Document:

Exhibit
10.07

      SANDERS
MORRIS HARRIS GROUP INC.

      2009
Supplemental Bonus Plan

      

      This 2009
Supplemental Bonus Plan (the “Plan”) was adopted by unanimous action of the
Compensation Committee of the Board of Directors of Sanders Morris Harris Group
Inc. (the “Company”) on February 19, 2009, and by the Board of Directors of the
Company (the “Board of Directors”) on February 19, 2009.  This Plan
shall be effective as of January 1, 2009.

       

      
        	
                 
      

              	
                1.

              	
                Statement
      of Principle

              

      

       

      In 2003,
the Company acquired a 50% interest in Salient Partners,
L.P.  (“Salient”) and a 23.15% interest in The Endowment Fund
Management, LLC and The Endowment Fund GP, L.P. (together, “Endowment Advisors”)
for an aggregate consideration of approximately $16,000,000.  Between
April 2003 and September 2008, the Company received approximately $11,300,000 in
after-tax earnings attributable to Salient and Endowment Advisors.

       

      On August
28, 2008, the Company entered into an Agreement to Retire Partnership Interest
and Second Amendment to the Limited Partnership Agreement of Endowment Advisers,
L.P.  (the “EADV Agreement”) with Endowment Advisors, pursuant to
which the Company agreed to sell to Endowment Advisors and Endowment Advisors
agreed to purchase from the Company all of the partnership interest held by the
Company and Endowment Advisors agreed to distribute to the Company consideration
consisting of an aggregate amount equal to $86,000,000, plus a 6% per annum
internal rate of return (the “Redemption Consideration”).  The EADV
Agreement provides that Endowment Advisors shall, to the extent funds are
available for distribution as determined by its general partner in good faith,
taking into account all facts and circumstances at the time, distribute cash to
the Company in each calendar quarter period equal to the greater of
(i) 23.15% of the aggregate cash distributions of Endowment Advisors, or
(ii) $3,000,000 (the “Minimum Quarterly Distribution”), until such time as
the Company has received the entire Redemption Consideration.

       

      In
addition, the Company entered into a Purchase and Sale Agreement with Salient
pursuant to which the Company agreed to sell to Salient its partnership interest
in Salient for aggregate consideration of $9,349,340 (the “Salient Purchase
Price”), payable pursuant to the terms of an Unsecured Subordinated Promissory
Note dated August 29, 2008 (the “Note”), bearing interest at the
U.S.  prime rate (adjusted on a quarterly basis), payable as to
principal in quarterly payments of $467,467.00 each (subject to certain setoff
amounts), payable on the 1st day of March, June, September, and December of each
year beginning December 1, 2008, and continuing until September 1, 2013, when
the entire amount of the Note, principal and interest then remaining unpaid, is
due and payable.  

       

      The
purpose of this Plan is to increase stockholder value and to advance the
interests of the Company and its subsidiaries by rewarding key executives of the
Company who personally contributed to the successful acquisition, growth
(including the establishment of The Endowment Fund), disposition of Salient and
Endowment Advisors between 2003 and 2008 and to incentivize such executives to
ensure that the Company realizes the full Redemption Consideration and the
Salient Purchase Price.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      
        	
                 
      

              	
                2.

              	
                Plan
      Compensation Committee

              

      

       

      The
Compensation Committee (the “Committee”) of the Board of Directors is charged
with structuring, proposing the implementation of, and implementing the terms
and conditions of, the Plan.  The Committee shall have the authority
to adopt, alter, and repeal such rules, guidelines, and practices governing the
Plan as it shall, from time to time, deem advisable; to interpret the terms and
provisions of the Plan and any award issued under the Plan (and any agreements
relating thereto) including without limitation the manner of determining and
applying the financial and accounting concepts discussed in the Plan; to
otherwise supervise the administration of the Plan; and, except as to the
application of the Plan to executive officers, to delegate such authority
provided to it hereunder as it may deem necessary or appropriate to the Chairman
of the Board, Chief Executive Officer, President, Chief Operating Officer and
any Executive Vice President, and any of them individually.  All
decisions made by the Committee pursuant to the provisions of the Plan shall be
made in the Committee’s sole discretion and shall be final and binding on all
persons, including the Company and Participants (hereinafter
defined).

       

      
        	
                 
      

              	
                3.

              	
                Participants

              

      

       

      The
participants in the Plan shall be designated by the Committee from the persons
who are employed by the Company (referred to collectively as “Participants” or
individually as a “Participant”).  The initial Participants
are:

       

      George L.  Ball

      Ben T.  Morris

      Don A.  Sanders

      Robert E.  Garrison
II

      Rick Berry

      Bruce McMaken

      

      
        	
                 
      

              	
                4.

              	
                Method
      of Operation

              

      

       

      (a)          The
Committee shall assign to each Participant an award amount (an “Award”),
expressed as a percentage of the Bonus Pool (as hereinafter
defined).  The “Bonus Pool” shall be equal to the amount of payments
actually received by the Company during a calendar quarter from the proceeds of
the Redemption Consideration and the Note multiplied by 7.5%.  The
Committee may adjust the amount of the Bonus Pool if a major change occurs in
Salient’s and/or Endowment Advisors’ capital structure (e.g., an acquisition or
merger).

       

      (b)          Within
45 days following the end of each calendar quarter, each Participant’s Award for
such quarter shall be distributed to the Participant in cash in a lump sum
unless the Participant has made a Deferral Election.

       

      (c)          Except
as otherwise specifically provided herein, to be eligible to receive an Award, a
Participant must be an employee in good standing and, on active status,
receiving salary continuation, or be on a formal leave of absence on December 31
of the year preceding the date Awards are distributed.

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      
        	
                 
      

              	
                5.

              	
                Elected
      Deferred Benefits.

              

      

       

      Each
Participant may make an election (a “Deferral Election”) to defer all or any
part of the Participant’s Award to be received by such Participant (“Elected
Deferred Benefits”) in accordance with the Section 5.  Elected
Deferred Benefits shall be credited to the Account for each Participant on a
quarterly basis at a time and in a manner reasonably determined by the Chief
Financial Officer of the Company.

       

      (a)          Timing of Deferral
Elections.  Each Participant may make a Deferral Election with
respect to Awards earned in a calendar year by filing a written election with
the Company on or before December 31 the calendar year preceding the year
in which the Participant will earn the Award to be deferred.  A person
who becomes a Participant for the first time during a calendar year may make a
Deferral Election with respect to an Award attributable to the portion of such
calendar year following the delivery of such Deferral Election to the
Company.  Such a Deferral Election must be made in writing and
delivered to the Company within 30 days after becoming a
Participant.  Any Deferral Election made for a calendar year shall be
irrevocable.

       

      (b)          Time of Payment
Election.  Participant electing to defer Elected Deferred
Benefits may make an irrevocable election to have those Elected Deferred
Benefits paid within 30 days after, or beginning within 30 days after, a
Specified Payment Date.  A “Specified Payment Date” means a date
specified by the Participant at the time he or she elects to defer the Elected
Deferred Benefits in question, which date must be
March 31, June 30, September 30, or December 31 of a
specified year in the future, but no earlier than March 31st of the
calendar year following the year in which the deferred amounts would have been
paid (if they had not been deferred).

       

      (c)          Payment
Date.  The amount credited to a Participant’s Account shall be
paid, or begin to be paid, on his or her Specified Payment Date or the date of
his or her Separation from Service (as hereinafter defined), in accordance with
the following:

       

       (i)           If
a Specified Payment Date applies to a portion of a Participant’s Account, such
portion of the Participant’s Account shall be paid, or begin to be paid, to such
Participant within 30 days after such Specified Payment Date unless the
Participant’s Separation from Service occurs prior to his or her Specified
Payment Date.

       

       (ii)
         The balance in a
Participant’s Account, other than the portion, if any, of the Participant’s
Account for which payment has previously commenced pursuant to paragraph
5(c)(i), shall be paid, or begin to be paid, to such Participant (or in the
event of his or her death, to his or her beneficiary or beneficiaries determined
in accordance with paragraph 7(b)) within 30 days after such Participant’s
Separation from Service.  “Separation from Service” means, with
respect to a Participant, such Participant’s separation from service (within the
meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”), and the regulations and other guidance promulgated thereunder) with the
group of employers that includes the Company and each other employer that along
with the Company is considered a single employer under Section 414(b) or 414(c)
of the Code.

