Quarterly report pursuant to sections 13 or 15(d)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

v2.4.0.8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Jun. 30, 2013
Accounting Policies [Abstract]  
Basis of Presentation and Significant Accounting Policies [Text Block]
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 
(a)
Basis of presentation
 
  These interim consolidated financial statements of the Company and its subsidiaries and variable interest entities (each, a “VIE”, and together with the Company and its subsidiaries, the “Group”) 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 consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year.  The accompanying 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 unaudited consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and VIEs in which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated. The consolidated financial statements of the Company have been prepared as if the existing corporate structure had been in existence throughout the periods presented and as if the reorganization had occurred as of the beginning of the earliest period presented.
 
 
(b)
Consolidation of VIE
 
  The Company has no direct or indirect legal or equity ownership interest in Pingtan Fishing and it only owes 50% equity interest in Fujian Service.  However, through the VIE Agreements between Fujian Wanggang and the shareholders of Wonder Dredging, the shareholders of Wonder Dredging have assigned all their rights as shareholders, including voting rights and disposition rights of their equity interests in Wonder Dredging and Fujian Service to Fujian Wanggang, our direct, wholly-owned subsidiary.  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.
 
 Another set of VIE agreements have been entered between Pingtan Guansheng and the shareholders of Pingtan Fishing. The shareholders of Pingtan Fishing also have assigned all their rights as shareholders, including voting rights and disposition rights of their equity interest Pingtan Fishing to Pingtan Guanshen, our direct, wholly-owned subsidiary.  Accordingly, by virtue of the VIE Agreements, Pingtan Guansheng is the primary beneficiary of Pingtan Fishing as defined by ASC 810 “Consolidation of Variable Interest Entities”.  Therefore we consolidate Pingtan Fishing as VIE.
 
 In accordance with Accounting Standards Codification (“ASC”) 810-10-15-14, Fujian Service, Wonder Dredging and Pingtan Fishing are deemed VIEs for two reasons.  First, the equity stockholders of these companies do not significantly enjoy the benefits of income or suffer the consequences of losses.  Second, the equity stockholders of these companies do not possess the direct or indirect ability through voting or similar rights to make decisions regarding their activities that have a significant effect on the success of the companies. Therefore, in accordance with ASC 810-10-25-38A, the Company is deemed to be the primary beneficiary of these companies and the financial statements of these companies are consolidated in the Company’s consolidated financial statements.
 
 The following tables show the assets and liabilities of the Company’s VIEs after eliminating the intercompany balances as of June 30, 2013 and December 31, 2012.  The VIEs include Wonder Dredging, Fujian Service and Pingtan Fishing Group which comprises of Pingtan Fishing itself and the three subsidiaries; namely Pingtan Dingxin, Pingtan Duoying and Pingtan Ruiying. The creditors of Wonder Dredging, Fujian Service and Pingtan Fishing Group do not have recourse against the general creditors of their primary beneficiaries or other Group members.
 
 
 
June 30, 2013 (Unaudited)
 
 
 
Wonder
 
Fujian
 
Pingtan Fishing
 
 
 
Dredging
 
Service
 
Group
 
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash
 
$
6,992
 
$
16,879,547
 
$
455,104
 
Accounts receivable - third parties
 
 
-
 
 
14,297,260
 
 
4,306,262
 
Cost and estimated earnings in excess of
    billings on contracts in progress
 
 
-
 
 
8,341,705
 
 
-
 
Other receivables
 
 
-
 
 
2,919
 
 
7,659,717
 
Advance to related parties
 
 
-
 
 
-
 
 
8,226
 
Inventories
 
 
-
 
 
5,104,738
 
 
2,239,590
 
Prepaid dredger deposits
 
 
-
 
 
2,444,032
 
 
-
 
Prepaid fishing vessel deposits
 
 
-
 
 
-
 
 
410,017,680
 
Security deposits
 
 
-
 
 
18,607,228
 
 
-
 
Long-term investment
 
 
-
 
 
-
 
 
3,421,644
 
Property, plant and equipment, net
 
 
-
 
 
41,812,940
 
 
51,573,980
 
 
 
$
6,992
 
$
107,490,369
 
$
479,682,203
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
Accounts payable - third parties
 
$
-
 
$
3,505,737
 
$
2,703,021
 
Receipt in advance - third parties
 
 
-
 
 
-
 
 
360,726
 
Short-term loans
 
 
-
 
 
-
 
 
20,144,510
 
Income tax payable
 
 
-
 
 
5,062,545
 
 
-
 
Accrued liabilities and other payables
 
 
-
 
 
2,202,403
 
 
10,120,061
 
Advance from related parties
 
 
4,888,063
 
 
-
 
 
155,388,195
 
Deferred income
 
 
-
 
 
-
 
 
9,522,925
 
Long-term loans
 
 
-
 
 
-
 
 
23,576,759
 
 
 
