Pingtan Marine Enterprise Ltd. - FORM 8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 25, 2013

PINGTAN MARINE ENTERPRISE LTD.

(Exact name of registrant as specified in its charter)


Cayman Islands	001-35192	n/a
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer ID Number)

181F, Zhongshan Building A

No. 154 Hudong Road

Fuzhou, PRC

100025

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: 86-10-6569-3988

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

EXPLANATORY NOTE

Pingtan Marine Enterprise Ltd.” (the “Company”) is filing this Amendment No. 1 on Form 8-K/A (this “Amendment”) to its Current Report on Form 8-K filed with the Securities and Exchange Commission on March 1, 2013 in order to include (i) financial information of China Dredging Group Co., Ltd. (“CDGC”) and Merchant Supreme Co., Ltd. (“Merchant Supreme”) for their respective fiscal year ended December 31, 2012, and (ii) pro forma financial information as of December 31, 2012, in accordance with the guidance set forth under Topic 12 of the Division of Corporation Finance Financial Reporting Manual so that there is no lapse in periodic reporting for CDGC and Merchant Supreme for the twelve months ended December 31, 2012.

Forward-Looking Statements

This Amendment contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any statements contained in this Amendment that are not statements of historical fact may be deemed forward-looking statements. Forward-looking statements generally are identified by the words “expects,” “anticipates,” “believes,” “intends,” “estimates,” “aims,” “plans,” “may,” “will,” “will continue,” “seeks,” “should,” “believe,” “potential” or the negative of such terms and similar expressions. Forward-looking statements are based on current plans, estimates and projections, and therefore you should not place too much reliance on them. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update any forward-looking statement in light of new information or future events, except as expressly required by law. Forward-looking statements involve inherent risks and uncertainties, most of which are difficult to predict and are generally beyond the Company’s control. The Company cautions you that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements. These factors include, among other factors: the Company’s ability (or inability) to continue as a going concern, the willingness of the Company’s majority shareholders, Heroic Treasure Limited and Mars Harvest Co., Ltd., (which are controlled by our director and Chief Executive Officer, Xinrong Zhuo), and/or other affiliates of the Company to continue investing in the Company’s business to fund working capital requirements, the Company’s ability (or inability) to obtain additional financing in sufficient amounts or on acceptable terms when needed, the Company’s ability (or inability) to adequately address the material weaknesses in its internal control over financial reporting, development or acquisition of additional businesses, attracting and retaining competent management and other personnel, successful implementation of the Company’s business strategy, continued development and market acceptance of the Company’s technology, protection of the Company’s intellectual property, and successful integration and promotion of any business developed or acquired by the Company. If these or other risks and uncertainties (including those incorporated by reference into this Amendment in Item 2.01 of this Amendment under the heading “Risk Factors” and those described in the most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K filed by the Company and the most recent annual report on Form 20-F and current reports on Form 6-K filed by CDGC with the Securities and Exchange Commission (the “SEC”) and future reports and other filings by the Company with the SEC) materialize, or if the assumptions underlying any of these statements prove incorrect, the Company’s actual results may be materially different from those expressed or implied by such statements.

World Wide Web addresses contained in this Amendment are for explanatory purposes only and they (and the content contained therein) do not form a part of and are not incorporated by reference into this Amendment.

Item 2.01. Completion of Acquisition or Disposition of Assets.

On February 25, 2013, China Growth Equity Investment Ltd. (“CGEI”) completed its merger (the “Merger”) with China Dredging Group Co., Ltd. (“CDGC”), and the various transactions contemplated by the Agreement and Plan of Merger, dated as of October 24, 2012 (the “Merger Agreement”), between CGEI, CDGC, China Growth Dredging Sub Ltd. (“Merger Sub”) and Xinrong Zhuo (“Founder”) were consummated. In addition, CGEI completed its share purchase (the “Share Purchase” and, together with the Merger, the “Business Combination”) of Merchant Supreme Co., Ltd. (“Merchant Supreme”), and the various transactions contemplated by the Share Purchase Agreement, dated as of October 24, 2012 (the “Share Purchase Agreement” and together with the Merger Agreement, the “Agreements”), between CGEI and Merchant Supreme were consummated.

Effective upon consummation of the Business Combination (the “Closing”), (i) Merger Sub, a wholly-owned subsidiary of CGEI, was merged with and into CDGC, resulting in Merger Sub ceasing to exist and CDGC’s continuing as the surviving company and a wholly-owned subsidiary of CGEI, (ii) CGEI acquired all of the outstanding capital shares and other equity interests of Merchant Supreme, and (iii) CGEI changed its name to “Pingtan Marine Enterprise Ltd.” (the “Company”). The Business Combination, the Agreements and the transactions effected in connection therewith are more fully disclosed under the headings “Summary – The Proposed Business Combination,” “The Business Combination” and “The Agreements” in the Definitive Proxy Statement, dated February 6, 2013 (the “Definitive Proxy Statement”), filed by the Company with the Securities and Exchange Commission (“SEC”), which disclosures are incorporated herein by reference. Capitalized terms used herein but not defined have the meanings ascribed to them in the Definitive Proxy Statement.

Upon consummation of the Business Combination, the ordinary shares, par value $0.001 per share, of the Company (the “Company’s Ordinary Shares”) were listed on The NASDAQ Capital Market under the symbol “PME.” Additionally, upon consummation of the Business Combination, the warrants of the Company are now listed on the NASDAQ Capital Market under the symbol “PMEWW”, but we expect trading in the warrants to be transitioned to the OTCQB in the near term. Further, in connection with the Business Combination, the outstanding units of CGEI automatically separated into the underlying ordinary shares and warrants of CGEI. As a result, the CGEI units are no longer listed on The NASDAQ Capital Market.

The description of the terms of the Agreements is qualified in its entirety by reference to the complete text of the Agreements, which are filed as Exhibits 2.1 and 2.2 to this Form 8-K which is incorporated herein by reference.

Pursuant to the terms of the Merger Agreement, upon completion of the Merger, each share of then-issued and outstanding ordinary shares and Class A preferred shares of CDGC was automatically cancelled and converted into the right to receive 0.82947 Company Ordinary Shares. Pursuant to the terms of the Share Purchase Agreement, all of the issued and outstanding shares of Merchant Supreme capital shares were purchased by the Company for an aggregate of 25,000,000 Company Ordinary Shares.

On February 26, 2013, the Company issued a press release announcing that it had completed the Business Combination. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.

Prior to the Business Combination, the Company was a blank check company with no operations, formed as a vehicle for an acquisition of an operating business. The following information, which is required by Item 2.01(f) of Form 8-K, reflects the post-merger Company on a consolidated basis.

Business

The business of the Company is described in the Definitive Proxy Statement in the sections entitled “Information about China Dredging Group Co., Ltd. – History and Development of CDGC,“ Information about China Dredging Group Co., Ltd. — Business Overview,“ “Information about China Dredging Group Co., Ltd. – Competition,” “Information about China Dredging Group Co., Ltd. – Intellectual Property,” “Information about China Dredging Group Co., Ltd. – Research and Development,” “Information about China Dredging Group Co., Ltd. – Organizational Structure,“ “Information about China Dredging Group Co., Ltd. – Employees,” “Information about Pingtan Fishing” – Overview,” “Information about Pingtan Fishing” – “Business Strategy,” “Information about Pingtan Fishing” – “Employees, “Information about Pingtan Fishing” – Competition,” “The Business Combination,” and “Where you Can Find More Information,” each of which is incorporated herein by reference.

Risk Factors

The risks associated with the Company’s business are described in the Definitive Proxy Statement in the sections entitled “Risk Factor s– Risk Factors Relating to CDGC’s Business,” “Risk Factor – Risk Factors Relating to Pingtan Fishing’s Business,” and “Risk Factors – Risk Factors Relating to the Business Combination,” each of which is incorporated herein by reference.

Management Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read and evaluated in conjunction with the audited condensed consolidated financial statements and notes thereto of CDGC and Merchant Supreme included in this Amendment beginning on page F-1, the audited consolidated financial statements and notes thereto of CDGC and Merchant Supreme incorporated by reference into this Amendment under the heading “Financial Statements” below, and with the discussion under “Forward-Looking Statements” on page 1 of this Amendment and the Risk Factors incorporated by reference into this Amendment under the heading “Risk Factors” above.

China Dredging Group Co., Ltd.

Company Overview

CDGC provides specialized dredging services exclusively to the Chinese marine infrastructure market. CDGC conducts its operations through its PRC subsidiary, Fujian Service, which began operating dredging vessels following its inception in January 2008. CDGC acquired total control and a 100% ownership interest in Fujian Service in June 2010 through subsidiary holding companies formed in the Hong Kong Special Administrative Region, or Hong Kong, China Dredging HK, and the PRC, Fujian WangGang. As further described under the heading “CDGC Corporate Structure,” the acquisition of Fujian Service was effected 50% through a direct investment commitment and 50% through a series of contractual arrangements referred to as the VIE Agreements. The VIE Agreements:

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transferred to Fujian WangGang voting and operational control of the 50% of Fujian Service that it does not directly own;

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conveyed to Fujian WangGang all profits and cash flows derived from the operations of Fujian Service; and

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granted Fujian WangGang the right to acquire all of the interests in Fujian Service that it does not directly own for no additional consideration, after giving effect to capital contribution agreements by certain of the parties.

In the short period since the acquisition of Fujian Service, CDGC has not experienced or become aware of any issues related to the VIE Agreements or their implementation. However, the control of Fujian Service through such contractual arrangements, rather than direct ownership, does pose certain risks that could, among other things, adversely affect CDGC’s operations and profitability, limit or preclude Fujian WangGang or its parent companies from deriving cash flow from operations or paying dividends, increase CDGC’s taxes and trigger regulatory or legal action that could cause CDGC to modify its corporate structure.

The acquisition of Wonder Dredging, which is a PRC domestic company that owns 50% of the equity interest in Fujian Service, and Fujian Service as VIEs on June 29, 2010 was deemed to be a combination of entities under common control. Consequently, CDGC’s financial statements have been prepared as if the entities in the group had always been consolidated. The financial statements are principally those of Fujian Service with the other group members included from their various dates of incorporation in 2010. The financial statements reflect the capital structure CDGC adopted.

Management determined that the VIE Agreements constituted a combination of entities under common control. CDGC’s Chief Executive Officer, Mr. Xinrong Zhuo, controlled CDGC and its subsidiary Fujian WangGang as the 90% owner when CDGC was formed, and he was then diluted to 88.27% after new shareholders acquired CDGC’s ordinary shares in May 2010. Mr. Zhuo also had the right to make all executive and management decisions for Wonder Dredging and its subsidiary Fujian Service through an agreement with the legal owners, his brother-in-law and father, which predated the formation of Fujian Service. Under the agreement, Mr. Qing Lin and Mr. Panxing Zhuo, who hold 100% equity interests in Wonder Dredging collectively and own 50% equity interests in Fujian Service indirectly, hold those interests as representatives of the family.

The VIE Agreements result in the risk that CDGC’s control over Wonder Dredging and Fujian Service may not be as effective in providing operational control as direct or indirect ownership.

Since applicable PRC laws, rules and regulations restrict foreign ownership in the enterprises which own the ships allowed to operate within PRC waters, CDGC and its wholly owned subsidiaries only directly own 50% of the equity interest in Fujian Service, the operating company, and entered into the VIE agreements with Wonder Dredging, which is a PRC domestic company and legal owner of the other 50% equity interest in Fujian Service, and all the shareholders of Wonder Dredging. Fujian Service holds the licenses and approvals pertaining to the operation of the dredging business. CDGC conducts its dredging business and derives related revenues through the direct ownership and through the VIE Agreements. As CDGC and its wholly owned subsidiaries do not have a controlling ownership interest in Fujian Service, the VIE Agreements including the voting proxies granted to Fujian WangGang, may not be as effective in providing CDGC with control over these companies as 100% direct or indirect ownership. If CDGC were the controlling shareholder of Fujian Service with direct or indirect ownership, CDGC would be able to exercise its rights as shareholder to effect changes in the board of directors more effectively, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level.

However, pursuant to the VIE Agreements, if Fujian Service, Wonder Dredging or the shareholders of Wonder Dredging fail to perform their obligations under these contractual arrangements, CDGC may be forced to (i) incur substantial costs and resources to enforce such arrangements, including the voting proxies, and (ii) rely on legal remedies available under PRC law, including exercising Fujian WangGang’s call option right over the equity interests in Fujian Service, seeking specific performance or injunctive relief, and claiming monetary damages. In the event that CDGC is unable to enforce these contractual arrangements, or if CDGC suffers significant time delays or other obstacles in the process of enforcing these contractual arrangements, CDGC’s business, financial condition and results of operations could be materially and adversely affected

Although CDGC’s services entail dredging site surveys, project planning, engineering, and project management, these activities are all performed in support of the operations of CDGC’s dredging vessels. The number, type and capacity of those vessels determine the maximum level and scope of CDGC’s operations. Fujian Service began operations with a single dredger and acquired four more dredgers during 2008 by purchase or lease. In June 2010, CDGC leased and deployed four additional dredgers, sometimes referred to herein as the 2010 leases, bringing CDGC’s total fleet to nine. In January 2011, CDGC acquired one of the dredging vessels originally leased in 2008. From April to November 2011, CDGC entered into leases for three non-self-propelling cutter suction dredgers, one trailer suction hopper dredger and two grab dredgers, and terminated two lease agreements for one non-self-propelling cutter suction dredger and one trailer suction hopper dredger, respectively, bringing CDGC’s total fleet to thirteen. In July 2012, CDGC did not renew two dredger lease agreements when the contracts expired, and terminated another dredger lease. In December 2012, CDGC terminated one dredger lease. CDGC determined that the four dredgers were not suitable for its upcoming projects, which it intends to complete with its remaining fleet. As of the date of this Form 8-K, CDGC had nine dredgers and its dredging capacity has permitted CDGC to commensurately increase the volume of dredging that CDGC has performed. Contract value in CDGC’s industry is generally directly related to the quantity of material dredged, typically expressed in terms of cubic meters. Pricing for each cubic meter, or unit, dredged can vary with project conditions and complexity, the distance that dredged material must be moved after it is excavated, and other factors.

CDGC owns and operates four non-self-propelling cutter-suction dredgers with capacity ranging from 2,000 to 3,500 cubic meters per hour. CDGC also leases and operates one non-self-propelling cutter-suction dredgers whose capacity is 3800 cubic meters per hour, two trailer suction-hopper dredgers with capacities ranging from 3,500 to 6,500 cubic meters per hour, and two grab dredgers with capacities of 350 cubic meters per hour. This range of vessel types and sizes gives CDGC the flexibility to bid on different types of projects and, CDGC believes, additional opportunities to increase its profit margins. Notwithstanding CDGC’s diverse fleet and capability to handle various project types, CDGC’s business has tended to focus increasingly on reclamation projects. For the years ended December 31, 2012, 2011 and 2010, reclamation dredging projects represented approximately 71.8%, 60.0% and 72.8% of CDGC’s total revenues, respectively. CDGC believes that its high concentration of reclamation projects will continue because its fleet is well suited to handle reclamation work and CDGC expects the growth of such projects in the PRC to continue to outpace capital or maintenance dredging.

Because CDGC’s fleet has been utilized at or near what CDGC believes to be full capacity since early in 2008 and CDGC perceives opportunities to be awarded future business in excess of its current capacity, CDGC is seeking to further expand its fleet. To this end, CDGC is exploring options for acquiring and leasing at least two additional dredgers that can be integrated into its operations during each of 2012 and 2013. However, CDGC’s experience is that there is a limited availability of high quality dredgers in the PRC. Therefore, there is considerable uncertainty about whether or when CDGC will be able to obtain additional dredgers and whether such acquisitions can be made in a cost-effective manner. If CDGC is unable to expand its capacity through the addition of new dredgers, CDGC’s revenue growth will be constrained. If CDGC is able to obtain additional dredgers, CDGC will likely be required to expend capital in excess of its cash on hand or cash generated from operations. However, CDGC is presently unable to quantify such amounts.

Dredging projects awarded in the PRC are highly concentrated among a small number of general contractors, some of whom share a common parent company. Accordingly, as a sub-contractor, CDGC’s customer concentration is high and CDGC has little ability to negotiate differentiated terms for contracts comprising the substantial majority of its revenue. To balance this, CDGC is striving to diversify its customer base to the extent practicable, but the opportunities to do so are limited. In 2010, three customers shared a common control parent and represented, in the aggregate, 67.5% of CDGC’s revenue. In 2011, four customers shared a common control parent and represented approximately 60.8% of CDGC’s revenue. In 2012, five customers shared a common control parent and represented approximately 56.1% of CDGC’s revenue. CDGC’s concentration of revenue with CDGC’s largest customer, aggregating revenues from customers sharing a common control parent, was 31.0%, 33.5% and 36.4%, respectively, in 2012, 2011 and 2010. CDGC expects its total revenues to remain heavily concentrated among a small group of customers for the foreseeable future.

