424B3 1 v192308_424b3.htm
 
Post-effective Amendment No. 2
Filed pursuant to Rule 424(b)(3)
(To Prospectus dated May 8, 2008)
No. 333-148073
 
PROSPECTUS

CHINA MARINE FOOD GROUP LIMITED
12,013,568 Shares of Common Stock
    
This Prospectus relates to 12,013,568 shares of common stock of China Marine Food Group Limited, a Nevada corporation, that may be sold from time to time by the selling stockholders named in this Prospectus, consisting of 11,122,138 shares of common stock and 891,430 shares of common stock issuable upon exercise of three-year warrants owned by the selling stockholders named in this Prospectus.
 
We will not receive any proceeds from the sales of any shares of common stock by the selling stockholders. We will, however, receive proceeds of up to $4.1782 per share from the exercise of warrants held by selling stockholders if and when such warrants are exercised for cash consideration, which would result in proceeds to us of $3,724,573 in the event that all such warrants are exercised for cash consideration. We will not receive any proceeds from the exercise of the warrants pursuant to the warrants’ cashless exercise provisions. Our common stock is quoted on the NYSE AMEX under the symbol “CMFO.” The closing bid price for our common stock on, June 11, 2010 was $5.47 per share, as reported on the NYSE AMEX.
 
The selling stockholders and any participating broker-dealers may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”) and any commissions or discounts given to any such broker-dealer may be regarded as underwriting commissions or discounts under the Securities Act. The selling stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute their common stock.
 
Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on Page 10 to read about factors you should consider before buying shares of our common stock.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
The date of this Prospectus is July 30, 2010
    
 
1

 
 
TABLE OF CONTENTS
PROSPECTUS SUMMARY
 
3
THE COMPANY
 
3
THE OFFERING
 
7
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
 
7
RISK FACTORS
 
9
RISKS RELATED TO OUR BUSINESS
 
9
RISKS RELATED TO DOING BUSINESS IN CHINA
 
17
RISKS RELATED TO THE MARKET OF OUR STOCK
 
20
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
21
USE OF PROCEEDS
 
22
DETERMINATION OF OFFERING PRICE
 
22
DILUTION OF THE PRICE YOU PAY FOR YOUR SHARES
 
22
SELLING STOCKHOLDERS
 
22
PLAN OF DISTRIBUTION
 
30
DESCRIPTION OF SECURITIES
 
32
STOCK TRANSFER AGENT
 
33
SHARES ELIGIBLE FOR FUTURE SALE
 
33
INTEREST OF NAMED EXPERTS AND COUNSEL
 
34
DESCRIPTION OF BUSINESS
 
34
DESCRIPTION OF PROPERTY
 
63
LEGAL PROCEEDINGS
 
66
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
 
66
SELECTED CONSOLIDATED FINANCIAL DATA
 
67
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
68
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
96
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
 
97
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
 
97
EXECUTIVE COMPENSATION
 
101
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
106
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
106
WHERE YOU CAN FIND MORE INFORMATION
 
109
FINANCIAL STATEMENTS
 
110

 
2

 

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and must be read in conjunction with, the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, all references to the “Company” or “China Marine” refer to China Marine Food Group Limited, a Nevada corporation.
 
Except as otherwise indicated by the context, references in this Prospectus to:

 
·
“China Marine,” “Company,” “we,” “us” or “our” are references to the combined business of China Marine and its direct and indirect subsidiaries.
 
·
“China Marine,” “Company,” “we,” “us” or “our” does not include the selling stockholders.
 
·
“Ocean Technology” means Ocean Technology (China) Company Limited (formerly Nice Enterprise Trading H.K. Co., Limited).and/or its operating subsidiaries, as the case may be.
 
·
“Rixiang” means Shishi Rixiang Marine Foods Co., Ltd.
 
·
“Mingxiang” means Shishi Huabao Mingxiang Foods Co., Ltd.
 
·
“Jixiang” means Shishi Huabao Jixiang Water Products Co., Ltd.
 
·
“Xianghe” means Shishi Xianghe Food Science and Technology Co., Ltd.
 
·
“Xianglin” means Shishi Xianglin Trading Co., Ltd.
 
·
“U.S. Dollar,” “$” and “US$” means the legal currency of the United States of America.
 
·
“RMB” means Renminbi, the legal currency of China.
 
·
“China” or the “PRC” are references to the People’s Republic of China.
 
THE COMPANY
 
Overview of Our Business
 
We are a holding company whose primary business operations are conducted through our direct, wholly owned subsidiary, Ocean Technology and its direct wholly owned subsidiary, Rixiang, which is incorporated in the PRC. Rixiang, in turn, is the sole shareholder of our indirect subsidiaries. Mingxiang and 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. Xianghe is a manufacturer of algae-based soft drinks and it is organized under the laws of the PRC. All subsidiaries are wholly-owned except for Xianghe, in which we own an 80% interest.

Our Background History

We were incorporated in the State of Nevada on October 1, 1999 under the name New Paradigm Productions, Inc. to engage in the production and marketing of meditation music and related supplies.

Starting January 1, 2000, we commenced a private placement of our common stock in reliance upon an exemption from registration under Section 4(2) of the Securities Act and Regulation D promulgated thereunder. We offered 100,000 shares of our common stock at $0.35 per share to certain accredited investors. The offering closed in March 2000 and we raised gross proceeds in the amount of $35,000. As a result of the offering our issued and outstanding common stock increased from 900,000 shares to 1,000,000 shares.

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

 
3

 
 
 During 2007, Jody St. Clair, our president and sole director, indicated a need to resign due to other commitments and the fact that the Company lacked the ability to raise money to continue its search for a business acquisition. Former management approached Halter Financial Investments (“HFI”) regarding HFI’s interest in acquiring a control position in the Company as part of a plan to enhance shareholder value. Former management believed that HFI would be able to introduce the Company to privately held businesses seeking to access the US capital markets through the reverse merger process, which could in turn result in the Company having more profitable business operations that would consequently lead to an increase in the value of the Company's outstanding securities. Therefore, in September 2007, by the approval of the Company's board of directors and shareholders, we entered into a Stock Purchase Agreement (“SPA”) through which we sold 1,005,200 shares of post-reverse stock-split common stock sell to HFI for $400,000. The business purpose of the SPA was to put someone in control of the Company, who would continue to seek a business acquisition. As a result of the SPA, HFI became the owner of 87.5% of the 1,148,826 shares of our then outstanding common stock.

HFI is a Texas limited partnership of which Halter Financial Investments GP, LLC, a Texas limited liability company, is the sole general partner. The members of Halter Financial Investments GP, LLC include: (i) TPH Capital, L.P., a Texas limited partnership of which TPH Capital GP, LLC is the general partner and Timothy P. Halter is the sole member of TPH Capital GP, LLC; (ii) Bellfield Capital, L.P., a Texas limited partnership of which Bellfield Capital Management, LLC is the sole general partner and Dave Brigante is the sole member of Bellfield Capital Management, LLC; (iii) Colhurst Capital LP, a Texas limited partnership of which Colhurst Capital GP, LLC is the general partner and George L. Diamond is the sole member of Colhurst Capital GP, LLC; and (iv) Rivergreen Capital LLC of which Marat Rosenberg is the sole member. As a result, each of the foregoing individuals may be deemed to be a beneficial owner of the shares held of record by Halter Financial Investments GP, LLC. Similarly, the limited partners of HFI are: (i) TPH Capital, L.P., a Texas limited partnership of which TPH Capital GP, LLC is the general partner and Timothy P. Halter is the sole member of TPH Capital GP, LLC; (ii) Bellfield Capital, L.P., a Texas limited partnership of which Bellfield Capital Management, LLC is the sole general partner and Dave Brigante is the sole member of Bellfield Capital Management, LLC; (iii) Colhurst Capital LP, a Texas limited partnership of which Colhurst Capital GP, LLC is the general partner and George L. Diamond is the sole member of Colhurts Capital GP, LLC; and (iv) Rivergreen Capital LLC of which Marat Rosenberg is the sole member. As a result, each of the foregoing persons may be deemed to be a beneficial owner of the shares held of record by HFI. The beneficial owners of a majority of our stock prior to the SPA were: (i) Devonshire Partners, LLC, owning 25,734 common stock shares, or 17.92% of our total outstanding stock; and (ii) Lynn Dixon, owning 62,000 common stock shares, or 43.17% of our total outstanding stock. We are unaware who controls Devonshire Partners, LLC.

After the consummation of the transaction, the Company was left with $392,028 after the payment of related expenses. The shareholders determined that in connection with the sale of voting control to HFI this money would be paid as a non-liquidating dividend to the shareholders of the Company, as they existed prior to the sale of control to HFI. Thus, we declared and paid a special cash dividend of $0.364 per post stock-split share to our shareholders of record as of September 12, 2007, for the business purpose of giving the Company's shareholders a return on their investment. HFI did not participate in this special cash dividend. Stockholders holding a total of 1,077,000 shares received a special cash dividend in the total amount of $392,028 which amount was funded with proceeds from the stock sale. Effective on September 25, 2007, we effectuated a 7.5 to 1 reverse stock split and increased our authorized shares of common stock to 100,000,000. In connection with the reverse stock split, we were assigned a new stock symbol “CMFO.”

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

We are not aware of a nexus between this transaction and the reverse acquisition with Ocean Technology which took place in November 2007, nor are we aware of any preexisting affiliations between the Company, HFI or Ocean Technology. We were advised that HFI routinely takes control positions in public companies and that its acquisition of New Paradigm was part of its standard business practice. HFI has advised us that it did not acquire its interest in our Company specifically for the purpose of engaging in the reverse acquisition and financing transaction with Ocean Technology.
 
We discontinued our principal operations as of December 2002 and were, until our reverse acquisition with Ocean Technology on November 17, 2007 described below, investigating potential acquisitions or opportunities.
  
 
4

 
  
Our Reverse Acquisition of Ocean Technology and Related Financing

On November 17, 2007, we completed a reverse acquisition transaction with Ocean Technology through a share exchange with Ocean Technology’s former stockholders. The natural persons who were the beneficial owners of Ocean Technology prior to the reverse acquisition are: (i) Pengfei Liu, owning 7,493 common stock shares, or 74.93% of the total issued and outstanding stock; (ii)Ai Nyuet Ang, owning 221 common stock shares, or 2.21% of the total issued and outstanding stock; (iii) Hung Yu Wong, owning 287 common stock shares, or 2.87% of the total issued and outstanding stock; (iv) Zhicheng Li, owning 294 common stock shares or 2.94% of the total issued and outstanding stock; (v) Shangxiong Qiu, owning 441 common stock shares, or 4.41% of the total issued and outstanding stock; (vi) Liya Qiu, owning 441 common stock shares, or 4.41% of the total issued and outstanding stock; (vii) Hampton Investment Group Ltd., which is controlled by Mr. William Yan Sui Hui, and which owns 602 common stock shares, or 6.02% of the total issued and outstanding stock; and (viii) Metrolink Holdings Limited, which is controlled by Mr. Kui Shing Andy Lai (50%) and Ms Lai Yung Wai (50%), and which owns 221 common stock shares, or 2.21% of the total issued and outstanding stock. Prior to the reverse acquisition, there were 10,000 shares of issued and outstanding common stock.

Pursuant to the share exchange agreement, the shareholders of Ocean Technology exchanged 100% of their outstanding capital stock in Ocean Technology for approximately 15,624,034 shares of our common stock, or approximately 93.15% shares of our outstanding common stock after the share exchange. In connection with the share exchange, a majority of our shareholders of record as of November 16, 2007 approved a resolution by our board of directors to change our name from New Paradigm Productions, Inc. to China Marine Food Group Limited. The name change became effective on January 9, 2008 upon the filing of a Certificate of Amendment to our Amended Articles of Incorporation with the State of Nevada on the twentieth day following the mailing of a Definitive Information Statement to our shareholders.

Concurrently with the closing of the reverse acquisition on November 17, 2007, we completed a private placement of our securities to certain accredited investors who subscribed for units consisting one share of common stock and a warrant to purchase one-fifth of one share of our common stock. The investors subscribed for aggregate of 6,199,441 shares of our common stock and warrants to purchase an aggregate of 1,239,888 shares of our common stock at $3.214 per unit. The units were offered and sold pursuant to exemptions from registration under the Securities Act, including without limitation, Regulation D and Regulation S promulgated under the Securities Act. Each warrant issued to the investors has a term of three years and is exercisable at any time for a price equal to $4.1782 in cash or on a cashless exercise basis. An investor who exercises the warrant on a cashless basis shall tender the warrant for cancellation and in return receive a certificate for the number of warrant shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the VWAP on the Trading Day immediately preceding the date of such election;

(B) = the Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares in respect of which a cashless exercise is elected pursuant to this Section 2(c).

VWAP is an acronym for Volume-Weighted Average Price, which is the ratio of the value traded to total volume traded over a one trading day.

