfei Liu has been and may continue to be involved
when our board of directors deliberate compensation issues related to his, Mr.
Yang’s and Mr. Ku’s compensation.
 
 As our
executive leadership and board of directors grow, our board of directors may
decide to form a compensation committee charged with the oversight of executive
compensation plans, policies and programs.
 
 As noted
above in Item 10, Mr. Yang resigned from the Board of Directors and as Deputy
Chief Executive Officer on December 28, 2008.
 
 Elements
of Compensation
 
 We
provide our executive officers solely with a base salary to compensate them for
services rendered during the year.  Our policy of compensating our
executives with a cash salary has served us well.  Because of our
history of attracting and retaining executive talent, we do not believe it is
necessary at this time to provide our executives discretionary bonuses, equity
incentives, or other benefits in order for us to continue to be successful,
apart from the common stock award granted to Mr. Ku as described per
below.
 
 Base
Salary
 
 The base
salary paid to Mr. Pengfei Liu, Mr. Shaobin Yang and Mr. Marco Ku during 2007
was $22,000, $18,000 and $32,000 respectively.  In 2008, the base
salary paid to Mr. Liu, Mr. Yang and Mr. Ku was increased to approximately
$138,000, $65,000 and $118,000 respectively.  The 2009 annual
compensation for Mr. Liu and Mr. Ku is expected to be $175,000 and $140,000
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.
  74
 
 Discretionary
Bonus
 
 We have
determined and provided our executive officers with discretionary bonuses at the
end of each fiscal year. Our board of directors will review the necessity of
such scheme 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
 
 We have
not established an equity based incentive program and have not granted stock
based awards as a component of compensation, apart from the common stock award
of approximately 30,000 shares to be awarded to Mr. Ku upon the completion of
his second year’s service for the Company, or at the time of successful listing
of the Company on any stock exchange other than OTCBB, whichever is earlier. In
the future, we may adopt and establish an equity incentive plan pursuant to
which awards may be granted if our board of directors determines that it is in
the best interests of our stockholders and the Company to do so.
 
 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
 
 Nameand
                                  Position
                                
                                Year
                                
                                Salary
                                  ($)
                                
                                
                                Bonus
                                  ($)
                                
                                
                                Stock
                                  Awards
                                  ($)
                                
                                
                                Option
                                  Awards
                                  ($)
                                
                                
                                Non-Equity
                                  IncentivePlan
                                  Compensation
                                  ($)
                                
                                
                                Nonqualified
                                  Deferred
                                  Compensation
                                  Earnings($)
                                
                                
                                AllOther
                                  Compensation
                                  ($)
                                
                                
                                Total($)Pengfei
      Liu, CEO
                                
                                2007
                                
                                
                                22,000
                                
                                
                                
                                26,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                48,0002008
                                
                                
                                138,000
                                
                                
                                
                                98,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                236,000Shaobin
      Yang, Deputy CEO (1)
                                
                                2007
                                
                                
                                18,000
                                
                                
                                
                                16,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                34,0002008
                                
                                
                                65,000
                                
                                
                                
                                33,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                98,000Marco
      Hon Wai Ku, CFO (2)
                                
                                2007
                                
                                
                                32,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                32,0002008
                                
                                
                                118,000
                                
                                
                                
                                -
                                
                                
                                
                                34,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                152,000Weipeng
      Liu, Executive Director
                                
                                2007
                                
                                
                                11,000
                                
                                
                                
                                11,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                22,0002008
                                
                                
                                43,000
                                
                                
                                
                                20,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                63,000
  75
 
 (1)
              Mr.
      Yang resigned from the Company on December 28,
  2008.
 (2)
              Mr.
      Ku joined the Company in July 2007.
 
 On
November 17, 2007, we entered into a reverse acquisition transaction with Nice
Enterprise that was structured as a share exchange and in connection with that
transaction; Mr. Liu became the Chief Executive Officer
(“CEO”).  Prior to the effective date of the reverse acquisition, Mr.
Liu served at Nice Enterprise as the CEO.  The annual, long term and
other compensation shown in this table include the amount Mr. Liu received from
Nice Enterprise prior to the consummation of the reverse
acquisition.
 
 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, Shaobin Yang and
Weipeng Liu, on substantially similar terms, which will remain effective until
December 31, 2010.  After December 31, 2010, each of the Service
Agreements will continue for a further term of three years unless otherwise
terminated by the respective parties to the Service Agreement giving not less
than six months’ notice in writing to the counterparty to such
agreement.  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.  Under the terms of
the Service Agreements, Pengfei Liu, Shaobin Yang and Weipeng Liu will each be
paid an annual salary of approximately $132,000, $78,000 and $39,000
respectively, payable in equal monthly instalments.   A copy of
each of the Service Agreements for each of our three directors was filed as
Exhibits 10.5, 10.6 and 10.7 of the Form 8-K filed on November 23, 2007 with the
Commission.
 