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

       

      (d)           Forms
of Payment

       

       (i)           Distributions Prior to
Death.  Except as provided in (ii) below, the amount
credited to a Participant’s Account shall be paid in cash in a single lump sum
on the payment date determined under paragraph 5(c) unless and to the extent a
valid written installment distribution election has been filed in accordance
with paragraph 5(e).  Installment payments shall be made annually in
substantially equal installments over the installment period specified in the
installment distribution election, beginning within 30 days after the applicable
Payment Date.  Each installment payment shall be computed by dividing
the balance of the portion of the Account that is to be paid in installments by
the number of payments remaining in the installment period.

       

       (ii)          Acceleration of
Distributions Upon Death.  Within 30 days following the death
of a current or former Participant, the entire unpaid balance of his or her
Account shall automatically be paid in cash in a single lump sum notwithstanding
any valid written installment distribution election then in effect.

       

      (e)          Installment
Payments.  A Participant may make a separate installment
distribution election for each calendar year’s Elected Deferred Benefit (if
any).  An installment distribution election may apply to all or any
portion of the Elected Deferred Benefit (if any) deferred for such calendar year
and shall specify the period of years (up to a maximum of 15 years) over which
installment payments are to be made.  Installment distribution
elections with respect to a calendar year’s Elected Deferred Benefit deferred
must be made at the time the Participant elects to defer the Elected Deferred
Benefit for the calendar year in question.  Except as provided in
paragraph 5(d)(ii), an installment distribution election is irrevocable once
made, and payments of any Elected Deferred Benefit for the applicable calendar
year will be made in accordance with such election.

       

      (f)           Vesting.  Each
Participant shall be fully vested at all times in the balance of his or her
Account.

       

      
        	
                 
      

              	
                6.

              	
                Death

              

      

       

      In case
of a Participant’s death, each Award shall be delivered to such Participant’s
beneficiary or beneficiaries determined in accordance with the provisions of
paragraph 7(b).

       

      
        	
                 
      

              	
                7.

              	
                General
      Provisions

              

      

       

       (a)         Funding.  Benefits
payable under the Plan to any person shall be paid directly by the
Company.  The Company shall not fund or otherwise segregate assets to
be used for payment of benefits under the Plan.  Notwithstanding the
foregoing, the Company, in its discretion, may maintain one or more trusts to
hold assets to be used for payment of benefits under the Plan; provided that the
assets of such trust shall be subject to the creditors of the Company in the
event that the Company becomes insolvent or is subject to bankruptcy or
insolvency proceedings.  Any payments by such a trust of benefits
provided hereunder shall be considered payment by the Company and shall
discharge the Company of any further liability for the payments made by such
trust.

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

       

      (b)          Beneficiaries.  Each
Participant shall have the right to name a beneficiary or beneficiaries who
shall receive the benefits hereunder in the event of the Participant’s death
prior to the payment of his or her entire Account.  If the Participant
fails to designate beneficiaries or if all such beneficiaries predecease the
Participant, benefits shall be paid to the Participant’s surviving spouse, and
if none, then to the Participant’s estate.  To be effective, any
beneficiary designation shall be filed in writing with the Company.  A
Participant may revoke an existing beneficiary designation by filing another
written beneficiary designation with the Company.  The latest
beneficiary designation received by the Company shall be
controlling.

       

      (c)           No Employment Arrangement
Implied/Retention Rights.  The
existence of this Plan, as in effect at any time or from time to time, shall not
be deemed to constitute a contract of employment between the Company and
Participant, nor shall it constitute a right to remain in the employ of the
Company.  Establishment of the Plan shall not be construed to give a
Participant the right to be employed by the Company or to any benefits not
specifically provided by the Plan.

       

      (d)          Interests Not
Transferable.  Except
as to withholding of any tax required under the laws of the United States or any
state or locality and except with respect to designation of a beneficiary to
receive benefits in the event of the death of a Participant, no benefit payable
at any time under the Plan shall be subject in any manner to alienation, sale,
transfer, assignment, pledge, attachment, or other legal process, or encumbrance
of any kind.  Any attempt by a Participant to alienate, sell,
transfer, assign, pledge or otherwise encumber any such benefits whether current
or thereafter payable, shall be void.  No benefit shall, in any
manner, be liable for or subject to the debts or liabilities of any person
entitled to such benefits.  If any person shall attempt to, or shall
alienate, sell, transfer, assign, pledge, or otherwise encumber his or her
benefits under the Plan, or if by any reason of his or her bankruptcy or other
event happening at any time, such benefits would devolve upon any other person
or would not be enjoyed by the person entitled thereto under the Plan, then the
Company in its discretion, may terminate the interest in any such benefits of
the person entitled thereto under the Plan and hold or apply them to or for the
benefit of such person entitled thereto under the Plan or his or her spouse,
children or other dependents, or any of them, in such manner as the Company may
deem proper.

       

      (e)          Amendment and
Termination.  The
Board of Directors of the Company shall have the right and power at any time and
from time to time to amend this Plan, in whole or in part, and at any time to
terminate this Plan; provided, however, that no such amendment or termination
shall, without the written consent of the affected Participant or beneficiary of
a deceased Participant, (i) reduce the Company’s obligation for the payment of
the amounts actually credited to such Participant’s Account as of the date of
such amendment or termination, or further defer the date or dates for the
payment of such amounts, or (ii) accelerate the time for the payment of the
amounts credited to such Participant’s Account in a manner that subjects such
amounts to the tax imposed under Section 409A of the Code.  Any
amendment to or termination of this Plan shall be made by or pursuant to a
resolution duly adopted by the Board of Directors of the Company, and shall be
evidenced by such resolution or by a written instrument executed by such person
as the Board of Directors of the Company shall authorize for such
purposes.

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

      (f)          Controlling
Law.  The interpretation, construction and performance of this
Plan shall be governed by and construed and enforced in accordance with the
internal laws of the state of Texas without regard to the principle of conflicts
of laws.

       

      (g)          Number.  Words
in the plural shall include the singular and the singular shall include the
plural.

       

      (h)          Successors.  All
obligations of the Company under the Plan shall be binding and inure to the
benefit of any successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger, consolidation or
otherwise.

       

      (i)           Third
Parties.  Nothing express or implied in this Plan is intended
or may be construed to give any person other than a Participant any rights or
remedies under this Plan.

       

      (j)           Payment Delay for Specified
Employee.  Any provision of this Plan to the contrary
notwithstanding, if a Participant is a specified employee (within the meaning of
Section 409A of the Code) on the date of his or her Separation from Service,
then any payment pursuant to the provisions of this Plan that would be subject
to the tax imposed by Section 409A of the Code if paid to such Participant at
the time otherwise specified in this Plan shall be delayed and thereafter paid
on the first business day that is six months after such Participant’s Separation
from Service (or if earlier, within 30 days after the date of such Participant’s
death following his or her Separation from Service) to the extent necessary for
such payment to avoid being subject to the tax imposed by Section 409A of the
Code.

       

      (k)          Compliance With Code Section
409A.  The compensation payable by the Company to or with
respect to a Participant pursuant to this Plan is intended to be compensation
that is not subject to the tax imposed by Section 409A of the Code, and this
Plan shall be administered and construed to the fullest extent possible to
reflect and implement such intent.

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      Participant’s
Awards

      

      
        
          
            
              
                
                  
                    
                      	
                              Participant

                            	 	
                              Percentage of Bonus Pool

                            	 
	 
      	 	 	 
	
                              George
      L.  Ball

                            	 	 	33	%
	
                              Ben
      T.  Morris

                            	 	 	28	%
	
                              Don
      A.  Sanders

                            	 	 	24	%
	
                              Robert
      E.  Garrison II

                            	 	 	5	%
	
                              Rick
      Berry

                            	 	 	5	%
	
                              Bruce
      McMaken

                            	 	 	5	%

                    

                  

                

              

            

          

        

      

       

      
        
           

        

        
          7Item
9.01 (a)           Financial
Statements of Business Acquired:

    
 

    
      	
               

              SHISHI
      XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

               

              Financial
      Statements

              For
      the Period from July 28, 2009 (Inception) to December 31,
2009

               

              (With
      Report of Independent Registered Public Accounting Firm
      Thereon)

               

            

    

    

    ZYCPA
COMPANY LIMITED

    

    Certified
Public Accountants

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    

    INDEX
TO FINANCIAL STATEMENTS

    

    
      
        	 
      	
                Page

              
	 
      	 
      
	
                Report
      of Independent Registered Public Accounting Firm

              	
                F-2

              
	 
      	 
      
	
                Balance
      Sheet

              	
                F-3

              
	 
      	 
      
	
                Statement
      of Operations and Comprehensive Income

              	
                F-4

              
	 
      	 
      
	
                Statement
      of Cash Flows

              	
                F-5

              
	 
      	 
      
	
                Statement
      of Changes in Owner’s Equity

              	
                F-6

              
	 
      	 
      
	
                Notes
      to Financial Statements

              	
                F-7
      - F-17

              

      

    

    
      
         

      

      
        F-1

        
          

        

      

      
         

      

    

     

    

     

    REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

    

    The Board
of Directors and stockholders of

    Shishi
Xianghe Food Science and Technology Co., Ltd.