Factors and Trends Affecting CDGC’s Results of Operations

CDGC believes that the following primary factors affect its revenues and operating margins:

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Governmental policies and availability of sub-contract opportunities. CDGC opportunities to bid on dredging subcontracts depends significantly upon the PRC government’s public spending on port and navigable waterway projects and for land reclamation. The nature, extent and timing of these projects, however, is affected by the interplay of a variety of factors, including the PRC government’s spending commitments to improve and maintain marine transportation infrastructure industry and the general conditions and prospects of the PRC economy. The pattern of PRC government spending and economic activity has been robust and growing since the inception of Fujian Service and CDGC expects this trend to continue for the foreseeable future, with the result that CDGC believes the demand for dredging exceeds the immediate industry capacity and will continue to do so for the foreseeable future. These constrained conditions permit dredging contractors, and sub-contractors such as CDGC, to keep their fleet utilization at high levels and give them a limited degree of positive pricing power. CDGC expects this favorable dynamic to continue, and it is the basis of and is evidenced by the positive trend of unit prices that CDGC has experienced since 2008. The intent expressed in the long-term cooperation agreements executed by China Communications (through two subsidiaries) to grow their business with CDGC at rates of 20% per annum or more through 2014 is a further indication of the favorable nature of current market conditions.

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CDGC dredging fleet capacity to undertake contracts. Since inception, CDGC has had more dredging work contracted than CDGC could immediately perform. CDGC owns or leases two trailer suction hopper dredgers, five non-self-propelling cutter suction dredgers, and two grab dredgers. Notwithstanding CDGC’s current backlog, future revenue growth largely depends on the addition of new vessels to CDGC’s fleet.

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CDGC ability to manage its costs under fixed-price contracts. Substantially all of CDGC’s revenue-generating contracts are fixed-price contracts under which CDGC is paid a specified price for CDGC’s performance of the entire contract. Fixed-price contracts carry inherent risks, including risks of losses from underestimating costs of materials, operational difficulties and other changes that may occur during the contract period. As a result, CDGC’s can only realize profits on these contracts if CDGC successfully estimates project costs and avoid cost overruns. To limit CDGC’s exposures to fixed contract prices, CDGC strives to keep contract durations short (less than one year) and CDGC endeavors to rigorously manage each individual project. Short contract periods also limit CDGC’s exposure to uncertainties in determining final contract values.

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Provision of key supplies and operational support by customers. By contract CDGC’s customers generally provide key operating supplies (most notably fuel) and support services (such as supply ships and tug services for repositioning non-self-propelling dredgers) for CDGC’s operations. CDGC’s believe these arrangements are typical of dredging subcontractors in the PRC, but may not reflect the standard market practice of dredging service companies operating outside of the PRC. Consequently, it may be difficult to compare CDGC’s results of operations with dredging service companies operating elsewhere or which do not enjoy similar arrangements. In CDGC’s experience, the availability of customer-provided supplies and services has lowered CDGC’s revenues, capital and working capital requirements, and reported costs relative to operations without customer-provided supplies and services. CDGC believes that such arrangements have also materially lowered CDGC’s exposure under fixed-price contracts as CDGC does not bear the risk of fluctuations in price or errors in estimating the costs of such items. The historical pattern of customer-provided supplies and support may not continue into the future, though each contract included in CDGC’s backlog provides for such arrangements.

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CDGC’s ability to operate its dredgers at or above nameplate rates and at high levels of utilization. CDGC strives to keep CDGC’s dredgers in operation 24 hours per day, 7 days per week, the theoretical maximum, and to reduce downtime for maintenance and redeployment to new dredging sites. However, as a practical matter, CDGC believes that sustaining dredger operations in the range of 50 – 60% of the theoretical maximum constitutes full utilization of CDGC’s dredger capacity, which CDGC estimates it has achieved since the inception of Fujian Service in 2008. In general, CDGC accomplishes full utilization by concentrating its business on projects clustered in a single region or geographic area and deploying multiple dredgers to such areas. As a result, CDGC works in fewer locations and on fewer individual projects than the number of dredgers in CDGC’s fleet, thereby ensuring prompt provisioning of spare parts and reduced downtime for vessel repositioning. In addition, CDGC strives to operate and maintain CDGC’s dredgers and related capital equipment so that they achieve or exceed the manufacturers’ performance specifications. CDGC’s success in implementing these operating strategies directly affects CDGC’s effective capacity, dredging volumes and revenues. These strategies also allow CDGC to reduce unit costs and increase operating margins by spreading fixed costs over a large revenue base.

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The increased significance of lease expense in CDGC’s operating costs. In 2009, CDGC owned three dredgers and leased two dredgers. CDGC’s number of leased dredgers increased to six in June 2010. The additional leases increased the percentage of leased vessels from 40% in 2009 to more than 60% after June 2010. In January 2011, that percentage declined to 56% after CDGC purchased one of its previously-leased dredgers. Subsequent leases of four dredgers (net of two lease terminations) have increased CDGC’s percentage of leased vessels to approximately 69%. In July 2012, that percentage declined to 60% after leases for three dredgers terminated or were not renewed. In December 2012, that percentage declined to 55.6% after leases for one dredgers terminated. This change in the mix of CDGC’s vessel ownership should be considered when making direct comparisons of expenses and margins for current and historical periods.

Backlog and business development pipeline

Backlog and business development pipeline. Because contracts begin in one fiscal year or reporting period and are typically completed in a subsequent fiscal year or reporting period, we believe that the revenue recognized in a particular year or period is not, by itself, the best indicator that our business is expanding. We believe that the prospects for future project work should also be considered. We measure this important metric and related trends by calculating our project backlog, which comprises only unrealized revenue on executed contracts with specific schedules for commencement and firm pricing and includes as-yet-uncompleted work on in-progress dredging projects. We only began to track this important metric in 2009, so the availability of trend information is limited. Our backlog as of December 31, 2012 was $233.9 million, an amount consistent with our objective of maintaining firm contract levels that will keep our dredging fleet fully utilized for at least three to four months, taking into account prospective increases in our fleet size.

The following schedule summarizes changes in backlog on contracts during the year ended December 31, 2012.

Backlog balance at December 31,2011	$	55,695,805
New contracts entered during the year ended December 31, 2012		386,334,402
Add:Adjustment of contracts due to change orders during the period		1,454,356
Adjusted contract amount at December 31, 2012		443,484,563
Less:Contract revenue earned during the year ended December 31, 2012		(209,619,489	)
Backlog balance at December 31,2012	$	233,865,074

We maintain an active dialogue with our two largest customers about the allocation of upcoming projects under our cooperation agreements. The contract proposal or bidding process is ongoing for us and results in regular additions to our contract backlog, the balance of which is also continuously reduced by work performed and further adjusted for contract change orders. We believe that our backlog, pipeline of contracts in the bid or negotiation stages, and communications with customers with whom we have signed long-term cooperation agreements provide us with significant revenue visibility through 2012 and into 2013 and gives us a basis for confidence that our dredging fleet can remain fully utilized through at least the first quarter of 2012 and that our targeted objectives to add to our fleet and capacity are prudent.

On September 29, 2012, Lianjiang Kemen Port Construction Development Co., Ltd (“LKPC”) and China Gezhouba Group Co., Ltd (“CGGC”) entered into a contract for a BT project in Kemen Industrial Zone of Lianjiang County, Fujian Province, the PRC, with an estimated investment of $2 billion. The BT project undertaken by LKPC involves dredging, reclamation and cofferdam construction, with a reclamation area of 10.3 million square meters, a reclamation volume of 29.3 million cubic meters, a total cofferdam length of 4,545 meters, a total length of pioneer road of 38,948 meters and a construction period of eighteen months. On October 29, 2012, the Company's subsidiary PingTan XingYi entered into a supplementary contract with CGGC, Gezhouba Xinjiang Engineering Co., Ltd, which is a subsidiary of CGGC, and Fujian Yihai Investment Ltd, a related company owned and controlled by members of the family of Xinrong Zhuo. Under the supplementary contract, PingTan XingYi is responsible for part of the investment, financing, dredging and reclamation within the scope of the BT project. This forms part of the balance as shown in the new contracts entered during the year ended December 31, 2012.

Segment and Business Cycle Information

Since the inception of Fujian Service, the only line of business CDGC has operated is sub-contract dredging and CDGC has operated only in the PRC. Accordingly, no geographic or segment information is presented. Based on the contracts CDGC has performed and those reflected in CDGC’s backlog, CDGC believes that its operations and business cycle are not strongly seasonal or subject to major fluctuations over time. However, CDGC’s ability to operate is influenced by weather. CDGC tends to achieve lower fleet utilization in the winter for CDGC’s vessels working in areas subject to freezing conditions and CDGC generally loses several days of operations in southern regions during monsoon season because CDGC cannot operate during severe storms or when wave or wind conditions are extreme.

CDGC’s largest customers are state-owned enterprises and they often, but do not always, structure sub-contracts to conclude at, or shortly prior to, the end of their own fiscal years, which coincide with CDGC’s own fiscal year ending December 31. As a result, CDGC tends to have a higher amount of carryover project work at fiscal year end than at other times. In addition, CDGC’s costs and estimated earnings in excess of billings, CDGC’s project receivables, and its inventories tend to be higher at CDGC’s fiscal year end than at the end of other periods.

Critical Accounting Policies and Estimates

General

Our financial statements have been prepared in accordance with U.S. GAAP. The preparation of our financial statements in conformity with U.S. GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods. Significant items subject to such estimates and assumptions include the recoverability of the carrying amount and the estimated useful lives of long-lived assets; valuation allowances for receivables; percentage of completion of contracts; and realizable values for inventories. Actual results could differ from those estimates.

Consolidation

Fujian WangGang entered into contractual arrangements with Wonder Dredging, Fujian Service, and shareholders of Wonder Dredging, the VIE Agreements. Based on the VIE Agreements, Fujian WangGang provides management services to Fujian Service and is entitled to (1) receive all of the economic benefits from Fujian Service, (2) exercise effective control over Fujian Service and Wonder Dredging, and (3) has an exclusive option to purchase all or part of the equity interests in Fujian Service. Accordingly, by virtue of the VIE Agreements, Fujian WangGang is the primary beneficiary of Fujian Service as defined by ASC 810 “Consolidation of Variable Interest Entities.” Therefore, we consolidate Fujian Service and Wonder Dredging as VIEs.

Revenue Recognition

We recognize contract revenues under the percentage-of-completion method to determine the appropriate amount to be recognized in a given period. Depending on the nature of contracts, the stage of completion is measured by reference to (a) the proportion of contract costs incurred for work performed to date to estimated total contract costs; (b) the amount of work certified by a site engineer; or (c) the completion of a physical proportion of the contract work. The difference between amounts billed and recognized as revenue is reflected in the balance sheet as either contract revenues in excess of billings or billings in excess of contract revenues. Provisions for estimated losses on contracts in progress are made in the period in which they are identified. In the event that contract revenue cannot be estimated reliably, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable.

Because we are sub-contractors, almost all pre-contract costs such as site investigation and preparation are incurred by our customers. Our pre-contract costs are mainly site visit expenses, such as travel and accommodation, and the total amount of such travel and accommodation expense has been insignificant. As of the dates of the balance sheets included herein, no expenditures related to anticipated contracts had been incurred and therefore no deferred expenses are recorded. Approved and unapproved change orders are considered a change in the scope of the original contracts to which they relate. Upon approval by the customer and the contractor of both scope and price, contract revenue and costs are adjusted for the change order. Claims for additional revenue due to us are not recognized in contract revenues until such claims are settled. An amount equal to contract costs attributable to claims is included in revenue when realization is probable and the amount can be reliably estimated.

Accounts Receivable, Net

Accounts receivable represent amounts billed under the terms of contracts with our customers. The timing of when we bill our customers is generally based on advance billing terms or contingent upon completion of certain phases of the work, as stipulated in the contract. No amount constitutes a retainer. We anticipate collection of all outstanding balances within 7 to 180 days after completion reports of the contracts are issued. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing receivables. We provide an allowance for estimated uncollectible receivables when events or conditions indicate that amounts outstanding are not recoverable. Outstanding account balances are reviewed individually for collectability. Based on our assessment of collectability, there was no allowance for doubtful accounts recognized as of December 31, 2012, 2011, and 2010.

Cost and Estimated Earnings in Excess of Billings on Contracts in Progress

Cost and estimated earnings in excess of billings represent amounts of cost incurred and revenue earned under contracts in progress but not billed at the balance sheet date. These amounts become billable according to the contract terms, which usually consider passage of time, and/or completion of the project.

Impairment of Long-Lived Assets

We test long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. As individual dredgers generate their own cash flow, each individual dredger is separately reviewed for impairment. If long-lived assets are to be disposed, depreciation is discontinued, if applicable, and the assets are reclassified as held for sale at the lower of their carrying amounts or fair values less costs to sell. Based on our assessment, no triggering events were identified as of December 31, 2012, 2011 or 2010.

Income Taxes

We are incorporated in the BVI, the laws of which do not require us to pay any income taxes or other taxes based on revenue, business activity or assets. Our subsidiaries domiciled and operating in other countries file separate tax returns in the respective jurisdictions in which they are domiciled or operate. Pursuant to authoritative accounting guidance regarding income taxes, deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be effective when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of income in the period that includes the enactment date. Authoritative accounting guidance prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken in the tax return. This guidance also addresses de-recognition of income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.

The PRC tax system is subject to substantial uncertainties and has been subject to recently enacted changes, the interpretation and enforcement of which are also uncertain. Changes in PRC tax laws or their interpretation or application may subject us to substantial PRC taxes in future. No deferred tax liability has been provided as the amount involved is immaterial. Fujian Service has analyzed the tax positions taken or expected to be taken in its tax filings and has concluded it has no material liability related to uncertain tax positions. For the years ended December 31, 2012, 2011 and 2010, we had no unrecognized tax benefit. We do not anticipate any potential future adjustments in the next twelve months that would result in a material change to our financial tax position.

Other Comprehensive Income

Pursuant to authoritative accounting guidance regarding comprehensive income, our comprehensive income consists of net income and foreign currency translation adjustments. We translate our assets and liabilities of foreign operation at the rate of exchange in effect on the balance sheet date. We translate income and expenses at the average rate of exchange prevailing during the year. The year-end rates for December 31, 2012, 2011 and 2010 of RMB into one U.S. dollar were 6.2939, 6.2939 and 6.6000, respectively. Average rates for the years ended December 31, 2012, 2011 and 2010 were 6.2990, 6.4475 and 6.7604, respectively. The related translation adjustments are reflected in “Accumulated other comprehensive income” in the equity section of our consolidated balance sheets. Foreign currency gains and losses resulting from transactions are included in earnings. As of December 31, 2011, 2010, 2009, the accumulated foreign currency translation gain was approximately $19.7 million, $15.8 million, and $4.9 million, respectively.

Earnings per Ordinary Share

Internal Control over Financial Reporting

Historically, we have been a company with limited accounting personnel and other resources to address our internal control over financial reporting. In connection with the audit of our financial statements included in this Report, we identified what we believe would constitute a “material weakness” in our internal control over financial reporting. As defined in the standards established by the PCAOB, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls. The material weakness we identified was that none of our employees had any formal training in U.S. GAAP and SEC rules and regulations. Our Chief Financial Officer also does not have such training, and we may not be able to remediate this material weakness without significant expense, if at all. We have identified similar material weaknesses in the past, and we may also face additional material weaknesses in the future. Therefore, there is a risk that our current or future financial statements may not be properly prepared in accordance with U.S. GAAP or that our current or future disclosures are not in compliance with SEC rules and regulations.

We have begun to undertake steps to remediate the material weakness described above and to improve our internal control over financial reporting. We have engaged a PCAOB registered and inspected public accounting firm in the United States to provide consulting services to us in matters involving U.S. GAAP and SEC rules and regulations. We also plan to take other important steps, including training our accounting, internal audit and finance staff, engaging consultants to assist with these functions, and implementing additional financial and management controls, reporting systems and procedures. Although we do not expect the costs of our remediation efforts to be material, we expect these efforts to take time. We continue to implement these measures through the course of 2012, and continue monitoring our internal controls with a view toward whether additional financial and management controls, reporting systems and procedures are appropriate. We do not expect that our plan will fully remediate the material weakness described above in this near future, and it may not ensure the adequacy of our internal controls over our financial reporting and processes in the future.

However, if we fail to timely achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have effective internal control over financial reporting. As a result, our failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the value of our securities.

Results of operations

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

The following table presents CDGC’s operating results for the year ended December 31, 2012 compared to the year ended December 31, 2011.