Thus, if the Investor elects to exercise one hundred (100) warrant shares while VWAP is equal to $5.00, a price greater than the exercise price, then one hundred (100) warrant shares will be cancelled and the Investor will receive a certificate equal to sixteen (16) warrant shares, since: [(5.00 - 4.1782)(100)]/5.00 = 16.436
 
However, if the Investor elects to exercise one hundred (100) warrants shares while VWAP is equal to $3.00, a price less than the exercise price, then the equation will not work since the quotient will be a negative number, as illustrated here: [(3.00 - 4.1782)(100)]/3.00 = -39.273

Therefore, it is in the Investor’s best interest if the warrants are exercised on a cashless basis while VWAP is equal to or greater than the exercise price.

A list of the above-mentioned accredited investors may be found in the section entitled, “Selling Stockholders” beginning on page 25. With the exception of Halter Financial Investments, L.P., Ai Nyuet Ang, Hung Yu Wong, Zhicheng Li, Shangxiong Qiu, Liya Qiu, Hampton Investment Group Limited and Metrolink Holdings Limited, all of the listed selling shareholders received the stock which they are registering in this Form S-1 in the private placement.
 
5

In connection with the private placement, our principal stockholder, Pengfei Liu, entered into a make good agreement pursuant to which Mr. Liu agreed, subject to certain conditions discussed below, to place into an escrow account, 6,199,441 shares of common stock of the Company he beneficially owns. If we had not generated net income of $10.549 million for the fiscal year ending December 31, 2008 and net income of $14.268 million for the fiscal year ending December 31, 2009, up to the full amount of the shares held in escrow would have been transferred to the private placement investors. Since we met the minimum net income thresholds for 2008 and 2009, such shares were returned to Mr. Liu.,

Additionally, upon the close of the reverse acquisition, Mr. Liu became our Chief Executive Officer and Interim Secretary effective on the close of the reverse acquisition. Prior to the effective date of the reverse acquisition, Mr. Liu served at Ocean Technology as its Chief Executive Officer.

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

Through our wholly-owned subsidiaries, Rixiang, Jixiang and Mingxiang, we engage in the business of processing, distribution and sale of processed seafood products, as well as the sale of marine catch.

Our dried seafood products are predominantly sold under our registered trademark, the “Mingxiang (明祥)” brand. Our dried processed seafood products are mainly sold through 19 distributors in seven provinces in the PRC such as Fujian, Guangdong, Jiangsu, Shandong, Sichuan, Liaoning and Zhejiang and in turn sub-distributed to about 2,500 retail points (including major supermarkets and retailers such as Wal-Mart and Carrefour) throughout these provinces. Our frozen processed seafood products are sold to both domestic and overseas customers. Our marine catch is sold to customers in Fujian and Shandong Provinces, some of whom directly export the marine catch to Japan, South Korea and Taiwan. Our objective is to establish ourselves as a leading producer of processed seafood products in the PRC and overseas markets.

On January 1, 2010, Mingxiang purchased Xianghe, a manufacturer of the branded Hi-Power algae-based soft drinks. Xianghe has developed a network of distributors in Fujian, Zhejiang, Guangdong and Hunan which sell Hi-Power to retail food stores, restaurants food supply dealers and the hospitality industry. Mingxiang purchased shares representing eighty percent (80%) of the registered capital stock of Xianghe. See “Description of Business”.
 
Our business premises are located close to Xiangzhi (Shishi) Port, the largest fishing port in Fujian Province and one of the state-level fishing port centers. We have also been designated as a state base for the quality control testing of marine products in Fujian Province.

Our principal place of business in the PRC is located at Dabao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province, the PRC. Our telephone number is (86) 595-8898-7588 and fax number is (86) 595-8898-2319. Our internet address is http://www.china-marine.cn. Information contained in our internet website does not constitute part of this Prospectus.
 
6

 
THE OFFERING

Common Stock Offered by Selling Stockholders
 
12,013,568 shares. This number represents 42.2% of our current outstanding stock.
     
Common Stock to be Outstanding After the Offering
 
28,493,650
     
Proceeds to us
 
We will not receive any of the proceeds from the resale of shares by the selling stockholders, but we may receive up to $3,724,573 from the exercise of warrants for cash but no proceeds from the exercise of the warrants pursuant to the warrants’ cashless exercise provisions. Since the initial registration statement was declared effective on May 8, 2008, selling stockholders have exercised 1,111,261 and 167,113 warrants pursuant to the cashless and cash exercise provision of the warrants respectively and received 619,910 shares of common stock.
     
NYSE AMEX Symbol
 
CMFO

The above information regarding common stock to be outstanding after the offering is based on 28,493,650 shares of common stock outstanding as of, June 11, 2010.

SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION

The following tables summarize our consolidated financial data for the periods presented. You should read the following financial information together with the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes to these consolidated financial statements appearing elsewhere in this Prospectus. The selected consolidated statements of operations data for the three months financial period ended March 31, 2010 and 2009, and the consolidated balance sheet data as of March 31, 2010 are derived from our unaudited consolidated financial statements, which are included elsewhere herein. The unaudited consolidated financial statements have been prepared on the same basis as our audited financial statements and include, in the opinion of management, all adjustments that management considers necessary for a fair presentation of the financial information set forth in those statements.

The selected consolidated statements of operations data for the financial years ended December 31, 2009, 2008, 2006 and 2005; and the selected consolidated balance sheet data as of December 31, 2009, 2008, 2006 and 2005 are derived from our consolidated financial statements, which are included elsewhere herein, and have been audited by ZYCPA Company Limited (“ZYCPA”) (formerly Zhong Yi (Hong Kong) C.P.A. Company Limited), an independent registered public accounting firm, as indicated in their report. The selected consolidated statements of operations data for the financial years ended December 31, 2007; and the selected consolidated balance sheet data as of December 31, 2007 are derived from our consolidated financial statements, which are included elsewhere in this Prospectus, and have been audited by Cordovano and Honeck, LLP (“C & H”), an independent registered public accounting firm, as indicated in their report. Historical results are not necessarily indicative of the results to be expected in future periods.

 
7

 

   
Year Ended December 31,
   
Three Months Ended
March 31,
 
   
2005
   
2006
   
2007
   
2008
   
2009
   
2009
   
2010
 
   
(in thousands)
   
(unaudited)
 
             
Revenue
  $ 14,939     $ 27,442     $ 36,425     $ 48,799     $ 69,586     $
16,548
    $ 19,650  
Cost of sales
    (11,198 )     (19,730 )     (25,649 )     (33,607 )     (50,456 )     (12,442 )     (13,042 )
Gross profit
    3,741       7,712       10,776       15,192       19,130       4,106       6,608  
Depreciation and amortization
    (26 )     (32 )     (37 )     (58 )     (80 )     (19 )     (623 )
Selling and distribution expenses
    (57 )     (94 )     (149 )     (608 )     (609 )     (114 )     (385 )
General and administrative expenses
    (208 )     (388 )     (598 )     (2,068 )     (2,276 )     (466 )     (620 )
Other income
    128       110       223       647       681       254       42  
Interest expense
    (215 )     (272 )     (333 )     (319 )     (231 )     (63 )     (40 )
Income before income tax
    3,363       7,036       9,882       12,786       16,615       3,698       4,982  
Income tax expense
    (14 )     -       (1,221 )     (1,663 )     (2,051 )     (449 )     (1,056 )
Net income attributable to non-controlling interests
    -       -       -       -       -       -       0  
Net income attributable to the Shareholders of the Company
  $ 3,349     $ 7,036     $ 8,661     $ 11,123     $ 14,564     $
3,249
    $ 3,926  
Earnings per Share —basic (US$)  (1)
  $ 0.214     $ 0.450     $ 0.377     $ 0.483     $ 0.632     $ 0.141     $ 0.163  
Earnings per Share — diluted (US$)  (2)
  $ 0.214     $ 0.450     $ 0.344     $ 0.483     $
0.597
    $ 0.141     $ 0.157  
 
Note:
(1)
Assume there are 22,972,301 shares for the financial year ended December 31, 2005, 2006 and 2007, 23,010,842 shares for the financial year ended December 31, 2008, 23,062,839 shares for the financial year ended December 31, 2009, 23,026,301 for the three months financial period ended March 31, 2009, and 24,125,064 shares for the three months financial period ended March 31, 2010 of basic common stock outstanding after this offering was applied retrospectively.
(2)
Assume there are 25,142,105 shares for the financial year ended December 31, 2005, 2006 and 2007, 23,010,842 shares for the financial year ended December 31, 2008, 24,391,942 shares for the financial year ended December 31, 2009, 23,026,301 for the three months financial period ended March 31, 2009, and 25,016,494 shares for the three months financial period ended March 31, 2010 of diluted common stock outstanding after this offering was applied retrospectively.

   
As at December 31,
   
As at
March 31,
 
   
2005
   
2006
   
2007
   
2008
   
2009
   
2010
 
   
(in thousands)
   
(unaudited)
 
Balance Sheet Data:
                                   
Cash and cash equivalents
  $ 2,622     $ 9,182     $ 24,477     $ 31,640     $ 7,143     $ 47,376  
Total current assets
    6,833       11,643       30,013       43,466       56,406       60,655  
Total assets
    10,906       15,430       34,130       51,646       67,895       97,470  
Short-term borrowings
    3,230       3,793       772       4,289       4,139       -  
Total current liabilities
    7,837       5,115       2,602       6,626       8,047       4,205  
Total stockholders’ equity
    3,069       10,315       31,528       45,020       59,848       93,265  

 
8

 

RISK FACTORS

Prospective investors should carefully review the following risk factors together with the other information in this Prospectus in evaluating our business prior to purchasing our common stock offered by this Prospectus. The shares of our common stock being offered for resale by the selling stockholders are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock. Before purchasing any of the shares of common stock, you should carefully consider the following factors relating to our business and prospects. If any of the following risks actually occurs, our business, financial condition or operating results will suffer, the trading price of our common stock could decline, and you may lose all or part of your investment. You should also refer to the other information about us contained in this Prospectus, including our financial statements and related notes.

RISKS RELATED TO OUR BUSINESS
 
We are dependent on the supply of fresh seafood in our production of processed seafood products and disruptions in the supply of fresh seafood could adversely affect our business operations.
 
We use fresh seafood as the primary ingredient in our processed seafood products. Our processed seafood products accounted for approximately 47.2%, 60.3%, 76.5%, 90.9% and 74.8% of our sales in the fiscal years ended December 31, 2005, 2006, 2007, 2008 and 2009 respectively; and approximately 84% of our sales for the three months period ended March 31, 2010. Our production of processed seafood products is largely dependent on the continuous supply of fresh seafood, which in turn could be affected by a large number of factors, including environmental factors, the availability of seafood stock, weather conditions, the policies and regulations of the governments of the relevant territories where such fishing is carried out, the ability of the fishing companies and fishermen that supply us to continue their operations and pressure from environmental or animal rights groups.
 
Specifically, fishing activities in waters around the PRC are restricted in certain months to ensure sustainable aquatic resources. In particular, the PRC Ministry of Agriculture imposes restrictions against fishing in the South China Sea in the months of June and July. There is no assurance that the PRC government may not impose more stringent fishing regulations, including but not limited to longer or more frequent periods that restrict fishing. Such restrictions against fishing or unfavorable weather conditions have a direct impact on the availability of the raw materials required for the production of our processed seafood products, and could lead to a shortage and/or an increase in the prices of our raw materials. Any shortage in the supply of or increase in the prices of the raw materials for our processed seafood products will adversely affect our business, profitability and financial condition.
 
Our profitability will be affected by fluctuations in the prices of our major raw materials.
 
Our financial performance may be affected by changes in production costs brought about by fluctuations in the prices of our raw materials. Our major raw materials are fresh seafood which accounted for approximately 64.6%, 64.9%, 74.3%, 77.9% and 74.4% of our total cost of sales of processed seafood products in the fiscal years ended December, 2005, 2006, 2007, 2008 and 2009 respectively; and approximately 73.2% of our total cost of sales of processed seafood products for the three months period ended March 31, 2010. The prices of our major raw materials may fluctuate due to changes in supply and demand conditions. Any shortage in supply or upsurge in demand of our major raw materials may lead to an increase in prices, which may adversely affect our profitability due to increased production costs and lower profit margins.
 
We are dependent on several major customers. In the event any one of these major customers ceases to purchase or reduce their purchases from us, and we are unable to secure new contracts, our sales will be adversely affected.
 
Our top five major customers accounted for approximately 64.1%, 56.9%, 45.8%, 44.9% and 43.2% of our sales in the fiscal years ended December 31, 2005, 2006, 2007, 2008 and 2009 respectively; and approximately 37.2% of our sales for the three months period ended March 31, 2010. In the event these customers do not continue to purchase from us or reduce their purchases from us or develop their own ability to manufacture the products that we sell to them, and we are unable to secure new contracts or new customers that can replace the loss of these customers within a short time frame, our business and profitability may be adversely affected. Please see the section “Major Customers” of this Prospectus for more details.

 
9

 
 
We are dependent on several major suppliers for our raw materials. In the event we are no longer able to secure raw materials from these suppliers and are unable to find alternative sources of supply at similar or more competitive rates, our operations and profitability will be adversely affected.
 
