China Marine Food Group Limited (CMFO) 10-Q 2009 Q3 Quarterly report

U. S. Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File No. 333-40790

CHINA MARINE FOOD GROUP LIMITED

(Name of Registrant in its Charter)

Nevada	87-0640467
(State or Other Jurisdiction of	(I.R.S. Employer I.D. No.)
incorporation or organization)

Da Bao Industrial Zone, Shishi City Fujian, China 362700

(Address of Principal Executive Offices)

Issuer's Telephone Number: 86-595-8898-7588

Indicate  by check mark  whether the  Registrant  (1) has filed all reports required to be filed by Sections 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 subjected to such filing requirements for the past 90 days. Yes x                 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 ¨    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

Large accelerated filer ¨    Accelerated filer ¨  Non-accelerated filer  ¨  Small reporting company x

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

APPLICABLE ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: November 10, 2009, Common Voting Stock: 23,045,791.

CHINA MARINE FOOD GROUP LIMITED.

FORM 10-Q

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

INDEX

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	3 – 24
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operation	25
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4T:	Controls and Procedures	40
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	41
Item 1A:	Risk Factors	41
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3:	Defaults Upon Senior Securities	57
Item 4:	Submission of Matters to a Vote of Security Holders	57
Item 5:	Other Information	58
Item 6:	Exhibits	58

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHINA MARINE FOOD GROUP LIMITED

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Page
Condensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008	4
Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months ended September 30, 2009 and 2008	5
Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2009 and 2008	6
Condensed Consolidated Statement of Stockholders’ Equity for the Nine Months ended September 30, 2009	7
Notes to Condensed Consolidated Financial Statements	8-24

3

CHINA MARINE FOOD GROUP LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008

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

	September 30, 2009		December 31, 2008
	(Unaudited)		(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	31,298,084	$	31,640,307
Accounts receivable, net		7,211,701		4,819,434
Inventories		14,082,458		6,679,488
Prepaid expenses and other current assets		219,579		326,977
Total current assets		52,811,822		43,466,206
Property, plant and equipment, net		8,678,539		5,944,515
Land use rights, net		619,409		630,150
Construction in progress		-		1,604,855
TOTAL ASSETS	$	62,109,770	$	51,645,726
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	4,138,879	$	4,289,341
Accounts payable, trade		904,874		416,463
Amount due to a stockholder		95,540		170,091
Income tax payable		446,153		362,326
Accrued liabilities and other payable		1,185,842		1,387,427
Total current liabilities		6,771,288		6,625,648
Commitments and contingencies (see Note 11)
Stockholders’ equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized; 0 share issued and outstanding as of September 30, 2009 and December 31, 2008		-		-
Common stock, $0.001 par value; 100,000,000 shares authorized; 23,045,791 shares and 23,026,301 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively		23,045		23,026
Additional paid-in capital		16,752,926		16,752,945
Statutory reserve		4,883,700		4,883,700
Accumulated other comprehensive income		3,564,866		3,448,436
Retained earnings		30,113,945		19,911,971
Total stockholders’ equity		55,338,482		45,020,078
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	62,109,770	$	51,645,726

See accompanying notes to condensed consolidated financial statements.

4

CHINA MARINE FOOD GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

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

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2009			2008			2009			2008
Revenue, net	$	13,392,423		$	11,496,462		$	44,696,859		$	35,346,113
Cost of revenue (inclusive of depreciation and amortization)		(9,105,924	)		(7,944,212	)		(31,398,803	)		(23,924,208	)
Gross profit		4,286,499			3,552,250			13,298,056			11,421,905
Operating expenses:
Depreciation and amortization		(20,248	)		(19,218	)		(59,300	)		(38,984	)
Sales and marketing		(147,254	)		(198,051	)		(404,810	)		(451,330	)
General and administrative		(522,630	)		(507,479	)		(1,504,226	)		(1,302,341	)
Total operating expenses		(690,132	)		(724,748	)		(1,968,336	)		(1,792,655	)
Income from operations		3,596,367			2,827,502			11,329,720			9,629,250
Other income (expenses):
Subsidy income		93,548			4,242			236,756			67,868
Rental income		20,391			18,772			61,162			55,166
Interest income		29,618			218,105			190,680			390,431
Interest expense		(56,136	)		(81,871	)		(174,864	)		(241,475	)
Income before income taxes		3,683,788			2,986,750			11,643,454			9,901,240
Income tax expense		(453,998	)		(393,240	)		(1,441,480	)		(1,283,497	)
NET INCOME	$	3,229,790		$	2,593,510		$	10,201,974		$	8,617,743
Other comprehensive income:
- Foreign currency translation gain		56,366			83,784			116,430			2,194,885
COMPREHENSIVE INCOME	$	3,286,156		$	2,677,294		$	10,318,304		$	10,812,628
Net income per share:
– Basic	$	0.14		$	0.11		$	0.44		$	0.37
– Diluted	$	0.14		$	0.11		$	0.44		$	0.37
Weighted average shares outstanding:
– Basic		23,045,791			23,026,301			23,045,791			23,026,301
– Diluted		23,045,791			23,026,301			23,045,791			23,120,014

See accompanying notes to condensed consolidated financial statements.

5

CHINA MARINE FOOD GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

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

(Unaudited)

	Nine months ended September 30,
	2009			2008
Cash flows from operating activities:
Net income	$	10,201,974		$	8,617,743
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		242,510			167,550
Loss on disposal of property, plant and equipment		-			64,462
Allowance for doubtful accounts		12,021			2,342
Changes in operating assets and liabilities:
Accounts receivable		(2,404,288	)		283,097
Inventories		(7,402,970	)		(7,758,595	)
Prepaid expenses and other current assets		107,398			(183,953	)
Accounts payable, trade		488,411			362,965
Income tax payable		83,827			66,887
Accrued liabilities and other payable		(201,585	)		(189,830	)
Net cash provided by operating activities		1,127,298			1,432,668
Cash flows from investing activities:
Purchase of property, plant and equipment		(347,057	)		(465,054	)
Addition of construction in progress		(995,235	)		(2,394,953	)
Net cash used in investing activities		(1,342,292	)		(2,860,007	)
Cash flows from financing activities:
Repayment to a stockholder		(74,551	)		(217,417	)
Proceeds from issuance of common stock		-			173,556
Proceeds from short-term borrowings		4,138,879			8,844,844
Payment on short-term borrowings		(4,289,341	)		(5,388,690	)
Net cash (used in) provided by financing activities		(225,013	)		3,412,293
Effect of exchange rate changes on cash and cash equivalents		97,784			1,977,013
NET CHANGE IN CASH AND CASH EQUIVALENTS		(342,223	)		3,961,967
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		31,640,307			24,476,647
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	31,298,084		$	28,438,614
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	1,357,653		$	1,216,610
Cash paid for interest	$	174,864		$	241,475
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transfer from construction in progress to property, plant and equipment	$	2,600,090		$	62,323

See accompanying notes to condensed consolidated financial statements.

