PINGTAN MARINE: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the notes thereto contained elsewhere in this report. Certain
information contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.



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


Overview



We are a marine enterprise group primarily engaging in ocean fishing through our
operating subsidiary, Fujian Provincial Pingtan County Ocean Fishing Group Co.,
Ltd., or Pingtan Fishing, which is organized in the People's Republic of China
("PRC"). We carry out marine fishing operations in the international waters and
the approved waters in access fishing countries with many of our owned vessels
or licensed vessels for which we have exclusive operating license rights. We
provide high quality seafood to a diverse group of customers including
distributors, restaurant owners and exporters in the PRC.



We initially had a fishing fleet of 40 vessels in 2013. By June 2015, we
expanded the number of vessels to 135 through the construction of 3 new vessels,
the purchase of 72 licensed vessels and the acquisition of 20-year exclusive
operation rights to 20 vessels. Our fishing fleet consists of vessels of
diversified fishing methods, including trawling, drift netting, light luring
seine, long line fishing and squid jigging.



From 2017 to 2018, we purchased 2 refrigerated transport vessels and 4 squid
jigging vessels. Of those vessels, the renovation of 2 transport vessels and 2
squid jigging vessels were completed in subsequent years and were deployed to
international waters. The ownership transfer of the remaining 2 vessels' is not
yet completed, but the Company is entitled to 100% of the operations and net
profits (losses) from the vessels.



In april 2018, 27 vessels received MARA approval to operate in international waters after completion of modification and reconstruction projects. The 27 fishing vessels were modified and rebuilt into 20 squid fishing vessels and 7 light lure purse seiners and were deployed at sea for an operation in late 2018 and early 2019.

In 2019, the Company had 30 fishing vessels that received approval from the MARA
to operate in international waters after completion of modification and
rebuilding. The 30 vessels were rebuilt and modified into 15 squid jigging
vessels and 15 seine vessels. The renovation of the 30 vessels was completed in
2019 and these vessels were deployed to international waters for operation.



In 2020, the Company had 11 fishing vessels that received approval from the MARA
to operate in international waters after completion of modification and
rebuilding. The 11 vessels were rebuilt and modified into 10 squid jigging
vessels and 1 refrigerated transport vessel. The renovation of the 11 vessels
was completed in 2020 and these vessels were deployed to international waters
for operation.


In 2020, another 20 vessels also received MARA approval to operate in international waters after the completion of modification and reconstruction projects. The 20 vessels were to be modified and rebuilt into 20 purse seiners.


                                       28




As of December 31, 2020, we owned 51 squid jigging vessels, 26 trawlers, 25
seine vessels, 13 drifters, 4 longline fishing vessels, and 3 transport vessels
and had exclusive operating license rights to 20 seine vessels. Additionally, 1
new krill fishing vessel was in the building stage.



Among the 143 vessels, 80 were located in international waters, 12 were located
in the Bay of Bengal in India, 13 were located in the PRC, 37 were located in
the Arafura Sea in Indonesia and 1 new krill fishing vessel was in the building
stage. In the fourth quarter of 2020, 37 vessels in Indonesian waters, 13
vessels in PRC and 1 krill fishing vessel were recognized an impairment loss of
$66,694,253. See Note 2 for discussion of Impairment of long-lived assets.



We catch nearly 30 different species of fish, including squid, ribbon fish,
croaker fish and cuttle fish. All of our catch is shipped back to the PRC. We
arrange chartered transportation ships to deliver frozen stocks to cold storage
warehouses located in one of the PRC's largest seafood trading centers, the
Mawei Seafood Market in Fujian Province.



We derive our revenue primarily from the sale of frozen seafood products. We
sell our products directly to customers, including seafood processors,
distributors, restaurant owners and exporters. Most of our customers have
long-term, cooperative relationships with us. Our existing customers also
introduce new customers to us from time to time. In July 2017, we started
strategic cooperation with an e-commerce platform to sell our fish products
directly to consumers online, which is not a significant portion of our
revenues. Based on past experience, demand for seafood products is the highest
from December to January, during the Chinese New Year. We believe that our
profitability and growth are dependent on our ability to deploy our vessels to
new fishing grounds and our ability to expand our customer base.



Revenue by territory


Our clients come from the following PRC territories:


                          Year Ended December 31,
                       2020           2019       2018
Fujian province            68 %           66 %      58 %
Shandong province          24 %           28 %      15 %
Zhejiang province           7 %            4 %       3 %
Guangdong province          0 %            1 %      24 %
Other areas                 1 %            1 %       0 %
Total                     100 %          100 %     100 %



Significant Factors Affecting Our Results of Operations

? COVID-19 pandemic: in December 2019, a new strain of coronavirus

           (COVID-19) surfaced in the PRC. In reaction to this outbreak, 

numerous

           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 our operations. To reduce the impact on our
           production and operation, we implemented certain safety measures to
           allow us 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, we provided paid leave.
           Since resuming work in mid-February, we have been using a shift system
           and adopted additional health and safety procedures to protect our
           employees. With these measures, we were able to maintain sales and
           operations from mid-February to mid-March. On March 23, 2020, we
           resumed normal operations and have been conducting business as usual
           with health and safety procedures to protect employees.

