Annual Report (10-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
___________________

FORM 10-K

___________________

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

For the fiscal year ended December 31, 2012

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

For the transition period from_______to_______

Commission File Number 001-34422

CHINA MARINE FOOD GROUP LIMITED

(Exact name of registrant as specified in its charter)

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

Da Bao Industrial Zone, Shishi City

Fujian, China 362700

(Address of principal executive offices)

86-595-8898-7588

(Issuer's telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller Reporting Company þ

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $14,516,829 based on the June 29, 2012 closing sale price of $0.84 as reported on the NYSE MKT.

As of March 14, 2013, there were 29,722,976 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

China Marine Food Group Limited

FORM 10-K

For the Year Ended December 31, 2012

TABLE OF CONTENTS

PART I
ITEM 1.	Business	4
ITEM 1A.	Risk Factors	27
ITEM 1B.	Unresolved Staff Comments	41
ITEM 2.	Properties	41
ITEM 3.	Legal Proceedings	43
ITEM 4.	Mine Safety Disclosures	43

PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	44
ITEM 6.	Selected Financial Data	45
ITEM 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	45
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	64
ITEM 8.	Financial Statements	F-1 – F-26
ITEM 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	65
ITEM 9A	Controls and Procedures	65
ITEM 9B.	Other Information	66

PART III
ITEM 10.	Directors and Executive Officers of the Registrant and Corporate Governance	67
ITEM 11.	Executive Compensation	71
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	75
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	76
ITEM 14.	Principal Accountant Fees and Services	77

PART IV
ITEM 15	Exhibits, Financial Statement	78

SIGNATURES		82

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

PART I

ITEM 1. BUSINESS

Overview

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

Our dried and flavored seafood-based snack foods are predominantly sold under our registered trademark, the “Mingxiang” brand. These products are sold to 18 exclusive distributors in certain provinces in the PRC, including Fujian, Guangdong, Shandong and Zhejiang which in turn sub-distributed to about 3,500 retail points in the PRC (including major supermarkets and retailers such as Wal-Mart and Carrefour) throughout these provinces. Founded in 1994, China Marine has grown steadily and positioned its “Mingxiang” brand as a category leader. We have received “ China Well-Known Trademark ” , “ Famous Brand” and “Green Food” awards. Our marine catch is sold to trading companies and distributors in Fujian, Shandong and Liaoning provinces, and overseas customers in the Philippines.

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

On January 1, 2010, Mingxiang acquired shares representing 80% of the registered capital stock of Xianghe. Xianghe is a manufacturer of the branded Hi-Power algae-based soft drinks. Xianghe developed a network of distributors, initially in Fujian and later in Zhejiang provinces. The distributors, who have exclusive territories, sell Hi-Power to retail food stores, restaurants food supply dealers and the hospitality industry. The algae-based beverage products are sold to seven exclusive distributors and in turn sub-distributed to about 14,000 retail points in Fujian and Zhejiang provinces.

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

Our Corporate Structure

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

Our Corporate History

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

Acquisition of Ocean Technology and Related Financing

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

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

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

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

Background History of Ocean Technology

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

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

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

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

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

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

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

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

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

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

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

In November 2009, Mingxiang won the auction for the purchase of the 40-year use right of a land parcel in Shishi City, Fujian. Covering an area of 8,691.4 sq. m., the land is located alongside the fishing port and near the Company’s processing facilities in Shishi City. In the third quarter of 2010, we commenced building a new cold storage facility on the land with a capacity of approximately 20,000 tons. T he construction was completed and commenced operations in July 2012. See “Description of Business - Production Facilities and Process.”

In November 2009, Mingxiang entered into a Credit or Share Purchase Option Agreement (the “Option Agreement”) with Qiu Shang Jing, the former sole shareholder of Xianghe. Under the Option Agreement, Mingxiang loaned Xianghe RMB180,500,000 (approximately $26,400,000). In consideration for the loan, Mingxiang received the option to buy shares from Mr. Qiu representing eighty percent (80%) ownership of Xianghe. The purchase price payable to Mr. Qiu consisted of RMB9,500,000 (approximately $1,400,000) payable by Mingxiang and RMB180,500,000 (approximately $26,400,000) payable by Xianghe. On January 1, 2010, Mingxiang exercised its option to acquire eighty percent (80%) of the registered capital stock of Xianghe. Xianghe began its operations in June 2009. We expanded the distribution of Hi-Power in both Fujian and Zhejiang provinces to about 14,000 retail points by the end of 2012.

In 2012, our “Mingxiang” brand was recognized as a “China Well-Known Trademark” award by the State Administration for Industry and Commerce.

We have grown from a domestic market-oriented seafood enterprise with over 80 employees in 2003 into a medium-sized nationwide seafood enterprise with advanced processing facilities and machineries and cold storage facilities. As of December 31, 2012, we had 517 employees.

OUR PRINCIPAL PRODUCTS AND THE MARKET

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

Our business philosophy may be summarized in the following phrase:

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

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

Processed Seafood Products

Using a combination of Japanese traditional seafood processing methods and modern scientific seafood processing techniques, as of December 31, 2012, our product development efforts have yielded 27 processed seafood products comprising dried seafood products such as roasted squid, roasted file fish, roasted prawns, shredded roasted squid, barbecued squid, sliced barbecued squid, sliced roasted octopus, spicy sliced octopus, spicy baby squid, spicy sliced squid and spicy squid head. Our production facilities are located at Dabao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province, occupying a total land area of 17,600 sq. m. The principal processing facilities include cold storage facilities with a capacity of 2,020 tons. We have four production lines for the processing of our roasted file fish, roasted prawns, shredded roasted squid and roasted squid and one production line for frozen processed seafood products. In 2012, our modern cold storage facility with a capacity of 20,000 tons commenced operations. The new facility is located alongside the fishing port and near our processing facilities in Shishi City.

We have established sales networks in various large and medium sized cities in the PRC. Although our current export sales were not significant comparing to our domestic sales, we believe we will have more opportunities to trade with overseas customers. Our dried processed seafood products are mainly sold in retail points in Fujian and Zhejiang provinces and their surrounding areas, and through our sales network through 18 distributors, each of whom have its own sales network and are authorized by us to distribute our products exclusively in a specific vicinity. We intend to continue our marketing efforts in the PRC in view of its potential opportunities and attractive returns.

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

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

All our dried and frozen processed seafood products are manufactured free of preservatives. We use ingredients such as sugar, salt and spices in the production of our dried processed seafood products. The raw materials for our processed seafood products are obtained through fresh marine catch and not from seafood breeding farms.

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

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

We are a State-designated base for quality assurance testing of marine products. Please see the section “Quality Assurance” for more details.

Marine Catch

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

In 2012, we commenced providing ice making services to the port area after completion of the new cold storage facilities but the related income is relatively immaterial compared to the revenues generated from trading of marine catch.

Algae-based Beverage Products

Our branded “Hi-Power” algae-based soft beverage product was developed by the Yellow Sea Fisheries Research Institute Chinese Academy of Fishery Science in coordination with Xianghe’s founder, Qiu Shang Jing. Hi-Power beverage is marketed as a high-protein drink, low in calories and fat. Our target market focuses on middle class health-conscious consumers in China’s fast-growing beverage market. We have developed a network of exclusive distributors in China’s Fujian and Zhejiang provinces, which sell our Hi-Power beverage product to retail food stores, restaurant food supply dealer and hospitality industry in their respective distribution territories. The algae-based beverage products are sold to seven exclusive distributors and in turn sub-distributed to about 14,000 retail points located in these two provinces. We intend to expand distribution of the Hi-Power soft drinks to other parts of the PRC.

Our Products

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

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

Products	Products / Species	Main Markets in the PRC	Foreign Markets
Processed Seafood Products	Roasted file fish Jingdu roasted fish Barbecued squid Roasted prawn Barbecued baby squid Sliced shredded squid Sliced octopus Sliced squid	Fujian Province Zhejiang Province Shandong Province Guangdong Province Greater Shanghai Region till April 2011	N/A
Marine Catch	Squid (Loligo bleekeri) Horse mackerel	Fujian Province Shandong Province Lianoing Province	The Philippines
“Hi-Power” Algae-Based Beverage Products		Fujian Province Zhejiang Province	N/A

Processed Seafood Products

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

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

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

Marine Catch

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

Squid ( Loligo bleekeri )

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

“Hi-Power” Algae-Based Beverage Products

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

Production Facilities and Process

The production of our dried and frozen processed seafood products is carried out at our production facilities in Dabao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province. At December 31, 2012, we own four production lines for the manufacture of dried processed seafood products and one production line for the manufacture of frozen processed seafood products. After the upgrade of our production facilities in 2009, the maximum annual production capacities of our production lines increased to about 19,000 tons of dried processed seafood products and 1,000 tons of frozen processed seafood products. The construction of our new facilities was completed and commenced full operations by the third quarter end of 2009. We also own cold storage facilities at this address with cold storage capacity of 2,020 tons.

On November 6, 2009, Mingxiang won the auction for the purchase of the 40-year use right of a land parcel in Shishi City, Fujian. Covering an area of 8,691.4 sq. m., the land is located alongside the fishing port and near our processing facilities in Shishi City. The fishing port in Shishi is one of the five largest fishing ports in the PRC. The cold storage facility was built on the land, with a capacity of approximately 20,000 tons, to take advantage of its proximity to the port where we obtain fresh seafood catch to be processed into seafood products. This facility commenced operations in July 2012 . We financed the total $27.3 million in land use rights and construction costs from funds generated by operations.

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

Dried Processed Seafood Products

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

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

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

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

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

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

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

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

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

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

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

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

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

“Hi-Power” Algae-Based Beverage Products

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Awards and Certifications

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

Year	Subsidiary	Award	Period	Awarding Body	Significance

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

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

DISTRIBUTION

PROCESSED SEAFOOD PRODUCTS

Sales and Marketing

Our sales and marketing team comprises 37 employees, headed by our Executive Chairman, Director and CEO Mr. Pengfei Liu. The team is responsible for monitoring domestic sales, which includes co-coordinating orders from customers as well as distributing our products to the customers.

Distribution Network

We have established a wide distribution network which allows us to maintain our competitiveness in the industry. As of December 31, 2012, we had 18 distributors in certain provinces in the PRC, including Fujian, Guangdong, Shandong and Zhejiang, as follows:

Province		No. of Distributors
Fujian		8
Guangdong		1
Shandong		1
Zhejiang		6
Other		2
Total		18

These distributors in turn sub-distribute our dried processed seafood products to about 3,500 retail points (including major supermarkets and retailers such as Wal-Mart and Carrefour) throughout these provinces.

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

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

We select each distributor based on four criteria:

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

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

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

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

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

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

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

We advertise our products regularly through in-store advertising campaigns, free tasting and outdoor billboards. We also participate in exhibitions in the PRC such as the China Export Trade Fair and the China Seafood Exposition.

“HI-POWER” ALGAE-BASED BEVERAGE PRODUCTS

Sales and Marketing

Our sales and marketing team, which decreased to 81 employees in 2012 from 134 in 2011, is headed by our Executive Chairman, Director and CEO Mr. Pengfei Liu. The team is responsible for developing and implementing the Company’s overall development and promotional strategy for our algae-based beverage products, which includes co-coordinating orders from customers as well as distributing our products to the customers.

We increased our advertising and promotional costs in 2012 to strengthen brand position and improve market awareness in both existing and new markets and cope with the marketing strategies associated with the beverage products. We spent approximately $9.2 million in advertising campaigns, including TV commercials, and $15.6 million in promotional costs including subsidized products for promotional purposes, free gifts and other direct marketing events in 2012 on both the beverage products and the processed seafood products.

Distribution Network

We have developed a network of seven distributors with exclusive territories in Fujian and Zhejiang provinces, which distributors distribute the Hi-Power products to about 14,000 retail points, including retail food stores, restaurant food supply dealers and the hospitality industry. Distributors of our algae-based drinks must adhere to the same stringent selection process used for dried seafood distributors.

NEW PRODUCTS

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

COMPETITION

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

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

Business		Principal Competitors
Dried and Frozen Processed Seafood Products		(1) China Aquatic Zhoushan Marine Fisheries Corporation; and (2) Liaoning Dalian Seafood Industry Group Co., Ltd. Both in terms of their size and operations.

Marine Catch		(1) Fujian Seafood Industry Co., Ltd; and (2) Fujian Huayang Aquatic Products Group Co., Ltd. Both in terms of their geographical proximity to our customer base.

“Hi-Power” Algae-Based Beverage Products		No direct competitor.

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

Competitive Strengths

We believe that our competitive strengths are as follows:

1.	We have a wide distribution network

We have established a wide distribution network for our processed seafood products which allows us to maintain our competitiveness in the industry. We have 18 exclusive distributors in certain provinces in the PRC such as Fujian, Guangdong, Shandong and Zhejiang. These distributors in turn sub-distribute our dried processed seafood products to about 3,500 retail points (including major supermarkets and retailers such as Wal-Mart and Carrefour) throughout these provinces.

With respect to Hi-Power, we have developed a network of distributors with exclusive territories in Fujian and Zhejiang provinces which in turn sub-distribute Hi-Power to about 14,000 retail points, including retail food stores, restaurants food supply dealers and the hospitality industry.

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

2.	We have an established brand name and track record

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

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

3.	We develop high quality products

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

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

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

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

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

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

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

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

We have maintained close working relationships with our customers who are reputable distributors of processed seafood products. Our relationships with some of our PRC customers and distributors have been established for more than ten years. In particular, we have enjoyed good relationships with, among others, Qingdao Haizhan Seafood Co., Ltd. (“Qingdao Haizhan”), Wenzhou Rixin Foodstuff Co., Ltd. (“Wenzhou Rixin”), and Zhejiang Ruian Laodu Seafood Wholesale Proprietor (“Zhejiang Ruian Laodu”), for an average of approximately 16 years.

Qingdao Haizhan is in the business of distributing dried and frozen seafood products. To the best of our knowledge, Qingdao Haizhan has a distribution network of over 1,108 retailers and a sales workforce of about 92 people.

Wenzhou Rixin is a distributor of dried seafood in Wenzhou City, Zhejiang Province. To the best of our knowledge, Wenhou Rixin has a distribution network of about 1,139 retailers and a sales workforce of about 102 people.

Zhejiang Ruian Laodu is a large distributor of dried seafood in Ruian City, Zhejiang Province. To the best of our knowledge, Zhejiang Ruian Laodu has a distribution network of about 637 retailers and a sales workforce of about 71 people.

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

6.	We are strategically located

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

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

7.	We have strong research and development capabilities

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

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

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

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

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

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

MAJOR SUPPLIERS

The following table sets out our five major suppliers for processed seafood products, marine catch and algae-based beverage products for the years ended December 31, 2012 and 2011:

	As a Percentage of Our Purchases (%)
	Year Ended December 31,
	2012		2011

Dalian Rich Seafood Co., Ltd.		43.0		-
Shishi City Fugui Seafood Products Trading Proprietor		17.5		11.0
Shishi City Dongfan Seafood Products Trading Proprietor		15.8		14.4
Jinjiang City Shenhu Town Hongyuan Seafood Products Trading Proprietor		10.3		-
Shishi City Shishi City Huali Seafood Products Trading Proprietor		9.1		-
Dalian Ocean Fishery Group of Corporations		-		38.2
Dalian Kangwei Trading Company Limited		-		17.2
Shishi City Tianwang Seafood Products Trading Proprietor		-		7.2
TOTAL		95.7		88.0

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

Though certain of our major suppliers accounted for more than 10% of our total purchases individually for the fiscal year ended December 31, 2012, we believe we are able to source our raw materials from alternative suppliers should the need arise.

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

MAJOR CUSTOMERS

The following table sets out our major customers accounting for 5.0% or more of our sales of processed seafood products, marine catch and algae-based beverage products for the years ended December 31, 2012 and 2011:

		As a Percentage of Our Sales (%)
		Year Ended December 31,
	Products	2012			2011

Dalian Jiyang Import and Export Co., Ltd. (1)	Marine catch		23.5			25.3
Qingdao Haizhan Seafood Co., Ltd. (2)	Dried processed seafood products		12.3			-	(6)
Fuzhou Xinxutai Trading Ltd. (3)	Dried processed seafood and beverage products		11.2			6.6
Xiamen Wansong Commercial and Trading Ltd. (4)	Dried processed seafood and beverage products		10.8			6.1
Zhejiang Haoye Trading Ltd. (5)	Dried processed seafood and beverage products		7.9			-	(6)
Qingdao Xinqinghua Seafood Products Company (2)	Marine catch		-	(6)		9.2
TOTAL			65.7			47.2

Notes:

(1)	Dalian Jiyang Import and Export Co., Ltd. is a trader of goods and import of technology in China, and has, to the best of our knowledge, a distribution network of about 19 retailers and a sales workforce of about 8 people. It has been our customer since 2008.

(2)

Qingdao Xinqinghua Seafood Products Company is a trader of fresh seafood in Qingdao City, Shandong Province. It sources and purchases supplies for Korean fishery companies and has been our customer since 1996 . Besides, the company owns 100% of Qingdao Haizhan Seafood Co., Ltd., another major customer. Qingdao Haizhan Seafood Co., Ltd. deals in dried and frozen seafood products and, to the best of our knowledge, has a distribution network of over 1,108 retailers and a sales workforce of about 92 people. It has been our customer since 1996, but in 2011 accounted for less than five percent of our sales. Our sales to Qingdao Haizhan Seafood Co., Ltd. have increased as it expanded its sales network to include supermarkets, which have resulted in increased orders from them. We believe that we will be less reliant on Qingdao Haizhan Seafood Co., Ltd. and Qingdao Xinqinghua Seafood Products Company for our sales in future, as we enter new markets and increase market penetration of existing markets.

(3)

Fuzhou Xinxutai Trading Ltd. is a distributor of dried seafood and drinks, and has, to the best of our knowledge, a distribution network of about 311 retailers and a sales workforce of about 86 people. It has been our customer since 2010. Our sales to Fuzhou Xinxutai Trading Ltd. have increased as it expanded its sales network to meet growing market demand.

(4)

Xiamen Wansong Commercial and Trading Ltd. is a distributor of drinks, and has, to the best of our knowledge, a distribution network of about 163 retailers and a sales workforce of about 93 people. It has been our customer since 2010. Our sales to Xiamen Wansong Commercial and Trading Ltd. have increased as it expanded its sales network to meet growing market demand.

(5)

Zhejiang Haoye Trading Ltd. is a distributor of drinks, and has, to the best of our knowledge, a distribution network of about 1,325 retailers and a sales workforce of about 103 people. It has been our customer since 2010. Our sales to Zhejiang Haoye Trading Ltd. have increased as it expanded its sales network to meet growing market demand.

(6)	Accounting for less than 5.0% of our sales of processed seafood products, marine catch and algae-based beverage products.