6

CHINA MARINE FOOD GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

										Accumulated
					Additional					other				Total
	Common stock				paid-in			Statutory		comprehensive		Retained		stockholder’s
	No. of shares		Amount		capital			reserve		income		earnings		equity
Balance as of January 1, 2009		23,026,301	$	23,026	$	16,752,945		$	4,883,700	$	3,448,436	$	19,911,971	$	45,020,078
Cashless exercise of warrants		19,490		19		(19	)		-		-		-		-
Net income for the period		-		-		-			-		-		10,201,974		10,201,974
Foreign currency translation adjustment		-		-		-			-		116,430		-		116,430
Balance as of September 30, 2009		23,045,791	$	23,045	$	16,752,926		$	4,883,700	$	3,564,866	$	30,113,945	$	55,338,482

See accompanying notes to condensed consolidated financial statements.

7

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

NOTE - 1 BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States of America (“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, the consolidated balance sheet as of December 31, 2008 which has been derived from audited financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended September 30, 2009 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2009 or for any future periods.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2008.

NOTE - 2 ORGANIZATION AND BUSINESS BACKGROUND

China Marine Food Group Limited (“China Marine” or “the Company”) was incorporated in the State of Nevada on October 1, 1999 in the former name of New Paradigm Productions, Inc. On November 16, 2007, the Company changed its current name to “China Marine Food Group Limited”.

China Marine, through its subsidiaries, mainly engages in the manufacture and distribution of seafood products, including dried and frozen seafood products, and trades with customers in domestic and overseas markets, with its principal place of business in Shishi City, Fujian Province, China.

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

NOTE - 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.

l Use of estimates

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

8

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

l Basis of consolidation

The unaudited condensed 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 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 six months or less as of the purchase date of such investments.

The Company mainly maintains cash and cash equivalent balances at a financial institution in the PRC, which are insured by the People’s Bank of China. The Company had cash concentration risk of $31,289,728 and $31,614,368 as of September 30, 2009 and December 31, 2008, respectively.

l Accounts receivable and allowance for doubtful accounts

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

As of September 30, 2009 and December 31, 2008, the allowance for doubtful accounts was $36,239 and $24,218, respectively.

For the period ended September 30, 2009 and 2008, the Company provided the allowance for doubtful accounts of $12,021 and $2,342, respectively.

l Inventories

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

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:

9

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

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

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

As of September 30, 2009, certain property, plant and equipment were pledged as securities in connection with the outstanding short-term borrowings.

Depreciation expense for the three months ended September 30, 2009 and 2008 were $82,206 and $58,956, respectively.

Depreciation expense for the nine months ended September 30, 2009 and 2008 were $230,248 and $155,558, respectively.

Certain property, plant and equipment with original costs of $964,212 have become fully depreciated as of September 30, 2009.

l Land use rights

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

As of September 30, 2009, certain land use rights were pledged as securities in connection with the outstanding short-term borrowings.

Amortization expense for the three months ended September 30, 2009 and 2008 were $4,088 and $4,081, respectively.

Amortization expense for the nine months ended September 30, 2009 and 2008 were $12,262 and $11,992, respectively.

l Impairment of long-lived assets

In accordance with the provisions of Accounting Standards Codification ("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 construction in progress held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. There has been no impairment as of September 30, 2009.

10

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

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 collectibility is reasonably assured.

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

The Company recognizes revenue from the sale of products upon delivery to the customers and the transfer of title and risk of loss. The Company experienced no product returns and has recorded no reserve for sales returns for the period ended September 30, 2009 and 2008.

The Company has distributor arrangements with certain parties for sale of its processed seafood products. The distributor agreements do not provide chargeback, price protection, or stock rotation rights. Accordingly, the Company records the revenue, net of VAT incurred when products are delivered to and received by the distributors.

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

l Comprehensive income

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

l Income taxes

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

11

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

For the period ended September 30, 2009, the Company did not have any interest and penalties associated with tax positions. As of September 30, 2009, the Company did not have any significant unrecognized uncertain tax positions.

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

l Net income per share

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

l Foreign currencies translation

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

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

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with 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 stockholders’ equity.

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

	September 30,
	2009		2008
Period-end rates RMB:US$1 exchange rate		6.8376		6.8551
Average rates RMB:US$1 exchange rate		6.8425		6.9989

12

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

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 Related parties

Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

l Segment reporting

ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. For the period ended September 30, 2009, the Company operates in two principal reportable segments: sale of processed seafood products and trading of marine catch.

l Fair value measurement

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

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

l Financial instruments

Cash and cash equivalents, accounts receivable and accounts payable are carried at cost which approximates fair value. The estimated fair value of short-term borrowing was $4.1 million and $4.3 million as of September 30, 2009 and December 31, 2008, respectively, based on current market prices or interest rates. Any changes in fair value of assets or liabilities carried at fair value are recognized in other comprehensive income for each period.

13

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

l Recent accounting pronouncements

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

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

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

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

In April 2009, the FASB issued an update to ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10) (formerly FASB Staff Position No. SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”). The standard provides additional guidance on estimating fair value in accordance with ASC 820-10 when the volume and level of transaction activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability have significantly decreased and includes guidance on identifying circumstances that indicate if a transaction is not orderly. The Company adopted this pronouncement effective April 1, 2009 with no impact on its condensed consolidated financial statements.

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

In April 2009, the FASB issued FSP APB No. 28-1, “Interim Financial Reporting” (“ASC 825-10”). ASC 825-10 requires the fair value of financial instruments disclosure in summarized financial information at interim reporting periods. ASC 825-10 is effective for interim periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009. There was no material impact to the Company’s condensed consolidated financial statements as a result of the adoption of ASC 825-10.

14

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

The Company adopted, ASC Topic 855-10, “Subsequent Events” (formerly SFAS 165, “Subsequent Events”) effective April 1, 2009. This pronouncement changes the general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.

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

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

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

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

15

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

NOTE - 4 INVENTORIES

Inventories consisted of the following:

	September 30, 2009		December 31, 2008
Raw materials	$	10,188,036	$	5,076,881
Work-in-process		3,723,250		1,262,854
Finished goods		17,413		126,300
Packaging materials		153,759		213,453
Total	$	14,082,458	$	6,679,488

For the period ended September 30, 2009 and 2008, the Company recorded no allowance for slow-moving and obsolete inventories.

NOTE - 5 SHORT-TERM BORROWINGS

Short-term borrowings consisted of the following:

	September 30, 2009		December 31, 2008
Bank loans, payable to a financial institution in the PRC:
Equivalent to RMB5,400,000, due on February 2, 2009	$	-	$	787,839
Equivalent to RMB3,000,000, due on February 17, 2009		-		437,688
Equivalent to RMB5,000,000, due on February 19, 2009		-		729,479
Equivalent to RMB4,000,000, due on February 25, 2009		-		583,584
Equivalent to RMB5,000,000, due on February 21, 2009		-		729,479
Equivalent to RMB3,000,000, due on April 7, 2009		-		437,688
Equivalent to RMB4,000,000, due on May 18, 2009		-		583,584
Equivalent to RMB5,400,000, due on February 12, 2010		789,751		-
Equivalent to RMB3,000,000, due on February 16, 2010		438,750		-
Equivalent to RMB3,900,000, due on February 18, 2010		570,375		-
Equivalent to RMB5,000,000, due on February 24, 2010		731,251		-
Equivalent to RMB4,000,000, due on February 26, 2010		585,001		-
Equivalent to RMB4,000,000, due on March 17, 2010		585,001		-
Equivalent to RMB3,000,000, due on March 26, 2010		438,750		-
Total borrowings	$	4,138,879	$	4,289,341

16

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

The Company’s wholly-owned subsidiary, Mingxiang obtained short-term bank loans in the aggregate amount of $4,138,879 and $4,289,341 as of September 30, 2009 and December 31, 2008, respectively with Agricultural Bank of China, a registered financial institution in the PRC. The weighted average effective interest rate per annum was 5.43% and 7.65% for the three months ended September 30, 2009 and 2008 respectively, payable quarterly.