Management is

           focused on mitigating the effects of COVID-19 on our business
           operations while protecting the employees' health and safety. We will
           continue to actively monitor the situation and may take further actions
           that alter our business operations, as may be required by local
           authorities or that we determine are in the best interests of our
           employees, customers, partners, suppliers and other

stakeholders.

           Some of our customers are fish processing plants that export processed
           fish products to foreign countries. These customers reduced or
           postponed their purchases from us 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 sale.
           Because of the reduction or postponement, our unit selling price
           decreased, our inventory levels increased and our accounts

claims

           were not timely paid as anticipated.




                                       29





           The COVID-19 pandemic continues to cause major disruptions to
           businesses and markets worldwide as the virus spreads or there is a
           resurgence in certain jurisdictions. The effects of the outbreak are
           still evolving, and the ultimate severity and duration of the pandemic
           and the implications on global economic conditions remains

uncertain.

           Therefore, the extent of the impact of the pandemic on our 

financial

           condition and results of operations is still highly uncertain 

and go

           depend on future developments, such as the ultimate duration and 

scope

           of the outbreak, its impact on our customers and exporters, how 

quick

           normal economic conditions, operations, and the demand for our 

some products

           can resume and whether the pandemic leads to recessionary 

conditions in

           the PRC, United States, or globally.

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




       ?   Governmental policies: Fishing is a highly regulated industry and our
           operations require licenses and permits. Our 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 government agencies. Our inability to obtain, or loss or
           denial of extensions to, any of our applicable licenses or permits
           could hamper our ability to generate revenue from our operations.




       ?   Resource & environmental factors: Our fishing expeditions are based in
           the Exclusive Economic Zone("EEZ"), the international waters. Any
           earthquake, tsunami, adverse weather or oceanic conditions, or other
           disasters in such areas may result in disruption to our

operations and

           could adversely affect our 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 our operations. Our
           fishing volume may also be adversely affected by major climatic
           disruptions such as El Niño, which in the past has caused a

important

           decrease in the seafood catch worldwide. Besides weather patterns,
           other unpredictable factors, such as fish migration, may also impact
           our harvest volume.



? Fluctuation in fuel prices: Our operations may be affected by

           fluctuations in fuel prices. Changes in fuel prices may result in
           increases in the selling prices of our products, and may, in turn,
           adversely affect our sales volume, revenue and operating profit.



? Competition: We are engaged in finishing in the EEZ, and internationally

           waters. Competition within our designated fishing areas is not
           currently significant as the region is not overfished or 

regulated by

           government limits on the number of vessels that are allowed to 

fish in

           the territories; however, there is no guarantee that competition 

will

           not become more intense. Competition in the consumer market in 

the PRC,

           however, is high as fish compete with other sources of protein. 

We have also

           compete with other fishing companies that offer similar and 

varied

           products. There is significant demand for fish in the Chinese 

Marlet.

           We believe our catch appeals to a wide segment of consumers 

Due to

           the low price points of our products.




       ?   Fishing licenses: Each of our fishing vessels requires approval from
           the MARA to carry out ocean fishing projects in international

waters

           and foreign territories. Different countries may have different
           policies for foreign cooperation in fisheries. Some countries 

require

           fishing licenses issued by the accessed country; some others may
           require establishment of a joint venture or sole proprietorship to
           obtain local licenses.

           In early December 2014, the Indonesian government introduced a
           six-month moratorium on issuing new fishing licenses and

renewals as well

           that the country's Ministry of Maritime Affairs and Fisheries 

(“MMAF”)

           could combat illegal fishing and rectify ocean fishing order. In
           February 2015, we ceased all fishing operations in Indonesia. 

While

           the moratorium, we were informed that the fishing licenses of 

four

           vessels operated through PT. Avona, one of the local companies 

through

           which we conduct business in Indonesia, and the fishery business
           license of PT. Dwikarya, the other local company through which 

we

           conduct business in Indonesia, were revoked. Although, in 

November

           2015, the Indonesian government announced that the moratorium had
           concluded, the MMAF has neither implemented new fishing policies nor
           resumed the license renewal process. As a result of the above, all
           local fishing licenses of our vessels in Indonesia are presently
           inactive. I

           In October 2016, we deployed 13 vessels, which were granted

fishing

           licenses by the Ministry of Agriculture and Fisheries of the 

Democratic

           Republic of Timor-Leste ("MAF"), to operate in the Indo-Pacific waters
           of the country. In September 2017, we were informed that the fishing
           licenses of these 13 vessels were suspended and the vessels were docked
           in the port by the MAF. The 13 vessels have returned to the PRC.

           The management of the Company determined to shift the focus of
           development to international waters and consider obtaining
           corresponding fishing permits. In response to impairment

trigger

           events, the Company recorded an impairment in the fourth quarter of
           2020 of $66,694,253 for above 50 fishing vessels and 1 krill fishing
           vessel. See Note 2 for further details.




                                       30





RESULTS OF OPERATIONS



Comparison of operating results for the year ended December 31, 2020 and 2019



Revenue



We catch different species of fish, ship them back to China and sell the catches
to distributors and retailers by acting as a wholesaler. Marine catch is our one
and only product line. The product type, contractual price and quantities are
identified in contracts. We do not offer promotional payments, customer coupons,
rebates or other cash redemption offers to our customers, and we do not accept
returns from customers. Our revenues are recorded at a point in time. All of our
operations are considered by the Company's Chief Operating Decision Maker to be
aggregated in one reportable operating segment and our revenue is disaggregated
by product type in terms of species of fish sold pursuant to ASC
606-10-55-91(a).



