Annual report pursuant to Section 13 and 15(d)

Description of Business and Organization

v3.21.2
Description of Business and Organization
12 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
DESCRIPTION OF BUSINESS AND ORGANIZATION

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 subsequent to 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 Chinese Renmibi (“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.

 

Details of the Company’s subsidiaries, which are included in these consolidated financial statements as of December 31, 2020, 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

  

Fujian Heyue, through its PRC subsidiary, Pingtan Fishing, engages in ocean fishing with its owned and controlled vessels within the Indian Exclusive Economic Zone (“EEZ”), and the international waters.

 

Going Concern Consideration, Liquidity and Capital Resources

 

The Company has a working capital deficit of $19,114,747 as of December 31, 2020. 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 projects 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. From January to September 2021, we received $44.4 million from short-term bank loan, $77.2 million from long-term bank loan, and $19.0 million from government subsidy, with the majority of the bank loan received are for funding working capital. In the same period, we repaid $84.8 bank loans. Hence we believe we have enough resources to operate for at least the next 12 months.

 

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 license 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 past two years, the Company has upgraded 51 fishing vessels and 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.

 

Considerations related to COVID-19

 

In December 2019, a novel strain of coronavirus (COVID-19) surfaced in the PRC. In reaction to this outbreak, many provinces and municipalities in the PRC activated the highest Level-I Response to the emergency public health incident. As a result, business activities in the PRC were significantly affected.

 

Emergency quarantine measures and travel restrictions have had a significant impact on many sectors across the PRC, which has also adversely affected the Company’s operations. To reduce the impact on its production and operation, the Company implemented certain safety measures to allow them to gradually resume work in mid-February. For the employees who left Fuzhou during the Spring Festival holiday and could not return to Fuzhou as scheduled, or those who could only resume work after satisfying the 14-day quarantine requirement, the Company provided paid leave. Since resuming work in mid-February, the Company has been using a shift system and adopted additional health and safety procedures to protect their employees. With these measures, the Company was able to maintain sales and operations from mid-February to mid-March. On March 23, 2020, the Company resumed normal operations and is conducting business as usual with health and safety procedures to protect employees. Management is focused on mitigating the effects of COVID-19 on the Company’s business operations while protecting the employees’ health and safety. The Company will continue to actively monitor the situation and may take further actions that alter the business operations, as may be required by local authorities, or that the Company determines are in the best interests of its employees, customers, partners, suppliers and other stakeholders.

 

Some of the Company’s customers are fish processing plants that export processed fish products to foreign countries. These customers reduced or postponed their purchases from the Company in the initial stage of the pandemic, but since the middle of the second quarter of 2020, they have adjusted their business strategies in relation to exportation or domestic sales. Because of the reduction or postponement, our unit selling prices decreased, our inventory levels increased and our accounts receivable were not timely paid as anticipated.

 

The COVID-19 pandemic continues to cause major disruptions to businesses and markets worldwide as the virus spreads or the resurgence in certain jurisdictions. The effects of the pandemic are still evolving, and the ultimate severity and duration and the implications on global economic conditions remains uncertain. Therefore, the extent of the impact of the pandemic on the Company’s financial condition and results of operations is still highly uncertain and will depend on future developments, such as the ultimate duration and scope of the outbreak, its impact on the Company’s customers and exporters, how quickly normal economic conditions, operations, and the demand for the Company’s products can resume and whether the pandemic leads to recessionary conditions in the PRC.

 

While the Company anticipates that its results of operations will continue to be impacted by this pandemic in 2021, the Company is unable to reasonably estimate the extent of the impact on its full-year results of operations, its liquidity or its overall financial position.