All bank borrowings were secured by certain land use rights, property, plant and equipment and guaranteed by the Company’s subsidiaries, Rixiang and Jixiang, also the major stockholder, Mr. Pengfei Liu (“Mr. Liu”) and Ms. Yazuo Qiu.

NOTE - 6 AMOUNT DUE TO A STOCKHOLDER

As of September 30, 2009 and December 31, 2008, the amounts of $95,540 and $170,091 represented temporary advances for working capital purposes from a major stockholder, Mr. Liu, which was unsecured, interest free and repayable on demand.

NOTE - 7 WARRANTS

In connection with the private placement offering, on November 17, 2007, the Company granted to consultants and agents warrants to purchase an aggregate of 929,916 shares of the Company’s common stock at an exercise price of $4.1782 per share or on a cashless exercise basis. The warrants vested immediately and will expire on November 16, 2010. The market price of the stock was $4.1782 per share on the grant date. The Company valued the warrants at $2.0873 per share, or $1,941,014, using the Black-Scholes option-pricing model under ASC 718-20 and was recorded as offering expense in additional paid-in capital in the accompanying consolidated financial statements for the year ended December 31, 2007.

During the period ended September 30, 2009, certain warrant holder exercised warrants on a cashless exercise basis to purchase 19,490 shares of the Company’s common stock.

A summary of warrant activity for the period ended September 30, 2009 is as follows:

	Number of warrants			Weighted- average exercise price		Remaining contractual term (year)		Aggregate intrinsic value
Outstanding and exercisable as of January 1, 2009		2,169,804		$	4.1782		2.87		-
Granted		-			-		-		-
Exercised		(118,233	)		4.1782		-		-
Outstanding and exercisable as of September 30, 2009		2,051,571		$	4.1782		1.13		-

17

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

NOTE - 8 INCOME TAXES

For the period ended September 30, 2009 and 2008, the local (“United States of America”) and foreign components of income before income taxes were comprised of the following:

	Nine months ended September 30,
	2009			2008
Tax jurisdiction from:
– Local	$	(4,591	)	$	(1,811	)
– Foreign		11,648,044			9,903,051
Income before income taxes	$	11,643,453		$	9,901,240

The provision for income taxes consisted of the following:

	Nine months ended September 30,
	2009		2008
Current:
– Local	$	-	$	-
– Foreign		1,441,480		1,283,497
Deferred:
– Local		-		-
– Foreign		-		-
Income tax expense	$	1,441,480	$	1,283,497

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 September 30, 2009, China Marine incurred $11,294 of net operating losses carryforwards available for federal tax purposes that may be used to offset future taxable income and will begin to expire in 2028, if unutilized. The Company has provided for a full valuation allowance against the deferred tax assets of $3,896 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.

18

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

Hong Kong

The Company’s subsidiary, Ocean Technology (China) Company Limited (formerly Nice Enterprise Trading H.K. Co., Limited) (“Ocean Technology”) is subject to Hong Kong Profits Tax at the statutory rate of 16.5% on its assessable income for the period ended September 30, 2009 and December 31, 2008, respectively. For the period ended September 30, 2009, Ocean Technology incurred an operating loss of $103,162 for income tax purposes. The Company has provided for a full valuation allowance against the deferred tax assets of $61,243 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 period ended September 30, 2009 and 2008. Rixiang, Jixiang and Mingxiang are subject to the Corporate Income Tax governed by the Income Tax Law of the People’s Republic of China, at a statutory rate of 25%.

Rixiang, Jixiang and Mingxiang are approved as a foreign investment enterprise and entitled to, starting from the first profitable year, a two-year exemption from corporate income tax and a 50%-reduction in its preferential corporate income tax rate of 24% for the following three years ("Tax Holiday"). Such Tax Holiday of Jixiang and Mingxiang were expired in prior years and Rixiang continues to enjoy the Tax Holiday expiring through fiscal year 2009.

On March 16, 2007, the National People’s Congress approved the Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”). The new CIT Law, among other things, imposes a unified income tax rate of 25% for both domestic and foreign invested enterprises with effect from January 1, 2008. Hence, Rixiang will continue to enjoy to the unexpired Tax Holiday of 50%-reduction on the unified income tax through 2009, subject to a transitional policy under the Corporate Income Tax Law. Jixiang and Mingxiang are subject to the unified income rate of 25% on the taxable income.

On October 15, 2009, the Company has received a notice of recognition as an enterprise of new and high technology, which was jointly issued by The Science and Technology Department of Fujian, The Finance Department of Fujian, The State Tax Bureau of Fujian and The Local Taxation Bureau of Fujian for a company engaged in advanced food processing technologies for the Fujian Province. As a new and high technology company, China Marine qualifies for a reduced tax rate of 15% on the Company's income through 2012.

As of September 30, 2009, the PRC operation incurred $1,309,981 of net operating losses carryforward available for income tax purposes that may be used to offset future taxable income and will begin to expire in 5 years from the year of incurrence, if unutilized. The Company has provided for a full valuation allowance against the deferred tax assets of $327,495 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.

19

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

NOTE - 9 SEGMENT REPORTING, GEOGRAPHICAL INFORMATION

(a)       Business information

The Company’s chief operating decision maker has been identified as chairman, Mr. Liu, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. Based on this assessment, the Company has determined that it has two operating and reporting segments for the period ended September 30, 2009 and 2008 which are sale of processed seafood products and trading of marine catch.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 3). The Company had no inter-segment sales for the period ended September 30, 2009 and 2008.