    

    We have
audited the accompanying balance sheet of Shishi Xianghe Food Science and
Technology Co., Ltd. (“the Company”) as of December 31, 2009 and the related
statements of operations and comprehensive income, cash flows and changes in
owner’s equity for the period from July 28, 2009 (Inception) to December 31,
2009. 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 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 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 financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
2009, and the results of its operations and its cash flows for the period from
July 28, 2009 (Inception) to December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.

    

    
      
        
          	
                  /s/ ZYCPA Company
Limited

                
	 
      
	
                  ZYCPA
      Company Limited

                
	
                  Certified
      Public Accountants

                

        

         

      

    

    Hong
Kong, China

    March 16,
2010

     

    

    
      
         

      

      
        F-2

        
          

        

      

      
         

      

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    BALANCE
SHEET

    AS
OF DECEMBER 31, 2009

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

    

    
      
        
          
            
              
                
                  
                    
                      	 
      	 	
                              December 31, 2009

                            	 
	 
      	 	 	 
	
                              ASSETS

                            	 	 	 
	
                              Current
      assets:

                            	 	 	 
	
                              Cash
      and cash equivalents

                            	 	$	435,933	 
	
                              Accounts
      receivable, net

                            	 	 	1,391,457	 
	
                              Inventories

                            	 	 	10,871	 
	
                              Amount
      due from an owner

                            	 	 	1,442,623	 
	 
      	 	 	 	 
	
                              Total
      current assets

                            	 	 	3,280,884	 
	 
      	 	 	 	 
	
                              Non-current
      assets:

                            	 	 	 	 
	
                              Property,
      plant and equipment, net

                            	 	 	395	 
	
                              Intangible
      assets, net

                            	 	 	8,596	 
	 	 	 	 	 
	
                              TOTAL
      ASSETS

                            	 	$	3,289,875	 
	 
      	 	 	 	 
	
                              LIABILITIES
      AND OWNER’S EQUITY

                            	 	 	 	 
	
                              Current
      liabilities:

                            	 	 	 	 
	
                              Accounts
      payable, trade

                            	 	$	402,982	 
	
                              Income
      tax payable

                            	 	 	225,180	 
	
                              Accrued
      liabilities and other payable

                            	 	 	240,808	 
	 
      	 	 	 	 
	
                              Total
      current liabilities

                            	 	 	868,970	 
	 
      	 	 	 	 
	
                              Commitments
      and contingencies (see Note 14)

                            	 	 	 	 
	 
      	 	 	 	 
	
                              Owner’s
      equity:

                            	 	 	 	 
	
                              Registered
      and paid-in capital

                            	 	 	733,483	 
	
                              Accumulated
      other comprehensive loss

                            	 	 	(1,670	)
	
                              Statutory
      reserve

                            	 	 	253,364	 
	
                              Retained
      earnings

                            	 	 	1,435,728	 
	 
      	 	 	 	 
	
                              Total
      owner’s equity

                            	 	 	2,420,905	 
	 
      	 	 	 	 
	
                              TOTAL
      LIABILITIES AND OWNER’S EQUITY

                            	 	$	3,289,875	 

                    

                  

                

              

            

          

        

      

    

    

    See
accompanying notes to financial statements.

    
      
         

      

      
        F-3

        
          

        

      

      
         

      

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    STATEMENT
OF OPERATIONS AND COMPREHENSIVE INCOME

    FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

    

    
      
        
          
            
              
                
                  	 
      	 	
                          Period from

                          July 28, 2009

                          (Inception) to

                          December 31, 2009

                        	 
	 
      	 	 	 
	
                          Revenue,
      net

                        	 	$	7,568,657	 
	 
      	 	 	 	 
	
                          Cost
      of revenue

                        	 	 	(4,530,736	)
	 
      	 	 	 	 
	
                          Gross
      profit

                        	 	 	3,037,921	 
	 
      	 	 	 	 
	
                          Operating
      expenses:

                        	 	 	 	 
	
                          Depreciation
      and amortization

                        	 	 	(418	)
	
                          Sales
      and distribution

                        	 	 	(632,290	)
	
                          General
      and administrative

                        	 	 	(83,770	)
	 
      	 	 	 	 
	
                          INCOME
      FROM OPERATIONS

                        	 	 	2,321,443	 
	 
      	 	 	 	 
	
                          Other
      income (expense):

                        	 	 	 	 
	
                          Interest
      income

                        	 	 	823	 
	
                          Interest
      expense

                        	 	 	(70,010	)
	 
      	 	 	 	 
	
                          Income
      before income taxes

                        	 	 	2,252,256	 
	 
      	 	 	 	 
	
                          Income
      tax expense

                        	 	 	(563,164	)
	 
      	 	 	 	 
	
                          NET
      INCOME

                        	 	$	1,689,092	 
	 
      	 	 	 	 
	
                          Other
      comprehensive loss:

                        	 	 	 	 
	
                          -
      Foreign currency translation loss

                        	 	 	(1,670	)
	 
      	 	 	 	 
	
                          COMPREHENSIVE
      INCOME

                        	 	$	1,687,422	 

                

              

            

          

        

      

    

    

    See
accompanying notes to financial statements.

    
      
         

      

      
        F-4

        
          

        

      

      
         

      

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    STATEMENT
OF CASH FLOWS

    FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

    

    
      
        
          	 
      	 	
                  Period from

                  July 28, 2009

                  (Inception) to

                  December 31, 2009

                	 
	 
      	 	 	 
	
                  Cash
      flows from operating activities:

                	 	 	 
	
                  Net
      income

                	 	$	1,689,092	 
	
                  Adjustments
      to reconcile net income to net cash provided by operating
      activities:

                	 	 	 	 
	
                  Depreciation
      and amortization

                	 	 	418	 
	
                  Allowance
      for doubtful accounts

                	 	 	6,992	 
	
                  Changes
      in operating assets and liabilities:

                	 	 	 	 
	
                  Accounts
      receivable

                	 	 	(1,398,449	)
	
                  Inventories

                	 	 	(10,871	)
	
                  Accounts
      payable, trade

                	 	 	402,982	 
	
                  Income
      tax payable

                	 	 	225,180	 
	
                  Accrued
      liabilities and other payable

                	 	 	240,589	 
	 
      	 	 	 	 
	
                  Net
      cash provided by operating activities

                	 	 	1,155,933	 
	 
      	 	 	 	 
	
                  Cash
      flows from investing activities:

                	 	 	 	 
	
                  Purchase
      of property, plant and equipment

                	 	 	(414	)
	 
      	 	 	 	 
	
                  Net
      cash used in investing activities

                	 	 	(414	)
	 
      	 	 	 	 
	
                  Cash
      flows from financing activities:

                	 	 	 	 
	
                  Capital
      contribution from an owner

                	 	 	733,483	 
	
                  Proceeds
      from short-term loan

                	 	 	26,399,695	 
	
                  Net
      repayments to the owner

                	 	 	(27,851,094	)
	 
      	 	 	 	 
	
                  Net
      cash used in financing activities

                	 	 	(717,916	)
	 
      	 	 	 	 
	
                  Effect
      of exchange rate changes in cash and cash equivalents

                	 	 	(1,670	)
	 
      	 	 	 	 
	
                  NET
      CHANGE IN CASH AND CASH EQUIVALENTS

                	 	 	435,933	 
	 
      	 	 	 	 
	
                  CASH AND CASH EQUIVALENTS,
      BEGINNING OF PERIOD

                	 	 	-	 
	 
      	 	 	 	 
	
                  CASH AND CASH EQUIVALENTS,
      END OF PERIOD

                	 	$	435,933	 
	 	 	 	 	 
	
                  SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:

                	 
	
                  Cash
      paid for income taxes

                	 	$	337,984	 
	
                  Cash
      paid for interest

                	 	$	-	 
	 
      	 	 	 	 
	
                  NON-CASH
      INVESTING AND FINANCING ACTIVITIES:

                	 	 	 	 
	
                  Trademarks
      paid by a third party

                	 	$	219	 
	
                  Algae-based
      drink know-how paid by the owner

                	 	$	8,776	 

        

      

    

    

    See
accompanying notes to financial statements.