 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 service
agreement with Mr. Ku is renewable on a year-to-year basis and may be terminated
by either party giving not less than two months’ notice in writing to the
other.  The service agreement 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.  Mr. Ku will be paid an
annual salary of approximately $84,000, and will receive a common stock award of
approximately 24,000 shares upon successful listing of our shares on a stock
exchange.  A copy of the service agreement for Mr. Ku was filed as
Exhibit 10.8 of the Form 8-K filed on November 23, 2007 with the
Commission.
 
 We also
have entered into Independent Director Agreements (the “Agreements”) with
Xiaochuan Li, Changhu Xue and Honkau Wan (“Director” or “Directors”). The term
of the Agreements shall commence on the date of appointment to the Board of
Directors until 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 shall be RMB60,000
and Honkau Wan should be HK$60,000 per Service Year respectively. Further, the
Company will reimburse the Directors for expenses incurred in good faith in the
performance of the Director’s duties for the Company.
 
 We will
bear all travelling and travel-related expenses, entertainment expenses and
other out-of-pocket expenses reasonably incurred by our executive directors in
the process of discharging their respective duties on our behalf.
 
 Except as
disclosed herein, we have no other existing or proposed service agreement with
any of our directors.
 
 BONUSES
AND DEFERRED COMPENSATION
 
 In
addition, we will pay to each of Pengfei Liu and Weipeng Liu an incentive bonus
based on 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.
  76
 
 The
amount of incentive bonus that Pengfei Liu is expected to receive in each
financial year will bedetermined asfollows:
 
 Rate
      of Incentive BonusPBT
                  
                  Pengfei LiuWhere
      the PBT is between US $ 10,684,000 and US $ 13,356,000
                  
                  0.75%
      of the PBTWhere
      the PBT is US $ 13,356,000 or more but not more than US $
      16,027,000
                  
                  0.75%
      of the PBT for the first US $ 13,356,000 of PBT; and
                    1.0%
      on the amount over US $ 13,356,000Where
      the PBT is US $ 16,027,000 and above
                  
                  0.75%
      of the PBT for the first US $ 13,356,000 of PBT;
                    1.0%
      on the US $ 2,671,000after the first US $
      13,356,000 of  PBT; and
                    1.5%
      on the amount over US $
16,027,000
 
 The amountof incentive bonus thatWeipeng Liuis expected toreceive in each financial year will be
determined as follows:
 
 Rate
      of Incentive BonusPBT
                  
                  Weipeng LiuWhere
      the PBT is between US $ 10,684,000 and US $ 13,356,000
                  
                  0.15%
      of the PBTWhere
      the PBT is above US $ 13,356,000
                  
                  0.15%
      of the PBT for the first US $ 13,356,000 of PBT; and
                    0.25%
      on the amount over US $
13,356,000
 
 The
incentive bonuses will be paid in the first quarter of the year following the
year of assessment.  The first assessment year for incentive bonuses
will be year 2008.
 
 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-term stockholder 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 board of directors, or
the compensation committee when it is established, going forward.
 
 We do not
have any deferred compensation or retirement plans.  We do not have a
compensation committee; all decisions regarding compensation are determined by
our entire board of directors.
 
 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 2008.  As of December 31,
2008, none of our executive officers or directors owned any of our derivative
securities.
 
 INDEMNIFICATION
OF DIRECTORS AND EXECUTIVE OFFICERS
 
 Our
bylaws 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.
  77
 
 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.
 
 At the
present time, 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 our
common stock as of December 31, 2007 (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 each stockholder
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.
 
 Title of Class
                                                              
                                                              Name & Address of
                                                                Beneficial Owner
                                                              
                                                              Office, If
                                                                Applicable
                                                              
                                                              Amount and
                                                                Nature of Beneficial
                                                                Ownership
                                                              
                                                              
                                                              Percent of ClassCommon
      Stock $0.001 par value
                                                              
                                                              Pengfei
      Liu
                                                                
                                                                Dabao
      Industrial Zone, Shishi City, Fujian Province, China
                                                              
                                                              CEO
                                                              
                                                              
                                                              11,806,537
                                                              (1)
                                                              
                                                              
                                                              51.3Common
      Stock $0.001 par value
                                                              
                                                              Marco
      Hon Wai Ku
                                                                
                                                                Dabao
      Industrial Zone, Shishi City, Fujian Province, China
                                                              
                                                              CFO
                                                              
                                                              
                                                              24,000
                                                              
                                                              
                                                              
                                                              0.1Common
      Stock $.001 par value
                                                              
                                                              All
      officers and directors as a group
                                                              
                                                              
                                                              
                                                              
                                                              11,830,537
                                                              
                                                              
                                                              
                                                              51.4
 
 (1)
              Of
      these 11,806,537 common stock shares, 6,199,441 common stock shares have
      been placed into an escrow account pursuant to a make good agreement
      entered into by Mr. Pengfei Liu in connection with the Securities Purchase
      Agreement.
 