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

INTELLECTUAL PROPERTY

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

Trademarks

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

Trademark	Class	Place of Registration	Status / Validity Period

(1)	Class 29 covering fish products, frozen fruits, seaweed, algae, edible jellies, fungus, edible albumen, pork products and vegetables soups	PRC	Registered / August 28, 2010 to August 27, 2020

(1)	Class 40 covering processed seafood products, agricultural by-products, processed tea leaves, processed medicinal materials, processed chemical reagents, processed textile, processed oil, w ater purification	PRC	Registered / January 28, 2003 to January 27, 2013 (2)

	Class 29 covering pork products, crustaceans (not live), fish (not live), shellfish (not live), fish products, shrimp (not live), sea cucumber (not live), canned seafood, seaweed and algae	PRC	Registered / July 21, 2012 to July 20, 2022

	Class 30 covering coffee, tea, sugar, cereal-based snack foods, cereal products, flour products, lobster chips, ice-creams and seasoning	PRC	Registered / March 7, 2012 to March 6, 2022

	Class 32 covering water (beverages), mineral water, fruit juices (beverages), non-alcoholic drinks; fruit tea (alcohol-free), tea with milk (non-milk based), vegetable beverages, ginger beverages and materials for beverage production	PRC	Registered / March 7, 2012 to March 6, 2022

HI - Power	Class 32 covering materials for beverage production	PRC	Registered / May 7, 2012 to May 6, 2022

Note :

(1)

The above “Mingxiang” trademark was originally registered under the name of “Fujian Province Shishi City Huabao Mingxiang Foods Development Co.” on January 14, 1997. In a Confirmation of Approval to Trademark Transfer dated June 14, 2001, the PRC Trademark Bureau approved the transfer of this trademark to Mingxiang and the trademark is now registered in Mingxiang’s name.

(2)	Pending for government’s approval of renewal.

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

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

GOVERNMENT REGULATIONS

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

Licenses and Permits

Our licenses and permits are as follows:

Subsidiary	Name of Certificate	Description of License/Permit	Issuing Authority	Period of Validity
Mingxiang	National Industrial Product Manufacturing License	Permit to process seafood (dried)	Fujian Province Quality Technology Supervisory Bureau	November 1, 2011 to October 31, 2014
Rixiang	National Industrial Product Manufacturing License	Permit to process seafood (dried)	Fujian Province Quality Technology Supervisory Bureau	June 1, 2010 to April 15, 2013 (1)
Rixiang	Customs Registration Certificate	Permit to file import-export documents with China Customs	China Customs	December 7, 2012 to December 14, 2015
Mingxiang	Certificate of Approval for Enterprises with Foreign Trade Rights in the People’s Republic of China	To import-export company’s products and technologies, raw materials, facilities, equipment	Fujian Foreign Trade Economic Cooperation Department	September 4, 2000; no expiration date
Rixiang	EU Export Registration	Approval for Rixiang to export marine products to EU	European Commission	October 6, 2006; no expiration date

(1) Pending for government’s approval of renewal.

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

RESEARCH AND DEVELOPMENT

We believe that constant innovation in developing new processes and products that are well-received by consumers is vital to our continued success. As of December 31, 2012, our research and development team comprised 8 personnel. The focus of our research and development is directed towards satisfying the preferences of consumers, with the following objectives:

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

2.	To develop new products;

3.	To achieve full customer satisfaction;

4.	To reduce costs and create value; and

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

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

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

Product Development

Through our research and development activities, we have developed products which have been well-received by consumers and improved our production processes. We have through our research and development introduced 27 processed seafood products, including spicy sliced octopus, spicy baby squid, spicy sliced squid and spicy squid head. We believe that our constant product innovation has led to our increasing reputation as a producer of processed natural seafood products.

Collaboration with Ocean University of China

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

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

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

Our research and development expenses amounted to approximately $64,000 and $85,000 for 2012 and 2011, respectively. Research and development expenses are presented as part of general and administrative expenses in the financial statements.

QUALITY ASSURANCE

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

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

Subsidiary	Award/Certification	Awarding/Certification Body	Validity Period
Rixiang	Validation of conformity with HACCP standards for the export of marine products to the US (1)	CNCA & CIQ	June 18, 2012 to June 17, 2013 (5)
Rixiang	EUexport registration for export of our marine products to the EU (2)	European Commission	No validity period
Mingxiang	ISO9001:2008 quality management system certification (3)	CNAB & CQC Quality Certification Centre	November 9, 2012 to November 8, 2015
Mingxiang	ISO14001:2004 environmental management system certification in respect of the processing of fish and prawn-type marine food products and the relevant environmental management (4)	CNAB & CQC Conformity Assessment Services Co, Ltd.	November 21, 2011 to November 20, 2014

Notes:

Under the PRC’s Regulations on Administration of Certification of Hazard Analysis and Critical Control Point System (HACCP), applicants for the HACCP certification have to apply to CNCA-recognized certification and accreditation entities and comply with domestic and international sanitary criteria set out in various legislation including the PRC Sanitary Requirements for Export Food Manufacturing Enterprises and the HACCP System and Guidelines for its Application by the Codex Alimentarius Commission. CIQ, a HACCP-certification authority, will verify an exporter’s HACCP certification if (a) the product to be exported falls within one of the following categories, namely (1) canned food, (2) marine food products (excluding live, fresh, dry and marinated products), (3) meat and meat products, (4) frozen vegetables, (5) fruit or vegetable juice, (6) instant frozen food containing meat or marine food products; or (b) where such verification is required by authorities in the destination country. We believe that the HACCP certification enables our products to be more widely accepted by our domestic and international customers and aid to increase the export of our products.

2.	The EU certification process ensures that the product conforms to the appropriate provisions and relevant legislation which implements certain European Directives. In the case of marine food products, the applicable European Directives include 91/493/EEC and 94/356/EC.

ISO9001:2008 is an international standard for quality management developed by the International Organization for Standardization. It sets requirements as to how an organization should manage its processes that influence product quality, and evaluates an organization’s resource management, process management and evaluation process that ensure its products conform to customer and applicable regulatory requirements.

4.	ISO14001:2004 is an internationally recognized standard for environment management systems, including energy management, waste management and process improvement.

5.	Pending for government’s approval of renewal.

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

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

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

In-coming

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

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

In-process

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

Finished products

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

After-sales

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

Quality Assurance Testing Base

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

TAXATION

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

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

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

ENVIRONMENTAL LAW COMPLIANCE

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

When our production plant was constructed, it was designed to comply with these environmental laws by directly disposing of the used water to a nearby sewage treatment plant for further handling. Monthly fees are charged based on the sewage volume being handled by the sewage treatment plant. The related sewage handling fees are about $56,000 and $33,000 for year 2012 and 2011, respectively.

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

EMPLOYEES

We set out below the total number of our employees and the various functions which they serve with respect to our processed seafood products, marine catch and ices, and algae-based beverage products as at December 31, 2012 and 2011, respectively.

	As at December 31,
Functions	2012			2011
Sales and Marketing		118	(1)		173
Finance and Administration		86			81
Procurement		4			4
Production, Research & Development and Quality Control		309	(1)		590
TOTAL		517			848

Note:

(1)	The decrease in the number of employees mainly resulted from the reduction of the sales team of our processed seafood products due to consumers’ perception of food safety in relation to the nuclear radiation leaks in Japan in 2011.

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

Staff Training

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

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

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

Website Access to our SEC Reports

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

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

ITEM 1A. RISK FACTORS

RISKS RELATED TO OUR BUSINESS

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

We use fresh seafood as the primary ingredient in our processed seafood products. Our processed seafood products accounted for approximately 32.7% and 41.0% of our sales in the fiscal years ended December 31, 2012 and 2011, respectively. Our production of processed seafood products is largely dependent on the continuous supply of fresh seafood, which in turn could be affected by a large number of factors, including but not limited to, environmental factors, the availability of seafood stock, weather conditions, water contamination, the policies and regulations of the governments of the relevant territories where such fishing is carried out, the ability of the fishing companies and fishermen that supply us to continue their operations and pressure from environmental or animal rights groups.

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

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

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

Our financial performance may be affected by changes in production costs brought about by fluctuations in the prices of our raw materials. Our major raw materials are fresh seafood which accounted for approximately 73.9 % and 72.9% of our total cost of revenue of processed seafood products in the fiscal years ended December 31, 2012 and 2011, respectively. The prices of our major raw materials may fluctuate due to changes in supply and demand conditions. Any shortage in supply or upsurge in demand of our major raw materials may lead to an increase in prices, which may adversely affect our profitability due to increased production costs and lower profit margins.

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

Our top five major customers accounted for approximately 65.7% and 51.6% of our sales in the fiscal years ended December 31, 2012 and 2011, respectively. The largest customer accounted for 23.5% and 25.3% of our sales in the fiscal years ended December 31, 2012 and 2011, respectively. In the event these customers do not continue to purchase from us or reduce their purchases from us or develop their own abilities to manufacture the products that we sell to them, and we are unable to secure new contracts or new customers that can replace the loss of these customers within a short time frame, our business and profitability may be adversely affected. Please see the section “Major Customers” for more details.

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

For the production of our processed seafood and algae-based beverage products and the trading of marine catch, we rely on our major suppliers for a significant portion of the supply of raw materials . Purchases from our top five suppliers of raw materials accounted for approximately 95.7% and 88.0% of our total purchases of raw materials in the fiscal years ended December 31, 2012 and 2011, respectively. In the event that we are unable to secure our raw materials from these suppliers and we are unable to find alternative sources of supply at similar or more competitive rates, our business and operations will be adversely affected. Please see the section “Major Suppliers” for more details.

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

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

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

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

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

We intend to, inter alia and expand our operations and production capacity by the use of the new cold storage facilities and through a series of advertising and promotional campaigns. The facilities commenced operations in July 2012 . Our expansion plans involve a number of risks, including inter alia the costs of investment in fixed assets, costs of working capital tied up in inventories, as well as other working capital requirements.

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

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

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

	As at December 31,
Products	2012		2011
	(%)		(%)
Processed seafood products		32.7		41.0
Marine catch		37.9		38.4
Algae-based beverage products		29.4		20.6

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Under the shipping terms of our standard customer contracts, we bear the risk of loss in shipment of our products and do not insure this risk. We believe the risk is not material because export sales only represented 1.8% and 0.1% of our total sales for the years ended December 31, 2012 and 2011, respectively, and the shipping companies that we use carry adequate insurance or are sufficiently solvent to cover any loss in shipment. Nevertheless, there can be no assurance that we will be adequately reimbursed upon the loss of a significant shipment of our products.

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

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

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

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

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

Demand for our products from end-consumers and our prospects depend on the retail growth and penetration rate of our products to end-consumers. Sales of our products are conducted mainly through distributors, over whom we have limited control. As of December 31, 2012, our distribution network is comprised of 18 exclusive distributors for our dried processed seafood products located in certain provinces and our marine catch trading segment, and seven exclusive distributors for our algae-based beverage products located in two provinces . These distributors sub-distribute our dried processed seafood products to about 3,500 retail points and our algae-based beverage products to about 14,000 retail points, including major supermarkets. We are thus dependent on the sales and distribution channels of our distributors for broadening the geographic reach of our products. Should these distributors be unable to maintain and expand their distribution channels, our results of operations and financial position will be adversely affected.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Goodwill and intangible assets were the result of the acquisition of Xianghe. The activities of the algae-based drink business are considered as a separate reporting unit. The Company evaluates the valuation of goodwill and intangible assets from time to time according to the performance of the business reporting unit. Given the financial results of the drink business were underperformed compared to the Company’s forecasts in 2012, there were impairment charges of $2.6 million and $2.2 million recorded for goodwill and intangible assets, respectively, for the year ended December 31, 2012. The Company may incur more impairment losses if the new business continues to underperform in the future. Please refer to Note 2 of the accompanying financial statements for further details.

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

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

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

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

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

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

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

During the year ended December 31, 2012, approximately 73.2% of our sales of the beverage products were in Fujian province. Although we have experienced strong growth in sales in Fujian province and have expanded our sales to Zhejiang province and intend to expand our sales to other provinces, any significant disruption in sales in Fujian could adversely affect our beverage business.

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

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

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

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

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

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

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

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

We are dependent on one major manufacturer for production of beverage products.

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

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

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

Our trade receivables turnover days were approximately 86 and 81 days in 2012 and 2011, respectively. Our allowances for doubtful trade receivables as at December 31, 2012 and 2011 were approximately $272,000 and $345,000, respectively; and at about 0.5% of our gross trade receivables.

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

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

We sell our processed seafood products, marine catch and ices, and algae-based beverage products mainly to local customers. Direct exports as a percentage of our sales ranged between 0.1% to 1.8% during the periods under review. Our sales are denominated in RMB and US$, while our purchases are denominated in RMB.

For the fiscal year of 2012 and 2011, the percentages of our sales denominated in RMB and US$ were as follows:

	Year Ended December 31,
	2012		2011
	(%)		(%)

RMB		98.2		99.9
US$		1.8		0.1

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

On July 21, 2005, the Renminbi was unpegged against the US$ and pegged against a basket of currencies on a “managed float currency regime”. As at December 31, 2012, the closing exchange rate was approximately US$1.00 to RMB6.3011 . There is no assurance that the PRC’s foreign exchange policy will not be further altered. In the event that the PRC’s policy is altered, significant fluctuations in the exchange rates of RMB against the US$ will arise. As a result, we will be subject to significant foreign exchange exposure and in the event that we incur foreign exchange losses, our financial performance will be adversely affected.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The use of estimates and valuations in measuring fair value involve significant estimation and judgment by management.

We make various estimates that affect reported amounts and disclosures. Broadly, those estimates are used in accounting for goodwill and intangible assets. Estimates are based on available information and judgment. Therefore, actual results could differ from our estimates and that difference could have a material effect on our consolidated financial statements.

During the year ended December 31, 2012, the algae-based drink revenues were lower than expected and the corresponding selling expenses were higher than expected compared to the Company’s forecasts. Although the drink business significantly improved revenues during 2012 compared to 2011, the Company incurred significant sales and marketing expenses during the year to support this revenue growth, which resulted in a significant operating loss for the algae-based drink business. As a result, during our third quarter, we determined there was a triggering event and recorded a goodwill impairment loss of 100% or $2.6 million based on the preliminary results indicating a carrying value of our goodwill was greater than the fair market value. As of December 31, 2012 and 2011, our goodwill balance is $nil and $2.6 million, respectively.

We could experience additional impairment charges related to the Company's intangible assets, which could materially adversely affect our results of operations.

RISKS RELATED TO DOING BUSINESS IN CHINA

Our auditor, like other independent registered public accounting firms operating in China, is not permitted to be subject to inspection by Public Company Accounting Oversight Board, and as such, investors may be deprived of the benefits of such inspection.

Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is required by the laws of the United States to undergo regular inspections by PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditor is located in China, a jurisdiction where PCAOB is currently unable to conduct inspections without the approval of the PRC authorities, our auditor, like other independent registered public accounting firms operating in China, is currently not inspected by PCAOB.

Inspections of other firms that PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The inability of PCAOB to conduct inspections of independent registered public accounting firms operating in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

There is no assurance that the PRC regulatory authorities will not impose restrictions on the convertibility of the RMB for FIEs. In 2012 and 2011, approximately 98.2% and 99.9% of our sales, respectively, was denominated in RMB. As such, any future restrictions on currency exchanges may limit our ability to utilize funds generated in the PRC to fund any potential business activities outside the PRC or to distribute dividends to our shareholders.

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

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

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

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

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

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

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

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

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

l	Level of government involvement in the economy;

l	Control of foreign exchange;

l	Methods of allocating resources;

l	Balance of payments position;

l	International trade restrictions; and

l	International conflict.

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

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

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

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

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

Inflation in China has recently increased substantially. The annual inflation rate in China was reported at 2.5 percent for 2012 by the Chinese government. These factors have led to the adoption by the Chinese government, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. Price inflation can affect our results of operations if we are unable to pass along production cost price increases to customers. Similarly, the cost of the ongoing construction of our new facility and the installation of our equipment may increase as a result of these recent inflationary trends, which are expected to continue in the near future. Accordingly, inflation in China may weaken our competitiveness domestically or in international markets.

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

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

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

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

RISKS RELATED TO THE MARKET FOR OUR STOCK

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

As of December 31, 2012, Mr. Liu owned approximately 41.0% of our outstanding common stock . As a result, he can exercise significant influence over all matters requiring shareholder approval, including the appointment of our directors and the approval of significant corporate transactions. His ownership and control may also have the effect of delaying or preventing a future change in control, impeding merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.

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

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

l	Variations in our operating results;

l	Success or failure of our management team in implementing business and growth strategies;

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

l	Changes in securities analysts’ recommendations, perceptions or estimates of our financial performance;

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

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

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

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

l	Additions or departures of key personnel;

l	Fluctuations in stock market prices and volume; or

l	Involvement in litigation.

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

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

Negative publicity may adversely affect our share price.

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

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

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

The disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC. Accordingly, our public disclosure should be reviewed in light of the fact that no governmental agency that is located in China where substantially all of our operations and business are located have conducted any due diligence on our operations or reviewed or cleared any of our disclosures.

We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Unlike public reporting companies whose operations are located primarily in the United States, however, substantially all of our operations are located in China. Since substantially all of our operations and business take place in China, it may be more difficult for the Staff of the SEC to overcome the geographic and cultural obstacles that are present when reviewing our disclosures. These same obstacles are not present for similar companies whose operations or business take place entirely or primarily in the United States. Furthermore, our SEC reports and other disclosures and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review of China Securities Regulatory Commission, a PRC regulator that is tasked with oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator has done any due diligence on our Company and with the understanding that none of our SEC reports, other filings or any of our other public pronouncements has been reviewed or otherwise been scrutinized by any local regulator.

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

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

ITEM 1B.

UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.

PROPERTIES

LAND USE RIGHTS

There is no private ownership of land in China and all urban land ownership is held by the government of the PRC, its agencies and collectives. Land use rights can be obtained from the government for a period of up to 50 years for industrial usage, 40 years for commercial usage and 70 years for residential usage. Land use rights can be transferred upon approval by the land administrative authorities of the PRC (State Land Administration Bureau) upon payment of the required land transfer fee.

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

As of December 31, 2012, we owned the following land-use rights in Dabao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province:

Certificate Reference No.	Location	Use	Date of Expiration of Tenure	Land Area (square meters)	Encumbrance

Shi Xiang Guo Yong	Dabao Industrial	Industrial	December 31, 2052	3,374.05	Pledged (1)
(2006) No. 0005	Zone, Xiangzhi
	Town, Shishi City,
	Fujian Province

Shi Di Xiang Guo Yong	Plot II,	Industrial	December 31, 2052	3,638.25	Pledged (1)
(2007) No. 0004	Dabao Industrial
	Zone, Xiangzhi
	Town, Shishi City,
	Fujian Province

Shi Di Xiang Guo Yong	Plot III,	Industrial	December 31, 2052	3,955.84	Pledged (1)
(2007) No. 0003	Dabao Industrial
	Zone, Xiangzhi
	Town, Shishi City,
	Fujian Province

Shi Di Xiang Guo Yong	Dabao Industrial	Industrial	December 31, 2052	6,721.40	Pledged (2)
(2007) No. 0002	Zone, Xiangzhi
	Town, Shishi City,
	Fujian Province

Shi Di Xiang Guo Yong	Central Fishing Port	Commercial	January 6, 2050	8,691.40	N/A
(2012) No. 00026	Xiangzhi Town,
	Shishi City,
	Fujian Province

(1)	These land use rights were pledged as securities in connection with Mingxiang’s short-term bank loans in the amount of $2,570,980 from the Agricultural Bank of China as of December 31, 2012 and 2011.

