UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2021

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

For the transition period from __________ to __________

COMMISSION FILE NUMBER: 001-35192

PINGTAN MARINE ENTERPRISE LTD.

(Exact name of Registrant as specified in its charter)

Cayman Islands		N/A
(State or other jurisdiction of		(I.R.S. Employer
incorporation of organization)		Identification No.)

18-19/F, Zhongshan Building A,

No. 154 Hudong Road

Fuzhou, China 350001

(Address of principal executive offices)

(86) 591-8727-1266

(Registrant’s telephone number, including area code)

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Ordinary Shares, $0.001 par value		PME		The NASDAQ Capital Market

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

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of October 15, 2021, the outstanding number of the registrant’s ordinary shares, par value $0.001 per share, was 85,940,965.

PINGTAN MARINE ENTERPRISE LTD.

FORM 10-Q

June 30, 2021

TABLE OF CONTENTS

		Page No.
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020	1
	Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2021 and 2020	2
	Unaudited Consolidated Statement of Changes in Shareholders’ Equity for the Three Months Ended March 31 and June 30, 2021	3
	Unaudited Consolidated Statement of Changes in Shareholders’ Equity for the Three Months Ended March 31 and June 30, 2020	4
	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020	5
	Condensed Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4	Controls and Procedures	43

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	46

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.

Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, the impact of the coronavirus (COVID-19) on the Company’s financial condition, business operations and liquidity; the impact of COVID-19 on our customers and distributors; anticipated growth and growth strategies; need for additional capital and the availability of financing; conducting fishing operations and locating or re-locating vessels, in foreign waters and related license requirements; actions taken by government regulators, such as the Indonesian moratorium, or reports or allegations of illegal activity by us, related parties or those with which we conduct business; operational, mechanical, climatic or other unanticipated issues that adversely affect the production capacity of the Company’s vessels; delays in deploying vessels; our ability to successfully manage relationships with customers, distributors and other important relationships; technological changes; competition; demand for our products and services; the deterioration of general economic conditions, whether internationally, nationally or in the local markets in which we operate; legislative or regulatory changes that may adversely affect our business; and those specifically addressed under the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

Unless otherwise indicated, references in this report to “we,” “us” or the “Company” refer to Pingtan Marine Enterprise Ltd. and its subsidiaries.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

PINGTAN MARINE ENTERPRISE LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN U.S. DOLLARS)

	June 30,			December 31,
	2021			2020
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,197,774		$	691,933
Restricted cash		13,049,278			9,912,666
Accounts receivable, net		28,744,557			31,946,561
Inventories, net		77,137,207			67,611,136
Prepaid expenses		671,141			170,706
Prepaid expenses - related party		7,461			2,015,357
Other receivables		879,740			1,901,094

Total Current Assets		122,687,158			114,249,453

OTHER ASSETS:
Cost method investment		3,250,724			3,218,440
Equity method investment		29,530,620			29,689,813
Prepayment for long-term assets		113,020,953			66,083,041
Right-of-use asset		624,918			64,220
Property, plant and equipment, net		267,194,143			250,155,011

Total Other Assets		413,621,358			349,210,525

Total Assets	$	536,308,516		$	463,459,978

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	40,823,267		$	18,792,983
Accounts payable - related parties		6,699,316			9,966,708
Short-term bank loans		55,726,692			52,414,596
Long-term bank loans - current portion		50,703,774			39,987,577
Accrued liabilities and other payables		19,079,744			12,151,633
Lease liability- current		368,984			32,349
Due to related parties		1,468,354			18,354

Total Current Liabilities		174,870,131			133,364,200

OTHER LIABILITIES:
Lease liability		223,462			-
Long-term bank loans - non-current portion		283,236,129			245,116,088

Total Liabilities		458,329,722			378,480,288

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY:
Equity attributable to owners of the Company:
Preferred shares ($0.001 par value; 5,000,000 shares and 0 shares authorized; no shares issued and outstanding at June 30, 2021 and December 31, 2020)		-			-
Ordinary shares ($0.001 par value; 125,000,000 shares authorized; 85,940,965 and 79,302,428 shares issued and outstanding at June 30, 2021 and December 31, 2020)		85,941			79,302
Additional paid-in capital		88,678,870			82,045,993
Retained earnings		(30,375,020	)		(18,594,755	)
Statutory reserve		15,751,712			15,751,712
Accumulated other comprehensive loss		(10,532,713	)		(9,568,873	)
Total equity attributable to owners of the Company		63,608,790			69,713,379
Non-controlling interest		14,370,004			15,266,311

Total Shareholders’ Equity		77,978,794			84,979,690

Total Liabilities and Shareholders’ Equity	$	536,308,516		$	463,459,978

See notes to consolidated financial statements.