$
4,888,063
 
$
10,770,685
 
$
221,816,197
 
 
 
 
December 31, 2012
 
 
 
Wonder
 
Fujian
 
Pingtan Fishing
 
 
 
Dredging
 
Service
 
Group
 
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash
 
$
7,232
 
$
164,323,611
 
$
6,710,472
 
Notes receivable (banker's acceptances)
    transferred from related parties
 
 
-
 
 
-
 
 
3,645,817
 
Accounts receivable - third parties
 
 
-
 
 
23,446,249
 
 
11,478,436
 
Cost and estimated earnings in excess of
    billings on contracts in progress
 
 
-
 
 
8,133,021
 
 
-
 
Other receivables
 
 
-
 
 
2,868
 
 
29,885
 
Advance to related parties
 
 
-
 
 
-
 
 
49,802,897
 
Prepaid expenses
 
 
-
 
 
-
 
 
386,966
 
Inventories
 
 
-
 
 
5,029,653
 
 
194,331
 
Prepaid dredger deposits
 
 
-
 
 
2,407,666
 
 
-
 
Security deposits
 
 
-
 
 
25,087,880
 
 
-
 
Long-term investment
 
 
-
 
 
-
 
 
3,328,789
 
Deposit on setting up Joint Venture
 
 
-
 
 
-
 
 
6,092,302
 
Property, plant and equipment, net
 
 
-
 
 
44,479,511
 
 
37,141,906
 
 
 
$
7,232
 
$
272,910,459
 
$
118,811,801
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
Accounts payable - third parties
 
$
-
 
$
3,690,417
 
$
70,732
 
- related parties
 
 
-
 
 
-
 
 
5,765,632
 
Receipt in advance - related parties
 
 
-
 
 
-
 
 
12,681,102
 
Short-term loans
 
 
-
 
 
-
 
 
25,169,260
 
Income tax payable
 
 
-
 
 
5,333,519
 
 
-
 
Accrued liabilities and other payables
 
 
-
 
 
2,257,638
 
 
1,033,640
 
Long-term loans
 
 
-
 
 
-
 
 
24,783,629
 
 
 
$
-
 
$
11,281,574
 
$
69,503,995
 
 
The following tables show the revenue and cost of revenues, and net income/(loss) of the Company’s VIEs after eliminating the intercompany balances for the three and six months ended June 30, 2013 and 2012.  The VIEs include Wonder Dredging, Fujian Service and Pingtan Fishing Group which comprises of Pingtan Fishing itself and the three subsidiaries, namely Pingtan Dingxin, Pingtan Duoying and Pingtan Ruiying.
 
 
 
For the Three Months Ended June 30, 2013 (Unaudited)
 
 
 
Wonder
 
Fujian
 
Pingtan Fishing
 
 
 
Dredging
 
Service
 
Group
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
-
 
$
38,855,181
 
$
21,362,357
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
 
$
-
 
$
(17,249,269)
 
$
(12,235,475)
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss)/income attributable to
    the Company
 
$
(6,674)
 
$
15,137,209
 
$
7,727,927
 
 
 
 
For the Three Months Ended June 30, 2012 (Unaudited)
 
 
 
Wonder
 
Fujian
 
Pingtan Fishing
 
 
 
Dredging
 
Service
 
Group
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
-
 
$
59,594,550
 
$
10,331,331
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
 
$
-
 
$
(27,573,111)
 
$
(9,170,105)
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss)/income attributable to the Company
 
$
(5,267)
 
$
22,535,808
 
$
(383,106)
 
 
 
 
For the Six Months Ended June 30, 2013 (Unaudited)
 
 
 
Wonder
 
Fujian
 
Pingtan Fishing
 
 
 
Dredging
 
Service
 
Group
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
-
 
$
59,549,223
 
$
41,031,833
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
 
$
-
 
$
(28,628,115)
 
$
(26,527,609)
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss)/income attributable to the Company
 
$
(6,703)
 
$
21,759,932
 
$
12,234,219
 
 
 
 
For the Six Months Ended June 30, 2012 (Unaudited)
 
 
 
Wonder
 
Fujian
 
Pingtan Fishing
 
 
 
Dredging
 
Service
 
Group
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
-
 
$
119,094,081
 
$
25,887,534
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
 
$
-
 
$
(55,595,229)
 