(2)	As of December 31, 2012, this land use right was pledged as securities in connection with Mingxiang’s short-term bank loans in the amount of $6,189,395 from the China Construction Bank.

BUILDINGS

As at December 31, 2012, we owned the following building ownership rights in Dabao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province:

Reference No.	Location	Use	Date of Expiry of Tenure	Land/Floor Area (square meters)	Encumbrance

Shi Jian Fang Quan Zheng Xiang Zhi Zi No. 00109	Block A at Plot II Dabao Industrial Zone, Xiangzhi Town, Shishi City,	Production and packaging facilities	June 5, 2051	705.60/1,489.60	N/A
	Fujian Province

Shi Jian Fang Quan Zheng Xiang Zhi Zi No. 00110	Block B at Plot II Dabao Industrial Zone, Xiangzhi Town, Shishi City,	Boiler facilities	June 5, 2051	145.38/145.38	N/A
	Fujian Province

Shi Jian Fang Quan Zheng Xiang Zhi Zi No. 00111	Block C at Plot II Dabao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province	Production and cutting/slicing facilities	June 5, 2051	934.46/1,991.29	N/A

Shi Jian Fang Quan Zheng Xiang Zhi Zi No. 00112	Cold storage facility at Plot III Dabao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province	Cold Storage	June 5, 2051	1,224.84/1,214.16	N/A

Shi Jian Fang Quan Zheng Xiang Zhi Zi No. 00114	Block A at Daobao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province	Staff dormitory	June 5, 2051	1,561.17/3,413.79	Pledged (3)

Shi Jian Fang Quan Zheng Xiang Zhi Zi No. 00115	Block B at Daobao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province	Office	September 28, 2052	942.19/3,268.41	Pledged (3)

Issuance of Property Ownership Certificate is now under process	Additional floor of Block A at Daobao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province	Staff dormitory	June 5, 2051	1,561.17/About 1,670.00	N/A

Shi Jian Fang Quan Zheng Xiang Zhi Zi No. 010577	Central Fishing Port Xiangzhi Town, Shishi City, Fujian Province	Cold Storage	January 6, 2050	8,691.40/ 21,095.11	N/A

(3)	As of December 31, 2012, these buildings were pledged as securities in connection with Mingxiang’s short-term bank loans in the amount of $6,189,395 from the China Construction Bank.

ITEM 3.

LEGAL PROCEEDINGS

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

ITEM 4.

MINE SAFETY DISCLOSURE

Not applicable.

PART II.

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

MARKET INFORMATION

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

	High ($)		Low ($)
Year Ended December 31, 2012
First Quarter		1.66		1.03
Second Quarter		1.17		0.73
Third Quarter		1.13		0.76
Fourth Quarter		1.12		0.77

Year Ended December 31, 2011
First Quarter		5.21		3.50
Second Quarter		4.10		2.42
Third Quarter		3.55		1.64
Fourth Quarter		1.85		1.18

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

HOLDERS

As of March 14, 2013, there were 36 holders of record of our common stock.

RECENT SALES OF UNREGISTERED SECURITIES

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

On November 18, 2011, the Company entered into an Investor Relations Consulting Agreement with MZHCI LLC (“MZHCI”) to provide consulting services for the Company. In connection with such service, the Company agreed to issue 25,000 shares of common stock to MZHCI. The shares of common stock were valued at $22,750 or $0.91 per share and issued on July 27, 2012.

DIVIDENDS

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

ITEM 6.

SELECTED FINANCIAL DATA

Not Applicable.

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Forward Looking Statements

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

OVERVIEW

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

Reverse acquisition and private placement

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

Pursuant to the Share Exchange Agreement, the former shareholders of Ocean Technology exchanged 100% of their outstanding capital stock in Ocean Technology for approximately 15,624,034 shares of our common stock, or approximately 93.15% of our outstanding shares of common stock after the share exchange.

Concurrently with the closing of the reverse acquisition on November 17, 2007 , we completed a private placement of our securities to certain accredited investors who subscribed for an aggregate of 6,199,441 shares of our common stock and warrants to purchase an aggregate of 1,239,888 shares of our common stock at $3.214 per unit, each unit consisting of one share of common stock and a warrant to purchase one-fifth of one share of our common stock . Each warrant issued to the investors had a term of three years and all unexercised warrants expired in November 2010.

Sales

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

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

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

For marine catch, we buy the marine catch from the suppliers and then sell to either trading companies or distributors on a direct basis as opportunistic purchases and sales according to the seasonality of respective seafood species. The marine catch is predominantly sold to distributors in Liaoning, Fujian and Shandong provinces, and overseas customers in the Philippines. The completion of the new cold storage facility in July 2012 helps to improve our capacity for conducting marine catch trading business in Fujian and also reduce storage and freezing costs, as storage and freezing services were formerly leased. The facility is currently providing ice making services to the port area, but the corresponding income is relatively immaterial compared to the revenues generated from trading of marine catch.

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

Sales of our processed seafood products accounted for approximately 32.7% and 41.0% of our total sales in 2012 and 2011, respectively. Trading of our marine catch accounted for approximately 37.9% and 38.4% of our total sales in 2012 and 2011, respectively. Sales of our algae-based beverage products accounted for approximately 29.4% and 20.6% of our total sales in 2012 and 2011, respectively. We expect the sales of our algae-based beverage products will remain strong in the coming years given our continuous expansion into untapped areas and contribution over the related sales and marketing campaigns since our acquisition at the beginning of 2010.

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

Factors that can affect our sales are as follows:

●

The level of sales is dependent on the supply of raw materials on a timely basis. Raw material costs accounted for approximately 73.9% and 72.9% of our total cost of revenue of processed seafood products in 2012 and 2011, respectively. The availability of these raw materials could be affected by a large number of factors, including, inter alia , the availability of fish stock, weather conditions, water contamination, government policies and regulations where such fishing is carried out, the stability of supplies from fishermen and pressure from environmental or animal rights groups.

●

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

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

●

In March 2011, the northern region of Japan experienced a severe earthquake followed by a tsunami. The earthquake and tsunami caused extensive and severe structural damage in Japan, including heavy damage to roads and railways as well as fires in many areas, and a dam collapse and damage to several nuclear reactors. Although to date the damage caused by the earthquake and tsunami have not damaged our access to raw materials, there can be no assurance that such access may not be affected. Even though government officials and health experts in Japan and China stated the doses of nuclear radiation leaks are low and not a threat to human health unless the tainted products are consumed in abnormally excessive quantities, concern of seafood contamination adversely affected our sales of seafood and algae-based beverage products as a result of consumers’ perception of food safety in relation to the nuclear radiation leaks in Japan.

●

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

●	Our ability to maintain existing accreditations such as HACCP, ISO9001:2008, ISO14001:2004 and the EU Export Certification accreditations will affect our ability to maintain our presence in our existing market and to expand into new market territories.

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

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

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

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

●	Our ability to expand our drink business through marketing campaigns and penetration into new areas.

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

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

Production facilities and employees

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

As at December 31, 2012, we employed 517 employees.

Seasonality

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

NEW BUSINESS DEVELOPMENT

Development of cold storage facilities

On November 6, 2009, we won the auction for the purchase of the 40-year use right of a land in Shishi City, Fujian. In September 2010, we entered into an agreement with a third party contractor to build cold storage facilities on the land with a capacity of approximately 20,000 tons, to take advantage of its proximity to the port where we obtain fresh marine catch to be processed into seafood products. We financed the total $27.3 million in land use rights and construction costs from funds generated by operations. The facilities commenced operations in July, 2012. Accordingly, we transferred approximately $25.0 million of construction in progress to property, plant and equipment after commencement of operations.

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

RESULTS OF OPERATIONS

We derive our sales from the sales of processed seafood products, marine catch and algae-based beverage products. The breakdown of our sales and gross profit by product, as well as by geographical location of our customers for the years ended December 31, 2012 and 2011 are set out below:

Breakdown of our past performance by principal products and geographical region

Sales by product

	Year Ended December 31,
	2012				2011
	US$’000		%		US$’000		%

Processed seafood products		51,441		32.7		58,967		41.0
Marine catch		59,657		37.9		55,304		38.4
Algae-based beverage products		46,219		29.4		29,677		20.6
Total		157,317		100.0		143,948		100.0

Sales by geographical region

	Year Ended December 31, 2012
	Processed seafood products				Marine catch				Algae-based beverage products				Total
	US$’000		%		US$’000		%		US$’000		%		US$’000		%
PRC
Shandong		4,581		8.9		14,842		24.9		-		-		19,423		12.3
Zhejiang		17,161		33.4		-		-		12,379		26.8		29,540		18.8
Fujian		27,329		53.1		5,133		8.6		33,840		73.2		66,302		42.1
Guangdong/ Shenzhen		2,370		4.6		-		-		-		-		2,370		1.5
Jiangsu/ Shanghai		-		-		-		-		-		-		-		-
Others (1)		-		-		36,896		61.8		-		-		36,896		23.5
Total PRC		51,441		100.0		56,871		95.3		46,219		100.0		154,531		98.2
Asia (2)		-		-		2,786		4.7		-		-		2,786		1.8
Total		51,441		100.0		59,657		100.0		46,219		100.0		157,317		100.0

	Year Ended December 31, 2011
	Processed seafood products				Marine catch				Algae-based beverage products				Total
	US$’000		%		US$’000		%		US$’000		%		US$’000		%
PRC
Shandong		5,223		8.9		13,027		23.6		-		-		18,250		12.7
Zhejiang		24,699		41.9		-		-		4,178		14.1		28,877		20.1
Fujian		25,085		42.5		5,779		10.4		25,499		85.9		56,363		39.1
Guangdong/ Shenzhen		2,866		4.9		-		-		-		-		2,866		2.0
Jiangsu/ Shanghai		1,090		1.8		-		-		-		-		1,090		0.8
Others (1)		4		0.0		36,353		65.7		-		-		36,357		25.2
Total PRC		58,967		100.0		55,159		99.7		29,677		100.0		143,803		99.9
Asia (2)		-		-		145		0.3		-		-		145		0.1
Total		58,967		100.0		55,304		100.0		29,677		100.0		143,948		100.0

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

(2)	Sales to Asia relate to exports to the Philippines.

Year 2012 compared to Year 2011

Sales

Our revenue increased by approximately $13.4 million or 9.3% from $ 143.9 million in 2011 to $157.3 million in 2012. The increase in revenue was mainly attributed to the increase in sales of our marine catch and algae-based beverage products, partially offset by the decrease in sales of our processed seafood products. Sales of our processed seafood products decreased by $7.5 million or 12.8% year over year to $51.4 million, whereas sales of algae-based beverage products increased by $16.5 million or 55.7% to $46.2 million. Our marine catch segment realized sales of $59.7 million in 2012, compared to $55.3 million in 2011.

As a result of consumers’ perception of seafood safety in relation to the nuclear radiation leaks in Japan which occurred in March 2011, sales of processed seafood products have been significantly and adversely affected since the third quarter of 2011. In terms of revenues during the year 2012, sales of our seafood products have been gradually recovering to pre-earthquake levels. While we are confident that the seafood we use to produce our processed seafood products is safe, it is unclear how long it will take for consumer confidence in seafood products to normalize.

Calendar year ended December 31, 2012 is the third year in which we recognize sales of our algae-based beverage products since the acquisition of Xianghe on January 1, 2010. In 2010, our distribution network for the beverage segment was mainly Fujian province. After gaining experience in Fujian, we expanded our distribution into Zhejiang province in the third quarter of 2011. The growth from Fujian and Zhejiang has been adversely affected by the public concern over the plasticizer contamination in the beverage industry, as well as the lower-than-expected temperatures in the southern regions of China during the summer of 2011. Sales of our algae-based beverage products in year 2012 recovered significantly as a result of our continuous contribution to the related sales and marketing campaigns . Given our expansion plan into additional untapped areas of the domestic market and our increased marketing expenditures, we expect the sales of our beverage segment to remain strong in the coming years. Accordingly, the number of sales staff has increased significantly since January 1, 2010 from 23 to 81, as of December 31, 2012.

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

Cost of revenue

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

	Year Ended December 31,
	2012				2011
	US$’000		%		US$’000		%

Processed seafood products		36,377		29.9		41,412		36.9
Marine catch		56,674		46.6		53,058		47.3
Algae-based beverage products		28,437		23.4		17,754		15.8
Total		121,488		100.0		112,224		100.0

Cost of revenue – Processed seafood products

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

	Year Ended December 31,
	2012				2011
	US$’000		%		US$’000		%

Raw materials		26,872		73.9		30,181		72.9
Packaging materials		4,033		11.1		4,977		12.0
Direct labor		2,370		6.5		2,928		7.1
Manufacturing overhead		3,102		8.5		3,326		8.0
Total		36,377		100.0		41,412		100.0

Raw materials

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

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

Since the nuclear disaster in Japan in 2011, there was an upward pressure on the prices of our raw materials, including small-sized seafood materials, as a result of fiercer competition with the breeding farms where the small-sized seafood materials are used as feeds.

Raw material costs accounted for approximately 73.9% and 72.9% of our cost of revenue in 2012 and 2011, respectively. The decrease in raw material costs for the periods under review was mainly due to our decreased production and sales of processed seafood products, whereas direct labor and manufacturing overhead are relatively considered as invariable cost factors comparing to raw materials and packaging materials.

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

Packaging materials

Packaging materials accounted for approximately 11.1% and 12.0% of our cost of revenue in 2012 and 2011, respectively. The decrease was primarily because the rate of increase in direct labor costs and manufacturing overhead was higher than that in packaging costs for the periods under review. The decrease in packaging material costs for the periods under review was mainly due to the decreased production and sales of processed seafood products.

Direct labor

Direct labor costs accounted for approximately 6.5% and 7.1% of our cost of revenue in year 2012 and 2011, respectively. Direct labor includes mainly salaries and wages paid to employees who are involved in the production process. Direct labor costs are dependent on factors such as production volume, number of employees, wage rate and applicable government regulations (including minimum wage requirements, statutory welfare and insurance fund contributions). The fluctuation in direct labor costs as a percentage of costs of sales is dependent on the degree of processing required for the end products.

The total headcount for the processed seafood segment as at December 31, 2012 has decreased to 245 from 582 as of December 31, 2011, as a result of the decreased production and sales of processed seafood products. The decrease in direct labor costs in year 2012 was mainly due to the reduction in headcount, partially offset by the increased wage rates during the year to cope with the market standard.

Manufacturing overhead

Manufacturing overhead comprises depreciation, water, electricity and other fuel costs which are used directly in the production of finished goods. The decrease in manufacturing overhead for the periods under review was mainly due to the decreased production and sales of processed seafood products.

Cost of revenue - Marine catch

	Year Ended December 31,
	2012				2011
	US$’000		%		US$’000		%

Raw materials		55,959		98.7		52,785		99.5
Other expenses		715		1.3		273		0.5
Total		56,674		100.0		53,058		100.0

Raw materials

We buy the marine catch from the suppliers and then sell to the customers on a direct basis. The marine catch is predominantly sold to distributors in Liaoning, Fujian and Shandong provinces, and overseas customers in the Philippines. The cost of the raw material is based on the market price at the time of purchase.

The increase in raw materials cost for the periods under review was in line with the increased sales of trading materials.

Other expenses

Other expenses mainly relate to the costs of packaging materials and ice required to keep the marine catch fresh, and also the associated costs of ice making services during the second half of 2012.

Cost of revenue - Algae-based beverage products

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

	Year Ended December 31,
	2012				2011
	US$’000		%		US$’000		%

Raw materials		4,153		14.6		2,517		14.2
Packaging materials		19,285		67.8		12,134		68.3
Manufacturing overhead		4,999		17.6		3,103		17.5
Total		28,437		100.0		17,754		100.0

Raw materials

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

Raw material costs accounted for approximately 14.6% and 14.2% of our cost of revenue in year 2012 and 2011, respectively. The percentage of raw materials cost as a proportion of the total cost of revenue is affected by changes in ingredient mix from time to time and the market price of the raw materials. The increase in raw materials cost for the periods under review was in line with the increased sales of our algae-based beverage products.

Packaging materials

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

Packaging materials accounted for approximately 67.8% and 68.3% of our cost of revenue in year 2012 and 2011, respectively. The increase in packaging materials cost for the periods under review was in line with the increased sales of our algae-based beverage products.

Manufacturing overhead

We utilize one third party manufacturers to produce our algae-based beverage products. Manufacturing costs are charged based on the production volume. We will use a number of manufacturers going forward so as to mitigate the concentration risks.

Gross profit by product

	Year Ended December 31,
	2012				2011
	US$’000		%		US$’000		%

Processed seafood products		15,064		42.0		17,555		55.3
Marine catch		2,983		8.3		2,246		7.1
Algae-based beverage products		17,782		49.7		11,923		37.6
Total		35,829		100.0		31,724		100.0

Gross profit margin by product

	Year Ended December 31,
	2012		2011
	%		%

Processed seafood products		29.3		29.8
Marine catch		5.0		4.1
Algae-based beverage products		38.5		40.2
Total		22.8		22.0

Gross profit

Gross profit increased by $4.1 million or 12.9%, from $31.7 million in 2011 to $35.8 million in 2012. Overall gross profit margin increased by 0.8% from 22.0% in 2011 to 22.8% in 2012. Gross profit margin for the processed seafood products operations decreased from 29.8% in 2011 to 29.3% in 2012 which was mainly due to the decreased scale of production and the increased costs of raw materials and manufacturing overhead . Marine catch sales are mainly deemed as opportunistic trading of frozen seafood in blocks and therefore the corresponding profit margin is dependent on the prevailing market conditions which could be fluctuated significantly from time to time. Gross profit margin for the algae-based beverage segment decreased from 40.2% to 38.5% for the comparative periods mainly due to the increased costs of raw materials, packaging materials and manufacturing overhead.

Depreciation and amortization

Depreciation and amortization accounted for approximately 1.8% and 1.9% of our total revenue in year 2012 and 2011, respectively. Depreciation and amortization was mainly related to the amortization of intangible assets associated with the acquisition of the beverage business declared effective at the beginning of 2010. The algae-based beverage know-how is amortized over its estimated useful life of 10 years, on a straight-line basis, at a yearly amortization charge of approximately $2.5 million.

Sales and marketing expenses

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

Our sales and marketing expenses accounted for approximately 17.1% and 9.8% of our total revenue in 2012 and 2011, respectively. The increase in the sales and marketing expenses was mainly due to the increase of advertising and promotional costs to strengthen brand position and improve market awareness in both existing and new markets and cope with the marketing strategies associated with the beverage products. We spent approximately $9.2 million in advertising campaigns including TV commercials and $15.6 million in promotional costs including subsidized products for promotional purposes, free gifts and other direct marketing events in 2012 to raise awareness of our processed seafood and algae-based beverage products. Accordingly, the number of sales staff increased from 47 in 2010 to 118 as at December 31, 2012, of which 81 were related to the beverage products segment.

General and administrative expenses

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

Our general and administrative expenses increased to approximately $3.9 million in 2012 compared to $2.6 million in 2011 and accounted for approximately 2.5% and 1.8% of our total revenue in 2012 and 2011, respectively. The increase in the general and administrative expenses was mainly due to increased legal and professional fees and provision for bonus in year 2012.