Summarized financial information concerning the Company’s reportable segments is shown in the following table for the three and nine months ended September 30, 2009 and 2008:

	Three months ended September 30, 2009
	Processed seafood products			Marine catch			Total
Revenue, net	$	12,098,625		$	1,293,798		$	13,392,423
Cost of revenue		(8,047,601	)		(1,058,323	)		(9,105,924	)
Gross profit	$	4,051,024		$	235,475		$	4,286,499
Expenditure for long-lived assets	$	129,586		$	-		$	129,586

	Three months ended September 30, 2008
	Processed seafood products			Marine catch			Total
Revenue, net	$	10,896,094		$	600,368		$	11,496,462
Cost of revenue		(7,402,342	)		(541,870	)		(7,944,212	)
Gross profit	$	3,493,752		$	58,498		$	3,552,250
Expenditure for long-lived assets	$	1,136,314		$	-		$	1,136,314

	Nine months ended September 30, 2009
	Processed seafood products			Marine catch			Total
Revenue, net	$	37,552,949		$	7,143,910		$	44,696,859
Cost of revenue		(25,021,550	)		(6,377,253	)		(31,398,803	)
Gross profit	$	12,531,399		$	766,657		$	13,298,056
Expenditure for long-lived assets	$	1,342,292		$	-		$	1,342,292

20

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

	Nine months ended September 30, 2008
	Processed seafood products			Marine catch			Total
Revenue, net	$	33,192,364		$	2,153,749		$	35,346,113
Cost of revenue		(22,021,651	)		(1,902,557	)		(23,924,208	)
Gross profit	$	11,170,713		$	251,192		$	11,421,905
Expenditure for long-lived assets	$	2,860,007		$	-		$	2,860,007

(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:

	Three months ended September 30,
	2009		2008
Revenue, net
The PRC	$	12,879,689	$	10,502,092
Asia		512,734		994,370
Total revenue, net	$	13,392,423	$	11,496,462

	Nine months ended September 30,
	2009		2008
Revenue, net
The PRC	$	43,591,289	$	33,396,484
Asia		1,105,570		1,949,629
Total revenue, net	$	44,696,859	$	35,346,113

All the Company’s long-lived assets are located in the PRC in both periods.

NOTE -  10 CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a)       Major customers

For the three months ended September 30, 2009, no customer represented more than 10% of the Company’s revenue and accounts receivable, respectively.

21

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

For the nine months ended September 30, 2009, one customer represented more than 10% of the Company’s revenue. This customer accounts for 12.3% of revenue amounting to $5,502,994, with $582,767 of accounts receivable.

For the three and nine months ended September 30, 2008, no customer represented more than 10% of the Company’s revenue and accounts receivable, respectively.

(b)       Major vendors

The following is a table summarizing the purchases from vendor that individually represents greater than 10% of the total purchases for the nine months ended September 30, 2009 and 2008 and their outstanding balances as at period-end dates.

		Nine months ended September 30, 2009
Vendors		Purchases		Percentage of total purchases			Accounts payable, trade
Vendor A		$	9,849,224		25	%	$	40,179
Vendor B			7,570,538		20	%		80,915
Vendor C			6,388,582		17	%		86,889
Vendor D			6,265,506		16	%		-
	Total:	$	30,073,850		78	%	$	207,983

		Nine months ended September 30, 2008
Vendors		Purchases		Percentage of total purchases			Accounts payable, trade
Vendor A		$	5,881,770		19	%	$	132,201
Vendor D			5,634,436		18	%		-
Vendor B			4,941,486		16	%		221,492
Vendor C			4,114,713		13	%		31,321
Vendor E			3,023,080		10	%		61,938
	Total:	$	23,595,485		76	%	$	446,952

(c)       Credit risk

Financial instruments that are potentially subject to credit risk consist principally of trade receivables. The Company believes the concentration of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

(d)        Interest rate risk

As the Company has no significant interest-bearing assets, the Company’s income and operating cash flows are substantially independent of changes in market interest rates.

22

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

The Company’s interest-rate risk arises from bank borrowings. Borrowings issued at variable rates expose the Company to cash flow interest rate risk. The Company manages interest rate risk by varying the issuance and maturity dates variable rate debt, limiting the amount of variable rate debt, and continually monitoring the effects of market changes in interest rates. As of September 30, 2009, all of borrowings were at variable rates. The interest rates and terms of repayment of bank borrowings are disclosed in Note 5.

(e)       Exchange rate risk

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

(f)        Economic and political risks

Substantially all of the Company’s products are processed in the PRC. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in the PRC and not typically associated with companies in North America and Western Europe. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations in the PRC.

NOTE - 11 COMMITMENTS AND CONTINGENCIES

Operating lease commitments

The Company leased certain office space under a non-cancelable operating lease agreement with a term of 3 years with fixed monthly rentals, expiring on February 17, 2011, and generally did not contain significant renewal options. Total rent expenses for the period ended September 30, 2009 and 2008 was $57,858 and $44,586, respectively.

As of September 30, 2009, future minimum rental payments due under the non-cancelable operating lease agreement are as follows:

Years ending September 30,
2010	$	77,145
2011		29,618
Total:	$	106,763

23

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

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

(Unaudited)

NOTE - 12 SUBSEQUENT EVENTS

On November 6, 2009, the Company’s subsidiary, Shishi Huabao Mingxiang Foods Co., Ltd acquired a piece of land with an aggregate area of 8,691 square meters for the development of cold storage facilities. The purchase price is approximately $2.28 million (equivalent to RMB15.5 million). Total estimated land use right and construction costs of such facility are approximately $20 million and it is expected to be completed in late 2010.

The Company has evaluated subsequent events through November 11, 2009, the date the financial statements were issued, to ensure that this Form 10-Q includes appropriate disclosure of events recognized in the financial statements as of September 30, 2009, and events that occurred subsequent to September 30, 2009 but were not recognized in the financial statements.

24

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR FINANCIAL CONDITION AND RESULTS OF OPERATION

The following analysis should be read in conjunction with the consolidated financial statements and notes for the nine months ended September 30, 2009 and 2008, and the financial statements and notes thereto presented in the Form 10-Q.

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 (Formerly Nice Enterprise Trading H.K. Co., Limited) (“Ocean Technology”), and its direct wholly owned subsidiary, Shishi Rixiang Marine Foods Co. Ltd. (“Rixiang”), which is incorporated in the PRC. Rixiang, in turn, is the sole shareholder of our indirect subsidiaries. Shishi Huabao Mingxiang Foods Co., Ltd (“Mingxiang”) and Shishi Huabao Jixiang Water Products Co., Ltd (“Jixiang”), both PRC operating companies, Mingxiang and Jixiang are property holding companies. These two companies operate solely to manage our land use rights and properties, including our production plant, cold storage facility, office tower and staff dormitory.

We engage in the business of processing, distribution and sale of processed seafood and marine catch products. Our objective is to establish ourselves as a leading producer of processed seafood products in the PRC and overseas markets.

Sales

Our dried processed seafood products include dried prawns, dried squids, dried file fish, roasted prawns, shredded roasted squids, roasted squids, roasted file fish, roasted sea eels and other seafood items. Our dried processed seafood is predominantly sold under our registered trademark, the “Mingxiang” brand name. Our brand name has won the “Fujian Famous Brand” award by the Fujian Commerce Authority. Our dried processed seafood products are sold mainly to distributors in Fujian and Zhejiang provinces, who in turn distribute to major supermarkets and retailers in these provinces.

25

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

We purchase all the raw materials for our processed seafood products from independent fishermen in nearby markets for further processing. We also buy the marine catch from the suppliers and then sell to the customers on a direct basis. The marine catch is predominantly sold to customers through our distributors in Liaoning, Fujian and Shandong provinces, some of whom directly export the marine catch to South Korea and Taiwan.

Sales of our processed seafood products accounted for approximately 90.3% and 94.8% of our total sales in the third quarter of 2009 and 2008, respectively. Sales of our marine catch accounted for approximately 9.7% and 5.2% of our total sales in the third quarter of 2009 and 2008, respectively. Since the processed seafood segment has significant growth potential and the profit margin of the processed seafood segment (33.5% and 32.0% for the third quarter of 2009 and 2008 respectively) is much higher than that of marine catch segment (18.2% and 9.7% for the third quarter of 2009 and 2008, respectively), we will continue to focus our resources on the processed seafood segment going forward.