	For the Years Ended December 31,													Percentage			Percentage Change in
	2012					2011					Decrease			Change			RMB
Contract revenue	$	209,619,489		100.0	%	$	226,953,070		100.0	%	$	(17,333,581	)		(7.6	)%		(9.8	)%
Cost of contract revenue		(97,248,009	)	(46.4	)%		(98,906,986	)	(43.6	)%		(1,658,977	)		(1.7	)%		(3.9	)%
Gross profit		112,371,480		53.6	%		128,046,084		56.4	%		(15,674,604	)		(12.2	)%		(14.3	)%
General and administrative expenses		(8,761,172	)	(4.2	)%		(9,444,718	)	(4.2	)%		(683,546	)		(7.2	)%		(9.4	)%
Income from operations		103,610,308		49.4	%		118,601,366		52.3	%		(14,991,058	)		(12.6	)%		(14.7	)%
Other income		7,194,814		3.4	%		7,897,965		3.5	%		(703,151	)		(8.9	)%		(9.6	)%
Income before income taxes		110,805,122		52.9	%		126,499,331		55.7	%		(15,694,209	)		(12.4	)%		(14.3	)%
Income tax expense		(26,310,694	)	(12.6	)%		(30,107,070	)	(13.3	)%		(3,796,376	)		(12.6	)%		(14.6	)%
Net income	$	84,494,428		40.3	%	$	96,392,261		42.5	%	$	(11,897,833	)		(12.3	)%		(14.3	)%

Effect of Exchange Rates

Substantially all of CDGC’s operations are conducted in the PRC and in RMB, which is CDGC’s functional currency. The average exchange rate used in translating the results of operations and cash flows for the years ended December 31, 2012 and 2011 from RMB to U.S. dollars was 6.2990 and 6.4475, respectively, which represented a 2.3% increase from 2011 to 2012 in the value of the RMB against the U.S. dollar.

Contract Revenue

Contract revenue decreased by $17.3 million, or 7.6% (9.8% without foreign exchange effect), to $209.6 million in 2012, compared to $227.0 million in 2011. The decrease primarily reflected the decrease of CDGC’s dredging volume. In July 2012, CDGC did not renew two dredger lease agreements when the contracts expired, and it terminated another dredger lease. In December 2012, CDGC terminated one more dredger lease. CDGC determined that these dredgers were not suitable for its upcoming projects, which it intends to complete with its remaining fleet. With four leased dredgers terminated leasing in 2012, CDGC completed 114.7 million cubic meters of dredging volume in 2012 as compared to 126.6 million cubic meters in 2011, a 9.4% decrease in dredging volume. In addition, the unit construction price per cubic meter increased by $0.04, or 2.2% (-0.4% without foreign exchange effect), to $1.83 in 2012 from $1.79 in 2011 due to increased demand for CDGC’s dredging services and improved market conditions.

Cost of Contract Revenue

Cost of contract revenue decreased by $1.7 million, or 1.7% (4.0% without foreign exchange effect), from $98.9 million in 2011 to $97.2 million in 2012, primarily due to CDGC’s decreased revenue. Unit construction cost per cubic meter is $0.85 and $0.78 in 2012 and 2011, respectively.

	For the Year Ended December 31,
	2012							2011
	Amount		Average Unit Cost (per Cubic Meter)		Percentage of Revenue			Amount		Average Unit Cost (per Cubic Meter)		Percentage of Revenue
Wages	$	1,412,556	$	0.01		0.7	%	$	1,384,195	$	0.01		0.6	%
Leasing fees		14,460,391		0.13		6.9	%		15,501,030		0.12		6.9	%
Crew hire charge		4,498,682		0.04		2.1	%		4,395,906		0.03		1.9	%
Consumable parts		69,489,321		0.61		33.2	%		70,465,713		0.56		31.0	%
Depreciation		7,387,059		0.06		3.5	%		7,160,142		0.06		3.2	%
Cost of contract revenue	$	97,248,009	$	0.85		46.4	%	$	98,906,986	$	0.78		43.6	%

The cost of consumable parts decreased from $70.5 million in 2011 to $69.5 million in 2012, while the percentage to revenue declined from 31.0% to 33.2%, primarily due to increasing unit price. This increase resulted in the increase of average unit construction cost of $0.05. Leasing fees decreased by $1.0 million, primarily due to CDGC’s four leased vessels being terminated leasing in 2012, accounting for 6.9% of CDGC’s revenue in 2012 and in 2011. This resulted in the increase of average unit construction cost of $0.01. The crew hire charge associated with leased vessels increased by $0.1 million in 2012 compared to 2011. The increase in crew hire charge did not significantly impact CDGC’s unit construction cost. The amount of wages remained relatively flat in 2012 compared to 2011. Wages accounted for 0.7% and 0.6% of CDGC’s revenue in 2012 and 2011, respectively. Depreciation accounted for 3.5% and 3.2% of CDGC’s revenue in 2012 and 2011, respectively. The increase of wages and depreciation in percentage of revenue was due to the decrease in leased vessels.

Gross Profit

Gross profit decreased by $15.7 million, or 12.2% (14.3% without foreign exchange effect), to $112.4 million in 2012, compared to $128.0 million in 2011. Since CDGC’s average unit construction price in 2012 increased by 2.2% (-0.4% without foreign exchange effect) compared to 2011, while CDGC’s average unit construction cost in 2012 increased by 9.0% (6.0% without foreign exchange effect) compared to 2011, CDGC’s gross profit margin decreased from 56.4% to 53.6%, or a 2.8% percentage decrease, primarily reflecting the increase of CDGC’s average unit construction cost.

General and Administrative Expenses

The following table sets forth certain information regarding the main components of CDGC’s general and administrative expenses for the years indicated:

	For the Year Ended December 31,
	2012								2011
	Amount		% of Total G&A			% of Total Revenue			Amount		% of Total G&A			% of Total Revenue
Revenue tax expenses	$	7,221,196		82.4	%		3.5	%	$	7,398,387		78.3	%		3.3	%
Salary and benefits		430,790		4.9	%		0.2	%		420,999		4.5	%		0.2	%
Operating insurance		242,200		2.8	%		0.1	%		205,343		2.2	%		0.1	%
Other expenses		217,050		2.5	%		0.1	%		426,225		4.5	%		0.2	%
Financing and restructuring expenses		649,936		7.4	%		0.3	%		993,764		10.5	%		0.4	%
Total G&A	$	8,761,172		100.0	%		4.2	%	$	9,444,718		100.0	%		4.2	%

General and administrative expenses decreased from $9.4 million, or 4.2% of revenues in 2011, to $8.8 million, or 4.2% of revenues in 2012. The decrease in general and administrative expenses were primarily attributable to a decrease in financing and restructuring expenses of $0.3 million. Financing and restructuring expenses mainly reflect auditor and legal fees relating to the Merger. Revenue tax expenses decrease $0.2 million, or 2.4% compare to 2011, due to decrease in revenue. For the services CDGC provides, business tax should be paid as 3% of revenue and does not fluctuate in a consistent manner with contract revenue. The increases in salary and benefits expense and operating insurance in 2012 as compared with 2011 ($0.01 million and $0.04 million, respectively) were primarily attributable to maintenance of CDGC and its subsidiaries other than Fujian Service. CDGC had an aggregate of $0.2 million of other expenses in 2012, which mainly reflect sundry expenses.

Income from Operations

As a result of the foregoing, CDGC’s operating income decreased by $15.0 million, or 12.6% (14.7% without foreign exchange effect), to $103.6 million in 2012, from $118.6 million in 2011.

Income Tax Expense

Income tax expense decreased by $3.8 million, or 12.6% (14.6% without foreign exchange effect), from $30.1 million in 2011 to $26.3 million in 2012, primarily due to the increase in CDGC’s taxable income. The applicable income tax rate was 25%, which was effective on January 1, 2008 in the PRC. Income tax expense decreased by a smaller percentage than did operating income because of approximately $6.6 million of non-taxable income incurred in 2012. These non-taxable income consisted primarily of gain on derivative of CDGC’s BVI company.

Net Income

As a result of the foregoing, CDGC’s net income decreased by $11.9 million, or 12.3% (14.3% without foreign exchange effect), to $84.5 million in 2012, compared to $96.4 million in 2011.

Liquidity and Capital Resources

As of December 31, 2012 CDGC had cash of $165.1 million, an increase of $52.7 million from December 31, 2011. CDGC’s current assets totaled $201.7 million as of December 31, 2012 while CDGC’s current liabilities totaled $14.1 million.

The following table presents a comparison of CDGC’s cash flows and beginning and ending cash balances during the year ended December 31, 2012, 2011 and 2010. The amounts in the three categories of cash flows do not equal to the total changes for the years because of exchange rate effects:

	For the Years Ended December 31,
	2012			2011			2010
Cash provided by operating activities	$	92,587,488		$	67,151,092		$	51,757,688
Cash used in investing activities		(42,204,987	)		(47,811,882	)		(24,965,015	)
Net cash provided by/(used in) financing activities		560,216			12,408			36,894,673
Net increase in cash		50,942,717			19,351,618			63,687,346
Cash at the beginning of the year		112,409,544			88,532,472			23,343,469
Cash at the end of the year	$	165,062,575		$	112,409,544		$	88,532,472

Cash Flow Provided by Operating Activities

The following table sets forth information regarding CDGC’s cash provided by operating activities for the years indicated:

	For the Years Ended December 31,
	2012			2011			2010
Net income	$	84,494,428		$	96,392,261		$	48,234,280
Adjustments to reconcile net income to net cash provided by operating activities
Add:depreciation expenses		7,388,553			7,161,602			5,038,074
Gain on obligation under "Make-Good Escrow"		-			(14,101,247	)		-
(Gain)/loss on derivative		(6,515,578	)		6,762,079			11,298
Changes in operating assets and liabilities:
Accounts receivable		3,808,519			(13,231,643	)		(12,536,435	)
Cost and estimated earnings in excess of billings on contracts in progress		5,953,569			(12,820,576	)		1,418,098
Other receivables		(782	)		(2,013	)		(905	)
Prepaid expenses		4,763,212			(4,653,504	)		-
Inventories		(2,928,138	)		(1,792,368	)		236,039
Accounts payable		-			(1,027,530	)		4,380,904
Income tax payable		(3,013,642	)		3,150,401			2,656,355
Accrued liabilities and other payables		(1,362,653	)		1,313,630			2,319,980
Net cash provided by operating activities	$	92,587,488		$	67,151,092		$	51,757,688

CDGC’s net cash provided by operating activities was $92.6 million in 2012 (2011: $67.2 million, 2010: $51.8 million). The net cash provided from operating activities in 2012 was provided primarily by net income of $84.5 million (2011: $96.4 million, 2010: $48.2 million). Adjustments for non-cash charges from depreciation expense were $7.4 million (2011: $7.2 million, 2010: $5.0 million). CDGC records depreciation on a straight-line basis. Other adjustments for non-cash gain or charges were gain on obligation under Make-Good Escrow in the amount of zero (2010: $14.1 million , 2009: nil) and gain on derivative in the amount of $6.5 million (2011: -6.8 million, 2010: -0.01 million). The gain on obligation under Make-Good Escrow relates to CDGC meeting earnings targets resulting in release of the contingent liability and a resulting gain. The loss on derivative relates to the fair value adjustment to the embedded derivatives of CDGC’s preferred shares issued in CDGC’s 2010 Private Placement.

Net income after non-cash gains or charges equaled $85.4 million (2011: $96.2 million, 2010: $53.3 million).

In 2012, CDGC collected $215.2 million (2011: $186.8 million, 2010: $117.7 million) from customers even though revenue was $209.6 million (2011: $227.0 million, 2010: $131.4 million). This primarily reflected a decrease in accounts receivable of $3.6 million (2011: $13.2 million, 2010: $12.5 million), primarily due to the completion and final settlement of several projects immediately prior to the year-end date. This also reflected an decrease in cost and estimated earnings in excess of billings on contracts in progress of $5.9 million (2011: increase of $12.8 million, 2010: decrease of $1.4 million). The reduction in 2010 occurred despite that CDGC’s revenue run rate was higher during 2010 compared to 2009 and was due to variations in the timing of progress payments for contracts in progress and the completion and final settlement of several projects immediately prior to December 31, 2010.

In 2012, CDGC paid $102.2 million (2011: $102.1 million, 2010: $54.7 million) for expenses (net of interest income) other than income taxes even though those expenses totaled $105.3 million (2011: $107.8 million, 2010: $66.6 million). This primarily reflected the following factors:

•

depreciation of $7.4 million (2011: $7.2 million, 2010: $5.0 million).

•

an increase in CDGC’s inventories of $2.9 million (2011: increase of $1.8 million, 2010: decrease of $0.2 million). This increase occurred primarily due to CDGC’s increased need of inventory largely passed on to dredger lessors and accounted for as accounts payable.

•

a decrease in accrued liabilities and other payables of $1.4 million (2011: increase of $1.3 million, 2010: increase of $2.3 million). This decrease was attributable primarily to the change of leasing fees and crew hire charges in 2012. CDGC terminated four dredgers’ leasing contract in 2012, according to which CDGC should pay lease fees and crew hire charges monthly or quarterly of operation.

In 2012, CDGC paid $29.3 million (2011: $27.0 million, 2010: $13.9 million) in income tax while CDGC’s income tax expense was $26.3 million (2011: $30.1 million, 2010: $16.6 million). This primarily reflected a decrease of $3.0 million (2011: increase of $3.2 million, 2010: increase of $2.7 million) in income taxes payable.

Cash Flow Used in Investing Activities

	For the Years Ended December 31,
	2012			2011			2010
Deposits paid for motor vehicle	$	(4,382	)		-			-
Deposits paid for dredgers		24,019,686			(20,162,854	)		(12,194,972	)
Changes in security deposits		(85,031	)		(25,746,413	)		(12,440,092	)
Deposit for BT project		(66,121,607	)		-			-
Purchase of dredger, machinery and equipment		-			(1,902,615	)		(329,951	)
Advanced to related company		(13,653	)		-			-
Net cash used in investing activities	$	(42,204,987	)	$	(47,811,882	)	$	(24,965,015	)

In 2011, net cash used in investing activities was $42.2 million (2011: $47.8 million, 2010: $25.0 million). In 2012, CDGC received $24.0 million deposits back from leasers as three leased dredgers’ leasing contracts were terminated (another deposit has been returned in January 2013).

On September 29, 2012, Lianjiang Kemen Port Construction Development Co., Ltd (“LKPC”) and China Gezhouba Group Co., Ltd (“CGGC”) entered into a contract for a BT project in Kemen Industrial Zone of Lianjiang County, Fujian Province, the People’s Republic of China (the “PRC”), with an estimated investment of $2 billion (equivalent to RMB12.5 billion). The BT project undertaken by LKPC involves dredging, reclamation and cofferdam construction, with a reclamation area of 10.3 million square meters, a reclamation volume of 29.3 million cubic meters, a total cofferdam length of 4,545 meters, a total length of pioneer road of 38,948 meters and a construction period of eighteen months. On October 29, 2012, PingTan XingYi entered into a supplementary contract with CGGC, Gezhouba Xinjiang Engineering Co., Ltd and Fujian Yihai Investment Ltd, a related company of CDGC. Under the supplementary contract, PingTan XingYi is responsible for part of the investment, financing, dredging and reclamation within the scope of the BT project, and will deliver the project to the tenderer, LKPC after the project is completed and accepted. A deposit of $66.1 million (RMB416.5 million) during the fourth quarter of 2012 has been placed as CDGC’s portion of the share capital to form a company with CGGC in connection with the BT project.

Cash Flow Provided by Financing Activities

	For the Years Ended December 31,
	2012		2011		2010
Repayment of term loans		-		-		(21,818,236	)
Proceeds from term loans		-		-		11,389,859
Proceeds from share issue		-		-		46,443,286
Capital contributiond from capital issue to Wonder Dredging		-		-		878,876
Advance from related companies		-		12,408		888
Advance from a shareholder		560,216		-		-
Net cash provided by financing activities		560,216		12,408		36,894,673

In 2012, $560,216 was advanced from a shareholder.

Net cash provided by financing activities increased by $43.7 million to $36.9 million in 2010, from net cash used in financing activities $6.8 million in 2009. The increase was primarily attributable to an increase in proceeds from the sale of securities in CDGC’s 2010 Private Placement of $46.4 million. CDGC effectively used $10.4 million of the proceeds, plus amounts to offset new borrowings during the year in anticipation of CDGC’s 2010 Private Placement, to retire all of CDGC’s outstanding loans and debt. CDGC also received an additional $0.9 million in capital contributions during the year.

With the retirement of debt in 2010, CDGC has no plans to incur new debt. CDGC may do so in the future if CDGC concludes it is necessary or appropriate in executing CDGC business plan.

Off-Balance Sheet Arrangements

CDGC has not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, CDGC has not entered into any derivative contracts that are indexed to its own shares and classified as shareholder’s equity, or that are not reflected in CDGC’s consolidated financial statements with the exception of CDGC’s major shareholder, Mr. Xinrong Zhuo providing to investors in CDGC’s 2010 Private Placement the contingent right to receive escrow shares. This was done to enable CDGC to sell CDGC’s preferred shares at the price obtained and is accounted for as a contribution of the contingent right to CDGC and as a sale of those rights to the private placement investors for a portion of the proceeds received. Furthermore, CDGC does not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, CDGC does not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to CDGC or engages in leasing, hedging or research and development services with CDGC.

Contractual Obligations

The following table sets forth information regarding CDGC’s contractual payment obligations as of December 31, 2012.

	Payments due by period
Contractual Obligations	Total		< 1 year		1 – 3 years		3 – 5 years		> 5 years
Operating lease obligations
- related party transactions	$	37,935	$	12,645	$	25,290	$	-	$	-
- non-related party transactions		13,066,428		8,644,637		4,421,791		-		-
Purchase obligations (1)
- related party transactions		-		-		-		-		-
- non-related party transactions		19,897,844		15,911,819		3,986,025		-		-
Capital commitments
- related party transactions		-		-		-		-		-
- non-related party transactions (2)		50,048,460		50,048,460		-		-		-
Total	$	83,050,667	$	74,617,561	$	8,433,106	$	-	$	-

(1)

Purchase obligations reflect CDGC’s obligations to purchase consumable parts.