Stock-based compensation

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

Goodwill and intangible assets impairment

Subsequently, the independent valuation expert completed the complete drink business valuation and management concluded that the fair value of the intangible assets as of December 31, 2012 was $15.6 million. The valuation report included a number of significant management assumptions regarding the future growth and profitability of our drink business. This resulted in an intangible assets impairment loss of $2.2 million for the year ended December 31, 2012. As of December 31, 2012 and 2011, our intangible assets balance is $15.6 million and $20.2 million, respectively. The impairment of the intangible assets was considered in the finalization of the impairment of the goodwill. The valuation of the remaining intangible, as noted above, is based on a number of assumptions and should actual results differ from these assumptions, further impairment may be necessary. Management will continue to closely monitor the results of the algae-based drink business.

Please refer to Note 2 of the accompanying financial statements for further details of goodwill and intangible assets.

Other income

Other income mainly relates to rental income and interest income.

Rental income relates to the collection of rent on the 37 shop spaces at our factory in Dabao Industrial Zone. Majority of these rental contracts are based on a one-year lease term and only one rental contract is based on a four-year lease term. Interest income is earned from cash balances with banks as a result of operational cash flows.

Interest expense

Our interest expense relates to interest costs incurred on the various short-term bank borrowings taken by us for working capital requirements. Our interest expense accounted for approximately 0.3% of our total revenue in year 2012. During the year of 2012, a short-term loan of $8.8 million was drawn down for optimal pricing of marine catch purchases and to maintain the effectiveness of the facility lines with the banks. The weighted average effective interest rates per annum were 6.72% and 5.49% for the year of 2012 and 2011, respectively. Interest expense in 2011 was relatively low because the short-term bank loan in the amount of $2.5 million was only drawn down on November 21, 2011.

Income before income tax

Our income before income tax decreased by $14.0 million or 131.9%, from $10.6 million in income in 2011 to a $3.4 million loss in 2012. The decrease was mainly due to the combination of the increase in the sales and marketing expenses of approximately $12.9 million, a goodwill impairment loss of approximately $2.6 million and an intangible assets impairment loss of approximately $2.2 million, which was partially offset by the increase in overall gross profit of approximately $4.1 million, as a result of the factors described above.

Income tax expense

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

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

Mingxiang received a notice of recognition as an enterprise of new and high technology in July 2009, which was jointly issued by the Science and Technology Department of Fujian, the Finance Department of Fujian, the State Tax Bureau of Fujian and the Local Taxation Bureau of Fujian for the Company engaged in advanced food processing technologies for Fujian province. As a new and high technology company, Mingxiang was qualified for a reduced tax rate of 15% on its assessable income for the period of three years, which expired on July 30, 2012.

Income tax expenses in 2012 and 2011 and were approximately $1.1 million and $2.0 million, respectively. The effective tax rates were -32.4% and 19.3%, respectively, for year 2012 and 2011.

REVIEW OF FINANCIAL POSITION

Current assets

As at December 31, 2012, our current assets increased to $91.7 million, representing 61.8% of our total assets of $148.4 million. Current assets were consisted of cash and cash equivalents of $0.9 million, accounts receivable of $54.0 million, inventories of $36.4 million and other receivables and prepayments of $0.4 million.

Accounts receivable were mainly represented by amounts due from distributors and wholesalers. We usually extended unsecured credit period to long established customers up to 3 months. Since our practice is to perform constant credit checks and pursue the past due accounts proactively, there was no material uncollectible debts identified in the past. Decrease in accounts receivable was mainly in line with the decrease in sales volume of the last quarter of 2012 compared to the same period last year.

Inventories were mainly related to marine catch materials for trading purpose. Our inventories also included some raw materials and work-in-progress which would be used for the production of processed seafood products, some finished goods and packaging materials. As of December 31, 2012, approximately 91.5% of inventories were related to marine catch trading materials.

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

Non-current assets

As at December 31, 2012, our non-current assets amounted to $54.5 million and accounted for approximately 37.3% of our total assets. Our non-current assets comprised mainly property, plant and equipment of $35.7 million and land use rights of $3.0 million. As of December 31, 2012, the carrying value of intangible assets and goodwill were approximately $15.6 million and $nil, respectively.

Please refer to Note 2 of the accompanying financial statements for further details of intangible assets and goodwill.

As at December 31, 2012, our property, plant and equipment amounting to $35.7 million were made up mainly of buildings amounting to $33.2 million and plant and machinery amounting to $2.0 million. Buildings related to our production plant, cold storage facility, cold room, office buildings and workers’ dormitories. Plant and machinery related mainly to our production lines, freezing machines, forklift trucks, electric generator unit, roasting and drying machines. The remaining $0.5 million related to office equipment and motor vehicles.

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

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

Current liabilities

As at December 31, 2012 our current liabilities of $19.5 million comprised of short-term borrowing of $8.8 million, accounts payable of $4.2 million, income tax payable of $0.3 million and other payables of $6.2 million.

The short-term bank loans were used for our working capital requirements. The weighted average effective interest rates on the borrowing were about 6.72% and 5.49% per annum in year 2012 and 2011, respectively.

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

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

The increase in other payables from year 2011 to 2012 mainly relates to the increase of accruals for general operating expenditures.

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

Shareholders’ equity

Our shareholders’ equity of $126.7 million as at December 31, 2012 consisted of additional paid-in capital of $50.1 million, statutory reserve of $9.7 million, accumulated other comprehensive income of $12.9 million, retained earnings of $53.6 million and non-controlling interests of $0.4 million.

The decrease in shareholders’ equity from year 2011 to 2012 was due to the current operating loss of $4.5 million, offset by the increase in other comprehensive income of $1.0 million due to translation adjustments.

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

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

LIQUIDITY AND CAPITAL RESOURCES

Our operations are funded through a combination of shareholders’ equity, borrowings and internally generated funds from our operations. Our cash and cash equivalents as at December 31, 2012 amounted to approximately $0.9 million, with short-term loans of $8.8 million being drawn down during the year of 2012.

A summary of our cash flows for 2012 and 2011 is as follows:

	Year Ended December 31,
US$’000	2012			2011

Net cash used in operating activities		(4,238	)		(8,431	)
Net cash used in investing activities		(2,306	)		(11,005	)
Net cash provided by financing activities		6,129			2,339
Net change in cash and cash equivalents		(415	)		(17,097	)
Foreign currency translation adjustment		708			2,217
Cash and cash equivalents at the beginning of the year		587			15,557
Cash and cash equivalents at the end of the year		880			587

Year 2012

Net cash used in operating activities

Our net cash used in operating activities for year 2012 amounted to approximately $4.2 million. The major cash outflow from operating activities was increase in inventories of $27.5 million. This was partially offset by decrease in accounts receivable of $14.6 million, increase in accounts payable of $1.6 million and other payables of $2.8 million, non-cash amortization of intangible assets of $2.5 million, goodwill impairment of $2.6 million and intangible assets impairment of $2.2 million.

Inventories were mainly composed of marine catch trading materials as of December 31, 2012.

Our trade receivables turnover days were approximately 86 and 81 days in 2012 and 2011, respectively.

Net cash used in investing activities

For the year ended December 31, 2012, our net cash used in investing activities was approximately $2.3 million which was mainly attributable to the additional costs for the construction of the cold storage facilities and related machineries.

Net cash provided by financing activities

Our net cash provided by financing activities was approximately $6.1 million for year 2012, which was mainly attributable to the net borrowing of short-terms bank loans.

Year 2011

Net cash used in operating activities

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

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

Our trade receivables turnover days were approximately 81 and 71 days in 2011 and 2010, respectively.

Net cash used in investing activities

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

Net cash provided by financing activities

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

Capital resources

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

We have built cold storage facilities adjacent to the fishing port with a capacity of approximately 20,000 tons, to take advantage of its proximity to the port where we obtain fresh marine catch to be processed into seafood products. We financed the total $27.3 million in land use rights and construction costs from funds generated by operations. The facilities commenced operations in July 2012. Accordingly, we transferred approximately $25.0 million of construction in progress to property, plant and equipment after commencement of operations and paid approximately $24.2 million in construction costs as at December 31, 2012. The aggregated retention payments related to the Third Party Contractor are approximately $0.8 million as of December 31, 2012.

During the last twelve months, our wholly-owned subsidiary, Mingxiang, obtained short-term bank loans, which loans totaled $8.8 million as of December 31, 2012. The loans were drawn dow n for optimal pricing of marine catch purchases and to maintain the effectiveness of the facility lines with the banks. During the first two months of 2013, we have fully repaid the outstanding short-term bank loans in the aggregate amount of about $8.8 million to the Agricultural Bank of China and the China Construction Bank, respectively, and obtained new short-term bank loans in the aggregate amount of about $14.1 million from the Agricultural Development Bank of China and the China Construction Bank, registered financial institutions in the PRC. The short-term loans are due by December, 2013, January and February, 2014, respectively. We could manage our operating cash flows, including collection of accounts receivable, sales of our inventories and purchase less of trading materials, in case our cash is not adequate to pay off the loans. The weighted average effective interest rate per annum was 6.72% for the year ended December 31, 2012, payable quarterly. Interest expenses for 2012 were $439,848, and none of the interest incurred was capitalized.

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

CAPITAL EXPENDITURES AND INVESTMENTS

A summary of our capital expenditures for the financial years ended December 31, 2012 and 2011 is as follows:

	Year Ended December 31,
US$’000	2012		2011

Land use rights		-		-
Buildings		-		609
Plant and machinery		2,300		10,376
Office equipment		7		20
Motor vehicles		-		-
		2,307		11,005

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

In 2012, total capital expenditures of $2.3 million were mainly attributable to the construction of cold storage facilities and related machineries.

COMMITMENTS AND CONTINGENCIES

Operating lease commitments

Ocean Technology leased certain office space under a non-cancellable operating lease agreement with a term of three years with fixed monthly rentals expiring on February 17, 2014, and generally not containing significant renewal options. Total rent expenses for 2012 and 2011 was $80,000 and $79,618, respectively. Future minimum rental payments due under the non-cancelable operating lease agreement are approximately $91,000 in total in the following two years.

Capital commitments

In November 2012, Mingxiang entered into an agreement with an independent third party (the “Third Party Contractor #1”) in relation to the construction of a staff dormitory at our new cold storage facility. The construction is expected to be completed in the first half of 2013. Total estimated construction costs are approximately $1.2 million. As of December 31, 2012, the Company recorded approximately $0.2 million as construction in progress. Hence the aggregate contingent payments related to the Third Party Contractor #1 are approximately $1.0 million as of December 31, 2012.

In 2010, Mingxiang entered into an agreement with an independent third party (the “Third Party Contractor #2”) in relation to the construction of a cold storage facility. A supplementary agreement was entered into between Mingxiang and the Third Party Contractor #2 in September 2011 related to additional gross areas, machineries and equipment required for the facility. The facilities commenced operations in July 2012. Accordingly, the Company transferred approximately $25.0 million of construction in progress to property, plant and equipment after commencement of operations and paid a total of approximately $24.2 million in construction costs as at December 31, 2012. The aggregated retention payments related to the Third Party Contractor #2 are approximately $0.8 million as of December 31, 2012.

Guarantees

As of December 31, 2012, Mingxiang was contingently liable as guarantor with respect to the loan of $476,107 (equivalent to RMB 3,000,000) to an unrelated third party, Shishi Han Jiang Hua Lian Knitting and Clothing Factory (“Han Jiang Hua Lian”). The term of this guarantee is for the period from November 2008 through December 2017. Pursuant to the loan agreement, Han Jiang Hua Lian will repay the loan by installments and be fully settled by December 31, 2017. Should Han Jiang Hua Lian fail to make its debt payments due at any time from the date of guarantee, Mingxiang will be obligated to perform under the guarantee by primarily making the required payments, including late fees and penalties. The maximum potential amount of future payments that the Mingxiang is required to make under the guarantee is $476,107 (equivalent to RMB 3,000,000).

As of December 31, 2010, Mingxiang was contingently liable as guarantor with respect to the loans of $758,518 (equivalent to RMB 5,000,000) to an unrelated third party, Shishi Yu Ching Knitting and Clothing Company (“Yu Ching”). The term of this guarantee is for the period from January 2009 through January 2011. During 2011, Yu Ching repaid the principal amount of the loan in the amount of $758,518 (equivalent to RMB 5,000,000) but left the amount of loan interest unsettled due to a disagreement between Yu Ching and the creditor in relation to the calculation of the loan interest. Should Yu Ching fail to make its loan interest payments due at any time from the date of guarantee, Mingxiang will be obligated to perform under the guarantee by primarily making the required payments, including late fees and penalties. As of December 31, 2012, Yu Ching has not repaid the interest portion of the debt.

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

In accordance with Accounting Standard Codification (“ASC”) 460-10 “Guarantees”, a guarantor must recognize a liability for the fair value of the obligations it assumes under certain guarantees. Mingxiang did not receive any consideration for the guarantee and has determined the fair value of the indemnification to be insignificant. As of December 31, 2012, the Company has not recorded any liabilities under these guarantees.

ISSUANCE OF COMMON STOCK

On November 18, 2011, the Company entered into an Investor Relations Consulting Agreement with MZHCI LLC (“MZHCI”) to provide consulting services from December 1, 2011 to November 30, 2012 for the Company. In connection with such service, the Company agreed to issue 25,000 shares of common stock to MZHCI. The shares of common stock were valued at $22,750 or $0.91 per share and issued on July 27, 2012.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

l	Use of estimates

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

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. Currently, the Company provides 0.5% of gross accounts receivable as the general allowance for doubtful accounts based on historical experience.

l	Inventories

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

As of December 31, 2012 and 2011, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.

l	Goodwill and intangible assets

Goodwill and intangible assets were the result of the acquisition of Xianghe. The activities of the algae-based drink business are considered as a separate reporting unit. Goodwill represents the cost of the acquired algae-based drink business in excess of the fair value of identifiable tangible and intangible net assets purchased. Intangible assets include trademarks and algae-based beverage know-how and are recorded at cost less accumulated amortization and any recognized impairment loss. The algae-based beverage know-how is amortized over its estimated useful life of 10 years on a straight-line basis, which coincides with the timing provided from the PRC protection guidelines for our product.

The Company evaluates the valuation of its goodwill according to the provisions of Accounting Standards Codification (“ASC”) 350 to determine if the current value of goodwill has been impaired. Goodwill of a reporting unit will be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. As discussed below, the Company experienced a triggering event during the third quarter of 2012 because results were lower than expected compared to the Company’s forecasts for its algae-based drink business during the year ended December 31, 2012. In accordance with ASC 350-20-35-18, if impairment is probable and can be reasonably estimated, the impairment should be recorded in the current reporting period. Accordingly, based on the preliminary results of the management’s valuation of the drink business, the Company recorded a goodwill impairment loss of 100% or $2.6 million during the third quarter of 2012. The amount was finalized in the fourth quarter as discussed below.

Changes in the carrying amount of goodwill are as follows:

	December 31,
	2012			2011

Beginning balance	$	2,553,757		$	2,460,971
Less: Goodwill impairment		(2,571,488	)		-
Effect of foreign currency translation		17,731			92,786
Ending balance	$	-		$	2,553,757

In accordance with ASC Topic 360-10-5, “ Impairment or Disposal of Long-Lived Assets ”, the Company performs an asset impairment test whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. For the year ended December 31, 2012, the Company engaged an independent valuation expert to value the Company’s intangible assets balance related to the algae-based drink business reporting unit. The result of the assessment of the Company’s intangible assets indicated that its carrying amount exceeded its fair value as of December 31, 2012. Accordingly, the difference of $2.2 million was recorded as impairment to the drink business intangible assets. This impairment of the intangible assets was considered in the finalization of the impairment of the goodwill.

During the year ended December 31, 2012, the algae-based drink revenues were lower than expected and the corresponding selling expenses were higher than expected compared to the Company’s forecasts. Although the drink business significantly improved revenues during 2012 compared to 2011, the Company incurred significant sales and marketing expenses during the year to support this revenue growth, which resulted in a significant operating loss for the algae-based drink business. As a result, during the Company’s third quarter, these results were considered as a triggering event, as defined under ASC 360-10-35-21, causing the Company to perform a goodwill and intangible assets impairment analysis. Based on the preliminary results, the Company recorded a goodwill impairment loss of $2.6 million during the third quarter of 2012. Subsequently, the Company’s independent valuation expert completed the drink business valuation as of December 31, 2012, which resulted in an additional impairment of $2.2 million related to the drink business intangible assets.

The Company’s impairment test involves the assessment of the fair market value of the Company’s intangible assets, using a form of the income approach known as the excess earnings method and concludes that a discount rate of 21% is considered appropriate for valuing the drink business. The market and cost approaches were not applied due to the lack of information deemed to be reliably indicative of value using either approach. The Company provided a forecasted discounted cash flows analysis for the reporting unit based on discrete eight-year financial forecasts developed by management for planning purposes. Cash flows beyond the eight-year discrete forecasts were estimated using a terminal value calculation, which incorporated historical and forecasted financial trends for the reporting unit and considered long-term earnings growth rates for publicly traded peer companies.

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

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

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

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

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

-	There will be no major changes in the current taxation law in China.

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

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

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

-	The forecasted growth rate of revenue is 39% in 2013 and reflects the following assumptions:

l	Market penetration into a new area;

l	Further market penetration of the existing territories; and

l	Continuous recovery of consumers’ demand and confidence in the beverage industry since the instance of plasticizer contamination in 2011.

-	The forecasted growth rate of revenue is 25% from 2014 to 2020 and reflects the following assumptions:

l	Market penetration into six provinces; and

l	Increased demand in China for health related drinks.

-	Cost of goods sold increasing in line with revenues, resulting in a consistent gross profit margin of 38%.

-	Selling expenses remain flat in 2013 and then increase along with the revenues on a yearly basis, but pace of increase will be slower than that of revenue growth.

The discount rate applied to the cash flows is based on the weighted average cost of capital (“WACC”) of the Company. WACC is the weighted average of the estimated rate of return required by equity and debt holders for an investment of this type. The independent valuation expert concluded that a discount rate of 21% is considered appropriate for valuing the drink business.

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

Based upon the valuation report prepared by the independent valuation expert, management concluded that the fair value of the intangible assets as of December 31, 2012 was $15.6 million. During the years ended December 31, 2012 and 2011, the Company recorded an intangible assets impairment loss of $2.2 million and $nil, respectively. The valuation of the remaining intangible, as noted above, is based on a number of assumptions and should actual results differ from these assumptions, further impairment may be necessary. Management will continue to closely monitor the results of the algae-based drink business.

Drink business amortization expense for the years ended December 31, 2012 and 2011 were $2,547,711 and $2,488,205, respectively. Using the current exchange rate, the estimated annual amortization expense is $2,548,611 for each of the five succeeding years.