    
      
         

      

      
        F-5

        
          

        

      

      
         

      

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    STATEMENT
OF CHANGES IN OWNER’S EQUITY

    FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

    

    
      
        
          
            	 
      	 	
                    Registered and

                    paid-in capital

                  	 	 	
                    Accumulated

                    other

                    comprehensive

                    loss

                  	 	 	
                    Statutory

                    reserve

                  	 	 	
                    Retained

                    earnings

                  	 	 	
                    Total

                    owner’s equity

                  	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                    Balance
      as of July 28, 2009 (Inception)

                  	 	$	43,979	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	43,979	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                    Additional
      cash contribution

                  	 	 	689,504	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	689,504	 
	
                    Net
      income for the period

                  	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,689,092	 	 	 	1,689,092	 
	
                    Appropriation
      to statutory reserve

                  	 	 	-	 	 	 	-	 	 	 	253,364	 	 	 	(253,364	)	 	 	-	 
	
                    Foreign
      currency translation adjustment

                  	 	 	-	 	 	 	(1,670	)	 	 	-	 	 	 	-	 	 	 	(1,670	)
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                    Balance
      as of December 31, 2009

                  	 	$	733,483	 	 	$	(1,670	)	 	$	253,364	 	 	$	1,435,728	 	 	$	2,420,905	 

          

        

      

    

    

    See
accompanying notes to financial statements.

    
      
         

      

      
        F-6

        
          

        

      

      
         

      

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    NOTES
TO FINANCIAL STATEMENTS

    FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

    

    
      	
               
      

            	
              1.

            	
              ORGANIZATION
      AND BUSINESS BACKGROUND

            

    

    

    Shishi
Xianghe Food Science and Technology Co., Ltd. (the “Company”) was incorporated
as a limited liability company in the People’s Republic of China (the “PRC”) on
July 28, 2009 with its principal place of business in Shishi City, Fujian
Province, the PRC. Its registered and paid-in capital is approximately $733,483
(equivalent to Renminbi Yuan (“RMB”) 5,000,000).

    

    The
Company is primarily engaged in the sale and distribution of algae-based
beverage products through its network in the PRC. All the Company’s customers
were located in the PRC.

    

    
      	
               
      

            	
              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 (“U.S.
GAAP”).

    

    
      
        	
                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 period 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.

    

    
      
        	
                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, 2009, the allowance for doubtful accounts was $6,992.

    

    
      
        	
                l

              	
                Inventories

              

      

    

    

    Inventories
are stated at the lower of cost or net realizable value, with cost being
determined on a weighted average basis, which consist of raw materials and
packaging supplies. 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.

    
      
         

      

      
        F-7

        
          

        

      

      
         

      

    

    

      SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

      NOTES
TO FINANCIAL STATEMENTS

      FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

      

    

    As of
December 31, 2009, 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:

    

    
      	 
      	 
      	
              Depreciable life

            
	
              Office
      equipment

            	 
      	
              5
      years

            

    

    

    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.

    

    Depreciation
expense for the period from July 28, 2009 (Inception) to December 31, 2009 is
$19.

    

    
      
        	
                l

              	
                Intangible
      assets

              

      

    

    

    Intangible
assets include trademarks and algae-based drink know-how and are recorded at
cost less accumulated amortization. The trademarks are to be amortized subject
to the successful registration from the PRC Trademark Authority. The algae-based
drink know-how is amortized over its estimated useful life of 11 years, on a
straight-line basis.

    

    
      
        	
                l

              	
                Impairment
      of long-lived assets

              

      

    

    

    In
accordance with the Accounting Standards Codification (“ASC”) Topic 360-10-5,
“Impairment or Disposal of
Long-Lived Assets”, all long-lived assets such as plant and equipment and
intangible assets used and held 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, 2009.

    

    
      
        	
                l

              	
                Revenue
      recognition

              

      

    

    

    In
accordance with the ASC Topic 605, “Revenue Recognition”, the
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable and
collectability is reasonably assured.

    

    The
Company derives the major revenues from the sale and distribution of algae-based
beverage products. The Company recognizes its revenues net of value-added taxes
(“VAT”) and sales allowance when the products are delivered to the
customers, which occurs when the customer has taken title and has assumed the
risks and rewards of ownership, prices are fixed or determinable and
collectability is reasonably assured.

    
      
         

      

      
        F-8

        
          

        

      

      
         

      

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    NOTES
TO FINANCIAL STATEMENTS

    FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

    

    The
Company experienced no product returns and has recorded no reserve for sales
returns for the period from July 28, 2009 (Inception) to December 31,
2009.

    

    
      
        	
                l

              	
                Cost
      of revenue

              

      

    

    

    Cost of
revenue consists primarily of purchase cost of raw materials and packaging
supplies, as well as sub-contracting fee of producing the algae-based beverage
products (including direct labor and manufacturing overheads), which are
directly attributable to the sale of algae-based beverage products.

    

    
      	
              l

            	
              Shipping
      and handling

            

    

    

    Shipping
and handling costs are expensed as incurred in accordance with the ASC Topic
605-45. Shipping and handling costs, associated with the distribution of
algae-based beverage products to the customers, are recorded in sales and
distribution expenses and are recognized when the related product is delivered
to the customer. The Company incurred shipping and handling cost of $472,037 for
the period from July 28, 2009 (Inception) to December 31, 2009.

    

    
      	
              l

            	
              Advertising
      expense

            

    

    

    Advertising
costs are expensed as incurred under ASC Topic 720-35, “Advertising Costs”. The
Company incurred advertising cost of $129,864 for the period from July 28, 2009
(Inception) to December 31, 2009.

    

    
      
        	
                l

              	
                Comprehensive
      income

              

      

    

    

    ASC Topic
220, “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 comprehensive income 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 adopts the ASC Topic 740, “Income Taxes” regarding
accounting for uncertainty in income taxes prescribes the recognition threshold
and measurement attributes for financial statement recognition and measurement
of tax positions taken or expected to be taken on a tax return. In addition, the
guidance requires the determination of whether the benefits of tax positions
will be more likely than not sustained upon audit based upon the technical
merits of the tax position. For tax positions that are determined to be more
likely than not sustained upon audit, a company recognizes the largest amount of
benefit that is greater than 50% likely of being realized upon ultimate
settlement in the financial statements. For tax positions that are not
determined to be more likely than not sustained upon audit, a company does not
recognize any portion of the benefit in the financial statements. The guidance
provides for de-recognition, classification, penalties and interest, accounting
in interim periods and disclosure.

    

    For the
period from July 28, 2009 (Inception) to December 31, 2009, the Company did not
have any interest and penalties associated with tax positions. As of December
31, 2009, the Company did not have any significant unrecognized uncertain tax
positions.

    
      
         

      

      
        F-9

        
          

        

      

      
         

      

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    NOTES
TO FINANCIAL STATEMENTS

    FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

    

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

    

    
      
        	
                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 statement of operations.

    

    The
reporting currency of the Company is the United States Dollars ("US$"). The
Company maintains its books and record in its local currency, Renminbi Yuan
("RMB"), which is a functional currency as being the primary currency of the
economic environment in which the Company operates.

    

    For
financial reporting purposes, the Company’s financial statements which are
prepared using the functional currency have been translated into US$. Assets and
liabilities are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial
Statement”,
using the exchange rate on the balance sheet date. Revenues and expenses are
translated at average rates prevailing during the period. The gains and losses
resulting from translation of financial statements are recorded as a separate
component of accumulated other comprehensive income within the statement of
owner’s equity.

    

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

    
      
        
          
            	 
      	 	
                    Period from July 28,

                    2009 (Inception) to

                    December 31, 2009

                  	 
	
                    Period-end
      RMB: US$1 exchange rate

                  	 	 	6.8372	 
	
                    Average
      RMB: US$1 exchange rate

                  	 	 	6.8393	 

          

        

      

    

    

    
      
        	
                l

              	
                Retirement
      plan costs

              

      

    

    

    Contributions
to retirement schemes (which are defined contribution plans) are charged to
general and administrative expense in the accompanying statement of operations
as the related employee service is provided.

    

    
      
        	
                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

              

      

    

    

    ASC Topic
280, “Segment
Reporting” establishes standards for reporting information about
operating segments on a basis consistent with the Company’s internal
organization structure as well as information about geographical areas, business
segments and major customers in financial statements. For the period from July
28, 2009 (Inception) to December 31, 2009, the Company operates in one
reportable operating segment in the PRC.