$
(18,879,216)
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss)/income attributable to
    the Company
 
$
(4,058)
 
$
44,485,545
 
$
4,804,532
 
 
The following table shows the condensed cash flow activities of Wonder Dredging, Fujian Service and Pingtan Fishing Group for the six months ended June 30, 2013 and 2012:
 
 
 
For the Six Months Ended June 30, 2013 (Unaudited)
 
 
 
Wonder
 
Fujian
 
Pingtan Fishing
 
 
 
Dredging
 
Service
 
Group
 
 
 
 
 
 
 
 
 
 
 
 
Net cash (used in)/provided by operating
    activities
 
$
(6,703)
 
$
34,280,668
 
$
18,944,116
 
Net cash used in investing activities
 
 
(7,280,258)
 
 
(182,671,235)
 
 
(221,709,655)
 
Net cash provided by financing activities
 
 
7,286,614
 
 
-
 
 
195,850,824
 
Net decrease in cash
 
 
(347)
 
 
(148,390,567)
 
 
(6,914,715)
 
Effect of exchange rate
 
 
107
 
 
946,503
 
 
659,347
 
Cash at the beginning of the period
 
 
7,232
 
 
164,323,611
 
 
6,710,472
 
Cash at the end of the period
 
$
6,992
 
$
16,879,547
 
$
455,104
 
 
 
 
For the Six Months Ended June 30, 2012 (Unaudited)
 
 
 
Wonder
 
Fujian
 
Pingtan Fishing
 
 
 
Dredging
 
Service
 
Group
 
 
 
 
 
 
 
 
 
 
 
 
Net cash (used in)/provided by operating
    activities
 
$
(4,068)
 
$
47,704,970
 
$
2,182,667
 
Net cash used in investing activities
 
 
-
 
 
-
 
 
(43,230,542)
 
Net cash provided by/(used in) financing
    activities
 
 
6,468
 
 
(94,617)
 
 
39,456,684
 
Net increase/(decreased) in cash
 
 
2,400
 
 
47,610,353
 
 
(1,591,191)
 
Effect of exchange rate
 
 
(8,923)
 
 
(1,274,412)
 
 
10,673
 
Cash at the beginning of the period
 
 
957,786
 
 
110,535,418
 
 
1,794,796
 
Cash at the end of the period
 
$
951,263
 
$
156,871,359
 
$
214,278
 
 
 
(c)
Use of estimates
 
  The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management of the Company 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 years. 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, and realizable values for inventories. Accordingly, actual results could differ from those estimates.
 
 
(d)
Foreign currency translation
 
  The Company uses United States dollars (“U.S. Dollar” or “US$” or “$”) for financial reporting purposes. The subsidiaries within the Company maintain their books and records in their respective functional currency, Chinese Renminbi (“RMB”) and Hong Kong dollars (“HKD”), being the lawful currency in the PRC and Hong Kong, respectively. Assets and liabilities of foreign subsidiaries are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rate of exchange prevailing during the period. The related transaction adjustments are reflected in “Accumulated other comprehensive income’’ in the equity section of the Company’s consolidated balance sheet. A summary of exchange rate is as follows:
 
China Dredging
 
 
 
 
 
 
 
June 30, 2013
 
December 31, 2012
 
Balance sheet items, except for equity accounts
 
RMB6.1374=$1
 
RMB6.2301=$1
 
 
 
HKD7.756=$1
 
HKD7.7507=$1
 
 
 
 
For the Three Months Ended June 30,
 
 
 
2013
 
2012
 
Items in statements of income and cash flows
 
RMB6.1454=$1
 
RMB6.3335=$1
 
 
 
HKD7.7597=$1
 
HKD7.7592=$1
 
 
 
 
For the Six Months Ended June 30,
 
 
 
2013
 
2012
 
Items in statements of income and cash flows
 
RMB6.1811=$1
 
RMB6.3166=$1
 
 
 
HKD7.7588=$1
 
HKD7.7590=$1
 
 
Merchant Supreme
 
 
 
 
 
 
 
June 30, 2013
 
December 31, 2012
 
Balance sheet items, except for equity accounts
 
RMB6.1374=$1
 
RMB6.3086=$1
 
 
 
HKD7.756=$1
 
HKD7.7507=$1
 
 
 
 
For the Three Months Ended June 30,
 
 
 
2013
 
2012
 
Items in statements of income and cash flows
 
RMB6.1454=$1
 
RMB6.3335=$1
 
 
 
HKD7.7597=$1
 
HKD7.7592=$1
 
 
 
 
For the Six Months Ended June 30,
 
 
 
2013
 
2012
 
Items in statements of income and cash flows
 
RMB6.1811=$1
 
RMB6.3166=$1
 
 
 
HKD7.7588=$1
 
HKD7.7590=$1
 
 
 
(e)
Cash
 
Cash consists of cash on hand and at banks.
 
