CMFO China Marine Food Group Limited (CE)

CHINA MARINE FOOD GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

See accompanying notes to condensed consolidated financial statements.

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

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

In the opinion of management, these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended September 30, 2012 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2012 or for any future periods.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on the Form 10-K/A for the year ended December 31, 2011. The condensed consolidated balance sheet as of December 31, 2011 has been derived from audited financial statements.

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

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

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

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

The unaudited condensed consolidated financial statements include the financial statements of China Marine and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation. Results of acquired subsidiaries are consolidated from the date on which control is transferred to the Company and are no longer consolidated from the date that control ceases.

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

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

The Company maintains cash and cash equivalent balances at a financial institution in the PRC, which are insured by the People’s Bank of China. The Company had cash concentration risk of $1,004,708 and $538,132 as of September 30, 2012 and December 31, 2011, respectively, which amounts exclude Ocean Technology.

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

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

As of September 30, 2012 and December 31, 2011, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.

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

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

Depreciation expense for the three and nine months ended September 30, 2012 and 2011 were $210,472, $435,372 and $113,978, $332,708, respectively, which included $169,377, $312,045 and $73,254, $215,264 in cost of revenue.

Certain property, plant and equipment with original costs of $1,339,711 have become fully depreciated as of September 30, 2012.

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

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

Goodwill and intangible assets were the result of the acquisition of Xianghe. The activities of the algae-based drink business are considered as a separate reporting unit. Goodwill represents the cost of the acquired algae-based drink business in excess of the fair value of identifiable tangible and intangible net assets purchased. Intangible assets include trademarks and algae-based beverage know-how and are recorded at cost less accumulated amortization and any recognized impairment loss. The algae-based beverage know-how is amortized over its estimated useful life of 10 years on a straight-line basis, which coincides with the timing provided from the PRC protection guidelines for our product. For the year ended December 31, 2011, the Company engaged an independent valuation expert to assist in determining the fair value of the identifiable tangible and intangible net assets of the acquired business.

In accordance with ASC Topic 360-10-5, “ Impairment or Disposal of Long-Lived Assets ”, the Company performs an asset impairment test whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. For the year ended December 31, 2011, the Company engaged an independent valuation expert to value the Company’s intangible asset balance related to the algae-based drink business reporting unit. The result of the assessment of the Company’s intangible assets indicated that its fair values exceeded its carrying amounts and that there had been no impairment of intangible assets.

For the nine months ended September 30, 2012, the algae-based drink revenues were lower-than-expected and the algae-based drink selling expenses were higher than expected compared to the forecasts on an annualized basis. The Company considered if these results were a triggering event (as defined under ASC 360-10-35-21) causing the Company to perform an intangible asset impairment analysis. The Company has significantly improved revenues during the second and the third quarters of 2012 compared to the disappointing results obtained during the first quarter of 2012. However, the Company incurred significant selling and marketing expenses for the nine months ended September 30, 2012 to support this revenue growth, which resulted in a significant operating loss for the algae-based drink business. As a result, the Company is performing an updated valuation of its drink business using updated forecasted results. Preliminary estimated results prepared by the Company indicate a fair market value which approximates the carrying value as of September 30, 2012 and do not indicate a probable impairment loss to the intangible assets. The Company will engage an independent valuation expert during the fourth quarter of 2012 to perform a full valuation of the algae-based drink business reporting unit. If the final valuation results indicate that an intangible asset impairment is necessary, this impairment will be recorded during the fourth quarter of 2012.

The Company evaluates the valuation of its goodwill according to the provisions of Accounting Standards Codification (“ASC”) 350 to determine if the current value of goodwill has been impaired. The Company early adopted Accounting Standard Update (ASU) No. 2011-08, Intangibles-Goodwill and Other (Topic 350) during the year ended December 31, 2011. Goodwill is tested annually for impairment and the Company has selected the first day of its fourth quarter as its annual impairment testing date. Goodwill of a reporting unit will be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. As discussed above, the Company experienced results significantly below forecasted expectations for its algae-based drink business during the nine months ended September 30, 2012. The Company considers these results as a triggering event.

In accordance with ASC 350-20-35-18, if an impairment is probable and can be reasonably estimated, the impairment should be recorded in the current reporting period. Accordingly, based on the preliminary results of the Company’s valuation of the drink business, the Company recorded a goodwill impairment loss of $2.6 million during the quarter ended September 30, 2012.

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

Amortization expense for the three and nine months ended September 30, 2012 and 2011 were $635,247, $1,909,230 and $626,974, $1,856,307, respectively. Using the current exchange rate, the estimated annual amortization expense is $2,541,392 for each of the five succeeding years.