For the production of our processed seafood and algae-based beverage products, we rely on our major suppliers for a significant portion of the supply of raw materials. Purchases from our top five suppliers of raw materials accounted for 65.1%, 62.5%, 89.9%, 90.8% and 90.3% of our total purchases of raw materials in the fiscal years ended December 31, 2005, 2006, 2007, 2008 and 2009 respectively; and approximately 97.4% of our total purchases of raw materials for the three months period ended March 31, 2010. In the event that we are unable to secure our raw materials from these suppliers and we are unable to find alternative sources of supply at similar or more competitive rates, our business and operations will be adversely affected. Please see the section “Major Suppliers” of this Prospectus for more details.
 
Our profitability and continued growth is dependent on our ability to yield commercially viable products, to enhance our product range and expand our customer base.
 
The seafood processing industry is highly competitive. The growth potential of the seafood processing industry is dependant on population growth and consumer preferences. therefore believe that our profitability and continued growth is dependant on our ability to expand our customer base in existing and new markets by introducing new products that are fast growing and profitable in the populations that we serve, as well as our ability to develop commercially viable products through our product development efforts. If we do not succeed in these efforts, the growth of our sales may slow down and adversely affect our profitability.
 
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. We have established disclosure controls and procedures effective for the purposes set forth in the definition thereof in Exchange Act Rule 13a-15(e) as of December 31, 2009. Commencing by the fiscal year ended December 31, 2010, 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.  However, there can be no assurance that we will receive a positive attestation from our independent auditors. In the event 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. Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
 
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. While the new production facilities, which increased our capacity by 100%, were completed in 2009, there can be no assurance that the construction of, the new cold storage facilities will be completed by the end of 2010 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.

 
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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 period under review were as follows:
 
   
Year ended December 31,
   
Period ended March 31,
 
Products
 
2005
   
2006
   
2007
   
2008
   
2009
   
2009
   
2010
 
   
(%)
   
(%)
   
(%)
   
(%)
   
(%)
   
(%)
   
(%)
 
Marine catch
    52.8       39.7       23.5       9.1       25.2       32.3       2.0  
Processed seafood products
    47.2       60.3       76.5       90.9       74.8       67.7       84.0  
Marine catch
    -       -       -       -       -       -       14.0  
 
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.
 
Any failure to comply with the conditions stipulated in our licenses and permits may lead to their revocation or non-renewal. Any failure to observe the applicable laws and regulations may lead to the termination or suspension of some or all of our business activities or penalties being imposed on us. The occurrence of any of these events may adversely affect our business, financial condition and results of operations.
 
Our processed seafood products may be illegally tampered with such that they are rendered unfit for consumption and have to be recalled and destroyed.
 
Our processed seafood products are packed in plastic materials that can be illegally tampered with. Illegal tampering of our processed seafood products could result in such products being rendered unfit for consumption or cause them to fail to meet customer specifications, health and/or safe handling requirements. This may lead to a loss of customer confidence in our products; affect our reputation, cause product recalls and/or product destruction. In addition, we may incur substantial litigation costs and may be ordered to compensate consumers in the event of any illness or death caused by the consumption of an illegally tampered seafood product.
 
In the event that our processed seafood products are recalled or destroyed as a result of illegal tampering or a claim is made against us arising from the consumption of our products, our reputation, business goodwill and sales will be adversely affected.
 
Product or raw material deterioration will lead to loss of sales, higher costs, negative publicity, and payment of compensation to our customers and/or product liability claims.
 
Our raw materials and frozen processed seafood products, being perishable in nature, may deteriorate due to various reasons such as malfunctioning cold storage facilities, delivery delays or poor handling. This may lead to a delay in production or delivery of our products, a loss in revenue, costs incurred in the purchase of replacement raw materials and payment of compensation to our customers. Any deterioration in our raw materials or processed seafood products could have a material adverse effect on our business, operations and reputation.

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

Outbreak of disease or widespread contamination in any of the raw materials that we use in our production or any food scares may lead to a loss in consumer confidence and reduce the demand for our processed seafood products.
 
One of our competitive strengths is our established brand name and track record. We have received several awards and certificates for our high quality products, including the “Green Food” award. Any outbreak of disease or widespread contamination in any of the raw materials that we use in the production of our products or food scares in the markets in which our processed seafood products are manufactured or sold may have an adverse impact on our business as it may lead to a loss in consumer confidence and reduce the demand of our processed seafood products. It may also affect our sources of supply and we may have to look for alternative sources of supply which may be more costly, or which may not be available. If this develops into actual events, our operations and profitability will be adversely affected.
 
Any failure to meet health and hygiene standards may result in the suspension of licenses, accreditations or the loss of our ability to import and export our products.
 
We are subject to annual checks carried out by the General Administration of Quality Supervision, Inspection and Quarantine of the PRC (CIQ). The CIQ’s annual check encompasses the inspection of food preparation, production and processing operations, as well as health checks on our employees. Failure to meet the required standards may result in our being required to take remedial measures to meet the health and hygiene standards, or in extreme cases, the cancellation or suspension of the license(s) and accreditation(s) required for us to carry on our operations. In the event that this should occur, our operations and financial condition will be materially and adversely affected and could lead to a loss in customer confidence in our products.
 
In addition, the CIQ makes random inspections on the processed seafood products that we export. Failure to meet the required standards of hygiene may affect our ability to export our processed seafood products and meet our customers’ orders on time. It may also lead to a restriction on our ability to export our processed seafood products which will materially and adversely affect our business, financial condition and operations.
 
We bear the risk of loss in shipment of our products and have no insurance to cover such loss.
 
Under the shipping terms of our standard customer contracts, we bear the risk of loss in shipment of our products and do not insure this risk. Since management considers the risk of loss to be minimal, with export sales representing less than 5% of our total sales for the year ended December 31, 2009 and three months period ended March 31, 2010, respectively. Moreover, we believe that the shipping companies that we use carry adequate insurance or are sufficiently solvent to cover any loss in shipment. Nevertheless, there can be no assurance that we will be adequately reimbursed upon the loss of a significant shipment of our products.
 
We are dependent on our Executive Directors and Executive Officers. Any loss in their services without suitable replacement may adversely affect our operations.
 
Our success to date has been largely due to the contribution of Pengfei Liu, our Executive Chairman and CEO. Mr. Liu is the founder of our Company, and has spearheaded our expansion and growth. He is responsible for our operations, marketing, public relations, strategic planning and development of new products and markets. Our continued success is dependent, to a large extent, on our ability to retain his services.
 
The continued success of our business is also dependent on our key management and operational personnel. We rely on their experience in the processed seafood and marine catch industry, product development, sales and marketing and on their relationships with our customers and suppliers.
 
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.
 
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We are dependent on our customers’ ability to maintain and expand their sales and distribution channels. Should these distributors be unsuccessful in maintaining and expanding their distribution channels, our results of operations will be adversely affected.
 
Demand for our products from end-consumers and our prospects depend on the retail growth and penetration rate of our products to end-consumers. Sales of our products are conducted mainly through distributors, over whom we have limited control. As of March 31, 2010, our distribution network is comprised of 24 distributors located in seven provinces. These distributors sub-distribute our dried processed seafood products to over 2,500 retail points, including major supermarkets. We are thus dependent on the sales and distribution channels of our distributors for broadening the geographic reach of our products. Should these distributors be unable to maintain and expand their distribution channels, our results of operations and financial position will be adversely affected.
 
Failure to compete effectively in a competitive environment may affect our profitability.
 
We operate in the highly competitive processed seafood industry. We believe that our major competitors include international and domestic seafood processors. Some of these competitors may have significantly greater financial, technical and marketing resources, stronger brand name recognition and larger existing customer base than we do.
 
We also believe that these competitors may have the ability to respond more quickly to new or emerging technologies or may adapt more quickly to changes in customer requirements or may devote greater resources to the development, promotion and sales of their products than us.
 
There is no assurance that we will be able to continue competing successfully against present and future competitors. We believe that important factors to achieving success in our industry include maintaining customer loyalty by cultivating long-term customer relationships, achieving consistent product renewal and maintaining the quality of our products. If we are unable to attain these, we may lose our customers to our competitors and this will adversely affect our market share. Increased competition may also force us to lower our prices, thus reducing our profit margins and affecting our financial performance and condition. Such competition may have a material adverse effect on our business, financial position and results of operations. Please refer to the section captioned “Description of Business - Competition” for further details as to our present competitors.
 
Any outbreak of earthquake, tsunami, adverse weather or oceanic conditions or other calamities may result in disruption in our operations and could adversely affect our sales.
 
We are based in Fujian Province which is situated in southeast China on the coast of the East China Sea. Fujian is a vital navigation hub between the East China Sea and South China Sea, and is also rich in agricultural and marine resources. Our main raw materials for our marine catch business come from the Taiwan Straight, which is also the place where we conduct our marine catch operations.
 
In 2004, an undersea earthquake occurred off the west coast of Sumatra Indonesia. This earthquake triggered a series of devastating tsunamis along the costs of most landmasses boarding the Indian Ocean. More than 225,000 people in 11 countries were killed, and coastal communities were inundated with waves up to 100 feet.
 
In May 2008, there was an 8.0 magnitude scale earthquake occurred at Sichuan Province of China. It was also known the Wenchuan earthquake, which by any name killed at least 69,000 people, and over 374,000 injured, with 18,000 listed as missing. The earthquake left about 4.8 million people homeless, thought the number could be as high as 11 million. It was the deadliest earthquake to hit China since the 1976 Tangshan earthquake.

Due to the location of our business, we may be at risk of experiencing another tsunami, earthquake or other adverse weather or oceanic conditions. This may result in the breakdown of our facilities, such as our cold storage facilities, which will in turn lead to deterioration of our products with the potential for spoilage. This could adversely affect our ability to fulfill our sales orders and adversely affect our profitability.
 
Adverse weather conditions affecting the fishing grounds where the fishing vessels chartered by us operate such as storms, cyclones and typhoons or cataclysmic events such as tsunamis may also decrease the volume of our fish catches or may even hamper our fishing operations. Our operations may also be adversely affected by major climatic disruptions such as El Nino which in the past has caused significant decreases in seafood catches worldwide.

 
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We may be affected by global climate change or by legal, regulatory or market responses to such changes.
 
The growing political and scientific sentiment is that increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere are influencing global weather patterns. Changing weather patterns, along with the increased frequency or duration of extreme weather conditions, could impact the availability or increase the cost of key raw materials that we use to produce our products.
 
Concern over climate change, including global warming, has led to legislative and regulatory initiatives directed at limiting greenhouse gas (GHG) emissions. For example, proposals that would impose mandatory requirements on GHG emissions may be considered by policy makers in the territories that we operate. Laws enacted that directly or indirectly affect our production, distribution, packaging, cost of raw materials, fuel, ingredients, and water could all impact our business and financial results.

We are in the business of processing, distributing and selling processed seafood products and marine catch. Thus, a dramatic reduction in fish resources may adversely affect our business.
 
We are in the business of processing, distributing, and selling processed seafood products, as well as selling marine catch. As such, 100% of our raw materials are obtained through fishing. Due to over-fishing, the stocks of certain species of fish may be dwindling and to counteract such over-fishing, governments may take action that may be detrimental to our ability to conduct our operations. If the solution proffered or imposed by the governments controlling the fishing grounds either restrict our ability to procure seafood supply or if such action limits the types, quantities and species of fish that we are able to procure or catch, our operations and prospects may be adversely affected.
 
Our purchase of the beverage business involves the risks of entering into a new business and depending on prior management of the business.
 
On January 1, 2010, we purchased Xianghe, a beverage company, and entered into a new business segment where we will need to rely on current management for the business  acquired. Xianghe is a Fujian based manufacturer of the branded Hi-Power algae-based soft drinks.  We kept the management of Xianghe to continue to manage Xianghe. We will be dependent on the current management of Xianghe for the continued development of the beverage business.  We do not have prior experience in the beverage business and the success of Xianghe would be subject to all of the uncertainties regarding the development of a new business.  Although we intend to integrate the product into Mingxiang’s distribution network, there can be no assurance regarding the successful distribution and market acceptance of the beverage products.

We may not be able to respond successfully to changes in the highly competitive beverage marketplace domestically and internationally.
 
We operate in the highly competitive beverage industry and face strong competition from other general and specialty beverage companies. Our response to continued and increased competitor and customer consolidations and marketplace competition may result in lower than expected net pricing of our products. Our ability to gain or maintain share of sales or gross margins may be limited by the actions of our competitors, who may have advantages in setting their prices because of lower costs. Competitive pressures in the markets in which we operate may cause channel and product mix to shift away from more profitable channels and packages.
 
The principal areas of competition are pricing, packaging, development of new products and flavors and marketing campaigns. Our products will compete with a wide range of drinks produced by a relatively large number of manufacturers, any of which have substantially greater financial, marketing and distribution resources than we do.
 
Important factors affecting our ability to compete successfully include taste and flavor of products, trade and consumer promotions, rapid and effective development of new, unique cutting edge products, attractive and different packaging, branded product advertising and pricing. We will also compete for distributors who will concentrate on marketing our products over those of our competitors, provide stable and reliable distribution and secure adequate shelf space in retail outlets. Competitive pressures in the healthy beverage market could cause our products to be unable to gain market share, or we could experience price erosion, which could have a material adverse effect on our business and results.
  