    
      
         

      

      
        F-10

        
          

        

      

      
         

      

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    NOTES
TO FINANCIAL STATEMENTS

    FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

    

    
      
        	
                l

              	
                Fair
      value measurement

              

      

    

    

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

    

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

    

    
      
        	
                l

              	
                Fair
      value of financial
instruments

              

      

    

    

    The
carrying value of the Company’s financial instruments include cash and cash
equivalents, accounts receivable, amount due from the owner, accounts payable,
income tax payable, accrued liabilities and other payable. Fair values were
assumed to approximate carrying values for these financial instruments because
they are short term in nature and their carrying amounts approximate fair
values.

    

    
      
        	
                l

              	
                Recent
      accounting pronouncements

              

      

    

    

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

    

    In
September 2009, Accounting Standards Codification (“ASC”) became the source of
authoritative U.S. GAAP recognized by the Financial Accounting Standards Board
(“FASB”) for nongovernmental entities, except for certain FASB Statements not
yet incorporated into ASC. Rules and interpretive releases of the SEC under
federal securities laws are also sources of authoritative U.S. GAAP for
registrants. The discussion below includes the applicable ASC
reference.

    

    The
Company adopted ASC Topic 810-10, “Consolidation” (formerly SFAS
No. 160, “Non-controlling
Interests in Consolidated Financial Statements – an amendment of ARB No.
51”) effective January 2, 2009. ASC Topic 810-10 changes the manner of
presentation and related disclosures for the non-controlling interest in a
subsidiary (formerly referred to as a minority interest) and for the
deconsolidation of a subsidiary. The adoption of these sections did not have a
material impact on the Company’s financial statements.

    
      
         

      

      
        F-11

        
          

        

      

      
         

      

    

     

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    NOTES
TO FINANCIAL STATEMENTS

    FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

    

    ASC Topic
815-10, “Derivatives and
Hedging” (formerly SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”) was adopted by the Company effective
January 2, 2009. The guidance under ASC Topic 815-10 changes the manner of
presentation and related disclosures of the fair values of derivative
instruments and their gains and losses.

    

    In April
2009, the FASB issued an update to ASC Topic 820-10, “Fair Value Measurements and
Disclosures” (“ASC 820-10”) (formerly FASB Staff Position No. SFAS 157-4,
“Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly”). The
standard provides additional guidance on estimating fair value in accordance
with ASC 820-10 when the volume and level of transaction activity for an asset
or liability have significantly decreased in relation to normal market activity
for the asset or liability have significantly decreased and includes guidance on
identifying circumstances that indicate if a transaction is not orderly. The
Company adopted this pronouncement effective July 28, 2009 with no impact on its
financial statements.

    

    In April
2009, the FASB issued FSP SFAS No. 107-1, “Disclosures about Fair Value of
Financial Instruments” (“ASC 825-10”). ASC 825-10 requires fair value of
financial instruments disclosure for interim reporting periods of publicly
traded companies as well as in annual financial statements. ASC 825-10 is
effective for interim periods ending after June 15, 2009 and was adopted by the
Company in the third quarter of 2009. There was no material impact to the
Company’s financial statements as a result of the adoption of ASC
825-10.

    

    The
Company adopted, ASC Topic 855-10, “Subsequent Events” (formerly
SFAS 165, “Subsequent
Events”) effective July 28, 2009. This pronouncement changes the general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued.

    

    In June
2009, the FASB finalized SFAS No. 167, “Amending FASB interpretation No.
46(R)”, which was included in ASC Topic 810-10-05 “Variable Interest Entities”.
The provisions of ASC Topic 810-10-05 amend the definition of the primary
beneficiary of a variable interest entity and will require the Company to make
an assessment each reporting period of its variable interests. The provisions of
this pronouncement are effective January 1, 2010. The Company is evaluating the
impact of the statement on its financial statements.

    

    In July
2009, the FASB issued SFAS No. 168, “The Hierarchy of Generally Accepted
Accounting Principles”. SFAS 168 codified all previously issued
accounting pronouncements, eliminating the prior hierarchy of accounting
literature, in a single source for authoritative U.S. GAAP recognized by the
FASB to be applied by nongovernmental entities. SFAS 168, now ASC Topic 105-10
“Generally Accepted Accounting
Principles”, is effective for financial statements issued for interim and
annual periods ending after September 15, 2009. The adoption of this
pronouncement did not have an effect on the Company’s financial
statements.

    

    In August
2009, the FASB issued an update of ASC Topic 820, “Measuring Liabilities at Fair
Value”. The new guidance provides clarification that in circumstances in
which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using prescribed
techniques. The Company adopted the new guidance in the third quarter of 2009
and it did not materially affect the Company’s financial position and results of
operations.

    
      
         

      

      
        F-12

        
          

        

      

      
         

      

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    NOTES
TO FINANCIAL STATEMENTS

    FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

    

    In
October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13,
“Revenue Recognition (Topic
605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB
Emerging Issues Task Force)” which amends ASC 605-25, “Revenue Recognition:
Multiple-Element Arrangements.” ASU No. 2009-13 addresses how to
determine whether an arrangement involving multiple deliverables contains more
than one unit of accounting and how to allocate consideration to each unit of
accounting in the arrangement. This ASU replaces all references to fair value as
the measurement criteria with the term selling price and establishes a hierarchy
for determining the selling price of a deliverable. ASU No. 2009-13 also
eliminates the use of the residual value method for determining the allocation
of arrangement consideration. Additionally, ASU No. 2009-13 requires expanded
disclosures. This ASU will become effective for us for revenue arrangements
entered into or materially modified on or after April 1, 2011. Earlier
application is permitted with required transition disclosures based on the
period of adoption. The Company is currently evaluating the application date and
the impact of this standard on its financial statements.

    

    
      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.

    

    
      
        
          	 
      	 	
                  December 31, 2009

                	 
	 
      	 	 	 
	
                  Accounts
      receivable, gross

                	 	$	1,398,449	 
	
                  Less:
      allowance for doubtful accounts

                	 	 	(6,992	)
	 
      	 	 	 	 
	
                  Accounts
      receivable, net

                	 	$	1,391,457	 

        

      

    

    

    The
Company provided $6,992 allowance for doubtful accounts for the period from July
28, 2009 (Inception) to December 31, 2009.

    

    
      4.    
 INVENTORIES

    

    

    Inventories
consist of the following:

    

    
      
        
          	 
      	 	
                  December
      31, 2009

                	 
	 
      	 	 	 
	
                  Raw
      materials

                	 	$	8,557	 
	
                  Packaging
      supplies

                	 	 	2,314	 
	 
      	 	 	 	 
	 
      	 	$	10,871	 

        

      

    

    

    
      5.    
 AMOUNT
DUE FROM THE OWNER

    

    

    On
November 27, 2009, the Company entered into a Credit or Share Purchase Option
Agreement (the “Agreement”) among the Company’s owner, Mr. Qiu Shang Jing (“Mr.
Qiu”) and Shishi Huabao Mingxiang Foods Co., Ltd. (“Mingxiang”), a wholly owned
subsidiary of China Marine Food Group Limited. Pursuant to the Agreement,
Mingxiang provided a short-term loan to the Company in the amount of
approximately $26,400,000 (equivalent to RMB180,500,000) for working capital
purposes, which carried interest at 5% per annum, monthly payable and matures on
January 26, 2010. This loan was secured by all of the registered capital of the
Company owned by Qiu.

    
      
         

      

      
        F-13

        
          

        

      

      
         

      

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    NOTES
TO FINANCIAL STATEMENTS

    FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

    

    In
addition, the Agreement offered Mingxiang the option to acquire from Mr. Qiu 80%
registered capital of the Company at a consideration of approximately
$27,800,000 (equivalent to RMB190,000,000) in lieu of repayment of the loan to
Mingxiang. Should Mingxiang elect to exercise the option, a written notice must
be provided to the Company by Mingxiang, and the Company should transfer the
$26,400,000 proceeds from the loan to Mr. Qiu. The remaining RMB9,500,000
(approximately $1,400,000) consideration shall be paid to Mr. Qiu by
Mingxiang within 30 days after completion of the Company’s audit
report.

    

    On
January 1, 2010, Mingxiang exercised the option and became an equity owner of
the Company. Because of the temporary nature of this loan and its maturity upon
conversion of short-term loan on a basis consistent with the repayment of
proceeds to Mr. Qiu, the Company effectively netted it off from the amount due
from Mr. Qiu. As of December 31, 2009, the amount due from Mr. Qiu was
$1,442,623.