The revenue is generated from the sale of frozen fish and other marine catches.
We recognize revenue at the amount we expect to be entitled to be paid,
determined when control of the products is transferred to our customers, which
occurs upon delivery of and acceptance of the frozen fish by the customer and we
have a right to payment.



We have identified one performance obligation as when the frozen fish and other
marine catches identified in the contract are picked up by the customers at our
cold storage warehouses, with revenue being recognized at a point in time. We
initially recognize revenue in an amount which is estimated based on contractual
prices. The receivables under contracts, whereby pricing is based on contractual
prices, are primarily collected within 180 days.



For the years ended December 31, 2020 and 2019, our revenue by species of fish
was as follows:



                                                               Year Ended December 31, 2020
                                                                                                 Percentage of
                                             Revenue        Volume (KG)       Average price         revenue
Indian Ocean squid                         $ 33,968,115       41,608,084     $          0.82               38.9 %
Peru squid                                   14,709,193       10,700,911                1.37               16.9 %
Chub mackerel                                 6,453,289        7,084,126                0.91                7.4 %
Cuttle fish                                   6,145,172        1,452,960                4.23                7.0 %
Sardine                                       4,296,979       11,399,554                0.38                4.9 %
Others                                       21,667,672       11,939,367                1.81               24.9 %
Total                                      $ 87,240,420       84,185,002     $          1.04              100.0 %




                                                               Year Ended December 31, 2019
                                                                                                 Percentage of
                                             Revenue        Volume (KG)       Average price         revenue
Indian Ocean squid                         $ 35,502,599       32,028,789     $          1.11               39.6 %
Ribbon fish                                  12,236,897        3,622,444                3.38               13.7 %
Cuttle fish                                  10,921,686        2,173,027                5.03               12.2 %
Peru squid(whole)                             7,512,216        4,234,436                1.77                8.4 %
Croaker fish                                  4,884,278        2,301,876                2.12                5.4 %
Others                                       18,564,480        6,433,891                2.89               20.7 %
Total                                      $ 89,622,156       50,794,463     $          1.76              100.0 %




For the year ended December 31, 2020, we had revenue of $87,240,420, as compared
to revenue of $89,622,156 for the year ended December 31, 2019, a decrease of
$2,381,736, or 2.7%. Sales volumes in the year ended December 31, 2020 increased
65.7% to 84,185,002 kg from 50,794,463 kg in the year ended December 31, 2019.
The increase was mainly attributable to more vessels in operation. Average unit
sale price decreased by 40.9% in the year ended December 31, 2020 as compared to
the year ended December 31, 2019, the decrease was mainly attributable to the
fish species with highest sales volume being sold at lower selling prices -
Indian Ocean squid was our major product in 2020 and an increase in the number
of fishing vessels catching Indian Ocean squid on the market led to increased
supply, which negatively affected the average unit sale price, in addition,
customer sentiment and behavior changed as a result of the uncertainty of
COVID-19 and caused more consumption of lower-priced fish products. For the year
ended December 31, 2020, our decrease in revenue was primarily attributable to
the different sales mix and average unit sale price decreases, as compared to
the year ended December 31, 2019.



                                       31





Cost of revenue



Our cost of revenue primarily consists of fuel cost, labor cost, depreciation,
freight, and other overhead costs. Fuel cost, labor cost and depreciation
generally accounted for the majority of our cost of revenue. The following table
sets forth our cost of revenue information, both in amounts and as a percentage
of revenue for the years ended December 31, 2020 and 2019:



                                                                Year Ended December 31,
                                               2020                                                 2019
                                           % of cost of                                        % of cost of
                             Amount          revenue        % of revenue         Amount          revenue         % of revenue
Fuel cost                 $ 51,084,651             57.0 %            58.5 %   $ 42,593,090             66.1 %             47.5 %
Labor cost                  13,028,435             14.5 %            14.9 %      8,499,445             13.2 %              9.5 %
Depreciation                 8,452,135              9.4 %             9.7 %      5,676,238              8.8 %              6.3 %
Freight                      7,846,359              8.8 %             9.0 %      4,701,486              7.3 %              5.2 %
Impairment of inventory      5,606,514              6.3 %             6.4 %              -              0.0 %              0.0 %
Spare parts                  3,206,824              3.6 %             3.7 %      1,948,377              3.0 %              2.2 %
Maintenance fee                 50,527              0.1 %             0.1 %        184,836              0.3 %              0.2 %
Other                          386,438              0.3 %             0.4 %        793,099              1.3 %              1.0 %
Total cost of revenue     $ 89,661,883              100 %           102.7 %   $ 64,396,571              100 %             71.9 %




Cost of revenue for the year ended December 31, 2020 was $89,661,883,
representing an increase of $25,265,312 or 39.2% as compared to $64,396,571 for
the year ended December 31, 2019. The increase was primarily attributable to the
increase in our production activities.



At December 31, 2020, we recorded a reserve for inventories in the amount of
$5,606,514, recorded in cost of revenue, which was mainly attributable to the
inventory level as of December 31, 2020 increased significantly in comparison to
December 21, 2019 due to more vessels in operation, and the selling price of the
major fish species was lower than the cost, resulting in inventory impairment.