Changes in the carrying amount of intangible assets are as follows:

	December 31,
	2012			2011

Beginning balance	$	20,225,220		$	21,926,593
Less: Accumulated amortization		(2,547,711	)		(2,488,205	)
Less: Intangible assets impairment		(2,223,879	)		-
Effect of foreign currency translation		162,629			786,832
Ending balance	$	15,616,259		$	20,225,220

l	Impairment of long-lived assets

In accordance with the provisions of ASC Topic 360-10-5, “ Impairment or Disposal of Long-Lived Assets ”, all long-lived assets such as property, plant and equipment, land use rights and intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. Apart from the impairment of goodwill and intangible assets as disclosed in the above, there was no impairment for other long-lived assets as of December 31, 2012 and 2011.

l	Revenue recognition

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

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

The Company recognizes revenue from the sale of processed seafood products and algae-based beverage products upon receipt of the delivery confirmation provided by the distributor’s carrier and the title and risk of loss of the product has transferred to the distributor. The distributor agreements do not provide chargeback, price protection, or stock rotation rights. The Company recognizes revenue from marine catch and ices when title has transferred to the buyer, which usually coincides with the signing of the sales contract on the transaction date or the transaction date being stipulated in the sales contract. The Company experienced no material product returns and recorded no reserve for sales returns for the years ended December 31, 2012 and 2011.

For processed seafood products, the Company offers sales incentives, consisting of free products, to customers based on yearly sales targets. For algae-based beverage products, the Company offers two types of sales incentives, both consisting of free products. Quarterly incentives are based on the number of cases sold during the quarter and yearly incentives are also based on number of cases sold, as well as other thresholds. These are non-cash incentives and are solely used for promotional activities purposes. These amounts totaling $1,827,712 and $984,930 for the year ended December 31, 2012 and 2011, respectively, are accrued as sales and marketing expenses during the same month revenue is recognized.

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

l	Fair value measurement

The Company has adopted ASC Topic 820, Fair Value Measurement and Disclosure , which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

The carrying value of financial items of the Company, included cash and cash equivalents, accounts receivable, inventories, prepaid expenses and other current assets, short-term borrowings, accounts payable, amount due to a shareholder, income tax payable and accrued liabilities and other payables, approximate their fair values due to their short-term nature and are classified within Level 1 of the fair value hierarchy.

The fair value of short-term borrowings and amount due to a shareholder as of December 31, 2012 and 2011 was $8,760,375, $nil and $2,550,257, $50,361, respectively, which are identical to their carrying values.

The Company does not have any assets or liabilities that are measured on a recurring basis at fair value.

The Company uses the discounted cash flow approach when determining fair values of its non-recurring fair value measurements. Certain unobservable units for these assets are offered quotes, lack of marketability, long-term revenue growth rates and discounts rates. For Level 3 measurements, significant increases or decreases in either of those inputs in isolation could result in a significantly lower or higher fair value measurement. In general, a change in the long-term growth rate of our algae-based drink business could negatively affect the fair value of our intangible assets.

Please refer to Note 2 of the accompanying financial statements for further details of critical accounting policies and estimates.

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. Please refer to Note 2 of the accompanying financial statements for further details of recent accounting pronouncements.

FOREIGN EXCHANGE EXPOSURE

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

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

	Year Ended December 31,
	2012		2011
	%		%

RMB		98.2		99.9
US dollars		1.8		0.1
Total		100.0		100.0

On July 21, 2005, the RMB was unpegged against the US dollars and pegged against a basket of currencies on a “managed-float currency regime”. As at December 31, 2012, the exchange rate was approximately US$1.00 to RMB6.3011. There is no assurance that the PRC's foreign exchange policy will not be further altered. In the event that the PRC's policy is altered, significant fluctuations in the exchange rates of RMB against US dollars may arise. As a result, we will be subject to significant foreign exchange exposure and in the event that we incur foreign exchange losses, our financial performance will be adversely affected.

Our net foreign exchange losses for the years ended December 31, 2012 and 2011 are as follows:

	Year Ended December 31,
	2012		2011
	%		%

Net foreign exchange gains (losses) (US$’000)		9.1		(3	)
As a percentage of income before tax (%)		1.38		0.03

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

INFLATION

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

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Foreign Exchange Risk

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

Inflation

Inflationary factors such as increases in the costs of our products and overhead costs may adversely affect our operating results. Inflation in China has recently increased substantially. The inflation rate in China was reported at 2.6 percent for year 2012. These factors have led to the adoption by the Chinese government, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. Price inflation can affect our ability to maintain current levels of gross margin and selling and distribution, general and administrative expenses as a percentage of net revenues if we are unable to pass along raw material price increases to customers. Similarly, the cost of the ongoing construction of our new facility and the installation of our equipment may increase as a result of these recent inflationary trends, which are expected to continue in the near future. Accordingly, inflation in China may weaken our competitiveness domestically or in international markets .

ITEM 8. FINANCIAL STATEMENTS

CHINA MARINE FOOD GROUP LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page

Report of Independent Registered Public Accounting Firm, BDO China Dahua CPA Co., Ltd.		F-2

Audited Consolidated Balance Sheets as of December 31, 2012 and 2011		F-3

Audited Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2012 and 2011		F-4

Audited Consolidated Statements of Cash Flows for the Years Ended December 31, 2012 and 2011		F-5

Audited Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2012 and 2011		F-6

Notes to Consolidated Financial Statements as of December 31, 2012 and 2011		F-7 - F-26

F-1

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

China Marine Food Group Limited

Shishi City, Fujian, China

We have audited the accompanying consolidated balance sheets of China Marine Food Group Limited as of December 31, 2012 and 2011 and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2012 and 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of China Marine Food Group Limited at December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2012 and 2011 , in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO China Dahua CPA Co., Ltd.

Shenzhen, P.R. China

March 26, 2013

F-2

CHINA MARINE FOOD GROUP LIMITED

CONSOLIDATED BALANCE SHEETS

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

	December 31,
	2012		2011
ASSETS
Current assets:
Cash and cash equivalents	$	880,259	$	586,914
Accounts receivable, net		54,045,852		68,643,678
Inventories		36,415,013		8,886,234
Prepaid expenses and other current assets		400,664		849,419

Total current assets		91,741,788		78,966,245

Property, plant and equipment, net		35,737,296		11,199,244
Land use rights, net		2,966,805		3,023,569
Construction in progress		158,702		22,923,143
Intangible assets, net		15,616,259		20,225,220
Goodwill		-		2,553,757

TOTAL ASSETS	$	146,220,850	$	138,891,178

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	8,760,375	$	2,550,257
Accounts payable, trade		4,227,177		2,583,549
Amount due to a shareholder		-		50,361
Income tax payable		321,306		174,525
Accrued liabilities and other payables		6,217,260		3,424,288

Total current liabilities		19,526,118		8,782,980

Commitments and contingencies (see Note 20)

Shareholders’ equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2012 and 2011		-		-
Common stock, $0.001 par value; 100,000,000 shares authorized; 29,722,976 and 29,697,976 shares issued and outstanding as of December 31, 2012 and 2011		29,723		29,698
Additional paid-in capital		50,097,677		50,074,952
Statutory reserve		9,696,177		9,696,177
Accumulated other comprehensive income		12,946,218		11,897,382
Retained earnings		53,568,622		58,053,435
Total China Marine Food Group Limited shareholders’ equity		126,338,417		129,751,644
Non-controlling interests		356,315		356,554
Total shareholders’ equity		126,694,732		130,108,198

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	146,220,850	$	138,891,178

See accompanying notes to consolidated financial statements

F-3

CHINA MARINE FOOD GROUP LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

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

	Year Ended December 31,
	2012			2011
REVENUE, NET
Processed seafood products	$	51,441,395		$	58,967,200
Marine catch		59,657,283			55,304,114
Algae-based beverage products		46,218,669			29,676,358
		157,317,347			143,947,672
COST OF REVENUE (INCLUSIVE OF DEPRECIATION AND AMORTIZATION)
Processed seafood products		(36,376,898	)		(41,411,881	)
Marine catch		(56,673,983	)		(53,057,915	)
Algae-based beverage products		(28,436,881	)		(17,753,909	)
		(121,487,762	)		(112,223,705	)

GROSS PROFIT		35,829,585			31,723,967

OPERATING EXPENSES:
Depreciation and amortization		(2,782,333	)		(2,714,603	)
Sales and marketing		(26,968,313	)		(14,045,894	)
General and administrative		(3,864,245	)		(2,576,019	)
Stock-based compensation		(667,246	)		(2,034,197	)
Goodwill impairment		(2,571,488	)		-
Intangible assets impairment		(2,223,879	)		-
TOTAL OPERATING EXPENSES		(39,077,504	)		(21,370,713	)

(LOSS) INCOME FROM OPERATIONS		(3,247,919	)		10,353,254

OTHER INCOME (EXPENSES):
Subsidy income		15,866			14,719
Rental income		198,940			101,326
Interest income		86,517			154,515
Interest expense		(439,848	)		(11,483	)
(LOSS) INCOME BEFORE INCOME TAXES		(3,386,444	)		10,612,331

INCOME TAX EXPENSE		(1,098,608	)		(2,048,956	)

NET (LOSS) INCOME		(4,485,052	)		8,563,375

Less: net loss attributable to non-controlling interests		239			240

NET (LOSS) INCOME ATTRIBUTABLE TO CHINA MARINE FOOD GROUP LIMITED	$	(4,484,813	)	$	8,563,615

Other comprehensive income:
- Foreign currency translation gain		1,048,836			4,494,800

COMPREHENSIVE (LOSS) INCOME	$	(3,435,977	)	$	13,058,415

Net (loss) income per share attributable to China Marine Food Group Limited
- Basic	$	(0.15	)	$	0.29
- Diluted	$	(0.15	)	$	0.29

Weighted average shares outstanding
- Basic		29,708,768			29,514,744
- Diluted		29,708,768			29,514,744

See accompanying notes to consolidated financial statements

F-4

CHINA MARINE FOOD GROUP LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

	Year Ended December 31,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(4,485,052	)	$	8,563,375
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		3,327,840			3,014,783
Stock issued for service		22,750			51,800
(Reversal of) Allowance for doubtful accounts		(73,356	)		101,071
Loss on disposal of property, plant and equipment		-			22,045
Compensatory stock awards		-			2,646,000
Goodwill impairment		2,571,488			-
Intangible assets impairment		2,223,879			-
Changes in operating assets and liabilities:
Account receivable		14,671,182			(20,214,210	)
Inventories		(27,528,779	)		1,106,636
Prepaid expenses and other current assets		448,755			(743,779	)
Accounts payable, trade		1,643,628			(1,181,173	)
Income tax payable		146,781			(363,226	)
Accrued liabilities and other payables		2,792,972			(1,434,406	)

Net cash used in operating activities		(4,237,912	)		(8,431,094	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(172,991	)		(36,717	)
Cash paid to construction in progress		(2,133,528	)		(10,968,232	)

Net cash used in investing activities		(2,306,519	)		(11,004,949	)

CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of amount due to a shareholder		(50,361	)		(211,428	)
Proceeds from short-term borrowings		8,750,099			2,550,257
Repayment on short-term borrowings		(2,570,327	)		-

Net cash provided by financing activities		6,129,411			2,338,829

NET CHANGE IN CASH AND CASH EQUIVALENTS		(415,020	)		(17,097,204	)

Effect of exchange rate changes in cash and cash equivalents		708,365			2,127,346

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		586,914			15,556,772

CASH AND CASH EQUIVALENTS, END OF YEAR	$	880,259		$	586,914

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes	$	951,827		$	2,412,182
Cash paid for interest	$	439,848		$	11,483

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS
Transfer from construction in progress to property, plant and equipment	$	24,897,969		$	1,812,921
Accrual of property, plant and equipment	$	737,798		$	-

See accompanying notes to consolidated financial statements

F-5

CHINA MARINE FOOD GROUP LIMITED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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

	China Marine Food Group Limited shareholders’ equity
	Common stock				Additional paid-in		Statutory		Accumulated other comprehensive		Retained			Non- controlling			Total shareholders’
	No. of shares		Amount		capital		reserve		income		earnings			interests			equity

Balance as of December 31, 2010		28,977,976	$	28,978	$	47,377,872	$	9,263,241	$	7,402,582	$	49,922,756		$	356,794		$	114,352,223

Compensatory stock awards		700,000		700		2,645,300		-		-		-			-			2,646,000
Stock issued for service		20,000		20		51,780		-		-		-			-			51,800
Net income / (loss) for the year		-		-		-		-		-		8,563,615			(240	)		8,563,375
Appropriation to statutory reserve		-		-		-		432,936		-		(432,936	)		-			-
Foreign currency translation adjustment		-		-		-		-		4,494,800		-			-			4,494,800

Balance as of December 31, 2011		29,697,976	$	29,698	$	50,074,952	$	9,696,177	$	11,897,382	$	58,053,435		$	356,554		$	130,108,198

Stock issued for service		25,000		25		22,725		-		-		-			-			22,750
Net loss for the year		-		-		-		-		-		(4,484,813	)		(239	)		(4,485,052	)
Foreign currency translation adjustment		-		-		-		-		1,048,836		-			-			1,048,836

Balance as of December 31, 2012		29,722,976	$	29,723	$	50,097,677	$	9,696,177	$	12,946,218	$	53,568,622		$	356,315		$	126,694,732

See accompanying notes to consolidated financial statements

F-6

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

1.	ORGANIZATION AND BUSINESS BACKGROUND

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

Recapitalization and reorganization

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

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

As of December 31, 2012, China Marine’s majority-owned subsidiaries were as follows:

Business history of subsidiaries

Name	Place of incorporation and kind of legal entity	Principal activities and place of operation	Particulars of issued/ registered share capital	Effective interest Held

Ocean Technology (China) Company Limited (“Ocean Technology”)	Hong Kong, a limited liability company	Investment holding in Hong Kong	10,000 issued shares of HK$1 each	100%

Shishi Rixiang Marine Foods Co., Ltd. (“Rixiang”)	The PRC, a limited liability company	Trading and distribution of marine products in the PRC and overseas	$33,000,000	100%

Shishi Huabao Mingxiang Foods Co., Ltd (“Mingxiang”)	The PRC, a limited liability company	Trading and distribution of marine products in the PRC and overseas; Sales and distribution of algae-based beverage products	RMB50,000,000	100%

Shishi Huabao Jixiang Water Products Co., Ltd (“Jixiang”)	The PRC, a limited liability company	Property holding	RMB4,500,000	100%

F-7

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

Name	Place of incorporation and kind of legal entity	Principal activities and place of operation	Particulars of issued/ registered share capital	Effective interest Held

Shishi Xianghe Food Science and Technology Co., Ltd. (“Xianghe”)	The PRC, a limited liability company	Sale and distribution of algae-based beverage products	RMB5,000,000	80%

Shishi Xianglin Trading Co., Ltd. (“Xianglin”)	The PRC, a limited liability company	Dormant	RMB800,000	100%

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

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

l	Basis of consolidation

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

l	Non-controlling interest

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

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

l	Use of estimates

l	Cash and cash equivalents

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

The Company maintains cash and cash equivalent balances at the financial institutions in the PRC, which are insured by the People’s Bank of China. The Company had cash concentration risk of $879,647 and $538,132 as of December 31, 2012 and 2011, respectively, which amounts exclude Ocean Technology.

F-8

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

l	Accounts receivable and allowance for doubtful accounts

l	Inventories

As of December 31, 2012 and 2011, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.

l	Property, plant and equipment

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

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

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

l	Construction in progress

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

l	Land use rights

All lands in the PRC are owned by the PRC government. The government in the PRC, according to the relevant PRC law, may sell the right to use the land for a specified period of time. Thus, all of the Company’s land purchases in the PRC are considered to be leasehold land and are stated at cost less accumulated amortization and any recognized impairment loss. Amortization is provided over the term of the land use right agreements on a straight-line basis, which is 50 years for industrial and 40 years for commercial, respectively, and they will expire either in 2050 or 2052.

F-9

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

l	Goodwill and intangible assets

Changes in the carrying amount of goodwill are as follows:

	December 31,
	2012				2011

Beginning balance		$	2,553,757			$	2,460,971
Less: Goodwill impairment			(2,571,488	)			-
Effect of foreign currency translation			17,731				92,786
Ending balance		$	-			$	2,553,757

During the year ended December 31, 2012, the algae-based drink revenues were lower than expected and the corresponding selling expenses were higher than expected compared to the Company’s forecasts. Although the drink business significantly improved revenues during 2012 compared to 2011, the Company incurred significant sales and marketing expenses during the year to support this revenue growth, which resulted in a significant operating loss for the algae-based drink business. As a result, during the Company’s third quarter, these results were considered as a triggering event, as defined under ASC 360-10-35-21, causing the Company to perform a goodwill and intangible assets impairment analysis. Based on the preliminary results, the Company recorded a goodwill impairment loss of $2.6 million during the third quarter of 2012. Subsequently, the Company’s independent valuation expert completed the drink business valuation as of December 31, 2012, which resulted in an additional impairment of $2.2 million related to the drink business intangible assets.

F-10

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

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

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

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

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

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

-	There will be no major changes in the current taxation law in China.

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

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

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

-	The forecasted growth rate of revenue is 39% in 2013 and reflects the following assumptions:

●	Market penetration into a new area;

●	Further market penetration of the existing territories; and

●	Continuous recovery of consumers’ demand and confidence in the beverage industry since the instance of plasticizer contamination in 2011.

-	The forecasted growth rate of revenue is 25% from 2014 to 2020 and reflects the following assumptions:

●	Market penetration into six provinces; and

●	Increased demand in China for health related drinks.

-	Cost of goods sold increasing in line with revenues, resulting in a consistent gross profit margin of 38%.

-	Selling expenses remain flat in 2013 and then increase along with the revenues on a yearly basis, but pace of increase will be slower than that of revenue growth.

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

F-11

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

Changes in the carrying amount of intangible assets are as follows:

	December 31,
	2012				2011

Beginning balance		$	20,225,220			$	21,926,593
Less: Accumulated amortization			(2,547,711	)			(2,488,205	)
Less: Intangible assets impairment			(2,223,879	)			-
Effect of foreign currency translation			162,629				786,832
Ending balance		$	15,616,259			$	20,225,220

l	Impairment of long-lived assets

l	Revenue recognition

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

l	Advertising costs

Advertising costs are expensed as incurred under ASC Topic 720-35, “Advertising Costs” . The Company incurred advertising expense of $9,224,088 and $3,234,492 for the years ended December 31, 2012 and 2011, respectively.

F-12

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

l	Comprehensive income or loss

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

l	Income taxes

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

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

For the years ended December 31, 2012 and 2011, the Company did not have any interest and penalties associated with tax positions. As of December 31, 2012 and 2011, the Company did not have any significant unrecognized uncertain tax positions.

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

l	Earnings per share

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

l	Foreign currencies translation

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

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

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

F-13

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

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

	2012		2011
Year-end exchange rates RMB:US$1		6.3011		6.3523
Average yearly exchange rates RMB:US$1		6.3034		6.4544

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

l	Stock-based compensation

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

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 year ended December 31, 2012, the Company operates in three principal reportable segments: sale of processed seafood products, trading of marine catch and sale of algae-based beverage products in the PRC.

l	Fair value measurement

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

The Company does not have any assets or liabilities that are measured on a recurring basis at fair value.

F-14

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

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	Recent accounting pronouncements

On July 27, 2012, the FASB issued ASU 2012-02, Intangibles - Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. This ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under US GAAP. This ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company early adopted this ASU on January 1, 2013 and determined this ASU did not have an effect on the Company's annual impairment testing of intangibles.