Changes in the carrying amount of goodwill are as follows:

In accordance with the provisions of ASC Topic 360-10-5, “ Impairment or Disposal of Long-Lived Assets ”, all long-lived assets such as property, plant and equipment, land use rights and intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. There has been no impairment as of September 30, 2012 and December 31, 2011.

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

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

The Company recognizes revenue from the sale of processed seafood products and algae-based beverage products upon receipt of the delivery confirmation provided by the distributor’s carrier and the title and risk of loss of the product has transferred to the distributor. The distributor agreements do not provide chargeback, price protection, or stock rotation rights. The Company recognizes revenue from marine catch and ices when title has transferred to the buyer. The Company experienced no material product returns and recorded no reserve for sales returns for the period ended September 30, 2012 and December 31, 2011.

The Company offers sales incentives to customers based on yearly sales targets. These are non-cash incentives and are solely used for promotional activities purposes. These amounts of $883,313 are accrued as sales and marketing expenses as of September 30, 2012 during the same month revenue is recognized.

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

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

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

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

For the period ended September 30, 2012 and December 31, 2011, the Company did not have any interest and penalties associated with tax positions. As of September 30, 2012 and December 31, 2011, the Company did not have any significant unrecognized uncertain tax positions.

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

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

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

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

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

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

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

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

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

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

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

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

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

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

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

The fair value of short-term borrowings and amount due to a shareholder as of September 30, 2012 was $ 8 , 735 , 559 and $46,615, respectively, which are identical to their carrying values.

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

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

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

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

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

Changes in the allowance for doubtful accounts are as follows:

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

For the period ended September 30, 2012 and December 31, 2011, the Company recorded no allowance for slow-moving and obsolete inventories.

The Company’s wholly-owned subsidiary, Mingxiang, obtained short-term bank loans in the aggregate amount of $8,735,559 and $2,550,257 as of September 30, 2012 and December 31, 2011, respectively, from the Agricultural Bank of China and the China Construction Bank, registered financial institutions in the PRC. The short-term loans are due by January, February, April and May, 2013, respectively. The weighted average effective interest rate per annum was 6.59% and 5.49% for the period ended September 30, 2012 and December 31, 2011, respectively, payable quarterly. Interest expenses for the three and nine months ended September 30, 2012 and 2011 were $142,322, $283,443 and $nil, $nil, respectively and none of the interest incurred was capitalized.

As of September 30, 2012 and December 31, 2011, the amounts of $46 , 615 and $50,361 represented temporary advances for working capital purposes from a major shareholder and CEO, Mr. Liu, which were unsecured, interest free and repayable on demand.

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

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

For the period ended September 30, 2012 and 2011, the local (“United States of America”) and foreign components of (loss) income before income taxes were comprised of the following:

The provision for income taxes consisted of the following:

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

United States of America

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

As of September 30, 2012, China Marine incurred $26,409 of net operating loss carryforwards available for federal tax purposes that may be used to offset future taxable income and will begin to expire in 2028, if unutilized. The Company has provided for a full valuation allowance against the deferred tax assets of $9,111 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

Hong Kong

The Company’s subsidiary, Ocean Technology, is subject to Hong Kong Profits Tax at the statutory rate of 16.5% on its assessable income for the period ended September 30, 2012 and 2011, respectively. As of September 30, 2012, Ocean Technology incurred $805,907 of net operating loss carryforwards available for income tax purposes. The Company has provided for a full valuation allowance against the deferred tax assets of $132,975 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

The PRC

The Company generated all of its net income from subsidiaries operating in the PRC for the period ended September 30, 2012 and 2011. Rixiang, Jixiang, Mingxiang, Xianghe and Xianglin are subject to the Corporate Income Tax governed by the Income Tax Law of the People’s Republic of China, at a unified income tax rate of 25%.

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

The reconciliation of income tax rate to the effective income tax rate for the period ended September 30, 2012 and 2011 is as follows:

As of September 30, 2012, the PRC operation incurred $125,050 of net operating loss carryforwards available for income tax purposes that may be used to offset future taxable income and will begin to expire in 5 years from the year of incurrence, if unutilized. The Company has provided for a full valuation allowance against the deferred tax assets of $31,263 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future. The entities in the PRC do not file a consolidated return, so only the entity that generated the losses can utilize them.