Gross profit


Our gross profit is affected primarily by changes in production costs. Fuel
cost, labor cost and depreciation together account for about 86.4% and 88.1% of
cost of revenue for the years ended December 31, 2020 and 2019, respectively.
The fluctuation of fuel price and change in depreciation may significantly
affect our cost level and gross profit.



The following table sets forth information as to our revenue, cost of revenue,
gross profit and gross margin for the years ended December 31, 2020 and 2019.



                                             Year Ended December 31,
                                              2020              2019
Revenue                                   $ 87,240,420      $ 89,622,156
Cost of revenue                           $ 89,661,883      $ 64,396,571
Gross (loss) profit                       $ (2,421,463 )    $ 25,225,585
(Gross loss margin) gross profit margin           (2.8 )%           28.1 %




Gross loss for the year ended December 31, 2020 was $2,421,463, representing a
change of $27,647,048 or 109.6% as compared to gross profit of $25,225,585 for
the year ended December 31, 2019. The lower gross profit was due to the decrease
in our average unit sale price and an increase in cost of revenue due to the
reasons described above.



Gross margin decreased to a gross loss of2.8% for the year ended December 31,
2020 from gross profit margin 28.1% for the year ended December 31, 2019. The
decrease in gross margin for the year ended December 31, 2020 as compared to the
year ended December 31, 2019 was primarily due to the decrease in the average
unit sale price by 41.3%. The market price of Indian Ocean squid, a key species
in our sales mix was low, and the market price of frozen seafood was similarly
affected due to the COVID-19 pandemic, which together led to a decrease in the
average unit sales price. Some of our customers are fish processing plants that
export processed fish products to foreign countries, and some of these customers
reduced or postponed their purchases from us in the initial stage of the
pandemic and have now started adjusting their business strategies in relation to
exportation or domestic sale. This change in strategy has caused a decrease
in
our unit selling price.



Selling expense


Our trading charges mainly include shipping and handling charges, insurance, customs clearance charges, storage charges and advertising charges. Our sales activities are conducted through direct sales by our in-house sales staff. Generally, we do not market or distribute our products aggressively.


                                       32





Selling expense amounted to $4,850,044 for the year ended December 31, 2020, as
compared to $2,715,599 for the year ended December 31, 2019, an increase of
$2,134,445, or 78.6%. Selling expense as a percentage of revenue for the year
ended December 31, 2020 increased to 5.6% from 3.0% for the year ended December
31, 2019. Selling expense for the years ended December 31, 2020 and 2019
consisted of the following:



                               Year Ended December 31,
                                 2020            2019
Insurance                    $  1,896,216     $ 1,446,095
Storage fees                    1,331,008         428,625
Customs clearance charges         745,842         173,572
Shipping and handling fees        371,611         429,091
Advertising                        12,178              22
Other                             493,189         238,194
                             $  4,850,044     $ 2,715,599



? For the year ended December 31, 2020, insurance costs increased by

           $450,121, or 31.1%, as compared to the year ended December 31, 2019.
           The increase was mainly attributable to 11 vessels completed their
           modification and rebuilding projects in the second half of 2020 and
           were insured accordingly.



? For the year ended December 31, 2020, storage costs increased by $ 902,383, Where

210.5% compared to the closed financial year December 31, 2019. The increase was

    mainly attributable to larger warehouses being rented as more fish were
    delivered for inventory.



? For the year ended December 31, 2020, customs clearance costs increased by

$ 572,270, or 329.7%, compared to the year ended December 31, 2019. The

    change was mainly attributable to the number of customs declarations.



? For the year ended December 31, 2020, the shipping and handling costs have been reduced by

$ 57,480, i.e. 13.4%, compared to the year ended December 31, 2019.

? For the year ended December 31, 2020, advertising spending increased by

$ 12,156, or 55.254.5%, compared to the year ended December 31, 2019.



       ?   Other miscellaneous selling expense for the year ended December 31,
           2020 increased by $254,995, or 107.1%, as compared to the year ended
           December 31, 2019. The increase was mainly attributable to the increase
           in satellite communication fees for fishing vessels.



General and administrative expenses



General and administrative expense amounted to $7,158,251 for the year ended
December 31, 2020, as compared to $7,889,934 for the year ended December 31,
2019, a decrease of $731,683, or 9.3%. General and administrative expense for
the years ended December 31, 2020 and 2019 consisted of the following:



                                                    Year Ended December 31,
                                                      2020            2019
Depreciation                                      $  3,066,522     $ 3,726,061
Professional fees                                    1,556,286       1,235,578
Compensation and related benefits                    1,094,152       

1,365,455

Rent and related administrative service charges        473,964         519,161
Travel and entertainment                               120,574         179,839
Bad debt expense                                       380,866          30,366
Other                                                  465,887         833,474
                                                  $  7,158,251     $ 7,889,934




       ?   We recorded the depreciation in relation to vessels that are not
           operating as a general and administrative expense rather than as 

a cost

           of revenue. For the year ended December 31, 2020, depreciation 

costs

           decreased by $659,539, or 17.7%, as compared to the year ended 

December

           31, 2019. As there were 11 vessels in modification and

reconstitution

           project that no depreciation were recorded for these vessels.