3.	ACCOUNTS RECEIVABLE, NET

Accounts receivable consisted of the following:

	December 31,
	2012				2011

Account receivable, at cost		$	54,317,439			$	68,988,621
Less: allowance for doubtful accounts			(271,587	)			(344,943	)
Account receivable, net		$	54,045,852			$	68,643,678

Changes in the allowance for doubtful accounts are as follows:

	December 31,
	2012				2011

Beginning balance		$	344,943			$	243,872
(Reversal of) Provision for doubtful accounts			(73,356	)			101,071
Amounts written off			-				-
Ending balance		$	271,587			$	344,943

F-15

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

4.	INVENTORIES

Inventories consisted of the following:

	December 31,
	2012			2011

Raw materials		$	33,337,600		$	3,982,617
Work-in-process			2,646,855			3,941,723
Finished goods			269,440			804,880
Packaging materials			161,118			157,014
Total		$	36,415,013		$	8,886,234

For the years ended December 31, 2012 and 2011, the Company recorded no allowance for slow-moving and obsolete inventories.

5.	PROPERTY, PLANT AND EQUIPMENT

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

	December 31,
	2012			2011

Buildings		34,383,956			9,335,450
Plant and machinery		4,191,670			3,992,725
Office equipments		134,945			127,048
Motor vehicles		719,123			713,327
		39,429,694			14,168,550
Less: accumulated depreciation		(3,692,398	)		(2,969,306	)
Property, plant and equipment, net	$	35,737,296		$	11,199,244

Depreciation expense for the years ended December 31, 2012 and 2011 were $698,826 and $447,174, respectively, which included $534,197 and $289,133 in cost of revenue.

Certain property, plant and equipment with original costs of $1,346,002 and $1,050,947 have become fully depreciated as of December 31, 2012 and 2011, respectively.

As of December 31, 2012 and 2011, certain property, plant and equipment with the net book value of $2,975,198 and $nil, respectively, were pledged as securities in connection with the outstanding short-term borrowings, as described in Note 9.

6.	LAND USE RIGHTS

Land use rights consisted of the following:

	December 31,
	2012				2011

Land use rights, at cost		$	3,417,598			$	3,390,052
Less: accumulated amortization			(450,793	)			(366,483	)
Land use rights, net		$	2,966,805			$	3,023,569

As of December 31, 2012 and 2011, certain land use rights with the net book value of $607,833 and $409,898, respectively, were pledged as securities in connection with the outstanding short-term borrowings, as described in Note 9.

F-16

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

Amortization expense for the years ended December 31, 2012 and 2011 were $81,303 and $79,404, respectively, in which $11,310 and $11,047 were included in cost of revenue. Estimated aggregate future amortization expense for the succeeding 5 years and thereafter as of December 31, 2012 is as follows:

Years ending December 31,
2013	$	81,303
2014		81,303
2015		81,303
2016		81,303
2017		81,303
Thereafter		2,560,290
Total	$	2,966,805

7.	CONSTRUCTION IN PROGRESS

In November 2012, Mingxiang entered into an agreement with an independent third party (the “Third Party Contractor #1”) in relation to the construction of a staff dormitory at the new cold storage facility. The construction is expected to be completed in the first half of 2013. Total estimated construction costs are approximately $1.2 million. As of December 31, 2012, the Company recorded approximately $0.2 million as construction in progress. Hence the aggregate contingent payments related to the Third Party Contractor #1 are approximately $1.0 million as of December 31, 2012.

8.	INTANGIBLE ASSETS

Intangible assets consisted of the following:

	December 31,
	2012				2011

Intangible assets, at cost		$	25,487,217			$	25,281,788
Less: accumulated amortization			(7,646,267	)			(5,056,568	)
Less: intangible assets impairment			(2,223,879	)			-
Effect of foreign currency translation			(812	)			-
Intangible assets, net		$	15,616,259			$	20,225,220

Amortization expense for the years ended December 31, 2012 and 2011 were $2,547,711 and $2,488,205, respectively. Using the current exchange rate, the estimated annual amortization expense is $2,548,611 for each of the five succeeding years.

Based upon the valuation report prepared by an independent valuation expert, it is concluded that the fair value of the intangible assets as of December 31, 2012, is reasonably stated by the amount of $15,616,259. During the years ended December 31, 2012 and 2011, the Company recorded an intangible assets impairment loss of $2,223,879 and $nil, respectively.

F-17

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

9.	SHORT-TERM BORROWINGS

The Company’s wholly-owned subsidiary, Mingxiang, obtained short-term bank loans in the aggregate amount of $8,760,375 and $2,550,257 as of December 31, 2012 and 2011, respectively, from the Agricultural Bank of China and the China Construction Bank, registered financial institutions in the PRC. The weighted average effective interest rate per annum was 6.72% and 5.49% for the years ended December 31, 2012 and 2011, respectively, payable quarterly. Interest expenses for the years ended December 31, 2012 and 2011 were $439,848 and $11,483, respectively and none of the interest incurred was capitalized. During the first two months of 2013, we have fully repaid the outstanding short-term bank loans in the aggregate amount of about $8.8 million to the Agricultural Bank of China and the China Construction Bank, respectively, and obtained new short-term bank loans in the aggregate amount of about $14.1 million from the Agricultural Development Bank of China and the China Construction Bank, registered financial institutions in the PRC. The short-term loans are due by December, 2013, January and February, 2014, respectively.

10.	AMOUNT DUE TO A STOCKHOLDER

As of December 31, 2012 and 2011, the amounts of $nil and $50 , 361 represented temporary advances for working capital purposes from a major shareholder and CEO, Mr. Liu, which were unsecured, interest free and repayable on demand.

11.	ACCRUED LIABILITIES AND OTHER PAYABLES

Accrued liabilities and other payables consisted of the following:

	December 31,
	2012		2011

Accrued operating expenses	$	3,246,518	$	1,209,821
Accrued payroll and benefits		1,678,575		967,450
Accrued construction costs		737,798		-
Accrued professional expenses		553,603		295,833
Value-added tax payable		766		948,107
Other payables		-		3,077
	$	6,217,260	$	3,424,288

12.	SHAREHOLDERS’ EQUITY

(a) Compensatory stock awards

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

For the years ended December 31, 2012 and 2011, the recognized stock-based compensation expenses and related tax benefits were $667,246, $100,087 and $2,034,197, $305,130, respectively.

F-18

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

(b) Issuance of common stock

The Company did not declare any dividends for the years ended December 31, 2012 and 2011.

As of December 31, 2012, the number of authorized and outstanding shares of the Company’s common stock was 100,000,000 shares and 29,722,976 shares, respectively.

13.	NON-CONTROLLING INTERESTS

Non-controlling interests consisted of the following:

	December 31, 2012

20% share of equity interest in Xianghe	$	509,049
Less: advance to a non-controlling shareholder of a subsidiary		(152,734	)
Net amount	$	356,315

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

14.	INCOME TAXES

For the years ended December 31, 2012 and 2011, the local (“United States of America”) and foreign components of income (loss) before income taxes were comprised of the following:

	Year Ended December 31,
	2012				2011
Tax jurisdiction from:
– Local		$	(4,601	)		$	(4,021	)
– Foreign			(3,381,843	)			10,616,352
(Loss) Income before income taxes		$	(3,386,444	)		$	10,612,331

The provision for income taxes consisted of the following:

	Year Ended December 31,
	2012		2011
Current:
– Local	$	-	$	-
– Foreign		1,098,608		2,048,956

Deferred:
– Local		-		-
– Foreign		-		-
Income tax expense	$	1,098,608	$	2,048,956

F-19

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

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

United States of America

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

As of December 31, 2012, China Marine incurred $26,466 of net operating loss carryforwards available for federal tax purposes that may be used to offset future taxable income and will begin to expire in 2028, if unutilized. The Company has provided for a full valuation allowance against the deferred tax assets of $9,131 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

Hong Kong

The Company’s subsidiary, Ocean Technology, is subject to Hong Kong Profits Tax at the statutory rate of 16.5% on its assessable income for the periods ended December 31, 2012 and 2011, respectively. As of December 31, 2012, Ocean Technology incurred $846,569 of net operating loss carryforwards available for income tax purposes. The Company has provided for a full valuation allowance against the deferred tax assets of $139,684 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

The PRC

The Company generated all of its net income from subsidiaries operating in the PRC for the years ended December 31, 2012 and 2011. Rixiang, Jixiang, Mingxiang, Xianghe and Xianglin are subject to the Corporate Income Tax governed by the Income Tax Law of the People’s Republic of China, at a unified income tax rate of 25%.

The reconciliation of income tax rate to the effective income tax rate for the years ended December 31, 2012 and 2011 is as follows:

	Year Ended December 31,
	2012			2011

(Loss) Income before income taxes from PRC subsidiaries	$	(3,231,117	)	$	10,762,969
Statutory income tax rate		25	%		25	%
Income tax expense at statutory tax rate		(807,779	)		2,690,742

Tax effect from Tax Holiday		-			(1,319,986	)
Tax effect on net operating losses from PRC subsidiaries		1,722			2,081
Tax effect on non-taxable income		21,903			18,438
Tax effect on non-deductible expenses		1,882,762			657,681
Income taxes at effective rate	$	1,098,608		$	2,048,956

As of December 31, 2012, the PRC operation incurred $126,950 of net operating loss carryforwards available for income tax purposes that may be used to offset future taxable income and will begin to expire in 5 years from the year of incurrence, if unutilized. The Company has provided for a full valuation allowance against the deferred tax assets of $31,738 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future. The entities in the PRC do not file a consolidated return, so only the entity that generated the losses can utilize them.

F-20

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

The following table sets forth the significant components of the aggregate net deferred tax assets of the Company as of December 31, 2012 and 2011:

	December 31,
	2012				2011
Deferred tax assets:
Net operating loss carryforwards from
– Local		$	9,131			$	7,543
– Hong Kong			139,684				114,571
– PRC			31,738				29,932
			180,553				152,046
Less: valuation allowance			(180,553	)			(152,046	)
Deferred tax assets		$	-			$	-

Management believes that it is more likely than not that the net deferred assets will not be fully realizable in the future. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets of $180,553 and $152,046 as of December 31, 2012 and 2011, respectively. During 2012, the valuation allowance increased by $28,507 primarily relating to net operating loss carryforwards.

Tax Holiday

(Loss) income before income tax expense was ($3,386,444) and $10,612,331 for the years ended December 31, 2012 and 2011 and was mainly attributed to subsidiaries with operations in China. Income tax related to China income for the years ended December 31, 2012 and 2011 was $1,098,608 and $2,048,956, respectively. The combined pro forma effects of the income tax expense exemptions and reductions available to us are as follows:

	December 31,
	2012		2011

Amount of tax holiday effect	$	-	$	1,319,986
Tax holiday effect on basic earnings per share	$	-	$	0.04
Tax holiday effect on diluted earnings per share	$	-	$	0.04

15.	CHINA CONTRIBUTION PLAN

Under the PRC Law, full-time employees of the Company’s subsidiaries in the PRC, Rixiang, Jixiang, Mingxiang, Xianghe and Xianglin 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 $574,174 and $778,644 for the years ended December 31, 2012 and 2011, respectively.

F-21

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

16.	EARNINGS PER SHARES

Reconciliation from basic earnings per share to diluted (losses) earnings per share:

	Year Ended December 31,
	2012				2011

(Losses) Earnings for the years		$	(4,484,813	)		$	8,563,615
Determination of shares:
Basic weighted average common shares outstanding			29,708,768				29,514,744
Diluted weighted average common shares outstanding			29,708,768				29,514,744

Basic (losses) earnings per share		$	(0.15	)		$	0.29
Diluted (losses) earnings per share		$	(0.15	)		$	0.29

17.	STATUTORY RESERVE

Under the PRC Law, the Company’s subsidiaries in the PRC, Rixiang, Jixiang, Mingxiang, Xianghe and Xianglin are required to make appropriation at the end of each fiscal year to the statutory reserve based on after-tax net earnings and determined in accordance with generally accepted accounting principles of the People’s Republic of China (the “PRC GAAP”). Appropriation to the statutory reserve should be at least 10% of the after-tax net income until the reserve is equal to 50% of the registered capital. The statutory reserve is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation.

For the years ended December 31, 2012, and 2011, Rixiang contributed $nil and $5,967 to statutory reserve, respectively, whereas Mingxiang contributed $nil and $426,969. Jixiang, Xianghe and Xianglin made no appropriation to the statutory reserve since they did not generate after-tax net income during these periods.

18.	SEGMENT REPORTING, GEOGRAPHICAL INFORMATION

(a) Business information

The Company’s chief operating decision maker has been identified as chairman, Mr. Liu, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. Based on this assessment, the Company has determined that it has three operating and reporting segments for the years ended December 31, 2012 and 2011 which are processed seafood products, marine catch and algae-based beverage products.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). The Company had no material inter-segment sales for the years ended December 31, 2012 and 2011.

F-22

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

Summarized financial information concerning the Company’s reportable segments is shown in the following table for the years ended December 31, 2012 and 2011:

	Year Ended December 31, 2012
	Processed seafood products			Marine catch			Algae-based beverage products			Total

Revenue, net	$	51,441,395		$	59,657,283		$	46,218,669		$	157,317,347
Cost of revenue		(36,376,898	)		(56,673,983	)		(28,436,881	)		(121,487,762	)

Gross profit	$	15,064,497		$	2,983,300		$	17,781,788		$	35,829,585

Expenditure for long-lived assets	$	172,991		$	2,133,528		$	-		$	2,306,519

	Year Ended December 31, 2011
	Processed seafood products			Marine catch			Algae-based beverage products			Total

Revenue, net	$	58,967,200		$	55,304,114		$	29,676,358		$	143,947,672
Cost of revenue		(41,411,880	)		(53,057,915	)		(17,753,910	)		(112,223,705	)

Gross profit	$	17,555,320		$	2,246,199		$	11,922,448		$	31,723,967

Expenditure for long-lived assets	$	36,717		$	10,968,232		$	-		$	11,004,949

Expenditure for long-lived assets incurred for the years ended December 31, 2012 and 2011 mainly relates to the construction of a cold storage facility which is used to store the Company's inventory for marine catch and processed seafood products, provide marine catch cold storage services and marine catch ice making .

(b) Geographic information

The Company’s operations are located in two main geographical areas. The Company’s sales by geographical market are analyzed as follows:

	December 31,
	2012			2011
Revenue, net:
The PRC		$	154,528,844		$	143,801,671
Asia			2,788,503			146,001

Total revenue, net		$	157,317,347		$	143,947,672

All the Company’s long-lived assets are located in the PRC in both periods.

F-23

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

19.	CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a) Major customers

The following is a table summarizing the revenue from customers that individually represents greater than 10% of the total revenue for the years ended December 31, 2012 and 2011 and their outstanding balances as at year-end dates.

	Year Ended December 31, 2012
Customer	Revenue		Percentage of total revenue			Accounts receivable, net		Percentage of total accounts receivable, net

Customer A	$	36,896,387		24	%	$	15,720,122		29	%
Customer B		19,421,552		12	%		1,359,281		3	%
Customer C		17,569,071		11	%		10,118,671		19	%
Customer D		16,931,830		11	%		7,230,223		13	%

Total	$	90,818,840		58	%	$	34,428,297		64	%

	Year Ended December 31, 2011
Customer	Revenue		Percentage of total revenue			Accounts receivable, net		Percentage of total accounts receivable, net

Customer A	$	36,353,325		25	%	$	32,468,863		47	%

Total	$	36,353,325		25	%	$	32,468,863		47	%

(b) Major vendors

The following is a table summarizing the purchases from vendor that individually represents more than 10% of the total purchases for the years ended December 31, 2012 and 2011 and their outstanding balances as at year-end dates.

	Year Ended December 31, 2012
Vendor	Purchases		Percentage of total purchases			Accounts payable, trade		Percentage of total accounts payable, trade

Vendor A	$	49,336,884		43	%	$	-		-
Vendor B		20,123,990		18	%		101,438		2	%
Vendor C		18,122,969		16	%		88,847		2	%
Vendor D		11,770,195		10	%		32,185		1	%

Total	$	99,354,038		87	%	$	222,470		5	%

F-24

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

	Year Ended December 31, 2011
Vendor	Purchases		Percentage of total purchases			Accounts payable, trade		Percentage of total accounts payable, trade

Vendor E	$	32,753,228		38	%	$	-		-
Vendor F		14,771,657		17	%		-		-
Vendor C		12,291,558		14	%		29,989		1	%
Vendor B		9,447,849		11	%		16,800		1	%

Total	$	69,264,292		80	%	$	46,789		2	%

Financial instruments that are potentially subject to credit risk consist principally of trade receivables. The Company believes the concentration of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

(d) Exchange rate risk

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

(e) Economic and political risks

Substantially all of the Company’s products are processed in the PRC. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in the PRC and not typically associated with companies in North America and Western Europe. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations in the PRC.

20.	COMMITMENTS AND CONTINGENCIES

(a) Operating lease commitments

Ocean Technology leased certain office space under a non-cancellable operating lease agreement with a term of three years with fixed monthly rentals expiring on February 17, 2014, and generally not containing significant renewal options. Total rent expenses for the years ended December 31, 2012 and 2011 was $80,000 and $79,618, respectively. Future minimum rental payments due under the non-cancelable operating lease agreement are approximately $91,000 in total in the following two year.

(b) Capital commitments

F-25

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011

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

21.	SUBSEQUENT EVENT

In accordance with ASC 855 “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, we have evaluated all events or transactions that occurred after December 31, 2012 up through the date we issued the consolidated financial statements and identified the following subsequent events.

During the first two months of 2013, we have fully repaid the outstanding short-term bank loans in the aggregate amount of about $8.8 million to the Agricultural Bank of China and the China Construction Bank, respectively, and obtained new short-term bank loans in the aggregate amount of about $14.1 million from the Agricultural Development Bank of China and the China Construction Bank, registered financial institutions in the PRC. The short-term loans are due by December, 2013, January and February, 2014, respectively.

We did not have any material recognizable subsequent events.

F-26

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On October 29, 2010, the Company engaged BDO China Dahua CPA Co., Ltd. (formerly known as BDO China Li Xin Da Hua CPA Co., Ltd.) (“BDO China”) as the Company’s new independent accountant. During the years ended December 31, 2009 and 2008, and any subsequent interim period through October 29, 2010, the Company did not consult with BDO China, the newly engaged accountant, regarding any matter described in Item 304(a)(2) of Regulation SK, including any issue related to the Company’s financial statements, subject of a disagreement, any reportable event or the type of audit opinion that might be rendered for the Company. The change of independent accountant was approved by the Audit Committee of the Board of Directors of the Company.

On October 29, 2010, the Company’s former independent accountant, ZYCPA Company Limited (“ZYCPA”) resigned as independent accountant of the Company. The former independent accountant’s reports on the Company’s financial statements for the years ended December 31, 2010 and 2009 did not contain any adverse opinions or disclaimer of opinions, nor were the reports qualified or modified as to uncertainty, audit scope or accounting principles. Furthermore, the accountant’s reports did not include any disclosure of uncertainty regarding the Company’s ability to continue as a going concern.