 
(f)
Accounts receivable
 
  China Dredging
 
  Accounts receivable represent billed under the terms of contracts with customers. There is no amount related to retainage. CDGC anticipates collection of all the outstanding balances within 30 to 120 days after completion reports of the contracts are issued. The allowance for doubtful accounts is CDGC’s best estimate of the amount of probable credit losses in the CDGC’s existing receivable. CDGC provides 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 the CDGC’s assessment of collectability, there has been no allowance for doubtful accounts recognized for the three and six months ended June 30, 2013 and 2012.
 
  Merchant Supreme
 
  Merchant Supreme only grants credit periods to established customers with long and good paying 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 for the three and six months ended June 30, 2013 and 2012, respectively. Merchant Supreme collected a majority of receivable balances from third party customers as of June 30, 2013 and December 31, 2012 within 60 days subsequent to respective balance sheet dates, and historically has not experienced uncollectible accounts from customers granted with credit sales.
 
 
(g)
Revenue recognition
 
  China Dredging
 
  CDGC recognizes 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.
 
  Merchant Supreme
 
  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 paying 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 receipt in advance.
 
 
(h)
Cost and estimated earnings in excess of billings on contracts in progress
 
  China Dredging
 
  Cost and estimated earnings in excess of billings represent amounts of 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.
 
 
(i)
Government grant
 
  Merchant Supreme
 
  Government grants are recognized at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to the cost of the asset and is released to the income statement over the expected useful life in a consistent manner with the depreciation method for the relevant asset.
 
 
(j)
Deferred income
 
  Merchant Supreme
 
  Deferred income represents income collected but not earned as of the report date.  This is primarily composed of one off payment of the government grant to construct new fishing vessels.  The fishing vessels were under construction.  Upon the completion of the construction of fishing vessels, the grant would be deducted from the cost of the fishing vessels.
 
 
(k)
Fishing licenses
 
  Merchant Supreme
 
  Each of the Merchant Supreme’s fishing vessels requires an approval from 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 fishing vessels’ operations.
 
  Each of the Merchant Supreme’s fishing vessels operated in Indonesia water 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 prior to expiration. Merchant Supreme records cost of Indonesia fishing licenses in prepaid expenses and amortizes over the effective period of the licenses.
 
 
(l)
Inventories
 
  China Dredging
 
  Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average method. Inventories comprise consumable parts.
 
  Merchant Supreme
 
 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 by fishing vessels and are amortized during expected useful lives of three months. Merchant Supreme’s fishing fleets in India and Indonesia waters operate around the year, although the May to July period demonstrates lower catch quantities compared to the 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.
 
 
(m)
Property, plant and equipment
 
Property, plant and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and betterments are capitalized. Depreciation of dredgers, fishing vessels, motor vehicles, machinery and equipment is computed by the straight-line method over the assets estimated useful lives.
 
Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations.
 
The estimated useful lives of the assets are as follows:
 
 
 
Estimated lives
 
Dredger
 
7.5-10
 
Fishing vessel
 
10-20
 
Major improvement on fishing vessel
 
4-20
 
Motor vehicle
 
3-5
 
Machinery
 
3-5
 
Office equipment
 
3-5
 
 
Expenditures for repairs and maintenance, which do not extend the useful life of the assets, are expensed as incurred.
 
 
(n)
Capitalized Interest
 
  Merchant Supreme
 
  Interest associated with the construction of a fishing vessel is capitalized and included in the cost of the fishing vessels. When no debt is incurred specifically for the construction of a fishing vessel, interest is capitalized on amounts expended on the construction using weighted-average cost of the Companies outstanding borrowings. Capitalization of interest ceases when the construction is substantially complete or the construction activity is suspended for more than a brief period. Merchant Supreme capitalized interest of $25,220 for the three and six months ended June 30, 2013 and $83,524 for the three and six months ended June 30, 2012, respectively, in the fishing vessels under construction.
 
 
(o)
Impairment of long-lived assets
 
  In accordance with FASB ASC Topic 360, “Property, Plant and Equipment”, the Company tests 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.  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 the Company’s assessment, no triggering events for the testing of long-lived assets for impairment were identified as of June 30, 2013 and December 31, 2012.
 
 
(p)
Income taxes
 
  China Dredging
 
  CDGC recognizes interest and penalties related to income tax matters as income tax expense. For the three and six months ended June 30, 2013 and 2012, there was no penalty or interest recognized as income tax expenses.
 