? Professional fees, which mainly consist of legal fees, professional fees

           fees, investor relations charges, valuation service fees, 

consultant

           fees, and other fees associated with being a public company, for the
           year ended December 31, 2020, increased by $320,708, or 26.0%, as
           compared to the year ended December 31, 2019. The increase in

year

           ended December 31, 2020 was primarily attributable to an 

increase in

           consulting services of approximately $50,000, an increase in 

investor

           relations services charges of approximately $248,000, an 

increase in

           legal fees of approximately $91,000 and an increase in transfer 

agent

           fees of approximately $21,000, offset by a decrease in

Accounting fees

           of approximately $88,000.

? For the year ended December 31, 2020, compensation and related benefits

           decreased by $271,303, or 19.9% as compared to the year ended 

December

           31, 2019, as less compensation and benefit were provided in 2020 due to
           COVID-19.




                                       33




? Rents and associated administrative costs decreased slightly by

           $45,197, or 8.7% for the year ended December 31, 2020 as 

compared to

           the year ended December 31, 2019.




       ?   For the year ended December 31, 2020, travel and entertainment expense
           decreased by $59,265, or 33.0% as compared to the year ended December
           31, 2019. The decrease was mainly attributable to a decrease in
           entertainment expense of approximately $38,000 and a decrease in travel
           expense of approximately $21,000 as a result of travelling

restriction

           due to the pandemic.




       ?   For the year ended December 31, 2020 and 2019, we recorded bad debt
           expenses of $380,866 and $30,366, respectively. Based on our

periodic

           review of accounts receivable balances, we adjusted the 

allowance for

           doubtful accounts after considering management's evaluation of 

the

           collectability of individual receivable balances, including the
           analysis of subsequent collections, and customers' collection 

the story,

           and recent economic environment.




       ?   Other general and administrative expense primarily consists of
           communication fees, office supplies, miscellaneous taxes, bank

service

           charge, depreciation, and NASDAQ listing fee.  For the year 

December

           31, 2020, other general and administrative expense decreased by
           $367,587, or 44.1%, as compared to the year ended December 31, 2019.




Subsidy



The subsidy mainly consists of an incentive granted by the Chinese government to
encourage the development of the ocean fishing industry in order to satisfy the
demand of natural seafood in the PRC and other miscellaneous subsidies from the
Chinese government. For the year ended December 31, 2020, subsidies increased by
$7,219,985, or 112.1%, as compared to the year ended December 31, 2019. The
change was mainly due to the government's subsidy disbursement schedule. The
subsidy received for the year ended December 31, 2020 and 2019 contributed $0.17
and $0.08 earnings per share, respectively.



Impairment



Impairment loss represents the impairment loss on the vessels whenever events or
changes in circumstances indicate that the carrying amount of the assets might
not be recovered. Since 2014, there has been no progress on fishing license
renewals as a result of the Indonesian government's moratorium of foreign
companies, like the Company, obtaining the renewal of fishing licenses issued by
them. The management of the Company determined to shift the focus of development
to international waters and consider obtaining corresponding fishing permits. In
response to impairment triggering events, the Company recorded an impairment in
the fourth quarter of 2020 of $66,694,253 for fishing vessels, $1,019,017 for
inventory respectively. See Note 2 for further details.



Gain or loss on disposal of fixed assets



Gain or loss on fixed asset disposals represents the gain or loss on the sale of
the assets. The gain or loss on fixed asset disposals was nil for the year ended
2020 in comparison to the gain on fixed asset disposals of $59,432 for the
year
ended 2019.



Loss from operations


Due to the factors described above, for the year ended December 31, 2020, the operating loss amounts to $ 68,482,798, compared to the operating result of $ 13,168,148 for the year ended December 31, 2019, a change of
$ 81,650,946, or 620.1%.


Other income/expense


Other income / expenses mainly include interest income on bank deposits, interest expense on bank loans, the gain on transactions in foreign currencies, the gain on investment according to the cost method and the loss on investment according to the equity method.



For the year ended December 31, 2020, other expense, net, amounted to $9,135,782
as compared to other expense, net, of $6,788,083 for the year ended December 31,
2019, an increase of $2,347,699, or 34.6%, which was primarily attributable to
an increase in interest expenses of approximately $7,378,000 as a result of an
increase in bank loans and a decrease in gain from cost method investment of
approximately $177,000, offset by an increase in interest income of
approximately $2,965,000, an increase in foreign currency transaction gain of
approximately $906,000, a decrease in loss on equity method investment of
approximately $331,000 and a decrease in other expense of approximately
$919,000.



Income taxes


We are exempt from income taxes for income generated by our ocean fishing activities in China for the past years December 31, 2020 and 2019.


Net (loss) income



As a result of the factors described above, our net loss was $77,618,580 for the
year ended December 31, 2020, compared to net income of $6,380,065 for the
year
ended December 31, 2019.



                                       34




Net income attributable to owners of the Company



The net loss attributable to owners of the Company was $(72,878,248), or $(0.92)
per ordinary share (basic and diluted), for the year ended December 31, 2020,
compared to net income attributable to owners of the Company of $5,682,024, or
$0.07 per ordinary share (basic and diluted), for the year ended December 31,
2019.