(2)

Capital commitments to non-related party transactions reflect the commitment to purchase two new non-self-propelling cutter suction dredgers for $50.0 million. CDGC previously paid $23.3 million as deposits for the purchase of the dredgers.

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

The following table presents our operating results for the year ended December 31, 2011 compared to the year ended December 31, 2010.

	Year Ended December 31,															Percent
	2011 (China Dredging)					2010 (China Dredging)					Increase		Percent Change			Change in RMB
Contract revenue	$	226,953,070		100.0	%	$	131,405,665		100.0	%	$	95,547,405		72.7	%		64.7	%
Cost of contract revenue		(98,906,986	)	(43.6	)%		(58,723,528	)	(44.7	)%		40,183,458		68.4	%		60.7	%
Gross profit		128,046,084		56.4	%		72,682,137		55.3	%		55,363,947		76.2	%		68.0	%
General and administrative expenses		(9,444,718	)	(4.2	)%		(7,159,793	)	(5.4	)%		2,284,925		31.9	%		25.8	%
Income from operations		118,601,366		52.3	%		65,522,344		49.9	%		53,079,022		81.0	%		72.6	%
Other income (expense)		7,897,965		3.5	%		(731,668	)	(0.6	)%		8,629,633		(1179.4	)%		(1113.6	)%
Income before income taxes		126,499,331		55.7	%		64,790,676		49.3	%		61,708,655		95.2	%		86.0	%
Income tax expense		(30,107,070	)	(13.3	)%		(16,556,396	)	(12.6	)%		13,550,674		81.8	%		73.4	%
Net income	$	96,392,261		42.5	%	$	48,234,280		36.7	%	$	48,157,981		99.8	%		90.3	%

The following table summarizes changes in backlog on contracts during the year ended December 31, 2011. Backlog represents the amount of revenue we expect to realize from work to be performed on contracts in progress at year end and from contractual agreements on which work has not yet begun.

Backlog balance at December 31, 2010	$	62,310,751
New contracts entered during the year ended December 31, 2011		220,006,390
Add: Adjustment of contracts due to change of orders during the year		331,734
Adjusted contract amount at December 31, 2011		282,648,875
Less: Contract revenue earned during the year ended December 31, 2011		(226,953,070	)
Backlog balance at December 31, 2011	$	55,695,805

The decrease of $6.6 million in our backlog at December 31, 2011 compared to December 31, 2010 was mainly due to three contracts included in our backlog at December 31, 2010 that were entered into near the year-end date. Our backlog at December 31, 2010 reflected our increased availability to enter into larger contract commitments as a result of adding vessels to our dredging fleet in the second half of 2010. We also added vessels to our dredging fleet in 2011 and, despite the $6.6 million decrease in our backlog at December 31, 2011 compared to December 31, 2010, we perceive additional opportunities to be awarded future business.

Effect of Exchange Rates

Substantially all of our operations are conducted in the PRC and RMB which is our functional currency. The average exchange rate used in translating the results of operations and cash flows for the years ended December 31, 2011 and 2010 was 6.4475 and 6.7604, respectively, which represented a 4.6% increase from 2010 to 2011 in the value of the RMB against the U.S. dollar.

Revenue

Contract revenue increased by $95.5 million, or 72.7% (64.7% without foreign exchange effect), to $227.0 million in 2011, compared to $131.4 million in 2010. The increase primarily reflects the increase of our dredging volume and unit construction price. The projects we performed varied in size and span of time. Accordingly, we measure our business volume by cubic meters we dredged rather than by numbers of projects we performed in a specific period. Applying the metric to our contract revenue allows us to track trends in unit construction price per cubic meter dredged. The unit construction price for each contract varies and reflects the negotiated price with the contractor for each specific project, depending on the nature of sediments in the river bed, difficulties in the dredging, and other factors specific to the project. With six leased dredgers joining the fleet in 2011, we were able to deliver larger business volume and execute more projects with various field conditions. We completed 126.6 million cubic meters of dredging volume in 2011 as compared to 78.6 million cubic meters in 2010, a 61.1% increase in dredging volume. In addition, the unit construction price per cubic meter increased by $0.12, or 7.2% (2.2% without foreign exchange effect), to $1.79 in 2011 from $1.67 in 2010 due to increased demand for our dredging services and improved market conditions.

Cost of Revenue

Cost of revenue increased by $40.2 million, or 68.4% (60.7% without foreign exchange effect), from $58.7 million in 2010 to $98.9 million in 2011, primarily due to our increased revenue. Unit construction cost per cubic meter is $0.78 and $0.74 in 2011 and 2010, respectively. Unit construction cost is the metric we use to measure our direct cost per cubic meter dredged. The unit construction cost is dependent on the combination of prices of consumable parts, wages, leasing fees, crew hire charge and depreciation.

	For the Years Ended December 31,
	2011 (China Dredging)							2010 (China Dredging)
	Amount		Average Unit Cost (per Cubic Meter)		Percentage of Revenue			Amount		Average Unit Cost (per Cubic Meter)		Percentage of Revenue
Wages	$	1,384,195	$	0.01		0.6	%	$	885,561	$	0.01		0.7	%
Leasing fees		15,501,030		0.12		6.9	%		7,150,238		0.09		5.4	%
Crew hire charge		4,395,906		0.03		1.9	%		2,685,442		0.03		2.1	%
Consumable parts		70,465,713		0.56		31.0	%		42,964,969		0.55		32.7	%
Depreciation		7,160,142		0.06		3.2	%		5,037,318		0.06		3.8	%
Cost of contract revenue	$	98,906,986	$	0.78		43.6	%	$	58,723,528	$	0.74		44.7	%

The cost of consumable parts increased from $43.0 million in 2010 to $70.5 million in 2011, while the percentage to revenue declined from 32.7% to 31.0%, primarily due to improved cost control and operations management. This decrease resulted in the decrease of average unit construction cost of $0.01. Leasing fees increased by $8.4 million, primarily due to our six leased vessels being put into operation in 2011, accounting for 6.9% of our revenue in 2011 as compared to 5.4% in 2010. This increase resulted in the increase of average unit construction cost of $0.03. The crew hire charge associated with leased vessels increased by $1.7 million in 2011 compared to 2010, also due to the addition to our new leased vessels. The increase in crew hire charge did not significantly impact our unit construction cost. The amount of wages and depreciation remained relatively flat in 2011 compared to 2010. Wages accounted for 0.6% and 0.7% of our revenue in 2011 and 2010, respectively. Depreciation accounted for 3.2% and 3.8% of our revenue in 2011 and 2010, respectively. The decrease of wages and depreciation in percentage of revenue was due to the increase in leased vessels.

Gross Profit

Gross profit increased by $55.4 million, or 76.2% (68.0% without foreign exchange effect), to $128.0 million in 2011, compared to $72.7 million in 2010, primarily due to our increased revenue. Since our average unit construction price in 2011 increased by 7.2% (2.2% without foreign exchange effect) compared to 2010 while our average unit construction cost remained substantially the same in these two years, our gross profit margin increased from 55.3% to 56.4%, or a 2.0% percentage increase, primarily reflecting the increase of our average unit construction price.

General and Administrative Expenses

General and administrative expenses are comprised of revenue taxes and fees, salaries and benefits, business insurance and other daily expenses. Revenue taxes and fees include primarily business tax, city maintenance and educational fees. Salaries and benefits include salaries and allowances, staff welfare for education, staff social welfare insurance and health insurance. Other expenses include depreciation of office equipment, rent, travel and others. The following table sets forth certain information regarding the main components of our general and administrative expenses for the years indicated:

	For the Years Ended December 31,
	2011 (China Dredging)								2010 (China Dredging)
	Amount		% of Total G&A			% of Total Revenue			Amount		% of Total G&A			% of Total Revenue
Revenue tax expenses*	$	7,398,387		78.3	%		3.3	%	$	5,111,870		71.4	%		3.9	%
Salary and benefits		420,999		4.5	%		0.2	%		239,916		3.3	%		0.2	%
Operating insurance		205,343		2.2	%		0.1	%		191,153		2.7	%		0.1	%
Other expenses		426,225		4.5	%		0.2	%		312,633		4.4	%		0.2	%
Financing and restructuring expenses		993,764		10.5	%		0.4	%		1,304,221		18.2	%		1.0	%
Total G&A	$	9,444,718		100.0	%		4.2	%	$	7,159,793		100.0	%		5.4	%

In the PRC, provincial and local governments levy certain taxes based on revenue and we record this tax expense as a general and administrative expense.

General and administrative expense increased from $7.2 million, or 5.4% of revenues in 2010, to $9.4 million, or 4.2% of revenues in 2011. The increase in general and administrative expense was primarily attributable to an increase in revenue taxes of $2.3 million. For the services we provide, business tax should be paid as 3% of revenue and does not fluctuate in a consistent manner with contract revenue. The increases in salary and benefits expense and other expenses in 2011 as compared with 2010 ($0.2 million and $0.1 million, respectively) were primarily attributable to maintenance of our company and our subsidiaries other than Fujian Service. We had an aggregate of $0.9 million of non-recurring restructuring expenses in 2011, which mainly reflect auditor and legal fees relating to the Merger.

Operating Income

As a result of the foregoing, our operating income increased by $53.1 million, or 81.0% (72.6% without foreign exchange effect), to $118.6 million in 2011, from $65.5 million in 2010.

Income Tax

Income tax expense increased by $13.5 million, or 81.8% (73.4% without foreign exchange effect), from $16.6 million in 2010 to $30.1 million in 2011, primarily due to the increase in our taxable income. The applicable income tax rate was 25%, which was effective on January 1, 2008 in the PRC. Income tax expense increased by a greater percentage than did operating income because of approximately $2.1 million of non-tax deductible expenses incurred in 2011. These non-deductible expenses consisted primarily of organizational and administrative expenses of our BVI company.

Net Income

As a result of the foregoing, our net income increased by $48.2 million, or 99.8% (90.3% without foreign exchange effect), to $96.4 million, compared to $48.2 million in 2010.

Liquidity and Capital Resources

As of December 31, 2011 we had cash of $112.4 million, an increase of $23.9 million from December 31, 2010. Our current assets totaled $160.3 million as of December 31, 2011 while our current liabilities totaled $24.3 million. We have financed our activities to date primarily through cash generated from operating activities and private placements of our securities. Between October 2010 to December 2010, we completed multiple closings of our 2010 Private Placement and received net proceeds of approximately $46.4 million, which substantially increased our cash balance and strengthened our liquidity position. We believe that our available working capital will be sufficient to maintain our operations at the current level for at least the next 12 months.

As part of our efforts to expand our dredging capacity, we are continuing to actively explore opportunities to expand our fleet. Our capital expenditures have historically related to the acquisition of dredgers. As of December 31, 2011 and 2010, we had acquired dredgers for $71.9 million and $54.2 million, respectively. As of December 31, 2011 and 2010, we had capital commitments of $50.0 million and $29.1 million, respectively, payable until May 2013 for the acquisition of two new dredgers. In January 2011, we acquired a non-self-propelling cutter suction dredger that we had previously leased for a purchase price of $13.6 million. The aggregate rental deposit of $5.2 million we previously paid was deducted from the vessel purchase price when we acquired the vessel, and we paid the balance of $8.4 million with a portion of the proceeds from our 2010 Private Placement. $7.3 million of this balance had been paid as a deposit prior to December 31, 2010 and had already been removed from cash and current assets. The remaining $1.1 million was paid from cash generated from Fujian Service’s operations. In May 2011, we entered into an agreement to purchase a new, non-self-propelling cutter suction dredger for approximately $41.3 million (RMB260 million). We paid approximately $20.7 million of the construction price with proceeds from our 2010 Private Placement and cash generated from operations. The remaining $20.6 million is payable upon the completion of certain construction milestones, which we expect will be fully achieved by December 2012. In addition, approximately $0.1 million of the purchase price will be withheld as quality earnest money payable after a one-year warranty period.

We intend to use the remaining proceeds from our 2010 Private Placement to finance further expansion our fleet. In the event that we are unable to fund our planned fleet expansion in a timely manner, we intend to use cash generated from operating activities and pursue alternative sources of financing, such as loan facilities from financial institutions. As of the date of this Report, we have no arrangements in place for such alternative sources of financing, which may not be available to us on reasonable terms, if at all.

The following table presents a comparison of our cash flows and beginning and ending cash balances during the year ended December 31, 2011, 2010. The amounts in the three categories of cash flows do not equal to the total changes for the years because of exchange rate effects:

	For the Years Ended December 31,
	2011			2010
	(China Dredging)			(China Dredging)
Cash flows provided by operating activities	$	67,151,092		$	51,757,688
Cash flows used in investing activities		(47,811,882	)		(24,965,015	)
Cash flows provided by/(used in) financing activities		12,408			36,894,673
Net increase in cash		19,351,618			63,687,346
Cash at beginning of year		88,532,472			23,343,469
Cash at end of year	$	112,409,544		$	88,532,472

Under our current corporate structure, Fujian WangGang is obligated to pay Fujian Service a management fee of RMB 1 million and in return is entitled to 100% of the net profits (i.e., after all taxes and expenses) of Fujian Service, as determined under PRC accounting rules.

We or our subsidiaries will be providing capital to Fujian Service with proceeds from our equity transactions. We may decide to provide some or all of this capital in the form of intercompany loans.

In the future, cash generated by Fujian Service will be moved to the other companies by a combination of the repayment of intercompany loans owed to us or other subsidiaries, or by payment to Fujian WangGang of all or part of the 100% of net profits (i.e., after all taxes and expenses) of Fujian Service determined under PRC accounting rules to which Fujian WangGang is entitled under the Contracted Management Agreement. Under PRC laws and regulations, Fujian Service is also required to set aside each year 10% of its net profits, based on PRC accounting standards, in order to fund a statutory surplus reserve until the accumulated amount of such reserve reaches 50% of its registered capital. This reserve is not distributable as dividends except in the event of liquidation of Fujian Service. Consequently, distribution of the net profits to which Fujian WangGang is entitled are subject to the 10% PRC statutory surplus reserve requirements each year, which must remain invested in Fujian Service indefinitely unless Fujian Service is liquidated.

When Fujian WangGang receives profit distributions and proceeds from the repayment of loans to Fujian Service, Fujian WangGang can make intercompany loans to other group members within the PRC or declare and pay dividends to China Dredging HK. Similarly, China Dredging HK can make loans to other group members or declare and pay dividends to us.

We intend to retain most, if not all, of our available funds and earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. We have never declared or paid any cash dividends on our ordinary shares or preferred shares. Our board of directors has significant discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial position, contractual restrictions, BVI and PRC laws, and other factors deemed relevant by our board of directors.

Cash Flow Provided by Operating Activities

The following table sets forth information regarding our cash provided by operating activities for the years indicated:

	For the Years Ended December 31,
	2011 (China Dredging)			2010 (China Dredging)
Net income	$	96,392,261		$	48,234,280
Adjustments to reconcile net income to net cash
Add: depreciation expense		7,161,602			5,038,074
Gain on obligation under "Make-Good Escrow"		(14,101,247	)		-
Loss on derivative		6,762,079			11,298
Changes in operating assets and liabilities:
Accounts receivable, net		(13,231,643	)		(12,536,435	)
Cost and estimated earnings in excess of billings on contracts in progress		(12,820,576	)		1,418,098
Other receivables		(2,013	)		(905	)
Prepaid expenses		(4,653,504	)		-
Inventories		(1,792,368	)		236,039
Accounts payable		(1,027,530	)		4,380,904
Income taxes payable		3,150,401			2,656,355
Accrued liabilities and other payables		1,313,630			2,319,980
Net cash provided by operating activities	$	67,151,092		$	51,757,688

Our net cash provided by operating activities was $67.2 million in 2011 (2010: $51.8 million, 2009: $31.0 million). The net cash provided from operating activities in 2011 was provided primarily by net income of $96.4 million (2010: $48.2 million, 2009: $28.8 million). Adjustments for non-cash charges from depreciation expense were $7.2 million (2010: $5.0 million, 2009: $5.0 million), mainly reflecting the fact that we added a new dredger in 2011, Xinggangjun #9 (2010 & 2009: nil), which increased the number of our owned dredgers to 4 (2010 & 2009: 3). We record depreciation on a straight-line basis. Other adjustments for non-cash gain or charges were gain on obligation under the Make-Good Escrow in the amount of $14.1 million (2010 & 2009: nil) and loss on derivative in the amount of $6.8 million (2010: 0.01 million, 2009: nil). The gain on obligation under the Make-Good Escrow relates to our meeting earnings targets resulting in release of the contingent liability and a resulting gain. The loss on derivative relates to the fair value adjustment to the embedded derivatives in our preferred shares issued in our 2010 Private Placement.

Net income after non-cash gains or charges equaled $96.2 million (2010: $53.3 million, 2009: $33.7 million).