  Merchant Supreme
 
  Merchant Supreme’s VIE, Pingtan Fishing, is a qualified ocean fishing enterprise 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”, Pingtan Fishing is exempt 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.
 
  Pingtan Fishing is not subject to foreign income taxes for its operations in India and Indonesia Exclusive Economic Zones.
 
 
(q)
Fair value measurements
 
  In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update “ASU 2010-06” “Fair Value Measurements and Disclosures”. The new guidance clarifies two existing disclosure requirements and requires two new disclosures as follows: (1) a “gross” presentation of activities (purchases, sales, and settlements) within the Level 3 rollforward reconciliation, which will replace the “net” presentation format; and (2) detailed disclosures about the transfers in and out of Level 1 and 2 measurements. This guidance is effective for the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 rollforward information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods thereafter. The Company adopted the amended fair value disclosures guidance on January 1, 2012.
 
  China Dredging
 
  CDGC's financial instruments consist principally of cash, accounts receivable, cost and estimated earnings in excess of billings on contracts in progress, accounts payable and accrued liabilities, none of which are held for trading purposes. Pursuant to Accounting Standards Codification (“ASC 820”), the fair value of the CDGC’s cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. CDGC believes that the carrying amounts of the Group's financial instruments, other than derivative liability, approximate their current fair values because of their nature and respective maturity dates or durations.
 
  Merchant Supreme
 
  As of June 30, 2013 and December 31, 2012, none of the Merchant Supreme’s financial assets or liabilities was measured at fair value on a recurring basis. As of June 30, 2013 and December 31, 2012, none of the Company’s non-financial assets or liabilities was measured at fair value on a nonrecurring basis.
 
  The carrying values of Merchant Supreme’s financial assets and liabilities, including 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. It is not practicable to estimate the fair values of advance to and advance from related parties because of the related party nature of such advances.
 
 
(r)
Commitments and contingencies
 
  In the normal course of business, the Company is subject to contingencies, including legal proceedings and environmental claims arising out of the normal course of businesses that relate to a wide range of matters, including among others, contracts breach liability. The Company records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, scientific evidence and the specifics of each matter.
 
  The Company’s management has evaluated all such proceedings and claims that existed as of June 30, 2013 and December 31, 2012. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, liquidity or results of operations.
 
 
(s)
Economic and political risks
 
  The Company's operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.
 
  The Company’s operation in the PRC is subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances aboard, and rates and methods of taxation, among other things.
 
 
(t)
Pension and employee benefits
 
  China Dredging
 
  Full time employees of CDGC’s participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require CDGC to accrue for these benefits based on certain percentages of the employees’ salaries. Cost for pension and employee benefits of CDGC was $28,679 and $24,758 for the three months ended June 30, 2013 and 2012, respectively; $53,624 and 47,547 for the six months ended June 30, 2013 and 2012, respectively.
 
Merchant Supreme
 
Cost for pension and employee benefits of Merchant Supreme was $5,268 for the three and six months ended June 30, 2013 and $nil for the three and six months ended June 30, 2012, respectively.
 
 
(u)
Segment information
 
  ASC 280 “Segment reporting” establishes standards for reporting information on operating segments in interim and annual financial statements.  The Company has only two segments, all of the Company’s operations and customers are in the PRC and all income is derived from dredging service and ocean fishery. Accordingly, segment information on products is presented.
 
 
(v)
Earnings per ordinary share
 
  Earnings per ordinary share (basic and diluted) is based on the net income attributable to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during each period. Ordinary share equivalents are not included in the calculation of diluted earnings per ordinary share if their effect would be anti-dilutive. As of December 31, 2012, the weighted average outstanding ordinary share equivalents outstanding totaled 10,012,987 consisting of Class A Preferred Shares.  There was automatic conversion of preferred shares into the Company’s ordinary shares after the closing of the transactions.  Retroactive treatment as required by FASB ASC paragraph 260-10-55-12 has been applied in computing earnings per share to reflect the business combination held on February 25, 2013.
 
  The following table sets forth the computation of basic and diluted net income per ordinary share:
 
 
 
For the Three Months Ended
June 30,
 
For the Six Months Ended
June 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
 
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
24,777,753
 
$
21,340,811
 
$
38,560,294
 
$
48,197,267
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of
    ordinary shares outstanding (Basic
    and diluted)
 
 
79,055,053
 
 
79,055,053
 
 
79,055,053
 
 
79,055,053
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per ordinary share (Basic
    and diluted)
 
$
0.31
 
$
0.27
 
$
0.49
 
$
0.61