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

Factors that can affect our sales are as follows:

· The level of sales is dependent on the supply of raw materials on a timely basis. Raw material costs accounted for approximately 74.5% and 76.1% of our total cost of sales of processed seafood products in the third quarter of 2009 and 2008 respectively. The availability of these raw materials could be affected by a large number of factors, including, inter alia, the availability of fish stock, weather conditions, government policies and regulations where such fishing is carried out, the stability of supplies from fishermen and pressure from environmental or animal rights groups.

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

· Any shortage in the supply of or increase in the prices of the raw materials for our processed seafood products will adversely affect our sales.

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

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

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

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

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

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

Production facilities and employees

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

As of September 30, 2009, we employed 769 employees.

Seasonality

We do not experience any significant seasonality in relation to sales for our processed seafood products. However, sales are usually higher before and during the Chinese New Year. In 2008, we also experienced a strong sales demand before the Olympics games being held in Beijing in August. As for the trading of marine catch, sales may be lower in June and July due to the reduced supplies as a result of the restriction on fishing in the Taiwan Strait during these two months. In 2009, the restricted period on fishing has been shifted to a bit earlier from mid May to mid July as announced by the Ministry of Agriculture.

RESULTS OF OPERATIONS

We derive our sales from the sales of processed seafood products and marine catch, the breakdown of our sales and gross profit by product, as well as by geographical location of our customers for the three and nine months ended September 30, 2009 and 2008 are set out below:

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Breakdown of our past performance by principal products and geographical regions

Sales by product

	Three months ended September 30,								Nine months ended September 30,
	2009				2008				2009				2008
	US$’000		%		US$’000		%		US$’000		%		US$’000		%
Processed seafood products		12,099		90.3		10,896		94.8		37,553		84.0		33,192		93.9
Marine catch		1,294		9.7		600		5.2		7,144		16.0		2,154		6.1
Total		13,393		100.0		11,496		100.0		44,697		100.0		35,346		100.0

Sales by geographical region

	Three months ended September 30,								Nine months ended September 30,
	2009				2008				2009				2008
	US$’000		%		US$’000		%		US$’000		%		US$’000		%
PRC
Shandong		752		5.6		830		7.2		2,507		5.6		3,332		9.4
Zhejiang		5,685		42.5		4,939		43.0		17,764		39.8		16,450		46.6
Fujian		3,629		27.1		3,161		27.5		11,729		26.2		10,995		31.1
Jiangsu/ Shanghai		876		6.5		667		5.8		2,828		6.3		953		2.7
Guangdong/ Shenzhen		832		6.2		672		5.8		2,753		6.2		981		2.8
Sichuan/ Chongqing		506		3.8		-		-		506		1.1		-		-
Others		599		4.5		233		2.0		5,504		12.3		685		1.9
Total PRC (1)		12,879		96.2		10,502		91.3		43,591		97.5		33,396		94.5
Asia (2)		514		3.8		994		8.7		1,106		2.5		1,950		5.5
Total		13,393		100.0		11,496		100.0		44,697		100.0		35,346		100.0

Notes:

(1) Sales to PRC include sales to local PRC distributors who in turn sell our products to Taiwan and South Korea. Such sales amounted to $0.2 million and $0.4 million in the third quarter of 2009 and 2008 respectively.

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

Three months ended September 30, 2009 compared to Three months ended September 30, 2008, and Nine months ended September 30, 2009 compared to Nine months ended September 30, 2008

Sales

We continued to grow steadily in the third quarter of 2009. Our revenue during the three months ended September 30, 2009 increased to $13.4 million by approximately $1.9 million or 16.5% compared to $11.5 million during the same period ended September 30, 2008. The increase in revenue was due to the continued growth in sales of our processed seafood products. Sales of our processed seafood products during the three months ended September 30, 2009 increased by $1.2 million or 11.0% to $12.1 million, compared to $10.9 million during the period ended September 30, 2008, whereas sales of our marine catch segment during the three months ended September 30, 2009 increased by $0.7 million to $1.3 million compared to the period ended September 30, 2008.

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Likewise, our revenue during the nine months ended September 30, 2009 increased to $44.7 million by approximately $9.4 million or 26.5%, compared to $35.3 million we realized during the nine months ended September 30, 2008. Sales of our processed seafood products increased by $4.4 million or 13.1%, whereas sales of our marine catch segment increased by $5.0 million or over 200% due to the significant increase in sales of our trading materials in the first quarter of this year.

The processed seafood products operations continued to be our growth driver. The higher sales in the processed seafood products segment were mainly due to our continued success in the sales and marketing efforts.

Having recognized that the processed seafood segment has significant growth potential and attractive profit margin, we will continue to focus our resources on the processed seafood segment going forward.

Cost of sales

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

	Three months ended September 30,								Nine months ended September 30,
	2009				2008				2009				2008
	US$’000		%		US$’000		%		US$’000		%		US$’000		%
Processed seafood products		8,048		88.4		7,402		93.2		25,022		79.7		22,021		92.0
Marine catch		1,058		11.6		542		6.8		6,377		20.3		1,903		8.0
Total		9,106		100.0		7,944		100.0		31,399		100.0		23,924		100.0

Cost of sales – Processed seafood products

Our cost of sales comprises mainly raw materials, packaging materials, directlabor and manufacturing overheads. The following table sets forth our cost of sales:

	Three months ended September 30,								Nine months ended September 30,
	2009				2008				2009				2008
	US$’000		%		US$’000		%		US$’000		%		US$’000		%
Raw materials		5,998		74.5		5,641		76.1		18,605		74.4		17,420		79.1
Packaging materials		1,019		12.7		765		10.4		3,219		12.9		1,966		8.9
Direct labor		484		6.0		401		5.4		1,406		5.6		1,133		5.2
Manufacturing overheads		547		6.8		595		8.1		1,792		7.1		1,502		6.8
Total		8,048		100.0		7,402		100.0		25,022		100.0		22,021		100.0

Raw materials

Raw materials comprise mainly of 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, which are relatively stable as the existing market supply is stable and abundant. We are located near the Xiangzhi (Shishi) fishing port, one of the largest fishing ports and state-level fishing port centers in Fujian province.

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

Raw material costs accounted for approximately 74.4% and 79.1% of our cost of sales for the nine months ended September 30, 2009 and 2008 respectively. The percentage of raw materials cost as a proportion of the total cost of sales is affected by the product mix for the relevant financial year and the market price of the raw materials. We mitigate the fluctuation in pricing by bulk purchasing and stock management. We are able to stock up our raw materials when prices are lower, as we have our own cold storage facility and we can also utilize other nearby facilities for storage when needs arise. This will ensure a steady supply of raw materials for the processing of seafood products throughout the year.

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

Packaging materials

Packaging materials accounted for approximately 12.9% and 8.9% of our cost of sales for the nine months ended September 30, 2009 and 2008 respectively.