In 2011, we collected $186.8 million (2010: $117.7 million, 2009: $78.1 million) from customers even though revenue was $227.0 million (2010: $131.4 million, 2009: $80.3 million). This primarily reflected an increase in accounts receivable, net of $13.2 million (2010: $12.5 million, 2009: nil), primarily due to the completion and final settlement of several projects immediately prior to December 31, 2011. This also reflected an increase in cost and estimated earnings in excess of billings on contracts in progress of $12.8 million (2010: decrease of $1.4 million, 2009: increase of $2.2 million). The reduction in 2010 occurred despite the fact that our revenue run rate was higher during 2010 than in 2009 and primarily reflects variations in the timing of progress payments for contracts in progress and the completion and final settlement of several projects immediately prior to December 31, 2010.

In 2011, we paid $102.1 million (2010: $54.7 million, 2009: $37.3 million) for expenses (net of interest income and sundry income) other than income taxes even though those expenses totaled $107.8 million (2010: $66.6 million, 2009: $42.0 million), which included cost of contract revenue and general and administrative expenses. This primarily reflected the following factors:

depreciation of $7.2 million (2010: $5.0 million, 2009: $5.0 million).

a decrease in our accounts payable of $1.0 million (2010: increase of $4.4 million, 2009: nil). This change was attributable primarily to accruals for the use of consumable parts by our dredgers and payables in accordance with the leases. Pursuant to certain lease agreements, the lessors purchase certain components needed for dredging projects, which costs we are obligated repay.

an increase in our inventories of $1.8 million (2010: decrease of $0.2 million, 2009: increase of $0.4 million). This increase occurred primarily due to our increased need of inventory largely passed on to dredger lessors and accounted for as accounts payable.

an increase in accrued liabilities and other payables of $1.3 million ( 2010: increase of $2.3 million, 2009: increase of $0.1 million). This increase was attributable primarily to the accrual of leasing fees and crew hire charges in 2011. The payment terms of two of the four dredgers leased during June 2010 and new contracts entered in 2011 permit payment of lease fees and crew hire charge in arrears. This differs from the terms of our other dredger leases, which require us to pay lease fees and crew hire charges prior to the end of each month or quarterly of operation.

In 2011, we paid $27.0 million (2010: $13.9 million, 2009: $9.8 million) in income tax while our income tax expense was $30.1 million (2010: $16.6 million, 2009: $9.6 million). This primarily reflected an increase of $3.2 million (2010: increase of $2.7 million, 2009: decrease of $0.2 million) in income taxes payable. Since our income tax expense increased in 2011 compared to 2010, we did not have to settle a portion of the increase until after year end.

Cash Flow Used in Investing Activities

	For the Years Ended December 31,
	2011 (China Dredging)			2010 (China Dredging)			2009 (Fujian Service)
Deposits paid for dredgers	$	(20,162,854	)	$	(12,194,972	)	$	(2,196,096	)
Changes in security deposits		(25,746,413	)		(12,440,092	)		-
Payment of purchases of property, plant and equipment		(1,902,615	)		(329,951	)		-
Net cash used in investing activities	$	(47,811,882	)	$	(24,965,015	)	$	(2,196,096	)

In 2011, net cash used in investing activities was $47.8 million (2010: $25.0 million, 2009: $2.2 million). In 2011, we paid $20.2 million as a deposit for the building of a dredger and a net payment of $25.7 million as security deposits for leasing additional dredgers ($37.6 million paid for 6 newly leased dredgers and $11.9 million refunded for termination of 2 leased dredgers). Also in 2011, $1.1 million was used to purchase a previously-leased dredger, Xinggangjun #9 (paid by cash of $1.1 million and offset by dredger deposit of $12.8 million), and $0.8 million was used to purchase a pump for Xinggangjun #66.

In 2010, the $25.0 million paid in 2010 included a $12.2 million deposit for the dredger purchased in January 2011, as discussed above. An additional $12.4 million was paid for new security deposits on leased dredgers as we leased more dredgers to expand our business. Another $0.3 million was spent for property plant and equipment.

We anticipate significant future uses of cash for the acquisition of additional dredgers, as we replace leased dredgers with our own dredgers and we expand our operations. We plan meet these cash needs using our cash on hand and cash generated by operations.

Cash Flow Provided by/(Used in) Financing Activities

	For the Years Ended December 31,
	2011 (China Dredging)		2010 (China Dredging)			2009 (Fujian Service)
Repayment of term loans		-		(21,818,236	)		(1,830,080	)
Proceeds from term loans		-		11,389,859			3,367,348
Repayment of dredger payable		-		-			(17,838,704	)
Proceeds from share issue		-		46,443,286			-
Capital contributions from owners				878,876			9,516,419
Advance from related companies		12,408		888			-
Net cash provided by/(used in) financing activities	$	12,408	$	36,894,673		$	(6,785,017	)

Net cash provided by financing activities increased by $43.7 million to $36.9 million in 2010, from net cash used in financing activities $6.8 million in 2009. The increase was primarily attributable to an increase in proceeds from the sale of our securities in our 2010 Private Placement of $46.4 million. We effectively used $10.4 million of the proceeds, plus amounts to offset new borrowings during the year in anticipation of our 2010 Private Placement, to retire all of our outstanding loans and debt. We also received an additional $0.9 million in capital contributions during the year.

With the retirement of debt in 2010, we have no plans to incur new debt. We may do so in the future if we conclude it is necessary or appropriate in executing our business plan.

Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements with the exception of our major shareholder, Mr. Xinrong Zhuo providing to investors in our 2010 Private Placement the contingent right to receive escrow shares. This was done to enable us to sell our preferred shares at the price obtained and is accounted for as a contribution of the contingent right to us and as a sale of those rights to the private placement investors for a portion of the proceeds received. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Contractual Obligations

The following table sets forth information regarding our contractual payment obligations as of December 31, 2011:

	Payments due by period
Contractual Obligations	Total		< 1 year		1 – 3 years		3 – 5 years		> 5 years
Operating lease obligations
- related party transactions	$	50,068	$	12,517	$	25,034	$	12,517	$	—
- non-related party transactions		34,704,372		20,354,819		13,022,872		1,326,681		—
Purchase obligations ⁽¹⁾
- non-related party transactions		63,171,180		40,283,499		22,887,681		—		—
Capital commitments
- related party transactions ⁽²⁾		-		-		—		—		—
- non-related party transactions ⁽³⁾		50,048,460		24,428,415		25,620,045		—		—
Total	$	147,974,080	$	85,079,250	$	61,555,632	$	1,339,198	$	—

(1)

Purchase obligations reflect our obligations to purchase consumable parts.

(2)

Capital commitments to related party transactions reflect the commitment to purchase dredger Xinggangjun #9 from Fujian Lutong for $13.6 million. We paid $12.5 million (including a reclassification of $5.2 million of a lease deposit) to Fujian Lutong as a deposit for the purchase of the dredger in 2010.

(3)

Capital commitments to non-related party transactions reflect the commitment to purchase two new non-self-propelling cutter suction dredgers for $50.0 million. We previously paid $23.0 million as deposits for the purchase of the dredgers.

II.

Merchant Supreme Co., Ltd.

Overview

Merchant Supreme was incorporated in the British Virgin Islands (“BVI”) as a BVI business company on June 25, 2012. Merchant Supreme is wholly-owned by Heroic Treasure Limited, a BVI business company, which is wholly-owned by Xinrong Zhuo.

Prime Cheer Corporation Limited (“Prime Cheer”) was incorporated in the Hong Kong on May 3, 2012 by a nominee secretarial services agent as its sole shareholder on behalf of Xinrong Zhuo. In July 2012, Merchant Supreme became Prime Cheer’s sole shareholder through Prime Cheer’s share allotment and acquisition of the shares from Prime Cheer’s nominee shareholder. The only business activity of Merchant Supreme and Prime Cheer is to hold the controlling interests in their subsidiaries. Prime Cheer incorporated a wholly-owned subsidiary, Pingtan Guansheng Ocean Fishing Co., Ltd. (the “WFOE”) in Pingtan County, Fujian Province, China on October 12, 2012.

Fujian Provincial Pingtan County Ocean Fishing Group Co., Ltd. (“Pingtan Fishing”) is a limited liability company established in Pingtan County, Fujian Province, China, on February 27, 1998. Pingtan Fishing is a fast growing fishery company that harvests a variety of fish species in the Exclusive Economic Zone in Arafura Sea in Indonesia and in the Bay of Bengal in India. Pingtan Fishing markets its products in China to a diverse group of customers including distributors, restaurant owners and exporters.

As of December 31, 2012, Pingtan Fishing owns a premier fleet of 38 single trawling vessels and 2 drift netters. Each vessel carries crew of 10 to 15 persons. Currently, Pingtan Fishing catches nearly 30 different species of fish including hairtail, squid, Spanish mackerel, spotted maigre, Indian white shrimp, octopus, red snapper and silver pomfret. All of Pingtan Fishing’s catch is shipped back to China. Pingtan Fishing’s fishing vessels transport frozen catch to cold storage warehouse at nearby onshore fishing bases. Pingtan Fishing then arranges periodic charted transportation ships to deliver frozen stocks to its three cold storage warehouses located in one of China’s largest seafood trading centers, Mawei Seafood Market in the Fujian Province.

Pingtan Fishing derives its revenue primarily from the sales of frozen seafood products. Pingtan Fishing recognizes revenues upon the delivery of products and when the title and risk of loss of the product are transferred to the buyers. Pingtan Fishing’s customers include distributors, restaurant owners and exporters, and most of Pingtan Fishing’s customers have long-term and trustworthy cooperative relationship with Pingtan Fishing.

On October 21, 2012, Pingtan Fishing established three wholly-owned subsidiaries; Pingtan Dingxin Fishing Information Consulting Co., Ltd., Pingtan Duoying Fishing Information Consulting Co., Ltd., and Pingtan Ruiying Fishing Information Consulting Co., Ltd. (collectively, the “Pingtan Fishing Subsidiaries”) in Pingtan County, Fujian Province, China, with registered capital of approximately $16,000, $16,000 and $16,000 (RMB100,000, RMB100,000, and RMB100,000), respectively. As of December 31, 2012, the Pingtan Fishing Subsidiaries had no substantial business activities.

From January 1, 2011 to December 31, 2012, Pingtan Fishing was controlled by Xinrong Zhuo.

On November 26, 2012, the WFOE entered into a series of variable interest agreements (the “VIE Agreements”) with Pingtan Fishing and its shareholders. The VIE Agreements are summarized below:

(1)

Contracted Management Agreement. The WFOE has the exclusive right to manage, operate and control the business operations of Pingtan Fishing, including, but not limited to, establishing and implementing policies for management, using all of the assets of Pingtan Fishing, appointing Pingtan Fishing directors and senior management, directing Pingtan Fishing to enter into loan agreement, making administrative decisions regarding employee wages or hiring and firing employees and other actions customarily associated with the Pingtan Fishing senior management and directors of Pingtan Fishing and its subsidiaries. During the term of contracted management, the WFOE is entitled to 100% of the net profits of Pingtan Fishing. In consideration of the exclusive right to manage the business operations of Pingtan Fishing, the WFOE will pay an annual fee of RMB1,000,000 (US$158,510) to Pingtan Fishing. The management agreement terminates upon the earlier of (i) the WFOE’s exercise in full of the option to purchase the equity interests of Pingtan Fishing, pursuant to the exclusive option agreement, and the WFOE and/or its designees individually or jointly own all of the equity interests in Pingtan Fishing, or (ii) 20 years after the effective date of the agreement subject to the right of the WFOE to renew the term of the management agreement for additional consecutive 20-year period.

(2)

Exclusive Call Option Agreement. The shareholders of Pingtan Fishing irrevocably will grant to the WFOE an exclusive right to purchase up to all of the equity interest in Pingtan Fishing at any time. The purchase price for the equity interest in Pingtan would be equivalent to the net asset value of the net assets reflected in Pingtan Fishing’s then current quarterly financial report prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The term of the exclusive option agreement is 20 years, which term continuously renews unless the option is exercised in full or the agreement is otherwise terminated by the parties. The agreement also provides that upon consummation of the exercise of the option, the shareholders will contribute, without additional consideration, any funds actually received by it from the WFOE for the transfer of its equity interest in Pingtan Fishing to the WFOE. The agreement further provides that, as of the date of the agreement, the WFOE is entitled to all the future payments by Pingtan Fishing to the shareholders, together with all the profits of Pingtan Fishing.

(3)

Power of Attorney. The shareholders of Pingtan Fishing will irrevocably grant the WFOE or its designees the power to vote, pledge or dispose of all equity interests in Pingtan Fishing that the shareholders hold. Additionally, the power of attorney grants to the WFOE or its designees the power to appoint directors and senior management of Pingtan Fishing.

(4)

Equity Interest Pledge Agreement. To ensure that Pingtan Fishing and its shareholders perform their obligations under the Contracted Management Agreement, the Exclusive Call Option Agreement, and the Power of Attorney, the shareholders will pledge their entire interest in Pingtan Fishing to the WFOE. The equity interest pledge agreement will terminate upon the earlier of (i) the purchase of the entire equity interest in Pingtan Fishing by the WFOE or (ii) 20 years after the effective date of the agreement, subject to the right of the WFOE to renew the term of the equity interest pledge agreement for additional consecutive 20 year periods in case of the WFOE or its designee’s failure to purchase the entire equity interest in Pingtan Fishing within the initial 20 year term.

As a result of the VIE Agreements, the WFOE has the power to direct Pingtan Fishing’s activities that most significantly impact Pingtan Fishing’s economic performance, the obligation to absorb Pingtan Fishing’s losses, and the right to receive any benefits from Pingtan Fishing that could be significant to Pingtan Fishing. Therefore, Pingtan Fishing is deemed to be a variable interest entity (“VIE”); the WFOE is deemed to have a controlling financial interest in the VIE, is considered the primary beneficiary of and consolidated with the VIE.

On October 24, 2012, a share purchase agreement (the “Share Purchase Agreement”) was entered into between China Growth Equity Investment Ltd. (“China Growth”), Heroic Treasure Limited, Xinrong Zhuo, Merchant Supreme, Prime Cheer, Pingtan Fishing and Fuzhou Honglong Ocean Fishery Co., Ltd. (“Honglong”), pursuant to which China Growth agreed to buy all of the outstanding capital shares and other equity interests of Merchant Supreme. China Growth is a Cayman Islands exempted company organized as a blank check company. Honglong is an affiliate of Merchant Supreme. The acquisition of Merchant Supreme by China Growth was consummated on February 25, 2013, and Merchant Supreme became a fully-owned subsidiary of China Growth The combined company changed its name to Pingtan Marine Enterprise Ltd.

Revenue by Territory

Merchant Supreme’s customers are from the following territories:

	The year ended December 31, 2012			The year ended December 31, 2011

Guangdong Province		55	%		45	%
Fujian Province		27	%		39	%
Zhejiang Province		11	%		9	%
Shandong Province		4	%		4	%
Liaoning Province		2	%		2	%
Other areas		1	%		1	%

Total		100	%		100	%

Sales Channels

Merchant Supreme sells its products directly to its customers. Customers contact Merchant Supreme’s sales department directly, making an offer for Merchant Supreme’s seafood products. Merchant Supreme’s existing customers also introduce new customers to Merchant Supreme from time to time. With the expansion of operating capacity and expected increasing harvest volume in the coming years, Merchant Supreme will develop new customers from existing and new territories in China. Merchant Supreme believes that its profitability and growth are depending on its ability to expand its customer base in existing and new markets.

Cost Structure

Cost of goods sold is calculated based on a weighted average cost basis. When products are sold, the cost of inventory is transferred from inventory to cost of goods sold. Merchant Supreme’s cost of goods sold includes all expenditures incurred from bringing the goods to the point of sale to arranging the products in a sellable way.

Merchant Supreme’s financial performance may be affected by changes in production cost. Fuel, Maintenance fee, freight and staff wages together account for about 90% of cost of goods sold during 2012. The fluctuation of fuel price, freight price and the exchange rate may significantly affect the company’s cost level. See “Results of Operations — Cost of Revenue” for reasons of the large increase of cost that occurred during 2012.

	The year ended December 31, 2012					The year ended December 31, 2011
	Amount		% of COGS			Amount		% of COGS
Fuel cost	$	28,113,062		67.1	%		8,563,999		58.7	%
Freight		4,893,093		11.7	%		2,016,658		13.8	%
Labor cost		3,071,652		7.3	%		1,007,635		6.9	%
Maintenance fee		2,674,702		6.4	%		1,603,628		11.0	%
Spare parts		1,189,241		2.8	%		770,253		5.3	%
License fee		1,059,057		2.5	%		122,339		0.8	%
Depreciation		441,173		1.1	%		438,285		3.0	%
Service fee		434,160		1.0	%		77,782		0.5	%
Total	$	41,876,140		100.0	%		14,600,579		100.0	%

Seasonality

Merchant Supreme’s operating results are subject to seasonal variations. Harvest volume is highest in the fourth quarter of the year and harvest volume in the second and third quarters is relatively low due to the spawn season of certain fish species, including ribbonfish, cuttlefish, butterfish, and calamari. Based on past experiences, demand for seafood products is the highest from December to January due to the Chinese New Year. During the second and third quarter, Merchant Supreme’s unit cost of sales and gross margin are lower due to the decrease in harvesting amount and consistent costs.