 ITEM
      13.
              Certain
      Relationships and Related
Transactions
 
 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.
  78
 
 Past
Interested Person Transactions
 
 Details
of the material interested person transactions for the fiscal years ended
December 31, 2008, 2007 and 2006 are set forth below:
 
 Year of
                                              Transaction
                                            
                                            Acquirer
                                            
                                            Acquiree
                                            
                                            Nature/Amount of Property
                                              Acquired or to be Acquired
                                            
                                            Terms of Transaction2006
                                            
                                            Nice
      Enterprise
                                            
                                            Rixiang
                                            
                                            Nice
      Enterprises acquired Rixiang at a total consideration of
      $0.13.
                                            
                                            The
      purpose of this transaction was to restructure the
  Company.2006
                                            
                                            Nice
      Enterprise
                                            
                                            Jixiang
                                            
                                            Nice
      Enterprise through Rixiang acquired Jixiang for a cash consideration of
      $0.56 Million.
                                            
                                            The
      purpose of this transaction was to restructure the
  Company.2006
                                            
                                            Nice
      Enterprise
                                            
                                            Mingxiang
                                            
                                            Nice
      Enterprise through Rixiang acquired Mingxiang at a cash consideration
      of  $3.76 Million.
                                            
                                            The
      purpose of this transaction was to restructure the
  Company.2006
                                            
                                            Mingxiang
      and Rixiang
                                            
                                            Pengfei
      Liu, CEO and Controlling Shareholder
                                            
                                            $23,000
      for charter fees paid to the lessors of fishing vessels.
                                              
                                              Lessors
      were unrelated third-parties.
                                            
                                            Loan
      was unsecured, repayable on demand and interest-free.
                                              
                                              Loan
      fully repaid as of October 31, 2006.2006
                                            
                                            Nice
      Enterprise
                                            
                                            Pengfei
      Liu, CEO and Controlling Shareholder
                                            
                                            $646,000
      advance.
                                            
                                            Advance
      was unsecured, repayable on demand and interest-free.2007
                                            
                                            Nice
      Enterprise
                                            
                                            Pengfei
      Liu, CEO and Controlling Shareholder
                                            
                                            $262,000
      advance.
                                            
                                            Advance
      was unsecured, repayable on demand and interest-free.2008
                                            
                                            Nice
      Enterprise
                                            
                                            Pengfei
      Liu, CEO and Controlling Shareholder
                                            
                                            $170,000
      advance.
                                            
                                            Advance
      was unsecured, repayable on demand and
  interest-free.
 
 a)
              Payment
      by Pengfei Liu, on behalf of Mingxiang and Rixiang, of charter fees for
      fishing vessels
 
 During
the period under review, our CEO and controlling shareholder, Pengfei Liu, paid
charter fees in respect of 10 fishing vessels for and on behalf of Mingxiang and
Rixiang.  The charter fees were paid to the lessors of the fishing
vessels and amounted to $0.1 million in 2004, $0.2 million in 2005 and $23,000
in 2006. The lessors were unrelated third-parties. The amounts due from us to
Pengfei Liu were unsecured, repayable on demand and interest-free, and were
fully repaid as at October 31, 2006.
 
 b)
              Payment
      by Pengfei Liu, on behalf of Jixiang, of purchase price for land use
      rights
 
 In 2003,
our subsidiary Jixiang purchased land-use rights at Dabao Industrial Zone,
Xiangzhi Town, Shishi City, Fujian Province for $0.2 million. It also acquired
two blocks of factory space at the same location for $60,000. The aggregate
amount of $0.3 million due from Jixiang was paid for by Pengfei Liu, and was
unsecured, repayable on demand and interest-free. Jixiang had repaid the amount
in full as at December 31, 2005.
 
 c)
              Non-trade
      advances to and from Pengfei Liu
 
 From time
to time, we have extended advances to Pengfei Liu.  The amounts
advanced to Pengfei Liu were interest-free, unsecured and had no fixed terms of
repayment.  All advances to Pengfei Liu have been fully repaid as at
October 31, 2005.  Pengfei Liu had also, from time to time, extended
advances to us for working capital purposes.
  79
 