PINGTAN MARINE ENTERPRISE LTD. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(IN U.S. DOLLARS)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2021			2020			2021			2020

REVENUE	$	36,865,155		$	23,463,133		$	65,172,293		$	40,770,133

COST OF REVENUE		31,811,671			21,299,920			66,365,166			32,854,363

GROSS PROFIT (LOSS)		5,053,484			2,163,213			(1,192,873	)		7,915,770

OPERATING EXPENSES:
Selling		1,592,906			1,046,519			3,136,795			1,948,170
General and administrative		1,963,909			795,332			3,732,007			2,065,475
General and administrative - depreciation		72,568			789,334			144,854			1,500,767
Subsidy		(1,573,977	)		(564,095	)		(3,603,797	)		(8,338,088	)
Impairment loss		491,320			-			975,366			-

Total Operating Expenses		2,546,726			2,067,090			4,385,225			(2,823,676	)

INCOME (LOSS) FROM OPERATIONS		2,506,758			96,123			(5,578,098	)		10,739,446

OTHER INCOME (EXPENSE):
Interest income		21,322			1,162,486			49,453			2,362,612
Interest expense		(3,864,778	)		(2,936,529	)		(7,664,914	)		(5,835,425	)
Foreign currency transaction gain (loss)		1,099,954			21,718			549,661			(344,691	)
Gain from cost method investment		605,178			132,753			605,178			132,753
Loss on equity method investment		(244,313	)		(143,015	)		(456,180	)		(268,543	)
Other income (expense)		(76,958	)		5,084			(76,856	)		(30,456	)

Total Other Expense, net		(2,459,595	)		(1,757,503	)		(6,993,658	)		(3,983,750	)

INCOME (LOSS) BEFORE INCOME TAXES		47,163			(1,661,380	)		(12,571,756	)		6,755,696

INCOME TAXES		-			-			-			-

NET INCOME (LOSS)	$	47,163		$	(1,661,380	)	$	(12,571,756	)	$	6,755,696

LESS: NET INCOME (LOSS) ATTRIBUTABLE TO THE NON-CONTROLLING INTEREST		140,979			(85,370	)		(831,491	)		667,016

NET (LOSS) INCOME ATTRIBUTABLE TO ORDINARY SHAREHOLDERS OF THE COMPANY BEFORE PREFERRED DIVIDENDS		(93,816	)		(1,576,010	)		(11,740,265	)		6,088,680
LESS: PREFERRED SHARE DIVIDENDS		(40,000	)		-			(300,000	)		-
NET (LOSS) INCOME ATTRIBUTABLE TO ORDINARY SHAREHOLDERS OF THE COMPANY	$	(133,816	)	$	(1,576,010	)	$	(12,040,265	)	$	6,088,680

COMPREHENSIVE INCOME (LOSS):
NET INCOME (LOSS)		47,163			(1,661,380	)		(12,571,756	)		6,755,696
OTHER COMPREHENSIVE (LOSS) INCOME
Unrealized foreign currency translation gain (loss)		437,211			(166,176	)		(1,028,656	)		(1,854,615	)
COMPREHENSIVE (LOSS) INCOME		484,374			(1,827,556	)		(13,600,412	)
LESS: COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE NON-CONTROLLING INTEREST		183,687			(98,734	)		(896,307	)		518,480
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO ORDINARY SHAREHOLDERS OF THE COMPANY	$	300,687		$	(1,728,822	)	$	(12,704,105	)	$	4,382,601

NET (LOSS) INCOME PER ORDINARY SHARE ATTRIBUTABLE TO ORDINARY SHAREHOLDERS OF THE COMPANY
Basic	$	(0.00	)	$	(0.02	)	$	(0.14	)	$	0.08
Diluted	$	(0.00	)	$	(0.02	)	$	(0.14	)	$	0.08

WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING:
Basic		86,389,548			79,055,053			83,854,623			79,055,053
Diluted		86,797,148			79,055,053			83,854,623			79,055,053

See condensed notes to unaudited consolidated financial statements

PINGTAN MARINE ENTERPRISE LTD. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JUNE 30, 2021 AND 2020

(IN U.S. DOLLARS)

	Equity Attributable To Owners of The Company
	Preferred shares						Ordinary Shares						Additional								Accumulated Other			Non-			Total
	Number of						Number of						Paid-in			Retained			Statutory		Comprehensive			controlling			Shareholders’
	Shares			Amount			Shares			Amount			Capital			Earnings			Reserve		Loss			Interest			Equity

Balance, March 31, 2021 (Unaudited)		1,045,466		$	1,045			86,153,061		$	86,153		$	90,087,612		$	(30,241,204	)	$	15,751,712	$	(10,927,216	)	$	14,186,317		$	78,944,419

Net income		-			-			-			-			-			(93,816	)		-		-			140,979			47,163

Conversion of preferred shares into ordinary shares		(454,544	)		(454	)		538,052			538			(84	)													-

Conversion of dividend payable for preferred shares into ordinary shares								43,044			43			39,957			(40,000	)										-

Repurchase of preferred shares		(590,922	)		(591	)		(793,192	)		(793	)		(1,448,616	)		-			-		-			-			(1,450,000	)

Foreign currency translation adjustment		-			-			-			-			-			-			-		394,503			42,708			437,211

Balance, June 30, 2021 (Unaudited)		-		$	-			85,940,965		$	85,941		$	88,678,870		$	(30,375,020	)	$	15,751,712	$	(10,532,713	)	$	14,370,004		$	77,978,794

Balance, March 31, 2020 (Unaudited)		-		$	-			79,055,053		$	79,055		$	81,682,599		$	61,951,144		$	15,748,751	$	(17,634,175	)	$	19,979,119		$	161,806,493

Net loss		-			-			-			-			-			(1,576,010	)		-		-			(85,370	)		(1,661,380	)

Foreign currency translation adjustment		-			-			-			-			-			-			-		(152,812	)		(13,364	)		(166,176	)

Balance, June 30, 2020 (Unaudited)		-		$	-			79,055,053		$	79,055		$	81,682,599		$	60,375,134		$	15,748,751	$	(17,786,987	)	$	19,880,385		$	159,978,937

See condensed notes to unaudited consolidated financial statements

PINGTAN MARINE ENTERPRISE LTD. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

(IN U.S. DOLLARS)

	Equity Attributable To Owners of The Company
	Preferred shares						Ordinary Shares						Additional								Accumulated Other			Non-			Total
	Number of						Number of						Paid-in			Retained			Statutory		Comprehensive			controlling			Shareholders’
	Shares			Amount			Shares			Amount			Capital			Earnings			Reserve		Loss			Interest			Equity

Balance, December 31, 2020		-		$	-			79,302,428		$	79,302		$	82,045,993		$	(18,594,755	)	$	15,751,712	$	(9,568,873	)	$	15,266,311		$	84,979,690

Net loss		-			-			-			-			-			(11,740,265	)		-		-			(831,491	)		(12,571,756	)

Issue of series A preferred shares		4,000,000			4,000									3,694,273			-			-		-			-			3,698,273

Issue of ordinary shares								3,625,954			3,626			4,347,617														4,351,243

Dividend payments for preferred shares								295,218			295			299,705			(300,000	)

Converted Series A Preferred Shares into ordinary shares		(3,409,078	)		(3,409	)		3,510,557			3,511			(102	)		-			-		-			-			-

Repurchase of Preferred Shares		(590,922	)		(591	)		(793,192	)		(793	)		(1,448,616	)													(1,450,000	)

Foreign currency translation adjustment		-			-			-			-			-			-			-		(963,840	)		(64,816	)		(1,028,656	)

Balance, June 30, 2021 (Unaudited)		-		$	-			85,940,965		$	85,941		$	88,638,870		$	(30,335,020	)	$	15,751,712	$	(10,532,713	)	$	14,370,004		$	77,978,794