Currency conversion adjustment



Our reporting currency is the U.S. dollar. The functional currency of our parent
company and subsidiaries of Merchant Supreme and Prime Cheer is the U.S. dollar
and the functional currency of the Company's subsidiaries incorporated in China
is the Chinese Renminbi ("RMB"). The financial statements of our subsidiaries
incorporated in China are translated to U.S. dollars using period end rates of
exchange for assets and liabilities, and average rates of exchange (for the
period) for revenue, costs, and expenses. Net gains and losses resulting from
foreign exchange transactions are included in the consolidated statements of
operations and comprehensive income (loss). As a result of foreign currency
translations, which are a non-cash adjustment, we reported a foreign currency
translation gain of $7,156,773 for the year ended December 31, 2020, as compared
to a foreign currency translation loss of $2,861,319 for the year ended December
31, 2019. This non-cash loss had the effect of increasing/decreasing our
reported comprehensive loss/gain and this non-cash gain had the effect of
decreasing/increasing our reported comprehensive loss/gain.



Comprehensive (loss) income


Due to our currency translation adjustment, we had an overall loss for the year ended December 31, 2020 of $ 70,461,807, compared to the overall result of $ 3,518,746 for the year ended December 31, 2019.

Comparison of operating results for the year ended December 31, 2019 and 2018



Revenue



For the years ended December 31, 2019 and 2018, our revenue by species of fish
was as follows:



                                                               Year Ended December 31, 2019
                                                                                                 Percentage of
                                             Revenue        Volume (KG)       Average price         revenue
Squid                                      $ 35,502,599       32,028,789     $          1.11               39.6 %
Ribbon fish                                  12,236,897        3,622,444                3.38               13.7 %
Cuttle fish                                  10,921,686        2,173,027                5.03               12.2 %
Peru squid(whole)                             7,512,216        4,234,436                1.77                8.4 %
Croaker fish                                  4,884,278        2,301,876                2.12                5.4 %
Others                                       18,564,480        6,433,891                2.89               20.7 %
Total                                      $ 89,622,156       50,794,463     $          1.76              100.0 %




                                                               Year Ended December 31, 2018
                                                                                                 Percentage of
                                             Revenue        Volume (KG)       Average price         revenue
Ribbon fish                                $ 13,327,231        4,880,638     $          2.73               20.7 %
Croaker fish                                 11,525,765        5,223,607                2.21               17.9 %
Argentina squid(whole)                        9,360,032        2,533,700                3.69               14.6 %
Peru squid(whole)                             3,008,186        1,896,375                1.59                4.7 %
Squid                                         2,934,602        2,028,995                1.45                4.6 %
Chub mackerel                                 2,592,529        2,858,082                0.91                4.0 %
Others                                       21,507,744        6,868,996                3.13               33.5 %
Total                                      $ 64,256,088       26,290,393     $          2.44              100.0 %




                                       35





For the year ended December 31, 2019, we had revenue of $89,622,156, as compared
to revenue of $64,256,088 for the year ended December 31, 2018, an increase of
$25,366,068, or 39.5%. Sales volumes in the year ended December 31, 2019
increased 93.2% to 50,794,463 kg from 26,290,393 kg in the year ended December
31, 2018. The increase was mainly attributable to more vessels in operation.
Average unit sale price decreased by 27.9% in the year ended December 31, 2019
as compared to the year ended December 31, 2018, the decrease was mainly
attributable to the fish species with highest sales volume being sold at lower
selling prices, which pulled down the average unit sale price. For the year
ended December 31, 2019, our increase in revenue was primarily attributable to
more vessels in operation, which caused the sales volume to increase, and due to
the different sales mix, average unit sale price decreased, as compared to the
year ended December 31, 2018.



Cost of revenue



Our cost of revenue primarily consists of fuel cost, labor cost, depreciation,
fishing vessels maintenance fee, and other overhead costs. Fuel cost, labor cost
and depreciation generally accounted for the majority of our cost of revenue.
The following table sets forth our cost of revenue information, both in amounts
and as a percentage of revenue for the years ended December 31, 2019 and 2018:



                                                               Year Ended December 31,
                                              2019                                                 2018
                                         % of cost of                                         % of cost of
                           Amount          revenue         % of revenue         Amount          revenue         % of revenue
Fuel cost               $ 42,593,090             66.1 %             47.5 %   $ 21,695,328             65.3 %             33.8 %
Labor cost                 8,499,445             13.2 %              9.5 %      4,210,719             12.7 %              6.6 %
Depreciation               5,676,238              8.8 %              6.3 %      3,350,417             10.1 %              5.2 %
Freight                    4,701,486              7.3 %              5.2 %      2,599,057              7.8 %              4.0 %
Spare parts                1,948,377              3.0 %              2.2 %      1,257,091              3.8 %              2.0 %
Maintenance fee              184,836              0.3 %              0.2 %        126,970              0.3 %              0.2 %
Other                        793,099              1.3 %              1.0 %              -                -                  -
Total cost of revenue   $ 64,396,571              100 %             71.9 %   $ 33,239,582              100 %             51.8 %




Cost of revenue for the year ended December 31, 2019 was $64,396,571,
representing an increase of $31,156,989 or 93.7% as compared to $33,239,582 for
the year ended December 31, 2018. The increase was primarily attributable to the
increase in our production activities.