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

Direct labor

Direct labor costs accounted for 5.6% and 5.2% of our cost of sales for the nine months ended September 30, 2009 and 2008 respectively. Direct labor includes mainly salaries and wages paid to employees who are involved in the production processes. Direct labor costs are dependent on factors such as production volume, number of employees, wage rate and applicable government regulations (including minimum wage requirements, statutory welfare and insurance fund contributions). The fluctuation in the direct labor costs as a percentage of costs of sales is dependent on the degree of processing required for the end products. The increase in our production scale over the past few years has enabled us to enjoy economies of scale and higher productivity through job specialization and training.

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The total headcount as of September 30, 2009 has increased to 769 compared to 597 as of the end of the third quarter of 2008. The increase was mainly due to the increase in number of production headcount due to increased scale of production along the year.

Manufacturing overheads

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

The increase in manufacturing overheads for the nine months periods under review was mainly due to the increased scale of production and the expansion of production facilities along the year.

Cost of sales - Marine catch

	Three months ended September 30,								Nine months ended September 30,
	2009				2008				2009				2008
	US$’000		%		US$’000		%		US$’000		%		US$’000		%
Raw materials		948		89.6		503		92.7		6,098		95.6		1,765		92.7
Other expenses		110		10.4		39		7.3		279		4.4		138		7.3
Total		1,058		100.0		542		100.0		6,377		100.0		1,903		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 customers and distributors in Liaoning, Fujian and Shandong provinces, some of whom directly export the marine catch to South Korea and Taiwan.

The increase in raw material costs for the nine months periods under review was mainly in line with the increased sales of trading materials since the second half of 2008.

Other expenses

Other expenses mainly relate to the costs of packaging materials, ice required to keep the freshness of the marine catch and the related overheads.

Gross profit by product

	Three months ended September 30,								Nine months ended September 30,
	2009				2008				2009				2008
	US$’000		%		US$’000		%		US$’000		%		US$’000		%
Processed seafood products		4,051		94.5		3,494		98.4		12,531		94.2		11,171		97.8
Marine catch		236		5.5		58		1.6		767		5.8		251		2.2
Total		4,287		100.0		3,552		100.0		13,298		100.0		11,422		100.0

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Gross profit margin by product

	Three months ended September 30,				Nine months ended September 30,
	2009		2008		2009		2008
	%		%		%		%
Processed seafood products		33.5		32.0		33.4		33.7
Marine catch		18.2		9.7		10.7		11.7
Total		32.0		30.9		29.8		32.3

Gross profit

Gross profit grew by 20.7% or $0.7 million, from $3.6 million during the three months ended September 30, 2008 to $4.3 million during the same period in 2009. Gross profit margin improved by 1.1% from 30.9% during the three months ended September 30, 2008 to 32.0% during the same period in 2009. Gross profit margin for the processed seafood products operations was increased from 32.0% to 33.5%, whereas gross profit margin for the marine catch segment was improved from 9.7% to 18.2% during the same period under review.

Similarly, gross profit grew by 16.4% or $1.9 million, from $11.4 million during the nine months ended September 30, 2008 to $13.3 million during the same period in 2009. However, the gross profit margin for the nine months ended September 30, 2009 dropped by 2.5% to 29.8% from 32.3% during the same period in 2008.

The decrease in overall gross profit margin for the nine months periods under review was largely attributable to the significant increase in sales of marine catch which the gross profit margin is much lower than that of the processed seafood products. Whereas the decrease in gross profit margin for the processed seafood products for the periods under review was mainly due to the inflation and the increase in the costs associated with the packaging materials as explained per above.

Sales and marketing expenses

Our sales and marketing expenses comprise mainly salaries of sales and marketing staff, investor relations fees, advertisement and costs for participating in exhibitions.

Our sales and marketing expenses accounted for approximately 0.9% and 1.3% of our total revenue during the nine months ended September 30, 2009 and 2008 respectively. We maintained our marketing efforts along the year so as to strengthen our brand position in both existing and new markets. In this connection, the amount of sales and marketing expenses are relatively stable for the periods under review.

General and administrative expenses

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

Our general and administrative expenses accounted for approximately 3.4% and 3.7% of our total revenue during the nine months ended September 30, 2009 and 2008 respectively. The increase in the general and administrative expenses was mainly attributable to the higher payroll costs as a result of hiring some experienced professional staff so as to cope with the expanding operations and the higher R&D costs, including staff and testing materials costs, for development of new products during the year.

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Other income

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

Rental income relates to the collection of rental on the 33 shop spaces at our factory in Dabao Industrial Zone. The rental contracts are based on one year lease term. The government subsidies mainly relate to grants by the Ministry of Science and Technology for the development of high-value seafood products with the use of low-value raw materials. Interest income is earned from cash balances with banks from operational cash flow and net proceeds from the private placement taken place in November 2007.

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 0.4% and 0.7% of our total revenue during the nine months ended September 30, 2009 and 2008 respectively.

Income before income tax

Our income before income tax increased by $1.7 million or 17.6%, from $9.9 million during the nine months ended September 30, 2008 to $11.6 million during the same period in 2009. The increase was mainly due to the combined effects of the increase in sales of 26.5% and the decrease in gross profit margin by 2.5%, which was partially offset by the increase in the general and administrative expenses, 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.

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

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

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

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

Jixiang is also a property holding company and is subject to tax on its assessable income.

The lower effective tax rates for the financial years under review were mainly due to tax exemption granted under the tax incentives.

We have recently received a notice of recognition as enterprise of new and high technology, which was jointly issued by The Science and Technology Department of Fujian, The Finance Department of Fujian, The State Tax Bureau of Fujian and The Local Taxation Bureau of Fujian for the Company engaged in advanced food processing technologies for the Fujian Province. As a new and high technology company, we are qualified for a reduced tax rate of 15% on the Company’s income through 2012.

LIQUIDITY AND CAPITAL RESOURCES

We funded our operations through a combination of stockholders’ equity, short-term borrowings and cash generated from our operations. Our cash and cash equivalents as of September 30, 2009 amounted to approximately $31.3 million, a decrease of $0.3 million compared to $31.6 million as of December 31, 2008. Our total indebtedness as of September 30, 2009 comprised of short-term bank loans in the amount of $4.1 million compared to $4.3 million as of December 31, 2008.

A summary of our cash flows for the nine months ended September 30, 2009 and 2008 is as follows:

	Nine months ended September 30,
US$’000	2009			2008
Net cash provided by operating activities		1,127			1,433
Net cash used in investing activities		(1,342	)		(2,860	)
Net cash (used in) provided by financing activities		(225	)		3,412
Foreign currency translation adjustment		98			1,977
Net change in cash and cash equivalents		(342	)		3,962
Cash and cash equivalents at the beginning of the period		31,640			24,477
Cash and cash equivalents at the end of the period		31,298			28,439

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Net cash provided by operating activities

Our net cash provided by operating activities for the nine months ended September 30, 2009 amounted to approximately $1.1 million, a decrease of $0.3 million compared to net cash provided by operating activities for the same period in 2008. The decrease was mainly attributable to the increase in the accounts receivable of $2.4 million for the nine months ended September 30, 2009, which was partially offset by the higher net income earned during the same period in 2009.