We compete with major international beverage companies that operate in multiple geographic areas, as well as numerous firms that are primarily local in operation. Our ability to gain or maintain share of sales or gross margins in the Chinese markets and ability to grow the business in global market may be limited as a result of actions by competitors.
 
We compete not only for customer acceptance but for maximum marketing efforts by multi-brand licensed bottlers, brokers and distributors, many of which have a principal affiliation with competing companies and brands. Certain large companies such as The Coca-Cola Company and Pepsico Inc. market and/or distribute products in that market segment.
 
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Our beverage business are heavily regulated by China State Food and Drug Administration (“SFDA”)  and other government agencies for the production and packaging of beverage products, and failure to comply these regulation may adversely affected our beverage business.
 
The production, distribution and sale in China of our beverage products are the production, distribution and sale in the Chinese market of our products are subject to the PRC State Food, Drug, and Cosmetic Act, state consumer protection laws, the Occupational Safety and Health Act, various environmental statutes; and various other state and local statutes and regulations applicable to the production, transportation, sale, safety, packaging, advertising, labeling and ingredients of such products. Although we expect that we will comply with all relevant regulations and rules in our production and distribution of beverage products, there is risk that those regulations may be violated and capital expenditures, net income or competitive position as a result of the violation may be adversely affected.
 
Water scarcity and poor quality could negatively impact our beverage production costs and capacity.
 
Water is the main ingredient in substantially all of our beverage products. It is also a limited resource in many parts of the world, facing unprecedented challenges from overexploitation, increasing pollution and poor management. As demand for water continues to increase in China and as the quality of available water deteriorates, our system may incur increasing production costs or face capacity constraints which could adversely affect our profitability or net operating revenues in the long run.
 
Changes in the nonalcoholic beverages business environment could impact our financial results.
 
The nonalcoholic beverages business environment is rapidly evolving as a result of, among other things, changes in consumer preferences, changes in consumer lifestyles, increased consumer information and competitive product and pricing pressures. If we are unable to successfully adapt to this rapidly changing environment, our net income, share of sales and volume growth could be negatively affected.
 
Adverse weather conditions could reduce the demand for our beverage products.
 
The sales of our beverage products are influenced to some extent by weather conditions in the markets in which we operate. Unusually cold weather during the summer months may have a temporary effect on the demand for our beverage products and contribute to lower sales, which could have an adverse effect on our results of operations for those periods.
 
We are exposed to the credit risk of our customers which may cause us to make larger allowances for doubtful trade receivables or incur bad debt write-offs.
 
Our customers may default on their payments to us. Although we review the credit risk of our customers regularly, such risks will nevertheless arise from events or circumstances that are difficult to anticipate or control, such as an economic downturn.
 
Our trade receivables turnover days were approximately 57, 33, 27, 34 and 64 days in 2005, 2006, 2007, 2008 and 2009 respectively; and approximately 66 days as of March 31, 2010. Our allowances for doubtful trade receivables as at December 31, 2005, 2006, 2007, 2008 and 2009 were approximately $22,000, $6,000, $21,000, $24,000 and $95,000, respectively; and as of March 31, 2010 was approximately $49,000, and at about 0.5% of our gross trade receivables.
  
As a result of this credit risk exposure of our customers defaulting on their payments to us, we may have to make larger allowances for doubtful trade receivables or incur bad debt write-offs, both of which may have an adverse impact on our profitability. 
 
We may be subject to foreign exchange risk and may incur losses arising from exchange differences upon settlement.
 
We sell our dried processed seafood products, frozen processed seafood products and marine catch mainly to local customers. Direct exports as a percentage of our sales ranged between 0.5% to 4.9% during the period under review.  Our sales are denominated in RMB and US$, while our purchases are denominated in RMB.   
 
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For the fiscal year of 2009, 2008, 2007, 2006 and 2005, the percentages of our sales denominated in RMB and US$ were as follows:

   
Year ended December 31,
   
Period ended
March 31,
 
   
2005
   
2006
   
2007
   
2008
   
2009
   
2009
   
2010
 
   
(%)
   
(%)
   
(%)
   
(%)
   
(%)
   
(%)
   
(%)
 
RMB
    95.8       99.1       99.5       95.1       97.4       97.5       98.5  
USD
    4.2       0.9       0.5       4.9       2.6       2.5       1.5  
 
We may incur losses arising from exchange differences upon settlement. To the extent that our sales, purchases and expenses are not naturally matched in the same currency and there are timing differences between collections and payments, we will be exposed to any adverse fluctuations in the exchange rates between the various foreign currencies and the RMB. Any restrictions over the conversion or timing of conversion of foreign currencies may also expose us to adverse fluctuations in exchange rates. As a result, our earnings may be materially and adversely affected.
 
On July 21, 2005, the Renminbi was unpegged against the US$ and pegged against a basket of currencies on a “managed float currency regime”. As at December 31, 2009 and March 31, 2010, the closing exchange rate was approximately US$1.00 to RMB 6.8372 and US$1.00 to RMB 6.8361. There is no assurance that the PRC’s foreign exchange policy will not be further altered. In the event that the PRC’s policy is altered, significant fluctuations in the exchange rates of RMB against the US$ will arise. As a result we will be subject to significant foreign exchange exposure and in the event that we incur foreign exchange losses, our financial performance will be adversely affected.
 
We currently do not have a formal hedging policy with respect to our foreign exchange exposure as our foreign exchange gains and losses over the past three fiscal years ended December 31, 2009, 2008 and 2007, respectively have been relatively low. We will continue to monitor our foreign exchange exposure in the future and will consider hedging any material foreign exchange exposure should the need arise.
 
Please refer to the section “Description of Business - Foreign Exchange Exposure” for further details.
 
Our products and brand name may be replicated or counterfeited which will in turn have an adverse effect on our Company and we may be affected by intellectual property rights disputes.
 
We have registered certain trademarks in the PRC, details of which are set out in the section “Intellectual Property” for the fiscal year ended December 31, 2009 filed on March 22, 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.
 
Our business may be adversely affected by conditions in the financial markets and economic conditions generally.
 
The United States has been in a recession since December, 2007. Business activity across a wide range of industries and regions is greatly reduced, and many businesses and local governments are experiencing serious difficulty in remaining profitable due to the lack of consumer spending and the lack of liquidity in the credit markets. Unemployment has increased significantly. Since mid-2007, and particularly during the second half of 2008, the financial services industry and the securities markets generally were materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity.

As a result of this economic downturn, many lending institutions, including us, have experienced declines in the performance of their loans, including commercial loans, commercial real estate loans and consumer loans. Moreover, competition among depository institutions for deposits and quality loans has increased significantly. In addition, the values of real estate collateral supporting many commercial loans and home mortgages have declined and may continue to decline. Bank and bank holding company stock prices have been negatively affected, and the ability of banks and bank holding companies to raise capital or borrow in the debt markets has become more difficult compared to recent years. There is also the potential for new federal or state laws and regulations regarding lending and funding practices and liquidity standards, and bank regulatory agencies are expected to be very aggressive in responding to concerns and trends identified in examinations, including the expected issuance of many formal or informal enforcement actions or orders. The impact of new legislation in response to those developments, may negatively impact our operations by restricting our business operations, including our ability to originate or sell loans, and adversely impact our financial performance or our stock price.
 
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In addition, further negative market developments may affect consumer confidence levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates, which may impact our charge-offs and provision for credit losses. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial services industry.
 
Overall, during the past year, the general business environment has had an adverse effect on our business, and there can be no assurance that the environment will improve in the near term. Until conditions improve, we expect our business, financial condition and results of operations to be adversely affected.

Worldwide economic conditions may remain depressed for the foreseeable future. These conditions make it difficult for us to accurately forecast and plan future business activities, and could cause us to slow or reduce spending on our research and development activities. Furthermore, during challenging economic times, we may face issues gaining timely access to financings or capital infusion, which could result in an impairment of our ability to continue our business activities. We cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide, in the United States, or in our industry. These and other economic factors could have a material adverse effect on our financial condition and operating results.
 
RISKS RELATED TO DOING BUSINESS IN CHINA
 
Our operations in the PRC are subject to the laws and regulations of the PRC and any changes in the laws or policies of the PRC may have a material impact on our operations and financial performance.
 
As our processed seafood products and marine catch businesses are carried out in the PRC, we are subject to and have to operate within the framework of the PRC legal system. Any changes in the laws or policies of the PRC or the implementation thereof, for example in areas such as foreign exchange controls, tariffs, trade barriers, taxes, export license requirements and environmental protection, may have a material impact on our operations and financial performance.  
 
The corporate affairs of our companies in the PRC are governed by their articles of association and the corporate and foreign investment laws and regulations of the PRC. The principles of the PRC laws relating to matters such as the fiduciary duties of directors and other corporate governance matters and foreign investment laws in the PRC are relatively new. Hence, the enforcement of investors or shareholders' rights under the articles of association of a PRC company and the interpretation of the relevant laws relating to corporate governance matters remain largely untested in the PRC.
 
Introduction of new laws or changes to existing laws by the PRC government may adversely affect our business if stricter regulations are imposed on the overseas business practices of PRC companies
 
Our operations are carried out through our wholly-owned subsidiaries which are located in the PRC. As such, the laws of the PRC govern our businesses and operations. The PRC legal system is a codified system of written laws, regulations, circulars, administrative directives and internal guidelines. The PRC government is still in the process of developing its legal system to encourage foreign investment and to align itself with global practices and standards. As the PRC economy is undergoing development at a faster rate than the changes to its legal system, some degree of uncertainty exists in connection with whether and how existing laws and regulations apply to certain events and circumstances. Some of the laws and regulations and the interpretation, implementation and enforcement of such laws and regulations are also at an experimental stage and are subject to policy changes. Hence, precedents on the interpretation, implementation and enforcement of certain PRC laws are limited and court decisions in the PRC do not have binding effect on lower courts. Accordingly, the outcome of dispute resolutions and litigation may not be as consistent or predictable as in other more developed jurisdictions and it may be difficult to obtain swift and equitable enforcement of the laws in the PRC, or to obtain enforcement of a judgment by a court or another jurisdiction.
 
In particular, on August 8, 2006, six PRC regulatory bodies, including the Ministry of Commerce (MOFCOM) and the China Securities Regulatory Commission (“CSRC”), jointly promulgated the new “Regulations on Foreign Investors Merging with or Acquiring Domestic Enterprises”, which took effect on September 8, 2006 (“2006 M&A Rules”). The 2006 M&A Rules regulate, inter alia , the acquisition of PRC domestic companies by foreign investors.
 
On September 21, 2006, the CSRC promulgated the “Guidelines on Domestic Enterprises Indirectly Issuing or Listing and Trading their Stocks on Overseas Stock Exchanges” (the “CSRC Guidelines”).
 
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Under the 2006 M&A Rules and the CSRC Guidelines, the listing of overseas special purpose vehicles (“SPV”) which are controlled by PRC entities or individuals are subject to the prior approval of the CSRC.
 
The 2006 M&A Rules and the CSRC Guidelines do not provide any express requirement for an SPV to retroactively obtain CSRC approval where the restructuring steps had been completed prior to September 8, 2006.
 
Yuan Tai Law Offices, our Legal Adviser on PRC Law, is of the opinion that (i) we have obtained all the necessary governmental approvals from PRC authorities for the restructuring of our subsidiaries prior to September 8, 2006, (ii) we do not need to obtain CSRC approval and (iii) it is not necessary for us to comply retroactively with the requirement of obtaining the prior approval of the CSRC for our public listing in the U.S..
 
There is no assurance that these PRC authorities will not issue further directives, regulations, clarifications or implementation rules requiring us to obtain further approvals in relation to our public listing in the U.S.
 
PRC foreign exchange control may limit our ability to utilize our cash effectively and affect our ability to receive dividends and other payments from our PRC subsidiaries.
 
Our PRC subsidiaries, which are foreign investment entities (“FIEs”), are subject to the PRC rules and regulations on currency conversion. In the PRC, the State Administration of Foreign Exchange (“SAFE”) regulates the conversion of the RMB into foreign currencies. Currently, foreign investment enterprises (including wholly foreign-owned enterprises) are required to apply to the SAFE for “Foreign Exchange Registration Certificates for FIEs”. With such registration certification (which have to be renewed annually), FIEs are allowed to open foreign currency accounts including the “current account” and “capital account”. Currently, transactions within the scope of the "current account" (for example, remittance of foreign currencies for payment of dividends) can be effected without requiring the approval of the SAFE. However, conversion of currency in the “capital account” (for example, for capital items such as direct investments, loans and securities) still requires the approval of the SAFE. Our PRC operating subsidiary Rixiang has obtained the "Foreign Exchange Registration Certificates for FIEs", which is subject to annual review.
 
There is no assurance that the PRC regulatory authorities will not impose restrictions on the convertibility of the RMB for FIEs. In 2005, 2006, 2007, 2008 and 2009, approximately 95.8%, 99.1%, 99.5%, 95.1% and 97.4 of our sales, respectively was denominated in RMB; and approximately 98.5% for the three months ended March 31, 2010 of our sales, respectively was denominated in RMB  As such, any future restrictions on currency exchanges may limit our ability to utilize funds generated in the PRC to fund any potential business activities outside the PRC or to distribute dividends to our shareholders.
 