Factors and Trends Affecting our Results of Operations

Merchant Supreme believes that the following primary factors affect its revenues and operating margins:

Governmental Policies: Fishing is a highly regulated industry and Merchant Supreme’s operations require licenses and permits. Merchant Supreme’s ability to obtain, sustain or renew such licenses and permits on acceptable terms is subject to changes in regulations and policies and is at the discretion of the applicable governments. Merchant Supreme’s inability to obtain, or loss or denial of extensions, to any of its applicable licenses or permits could hamper Merchant Supreme’s ability to generate revenues from its operations.

Resource & Environmental Factors: Merchant Supreme’s fishing expeditions are based in India and Indonesia. Any earthquake, tsunami, adverse weather or oceanic conditions or other calamities in such areas may result in disruption to Merchant Supreme’s operations and could adversely affect Merchant Supreme’s sales. Adverse weather conditions such as storms, cyclones and typhoons or cataclysmic events may also decrease the volume of fish catches or may even hamper Merchant Supreme’s operations. Merchant Supreme’s fishing volumes may also be adversely affected by major climatic disruptions such as El Nino, which in the past has caused significant decreases in seafood catch worldwide. Besides weather patterns, other unpredictable factors, such as fish migration, may have impact on Merchant Supreme’s harvest volume.

Fluctuation on Fuel Prices: Merchant Supreme’s operations may be adversely affected by fluctuations in fuel prices. Changes in fuel price may ultimately result in increases in the selling prices of Merchant Supreme’s products, and may, in turn, adversely affect its sales volume, revenue and operating profit.

Competition: Merchant Supreme engages in fishing business in the Arafura Sea in Indonesia and the Bay of Bengal in India. Competition within Merchant Supreme’s dedicated fishing areas is not significant as the region is not overfished and regulated by the government, which limits the number of vessels that are allowed to fish in the territories. Competition in the market in China is high, as fish compete with other sources of protein. Merchant Supreme competes with other fishing companies which offer similar and varied products. There is significant demand for fish in the Chinese market. Merchant Supreme’s catch appeals to a wide segment of consumers because of the low price points of its products. Merchant Supreme has been able to sell its catch at market prices and such market prices were quite stable during 2010 and 2011, but increased significantly during 2012.

Critical Accounting Policies

The consolidated financial statements are prepared in accordance with U.S. GAAP, requires Merchant Supreme’s management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. Merchant Supreme has identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of Merchant Supreme’s financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of Merchant Supreme’s financial conditions and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. Merchant Supreme believes the following critical accounting policies involve the most significant estimates and judgments used in the preparation of its financial statements:

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the amount of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made. Actual results could differ materially from those estimates. Significant items subject to such estimates and assumptions include valuation allowances for receivables, net realizable value of inventories, and recoverability of carrying amount and the estimated useful lives of long-lived assets.

Comprehensive Income

Merchant Supreme follows the provisions of the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 220 “Reporting Comprehensive Income”, and establishes standards for the reporting and display of comprehensive income, its components and accumulated balances in a full set of general purpose financial statements, Merchant Supreme’s comprehensive income includes net income and foreign currency translation adjustments and available-for-sale short-term investment fair value adjustment.

Foreign Currency Transactions and Translations

The functional currency of Merchant Supreme, Prime Cheer and the WFOE is U.S. dollars, while the functional currency of Pingtan Fishing and its subsidiaries is the Chinese Yuan Renminbi, or RMB. The reporting currency of these consolidated financial statements is U.S. dollars

Transactions in currencies other than a consolidated entity’s functional currency are recorded at the rates of exchange prevailing on the date of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at the end of the reporting periods. Exchange differences arising on the settlement of monetary items and on retranslation of monetary items at period-end are included in income statement of the period.

For the purpose of presenting these consolidated financial statements, Merchant Supreme’s assets and liabilities are expressed in U.S. dollars at the exchange rate on the balance sheet date, shareholder’s equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange rate during the period. The resulting translation adjustments are reported under accumulated other comprehensive income in the shareholder’s equity section of the balance sheets.

Translations adjustments resulting from this process are included in accumulated other comprehensive income in the shareholder’s equity were $2,510,337 and $2,298,025 as of December 31, 2012 and 2011, respectively.

Cash and Cash Equivalents

Merchant Supreme considers highly-liquid investments with maturities of three months or less, when purchased, to be cash equivalents. Merchant Supreme’s cash and cash equivalents comprised of cash on hand and cash in bank. All of Merchant Supreme’s cash deposits are held with financial institutions located in the PRC where there is currently no rule or regulation mandated regarding obligatory insurance of bank accounts. Merchant Supreme believes these financial institutions are of high credit quality.

Short-term Investment

Merchant Supreme’s investment in units of an equity investment fund is classified as available-for-sale, and is accounted for at fair value, with unrealized gains and losses included as a separate component of comprehensive income.

Notes Receivable, Accounts Receivable and Other Receivables

Notes receivable represents banker’s acceptances that have been arranged with third-party financial institutions. These banker's acceptances are non-interest bearing and are collectible within six to twelve months. Accounts receivable are recognized at original sales amounts. Accounts receivable and other receivables are carried at net realizable value. Merchant Supreme only grants credit periods to established customers with long and timely payment history. Credit periods to independent customers are within 180 days after customers pick up purchased goods.

Merchant Supreme maintains allowances for doubtful accounts for estimated losses resulting from the inability of Merchant Supreme’s debtors to make required payments. Merchant Supreme reviews customer credit worthiness, past transaction history, and changes in payment terms when determining the adequacy of these allowances. Accounts are written off against the allowance when it becomes evident collection will not occur. No allowance for doubtful accounts has been provided for accounts receivable from third party customers, as of December 31, 2012 and 2011, respectively, Merchant Supreme had collected all receivable balances from third party customers within 60 days of the respective balance sheet dates.

Fishing Licenses

Each of Merchant Supreme’s fishing vessels requires an approval from the Ministry of Agriculture of the People’s Republic of China to carry out ocean fishing projects in foreign territories. These approvals are valid for a period from three-to-twelve months, and are awarded to Merchant Supreme at no cost. Merchant Supreme applies for the renewal of the approval prior to expiration to avoid interruptions of its fishing vessels’ operations.

Each of Merchant Supreme’s fishing vessels operated in Indonesian waters requires a fishing license granted by the authority in Indonesia. Indonesia fishing licenses remain effective for a period of twelve months and Merchant Supreme applies for renewal up on expiration. Merchant Supreme records cost of Indonesia fishing licenses in prepaid expenses and amortizes over the effective period of the licenses.

Inventories

Inventories are stated at the lower of cost or market. Cost comprises of fuel, depreciation, direct labor, shipping, consumables, and government levied charges and taxes. Consumables include fishing nets and metal containers used carried by fishing vessels and are amortized during expected useful lives of three months. Merchant Supreme’s fishing fleets in India and Indonesia water operate around the year, although May to July period demonstrates lower catch quantities compared to August to December peak season. Cost incurred during a fishing vessel’s relocation period between different operating territories is deferred and amortized in ensuing six-month period. Cost of frozen fish and other marine catches at period-ends is calculated using the weighted average method.

Long-term Investments

The Company accounts for its investment in Pingtan County Rural Commercial Bank which it does not have a controlling interest and is unable to exercise significant influence using cost method of accounting.

The Company evaluates at each period end whether an event or change in circumstances has occurred in that period that may have a significant adverse effect on the fair value of the investments. If a decline in fair value is determined to be other than temporary, an impairment loss is recognized to reduce an investment’s cost to its fair value.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Fully depreciated property and equipment contributed by equity owners in exchange for the paid-in capital of Merchant Supreme are recorded at equity owners’ historical cost basis of zero. Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of assets as set out below.

	Estimated Useful Lives
Fishing vessels	10-20years
Fishing vessel major improvements	4 to 20 years
Office and other equipment	5 years

When an item of property and equipment is sold or retired, its cost and accumulated depreciation are eliminated from the balance sheet, and any resulting gain or losses are included in the income statement.

A major maintenance and replacement is planned regularly for Merchant Supreme’s fishing vessels to maintain their usage conditions. Related cost is capitalized to the associated fishing vessels and depreciated during the intervals of these major maintenance and replacement, which are between 12 and 24 months.

Properties in the course of construction for production or administrative purposes are carried at cost.

Capitalized Interest

Interest associated with the construction of property and equipment is capitalized and included in the cost of the property and equipment. When no debt is incurred specifically for the construction of an item of property and equipment, interest is capitalized on amounts expended on the construction using weighted-average cost of Merchant Supreme’s outstanding borrowings. Capitalization of interest ceases when the construction is substantially complete or the construction activity is suspended for more than a brief period.

Impairment of Property, Plant and Equipment

In accordance with ASC 360, “Property, Plant and Equipment”, the Company reviews the carrying values of property, plant and equipment, whenever facts and circumstances indicate that the assets may be impaired. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If an asset is considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs of disposal. The Company performed annual reviews of property, plant and equipment and concluded that no triggering events were identified as at December 31, 2012 and 2011.

Revenue Recognition

Sale of frozen fish and other marine catches

Merchant Supreme recognizes sales in accordance with ASC 605, “Revenue Recognition.” Merchant Supreme recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the price to the customer is fixed or determinable, and collection of the resulting receivable is reasonably assured.

With respects to the sale of frozen fish and other marine catches to third party customers, most of which are sole proprietor regional wholesalers in China, Merchant Supreme recognizes revenue when customers pick up purchased goods at Merchant Supreme’s cold storage warehouse, after payment is received by Merchant Supreme or credit sale is approved by Merchant Supreme for recurring customers with excellent payment history.

Merchant Supreme does not offer promotional payments, customer coupons, rebates or other cash redemption offers to its customers. Merchant Supreme does not accept returns from customers. Deposits or advance payments from customers prior to delivery of goods are recorded as customer deposits.

Rental income

From November 2010 to September 2011, Merchant Supreme leased 10 fishing vessels to a related party. Operating lease periods ranged from 15 months to four years, all of which were terminated early in September 2011. Rental income from operating lease is recognized on a straight-line basis over the term of the lease.

Government Grants

Government grants are recognized as income in the period in which funds are received from the government. Government grants are received as compensation for expenses already incurred or for the purpose of giving immediate financial support Merchant Supreme.

Income Taxes

Merchant Supreme accounts for income taxes in accordance with ASC 740 “Income Taxes”. Under this method, deferred income taxes are recognized for the estimated tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts and each year-end based on enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established to reduce deferred tax assets to the amount expected to be realized when, in management’s opinion, it is more likely than not that some portion of the deferred tax assets will not be realized. The provision for income taxes represents current taxes payable net of the change during the period in deferred tax assets and liabilities.

Merchant Supreme is a BVI Business Company incorporated in British Virgin Islands. Under the current laws of the British Virgin Islands, Merchant Supreme is not subject to tax on income or capital gains, or withholding tax.

Prime Cheer is incorporated in Hong Kong. Prime Cheer did not earn any income derived in Hong Kong from its date of incorporation to December 31, 2012 and therefore was not subject to Hong Kong Profits Tax. Payments of dividends by Prime Cheer are not subject to any Hong Kong withholding tax.

Merchant Supreme’s PRC entities are governed by the Income Tax Law of the PRC and are subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.

Pingtan Fishing is a qualified ocean fishing enterprise as certified by the Ministry of Agriculture of the PRC. The qualification is renewed on April 1 each year. According to Cai Shui Zi (1997) No. 114 “Notice of Ministry of Finance and the State Administration of Taxation on Relevant Issues concerning Enterprise Income Tax on Domestic Enterprises Engaged in Fishery Business” issued by the Ministry of Finance of the PRC and State Administration of Taxation in 1997, Order of the State Council of the People's Republic of China No. 512 “Regulation on the Implementation of the Enterprise Income Tax Law of the People's Republic of China” issued by the State Council in 2007, Guo Shui Fa (2005) No. 129 “Measures for the Administration of Tax Deduction or Exemption (Trial Implementation)” issued by State Administration of Taxation in 2008, and State Administration of Taxation Announcement (2011) No. 48 “Notice of the State Administration of Taxation on Relevant Issues concerning the Implementation of Preferential Policies of Enterprise Income Tax on Agriculture, Forestry, Stockbreeding and Fishery Projects”, Merchant Supreme is exempted from income tax derived from its ocean fishing operations in the periods it processes a valid Ocean Fishing Enterprise Qualification Certificate issued by the Ministry of Agriculture of the PRC.

The WFOE and Pingtan Fishing Subsidiaries did not have taxable income for the period from their respective dates of incorporation to December 31, 2012, and did not have deferred tax assets or liabilities as of December 31, 2012.

Under the Income Tax Law of the PRC, dividends payable by a foreign-invested enterprise in China to its foreign investor who is a non-resident enterprise will be subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with China that provides for a reduced rate of withholding tax. Under the arrangement for avoidance of double taxation between mainland China and Hong Kong, the effective withholding tax applicable to a Hong Kong non-resident company is 5% if it directly owns no less than a 25% stake in the Chinese foreign-invested enterprise.

Retained earnings of Merchant Supreme’s entities located in the PRC that are available for distribution to Merchant Supreme are considered to be indefinitely reinvested, and accordingly, no provision has been made for the Chinese dividend withholding taxes that would be payable upon the distribution of those amounts to Merchant Supreme.

Merchant Supreme is not subject to foreign income taxes for its operations in India and Indonesia Exclusive Economic Zones.

Fair Value Measurements

Merchant Supreme applies the provisions of ASC Subtopic 820-10, “Fair Value Measurement” for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received if an asset was sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, Merchant Supreme considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

The carrying values of Merchant Supreme’s financial assets and liabilities, including notes receivable, accounts receivable, other receivables, other current assets, short-term loans, accounts payable, and other payables and accrued liabilities, are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization, and if applicable, their stated interest rate approximates current rates available.

Statement of Cash Flows

In accordance with ASC 230, “Statement of Cash Flows”, cash flows from Merchant Supreme’s operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily correspond with changes in the corresponding balances on the balance sheet.

Recently Issued Accounting Pronouncements

In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” This ASU does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, this guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. For public entities, the guidance is effective prospectively for reporting periods beginning after December 15, 2012. For nonpublic entities, the guidance is effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

The FASB has issued Accounting Standards Update (ASU) No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this ASU is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

The Company does not believe any other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect of the consolidated financial position, results of operation and cash flows.

Results of Operations

The following table presents Merchant Supreme’s operating results for the year ended December 31, 2012 compared to the year ended December 31, 2011.

	The year ended December 31,2012						The year ended December 31,2011
	Amount			% of revenues			Amount			% of revenues
Net revenue	$	67,461,468					$	25,600,636
Cost of sales		(41,876,140	)		62.1	%		(14,600,579	)		57.0	%

Gross profit		25,585,328			37.9	%		11,000,057			43.0	%

Selling expenses		(647,848	)		1.0	%		(383,472	)		1.5	%
General and administrative expense		(463,501	)		0.7	%		(251,343	)		1.0	%

Income from operations		24,473,979			36.3	%		10,365,242			40.5	%

Government grants		2,363,575			3.5	%		830,446			3.2	%
Interest expense		(3,183,574	)		-4.7	%		(842,301	)		-3.3	%
Investment gain		15,138			0.0	%		-			0.0	%
Foreign currency exchange gain		(5,113	)		0.0	%		86,950			0.3	%
Income before income taxes		23,664,005			35.1	%		10,440,337			40.8	%
Income tax expenses		-			-			-			-

Net income		23,664,005			35.1	%		10,440,337			40.8	%

Other comprehensive income/(loss)		211,595			0.3	%		741,398			2.9	%

Comprehensive income/(loss)	$	23,875,600			35.4	%	$	11,181,735			43.7	%

Net Revenues

Net revenues are derived from sale of aquatic products and fishing vessels rental. The sale of aquatic products accounted for 100% of the total revenue as of the year ended December 31, 2012 while the sale of aquatic products accounted for 94.6% of the total revenue as of the year ended December 31, 2011.

The net revenues derived from sale of aquatic products increased to $67.5 million as of the year ended December 31, 2012 from $24.2 million as of the year ended December 31, 2011, representing a 179% increase.

This increase was due to two factors: (i) the amount of aquatic products available for sales increased dramatically. As of December 31,2011,10 pairs of vessels were in operation while as of December 31, 2012 about 20 pairs of vessels were in operation and the operation capacity had been greatly promoted. Correspondingly, the harvesting volume increased from 16,014 tons in the year ended December 31, 2011 to 25,771 tons in the year ended December 31, 2012, representing an increase of 60.9%. The sales volume also increased from 15,099 tons in the year ended December 31, 2011 to 29,215 tons in the year ended December 31, 2012, representing significant increase of 93.5%, and (ii) the sales price of fisheries increased significantly, from $1.6 per kilogram in the year ended December 31, 2011 to $2.3 per kilogram in the year ended December 31, 2012.