 As
      at December 31,US$’000
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006Advances
      from Pengfei Liu
                    
                    
                    170
                    
                    
                    
                    262
                    
                    
                    
                    646Advances
      to Pengfei Liu
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
 
 Present
Interested Person Transactions
 
 a)
              Provision
      of guarantees by Pengfei Liu and Yazuo
Qiu
 
 As at
December 31, 2008, the guarantees provided by our directors and their respective
associates to secure bank facilities from the Agricultural Bank of China, Shishi
Branch, are as follows:
 
 Party to which banking
                              facilities are granted
                            
                            Loan Amount (US$’000)
                            
                            Outstanding Loan Amount
                              (US$’000)
                            
                            GuaranteesMingxiang
                            
                            583
                            
                            583
                            
                            Guaranteed
      by Pengfei Liu and Yazuo QiuMingxiang
                            
                            583
                            
                            583
                            
                            Guaranteed
      by Pengfei Liu and Yazuo QiuMingxiang
                            
                            729
                            
                            729
                            
                            Guaranteed
      by Pengfei Liu and Yazuo QiuMingxiang
                            
                            438
                            
                            438
                            
                            Guaranteed
      by Pengfei Liu and Yazuo QiuMingxiang
                            
                            729
                            
                            729
                            
                            Guaranteed
      by Pengfei Liu and Yazuo QiuMingxiang
                            
                            438
                            
                            438
                            
                            Guaranteed
      by Pengfei Liu and Yazuo QiuMingxiang
                            
                            789
                            
                            789
                            
                            Guaranteed
      by Pengfei Liu and Yazuo
Qiu
 
 The
facilities provided by the Agricultural Bank of China, Shishi Branch, were used
to finance our working capital requirements.
 
 As at
December 31, 2008, the total outstanding loan amounts held by us were
approximately $4.3 million, and the full amounts are guaranteed by Pengfei Liu
and Yazuo Qiu. The effective interest rate on these short-term loans is
approximately 7.6% per annum. No consideration was provided to Pengfei Liu and
Yazuo Qiu in exchange for their 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 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 (or, if there are no “independent” directors, our disinterested
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.
  80
 
 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 have 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 have 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 ZYCPA Company Limited
(formerly Zhong Yi (Hong Kong) C.P.A. Co., Ltd.), the Company’s current
auditors; Gervais McCannon Tyler & Associates, P.C., the Company’s current
taxation advisors; Cordovano and Honeck LLP, the Company’s former auditors (for
the period November 17, 2007 to January 28, 2009):
 
 Services  (US$’000)
                            
                            2008
                            
                            
                            2007Audit
      Fees
                            
                            $
                            110
                            
                            
                            $
                            80Audit
      Related Fees
                            
                            
                            4
                            
                            
                            
                            10Tax
      Fees
                            
                            
                            7
                            
                            
                            
                            1All
      Other Fees
                            
                            
                            -
                            
                            
                            
                            -TOTAL
                            
                            $
                            121
                            
                            
                            $
                            91
  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.
  81
  PART
IV.
 
 ITEM
      15.
              Exhibits,
      Financial Statement Schedules
  (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,
      Nice Enterprise 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)
 
 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)
 
 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, 007 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 Nice Enterprise 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 Nice
      Enterprise Trading H.K. Co., Ltd. (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)
  82
  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)
 
 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)
 
 14.1
              Business
      Code of Conduct (Filed with the Commission on Form 8-K dated January 24,
      2008 as Exhibit 14.1)
 
 14.2
              Financial
      Code of Conduct (Filed with the Commission on Form 8-K dated January 24,
      2008 as Exhibit 14.2)
 
 21
              *Subsidiaries
      List (filed herewith)
 
 24
              *Power
      of Attorney (filed herewith)
 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 Michael Mak, Chief Executive Officer
      (filed herewith)
 
 32.2
              *Certificate
      pursuant to 18 U.S.C. ss. 1350 for Michael Mak, Chief Financial Officer
      (filed herewith)
 
 * - Filed
herein
 
 83
 
 SIGNATURES
  In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 CHINA
      MARINE FOOD GROUP LIMITED/s/
      Pengfei LiuDated:
      March 20,2009
                          
                          Pengfei
      Liu, Chief Executive Officer(Principal
      executive officer)/s/
      Marco Hon Wai KuMarco
      Hon Wai Ku, Chief Financial OfficerDated:
      March 20, 2009
                          
                          (Principal
      financial
officer)
  84