Tax Holiday

(Loss) income before income tax expense was ($ 5,975,877 ) and $9,119,541 for the period ended September 30, 2012 and 2011 and was mainly attributed to subsidiaries with operations in China. Income tax related to China income for the period ended September 30, 2012 and 2011 was $207,720 and $1,682,711. The combined pro forma effects of the income tax expense exemptions and reductions available to us are as follows:

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

The Company’s chief operating decision maker has been identified as chairman, Mr. Liu, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. Based on this assessment, the Company has determined that it has three operating and reporting segments for the period ended September 30, 2012 and 2011 which are processed seafood products, marine catch and algae-based beverage products.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 3). The Company had no inter-segment sales for the period ended September 30, 2012 and 2011.

Summarized financial information concerning the Company’s reportable segments is shown in the following tables for the three and nine months ended September 30, 2012 and 2011:

Expenditure for long-lived assets incurred for the period ended September 30, 2012 and 2011 mainly relates to the construction of a cold storage facility which is used for both processed seafood products and marine catch segments.

The Company’s operations are located in two main geographical areas. The Company’s sales by geographical market are analyzed as follows:

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

The Company is exposed to the following concentrations of risk:

The following is a table summarizing the revenue from customers that individually represent greater than 10% of the total revenue for the nine months ended September 30, 2012 and their outstanding balances as at period-end dates.

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

For the nine months ended September 30, 2011, one customer represented more than 10% of the Company’s total revenue. This customer accounted for 10% of the Company’s revenue amounting to $8,032,033, with $9,218,126 of accounts receivable which represented 34% of total accounts receivable, net.

The following is a table summarizing the purchases from vendor that individually represent more than 10% of the total purchases for the period ended September 30, 2012 and their outstanding balances as at period-end dates.

The following is a table summarizing the purchases from vendor that individually represent more than 10% of the total purchases for the period ended September 30, 2011 and their outstanding balances as at period-end dates.

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

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

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

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

Ocean Technology leased certain office space under a non-cancellable operating lease agreement with a term of 3 years with fixed monthly rentals expiring on February 17, 2014, and generally not containing significant renewal options. Total rent expenses for the nine months ended September 30, 2012 and 2011 was $60,000 and $59,618, respectively. Future minimum rental payments due under the non-cancelable operating lease agreement are approximately $111,000 in total in the following two years.

In 2010, Mingxiang entered into an agreement with an independent third party (the “Third Party Contractor”) in relation to the construction of a cold storage facility. A supplementary agreement was entered into between Mingxiang and the Third Party Contractor in September 2011 related to additional gross areas, machineries and equipment required for the facility. The construction was completed and commenced operations in July, 2012. Total construction costs are expected to be approximately $25.0 million. As of September 30, 2012, the Company has paid approximately $24.2 million in this connection. The aggregated retention payments related to the Third Party Contractor are approximately $0.8 million as of September 30, 2012.

As of September 30, 2012, Mingxiang was contingently liable as guarantor with respect to the loan of $474,759 (equivalent to RMB 3,000,000) to an unrelated third party, Shishi Han Jiang Hua Lian Knitting and Clothing Factory (“Han Jiang Hua Lian”). The term of this guarantee is for the period from November 2008 through December 2017. Pursuant to the loan agreement, Han Jiang Hua Lian will repay the loan by installments and be fully settled by December 31, 2017. Should Han Jiang Hua Lian fail to make its debt payments due at any time from the date of guarantee, Mingxiang will be obligated to perform under the guarantee by primarily making the required payments, including late fees and penalties. The maximum potential amount of future payments that the Mingxiang is required to make under the guarantee is $474,759 (equivalent to RMB 3,000,000).

As of December 31, 2010, Mingxiang was contingently liable as guarantor with respect to the loans of $791,264 (equivalent to RMB 5,000,000) to an unrelated third party, Shishi Yu Ching Knitting and Clothing Company (“Yu Ching”). The term of this guarantee is for the period from January 2009 through January 2011. During 2011, Yu Ching repaid the principal amount of the loan in the amount of $791,264 (equivalent to RMB 5,000,000) but left the amount of loan interest unsettled due to a disagreement between Yu Ching and the creditor in relation to the calculation of the loan interest. Should Yu Ching fail to make its loan interest payments due at any time from the date of guarantee, Mingxiang will be obligated to perform under the guarantee by primarily making the required payments, including late fees and penalties. As of September 30, 2012, Yu Ching has not repaid the interest portion of the debt.

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

CHINA MARINE FOOD GROUP LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

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

(Unaudited)

In accordance with Accounting Standard Codification (“ASC”) 460-10 “Guarantees”, a guarantor must recognize a liability for the fair value of the obligations it assumes under certain guarantees. Mingxiang did not receive any consideration for the guarantee and has determined the fair value of the indemnification to be insignificant. As of September 30, 2012, the Company has not recorded any liabilities under these guarantees.