    

    
      6.      
INTANGIBLE
ASSETS

    

    

    Intangible
assets consist of the following:

    

    
      
        
          
            	 
      	 	
                    December 31, 2009

                  	 
	 
      	 	 	 
	
                    Trademarks

                  	 	$	219	 
	
                    Algae-based
      drink know-how

                  	 	 	8,776	 
	 
      	 	 	8,995	 
	
                    Less:
      accumulated amortization

                  	 	 	(399	)
	 
      	 	 	 	 
	
                    Intangible
      assets, net

                  	 	$	8,596	 

          

        

      

    

    

    Amortization
expense for the period from July 28, 2009 (Inception) to December 31, 2009 is
$399.

    

    
      7.   
  ACCRUED
LIABILITIES AND OTHER PAYABLE

    

    

    Accrued
liabilities and other payable consist of the following:

    

    
      
        
          	 
      	 	
                  December
      31, 2009

                	 
	 
      	 	 	 
	
                  Value-added
      tax payable

                	 	$	143,729	 
	
                  Accrued
      interest expense

                	 	 	70,032	 
	
                  Accrued
      advertising expense

                	 	 	14,626	 
	
                  Accrued
      payroll, benefit and other payable

                	 	 	12,421	 
	 
      	 	 	 	 
	 
      	 	$	240,808	 

        

      

    

    
      
         

      

      
        F-14

        
          

        

      

      
         

      

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    NOTES
TO FINANCIAL STATEMENTS

    FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

    

    
      8.    
 OWNER’S
EQUITY

    

    

    At the
date of inception on July 28, 2009, the registered capital of the Company was
$43,979 (RMB300,000), which was fully paid-up by Mr. Qiu.

    

    On
October 8, 2009, the Company approved to increase its registered capital from
$43,979 to $733,483 (equivalent to RMB5,000,000) by additional cash
contribution.

    

    As of
December 31, 2009, the registered and paid-in capital totaled
$733,483.

    

    
      9.     
INCOME
TAXES

    

    

    The
Company generated substantially its net income in the PRC. The
Company was subject to the Corporate Income Tax Law of the People’s
Republic of China, at a unified income tax rate of 25%, with effect from January
1, 2008.

    

    The
reconciliation of income tax rate to the effective income tax rate for the
period from July 28, 2009 (Inception) to December 31, 2009 is as
follows:

    

    
      
        
          	 
      	 	
                  Period from

                  July 28, 2009

                  (Inception) to

                  December 31,

                  2009

                	 
	 
      	 	 	 
	
                  Income
      before income taxes

                	 	$	2,252,256	 
	
                  Statutory
      income tax rate

                	 	 	25	%
	 
      	 	 	563,064	 
	
                  Non-deductible
      items

                	 	 	100	 
	 
      	 	 	 	 
	
                  Income
      tax expense

                	 	$	563,164	 

        

      

    

    

    Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. There were no significant temporary
differences as of December 31, 2009, no components of deferred tax assets and
liabilities have been recognized.

    

    
      10.    
RELATED
PARTY TRANSACTIONS

    

    

    In
January 2009, Mr. Qiu paid on behalf of the Company an amount of $8,776
(equivalent to RMB 60,000) to Yellow Sea Fisheries Research Institute (YSFRI),
Chinese Academy of Fishery Sciences for the development of the algae-based drink
know-how. The Company did not make any application for the patent during the
period ended December 31, 2009. Li Xiaochuan is the researcher of YSFRI and
independent director of the Company.

    

    In April
2009, the director and sole owner of the Company, Mr. Qiu leased an office space
under an operating lease with Shishi Huabao Jixiang Water Products Co., Ltd
(“Jixiang”) for a term of 3 years with fixed monthly rental, expiring in April
2012. According to a release letter signed between Jixiang and the Company, the
Company was released from paying any rental for the period from July 28, 2009
(Inception) to December 31, 2009. Management considered that the imputed rent
charge is not significant.

    
      
         

      

      
        F-15

        
          

        

      

      
         

      

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    NOTES
TO FINANCIAL STATEMENTS

    FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

    

    In July
2009, the Company entered into a nomination agreement with Mingxiang where
Mingxiang agreed to apply for both English and Chinese trademarks of the
algae-based beverage products with the PRC Trademark Authority on behalf of the
Company. At the same time, Mingxiang paid $219 (equivalent to RMB 1,500) as the
trademark application fee on behalf of the Company.

    

    
      11.    CHINA
CONTRIBUTION PLAN

    

    

    Under the
PRC Law, full-time employees in the PRC 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 $5,854 for the period from July 28, 2009 (Inception) to
December 31, 2009.

    

    
      12.  
 STATUTORY
RESERVE

    

    

    Under the
PRC Law, the Company is required to make appropriations 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
period from July 28, 2009 (Inception) to December 31, 2009, the Company made
appropriations of $253,364 to the reserve, respectively, based on its net income
under the PRC GAAP.

    

    
      13.  
 CONCENTRATIONS
OF RISK

    

    

    The
Company is exposed to the following concentrations of risk:

    
 

    (a)      Major
customers

    

    The
following is a table summarizing the revenues from customers that individually
represents greater than 10% of the total revenues for the period from July 28,
2009 (Inception) to December 31, 2009 and their outstanding balances as at
period-end date.

    

    
      
        
          
            
              
                
                  
                    	 
      	 	
                            Period from July 28, 2009

                            (Inception) to December 31, 2009

                          	 	 	
                            December 31, 2009

                          	 
	
                            Customers

                          	 	
                            Revenues

                          	 	 	
                            Percentage

                            of revenues

                          	 	 	
                            Accounts

                            receivable, gross

                          	 
	 
      	 	 	 	 	 	 	 	 	 
	
                            Customer
      A

                          	 	$	2,125,291	 	 	 	28	%	 	$	359,623	 
	
                            Customer
      B

                          	 	 	2,042,296	 	 	 	27	%	 	 	377,185	 
	
                            Customer
      C

                          	 	 	1,951,737	 	 	 	26	%	 	 	301,519	 
	
                            Customer
      D

                          	 	 	1,449,333	 	 	 	19	%	 	 	360,122	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                            Total:

                          	 	$	7,568,657	 	 	 	100	%	 	$	1,398,449	 

                  

                

              

            

          

        

      

    

    
      
         

      

      
        F-16

        
          

        

      

      
         

      

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    NOTES
TO FINANCIAL STATEMENTS

    FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

    

    (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 period from July 28,
2009 (Inception) to December 31, 2009 and their outstanding balances as at
period-end date.

    

    
      
        
          
            
              
                
                  
                    	 
      	 	
                            Period from July 28, 2009

                            (Inception) to December 31, 2009

                          	 	 	
                            December 31, 2009

                          	 
	
                            Vendors

                          	 	
                            Purchases

                          	 	 	
                            Percentage

                            of purchases

                          	 	 	
                            Accounts

                            payable

                          	 
	 
      	 	 	 	 	 	 	 	 	 
	
                            Vendor
      A

                          	 	$	2,881,444	 	 	 	62	%	 	$	239,453	 
	
                            Vendor
      B

                          	 	 	670,902	 	 	 	14	%	 	 	49,508	 
	
                            Vendor
      C

                          	 	 	665,921	 	 	 	14	%	 	 	93,965	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                            Total:

                          	 	$	4,218,267	 	 	 	90	%	 	$	382,926	 

                  

                

              

            

          

        

      

    

    

    (c)     Credit
risk

    

    Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and trade accounts receivable. The
Company performs ongoing credit evaluations of its customers' financial
condition, but does not require collateral to support such
receivables.

    

    (d)     Exchange
rate risk

    

    The
reporting currency of the Company is US$, to date the majority of the revenues
and costs are denominated in RMB and a significant portion of the assets and
liabilities are denominated in RMB. As a result, the Company is exposed to
foreign exchange risk as its revenues and results of operations may be affected
by fluctuations in the exchange rate between US$ and RMB. If RMB depreciates
against US$, the value of RMB revenues and assets as expressed in US$ financial
statements will decline. The Company does not hold any derivative or other
financial instruments that expose to substantial market risk.

    

    (e)      Economic
and political risks

    

    The
Company's operations are conducted in the PRC. Accordingly, the Company's
business, financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.

    

    The
Company's operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among others, the
political, economic and legal environment and foreign currency exchange. The
Company's results may be adversely affected by changes in the political and
social conditions in the PRC, and by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency
conversion, remittances abroad, and rates and methods of
taxation.

    
      
         

      

      
        F-17

        
          

        

      

      
         

      

    

    SHISHI
XIANGHE FOOD SCIENCE AND TECHNOLOGY CO., LTD.