During the fiscal years ended December 31, 2010, 2011 and 2012, there were no disagreements between the Company and ZYCPA, the former independent accountant, on any matter of accounting principles or practices, financial statement disclosure or auditing scope and procedure which, if not resolved to the satisfaction of the former accountant, would have caused it to make reference to the subject matter of the disagreement in connection with its report.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer, Pengfei Liu, and Principal Financial Officer, Marco Hon Wai Ku, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act") as of December 31, 2012.

Under Rule 13a-15(e) and 15d-15(e), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of December 31, 2012 were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012.

Our internal control over financial reporting is a process designed by or under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on our financial statements.

In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control - Integrated Framework”. Our management has concluded that, as of December 31, 2012, our internal control over financial reporting is effective based on these criteria.

This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.

There were no changes in our internal controls over financial reporting during the year ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within China Marine Food Group Limited have been detected.

ITEM 9B. OTHER INFORMATION

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, AND CORPORATE GOVERNANCE

DIRECTORS AND OFFICERS

The following sets forth the name and position of each of our current executive officers and directors.

Name	Age	Position held
Pengfei LIU	57	CEO, Secretary and Director
Marco Hon Wai KU	39	Chief Financial Officer
Weipeng LIU	36	Director
Xiaochuan LI	68	Independent Director
Changhu XUE	48	Independent Director
Honkau WAN	39	Independent Director

None of the Directors and Executive Officers is related to each other or the Substantial Shareholder.

Pengfei Liu has served as the CEO and Secretary and as a Director of China Marine Food Group Limited since November 2007. He is the founder of our Company, and has been spearheading the expansion and growth of our Company. Mr. Liu is responsible for our operations, marketing, public relations, strategic planning and development of new products and markets and overall running of our Company.

From 1975 to 1981, Mr. Liu served as a seaman with the Zhejiang East Ocean Navy. From 1981 to 1993, he worked as a trader in seafood. In 1994, Mr. Liu established Mingxiang and has been employed full time as its Chief Executive Officer ever since. In October 2003, Mr. Liu was elected as member of the executive committee of the China Aquatic Products Processing and Marketing Association (CAPPMA). In December 2003, Mr. Liu was appointed committee member of the Shishi Committee (Fujian Province) of the Chinese People’s Political Consultative Conference. In January 2005, Mr. Liu was elected vice-chairman of the executive committee of Quanzhou Food Products Industry Association. In December 2005, Mr. Liu was appointed as a member of the executive committee of the China Chamber of International Commerce, Shishi Chamber of Commerce. In August 2006, Mr. Liu was appointed executive member of the general meeting of the Fujian Aquatic Products Processing and Marketing Association (FAPPMA). Mr. Liu is not a member of the board of directors for any other public company or any investment company, neither has he been a member of the board of directors for such companies for the past five years. The Board believes that Mr. Liu has the experience, qualifications, attributes and skills necessary to serve on the Board because of his over 30 years of experience in the seafood industry, his having provided leadership and strategic direction to the Company as its founder and his unparalleled knowledge of the Company and its business.

Marco Hon Wai Ku is our Chief Financial Officer and joined our Company in July 2007. He is responsible for the corporate finance function of our Company and oversees matters relating to accounting, financial administration and the compliance and reporting obligations of our Company. Mr. Ku obtained a bachelor’s degree in Finance from the Hong Kong University of Science and Technology in 1996, and is currently a Fellow Member of the Hong Kong Institute of Certified Public Accountants.

Prior to joining us, from 1996 to 2000, Mr. Ku was with KPMG, where he last held the position as Assistant Manager. From August 2000 to February 2003, he was the Manager - Corporate Services in Logistics Information Network Enterprise (HK) Limited, a subsidiary of Hutchison Port Holdings Ltd., where he later worked as Manager - Management Accounting from March 2003 to September 2004. From October 2004 to September 2005, he worked as a Financial Controller for Hongkong.com Company Limited (a Hong Kong listed company within the China.com Group). And from October 2005 to April 2007, he co-founded KISS Catering Group, which is a food and beverage business in Beijing. Mr. Ku is not a director of any other public company or any investment company, neither has he been a member of the board of directors for such companies for the past five years.

Weipeng Liu has served as a Director of the Company since November 2007. Mr. Liu oversees the construction, operation and maintenance of our equipment and production facilities in the capacity of Manager of Operations, a position he has held since 1997. In 1997, Mr. Liu joined our Company as Mingxiang and Rixiang’s facilities manager. He was appointed to serve as a director of Rixiang in October 2006. Mr. Liu graduated with a degree in mechanical design and manufacturing and automation from Fuzhou University in 1997. Mr. Liu is not a member of the board of directors of any other public company or any investment company, neither has he been a member of the board of directors for such companies for the past five years. The Board believes that Mr. Liu has the experience, qualifications, attributes and skills necessary to serve on the Board because of his over 15 years of experience with the Company and his knowledge of our equipment and production facilities.

Xiaochuan Li has served as an independent Director of the Company since October 2008. Mr. Li has been the Director of the Division for Test of the Safety and Quality of Aquatic Products in the Yellow Sea Fisheries Research Institute of the Chinese Academy of Fishery Sciences since 1978, where he is responsible for the marine products processing technology research and carrying out coordination in terms of both quality and quantity examination and formulating related standards. From 1987 to 2005, Mr. Li was also the Center Director of the National Center for Quality Supervision and Test of Aquatic Products. During his tenure, Mr. Li was responsible for overseeing the daily operation of the laboratory and inspection center. Mr. Li is not a member of the board of directors of any other public company or any investment company, neither has he been a member of the board of directors for such companies for the past five years.

The Board believes that Mr. Li has the experience, qualifications, attributes and skills necessary to serve on the Board because of his over 30 years of experience with the seafood industry, his management skills as the Director of the Division for Test of the Safety and Quality of Aquatic Products in the Yellow Sea Fisheries Research Institute of the Chinese Academy of Fishery Sciences and for his experience in testing and quality control of seafood products.

Changhu Xue has served as an independent Director of the Company since October 2008. Since 1990, Mr. Xue has been a professor of Aquatic Product Processing and Preserving Engineering at the Ocean University of China. Mr. Xue is a Council Member of China Society of Fisheries and the Chairman of the Fish Processing and Comprehensive Utilization Sub-committee of the China Society of Fisheries. He is also the Chief Secretary of the Steering Committee for Light Industry and Food Education in the Ministry of Education for the People’s Republic of China. Mr. Xue’s major focus of research has been in aquatic product processing and fisheries chemistry. Mr. Xue has completed over 20 state and provincial research projects including the research schemes in the National Natural Science Foundation of China and has published over 100 papers and articles in academic journals. In 1990, Mr. Xue was the first recipient of a doctoral degree in Agriculture and Aquatic Products in China. Mr. Xue has obtained 8 patent certificates and 2 technological achievements awarded by the provincial authority. Mr. Xue is not a member of the board of directors of any other public company or any investment company, neither has he been a member of the board of directors for such companies for the past five years. The Board believes that Mr. Xue has the experience, qualifications, attributes and skills necessary to serve on the Board because of his extensive academic knowledge of the seafood industry and research accomplishments.

Honkau Wan has served as an independent Director of the Company since October 2008. Mr. Wan has practiced as a certified public accountant (“CPA”) since 2003. His firm provides professional auditing, consultancy and secretarial services to his clients on a variety of industries. From 2000 to 2002, Mr. Wan served in a multi-national company as an internal auditor, where he participated in evaluating the internal control systems of the group companies and made recommendations to the management. The multi-national company was involved in the following industries: financial institutions, property development, airline and security broker in Hong Kong, China, United States and other Asia Pacific countries. From 1996 to 1999, Mr. Wan was with KPMG auditing financial institutions. Mr. Wan received a BBA in Accounting, with Honors, from the Hong Kong Polytechnic University in 1996. Mr. Wan is not a member of the board of directors of any other public company or any investment company, neither has he been a member of the board of directors for such companies for the past five years. The Board believes that Mr. Wan has the experience, qualifications, attributes and skills necessary to serve on the Board because of his over 15 years of relevant experience in finance and accounting.

There are no agreements or understandings for any of our executive officers or directors to resign at the request of another person, and no officer or director is acting on behalf of nor will any of them act at the direction of any other person.

SIGNIFICANT EMPLOYEES

Other than the officers described above, we do not expect any other individuals to make a significant contribution to our business.

FAMILY RELATIONSHIPS

There are no family relationships among our officers, directors, persons nominated for such positions, or significant shareholders.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

None of our directors, executive officers, or control persons have been involved in any of the following events during the past ten years:

l	Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of bankruptcy or within two years prior to that time; or

l	Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); or

l	Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

l	Being found by a court of competent jurisdiction (in a civil violation), the SEC or the Commodity Future Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; or

Being the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: any Federal or State securities or commodities law or regulation; or any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity. This violation does not apply to any settlement of a civil proceeding among private litigants; or

Being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

BOARD COMMITTEES

The Board of Directors is composed of five directors: Mr. Pengfei Liu, Mr. Weipeng Liu, Mr. Xiaochuan Li, Mr. Changhu Xue and Mr. Honkau Wan. All board action requires the approval of a majority of directors in attendance at a meeting at which a quorum is present.

On June 18, 2009, the Company established an Audit Committee of the Board with the responsibility for assisting the Board in fulfilling its oversight role regarding the Company’s financial reporting process, its system of internal control and its compliance with applicable laws, regulations and company policies. Honkau Wan, Xiaochuan Li, and Changhu Xue were elected to be members of the Audit Committee and shall serve the Committee until their successors are duly elected and qualified. On June 18, 2009, the Company also established a Governance Committee and a Compensation Committee, and elected Xiaochuan Li and Changhu Xue as members to each Committee.

The Audit Committee is primarily responsible for reviewing the services performed by our independent auditors, evaluating our accounting policies and our system of internal controls. The Company’s Board of Directors has determined that the registrant has one audit committee financial expert, Honkau Wan, serving on its Audit Committee. Honkau Wan has been a CPA since 2003 and understands the generally accepted accounting principles and financial statements. He is considered as independent director as defined in the listing standards applicable to the Registrant. His relevant experiences are disclosed in the above content in Item 10 of this Form 10-K.

The Governance Committee is primarily responsible for nominating directors and setting policies and procedures for the nomination of directors. The Governance Committee is also responsible for overseeing the creation and implementation of our corporate governance policies and procedures. The Company does not have procedures by which security holders may recommend nominees to the Company’s Board of Directors.

The Compensation Committee is primarily responsible for reviewing and approving our salary and benefit policies (including equity plans), including compensation of executive officers.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities and Exchange Act of 1934 requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial statements of beneficial ownership on Form 3, reports of changes in ownership on Form 4 and annual reports concerning their ownership on Form 5. Executive officers, directors and greater than 10% stockholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file.

CODE OF ETHICS

We adopted a Code of Ethics pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 on January 24, 2008. Our Standards of Business Conduct and Finance Code of Professional Conduct apply to our officers, directors and all employees. Our Standard of Business Conduct provides guidelines to employees to report any suspected or known violations of the Finance Code of Professional Conduct, the Standards of Business Conduct, or other China Marine policies. Under the Code of Ethics and Standards of Business Conduct, all employees will:

l	Act with honesty and integrity, avoiding actual or apparent conflicts of interest in their personal and professional relationships.

l	Provide shareholders with information that is accurate, complete, objective, fair, relevant, timely, and understandable, including information in our filings with and other submissions to the U.S. Securities and Exchange Commission and other public bodies.

l	Comply with rules and regulations of federal, state, provincial and local governments, and of other appropriate private and public regulatory agencies.

l	Action in good faith, responsibly, with due care, competence, and diligence, without misrepresenting material facts or allowing one’s independent judgment to be subordinated.

l	Respect the confidentiality of information acquired in the course of one’s work except when authorized or otherwise legally obligated to disclose.

l	Not use confidential information acquired in the course of one’s work for personal advantage.

l	Share knowledge and maintain professional skills importance and relevancy to shareholders’ needs.

l	Proactively promote and be an example of ethical behavior as a responsible individual among peers, in the working environment and the community.

l	Exercise responsible use, control, and stewardship over all China Marine assets and resources that are employed by or entrusted to us.

l	Not coerce, manipulate, mislead, or unduly influence any authorized audit or interfere with any auditor engaged in the performance of an internal or independent audit of China Marine’s system of internal controls, financial statements, or accounting books and records.

This Finance Code of Professional Conduct embodies principles which we are expected to adhere to and advocate. These principles of ethical business conduct encompass rules regarding both individual and peer responsibilities, as well as responsibilities to China Marine shareholders and the public. The CEO, CFO, and all employees are expected to abide by this Code. Any violations of the China Marine’s Finance Code of Professional Conduct may result in disciplinary action, up to and including termination of employment.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Background and Compensation Philosophy

Our Compensation Committee consists of Xiaochuan Li and Changhu Xue, both independent directors. The Compensation Committee determines the compensation to be paid to our executive officers based on our financial and operating performance and prospects, the level of compensation paid to similarly situated executives in comparably sized companies, such as China Green Agriculture, Inc., Zhongpin Inc., American Dairy, Inc. and Converted Organics Inc. and contributions made by the officers’ to our success. Each of the named officers will be measured by a series of performance criteria by the Board of Directors, or the compensation committee, on a yearly basis. Such criteria will be set forth based on certain objective parameters such as job characteristics, required professionalism, management skills, interpersonal skills, related experience, personal performance and overall corporate performance.

Our Board of Directors and Compensation Committee have not adopted or established a formal policy or procedure for determining the amount of compensation paid to our executive officers. The Compensation Committee makes an independent evaluation of appropriate compensation to key employees, with input from management. The Compensation Committee has oversight of executive compensation plans, policies and programs.

Our compensation program for our executive officers and all other employees is designed such that it will not incentivize unnecessary risk-taking. The base salary component of our compensation program is a fixed amount and does not depend on performance. Our cash incentive program takes into account multiple metrics, thus diversifying the risk associated with any single performance metric, and we believe it does not incentivize our executive officers to focus exclusively on short-term outcomes. This is our first time to grant equity awards as incentive bonuses under our 2010 Stock Award Plan in April 2011. Our equity awards are subject to vesting to align the long-term interests of our executive officers with those of our stockholders.

On November 18, 2011, at the 2011 annual meeting of shareholders, our shareholders approved the non-binding advisory proposal regarding the Company's executive compensation and approved a proposal that the non-binding advisory shareholder vote on executive compensation to be held every three years.

Elements of Compensation

We provide our executive officers with a base salary, bonuses, and equity incentives to compensate them for services rendered during the year.

Base Salary

The 2011 base salary for Mr. Pengfei Liu, Mr. Marco Ku and Mr. Weipeng Liu was approximately $149,000, $149,000 and $47,000, respectively. The 2012 base salary for Mr. Pengfei Liu, Mr. Marco Ku and Mr. Weipeng Liu was approximately $152,000, $152,000 and $48,000, respectively. All such amounts were paid in cash. The value of base salary reflects each executive’s skill set and the market value of that skill set in the sole discretion of our Compensation Committee and/or our executive officers. The compensation paid to our each independent director Xiaochuan Li, Changhu Xue, and Honkau Wan for 2012 was $12,700, $9,500, and $7,700, respectively.

Bonuses

The Compensation Committee determines whether to provide our executive officers with cash or equity bonuses at the end of each fiscal year. The incentive bonuses, if any, will be paid in the first quarter of the year following the year of assessment. Our Compensation Committee reviews the necessity of such bonuses on a yearly basis based on our financial and operating performance and prospects, the level of compensation paid to similarly situated executives in comparably sized companies and contributions made by the officers’ to our success. This particular performance metric was chosen by the Compensation Committee because they believed that such scheme would help in measuring the rewards provided to the senior executives and the directors in an open, fair, and measurable manner given the bonuses were tied in with the performance of the group. Such basis was selected because the senior executives and the directors could be highly motivated under the said scheme and we believe this should improve long-term stockholder value over time. This performance metric will be consistently reviewed by the Compensation Committee.

The 2011 cash bonus for Mr. Pengfei Liu, Mr. Marco Ku and Mr. Weipeng Liu was $nil for each of them. The 2012 cash bonus for Mr. Pengfei Liu, Mr. Marco Ku and Mr. Weipeng Liu is $430,000, $70,000 and $280,000, respectively.

Equity Incentives

In December 2010, the Board of Directors approved the 2010 Stock Award Plan (the "Plan") covering 2,800,000 shares. The shares underlying the Plan were subsequently registered pursuant to a form S-8 under the Securities Act. The Plan was approved by the Company’s shareholders at the 2011 annual meeting of shareholders.

The Plan is intended to benefit the stockholders of the Company by providing a means to attract, retain and reward individuals who can and do contribute to the longer-term financial success of the Company. Further, the recipients of stock-based awards under the Plan should identify their success with that of the company's shareholders and therefore will be encouraged to increase their proprietary interest in the Company. The Compensation Committee (the “Committee”) administers the Plan. On April 1, 2011, the Company granted compensatory stock awards totaling 700,000 common shares, under the terms of the Plan to certain of its officers, directors and employees.

We did not grant any stock award to our named executive officers or directors in the fiscal year of 2012.

In the future, we may adopt and establish more equity incentive plans pursuant to which awards may be granted if our Committee determines that it is in the best interests of our stockholders and the Company to do so.

Option Grants in the Last Fiscal Year

We did not grant any options or stock appreciation rights to our named executive officers or directors in the fiscal year 2012. As of December 31, 2012, none of our executive officers or directors owned any of our derivative securities.

Retirement Benefits

Our executive officers are not presently entitled to company-sponsored retirement benefits.

Perquisites

We have not provided our executive officers with any material perquisites and other personal benefits and, therefore, we do not view perquisites as a significant or necessary element of our executive’s compensation.

Deferred Compensation

We do not provide our executives the opportunity to defer receipt of annual compensation.

The following table sets forth information for the period indicated with respect to the persons who served as our CEO, CFO and other most highly compensated executive officers who served on our Board of Directors.

SUMMARY COMPENSATION TABLE

Name and Position	Year	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Pengfei Liu, CEO	2011		149,000		-		491,400		-		-		-		-		640,400
	2012		152,000		430,000		-		-		-		-		-		582,000

Marco Hon Wai Ku, CFO	2011		149,000		-		189,000		-		-		-		-		338,000
	2012		152,000		70,000		-		-		-		-		-		222,000

Weipeng Liu, Director	2011		47,000		-		378,000		-		-		-		-		425,000
	2012		48,000		280,000		-		-		-		-		-		328,000

SERVICE AGREEMENTS WITH DIRECTORS AND EXECUTIVE OFFICERS

On November 17, 2007, we entered into separate service agreements (“Service Agreements”) with our executive directors, namely, Pengfei Liu and Weipeng Liu, on substantially similar terms. The Service Agreements were for initial three year terms, which were subsequently renewed through December 31, 2013, on January 1, 2011. Each of the Service Agreements may be terminated if any of the executive directors commits a breach of his Service Agreement, such as being convicted of any offence involving fraud or dishonesty or being adjudicated bankrupt. There are no benefits payable to an executive director upon termination of his Service Agreement. The Service Agreement covers the terms of employment, such as salary and bonus.