Our subsidiaries, operations and significant assets are located outside the U.S. Shareholders may not be accorded the same rights and protection that would be accorded under the Securities Act. In addition, it could be difficult to enforce a U.S. judgment against our Directors and officers.
 
Our subsidiaries, operations and assets are mostly located in the PRC. Our subsidiaries are therefore subject to the relevant laws in the PRC. U.S. law may provide shareholders with certain rights and protection which may not have corresponding or similar provisions under the laws of the PRC. As such, investors in our common stock may or may not be accorded the same level of shareholder rights and protection that would be accorded under the Securities Act. In addition, all our current executive directors are non-residents of the U.S. and the assets of these persons are mainly located outside the U.S. As such, there may be difficulty for our shareholders to affect service of process in the U.S., or to enforce a judgment obtained in the U.S. against any of these persons.
 
We are subject to the PRC's environmental laws and regulations and in the event stricter rules are imposed to protect the environment, we may have to incur higher costs to comply with such rules.
 
Our production facilities in the PRC 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.
 
18

 
The outbreak of avian influenza and/or other communicable diseases, if uncontrolled, could affect our financial performance and prospects.
 
The avian influenza virus is a virus found chiefly in birds, but infections with these viruses can occur in humans. In January of 2004, the first case of the avian influenza was reported in Guangxi, Hunan and Hubei provinces. Later reports also came from Anhui, Liaoning, Shanghai and Guangdong provinces. Since 2003, there have been 37 recorded cases of the avian influenza in the PRC.
 
Because our operations are carried out through our wholly-owned subsidiaries located in the PRC, the outbreak of avian influenza and/or other communicable diseases, if uncontrolled, can have an adverse effect on business sentiments and environment. In addition, if any of our employees, our customers or our suppliers, is affected by the outbreak of communicable diseases, it can adversely affect, among others, our operations, our customers' orders and our supply of raw materials. Accordingly, our sales and profitability will be materially and adversely affected.

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

Economic reforms adopted by the Chinese government have had a positive effect on the economic development of the country, but the government could change these economic reforms or any of the legal systems at any time. This could either benefit or damage our operations and profitability. Some of the things that could have this effect are:
 
 
¨
Level of government involvement in the economy;
 
¨
Control of foreign exchange;
 
¨
Methods of allocating resources;
 
¨
Balance of payments position;
 
¨
International trade restrictions; and
 
¨
International conflict.

The Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD, in many ways. As a result of these differences, we may not develop in the same way or at the same rate as might be expected if the Chinese economy were similar to those of the OECD member countries.
 
The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. Government action in the future may require us to divest ourselves of any interest we hold in Chinese properties.
 
China only recently has permitted provincial and local economic autonomy and private economic activities. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to continue to operate in China may be affected by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.
 
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.
 
19

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

The value of our securities will be affected by the foreign exchange rate between U.S. dollars and Renminbi.
 
The value of our common stock will be affected by the foreign exchange rate between U.S. dollars and Renminbi, and between those currencies and other currencies in which our sales may be denominated. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operational needs and should the Renminbi appreciate against the U.S. dollar at that time, our financial position, the business of the company, and the price of our common stock may be harmed. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of declaring dividends on our common stock or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of our earnings from our subsidiaries in China would be reduced.
 
RISKS RELATED TO THE MARKET FOR OUR STOCK
 
Pengfei Liu has significant influence over the outcome of matters submitted to Shareholders for approval.
 
Mr. Liu currently owns approximately 41.4% of our outstanding common stock. 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.
 
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.

 
20

 

Additional funds raised through issue of new shares for our future growth will dilute Shareholders’ equity interests.
 
Although we have identified our expansion plans as avenues to pursue growth in our business, we may also find other opportunities to grow, including acquisitions which cannot be predicted at this juncture. Under such circumstances, we may seek to sell additional equity or debt securities or obtain a credit facility. If new shares placed to new and/or existing shareholders are issued in the future, they may be priced at a discount to the then prevailing market price of our shares trading on the NYSE/AMEX or any other stock exchanges, in which case, existing shareholders' equity interest will be diluted. If we fail to utilize the new equity to generate a commensurate increase in earnings, our earnings per share will be diluted and this could lead to a decline in our share price. Any additional debt financing may, apart from increasing interest expense and gearing, contain restrictive covenants with respect to dividends, future fund raising exercises and other financial and operational matters.
 
The number of shares being registered for sale is significant in relation to our trading volume.
 
All of the shares registered for sale on behalf of the selling stockholders are “restricted securities” as that term is defined in Rule 144 under the Securities Act. We have filed this registration statement to register these restricted shares for sale into the public market by the selling stockholders. These restricted securities, if sold in the market all at once or at about the same time, could depress the market price during the period the registration statement remains effective and also could affect our ability to raise equity capital. Any outstanding shares not sold by the selling stockholders pursuant to this Prospectus will remain as “restricted shares” in the hands of the holders, except for those held by non-affiliates for a period of two years, calculated pursuant to Rule 144.
 
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 “Description of Business - Competition”. We have also established a track record in the processed seafood industry which instills confidence in our products and attracts new customers from South Korea, Japan, Taiwan, Russia and Ukraine, as well as potential customers from the European Union. Negative publicity involving us, any of our directors or executive officers may adversely affect our stock market price whether or not such negative publicity is justified.  

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.
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This registration statement contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “potential”, “should”, “will” and “would” or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other forward-looking information. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to predict accurately or control. The factors listed above in the section captioned “Risk Factors,” as well as any cautionary language in this Prospectus, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of the events described in these risk factors and elsewhere in this Prospectus could have a material adverse effect on our business, results of operations and financial position.
 
21

 
USE OF PROCEEDS

This Prospectus relates to shares of our common stock that may be offered and sold from time to time by the selling stockholders. We will not receive any proceeds from the sale of shares of common stock in this offering. However, we will receive the sale price of any common stock we sell to the selling stockholder upon exercise of the warrants, should the warrants be exercised for cash consideration. We expect to use the proceeds received from the exercise of the warrants, if any, for general working capital purposes.

DETERMINATION OF OFFERING PRICE

The selling stockholders will determine at what price they may sell the offered shares, and such sales may be made at prevailing market prices or at privately negotiated prices.

DILUTION OF THE PRICE YOU PAY FOR YOUR SHARES

Dilution represents the difference between the offering price and the net tangible book value per share immediately after completion of this offering. Net tangible book value is the amount that results from subtracting total liabilities and intangible assets from total assets.

Our net tangible book value as of March 31, 2010 and December 31, 2009 was $2.39 and $2.56 per share of common stock, respectively. Since this offering is being made solely by the selling stockholders and none of the proceeds will be paid to us, our net tangible book value will be unaffected by this offering. 

SELLING STOCKHOLDERS

This Prospectus relates to the resale by the selling stockholders named below from time to time of up to a total of 12,013,568 shares of our common stock that were issued to selling stockholders pursuant to transactions exempt from registration under the Securities Act.

The following table sets forth certain information regarding the selling stockholders and the shares offered by them in the Prospectus. Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a selling stockholder and the percentage of ownership of that selling stockholder, shares of common stock underlying warrants held by that selling stockholder that are convertible or exercisable, as the case may be, within 60 days of November 17, 2007, are included. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other selling stockholder. Each selling stockholder’s percentage of ownership in the following table is based upon 28,493,650  shares of common stock outstanding as of June 11, 2010.

Except as specifically set forth in the footnotes to the table, none of the selling stockholders has held a position as an officer or director of our Company, nor has any selling stockholder had any material relationship of any kind with us or any of our affiliates. All information with respect to share ownership has been furnished by the selling stockholders. The shares being offered are being registered to permit public secondary trading of the shares and each selling stockholder may offer all or part of the shares owned for resale from time to time. In addition, none of the selling stockholders has any family relationships with our officers, directors, or controlling stockholders. No selling stockholder, except for Sterne, Agee & Leech, is a registered broker-dealer or an affiliate of a registered broker-dealer. Furthermore, all of the selling shareholders purchased the securities in the ordinary course of business, and at the time of purchase, there were no agreements or understandings directly or indirectly, with any party to distribute securities.

The term “selling stockholders” also includes any transferees, pledges, donees, or other successors in interest to the selling stockholders named in the table below. To our knowledge, subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares of common stock set forth opposite such person’s name. We will file a supplement to this Prospectus to name successors to any named selling stockholders who are able to use this Prospectus to resell the securities registered hereby.
 
22

 
 
Beneficial
Ownership
Before the
Offering
   
Shares of
Common Stock
Included in
Prospectus
   
Beneficial
Ownership
After the
Offering (1)
   
Percentage
of Common
Stock Owned
After the
Offering
 
Halter Financial Investments, L.P. (2)
 
12890 Hilltop Road
Argyle, TX 76226
    1,005,200       1,005,200       0       *  
                                 
Ai Nyuet Ang
 
5 Lyndhurst Road, Singapore
438090
    344,648       344,648       0       *  
                                 
Hung Yu Wong
 
5D, 78B Bonham Road
Hong Kong
    448,042       448,042       0       *  
                                 
 
58 Fuhui Road
Shishi City, Fujian Province
China
    459,530       459,530       0       *  
                                 
Shangxiong Qiu
 
15 Huangjinshan
Dongpu Village #1 Hungshan Town
Shishi City, Fujian Province
China
    689,296       689,296       0       *  
                                 
Liya Qiu
 
101Xuexiaonan
Dongpu Village, Hungshan Town
Shishi City, Fujian Province
China
    689,296       689,296       0       *  
                                 
Hampton Investment Group Ltd.
 
Room 3506
Bank of America Tower, Harcourt Road, Central
Hong Kong
Attn.: Mr. William Yan Sui Hui
    942,037       942,037       0       *  
                                 
Metrolink Holdings Limited
 
Suite 4703, Central Plaza
18 Harbour Road, Wanchai
Hong Kong
Attn.: Mr. Kui Shing Andy Lai
    344,648       344,648       0       *  
 
 
23

 

Golden Nugget Resources Limited (3)
 
Suite 4703, Central Plaza, 18 Harbour
Road,Wanchai, Hong Kong
Attn.: Ms. Lai Yung Wai
    221, 966       221,966       0       *  
                                 
 
c/o Pusch & Gal
31 West 31 st Street, 10 th Floor
New York, NY 10001
Attn: Dov Gal, Esq
    591,164       591,164       0       *  
                                 
 ** Alpha Capital Anstalt (5)
 
c/o LH Financial Services, Corp
150 Central Park South, Second Floor
New York, NY 10019
Attn: Aci Kluger
    85,563       85,563       0       *  
                                 
** Anson Capital, LP (6)
 
c/o Bank of America
901 Main Street, Suite 6616
Dallas, TX 75202
Attn: Guillermo Femat
    62,228       62,228       0       *  
                                 
** Bald Eagle Fund Ltd. (7)
 
c/o Bald Eagle Fund Ltd
200 Park Avenue, Suite 3300
New York, NY 10166
Attn: Richard J. Keim
    13,122       13,122       0       *  
                                 
** Black Diamond Fund, LLP. (8)
 
c/o Brandon Goulding
155 Revere Drive, Suite 10
Northbrook, IL 60062
    186,683       186,683       0       *  
                                 
** Charles Nirenburg (9)
 
c/o Kensington Management Group, LLC
200 Park Avenue, Suite 3300
New York, NY 10166
Attn: Richard J. Keim
    13,170       13,170       0       *  
                                 
** Chestnut Ridge Partners, LP (10)
 
50 Tice Blvd
Woodcliff Lake, NJ 07677
Attn: Kenneth Holz
    77,785       77,785       0       *  
 
 
24

 

 
148 Wedgewood Lane
Whitefish, MT 59937
    18,668       18,668       0       *  
                                 
** Dean Pisani (12)
 
3129 Bass Pro Drive
Grapevine, TX 76051
    18,668       18,668       0       *  
                                 
** Equity Management Associates, LLC (13)
 
c/o EMA, LLC
260 Bear Hill Road
Waltham, MA 02451
Attn: Richard Kosowsky
    74,674       74,674       0       *  
                                 
** Excalibur Small-Cap Opportunities, LP (14)
 
33 Prince Author Ave.
Toronto, ON M4R1B2
Attn: Will Hechter
    224,020       224,020       0       *  
                                 
** Gary C. Evans (15)
 
1808 Point de Vue
Flower Mound, TX 75022
    373,367       373,367       0       *  
                                 
** Guerilla Partners, LP (16)
 
c/o Guerrilla Capital Management, LLC
237 Park Avenue, 9 th Floor
New York, NY 10017
Attn: Peter Siris
    112,010       112,010       0       *  
                                 
** Harold Gear (17)
 
2558 Admirals Walk Dr. S.
Orange Park, FL 32073
    12,445       12,445       0       *  
                                 
** Hua Mei 21st Century Partners, LP (19)
 
c/o Guerilla Capital Management, LLC
237 Park Avenue, 9 th Floor
New York, NY 10017
Attn: Peter Siris
    224,020       224,020       0       *  
                                 