We purchased a significant amount of raw materials during the second quarter of 2009. Of which $8.7 million spent for raw materials were used to purchase marine catch which could be resold in the market when prices go up in the future when supplies are limited.

The increase in accounts receivable was mainly in line with the increase in sales volume during the periods under review and the extension of credit period to our major customers so as to cope with the current market practice.

Net cash used in investing activities

For the nine months ended September 30, 2009, our net cash used in investing activities was approximately $1.3 million, mainly attributable to the addition of fixed assets in relation to the development of new processing plant, the associated machineries and staff quarter.

Net cash (used in) provided by financing activities

Our net cash used in financing activities was approximately $0.2 million for the nine months ended September 30, 2009, a decrease of approximately $3.6 million compared to net cash provided by financing activities for the same period in 2008. The decrease was mainly attributable to the borrowing of short-term bank loans in the first quarter of 2008 for working capital purposes.

Use of proceeds

We believe that after taking into account of our cash position, available bank facilities and cash generated from operating activities, we have adequate working capital to meet up with our current operating expenditures. Working capital at September 30, 2009 totaled $46.0 million, an increase of $9.2 million from our working capital at December 31, 2008 of $36.8 million. The increase in working capital was primarily attributable to the increased net income we realized for the period.

We have financed our expansion plan in 2009 in part from the proceeds raised from the private placement closed on November 17, 2007. The construction of our new facilities, which would increase production capacity by 100%, was just completed and commenced the operation by the end of the third quarter 2009.

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As of September 30, 2009 and December 31, 2008, we had short-term bank loans in the aggregate amount of $4,138,879 and $4,289,341, respectively. The weighted average effective interest rate per annum was 5.43% and 7.65% for the three months ended September 30, 2009 and 2008 respectively, payable quarterly. All bank borrowings were secured by certain land use rights, property, plant and equipment. Although we expect that we are able to repay the loans according to the terms of agreement, any default may cause the burden on our land use rights, property, plant and equipment which have been used to secure the payment of the loans.

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

COMMITMENTS AND CONTINGENCIES

Operating lease commitments

Ocean Technology leased certain office space under a non-cancellable operating lease agreement with a term of 3 years with fixed monthly rentals, expiring on February 17, 2011, and generally did not contain significant renewal options. Total rent expenses for the nine months ended September 30, 2009 was approximately $57,858. Future minimum rental payments due under the non-cancelable operating lease agreement are approximately $107,000 in total in the following two years ending September 30, 2010 and 2011.

RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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

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

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In April 2009, the FASB issued an update to ASC Topic 820-10 “Fair Value Measurements and Disclosures” (“ASC 820-10) (formerly FASB Staff Position No. SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”). The standard provides additional guidance on estimating fair value in accordance with ASC 820-10 when the volume and level of transaction activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability have significantly decreased and includes guidance on identifying circumstances that indicate if a transaction is not orderly. The Company adopted this pronouncement effective April 1, 2009 with no impact on its condensed consolidated financial statements.

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

In April 2009, the FASB issued FSP APB No. 28-1, “Interim Financial Reporting” (“ASC 825-10”). ASC 825-10 requires the fair value of financial instruments disclosure in summarized financial information at interim reporting periods. ASC 825-10 is effective for interim periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009. There was no material impact to the Company’s condensed consolidated financial statements as a result of the adoption of ASC 825-10.

The Company adopted, ASC Topic 855-10 “Subsequent Events” (formerly SFAS 165, “Subsequent Events”) effective April 1, 2009. This pronouncement changes the general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.

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

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

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

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

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 future, particularly as we penetrate into overseas markets, our financial results may be subject to fluctuations between those foreign currencies and RMB.

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

	Nine months ended September 30,
(%)	2009		2008
Sales
RMB		97.5		94.5
US dollars		2.5		5.5
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 September 30, 2009, the exchange rate was approximately US$1.00 to RMB6.8376. 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. In the event that we incur foreign exchange losses, our financial performance will be adversely affected.

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 our Board of Directors. In addition, should we establish any formal hedging policy in the future, such policy shall be subject to review and approval by our Board prior to implementation.

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INFLATION

During the periods under review, inflation did not have a material impact on our financial performance.

Web Site Access to Our Periodic SEC Reports 

You may read and copy any public reports we filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site http://www.sec.gov that contains reports and information statements, and other information that we filed electronically.

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ITEM 3.              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Interest Rate Risk

We are exposed to interest rate risk primarily with respect to our short-term bank loans. Although the interest rates are fixed at the benchmark lending rate for the terms of the loans, the terms are typically twelve months and interest rates are subject to change upon renewal. Interest rates for our short-term bank loans have been decreased quite significantly in the first quarter of 2008 from 7.93% to 5.31% in the third quarter of 2009. A hypothetical 1.0% increase in the annual interest rates for all of our credit facilities at $4.1 million would decrease net income before provision for income tax by approximately $41,000 per annum. Management monitors the banks’ interest rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.

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. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin, sales and marketing expenses, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase to cope with these increased costs.

ITEM 4T.           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 the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report 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.

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Changes in Internal Control Over Financial Reporting.

During the most recent quarter ended September 30, 2009, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  We established an Audit Committee, consisting of three independent directors, whose responsibilities include assisting in monitoring our internal controls.

Except for the establishment of the audit committee, there were no other changes in internal control over financial reporting during the period ended September 30, 2009.

PART II - OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS

We are not involved in any material pending legal proceedings at this time, and management is not aware of any contemplated proceeding by any governmental authority.

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 production of processed seafood products is largely dependent on the continuous supply of fresh seafood, which in turn could be affected by a large number of factors, including environmental factors, the availability of seafood stock, weather conditions, the policies and regulations of the governments of the relevant territories where such fishing is carried out, the ability of the fishing companies and fishermen that supply us to continue their operations and pressure from environmental or animal rights groups.

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

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

Our financial performance may be affected by changes in production costs brought about by fluctuations in the prices of our raw materials. 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 one major customer. In the event the major customer ceases to purchase or reduce its purchases from us, and we are unable to secure new contracts, our sales will be adversely affected.

For the nine months ended September 30, 2009, one customer represented 12.3% of revenue amounting to $5,502,994, with $582,767 of accounts receivable. In the event this customer does not continue to purchase from us or reduce its purchases from us or develop its own ability to manufacture the products that we sell to it, and we are unable to secure new contracts or new customers that can replace the loss of this one customer within a short time frame, our business and profitability may be adversely affected.

For the three months ended September 30, 2009, no customer represented more than 10% of the Company’s revenue and accounts receivable, respectively.

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 products, we rely on certain of our major suppliers for a significant portion of the supply of fresh seafood. Purchases from our top four suppliers of raw materials accounted for approximately 78% and 76%, of our total purchases of raw materials during the nine months ended September 30, 2009 and 2008, 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.

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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 depends on population growth and consumer preferences. Our profitability and continued growth depends 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.

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.