Balance, December 31, 2019		-		$	-			79,055,053		$	79,055		$	81,682,599		$	54,286,454		$	15,748,751	$	(16,080,908	)	$	19,361,905		$	155,077,856

Net income		-			-			-			-			-			6,088,680			-		-			667,016			6,755,696

Foreign currency translation adjustment		-			-			-			-			-			-			-		(1,706,079	)		(148,536	)		(1,854,615	)

Balance, June 30, 2020 (Unaudited)		-		$	-			79,055,053		$	79,055		$	81,682,599		$	60,375,134		$	15,748,751	$	(17,786,987	)	$	19,880,385		$	159,978,937

See condensed notes to unaudited consolidated financial statements

PINGTAN MARINE ENTERPRISE LTD. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN U.S. DOLLARS)

	For the Six Months Ended June 30,
	2021			2020

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(12,571,756	)	$	6,755,696
Adjustments to reconcile net income from operations to net cash provided by operating activities:
Depreciation		7,192,857			6,672,732
Bad debt expense		510,358			57,205
(Decrease) increase in inventory allowance		(5,682,073	)		2,000,619
Loss on equity method investment		143,015			268,543
Impairment loss of fishing vessels		975,366			-
Changes in operating assets and liabilities:
Accounts receivable		3,005,729			(3,567,172	)
Inventories		(3,149,808	)		(28,703,844	)
Prepaid expenses		(499,082	)		587,974
Prepaid expenses - related party		2,024,445
Other receivables		1,038,544			387,716
Accounts payable		21,802,289			9,592,030
Accounts payable - related parties		(3,361,279	)		688,894
Accrued liabilities and other payables		6,794,010			320,455
Due to related parties		127,597			(323,577	)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		18,350,212			(5,262,729	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(22,687,255	)		(85,240,006	)
Prepayment made for long-term assets		(46,191,388	)		-
Proceeds from government grants for fishing vessel construction		-			20,893,357

NET CASH USED IN INVESTING ACTIVITIES		(68,878,643	)		(64,346,649	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of short-term bank loans		44,809,790			81,343,591
Repayments of short-term bank loans		(42,028,493	)		-
Proceeds from long-term bank loans		68,956,984			76,076,167
Repayments of long-term bank loans		(23,063,682	)		(14,611,982	)
Proceeds from issuance of ordinary shares		4,351,243
Proceeds from issuance of series A preferred shares		3,698,273			-
Proceeds from related party		1,450,000
Repurchase of preferred shares		(1,450,000	)
Advance to related party-HL		-			(69,423,710	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		56,724,115			73,384,066

EFFECT OF EXCHANGE RATE ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(1,553,231	)		309,238

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		4,642,453			4,083,926

CASH, CASH EQUIVALENTS AND RESTRICTED CASH - beginning of period		10,604,599			10,092,205

CASH, CASH EQUIVALENTS AND RESTRICTED - end of period	$	15,247,052		$	14,176,131

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	8,640,280		$	6,750,422
Income taxes	$	-		$	-

RECONCILIATION TO AMOUNTS ON CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents		2,197,774			3,405,523
Restricted cash		13,049,278			10,770,608
TOTAL CASH, CASH EQUIVALENTS AND RESTRICTED CASH	$	15,247,052		$	14,176,131
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of property and equipment by decreasing prepayment for long-term assets	$	(46,191,388	)	$	(15,731,909	)

See condensed notes to unaudited consolidated financial statements

PINGTAN MARINE ENTERPRISE LTD. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN U.S. DOLLARS)
JUNE 30, 2021

NOTE 1 – DESCRIPTION OF BUSINESS AND ORGANIZATION

Pingtan Marine Enterprise Ltd. (the “Company” or “PME”), formerly China Growth Equity Investment Limited (“CGEI”), incorporated in the Cayman Islands as an exempted limited liability company, was incorporated as a blank check company on January 18, 2010 with the purpose of directly or indirectly acquiring, through a merger, share exchange, asset acquisition, plan of arrangement, recapitalization, reorganization or similar business combination, an operating business, or control of such operating business through contractual arrangements, that has its principal business and/or material operations located in the People’s Republic of China (“PRC”). In connection with its initial business combination, in February 2013, CGEI changed its name to Pingtan Marine Enterprise Ltd.