** Heller Capital Investments, LLC (18)
 
c/o Heller Capital
700 East Palisades Avenue
Englewood Cliffs, NJ 07632
Attn: Ronald Heller
 
    224,020       224,020       0       *  
 
 
25

 

 
c/o Jayhawk Capital Management, LLC
5410 West 61 st Place, Suite 100
Mission, KS 66205
Attn: Mike Schmitz
    398,603       398,603       0       *  
                                 
** Jayhawk Private Equity Co. Investment Fund, LP (21)
 
c/oJayhawk Capital Management, LLC
5410 West 61 st Place, Suite 100
Mission, KS 66205
Attn: Mike Schmitz
    68,621       68,621       0       *  
                                 
** John Trescot (22)
 
A Ways Away
East Polatka, FL 32131-4338
    12,446       12,446       0       *  
                                 
** Kensington Partners, LP (23)
 
200 Park Avenue, Suite 3300
New York, NY 10166
Attn: Richard J. Keim
    287,172       287,172       0       *  
                                 
** Michael Studer (24)
 
4804 Anchor Ct.
Flower Mound, TX 75022
    18,668       18,668       0       *  
                                 
 
201 5 th Ave., North, Suite 1950
Nashville, TN .37219
Attn: L.O. Heidtke
    149,347       149,347       0       *  
                                 
** Mosaic Partners, LP (26)
 
c/o Baypoint Prime Brokerage
450 Sansome Street, 16 th Floor
San Francisco, CA 94111
Attn: Kim Lippi
    70,006       70,006       0       *  
                                 
** Peter B. Orthwein Family Trust (27)
 
c/o Kensington Management Group, LLC
200 Park Avenue, Suite 3300
New York, NY 10166
Attn: Richard J. Keim
    22,566       22,566       0       *  
                                 
** Professional Offshore Opportunity Fund, Ltd. (28)
 
1400 Old Country Road, Suite 206
Westbury, NY 11590
Attn: Marc Swikkle
    93,342       93,342       0       *  


 
26

 

** RS Holdings, Inc. (29)
 
c/o Richard D. Squires
100 Crescent Court, Suite 450
Dallas, TX 75201
    112,010       112,010       0       *  
                                 
** Saunders Capital Maters Fund, LP (30)
 
c/o Bank of America
901 Main Street, Suite 6616
Dallas, TX 75202
Attn: Guillermo Femat
    77,785       77,785       0       *  
                                 
** Silver Rock I, Ltd. (31)
 
c/o FCIM Corp
117 East 5 th Street, 50 C
New York, NY 10022
    93,340       93,340       0       *  
                                 
** SPI Dallas Investments, LP (32)
 
c/o Richard D. Squires
10esc0 Crent Court, Suite 450
Dallas, TX 75201
    74,674       74,674       0       *  
                                 
** SPI Hawaii Investments, LP (33)
 
c/o SPI Holdings, LLC
650 California Street, #1288
San Francisco, CA 94108
Attn: Dennis Wong
    112,010       112,010       0       *  
                                 
** Squires Family, LP (34)
 
c/o Richard D. Squires
100 Crescent Court, Suite 450
Dallas, TX 75201
    93,342       93,342       0       *  
                                 
** Tradelink Securities, LLC (35)
 
71 S. Wacker Dr., Suite 1900
Chicago, IL 60606
Attn: Daniel Weissman
    1,866,833       1,866,833       0       *  
                                 
 
c/o Baypoint Prime Brokerage
450 Sansome Street, 16 th Floor
San Francisco, CA 94111
Attn: Kim Lippi    
    31,114       31,114       0       *  
     
                               
** Turicum Private Bank, Ltd. (37)
 
c/o Baypoint Prime Brokerage
450 Sansome Street, 16 th Floor
San Francisco, CA 94111
Attn: Kim Lippi    
    23,335       23,335       0       *  
 
 
27

 

** Whitebox Intermarket Partners, LP (38)
 
c/o Whitebox Advisors, LLC
3033 Excelsior Blvd., Suite 300
Minneapolis, MN 55416-4675
Attn: Barb Reller    
    902,302       902,302       0       *  
     
                               
** William Gay (39)
 
524 Stockton Street
Jacksonville, FL 32204
Attn: Roger Painter    
    12,445       12,445       0       *  
     
                               
** William Gruenburg (40)
 
c/o Sterne Agee & Leach
800 Shades Creek Parkway, Suite 700
Birmingham, AL 35205    
    37,337       37,337       0       *  
*
Less than 1%
**
Accredited Investor

(1)
Assumes all securities offered are sold.

(2)
Halter Financial Investments, L.P. (“HFI”) is a Texas limited partnership of which Halter Financial Investments GP, LLC, a Texas limited liability company, is the sole general partner. The natural persons who are the beneficial owners of a majority of the voting stock of Halter Financial Investments GP, LLC include: (i) TPH Capital, L.P., a Texas limited partnership of which TPH Capital GP, LLC is the general partner and Timothy P. Halter is the sole member of TPH Capital GP, LLC; (ii) Bellfield Capital, L.P., a Texas limited partnership of which Bellfield Capital Management, LLC is the sole general partner and Dave Brigante is the sole member of Bellfield Capital Management, LLC; (iii) Colhurst Capital LP, a Texas limited partnership of which Colhurst Capital GP, LLC is the general partner and George L. Diamond is the sole member of Colhurst Capital GP, LLC; and (iv) Rivergreen Capital LLC of which Marat Rosenberg is the sole member. The other limited partners of HFI are: (i) TPH Capital, L.P., a Texas limited partnership of which TPH Capital GP, LLC is the general partner and Timothy P. Halter is the sole member of TPH Capital GP, LLC; (ii) Bellfield Capital, L.P., a Texas limited partnership of which Bellfield Capital Management, LLC is the sole general partner and Dave Brigante is the sole member of Bellfield Capital Management, LLC; (iii) Colhurst Capital LP, a Texas limited partnership of which Colhurst Capital GP, LLC is the general partner and George L. Diamond is the sole member of Colhurts Capital GP, LLC; and (iv) Rivergreen Capital LLC of which Marat Rosenberg is the sole member. As a result, each of the foregoing persons may be deemed to be a beneficial owner of the shares held of record by HFI.

Includes 221,966 shares underlying the warrant to purchase shares of our stock.

(4)
Includes 591,164 shares of our common stock. Mikhail Filimonov is the controlling person for Alexandra Global Master Fund Ltd.

(5)
Includes 85,563 shares of our common stock. Konrad Ackerman has sole voting and investment control over the securities held by Alpha Capital Anstalt.

(6)
Includes 62,228 shares of our common stock. Bruce Winson is the controlling person for Anson Capital, L.P.

(7)
Includes 10,935 shares of our common stock and 2,187 shares underlying the warrant to purchase shares of our stock. Dick Keim has sole voting and investment control over the securities held by Bald Eagle Fund, Ltd.

(8)
Includes 155,569 shares of our common stock and 31,114 shares underlying the warrant to purchase shares of our stock. Brandon Goulding has sole voting and investment control over the securities held by Black Diamond Fund, LLP.

(9)
Includes 10,975 shares of our common stock and 2,195 shares underlying the warrant to purchase shares of our stock.
 
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(10)
Includes 77,785 shares of our common stock. Kenneth Holz is the controlling person for Chestnut Ridge Partners, L.P.

(11)
Includes 15,557 shares of our common stock and 3,111 shares underlying the warrant to purchase shares of our stock.

(12)
Includes 15,557 shares of our common stock and 3,111 shares underlying the warrant to purchase shares of our stock.

(13)
Includes 62,228 shares of our common stock and 12,446 shares underlying the warrant to purchase shares of our stock. Lawrence Leopard is the controlling person of Equity Management Associates, LLC.

(14)
Includes 186,683 shares of our common stock and 37,337 shares underlying the warrant to purchase shares of our stock. Will Hecther has sole voting and investment control over the securities held by Excalibur Limited Partnership.

(15)
Includes 311,139 shares of our common stock and 62,228 shares underlying the warrant to purchase shares of our stock.

(16)
Includes 93,342 shares of our common stock and 18,668 shares underlying the warrant to purchase shares of our stock. Peter Siris and Leigh Curry are the Managing Directors of Guerrilla Capital Management, LLC, which is the General Partner of Guerrilla Partners, LP and have voting power and investment power over securities held by Guerrilla Partners, LP.

(17)
Includes 10,372 shares of our common stock and 2,074 shares underlying the warrant to purchase shares of our stock.

Includes 186,683 shares of our common stock and 37,337 shares underlying the warrant to purchase shares of our stock. Ronald Heller is the controlling person for Heller Capital Investments, LLC.

(19)
Includes 186,683 shares of our common stock and 37,337 shares underlying the warrant to purchase shares of our stock. Leigh Curry is the controlling person for Hua Mei 21 st Century Partners, L.P.

(20)
Includes 219,532 shares of our common stock and 179,071 shares underlying the warrant to purchase shares of our stock. Michael Schmitz is the control person for Jayhawk Private Equity Fund, LP.

(21)
Includes 13,822 shares of our common stock and 54,799 shares underlying the warrant to purchase shares of our stock. Michael Schmitz is the controlling person for Jayhawk Private Equity Co. Investment Fund, LP.

(22)
Includes 10,372 shares of our common stock and 2,074 shares underlying the warrant to purchase shares of our stock.

(23)
Includes 239,310 shares of our common stock and 47,862 shares underlying the warrant to purchase shares of our stock.Dick Keim has sole voting and investment control over the securities held by Kensington Partners, LP.

(24)
Includes 15,557 shares of our common stock and 3,111 shares underlying the warrant to purchase shares of our stock.

(25)
Includes 124,456 shares of our common stock and 24,891 shares underlying the warrant to purchase shares of our stock. L.O. Heidtke is the controlling person for Midsouth Investor Fund, L.P.

(26)
Includes 70,006 shares of our common stock. Stephen Monticelli is the controlling person for Mosaic Partners, L.P.

(27)
Includes 18,805 shares of our common stock and 3,761 shares underlying the warrant to purchase shares of our stock.

(28)
Includes 77,785 shares of our common stock and 15,557 shares underlying the warrant to purchase shares of our stock. Marc K. Swickle has sole voting and investment control over the securities held by Professional Offshore Opportunity Fund, Ltd.

(29)
Includes 93,342 shares of our common stock and 18,668 shares underlying the warrant to purchase shares of our stock. Richard Squires is the controlling person for RS Holdings, Inc.

(30)
Includes 77,785 shares of our common stock Bruce Winson is the controlling person for Saunders Capital Masters Fund, L.P.

 
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(31)
Includes 77,783 shares of our common stock and 15,557 shares underlying the warrant to purchase shares of our stock. Rima Salam has sole voting and investment control over the securities held by Silver Rock I, Ltd.

(32)
Includes 62,228 shares of our common stock and 12,446 shares underlying the warrant to purchase shares of our stock. Richard Squires is the controlling person for SPI Dallas Investments, L.P.

(33)
Includes 93,342 shares of our common stock and 18,668 shares underlying the warrant to purchase shares of our stock. Richard Squires is the controlling person for SPI Hawaii Investments, L.P.

(34)
Includes 77,785 shares of our common stock and 15,557 shares underlying the warrant to purchase shares of our stock. Richard Squires is the controlling person for Squires Family, L.P.

(35)
Includes 1,866,833 shares of our common stock. Daniel Weissman is the controlling person for Tradelink Securities, LLC.

(36)
Includes 31,114 shares of our common stock. Stephen Monticelli is the controlling person for Triwizards Fund, L.P.

(37)
Includes 23,335 shares of our common stock. Stephen Monticelli is the controlling person for Turicum Private Bank, Ltd.

(38)
Includes 902,302 shares of our common stock.

(39)
Includes 10,371 shares of our common stock and 2,074 shares underlying the warrant to purchase shares of our stock.

(40)
Includes 31,114 shares of our common stock and 6,223 shares underlying the warrant to purchase shares of our stock.
 
We will not receive any of the proceeds from the sale of any shares by the selling stockholders. We have agreed to bear expenses incurred by the selling stockholders that relate to the registration of the shares being offered and sold by the selling stockholders that relate to the registration of the shares being offered and sold by the selling stockholders, including the SEC registration fee and legal, accounting, printing and other expenses of this offering.
 
PLAN OF DISTRIBUTION
 
The selling stockholders, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interest in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions.
 
The selling stockholders may use any one or more of the following methods when disposing of shares or interest therein:
 
 
·
Ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
 
 
·
Block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;
 
 
·
Purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
 
 
·
An exchange distribution in accordance with the rules of the applicable exchange;
 
 
·
Privately negotiated transactions;
 
 
·
Short sales effected after the date the registration statement of which this Prospectus is a part is declared effective by the SEC;
 
 
·
Through writing or settlement options or other hedging transactions, whether through an options exchange or otherwise;
 
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·
Broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; and
 
 
·
A combination of any such methods of sale.
 
The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this Prospectus, or under an amendment to this Prospectus, or under an amendment to this Prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this Prospectus. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this Prospectus.
 