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

As directed by Section 404 of the Sarbanes-Oxley Act of 2002 or SOX 404, the SEC adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports, including Form 10-K. In addition, the independent registered public accounting firm auditing a company’s financial statements must also attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting as well as the operating effectiveness of the company’s internal controls. We were not subject to these requirements for the fiscal year ended December 31, 2008; accordingly, we have not evaluated our internal control systems in order to allow our management to report on, and our independent auditors to attest to, our internal controls as required by these requirements of SOX 404. Under current law, we will be subject to these requirements beginning with our annual report for the fiscal year ended December 31, 2009. We can provide no assurance that we will comply with all of the requirements imposed thereby. There can be no assurance that we will receive a positive attestation from our independent auditors. In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner or we are unable to receive a positive attestation from our independent auditors with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements.

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

We intend to, inter alia and expand our operations and production capacity in the PRC by constructing new cold storage facilities and expanding our production facilities. There can be no assurance that the construction of new production facilities, which are expected to increase our capacity by 100%, will be completed by the end of 2009 as expected. 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 and marine catch as a percentage of our total sales for the three and nine months ended September 30, 2009 were as follows:

	Three months ended September 30,								Nine Months ended September 30,
	2009				2008				2009				2008
	US$’000		%		US$’000		%		US$’000		%		US$’000		%
Processed seafood products		12,099		90.3		10,896		94.8		37,553		84.0		33,192		93.9
Marine catch		1,294		9.7		600		5.2		7,144		16.0		2,154		6.1
Total		13,393		100.0		11,496		100.0		44,697		100.0		35,346		100.0

Shifts in consumer preferences or eating habits away from processed seafood products will materially affect our business. In addition, our continued success depends, in general, on the economic conditions, disposable income and consumer confidence in the countries in which we sell our products, all of which can affect discretionary consumer spending in such countries. Adverse changes in these factors would reduce the flow of customers and limit our pricing which will reduce our profitability.

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

We are required to obtain various licenses and permits in order to conduct our business of production and export of processed seafood products. These include the Hygiene Registration Certificate, which is a requirement in order to carry on the production of food products in the PRC, as well as the HACCP certificate and EU export registration, which is a requirement in order to export our processed seafood products to certain countries. Our business is also subject to applicable laws and regulations. Please see the section “Government Regulations” of our Form 10-K for the fiscal year ended December 31, 2008 filed on March 23, 2009 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.

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

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

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

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

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

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

Outbreak of disease or widespread contamination in any of the raw materials or the flavorings 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 or the flavorings 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.

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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 products that we export. Failure to meet the required standards of hygiene may affect our ability to export our processed seafood products and meet our customers’ orders on time. It may also lead to a restriction on our ability to export our processed seafood products which will materially and adversely affect our business, financial condition and operations.

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

Under the shipping terms of our standard customer contracts, we bear the risk of loss in shipment of our products and do not insure this risk. Since management considers the risk of loss to be minimal, with export sales representing about 2.5% of our total sales in the nine months ended September 30, 2009. Moreover, we believe that the shipping companies that we use carry adequate insurance or are sufficiently solvent to cover any loss in shipment. Nevertheless, there can be no assurance that we will be adequately reimbursed upon the loss of a significant shipment of our products.

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

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

The continued success of our business is also dependent on our key management, operational personnel and our other executive officers. 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.

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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. These distributors sub-distribute our dried processed seafood products to 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.

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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.

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

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

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.

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

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

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

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

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 dried processed seafood products, frozen processed seafood products and marine catch mainly to local customers. Our sales are denominated in RMB and US$, while our purchases are denominated in RMB.

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”. At September 30, 2009, the closing exchange rate was approximately US$1.00 to RMB6.8376. There is no assurance that the PRC’s foreign exchange policy will not be further altered. In the event that the PRC’s policy is altered, significant fluctuations in the exchange rates of RMB against the US$ 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.

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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 for the fiscal year ended December 31, 2008 filed on March 23, 2009. 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.

RISKS RELATED TO DOING BUSINESS IN CHINA

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

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

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

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

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

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

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

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

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

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

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

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

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

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There is no assurance that the PRC regulatory authorities will not impose restrictions on the convertibility of the RMB for FIEs. In 2008 and 2007, approximately 95.1% and 99.5% of our sales respectively was denominated in RMB. As such, any future restrictions on currency exchanges may limit our ability to utilize funds generated in the PRC to fund any potential business activities outside the PRC or to distribute dividends to our shareholders.

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

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

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

The avian influenza virus is a virus found chiefly in birds, but infections with these viruses can occur in humans. In January of 2004, the first case of the avian influenza was reported in Guangxi, Hunan and Hubei provinces. Later reports also came from Anhui, Liaoning, Shanghai and Guangdong provinces. As of August 2006, there have been 88 recorded outbreaks of the avian influenza in the PRC.

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

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

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

· Level of government involvement in the economy;

· Control of foreign exchange;

· Methods of allocating resources;

· Balance of payments position;

· International trade restrictions; and

· International conflict.

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

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

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

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

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

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

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

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

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

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

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RISKS RELATED TO THE MARKET FOR OUR STOCK

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

Mr. Liu currently owns approximately 51.3% of our authorized share capital. As a result, he will be able to exercise significant influence over all matters requiring shareholder approval, including the appointment of our directors and the approval of significant corporate transactions. His ownership and control may also have the effect of delaying or preventing a future change in control, impeding merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.

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

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

· Variations in our operating results;

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

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

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

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

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

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

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

· Additions or departures of key personnel;

· Fluctuations in stock market prices and volume; or

· Involvement in litigation.

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

Although we have identified our expansion plans as avenues to pursue growth in our business, we may also find other opportunities to grow, including acquisitions which cannot be predicted at this juncture. Under such circumstances, we may seek to sell additional equity or debt securities or obtain a credit facility. If new shares placed to new and/or existing shareholders are issued in the future, they may be priced at a discount to the then prevailing market price of our shares trading on the NYSE AMEX, 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.

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Negative publicity may adversely affect our share price.

One of our competitive strengths is our established brand name and track record. We have been involved in the production of processes seafood products since commencing our operations in 1994. Our “Mingxiang” brand has been conferred the “Famous Brand” award, and our products have received several other awards such as the “Green Food” award. Please see the section “Competition” of our Form 10-K for the fiscal year ended December 31, 2008 filed on March 23, 2009. We have also established a track record in the processed seafood industry which instills confidence in our products and attracts new customers from South Korea, Japan, Philippines, Papua New Guinea, Taiwan, Russia and Ukraine, as well as potential customers from the European Union. Negative publicity involving us, any of our directors or executive officers may adversely affect our stock market price whether or not such negative publicity is justified.

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 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 

None

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ITEM 5.      OTHER INFORMATION

None

ITEM 6.      EXHIBITS

INDEX TO EXHIBITS

OF

CHINA MARINE FOOD GROUP LIMITED

31.1	Rule 13a-14 (a)/15d-14 (a) Certification of Chief Executive Officer
31.2	Rule 13a-14 (a)/15d-14 (a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer

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SIGNATURES

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

	CHINA MARINE FOOD GROUP LIMITED
		/s/ Pengfei Liu
		Pengfei Liu, Chief Executive Officer
Dated: November 12 , 2009		(Principal executive officer)
		/s/ Marco Hon Wai Ku
		Marco Hon Wai Ku, Chief Financial Officer
Dated: November 12, 2009		(Principal financial officer)

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