    NOTES
TO FINANCIAL STATEMENTS

    FOR
THE PERIOD FROM JULY 28, 2009 (INCEPTION) TO DECEMBER 31, 2009

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

    

    
      14.   
COMMITMENTS
AND CONTINGENCIES

    

    

    The
Company entered into a sub-contracting agreement (the “Sub-Contracting
Agreement”) with Zhangzhou Baoxian Food and Beverage Company Limited (the
“Contractor”) for a term of 3 years, expiring 30 July 2012. Pursuant to the
Sub-Contracting Agreement, the Contractor provides the bottling and packaging
services to the Company at a fixed fee per unit, in accordance with the
Company’s specification and quality requirement. Sub-contracting fee becomes
payable upon the receipt of the merchandizes ordered by the
Company.

    

    Costs
incurred under this arrangement are recorded as cost of revenue and totaled
$725,432 for the period from July 28, 2009 (Inception) to December 31,
2009.

    

    
      15.   
SUBSEQUENT
EVENTS

    

    

    On
January 1, 2010, the Company received the notice of exercise from Mingxiang to
execute its option to acquire equity interest representing 80% of the registered
capital of the Company (the “Shares”). Mr. Qiu (“Seller”) entered into a Share
Purchase Agreement (the “Purchase Agreement”) with Mingxiang.

    

    The
purchase price for the Shares was RMB190,000,000 (approximately $27,800,000),
paid as follows:

    

    
      	
              (i)

            	
              RMB180,500,000
      (approximately $26,400,000), which Xianghe owed to Mingxiang, was
      transferred to be the consideration for the purchase of the Shares of
      Xianghe which Mingxiang shall pay to
Seller.

            

    

    

    
      	
              (ii)

            	
              RMB9,500,000
      (approximately $1,400,000) shall be paid by Mingxiang to Seller within 30
      days after completion of the audit report of Xianghe for the year ended
      December 31, 2009.

            

    

    

    The
Purchase Agreement granted Mingxiang a right of first refusal to purchase
the 20% of the registered capital of Xianghe retained by Seller for a maximum
price of RMB47,500,000 (approximately $7,000,000) if Seller intends to sell his
shares. The Purchase Agreement also provides that if Xianghe has any funding
requirement from the shareholders, Mingxiang and Seller shall provide the
capital into Xianghe on a pro rata basis according to their respective
shareholdings.

    

    Mingxiang
intends to integrate the algae-based beverage products of Xianghe into
Mingxiang’s distribution network. Xianghe has an experienced management
team and its management and other employees will continue to work at Xianghe
after the acquisition.

    
      
         

      

      
        F-18

        
          

        

      

      
         

      

    

    Item 9.01
(b)          Pro Forma
Financial Information

    

    

    
      	
               

              CHINA
      MARINE FOOD GROUP LIMITED

               

              Unaudited
      Pro forma Financial Information

               

            

    

    
      
         

      

      
        F-19

        
          

        

      

      
         

      

    

    CHINA
MARINE FOOD GROUP LIMITED

    NOTES
TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

    FINANCIAL
INFORMATION

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

    

    The
following unaudited pro forma condensed consolidated balance sheet as of
September 30, 2009 and the unaudited pro forma condensed consolidated statement
of operations are derived from the historical financial statements of the
Company and Xianghe and have been prepared to give effect to the Company’s
acquisition of Xianghe on January 1, 2010. The unaudited pro forma condensed
consolidated balance sheet is presented as if the acquisition had occurred as of
the balance sheet date. The unaudited pro forma condensed consolidated statement
of operations is presented as if the acquisition had occurred on January 1,
2009.

    

    The
acquisition has been accounted for under the purchase method of accounting which
requires the total purchase price to be allocated to the assets acquired and
liabilities assumed based on their estimated fair values. The excess purchase
price of over the amounts assigned to tangible or intangible assets acquired and
liabilities assumed is recognized as goodwill.

    

    The
following unaudited pro forma condensed consolidated financial statements have
been prepared for illustrative purposes only and do not purport to reflect the
results the combined company may achieve in future periods or the historical
results that would have been obtained. These unaudited pro forma condensed
consolidated financial statements, including the notes hereto, should be read in
conjunction with (i) the historical consolidated financial statements for the
Company included in its Form 10-Q filed on November 12, 2009 and (ii) the
historical financial statements of Xianghe included in the Company’s Form 8-K/A
dated March 16, 2010.

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    CHINA
MARINE FOOD GROUP LIMITED

    UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

    AS
OF SEPTEMBER 30,
2009

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

    

    
      
        
          
            
              
                
                  
                    
                      	 
      	 	
                              The Company

                            	 	 	
                              Xianghe

                            	 	 	
                              Pro forma
      adjustment

                            	 	 	
                              Pro forma

                              consolidated

                            	 
	
                              ASSETS

                            	 	 	 	 	 	 	 	 	      	 	 	 
	
                              Current
      assets:

                            	 	 	 	 	 	 	 	 	 	 	 	 
	
                              Cash
      and cash equivalents

                            	 	$	31,298,084	 	 	$	481,028	 	 	 	(27,800,000	)
      A	 	$	3,979,112	 
	
                              Accounts
      receivable, net

                            	 	 	7,211,701	 	 	 	3,865,171	 	 	 	 	 	 	 	11,076,872	 
	
                              Inventories

                            	 	 	14,082,458	 	 	 	623,691	 	 	 	 	 	 	 	14,706,149	 
	
                              Amount
      due from an owner

                            	 	 	-	 	 	 	-	 	 	 	 	 	 	 	-	 
	
                              Prepaid
      expenses and other current assets

                            	 	 	219,579	 	 	 	-	 	 	 	 	 	 	 	219,579	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              Total
      current assets

                            	 	 	52,811,822	 	 	 	4,969,890	 	 	 	 	 	 	 	29,981,712	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              Non-current
      assets:

                            	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              Goodwill

                            	 	 	-	 	 	 	-	 	 	 	3,485,358	  A	 	 	3,485,358	 
	
                              Property,
      plant and equipment, net

                            	 	 	8,678,539	 	 	 	414	 	 	 	 	 	 	 	8,678,953	 
	
                              Intangible
      asset, net

                            	 	 	-	 	 	 	8,795	 	 	 	23,479,787	  A	 	 	23,488,582	 
	
                              Land
      use rights, net

                            	 	 	619,409	 	 	 	-	 	 	 	 	 	 	 	619,409	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              TOTAL
      ASSETS

                            	 	$	62,109,770	 	 	$	4,979,099	 	 	 	 	 	 	$	66,254,014	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              LIABILITIES
      AND STOCKHOLDERS’ EQUITY

                            	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              Current
      liabilities:

                            	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              Short-term
      borrowings

                            	 	$	4,138,879	 	 	$	-	 	 	 	 	 	 	$	4,138,879	 
	
                              Accounts
      payable, trade

                            	 	 	904,874	 	 	 	1,663,984	 	 	 	 	 	 	 	2,568,858	 
	
                              Amount
      due to a stockholder/an owner

                            	 	 	95,540	 	 	 	1,010,589	 	 	 	 	 	 	 	1,106,129	 
	
                              Income
      tax payable

                            	 	 	446,153	 	 	 	333,232	 	 	 	 	 	 	 	779,385	 
	
                              Accrued
      liabilities and other payable

                            	 	 	1,185,842	 	 	 	927,725	 	 	 	 	 	 	 	2,113,567	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              Total
      current liabilities

                            	 	 	6,771,288	 	 	 	3,935,530	 	 	 	 	 	 	 	10,706,818	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              Stockholders’
      equity:

                            	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              Preferred
      stock

                            	 	 	-	 	 	 	-	 	 	 	 	 	 	 	-	 
	
                              Common
      stock

                            	 	 	23,045	 	 	 	43,979	 	 	 	(43,979	)
      B	 	 	23,045	 
	
                              Additional
      paid-in capital

                            	 	 	16,752,926	 	 	 	-	 	 	 	 	 	 	 	16,752,926	 
	
                              Statutory
      reserve

                            	 	 	4,883,700	 	 	 	149,862	 	 	 	(149,862	)
      B	 	 	4,883,700	 
	
                              Accumulated
      other comprehensive income

                            	 	 	3,564,866	 	 	 	508	 	 	 	(508	)
      B	 	 	3,564,866	 
	
                              Retained
      earnings

                            	 	 	30,113,945	 	 	 	849,220	 	 	 	(849,220	)
      B	 	 	30,113,945	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              Total
      stockholders’ equity

                            	 	 	55,338,482	 	 	 	1,043,569	 	 	 	 	 	 	 	55,338,482	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              Non-controlling
      interest

                            	 	 	-	 	 	 	-	 	 	 	208,714	  B	 	 	208,714	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY

                            	 	$	62,109,770	 	 	$	4,979,099	 	 	 	 	 	 	$	66,254,014	 

                    

                  

                

              

            

          

        

      

    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    CHINA
MARINE FOOD GROUP LIMITED

    UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED

    STATEMENT
OF OPERATIONS

    FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            	 
      	 	
                                                                    The Company

                                                                  	 	 	
                                                                    Xianghe #1

                                                                  	 	 	
                                                                    Pro forma

                                                                    adjustments

                                                                  	 	 	
                                                                    Pro forma

                                                                    consolidated

                                                                  	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Revenue,
      net

                                                                  	 	$	44,696,859	 	 	$	4,503,645	 	 	 	 	 	$	49,200,504	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Cost
      of revenue

                                                                  	 	 	(31,398,803	)	 	 	(2,739,603	)	 	 	 	 	 	(34,138,406	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Gross
      profit

                                                                  	 	 	13,298,056	 	 	 	1,764,042	 	 	 	 	 	 	15,062,098	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Operating
      expenses:

                                                                  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Depreciation
      and amortization

                                                                  	 	 	(59,300	)	 	 	(199	)	 	 	 	 	 	(59,499	)
	
                                                                    Sales
      and distribution

                                                                  	 	 	(404,810	)	 	 	(369,108	)	 	 	 	 	 	(773,918	)
	
                                                                    General
      and administrative

                                                                  	 	 	(1,504,226	)	 	 	(62,633	)	 	 	 	 	 	(1,566,859	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Total
      operating expenses

                                                                  	 	 	(1,968,336	)	 	 	(431,940	)	 	 	 	 	 	(2,400,276	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Income
      from operations

                                                                  	 	 	11,329,720	 	 	 	1,332,102	 	 	 	 	 	 	12,661,822	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Other
      income (expenses):

                                                                  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Subsidy
      income

                                                                  	 	 	236,756	 	 	 	-	 	 	 	 	 	 	236,756	 
	
                                                                    Rental
      income

                                                                  	 	 	61,162	 	 	 	-	 	 	 	 	 	 	61,162	 
	
                                                                    Interest
      income

                                                                  	 	 	190,680	 	 	 	7	 	 	 	 	 	 	190,687	 
	
                                                                    Interest
      expense

                                                                  	 	 	(174,864	)	 	 	-	 	 	 	 	 	 	(174,864	)
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Total
      other expenses

                                                                  	 	 	313,734	 	 	 	7	 	 	 	 	 	 	313,741	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Income
      before income taxes

                                                                  	 	 	11,643,454	 	 	 	1,332,109	 	 	 	 	 	 	12,975,563	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Income
      tax expense

                                                                  	 	 	(1,441,480	)	 	 	(333,027	)	 	 	 	 	 	(1,774,507	)
	
                                                                    Non-controlling
      interest

                                                                  	 	 	-	 	 	 	-	 	 	 	(199,816	) C	 	 	(199,816	)
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    NET
      INCOME

                                                                  	 	$	10,201,974	 	 	$	999,082	 	 	 	 	 	 	$	11,001,240	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Per
      share information:

                                                                  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Net
      income per share

                                                                  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    –
      Basic

                                                                  	 	$	0.44	 	 	 	-	 	 	 	 	
                                                                    D

                                                                  	 	$	0.48	 
	
                                                                    –
      Diluted

                                                                  	 	$	0.44	 	 	 	-	 	 	 	 	
                                                                    D

                                                                  	 	$	0.48	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    Weighted
      average shares outstanding

                                                                  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                                                    –
      Basic

                                                                  	 	 	23,045,791	 	 	 	-	 	 	 	 	 	 	 	23,045,791	 
	
                                                                    –
      Diluted

                                                                  	 	 	23,045,791	 	 	 	-	 	 	 	 	 	 	 	23,045,791	 

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    Notes:

    #1         Representing
with the operating result of Xianghe for the period from July 28, 2009
(Inception) to September 30, 2009.

    

    #2         The
pro forma condensed consolidated statement of operations for the year ended
December 31, 2008 is not required as Xianghe was not in existence during 2008
fiscal year.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    CHINA
MARINE FOOD GROUP LIMITED

    NOTES
TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION

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

    

    
      	
              NOTE
      1

            	
              BASIS
      OF PRESENTATION

            

    

    

    The
unaudited pro forma condensed consolidated balance sheet assumes that the
purchase took place on January 1, 2009 and certain assets and liabilities of
Xianghe were acquired and assumed by the Company. Such financial statement
combines the historical consolidated balance sheet of the Company and Xianghe at
September 30, 2009. The unaudited pro forma condensed consolidated statement of
operations assume that the purchase took place on September 30, 2009, and
combine the historical consolidated statement of operations of the Company and
Xianghe for the nine months ended September 30, 2009.

    

    There
were no significant transactions on a combined basis between the acquired entity
and the Company during the periods presented.

    

    The
following unaudited pro forma condensed consolidated financial information was
prepared using the purchase method of accounting as required by Accounting
Standards Codification Topic 805, “Business Combinations”. The
purchase price has been allocated to the assets acquired and liabilities assumed
based upon management’s preliminary estimate of their respective fair values as
of the date of acquisition. Any differences between the fair value of the
consideration issued and the fair value of the assets and liabilities acquired
will be recorded as goodwill.

    

    
      	
              NOTE
      2

            	
              PRO
      FORMA ADJUSTMENTS

            

    

    

    These
unaudited pro forma condensed consolidated financial statements reflect the
following pro forma adjustments:

    

    
      	
              ·

            	
              Adjustment
      (A)

            

    

    

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

     

    
      
        
          
            
              	
                      Acquired
      assets:

                    	 	 	 
	
                      Cash
      and cash equivalents

                    	 	$	481,028	 
	
                      Accounts
      receivable, net

                    	 	 	3,865,171	 
	
                      Inventories

                    	 	 	623,691	 
	
                      Property,
      plant and equipment, net

                    	 	 	414	 
	
                      Intangible
      assets, net

                    	 	 	8,795	 
	 
      	 	 	 	 
	
                      Total
      assets acquired

                    	 	 	4,979,099	 
	 
      	 	 	 	 
	
                      Less:
      liabilities assumed

                    	 	 	 	 
	
                      Accounts
      payable, trade

                    	 	 	1,663,984	 
	
                      Amount
      due to an owner

                    	 	 	1,010,589	 
	
                      Income
      tax payable

                    	 	 	333,232	 
	
                      Accrued
      liabilities and other payable

                    	 	 	927,725	 
	 
      	 	 	 	 
	
                      Total
      liabilities assumed

                    	 	 	3,935,530	 
	 
      	 	 	 	 
	
                      Less:
      non-controlling interest

                    	 	 	208,714	 
	 
      	 	 	 	 
	
                      Net
      assets acquired

                    	 	 	834,855	 
	
                      Algae-based
      drink know-how *

                    	 	 	23,479,787	 
	
                      Goodwill

                    	 	 	3,485,358	 
	 
      	 	 	 	 
	
                      Purchase
      price consideration

                    	 	$	27,800,000	 

            

          

        

      

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    CHINA
MARINE FOOD GROUP LIMITED

    NOTES
TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION

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

    

    Pursuant
to the Share Purchase Agreement (the “Agreement”), the aggregate purchase price
is approximately $27,800,000 (equivalent to RMB190,000,000), in which
approximately $26,400,000 is payable by Xianghe upon the conversion of its
short-term loan and approximately $1,400,000 is payable by the Company’s
subsidiary, Mingxiang.

    

    Algae-based
drink know-know is acquired at its fair value, based upon the independent
valuation report.

    

    
      	
              ·

            	
              Adjustment
      (B)

            

    

    

    To
reflect (1) the elimination of the stockholders' equity accounts of Xianghe, (2)
the equity component of the purchase price, and (3) the purchase price
allocation as reflected above in Adjustment (A).

    

    
      	
              ·

            	
              Adjustment
      (C)

            

    

    

    To record
net income attributable to non-controlling interest.

    

    
      	
              ·

            	
              Adjustment
      (D)

            

    

    

    Pro forma
basic income per common share is computed by dividing the pro forma net income
applicable to common stockholders by the pro forma weighted average number of
common shares assumed to be outstanding during the periods of computation. Pro
forma diluted income per common share is computed using the pro forma weighted
average number of common shares and, if dilutive, potential common shares
outstanding during the periods. During the pro forma periods presented, there
were no additional potentially dilutive common shares (that is, resulting from
the purchase transaction) that were excluded from pro forma diluted income per
common share because they were anti-dilutive.

    
      
         

      

      
        5

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