In connection with the sale of our common stock or interest therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this Prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this Prospectus (as supplemented or amended to reflect such transaction).
 
The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be purchase price of the common stock less discounts or commission, if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering.
 
Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchase of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.
 
The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule.
 
The selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the Prospectus delivery requirements of the Securities Act. We know of no existing arrangements between any of the selling stockholders and any other stockholder, broker, dealer, underwriter, or agent relating to the sale or distribution of the shares, nor can we presently estimate the amount, if any, of such compensation. See “Selling Stockholders” for description of any material relationship that a stockholder has with us and the description of such relationship.
 
To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying Prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this Prospectus.
 
In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states, common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.
 
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We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates. In addition, we will make copies of this Prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the Prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
 
We have agreed to pay certain fees and expenses incurred by us incident to the registration of the shares. Such fees and expenses are estimated to be $1,240,000. We have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this Prospectus.
 
We have agreed with the selling stockholders to keep the registration statement of which the Prospectus constitutes a part effective until the earlier of (1) such time as all of the shares covered by this Prospectus have been disposed of pursuant to and in accordance with the registration statement or (2) the date on which the shares may be sold pursuant to Rule 144 of the Securities Act.
 
DESCRIPTION OF SECURITIES
 
COMMON STOCK
 
As of June 11, 2010, we have 28,493,650 shares of common stock outstanding and a total of 891,430 warrants outstanding as described herein. We do not have any other outstanding options or convertible securities. Our authorized capital stock consists of 100,000,000 common shares, $0.001 par value per share and 1,000,000 preferred shares, par value $0.001 per share. All shares of common stock are entitled to share equally in dividends from sources legally available, therefore, when, as and if declared by our board of directors, and upon our liquidation or dissolution, whether voluntary or involuntary, to share equally in our assets available for distribution to our stockholders.
 
Our board of directors is authorized to issue additional shares of common stock not to exceed the amount authorized by our Amended Articles of Incorporation, on such terms and conditions and for such consideration as our board may deem appropriate without further stockholder action. However, the board of directors shall maintain a reserve from its duly authorized shares of common stock to allow for the exercise of the warrants issued pursuant to the Securities Purchase Agreement.
 
VOTING RIGHTS
 

DIVIDEND POLICY
 
Pursuant to a Stock Purchase Agreement with Halter Financial Investments, L.P. dated September 13, 2007, we paid a special cash dividend in the aggregate amount of $392,028, or $0.364 per share, to holders of our common stock outstanding as of September 12, 2007.
 
Other than the cash dividend describe above, we have never paid or declared dividends. However, holders of our common stock are entitled to dividends if declared by the board of directors out of funds legally available. We do not, however, anticipate the declaration or payment of any dividends in the foreseeable future. We intend to retain earnings, if any, to finance the development and expansion of our business. Future dividend policy will be subject to the discretion of the board of directors and will be contingent upon future earnings, if any, our financial condition, capital requirements, general business conditions and other factors. Therefore, there can be no assurance that any dividends of any kind will ever be paid.
 
PREFERRED STOCK
 
We are authorized to issue up to 1,000,000 shares of $0.001 par value preferred stock. We have no shares of preferred stock outstanding. Under our Amended Articles of Incorporation, our board of directors has the power, without further action by the holders of the common stock, to determine the relative rights, preferences, privileges and restrictions of the preferred stock, and to issue the preferred stock in one or more series as determined by the board of directors. The designation of rights, preferences, privileges and restrictions could include preferences as to liquidation, redemption and conversion rights, voting rights, dividends or other preferences, any of which may be dilutive of the interest of the holders of the common stock.
 
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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. The Company’s Bylaws or Articles of Incorporation do not contain any other provisions that would have the effect of delaying or preventing a change in control.
 
WARRANTS
 
We have granted a group of accredited investors three-year warrants to purchase up to 1,239,888 shares of our common stock exercisable at any time at a price equal to $4.1782 per share. As of June 11, 2010, 1,111,261 and 167,113 warrants to purchase shares of common stock had been exercised pursuant to the cashless exercise and cash provisions of the warrants, respectively and 619,910 shares of common stock were issued.
 
We issued warrants to Sterne Agee & Leach, Inc.’s designee, for the purchase of up to an aggregate of 557,950 shares of our common stock, which warrants are for a term of three years from issuance and have an exercise price of $4.1782 per share or on a cashless exercise basis.
 
Our consultants also received three-year warrants to purchase up to an aggregate of 371,966 shares of our common stock, which may be exercised at any time at a price equal to $4.1782 per share.
 
The exercise price of the foregoing warrants was determined based on the offering price of our common stock sold in the private placement transaction completed on November 17, 2007.
 
 
STOCK TRANSFER AGENT
 
Interwest Transfer Co., Inc. has been appointed to us to serve as our stock transfer agent. Their mailing address is 1981 East 4800 South, Suite 100, Salt Lake City, Utah, 84117. Their phone number is (801) 272-9294.
 
SHARES ELIGIBLE FOR FUTURE SALE
 
As of June 11, we had 28,493,650, outstanding shares of common stock.
 
Shares covered by this Prospectus
 
All of the 12,013,568 shares being registered in this offering may be sold without restriction under the Securities Act.

Rule 144
 
The resale of shares that are held by our affiliates and the resale of shares that are held by non-affiliates for a period of six months are governed by the following requirements of Rule 144 of the Securities Act.
 
In general, under Rule 144, a person (or persons whose shares are aggregated) who is an affiliate and who has beneficially owned shares of our common stock for at least six months, would be entitled to sell, within any three-month period, a number of shares that does not exceed the greater of:
 
 
·
1% of the number of shares of common stock then outstanding, which as of June 11, 2010 would equal 284,937 shares; or
   
 
·
The average weekly trading volume of our common stock during the four calendar weeks preceding the filing notice on Form 144 with respect to such sale.
 
Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.
 
In general, pursuant to Rule 144 under the Securities Act, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale of shares of our common stock, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the current public information requirement.
 
33

 
Rule 144 also provides that affiliates that sell our common shares that are not restricted shares must nonetheless comply with the same restrictions applicable to restricted shares, other than the holding period requirement.
 
The selling stockholders will not be governed by the foregoing restrictions when selling their shares pursuant to this Prospectus.
 
All of the outstanding restricted shares of common stock as of June 11, 2010 are eligible for resale under Rule 144, although 11,860,537 of such shares are owned by affiliates.
 
SEC Position on Rule 144 Sales
 
The SEC has taken the position that promoters or affiliates of a blank check company and their transferees, both before and after a business combination act as “underwriters” under the Securities Act when reselling the securities of a blank check company acquired prior to the consummation of its initial public offering. The SEC has adopted amendments to Rule 144 that now make Rule 144 available to promoters or affiliates of blank check companies and their transferees one year after the consummation of a business combination by a blank check company.
 

ACCOUNTANTS

The Audited Financial Statements included in this Prospectus and in the registration statement have been audited by  ZYCPA Company Limited (formerly Zhong Yi (Hong Kong) C.P.A. Co., Ltd.) for the years of 2009, 2008, 2006, and 2005 and by Cordovano and Honeck LLP for the year of 2007, independent registered public accounting firms, to the extent and for the periods set forth in their reports appearing elsewhere herein and in the registration statement, and are included in reliance on such report, given the authority of said firms as experts in auditing and accounting. ZYCPA Company Limited’s address is 9/F., Chinachem Hollywood Center, 1-13 Hollywood Road, Central, Hong Kong and their telephone number is 852-2573-2296. Cordovano and Honeck LLP’s address is 10779 E Ida Pl, Englewood, Colorado USA and their telephone number is 303-741-6494.
 
LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us by McLaughlin & Stern LLP.
 
DESCRIPTION OF BUSINESS

BUSINESS DEVELOPMENT & ORGANIZATION WITHIN LAST FIVE YEARS

Overview

We are a holding company whose primary business operations are conducted through our direct, wholly owned subsidiary, Ocean Technology, and its subsidiaries - Rixiang, Jixiang, and Mingxiang.. We engage in the business of processing, distribution and sale of processed seafood products, as well as the sale of marine catch. Xianghe is a manufacturer of algae-based soft drinks and it is organized under the laws of the PRC. All subsidiaries are wholly-owned except for Xianghe, in which Mingxiang owns an 80% interest.  Our objective is to establish ourselves as a leading producer of processed seafood products in the PRC and overseas markets.
 
34

 
Our Corporate Structure


Our Corporate History

We were incorporated in the State of Nevada on October 1, 1999 under the name New Paradigm Productions, Inc. to engage in the production and marketing of meditation music and related supplies.

Starting January 1, 2000, we commenced a private placement of our common stock in reliance upon an exemption from registration under Section 4(2) of the Securities Act and Regulation D promulgated thereunder. We offered 100,000 shares of our common stock at $0.35 per share to certain accredited investors. The offering closed in March 2000 and we raised gross proceeds in the amount of $35,000. As a result of the offering  our issued and outstanding common stock increased from 900,000 shares to 1,000,000 shares.

On July 5, 2000, we filed a registration statement on Form SB-2 with the Securities and Exchange Commission or the SEC under the Securities Act, to register shares of our common stock (Registration Statement No. 333-40790). The registration statement was declared effective on October 26, 2000. We sold 77,000 shares of our common stock   pursuant to registration statement, raising a total of $77,000 in gross proceeds. As a result of the offering, our issued and outstanding common stock increased to 1,077,000 shares.
 
35

 
On September 13, 2007, we entered into a Stock Purchase Agreement (“SPA”) with Halter Financial Investments, L.P., a Texas limited partnership (“HFI”) pursuant to which we agreed to sell to HFI, 1,005,200 shares of our post reverse stock-split common stock for $400,000. After consummation of the transaction, HFI became the holder of 1,005,200 shares of our common stock, or 87.5% of the 1,148,826 shares of our then outstanding common stock. In addition, the terms of the SPA required us to declare and pay a special cash dividend of $0.364 per post stock-split share to our shareholders of record as of September 12, 2007. Stockholders holding a total of 1,077,000 shares received a special cash dividend in the total amount of $392,028 which amount was funded with proceeds from the stock sale. Effective on September 25, 2007, we effectuated a 7.5 to 1 reverse stock split and increased our authorized shares of common stock to 100,000,000.

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

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

Acquisition of Ocean Technology and Related Financing

On November 17, 2007, we completed a reverse acquisition transaction with Ocean Technology through a share exchange with Ocean Technology’s former stockholders. Pursuant to the share exchange agreement, the shareholders of Ocean Technology exchanged 100% of their outstanding capital stock in Ocean Technology for approximately 15,624,034 shares of our common stock, or approximately 93.15% shares of our outstanding common stock after the share exchange. In connection with the share exchange, a majority of our shareholders of record as of November 16, 2007 approved a resolution by our board of directors to change our name from New Paradigm Productions, Inc. to China Marine Food Group Limited. The name change became effective on January 9, 2008 upon the filing of a Certificate of Amendment to our Amended Articles of Incorporation with the State of Nevada on the twentieth day following the mailing of a Definitive Information Statement to our shareholders. Concurrently with the closing of the reverse acquisition on November 17, 2007, we completed a private placement of our securities to certain accredited investors who subscribed for units consisting one share of common stock and a warrant to purchase one-fifth of one share of our common stock. The investors subscribed for aggregate of 6,199,441 shares of our common stock and warrants to purchase an aggregate of 1,239,888 shares of our common stock at $3.214 per unit. The units were offered and sold pursuant to exemptions from registration under the Securities Act, including without limitation, Regulation D and Regulation S promulgated under the Securities Act. Each warrant issued to the investors has a term of three years and is exercisable at any time for a price equal to $4.1782 in cash or on a cashless exercise basis.

Background History of Ocean Technology

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

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

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

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

In 1999, we completed the construction of our cold storage facilities. The new cold storage facilities increased the shelf-life of and enabled the prolonged storage of the raw materials, works-in-progress and finished products of our processed seafood products. With the cold storage facilities, we became less susceptible to seasonal fluctuations in market demand and supply of raw materials and products. This significantly increased our processed seafood production capacity.
 
36

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

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

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

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

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

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

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

In 2003 and 2004, the processing of our frozen seafood products involved only basic processing (such as cleaning, washing, sorting and packing). From 2005, our frozen processed seafood products processes shifted to more advanced processing as we observed a growing market in processed seafood products such as squid slice, octopus cuts, octopus slices and squid rings.
 
In April 2006, our subsidiary Rixiang entered into a memorandum of understanding for research and development collaboration with the Ocean University of China in order to further develop our product development capabilities.

In November 2009, Mingxiang won the auction for the purchase of the 40-year use right of a land in Shishi City, Fujian.   Covering an area of 8,691.4 square meters, the land is located next to the fishing port and the Registrant’s processing facilities in Shishi City. We plan to build cold storage facilities on the land with a capacity of approximately 20,000 tons. We intend to complete the construction in late 2010.  See “Description of Business - Production Facilities and Process.”