The revenue of fishing vessel rent was due to that Merchant Supreme rented 8 vessels to Fuzhou Honglong Oceanic Fisheries Co., Ltd (“Honglong”) during 2011 and 2010. According to the lease agreement, subsidies for the 8 vessels granted by the government were attributable to Merchant Supreme and Merchant Supreme did not charge Honglong for the rentals. As of the year ended December 31, 2011, the rent revenue was $1.4 million. Because of the termination of the lease agreement in October 2011, the rent revenue was nil for the year ended December 31, 2012.

Cost of Revenue

The cost of revenue was composed of cost of goods sold, or COGS. The COGS increased $27.3 million, or 186.8%, to $41.9 million in the year ended December 31, 2012, from $14.6 million in the year ended December 31, 2011. Cost of goods sold per kilogram increased 48% between the periods.

The increase of COGS is due to two reasons: (i) the vessels in operation increased from 20 to 40 vessels and the operation capacity expanded, crew numbers increased accordingly, and (ii) the unit price of fuel and freight increased. The average price of fuel was about $1000 per KL in the year ended on December 31, 2011, while it was about $1030 in the year ended on December 31, 2012. In addition, during the first 9 months of 2011 the aquatic products were carried by container and the average freight fee was $100 per ton. Since October 2011, Merchant Supreme began to use bulk carrier to ship products instead of container carrier, which is more timely and liable to be controlled, and the unit freight price increased to $180 per ton.

Gross Profit and Gross Margin

Merchant Supreme’s gross profit increased $14.6 million, from $11.0 million for the year ended December 31, 2011 to $25.6 million for the year ended December 31, 2012.

The gross margin for the sale of fish and marine catches in the year of 2012 decreased to 37.9% as compared to the gross margin of 43.0% in the year of 2011, due to the following reasons:

(i) 20 newly built vessels were put into operation in succession during 2012. In the initial stage, the equipment and machines of the new vessels also require a certain run-in time to reach design-capacity. Therefore, certain part of the cost incurred since April 2012 was mainly due to the experimental operation of the new vessels. Merchant Supreme expects that the new vessels will be in proper operation by next year and their harvesting volume will greatly increase and spare Merchant Supreme similar costs.; and

(ii) the harvest volume of 2012 in Indian was approximately 4,424 tons, approximately 2,377 tons lower than that of 2010 and about 7,183 tons lower than that of 2011, due to an unusually slack season for fishing in India during 2012. Therefore, the much lower harvest volume in 2012 caused a large gross margin decrease.

Selling expenses

The following table sets forth certain information regarding the main components of selling expenses for the years indicated:

	The year ended Dec 31,2012					The year ended Dec 31,2011
	Amount		% of expense			Amount		% of expense
Storage		307,558		47.5	%		334,158		87.1	%
Insurance expenses		249,521		38.5	%		-		-
Operation services expense		53,964		8.3	%		-		-
Quarantine & Disinfection		17,248		2.7	%		-		-
Traveling expense		3,567		0.5	%		-		-

Others		15,990		2.5	%		49,314		12.9	%

Total	$	647,848		100.00	%	$	383,472		100.00	%

Merchant Supreme’s sales and marketing expenses accounted for approximately 1.0% and 1.5% of the total revenue during 2012 and 2011, respectively. The storage fee kept almost unchanged during the periods, but other expenses including service fee and insurance fee, increased.

General and administrative expenses

General and administrative expenses are comprised of salaries, depreciation, office rent, travel fees and other. The following table sets forth certain information regarding the main components of our general and administrative expenses:

	The year ended Dec31,2012						The year ended Dec31,2011
	Amount			% of expense			Amount		% of expense

Consultancy	$	374,098			80.6	%	$	5,562		2.2	%
Salaries		178,450			38.5	%		22,509		9.0	%
Rent		97,968			21.1	%		154,703		61.5	%
Tax& extras		31,241			6.7	%		8,969		3.6	%
Depreciation		23,464			5.1	%		5,055		2.0	%
Office fee		23,018			5.0	%		15,832		6.3	%
Inspection fee		21,544			4.6	%		16,743		6.7	%
Entertainment		20,701			4.5	%		20,213		8.0	%
Others		10,256			2.2	%		-		-
Travelling fee		6,789			1.5	%		1,527		0.6	%
Communication fee		707			0.2	%		230		0.1	%
Bad debt provision		(324,735	)		(70.0	%)		-		-
Total	$	463,501			100.00	%	$	251,343		100	%

General and administrative expenses increased from $0.25 million or 1.0% of revenues in 2011 to $0.46 million, or 0.7% of revenues in 2012. The increase in the year ended December 31, 2012 was mainly due to fees paid for legal service and assets assessment in preparation of the business combination.

Tax provision

During 2012 and 2011 no tax provision occurred, as explained in Critical Accounting Policies of Income Taxes.

Net income

Net income increased by 126.7% or $13.2 million, from $ 10.4 million for the year ended December 31, 2011 to $23.7 million for the year ended December 31, 2012, and the net profit rate decreased from 40.8% to 35.1%, as Merchant Supreme ended its fishing vessel leasing to Hong Long in October 2011, which had a 100% gross margin ratio and all costs were borne by Hong Long. Increased fuel cost, which was affected by oil commodity price, and increased transportation costs, resulting from Merchant Supreme’s upgrade to charted ships for expeditious delivery of frozen catches from overseas to China, attributed to the decrease of gross margin rate from fish sales.

The income from operation for the year ended December 31, 2012 increased by 136.1% or $14.1 million, compared to the year ended December 31, 2011.

Other income and expenses for the year ended December 31, 2012 decreased $0.9 million, compared to the year ended December 31, 2011:

(i)

The interest expense increased by $2.3 million as the bank-loans of Merchant Supreme increased significantly during 2012.

(ii)

The government grant increased by about $1.5 million, as Merchant Supreme substantially expanded fishing fleet and gained more subsidies from the government.

Liquidity and Capital Resources

As of December 31, 2012, Merchant Supreme had cash and cash equivalents of $6.86 million, consisting primarily of cash in bank and demand deposits.

Merchant Supreme’s current assets totaled $109.2 million, and current liabilities totaled $89.8 million as of December 31, 2012. Merchant Supreme has financed its activities to date primarily through cash generated from operating activities and bank loans. Merchant Supreme believes that the cash on hand and cash flows from operations will meet its present cash needs, but Merchant Supreme may require additional cash resources to implement Merchant Supreme’s expansion through the acquisition of additional facilities. If Merchant Supreme’s own financial resources are insufficient to satisfy the capital requirements, Merchant Supreme may seek to sell additional equity or debt securities or obtain additional credit facilities. Any failure by Merchant Supreme to raise additional funds on terms favorable to Merchant Supreme, or at all, could limit the ability to expand Merchant Supreme’s business operations and could harm the overall business prospects.

As part of Merchant Supreme’s efforts to expand its harvest capacity, Merchant Supreme contracted to construct 10 vessels in 2011, and these 10 vessels were delivered in the first half year of 2012 and they had been in operation as of September 30, 2012. On March 22, 2012, Merchant Supreme entered into another set of contracts to build 10 new vessels with gross tonnage of 292 tons per vessel, for approximately $9,475,000. The 10 new vessels were in operation as of December 31, 2012. As of December 31, 2012, Merchant Supreme had entered into another set of contracts to build 23 new vessels for approximately $18,704,625.

Merchant Supreme believes the expansion of its fleet will increase its harvesting capacity and cash generated from operating activities in the near future.

Merchant Supreme’s long-term bank loans usually contain covenants that require Merchant Supreme to obtain lending banks’ approval before undertaking mergers, acquisitions, restructurings, joint-ventures, investing, incurring debt financing, certain insolvency events, transfer or dispose of material assets, or collateralize the constructed property and equipment which is funded by the loan. These protective clauses does not substantially restrict Merchant Supreme daily operations and regular investment decision making activities, and Merchant Supreme’s management believes that Merchant Supreme will meet these debt covenants throughout the terms of long-term bank loans.

Merchant Supreme intends to renew its short-term debts when they become due. Cash flows generated from operating activities and net proceeds from settling “Due from Related Parties” and “Due to Related Parties” with Merchant Supreme’s controlling owner, Xinrong Zhuo, pursuant to the Merchant Supreme share purchase agreement, are also available to Merchant Supreme to pay down its debt and interest.

Cash Flows

The following table sets forth a summary of the cash flows for the periods indicated:

	The year ended Dec 31, 2012			The year ended Dec 31, 2011
	Amount			Amount

Net cash provided by (used in):
Operating Activities	$	44,948,563		$	7,709,972
Investing Activities		(77,050,831	)		(30,084,978	)
Financing Activities		37,151,786			23,642,852
Effects of exchange rates on cash and equivalents		16,471			40,418
Net increase (in cash and equivalents)	$	5,065,989		$	1,308,264

Cash flows from operating activities:	The year ended Dec 31, 2012			The year ended Dec 31, 2011
	Amount			Amount

Net income	$	23,664,005		$	10,440,337
Depreciation		2,983,086			1,917,747
Short-term investment income		(15,860	)		-
Available-for-sale financial instrument fair value adjustment		-			705
Accounts receivable– third party customers		(10,562,176	)		1,627,853
Accounts receivable– related parties		4,584,509			(3,426,607	)
Other receivables– third parties		6,797,156			(323,246	)
Inventories		2,397,340			(1,848,587	)
Prepaid expenses and other current assets		(194,759	)		(157,077	)
Accounts payable– third party suppliers		(43,377	)		(73,055	)
Accounts payable– related parties		3,060,668			(1,423,494	)
Customer deposits– third parties		(1,160,618	)		771,142
Customer deposits– related parties		12,675,074			-
Other payables and accrued liabilities– third parties		763,515			204,254

Net cash provided by operating activities		44,948,563			7,709,972

Net cash provided by operating activities was $44.9 million for the year ended December 31, 2012, as compared to net cash provided by operating activities of $7.7 million for the year ended December 31, 2011. The major source of cash inflow from operating activities was from net income of $23.7 million and $10.4 million in 2012 and 2011, respectively.

As the aquatic market was quite good during 2012 and the volume of saleable goods owned by Merchant Supreme increased significantly at the same time, the cash gained from selling aquatic goods increased significantly, reflecting in that the accounts receivable and the customer deposits increased $5.5 million. In addition, the vessels in operation increased during 2012 and the cost increased correspondingly. The accounts payable to related parties and third parties increased $3 million.

Investing activities

Net cash used in purchase of property and equipment for the year ended December 31, 2012 was $ 33.7 million, as compared to $7.1 million during 2011. Merchant Supreme used the majority of the cash to purchase vessels and pay for maintenance of vessels. The increase of cash used by investing activities as of the year ended on December 31, 2012 was also due to payment for long-term investment of $2.7 million.

Net cash paid to related parties for the year ended December 31, 2012 was $ 41.5 million, as compared to $21.6 million during 2011.

Financing activities

Net cash provided by financing activities for the year ended December 31, 2012 was $ 37.2 million, as compared to $23.6 million for the year ended December 31, 2011.

For the year ended December 31, 2012, Merchant Supreme received $3.3 million in short-term bank loans and $24.8 million in long-term bank loans. In addition, Merchant Supreme’s borrowings from related parties increased with 9.1 million as of the year ended December 31, 2012, compared to the year ended December 31, 2011.

Contractual Obligations

The following table sets forth a summary of Merchant Supreme’s contractual obligation as of ended December 31, 2012:

(i) Warehouse and Office lease

As of December 31, 2012	< 1 Year		1 – 3 Years		3 – 5 Years		> 5 Years

Warehouse lease	$	94,309	$	-	$	-	$	-

Office lease	$	13,316	$	21,082	$	-	$	-

On May 1, 2012 Merchant Supreme signed a lease contract with Fuzhou Fuxin Industrial Co., Ltd. and rented a warehouse with areas of 2,479 square meters at $9.5 (RMB60) per month per square meter for a leasing period from May 1, 2012 to April 30, 2013.

Merchant Supreme also rented an office located in 17 floor Zhongshan Building Hudong Road No. 154, Fuzhou City from Yun Lin at price of about $1,100(RMB7,000) per month for a leasing period from August 1, 2012 to August 1, 2015.

(ii) Debt obligation

As of December 31, 2012	< 1 Year		1 – 3 Years		3 – 5 Years	> 5 Years
Short-term debt obligations
Short-term bank loans	$	25,169,260
Interest on short-term debt obligations	$	210,484
Long-term debt obligations
Long-term bank loans	$	8,094,308	$	16,689,321
Interest on Long-term debt obligations	$	671,804		1,177,545

Off-Balance Sheet Arrangements

Guarantees and collaterals provided to related parties

In May 2012, Merchant Supreme and Hong Long jointly entered into a pledge contract with Fuzhou Rural-Commercial Bank Jianxin Branch. Pursuant to the terms of the pledge contract, Merchant Supreme put certain fishing vessels as collateral to jointly secure Haoyouli’s short term loan from the financial institution in amount of approximately $3,800,000, which is due May 27, 2013. In addition to the collateral provided to Haoyouli, Merchant Supreme also guaranteed the repayment of the $3,800,000 short-term loan.

In October 2012, Merchant Supreme entered into two pledge contracts with China Minsheng Banking Corp., Ltd. Pursuant to the terms of the pledge contracts, Merchant Supreme put 10 fishing vessels with carrying amount of approximately $9,500,000, as collateral to secure Hong Long’s long-term loans from the financial institution in amount of approximately $10,300,000, which are due April 18, 2015.

As of the issuance date of these financial statements, Merchant Supreme did not receive any demand from the lender that collateralized properties are intended to be disposed of or to make any payments under the guarantee.

In September, 2012, Merchant Supreme provided certain guarantee to Hong Long for its short-term loans from China CITIC Bank Corporation Limited, in amount of approximately $23, 800,000. The short-term loan is due September 21, 2013.

In September 2012, Merchant Supreme provided certain guarantees to Hong Long’s short-term loans from Hua Xia Bank Co., in amount of approximately $3,200,000 and $4,700,000, respectively. These short-term loans are due in installments through April 16, 2013.

In October 2012, Merchant Supreme provided certain guarantees to Hong Long for its short-term loan from Shanghai Pudong Development Corporation Limited, Fuzhou Branch, in amount of approximately $7,900,000, The guaranteed short-term loan is due September 5, 2013.

In December 21, 2012, Merchant Supreme provided certain guarantees to Shenzhen Western Coast Fisherman Pier Co., Ltd. for its short-term loan from China Construction Bank, Shenzhen Branch, in the amount of approximately $31,700,000. The short-term loan is due December 18, 2013.

In December 2012, Merchant Supreme provided certain guarantees to Haoyouli for its short-term loan from Fuzhou Rural-Commercial Bank Jianxin Branch, in the amount of approximately $983,000. The short-term loan is due May 27, 2013.

In January, 2013, Merchant Supreme provided certain guarantees to Shenzhen Western Coast Fisherman Pier Co., Ltd. for its short-term loan from China Construction Bank, Shenzhen Branch, in the amount of approximately $7,930,000. The short-term loan is due December 18, 2013.

As of the issuance date of these financial statements, Merchant Supreme was not required to make any payments under these guarantee agreements.

Properties

The sections of the Definitive Proxy Statement entitled “Information about China Dredging Group Co., Ltd. – Property, Plants and Equipment,” and “Information about CGEI- Facilities” are incorporated herein by reference.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding the beneficial ownership of the Company’s Ordinary Shares as of the Closing by (i) each director and each executive officer of the Company; (ii) all directors and executive officers of the Company as a group; and (iii) each person (including any “group” as that term is used in Section l3(d)(3) of the Exchange Act) who is known by the Company to beneficially own more than five percent of the Company’s Ordinary Shares subject to options or warrants exercisable within 60 days from February 25, 2013 are deemed to be outstanding and beneficially owned for purposes of computing the percentage ownership of the holder of such options or warrants but are not treated as outstanding for purposes of computing the percentage ownership of other persons. The following table does not reflect record or beneficial ownership of the Company’s warrants or underlying shares of the Company’s Ordinary Shares, as these warrants are not exercisable within 60 days of the Closing.

Unless otherwise indicated, the Company believes that all persons named in the table below have sole voting and investment power with respect to all securities that they beneficially own (within the meaning of Rule 13d-3 under the Exchange Act).

	Amount of beneficial ownership of Ordinary Shares(2)			Approximate percentage of outstanding Ordinary Shares

Name and address of beneficial owners

Xuesong Song (1)		4,799,334	(3)		5.8	%

Jin Shi(1)		4,799,334	(3)		5.8	%

Xinrong Zhuo(4)		44,398,868	(5)		56.2	%

Bin Lin(4)		2,163,987	(6)		2.7	%

Lin Bao(4)		-			-

Yeliang Zhou(4)		-			-

Zengbiao Zhu(4)		-			-

Alfred Ho(4)		-			-

All directors and executive officers as a group (8 individuals)		51,362,189			62.1	%

All directors and executive officers as a group

* Represents less than 0.1%

(1) The business address of each of the individuals is CN11 Legend Town, No. 1 Balizhuangdongli, Chaoyang District, Beijing, 100025, PRC.

(2) Assumes no forfeiture of the founder earnout shares.