On October 24, 2012, CGEI and China Dredging Group Co., Ltd (“CDGC” or “China Dredging”) entered into a Merger Agreement providing for the combination of CGEI and CDGC and on October 24, 2012, CGEI also acquired all of the outstanding capital shares and other equity interests of Merchant Supreme Co., Ltd. (“Merchant Supreme”), a company incorporated on June 25, 2012, in the British Virgin Islands (“BVI”), as per a Share Purchase Agreement. On February 25, 2013, the merger between the Company, CDGC and Merchant Supreme became effective and has been accounted for as a “reverse merger” and recapitalization since the common shareholders of CDGC and Merchant Supreme (i) owned a majority of the outstanding ordinary shares of the Company immediately following the completion of the transaction, and (ii) have significant influence and the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity. In accordance with the provision of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805-40, CDGC and Merchant Supreme are deemed the accounting acquirers and the Company is the legal acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of the Company. Accordingly, the assets and liabilities and the historical operations that are reflected in the consolidated financial statements are those of CDGC, Merchant Supreme and their subsidiaries and are recorded at the historical cost basis. The Company’s assets, liabilities and results of operations were consolidated with the assets, liabilities, and results of operations of CDGC, Merchant Supreme and their subsidiaries after the acquisition date of February 25, 2013. Following the completion of the business combination which became effective on February 25, 2013, CDGC and Merchant Supreme became the wholly-owned subsidiaries of the Company. The Company’s ordinary shares, par value $0.001 per share, are listed on The NASDAQ Capital Market under the symbol “PME”.

In order to place increased focus on the fishing business and pursue more effective growth opportunities, the Company decided to exit and sell the specialized dredging services operated by China Dredging. The Company completed the sale of CDGC and its subsidiaries on December 4, 2013.

On February 9, 2015, the Company terminated its existing Variable Interest Entity (“VIE”) agreements, pursuant to an Agreement of Termination dated February 9, 2015, entered into by and among Ms. Honghong Zhuo, Mr. Zhiyan Lin (each a shareholder of Fujian Provincial Pingtan County Ocean Fishing Group Co., Ltd (“Pingtan Fishing”), and together the “Pingtan Fishing’s Shareholders”), Pingtan Fishing and Pingtan Guansheng Ocean Fishing Co., Ltd. (“Pingtan Guansheng”). On February 9, 2015, the Pingtan Fishing’s Shareholders transferred 100% of their equity interest in Pingtan Fishing to Fujian Heyue Marine Fishing Development Co., Ltd. (“Fujian Heyue”), pursuant to an Equity Transfer Agreement dated February 9, 2015, entered into by and among the Pingtan Fishing’s Shareholders, Pingtan Fishing and Fujian Heyue. On February 15, 2015, China Agriculture Industry Development Fund Co., Ltd. (“China Agriculture”) invested RMB 400 million (approximately $65 million) into Pingtan Fishing for an 8% equity interest in Pingtan Fishing. After the restructuring transactions described above, Pingtan Fishing and its entities became the 92% equity-owned subsidiaries of the Company and was no longer a VIE.

PINGTAN MARINE ENTERPRISE LTD. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN U.S. DOLLARS)
JUNE 30, 2021

NOTE 1 – DESCRIPTION OF BUSINESS AND ORGANIZATION (continued)

Details of the Company’s subsidiaries which are included in these consolidated financial statements as of June 30, 2021, are as follows:

Name of subsidiaries	Place and date of incorporation	Percentage of ownership	Principal activities
Merchant Supreme Co., Ltd. (“Merchant Supreme”)	BVI, June 25, 2012	100% held by PME	Intermediate holding company

Prime Cheer Corporation Ltd. (“Prime Cheer”)	Hong Kong, May 3, 2012	100% held by Merchant Supreme	Intermediate holding company

Pingtan Guansheng Ocean Fishing Co., Ltd. (“Pingtan Guansheng”)	PRC, October 12, 2012	100% held by Prime Cheer	Intermediate holding company