On January 1, 2010, Mingxiang exercised its option to purchase.  Xianghe is a manufacturer of the branded Hi-Power algae-based soft drinks. Xianghe has developed a network of distributors in Fujian, Zhejiang, Guangdong and Hunan which sell Hi-Power to retail food stores, restaurants food supply dealers and the hospitality industry.  In November 2009, Mingxiang entered into a Credit or Share Purchase Option Agreement (the “Option Agreement”) with Qiu Shang Jing (“Qiu”) and. Xianghe. Under the Option Agreement  Mingxiang  made a loan to Xianghe in the amount of RMB180,500,000 (approximately $26,400,000).   The purchase price payable to Qiu consisted of RMB9,500,000 (approximately $1,400,000) payable by Mingxiang and RMB180,500,000 payable by Xianghe.   Mingxiang purchased shares representing eighty percent (80%) of Xianghe from Qiu.  
 
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We have grown from a domestic market-oriented seafood enterprise with over 80 employees in 2003 into a medium-sized nationwide seafood enterprise with advanced processing facilities and equipment. As of  March 31, 2010, we had 849 employees. Our employees currently include 10 research and development staff.

OUR PRINCIPAL PRODUCTS AND THE MARKET

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

Our business philosophy may be summarized in the following phrase:

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

Our dried processed seafood products are predominantly sold under our registered trademark, the “Mingxiang ( 明祥 )” brand. These products are sold through 24 distributors in seven provinces in the PRC such as Fujian, Guangdong, Jiangsu, Shandong, Sichuan,  Zhejiang and Liaoning and in turn sub-distributed to about 2,500 retail points (including major supermarkets and retailers such as Wal-Mart and Carrefour) throughout these provinces. In September 2009, we reached agreement with a Hong Kong based confectionary store chain which will use our seafood snack foods exclusively for a private label program for chain’s planned 300 store roll-out in the PRC in 2009. Our frozen processed seafood products are sold to both domestic and overseas customers. Our marine catch is sold to customers in Fujian and Shandong Provinces, some of whom directly export the marine catch to Japan, South Korea and Taiwan.

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

Our branded “Hi-Power” algae-based soft beverage product was developed by the Yellow Sea Fisheries Research Institute Chinese Academy of Fishery Science in coordination with Xianghe’s founder, Qiu Shang Jing. Hi-Power beverage is marketed as a high-protein drink, low in calories and fat, can help the consumers improve their immune and digestion system and reduce the like hood of hyperglycemia and hypertension diseases. Our target market focuses on middle class health-conscious consumers in China’s fast-growing beverage market. We have developed a network of exclusive distributors in Fujian, Zhejiang, Guangdong and Hunan provinces in China, which sell our Hi-Power beverage product to retail food stores, restaurant food supply dealer and hospitality industry in their respective distribution territories.

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

Processed Seafood Products

Using a combination of Japanese traditional seafood processing methods and modern scientific seafood processing techniques, our product development efforts during the period under review have yielded 29 processed seafood products comprising dried seafood products such as roasted squid, roasted file fish, roasted prawns, shredded roasted squid and smoked eel as well as frozen processed seafood products. Our frozen processed seafood products include frozen Japanese butter fish, frozen octopus and frozen squid rings. Our production facilities are located at Dabao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province, occupying a total land area of 17,600 sq.m. This includes cold storage facilities with a total storage capacity of 2,020 tons. We have five production lines for the processing of our roasted file fish, roasted prawns, shredded roasted squid, roasted squid and smoked seafood products.

We have established sales networks in various large and medium sized cities in the PRC and our export markets, such as Japan and Russia. We believe our products are sold by some of our distributors to end-consumers in South Korea, Taiwan and Ukraine. Our dried processed seafood products are mainly sold in supermarkets in Fujian and Zhejiang Provinces and their surrounding areas, and through our sales network through 24 distributors, each of whom have its own sales network and are authorized by us to distribute our products exclusively in a specific vicinity.
 
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Our sales to domestic and foreign markets for the fiscal years ended December 31, 2005, 2006, 2007, 2008 and 2009 are set out below:
 
Dried Processed Seafood Products

   
Year ended December 31,
   
Period ended
March 31,
 
   
2005
   
2006
   
2007
   
2008
   
2009
   
2009
   
2010
 
   
(%)
   
(%)
   
(%)
   
(%)
   
(%)
   
(%)
   
(%)
 
PRC sales
    93.2       98.8       99.3       99.2       100.0       100.0       100.0  
Export sales (1)
    6.8       1.2       0.7       0.8       0.0       0.0       0.0  

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

Frozen Processed Seafood Products

   
Year ended December 31,
   
Period ended
March 31,
 
   
2005
   
2006
   
2007
   
2008
   
2009
   
2009
   
2010
 
   
(%)
   
(%)
   
(%)
   
(%)
   
(%)
   
(%)
   
(%)
 
PRC sales
    96.4       97.3       100.0       48.9       0.0       0.0       0.0  
Export sales (1)
    3.6       2.7       0.0       51.1       0.0       0.0       0.0  

Notes:
 
(1)
These comprise sales to local distributors made on an ad hoc basis .
 
(2)
These comprise sales to foreign distributors.
 
Our dried processed seafood products are predominantly sold under our registered trademark, the “Mingxiang” brand.

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


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

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

Marine Catch

In 2006 and 2007, we engaged in the sale of marine catch. We worked with local fishermen and charter six fishing vessels with an aggregate net tonnage of 256 tons, to harvest marine catch from the East China Sea and the Taiwan Strait. Our marine catch was harvested from the deep seas and was not bred through aquaculture.
 
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The marine catch was sold to seafood traders in Fujian and Shandong Provinces, the PRC, some of whom directly export the marine catch to Japan, South Korea, and Taiwan. To preserve the freshness of the marine catch sold to our customers, we constantly packed the harvested marine catch in ice and endeavored to deliver the marine catch to our customers within the shortest time practicable. Upon the return of the vessels to Xiangzhi (Shishi) Port, a small proportion of the marine catch was sold to our customers at Xiangzhi (Shishi) Port itself, and the rest was transported back to our business premises at Dabao Industrial Zone, Xiangzhi Town, Shishi City, Fujian Province for further sorting and packing. Thereafter, most of our marine catch was collected by our customers at our business premises, and a small proportion was transported to our customers at their respective destinations. Please refer to the section “Production Facilities and Processes” of this Prospectus for further details as to the fishing operations conducted for the sale of our marine catch.

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

Our Products

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

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

Processed Seafood
Products
 
Products / Species
 
Main Markets
Markets in the PRC
 
Foreign Markets
             
(a) Dried processed seafood products
 
Roasted file fish, shredded roasted squid, roasted squid, smoked eel, roasted prawn, barbecued squid, sliced barbecued squid, sliced roasted octopus, spicy sliced octopus, spicy baby squid, spicy sliced squid, spicy squid head 
 
Zhejiang Province
Fujian Province
Shandong Province
Greater Shanghai Region
Guangdong Province
Sichuan Province
Liaoning Province
 
Japan and Ukraine
             
(b) Frozen processed seafood products
 
Cuttlefish, octopus, pomfret, shelled prawns, sliced squid
 
Shandong Province (for sale in South Korea)
 
Philippines and Papua New Guinea
             
       
Fujian Province (for sale in Taiwan)
   
             
Marine Catch
 
Cuttlefish (Sepia esculenta), hairtail fish (Trichiurus japonicus), Japanese butter fish (Psenepis Anomala), squid (Loligo bleekeri), horse mackerel
 
 
Fujian Province (for sale in Taiwan)
 
Shandong Province (for sale in South Korea)
 
Lianoing Province
 
Philippines and Papua New Guinea
             
“Hi-Power” Algae-Based Beverage Product
 
     
Fujian Province
Zhejiang Province Guangdong Province Hunan Provinces
 
Nil
 
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Processed Seafood Products

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

Dried Processed Seafood Products

 
 
 
             
Roasted file fish
 
Roasted squid
 
Roasted prawn
 
Smoked eel

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

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

Frozen Processed Seafood Products

 
 
 
Pomfret
 
Octopus
 
Shelled prawns
 
Sliced squid

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

Marine Catch

The principal species of marine catch harvested in the East China Sea and Taiwan Strait and sold by our Company are as follows:

Cuttlefish (Sepia esculenta) 
   
 
Cuttlefish is commonly found in the East China Sea and the Taiwan Strait. Cuttlefish is often processed and sold as fresh sushi and snacks.
     
 Hairtail Fish (Trichiurus japonicus)
   
 
Hairtail fish, usually found in the East China Sea and the Taiwan Strait, is one of the best-selling marine catch in the PRC. It is a regular dish for home working and fine-dining restaurants
     
Japanese Butter Fish (Psenepis Anomala) 
   
 
 
Japanese butter fish is usually found in the East China Sea and the Taiwan Strait between September and November every year.
 
 
 
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Squid (Loligo bleekeri) 
   
 
Squids are commonly found in the seas of the Taiwan Strait. Squid contains many nutrients such as proteins, fats, carbohydrate, calcium and phosphorus. Its fine taste and springy texture makes the squid a popular food with consumers.
 
“Hi-Power” Algae-Based Beverage Product

 
“Hi-Power” drink provides many health benefits, including:
•High protein, low fat and calories;
•Enhance immune system;
Improve digestion; and
Reduce hyperglycemia and hypertension.


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

On November 6, 2009, we won the auction for the purchase of the 40-year use right of a land in Shishi City, Fujian. Covering an area of 8,691.4 square meters, the land is located next to the fishing port and our production facilities in the same city. The purchase price for the land use right is $2.3 million which has been fully paid as of December 31, 2009.

We plan to build cold storage facilities on the land with a capacity of approximately 20,000 tons, to take advantage of its proximity to the port where we obtain fresh marine catch to be processed into seafood products. We intend to finance the total estimated $20.0 million in land use rights and construction costs from funds generated by operations and the facilities are expected to be up and running in the first half of 2011. There were no material capital commitments in relation to the construction costs as at March 31, 2010. Subsequent to full settlement of the land cost, a formal agreement with the local land and resources department was executed on December 30, 2009.

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

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

Dried Processed Seafood Products

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

 
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1.
Receiving and storing raw and packaging materials. All raw materials undergo visual inspection to ensure freshness and firmness before they are accepted and stored. Inspection is carried out by way of random sampling.
  
Samples are taken from each batch of raw materials and sent to the quality control department where physical (e.g. visual inspection), chemical and micro-organism tests are conducted. Raw materials which do not adhere to our requirements are rejected.

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

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

 
2.
Ice-packing. To maintain the freshness of our raw materials, a portion of the raw materials is packed in ice and transported directly to our production facilities for processing, whereas the remaining raw materials are packed in ice and transported to our cold storage facilities for storage at minus two to two degrees Celsius for no longer than 24 hours, upon which they must be delivered to the production facilities for processing.

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

 
4.
Slicing. The raw materials are then sliced on stainless steel tables.
 
 
5.
Washing and draining. The raw materials are then sent to the washing pool for washing so as to remove oil, blood stains, remnant innards and other stains. After washing, the raw materials are drained to remove excess water content.

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

 
7.
Steam-drying / Roasting. The raw materials are arranged on wire mesh trays, which are stacked in trolleys and rolled into a heating machine. Roasting takes place under controlled temperatures via a roasting conveyor belt, where moisture levels are monitored. Depending on the product, we will slice or shred the raw materials after roasting.
 
 
8.
Weighing, packaging and metal detection. The dried processed seafood products are then packed into their respective packaging materials and sealed. After a calibrated metal detector to ensure that the products do not contain any traces of metal particles. Metal contamination might have been inherent in the raw materials or caused by production process of which some stages are automated.

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

Frozen Processed Seafood Products

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

 
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1.
Receiving and storing raw materials. As with our dried processed seafood products, all the raw materials for our frozen processed seafood products undergo inspection and approval before they are accepted and stored. Inspection is carried out by way of random sampling. Samples are taken from each batch of raw materials and sent to the quality control department where physical (e.g. visual inspection), chemical and micro-organism tests are conducted. Raw materials which do not adhere to our requirements are rejected.

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

 
2.
Ice-packing. To maintain the freshness of our raw materials, a portion of the raw materials is packed in ice and transported directly to our production facilities for processing, whereas the remaining raw materials are packed in ice and transported to our cold storage facilities for storage at minus two to two degrees Celsius for no longer than 24 hours, upon which they must be delivered to the production facilities for processing. These raw materials are removed from cold storage only immediately prior to processing.

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

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

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

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

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

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

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

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

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

“Hi-Power” Algae-Based Beverage Product

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


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

Samples are taken from each batch of raw materials by way of random sampling and sent to the quality control department where physical (e.g. visual inspection), chemical and micro-organism tests are conducted. Raw materials which cannot meet our requirements are rejected.
 
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2.
Cleaning. The algaes are cleaned to remove sediment and impurities.

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

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

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

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

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

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

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

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

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

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

Awards and Certifications

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

Year
 
Subsidiary
 
Award
 
Period
 
Awarding Body
 
Significance
                     
November 2001
 
Mingxiang
 
Branded Products (fresh roasted prawn, roasted file fish, shredded squid)
 
2001
 
2001 China International Agriculture Expo
 
Recognition of our brand and our branding efforts
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