(3) Represents 1,150,000 shares held by Chum Capital Group Limited, an entity owned entirely by Mr. Xuesong Song and Mr. Jin Shi, and 3,649,334 shares issuable upon exercise of warrants that become exercisable upon consummation of the business combination.

(4) The business address of each of the individuals is Floor 18, Tower A, Zhongshan Building No. 154, Hudong Road, Gulou District, Fuzhou City, Fujian Province 350001, PRC.

(5) Represents 15,780,000 shares held by Heroic Treasure Limited, of which Mr. Zhuo is the controlling shareholder, and 28,079,868 shares held by Mars Harvest Co., Ltd., of which Mr. Zhuo is the sole shareholder and 539,000 shares held by Mr. Zhuo directly.

(6) Represents 2,163,987 shares held by Saturn Glory Co., Ltd, of which Mr. Bin Lin is the sole shareholder.

Directors and Executive Officers

The board of directors of the Company consists of seven members, each of whom will hold office until the next annual meeting or until his successor is duly elected and qualified. There are no family relationships among any of the directors or executive officers.

The executive officers and directors of the Company immediately after the consummation of the Business Combination are as follows:

Name	Age	Position

Xinrong Zhuo	48	Chairman of the Board and Chief Executive Officer

Bin Lin	54	Senior Vice President and Director

Alfred Ho	55	Chief Financial Officer

Lin Bao	51	Director

Yeliang Zhou	63	Director

Zengbiao Zhu	63	Director

Xuesong Song	44	Director

Jin Shi	43	Director

The biographical information of each of the directors and executive officers is as set forth in the section of the Definitive Proxy Statement entitled “CGEI Executive Officers and Directors Upon Completion of Business Combination” and is incorporated herein by reference.

Executive Compensation

The information in the sections of the Definitive Proxy Statement entitled “Compensation of CGEI Executive Officers and Directors —Summary of Compensation of Executive Officers,” “Information about CGEI – Executive Compensation,” “Information about China Dredging Group Co., Ltd. – Compensation of Directors and Executive Officers,” and “CGEI Executive Officers and Directors Upon Completion Of Business Combination – Executive Officer and Director Compensation,” “ CGEI Executive Officers and Directors Upon Completion Of Business Combination – Committees of the CGEI Board - Compensation Committee Information,” “ CGEI Executive Officers and Directors Upon Completion Of Business Combination – Committees of the CGEI Board - Compensation Committee Interlocks and Insider Participation,” and “ CGEI Executive Officers and Directors Upon Completion Of Business Combination – Compensation of the CGEI Board and Executive Officers,” are incorporated herein by reference.

Certain Relationships and Related Transactions, and Director Independence

At present, the board of directors of the Company has determined that each of Yeliang Zhou, Zengbiao Zhu, Xuesong Song, and Jin Shi qualify as “independent directors” within the meaning of Rule 10A-3 promulgated under the Securities Exchange Act of 1934, as amended, and the Sarbanes-Oxley Act of 2002, and Rule 5605 of the Nasdaq Marketplace Rules.

Pursuant to Rule 5615(a)(3) of the Nasdaq Marketplace Rules, because the Company is a foreign based entity, it needs only comply with Cayman Islands’ law, to the extent not contrary to federal securities law, with respect to the composition of its board of directors. Cayman Islands’ law does not require independent directors or an independent audit committee, however, pursuant to Section 10A(m) of the Securities Exchange Act of 1934, as amended, and Section 3 of the Sarbanes-Oxley Act, the Company is required to have an independent audit committee. As Cayman Islands’ law does not require the Company to have independent directors on its board, the Company is not required to comply with Rule 5615(a)(3) of the Nasdaq Marketplace Rules, which requires a Nasdaq-listed company to have a board of directors comprised of a majority of independent directors. The Company is currently in full compliance with the standards imposed by the Securities Exchange Act of 1934 and Sarbanes-Oxley Act of 2002.

Following consummation of the Business Combination, Chum Capital Group, an entity owned entirely by Mr. Xuesong Song and Mr. Jin Shi, owns 3,649,334 warrants to purchase an aggregate of 3,649,334 Company Ordinary Shares (the “Director's Warrants”). The Director's Warrants are identical to the other outstanding warrants to purchase Company's Ordinary Shares, except that the Director's Warrants (i) are non-redeemable, so long as they are held by Chum Capital Group or its affiliates; and (ii) are exercisable on a cashless basis at the election of the holder, so long as they are held by Chum Capital Group, or its affiliates, rather than at the Company's sole discretion; and (iii) are not transferable, assignable or saleable by Chum Capital Group (except to permitted transferees) until 30 days after the Closing.

The information in the sections of the Definitive Proxy Statement entitled “The Business Combination — Interests of Officers and Directors in the Business Combination,” “Information About China Dredging Group Co., Ltd. – Related Party Transactions,” and “Information About CGEI - Certain Relationships, Related Transactions and Director Independence” is incorporated herein by reference.

Legal Proceedings

The information in the sections of the Definitive Proxy Statement entitled “Information About CGEI—Legal Proceedings” and “Information China Dredging Group Co., Ltd.—Legal Proceedings” is incorporated herein by reference.

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

The information in the section of the Definitive Proxy Statement entitled “Market Price and Dividend Information” is incorporated herein by reference. On February 26, 2013, the Company’s Ordinary Shares began trading on The NASDAQ Capital Market under the symbol “PME.”

As of the Closing, there were approximately 5 holders of record of the CGEI’s Ordinary Shares.

Recent Sales of Unregistered Securities

None.

Description of Registrant’s Securities to be Registered

The information in the section of the Definitive Proxy Statement entitled “Description of CGEI Securities” is incorporated herein by reference.

Indemnification of Directors and Officers

The information in the section of the Definitive Proxy Statement entitled “Information About CGEI - Limitation on Liability and Indemnification of Directors and Officers” is incorporated herein by reference.

Financial Statements and Supplementary Data

The information set forth in Item 9.01 hereof is incorporated herein by reference.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Financial Statements

The following financial statements of CDGC and Merchant Supreme included herewith beginning on page F-1 of this Amendment are incorporated herein by reference:

China Dredging Group Co., Ltd.

Report of Independent Registered Public Accounting Firm dated March 28, 2013

Consolidated Balance Sheets at December 31, 2012 and 2011

Consolidated Statements of Income for the Years Ended December 31, 2012, 2011 and 2010

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2011 and 2010

Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2012, 2011 and 2010

Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010

Notes to the Consolidated Financial Statements

Merchant Supreme Co., Ltd.

Report of Independent Registered Public Accounting Firm dated April 1, 2013

Consolidated Balance Sheets at December 31, 2012 and 2011

Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2012 and 2011

Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2012

Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, and 2011

Notes to the Consolidated Financial Statements

The following financial statements are incorporated herein by reference to such statements contained in the Definitive Proxy Statement:

China Dredging Group Co., Ltd.

Report of Independent Registered Public Accounting Firm dated April 27, 2012

Audited

Consolidated Balance Sheets as of December 31, 2011 and 2010

Consolidated Statements of Income for the Years Ended December 31, 2011, 2010 and 2009

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2011, 2010 and 2009

Consolidated Statement of Changes in Shareholders' Equity for the Years Ended December 31, 2011, 2010 and 2009

Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009

Notes to Consolidated Financial Statements

Unaudited

Consolidated Balance Sheets at September 30, 2012 (Unaudited) and December 31, 2011

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2012 and 2011 (Unaudited)

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2012 and 2011 (Unaudited)

Consolidated Statement of Changes in Shareholders' Equity for the Nine Months Ended September 30, 2012 (Unaudited)

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (Unaudited)

Notes to the Consolidated Financial Statements (Unaudited)

Merchant Supreme Co., Ltd. (formerly, Fujian Provincial Pingtan County Ocean Fishing Group Co., Ltd.)

Reports of Independent Registered Public Accounting Firm dated September 28, 2012

Audited

Reports of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2011 and 2010

Statements of Income and Comprehensive Income for the Years Ended December 31, 2011 and 2010

Statement of Changes in Owners’ Equity for the Years Ended December 31, 2011 and 2010

Statements of Cash Flows for the Years Ended December 31, 2011 and 2010

Unaudited

Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011

Statements of Income and Comprehensive Income for the Nine Months Ended September 30, 2012 and 2011 (Unaudited)

Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (Unaudited)

Notes to the Consolidated Financial Statements (Unaudited)

The following pro forma consolidated financial statements included herewith beginning on page F-72 of this Amendment are incorporated herein by reference:

Unaudited Pro Forma Condensed Combined Balance Sheet Data as of December 31, 2012

Unaudited Pro Forma Condensed Combined Statement of Operations Data or the year ended December 31, 2012

Notes to Unaudited Pro Forma Condensed Combined Financial Data

The following pro forma consolidated financial statements are incorporated herein by reference to such statements contained in the Definitive Proxy Statements in the section entitled “Unaudited Pro Forma Condensed Combined Financial Data”:

Unaudited Pro Forma Condensed Combined Balance Sheet Data as of December 31, 2012 (assuming no redemption)

Unaudited Pro Forma Condensed Combined Balance Sheet Data as of December 31, 2012 (assuming max redemption)

Unaudited Pro Forma Condensed Combined Statement of Operations Data for the year ended December 31, 2012 (assuming no redemption)

Unaudited Pro Forma Condensed Combined Statement of Operations Data for the year ended December 31, 2012 (assuming max redemption)

Unaudited Pro Forma Condensed Combined Statement of Operations Data for the Year Ended December 31, 2011 (assuming no redemption)

Unaudited Pro Forma Condensed Combined Statement of Operations Data for the Year Ended December 31, 2011 (assuming max redemption)

Notes to the Unaudited Pro Forma Condensed Combined Financial Data

Item 3.01. Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

On February 25, 2013, in connection with the consummation of the Business Combination, the Company notified The NASDAQ Stock Market LLC (“NASDAQ”) that the Business Combination had become effective and informed NASDAQ that the CGEI units were now automatically separating. As a result, filed a Notification of Removal From Listing and/or Registration under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on Form 25 to notify the Securities and Exchange Commission (the “SEC”) that the CGEI units were to be delisted and deregistered under Section 12(b) of the Exchange Act. As a result of the automatic separation, the trading of the units was permanently suspended prior to the open of trading on February 26, 2013. The deregistration will become effective 10 days from the filing of the Form 25.

On February 27, 2013, the Company also notified NASDAQ that the CGEI warrants should be delisted and deregistered under Section 12(b) of the Exchange Act. As a result, we expect NASDAQ to file Notification of Removal From Listing and/or Registration under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on Form 25 to notify the Securities and Exchange Commission (the “SEC”) that the CGEI warrants were to be delisted and deregistered under Section 12(b) of the Exchange Act. The deregistration will become effective 10 days from the filing of the Form 25.

In accordance with Rule 12g-3(a) under the Exchange Act, the Ordinary Shares of the Company, as the successor to CGEI, are deemed to be registered under Section 12(b) of the Exchange Act. The Company’s Ordinary Shares are currently listed for trading on The NASDAQ Capital Market under the symbol “PME,” subject to confirmation by NASDAQ that the Company satisfies the listing requirement of 300 public shareholders. The warrants to purchase Ordinary Shares of the Company are currently listed for trading on The NASDAQ Capital Market under the symbol “PMEWW” but we expect trading in the warrants to be transitioned to the OTCQB in the near term. The warrants are deemed to be registered under Section 12(g) of the Exchange Act. Following the Closing, the CUSIP numbers relating to the Company’s Ordinary Shares and warrants changed to G7114V 102 and G7114V 110, respectively.

On the effective date of the Business Combination, the outstanding units of CGEI automatically separated into the underlying CGEI Ordinary Shares and CGEI warrants. As a result, the CGEI units are no longer listed on The NASDAQ Capital Market.

Item 5.01. Changes in Control of Registrant.

As a result of the consummation of the Business Combination, the former shareholders of CDGC own approximately 65.8% of the outstanding Company’s Ordinary Shares and the former holders of CGEI’s Ordinary Shares own approximately 2.3% of the outstanding Company’s Ordinary Shares and the former holders of Merchant Supreme’s ordinary shares own approximately 31.6% of the outstanding Company Ordinary Shares

The information set forth in 2.01 above is incorporated herein by reference.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Effective as of the Closing, each of Xuechu He, Teng Zhou, Dongying Sun and Michael W. Zhang resigned as directors of CGEI. Further, Jin Shi resigned as Chief Executive Officer and Xuesong Song resigned as Chief Financial Officer of CGEI.

The information set forth in Item 2.01 above and the section of the Definitive Proxy Statement entitled “CGEI Executive Officers and Directors Upon Completion of Business Combination” is incorporated herein by reference.

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

Upon the Closing of the Business Combination, the Company adopted the Company Amended and Restated Memorandum and Articles of Association, a copy of which is filed hereto as Exhibit 3.1 and incorporated herein by reference.

Item 5.06. Change in Shell Company Status.

The information set forth in Item 2.01 above is incorporated herein by reference.

Item 5.07 Submission of Matters to a Vote of Security Holders.

On February 25, 2013, CGEI held its annual meeting of its shareholders at which CGEI’s shareholders voted on (i) the approval and adoption of the Merger Agreement, (ii) the approval of the share capital increase, (iii) the approval of the name change, (iv) the election of directors and (v) if either the Merger Agreement or the share capital increase were not approved, then the adjournment of the annual general meeting. The final voting results were as follows:

Approval of Merger Agreement

	For			Against			Abstain/Withhold		Broker Non-Votes

Number of votes		5,275,333			337,934			0		0

Percentage of shares outstanding and entitled to vote		84.4	%		5.4	%		*		*

* Less than 1%.

Shares Electing to Exercise Redemption Rights – 4,409,947 (or 88.2% of the public ordinary shares of China Growth Equity Investment Ltd.)

Approval of Share Capital Increase

	For			Against			Abstain/Withhold			Broker Non-Votes

Number of votes		4,550,333			337,934			750,000			0

Percentage of shares outstanding and entitled to vote		72.8	%		5.4	%		12.0	%		*

* Less than 1%.

Approval of Name Change

	For			Against			Abstain/Withhold			Broker Non-Votes

Number of votes		4,550,333			337,934			750,000			0

Percentage of shares outstanding and entitled to vote		72.8	%		5.4	%		12.0	%		*

* Less than 1%.

Election of Directors

i) Dongying Sun

	For			Against			Abstain/Withhold			Broker Non-Votes

Number of votes		4,550,333			337,934			750,000			0

Percentage of shares outstanding and entitled to vote		72.8	%		5.4	%		12.0	%		*

* Less than 1%.

i) Michael W. Zhang

	For			Against			Abstain/Withhold			Broker Non-Votes

Number of votes		4,440,333			447,934			725,000			0

Percentage of shares outstanding and entitled to vote		72.8	%		7.2	%		12.0	%		*

* Less than 1%.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

Financial Statements

The following financial statements of CDGC and Merchant Supreme included herewith beginning on page F-1 of this Amendment are incorporated herein by reference:

China Dredging Group Co., Ltd.

Report of Independent Registered Public Accounting Firm dated March 28, 2013

Consolidated Balance Sheets at December 31, 2012 and 2011

Consolidated Statements of Income for the Years Ended December 31, 2012, 2011 and 2010

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2011 and 2010

Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2012, 2011 and 2010

Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010

Notes to the Consolidated Financial Statements

Merchant Supreme Co., Ltd.

Report of Independent Registered Public Accounting Firm dated April 1, 2013

Consolidated Balance Sheets at December 31, 2012 and 2011

Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2012 and 2011

Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2012

Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, and 2011

Notes to the Consolidated Financial Statements

The following financial statements are incorporated herein by reference to such statements contained in the Definitive Proxy Statement:

China Dredging Group Co., Ltd.

Report of Independent Registered Public Accounting Firm dated April 27, 2012

Audited

Consolidated Balance Sheets as of December 31, 2011 and 2010

Consolidated Statements of Income for the Years Ended December 31, 2011, 2010 and 2009

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2011, 2010 and 2009

Consolidated Statement of Changes in Shareholders' Equity for the Years Ended December 31, 2011, 2010 and 2009

Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009

Notes to Consolidated Financial Statements

Unaudited

Consolidated Balance Sheets at September 30, 2012 (Unaudited) and December 31, 2011

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2012 and 2011 (Unaudited)

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2012 and 2011 (Unaudited)

Consolidated Statement of Changes in Shareholders' Equity for the Nine Months Ended September 30, 2012 (Unaudited)

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (Unaudited)

Notes to the Consolidated Financial Statements (Unaudited)

Merchant Supreme Co., Ltd. (formerly, Fujian Provincial Pingtan County Ocean Fishing Group Co., Ltd.)

Reports of Independent Registered Public Accounting Firm dated September 28, 2012

Audited

Reports of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2011 and 2010

Statements of Income and Comprehensive Income for the Years Ended December 31, 2011 and 2010

Statement of Changes in Owners’ Equity for the Years Ended December 31, 2011 and 2010

Statements of Cash Flows for the Years Ended December 31, 2011 and 2010

Unaudited

Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011

Statements of Income and Comprehensive Income for the Nine Months Ended September 30, 2012 and 2011 (Unaudited)

Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (Unaudited)

Notes to the Consolidated Financial Statements (Unaudited)

(b) Pro Forma Financial Information.