Fujian Heyue Marine Fishing Development Co., Ltd. (“Fujian Heyue”)	PRC, January 27, 2015	100% held by Pingtan Guansheng	Intermediate holding company

Fujian Provincial Pingtan County Fishing Group Co., Ltd. (“Pingtan Fishing”)	PRC, February 27, 1998	92% held by Fujian Heyue	Oceanic fishing

Pingtan Dingxin Fishing Information Consulting Co., Ltd. (“Pingtan Dingxin”)	PRC, October 23, 2012	100% held by Pingtan Fishing	Dormant

Pingtan Yikang Global Fishery Co., Ltd. (“Yikang Fishery”)	PRC, September 14, 2017	100% held by Pingtan Fishing	Dormant

Pingtan Shinsilkroad Fishery Co., Ltd. (“Shinsilkroad Fishery”)	PRC, September 14, 2017	100% held by Pingtan Fishing	Dormant

Fuzhou Howcious Investment Co., Ltd (“Howcious Investment”)	PRC, September 5, 2017	100% held by Pingtan Fishing	Dormant

Pingtan Ocean Fishery Co., Ltd (“Ocean Fishery”)	PRC, July 21, 2017	100% held by Pingtan Fishing	Dormant

PINGTAN MARINE ENTERPRISE LTD. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN U.S. DOLLARS)
JUNE 30, 2021

NOTE 1 – DESCRIPTION OF BUSINESS AND ORGANIZATION (continued)

Fujian Heyue, through its PRC subsidiary, Pingtan Fishing, engages in ocean fishing with its owned and controlled vessels within the Indian Exclusive Economic Zone, the international waters and Arafura Sea of Indonesia.

The Company had a working capital deficit of $52,182,973 as of June 30, 2021. In order to mitigate its liquidity risk, the Company plans to rely on the proceeds from loans from banks and/or financial institutions to increase working capital in order to meet capital demands, and the government subsidies for modification and rebuilding project and reimbursement of certain operating expenses. In addition, Mr. Zhuo, the Chief Executive Officer and Chairman of the Board, will continue to provide financial support to the Company when necessary.

The Company meets its day-to-day working capital requirements through cash flow provided by operations, bank loans and related parties’ advances. The Indonesian government’s moratorium on fishing licenses renewals creates uncertainty over fishing operations in Indonesian waters. The Company’s forecasts and projections show that the Company has adequate resources to continue in operational existence to meet its obligations in the twelve months following the date of this filing, considering operations in Indian waters and international waters and consideration of opportunities in new fishing territories. Also, in the recent years, the Company has upgraded 57 fishing vessels and 3 transport vessels, the deployment of these vessels into operation will generate more revenue and cash inflows to the Company. In addition, the Company receives subsidies for modification and rebuilding projects and is reimbursed for certain operating expenses from government entities, as an encouragement of the development of ocean fishing industry.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

These interim consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim consolidated financial statements have been included. The results reported in the unaudited consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”).

The Company’s unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on October 13, 2021.

Use of estimates

The preparation of the unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates in the three and six months ended June 30, 2021 and 2020 include allowance for doubtful accounts, reserve for inventories, the useful life of property, plant and equipment, assumptions used in assessing impairment of long-term assets and valuation of deferred tax assets and accruals for taxes due.

PINGTAN MARINE ENTERPRISE LTD. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN U.S. DOLLARS)
JUNE 30, 2021

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash

Cash consists of cash on hand and cash in banks. The Company maintains cash with various financial institutions in the PRC and Hong Kong. At June 30, 2021 and December 31, 2020, cash balances in the PRC were $2,080,745 and $468,273, respectively, and cash balances in Hong Kong were $117,029 and $223,660, respectively, and are uninsured. The Company has not experienced any losses in bank accounts and believes it is not exposed to any risks on its cash in bank accounts.

Restricted cash

Restricted cash consists of cash deposits held by the Export Import Bank of China to secure its bank loans and Hong Long’s short-term bank loans. At June 30, 2021 and December 31, 2020, restricted cash amounted to $13,049,278 and $9,912,666, respectively.

Fair value of financial instruments

The Company utilizes the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, an

SEC Form 10-Q filed by Pingtan Marine Enterprise Ltd.