Gross profit


Our gross profit is affected primarily by changes in production costs. Fuel
cost, labor cost and depreciation together account for about 88.1% and 88.1% of
cost of revenue for the years ended December 31, 2019 and 2018, respectively.
The fluctuation of fuel price and change in depreciation may significantly
affect our cost level and gross profit.



The following table presents information on our revenues, cost of revenues, gross profit and gross margin for the years ended. December 31, 2019 and 2018.



                     Year Ended December 31,
                      2019             2018
Revenue           $ 89,622,156     $ 64,256,088
Cost of revenue   $ 64,396,571     $ 33,239,582
Gross profit      $ 25,225,585     $ 31,016,506
Gross margin              28.1 %           48.3 %




Gross profit for the year ended December 31, 2019 was $25,225,585, representing
a change of $5,790,921 or 18.7% as compared to gross profit of $31,016,506 for
the year ended December 31, 2018. The decrease was due to the decrease in our
average unit sale price and our unit production cost of fish remained at a
consistent level.



Gross margin decreased to 28.1% for the year ended December 31, 2019 from 48.3%
for the year ended December 31, 2018. The decrease in gross margin for the year
ended December 31, 2019 as compared to the year ended December 31, 2018 was
primarily attributable to a drop of average unit sale price by 27.9% as a result
of new fishing vessels being deployed in different waters of high seas and
harvesting different catch mix.



Selling expense


Our selling expense mainly includes shipping and handling fees, insurance,
customs clearance charge, storage fees and advertising expenses. Our sales
activities are conducted through direct selling by our internal sales staff.
Because of the strong demand for our products and services, we typically do not
aggressively market and distribute our products.



                                       36





Selling expense amounted to $2,715,599 for the year ended December 31, 2019, as
compared to $1,622,451 for the year ended December 31, 2018, an increase of
$1,093,148 or 67.4%. Selling expense as a percentage of revenue for the year
ended December 31, 2019 increased slight to 3.0% from 2.5% for the year ended
December 31, 2018. Selling expense for the years ended December 31, 2019 and
2018 consisted of the following:



                               Year Ended December 31,
                                 2019            2018
Insurance                    $  1,446,095     $   397,287
Shipping and handling fees        429,091         395,344
Storage fees                      428,625         521,763
Customs clearance charge          173,572         167,411
Advertising                            22          20,151
Other                             238,194         120,495
                             $  2,715,599     $ 1,622,451




  ? For the year ended December 31, 2019, insurance expense increased by

$ 1,048,808, or 264.0%, compared to the year ended December 31, 2018. The

the change is mainly due to the higher number of ships insured in 2019.

? For the year ended December 31, 2019, shipping and handling charges increased by

$ 33,747, or 8.5%, compared to the year ended December 31, 2018. The

the increase in costs is mainly attributable to the number of deliveries of

    ports to the warehouse in China.




       ?   For the year ended December 31, 2019, storage fees decreased by
           $93,138, or 17.9%, as compared to the year ended December 31, 2018.
           These changes were mainly attributable to warehouse space that was
           rented for inventory according to fish volume that was delivered.




       ?   For the year ended December 31, 2019, customs clearance charge
           increased slightly by $6,161, or 3.7%, as compared to the year ended
           December 31, 2018. The change was mainly attributable to the

Number of

           customs declaration.



? For the year ended December 31, 2019, advertising spending fell by

           $20,129, or 99.9%, as compared to the year ended December 31, 

2018. The

           change was mainly due to no advertising activities occurring during the
           period.




       ?   Other miscellaneous selling expense for the year ended December 31,
           2019 increased by $117,699, or 97.7%, as compared to the year ended
           December 31, 2018. The increase in fees was mainly attributable to
           satellite communication fees and pilotage fees occurring during the
           period.



General and administrative expenses



General and administrative expense amounted to $7,889,934 for the year ended
December 31, 2019, as compared to $10,304,750 for the year ended December 31,
2018, a decrease of $2,414,816 or 23.4%. General and administrative expense for
the years ended December 31, 2019 and 2018 consisted of the following:



                                                   Year Ended December 31,
                                                    2019             2018
Depreciation                                     $ 3,726,061     $  5,791,557
Compensation and related benefits                  1,365,455        

1,563,065

Professional fees                                  1,235,578        

1,550,285

Rent and related administrative service charge       519,161          489,259
Travel and entertainment                             179,839          103,369
Bad debt recovery                                     30,366          (66,532 )
Other                                                833,474          873,747
                                                 $ 7,889,934     $ 10,304,750




       ?   We recorded the depreciation in relation to vessels that are not
           operating as operation expense rather than cost of revenue. For the
           year ended December 31, 2019, depreciation expense decreased by
           $2,065,496, or 35.7%, as compared to the year ended December 31, 2018.



? For the year ended December 31, 2019, compensation and related benefits

           decreased by $197,610, or 12.6% as compared to the year ended 

December

           31, 2018. The change was mainly attributable to booking the 

salaries of

           the crews that are not in operation in East Timor into G&A 

spending in

           2018, and we have no such costs in 2019 as these non-operation 

ships

           shipped back to China.