On October 17, 2012, we amended the Service Agreement of Pengfei Liu and Weipeng Liu to delete the bonus formula and to authorize bonuses to be determined at the discretion of the Compensation Committee based on the performance of the executives and the Company and other criteria as determined by the Compensation Committee. Except for this amendment, all of the terms and provisions of Service Agreement as renewed on January 1, 2011 shall remain in full force and effect as set forth therein.

We entered into a service agreement with Marco Hon Wai Ku who joined the Company as our chief financial officer in July 2007. We entered into an employment supplementary agreement with Mr. Ku in July 2009. The compensation and benefits for Mr. Ku is reviewed by the Compensation Committee on an annual basis. The service agreement may be terminated by either party giving not less than two months’ notice in writing to the other and may also be terminated if Mr. Ku commits a breach of the agreement, such as being convicted of any offence involving fraud or dishonesty or being adjudicated bankrupt. The service agreement covers the terms of employment, such as salary and bonus. Under the service agreement, Mr. Ku has also agreed not to enter into businesses that will compete with us for a period of six months after the termination of the service agreement.

DIRECTOR COMPENSATION

We also have entered into Independent Director Agreements (the “Agreements”) with Xiaochuan Li, Changhu Xue and Honkau Wan (“Director” or “Directors”). The Agreements shall terminate on the date of the Director’s removal or resignation with each 12-month period ending on the anniversary date of the Director’s appointment constituting a Service Year. Compensation for Xiaochuan Li is RMB80,000, Changhu Xue is RMB60,000 and Honkau Wan is HK$60,000 per Service Year, respectively. Further, the Company reimburses the Directors for expenses incurred in good faith in the performance of the Director’s duties for the Company.

The following table sets forth the total compensation paid to each independent Board member in 2012:

Director Compensation For 2012

Name	Fees Earned or paid in Cash			Stock Awards		Total
Xiaochuan LI	$	12,692	(1)	$	-	$	12,692
Changhu XUE	$	9,519	(1)	$	-	$	9,519
Honkau WAN	$	7,692	(2)	$	-	$	7,692
Total						$	29,903

(1) This amount is based on the exchange rate as of December 31, 2012 of US$1 equal to RMB6.3034.

(2) This amount is based on the exchange rate of US$1 equal to HK$7.80.

Except as disclosed herein, we have no other existing or proposed service agreement with any of our directors.

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

Our Articles of Incorporation provide for the indemnification of our present and prior directors and officers or any person who may have served at our request as a director or officer of another corporation in which we own shares of capital stock or of which we are a creditor, against expenses actually and necessarily incurred by them in connection with the defense of any actions, suits or proceedings in which they, or any of them, are made parties, or a party, by reason of being or having been director(s) or officer(s) of us or of such other corporation, in the absence of negligence or misconduct in the performance of their duties. This indemnification policy could result in substantial expenditure by us, which we may be unable to recoup.

Insofar as indemnification by us for liabilities arising under the Securities Exchange Act of 1934 may be permitted to our directors, officers and controlling persons pursuant to provisions of the Amended Articles of Incorporation and Bylaws, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy and is, therefore, unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us is in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

There is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding which may result in a claim for such indemnification.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following tables set forth information regarding beneficial ownership of 29,722,976 outstanding shares of common stock as of March 14, 2013 (i) by each person who is known to us to beneficially own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group. Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934 and does not necessarily bear on the economic incidents of ownership or the rights to transfer the shares described below. Unless otherwise indicated each stockholder has sole voting power and dispositive power with respect to the indicated shares.

Unless otherwise specified, the address of each of the persons set forth below is in care of Da Bao Industrial Zone, Shishi City, Fujian, China, 362700.

Title of Class	Name & Address of Beneficial Owner	Office, If Applicable	Amount and Nature of Beneficial Ownership			Percent of Class
Common Stock $0.001 par value	Pengfei Liu Dabao Industrial Zone Shishi City, Fujian Province, China	CEO		12,182,037			41.0	%
Common Stock $0.001 par value	Marco Hon Wai Ku Dabao Industrial Zone Shishi City, Fujian Province, China	CFO		134,000			0.5	%
Common Stock $0.001 par value	Weipeng Liu Dabao Industrial Zone Shishi City, Fujian Province, China	Director		100,000			0.3	%
Common Stock $0.001 par value	Jayhawk Private Equity Fund, LP 5410 West 61st Place Suite 100 Mission, KS 66205			2,434,868	(1)		8.2	%
Common Stock $0.001 par value	Prescott Group Capital Management LLC 1924 South Utica Ave., Suite 1120, Tulsa, Oklahoma 74104			1,886,290	(2)		6.3	%

Common Stock $0.001 par value	All officers and directors as a group			12,416,037			41.8	%

(1)	Jayhawk Private Equity GP, L.P. is the general partner of Jayhawk Private Equity Co-Invest Fund, L.P. Jayhawk Private Equity Co-Invest Fund, L.P. directly and indirectly owns the shares identified by this footnote in Table.

(2)	Prescott Group Capital Management, L.L.C., as the general partner of Prescott Group Aggressive Small Cap, L.P., Prescott Group Aggressive Small Cap II, L.P., and Prescott Group Aggressive Small Cap Master Fund, G.P., directly and indirectly owns the shares identified by this footnote in Table.

CHANGES OF CONTROL

There are currently no arrangements which would result in a change in control.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

INTERESTED PERSON TRANSACTIONS

Except as disclosed herein, we have not entered into any related transaction with any of our directors, executive officers or controlling shareholder or their affiliates.

The transactions discussed in this section were not available to third parties. Pengfei Liu was the principal beneficial owner of Xianglin, Jixiang, Mingxiang, Rixiang and Xianghe when each of the transactions took place. Therefore, Pengfei Liu might provide financing for the companies in advance and provide guarantees without any consideration.

As of December 31, 2012 and 2011, the amount due to a major shareholder and CEO, Pengfei Liu, from the Group was $nil and $50,361, respectively. Such advance due to the shareholder from the Group was unsecured, repayable on demand and interest free.

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

REVIEW, APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS

All ongoing and future transactions between us and any of our officers and directors and their respective affiliates, including loans by our officers and directors, will be on terms believed by us to be no less favorable than are available from unaffiliated third parties. Such transactions or loans, including any forgiveness of loans, will require prior approval by the Corporate Governance and Nominating Committee (whose members are “independent” directors) and by a majority of our disinterested “independent” directors (to the extent we have any) or the members of our board who do not have an interest in the transaction, in either case who had access, at our expense, to our attorneys or independent legal counsel. We will not enter into any such transaction unless our disinterested (“independent”) directors determine that the terms of such transaction are no less favorable to us than those that would be available to us with respect to such a transaction from unaffiliated third parties. We will not enter into a business combination or invest alongside any of our directors, officers, any affiliate of ours or of any of our directors or officers or a portfolio company of any affiliate of our directors or officers.

POTENTIAL CONFLICTS OF INTERESTS

Save as disclosed below and under the section “Interested Person Transactions”, during the past three financial years:

a)	None of our directors, executive officers or controlling shareholder or their affiliates has had any interest, direct or indirect, in any material transaction to which we are a party.

b)	None of our directors, executive officers or controlling shareholder or their affiliates has had any interest, direct or indirect, in any company that carries the same business or similar trade which competes materially and directly with our existing business.

c)	None of our directors, executive officers or controlling shareholder or their affiliates has had any interest, direct or indirect, in any enterprise or company that is our major customer or supplier of goods or services.

d)	None of our directors, executive officers or controlling shareholder or their affiliates has had any interest, direct or indirect, in any material transaction we have undertaken within the last three years.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following is a summary of the fees billed to us primarily by BDO China Dahua CPA Co., Ltd. for the fiscal years ended December 31, 2012 and 2011:

Services (US$’000)	2012		2011
Audit Fees	$	277	$	234
Tax Fees		5		4
All Other Fees		-		-
Total	$	282	$	238

In the above table, in accordance with the SEC’s definitions and rules, audit fees consist of the aggregate fees billed for services rendered for the audit of our annual financial statements, the reviews of the financial statements included in our Forms 10-Q and for any other services that are normally provided by our independent auditors in connection with our statutory and regulatory filings or engagements.

Audit related fees consist of the aggregate fees billed for professional services rendered for assurance and related services that reasonably related to the performance of the audit or review of our financial statements that were not otherwise included in audit fees.

Tax fees consist of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and local tax compliance and consultation in connection with various transactions and acquisitions.

All other fees consist of the aggregate fees billed for products and services provided by our independent auditors and not otherwise included in audit fees, audit related fees or tax fees.

PART IV.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT

(a)	Financial Statements

The financial statements are set forth under Item 8 of this Annual Report on Form 10-K. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.

(b)

Exhibits

2.1	Share Exchange Agreement, dated November 17, 2007 by and among the Registrant, Ocean Technology (formerly known as Nice Enterprise Trading H.K. Co., Ltd.) and its stockholders. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 2.1)

3.1	Amended Articles of Incorporation of the Registrant as filed with the Secretary of State of Nevada, as amended to date. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 3.1)

3.2	Amended and Restated Bylaws of the Registrant. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 3.2)

4.1	Form of Registration Rights Agreement dated November 17, 2007. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 4.1)

4.2	Form of Common Stock Purchase Warrant issued to Investors dated November 17, 2007. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 4.2)

4.3	Form of Common Stock Purchase Warrant issued to Sterne Agee & Leach, Inc. and its designee. (Filed with the Commission on Form 8-K/A dated November 30, 2007 as Exhibit 4.3)

4.4	Form of Common Stock Purchase Warrant issued to Yorkshire Capital Limited and its designee. (Filed with the Commission on Form 8-K/A dated November 30, 2007 as Exhibit 4.4)

4.5	China Marine Food Group Limited 2010 Stock Award Plan. (Filed with the Commission on Form S-8 dated December 14, 2010 as Exhibit 4.1)

4.6	Form of Stock Award Agreement dated April 1, 2011. (Filed with the Commission on Form 8-K dated April 5, 2011)

10.1	Form of Securities Purchase Agreement dated November 17, 2007. (Filed with the Commission on Form 8-K/A on November 30, 2007 as Exhibit 10.1)

10.2	Closing Escrow Agreement dated November 17, 2007, by and among the Registrant, Sterne Agee & Leach, Inc. and Thelen Reid Brown Raysman & Steiner, LLP. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.3)

10.3	Service Agreement dated November 17, 2007 between the Registrant and Pengfei Liu. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.5)

10.4	Employment Contract dated November 17, 2007, between the Registrant and Shaobin Yang. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.7)

10.5	Service Agreement dated November 17, 2007, between the Registrant and Weipeng Liu. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.6)

10.6	Service Agreement dated July 26, 2007, between Ocean Technology (formerly known as Nice Enterprise Trading H.K. Co., Ltd.) and Marco Hon Wai Ku. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.8)

10.7	Consulting Agreement dated January 1, 2007 between Yorkshire Capital Ltd. and Ocean Technology (China) Company Limited. (formerly known as Nice Enterprise Trading H.K. Co., Ltd.) (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.9)

10.8	Common Stock Purchase Agreement dated September 13, 2007, by and between New Paradigm Productions, Inc. and Halter Financial Investments, L.P.. (Filed with the Commission on Form 8-K dated September 14, 2007 as Exhibit 10.1)

10.9	Loan Contract by and between Huabao Mingxiang Foods Co., Ltd. And Shishi Subranch Agricultural Bank of China dated October 26, 2006. (Filed with the Commission on Form S-1 (Amendment No. 2) dated March 13, 2008 as Exhibit 10.9)

10.10	Loan Contract by and between Huabao Mingxiang Foods Co., Ltd. And Shishi Subranch Agricultural Bank of China dated April 18, 2007. (Filed with the Commission on Form S-1 (Amendment No. 2) dated March 13, 2008 as Exhibit 10.9)

10.11	Loan Contract by and between Huabao Mingxiang Foods Co., Ltd. And Shishi Subranch Agricultural Bank of China dated April 29, 2007. (Filed with the Commission on Form S-1 (Amendment No. 2) dated March 13, 2008 as Exhibit 10.9)

10.12	Loan Contract by and between Huabao Mingxiang Foods Co., Ltd. And Shishi Subranch Agricultural Bank of China dated June 3, 2007. (Filed with the Commission on Form S-1 (Amendment No. 2) dated March 13, 2008 as Exhibit 10.9)

10.13	Loan Contract by and between Huabao Mingxiang Foods Co., Ltd. And Shishi Subranch Agricultural Bank of China dated June 13, 2007. (Filed with the Commission on Form S-1 (Amendment No. 2) dated March 13, 2008 as Exhibit 10.9)

10.14	Loan Contract by and between Huabao Mingxiang Foods Co., Ltd. And Shishi Subranch Agricultural Bank of China dated July 2, 2007. (Filed with the Commission on Form S-1 (Amendment No. 2) dated March 13, 2008 as Exhibit 10.9)

10.15	Loan Contract by and between Huabao Mingxiang Foods Co., Ltd. And Shishi Subranch Agricultural Bank of China dated August 21, 2007. (Filed with the Commission on Form S-1 (Amendment No. 2) dated March 13, 2008 as Exhibit 10.9)

10.16	Make Good Escrow Agreement dated November 17, 2007, by and among the Registrant, Sterne Agee & Leach, Inc., Mr. Pengfei Liu, and Interwest Transfer Company, Inc.. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.2)

10.17	Lock-up Agreement dated November 17, 2007, by and among the Registrant and Mr. Pengfei Liu. (Filed with the Commission on Form 8-K dated November 23, 2007 as Exhibit 10.4)

10.18	Investor Relations Consulting Agreement, by and between the Registrant and Hayden Communications International, Inc. dated February 20, 2008. (Filed with the Commission on Form 8-K dated March 21, 2008 as Exhibit 10.1)

10.19	Employment Supplementary Agreement between Ocean Technology (China) Company Limited (formerly known as Nice Enterprise Trading H.K. Co., Ltd.), and Marco Hon Wai Ku dated July 26, 2009. (Filed herewith)

10.20	Executed Auction Confirmation Letter dated November 6, 2009 by Shishi Huabao Mingxiang Foods Co., Ltd and Fujian Jiafu Auction Firm Limited Liability Company. (Filed with the Commission on Form 8-K dated November 12, 2009)

10.21	Credit or Share Purchase Option Agreement amongst Shishi Huabao Mingxiang Food Co., Ltd., Qiu Shang Jing and Shishi Xianghe Food Science and Technology Co., Ltd. November 27, 2009. (Filed with the Commission on Form 8-K dated December 2, 2009)

10.22	Share Purchase Agreement dated January 1, 2010 amongst Shishi Huabao Mingxiang Foods Co., Ltd. Qiu Shang Jing and Shishi Xianghe Food Science and Technology Co., Ltd.. (Filed with the Commission on Form 8-K dated January 5, 2010)

10.23	Form of Securities Purchase Agreement between the Company and each Purchaser dated as of January 20, 2010. (Filed with the Commission on Form 8-K dated January 20, 2010)

10.24	Form of Escrow Agreement between the Company, Global Hunter Securities LLC, Brean Murray, Carret & Co. LLC, Sichenzia Ross Friedman Ference LLP and certain purchasers dated as of January 20, 2010. (Filed with the Commission on Form 8-K dated January 20, 2010)

10.25	Placement Agent Agreement between the Company, Global Hunter Securities and Brean Murray, Carret & Co., LLC dated as of January 15, 2010. (Filed with the Commission on Form 8-K dated January 20, 2010)

10.26	Independent Director Agreement with Xiaochuan Li dated October 1, 2008. (Filed with the Commission on Form 8-K dated October 30, 2008)

10.27	Independent Director Agreement with Changhu Xue dated October 1, 2008. (Filed with the Commission on Form 8-K dated October 30, 2008)

10.28	Independent Director Agreement with Honkau Wan dated October 1, 2008. (Filed with the Commission on Form 8-K dated October 30, 2008)

10.29	Letter of Consent between the Company and Pengfei Liu dated as of January 1, 2011. (Filed with the Commission on Form 10-K dated March 27, 2012)

10.30	Letter of Consent between the Company and Weipeng Liu dated as of January 1, 2011. (Filed with the Commission on Form 10-K dated March 27, 2012)

10.31	Amendment to Service Agreement between the Company and Weipeng Liu dated as of October 17, 2012. (filed herewith)

10.32	Amendment to Service Agreement between the Company and Pengfei Liu dated as of October 17, 2012. (filed herewith)

14.1	Business Code of Conduct. (Filed with the Commission on Form 8-K dated January 24, 2008 as Exhibit 14.1 and Form 8-K dated August 17, 2009 as Exhibit 5.05.1)

14.2	Financial Code of Conduct. (Filed with the Commission on Form 8-K dated January 24, 2008 as Exhibit 14.2 and Form 8-K dated August 17, 2009 as Exhibit 5.05.2)

14.3	Amendments to the By-Laws. (Filed with the Commission on Form 8-K dated August 17, 2009 as Exhibit 5.03)

14.4	Charter for the Audit Committee. (Filed with the Commission on Form 8-K dated August 17, 2009 as Exhibit 5.05.1)

14.5	Charter for the Corporate Governance and Nominating Committee. (Filed with the Commission on Form 8-K dated August 17, 2009 as Exhibit 5.05.2)

14.6	Charter for the Compensation Committee. (Filed with the Commission on Form 8-K dated August 17, 2009 as Exhibit 5.05.3)

16.1	Letter from ZYCPA. (Filed with the Commission on Form 8-K dated October 29, 2010 as Exhibit 16.1)

16.2	Letter from Coddovano and Honeck LLP. (Filed with the Commission on Form 8-K dated January 27, 2009 as Exhibit 16.1)

21.1	Subsidiaries List. (Filed with the Commission on Form 10-K dated March 23, 2009 as Exhibit 21)

24.1	Power of Attorney. (Filed with the Commission on Form 10-K dated March 23, 2009 as Exhibit 24)

31.1	Certification of Chief Executive Officer pursuant to 13a-14 and 15d-14 of the Exchange Act. (Filed herewith)

31.2	Certification of Chief Financial Officer pursuant to 13a-14 and 15d-14 of the Exchange Act. (Filed herewith)

32.1	Certificate pursuant to 18 U.S.C. ss. 1350 for Pengfei Liu, Chief Executive Officer. (Filed herewith)

32.2	Certificate pursuant to 18 U.S.C. ss. 1350 for Marco Hon Wai Ku , Chief Financial Officer. (Filed herewith)

99.1	Press release dated January 20, 2010 by the Company. (Filed with the Commission on Form 8-K dated January 20, 2010)

XBRL Exhibit

101.INS†	XBRL Instance Document.

101.SCH†	XBRL Taxonomy Extension Schema Document.

101.CAL†	XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF†	XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB†	XBRL Taxonomy Extension Label Linkbase Document.

101.PRE†	XBRL Taxonomy Extension Presentation Linkbase Document.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		CHINA MARINE FOOD GROUP LIMITED

		/s/ Pengfei Liu
Dated: March 26, 2013		Pengfei Liu, Chief Executive Officer
		(Principal executive officer)

		/s/ Marco Hon Wai Ku
		Marco Hon Wai Ku, Chief Financial Officer
Dated: March 26, 2013		(Principal financial officer and principal accounting officer)

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