                                       37




? Professional fees, which mainly consist of legal fees, professional fees

           fees, investor relations services charge, valuation service fees,
           consulting fees, and other fees associated with being a public company,
           for the year ended December 31, 2019, decreased by $314,707, or 20.3%,
           as compared to the year ended December 31, 2018. The decrease in the
           year ended December 31, 2019 was primarily attributable to a decrease
           in legal fees of approximately $259,000, a decrease in

consultant

           service charge of approximately $67,000, a decrease in transfer 

agent

           fees of approximately $18,000, and a decrease in investor 

reports

           services charges of approximately $17,000, offset by an increase in
           accounting fees of approximately $46,000.



? Rents and associated administrative costs increased slightly by

           $29,902, or 6.1% for the year ended December 31, 2019 as 

compared to

           the year ended December 31, 2018.




       ?   For the year ended December 31, 2019, travel and entertainment expense
           increased by $76,470, or74.0% as compared to the year ended December
           31, 2018. The increase was mainly attributable to an increase in
           entertainment expense of approximately $83,000 and offset by a decrease
           in travel expense of approximately $6,000.




       ?   For the year ended December 31, 2019, we recorded bad debt of $30,366
           as compared to bad debt recovery of $66,532 for the year ended December
           31, 2018. Based on our periodic review of accounts receivable balances,
           we adjusted the allowance for doubtful accounts after

considering

           management's evaluation of the collectability of individual 

admissible

           balances, including the analysis of subsequent collections, and
           customers' collection history, and recent economic events.




       ?   Other general and administrative expense primarily consists of
           communication fees, office supplies, miscellaneous taxes, bank service
           charge, depreciation, and NASDAQ listing fee.  For the year December
           31, 2019, other general and administrative expense decreased slightly
           by $40,273, or 4.6%, as compared to the year ended December 31, 2018.




Subsidy



The subsidy mainly consists of an incentive granted by the Chinese government to
encourage the development of the ocean fishing industry in order to satisfy the
demand of natural seafood in China and other miscellaneous subsidy from the
Chinese government. For the year ended December 31, 2019, grant income decreased
by $2,144,432, or 25.0% as compared to the year ended December 31, 2018. The
change was mainly due to the government's subsidy disbursement schedule.



Impairment



Impairment loss represents the impairment loss on the vessels whenever events or
changes in circumstances indicate that the carrying amount of the assets might
not be recovered. In 2019, we dismantled 1 transport vessel and deregistered 16
fishing vessels and applied to the MARA for rebuilding 17 new vessels. In 2018,
we deregistered 24 fishing vessels and applied to the MARA for building 24 new
fishing vessels. As a result of the rebuilding projects, we assessed the
recoverability of the 17 fishing vessels and 24 fishing vessels for the year
ended 2019 and 2018 based on the undiscounted future cash flow that the fishing
vessels are expected to generate as less than the carrying amount, and
recognized an impairment loss. The Impairment loss on vessels was $7,951,635 and
$9,715,058 for the year ended 2019 and 2018, respectively.



Gain or loss on disposal of fixed assets



Gain or loss on fixed assets disposal represents the gain or loss on the
disposal of fixed assets we recorded as it incurred. The gain on fixed assets
disposal was $59,432 for the year ended 2019 in comparison to the loss on fixed
assets disposal was $2,105,960 for the year ended 2018, respectively. This was
mainly due to 27 fishing vessels being dismantled for modification and
rebuilding project in 2018.



Income from operations


Due to the factors described above, for the year ended December 31, 2019, the operating result amounts to $ 13,168,148, compared to the operating result of $ 15,853,018 for the year ended December 31, 2018, a change of
$ 2,684,870, or 16.9%.



Other income/expense



Other income/expense mainly include interest income from bank deposits, interest
expense generated from short-term and long-term bank borrowings, foreign
currency transaction gain, gain from cost method investment, and loss on equity
method investment.



For the year ended December 31, 2019, other expense, net, amounted to $6,788,083
as compared to other expense, net, of $1,040,320 for the year ended December 31,
2018, an increase of $5,747,763, or 552.5%, which was primarily attributable to
an increase in interest expense of approximately $4,844,000 as a result of
increase in bank loans, an increase in foreign currency transaction loss of
approximately $140,000, an increase in loss on equity method investment of
approximately $294,000, an increase in loss on the interest sold of
approximately $87,000, an decrease in gain from cost method investment of
approximately $70,000 and increase in other expenses of approximately
$1,052,000, offset by an increase in interest income of approximately $739,000.



Income taxes


We are exempt from income taxes for income generated by our ocean fishing activities in China for the past years December 31, 2019 and 2018.


                                       38





Net income



As a result of the factors described above, our net income was $6,380,065 for
the year ended December 31, 2019, compared to net income of $14,812,698 for the
year ended December 31, 2018, a change of $8,432,633 or 56.9%.



Net income attributable to owners of the Company



The net income attributable to owners of the Company was $5,682,024, or $0.07
per ordinary share (basic and diluted), for the year ended December 31, 2019,
compared to net income attributable to owners of the Company of $13,397,301, or
$0.17 per ordinary share (basic and diluted), for the year ended December 31,
2018, a change of $7,715,277 or 57.6%.



Currency conversion adjustment



Our reporting currency is the U.S. dollar. The functional currency of our parent
company and subsidiaries of Merchant Supreme and Prime Cheer is the U.S. dollar
and the functional currency of the Company's subsidiaries incorporated in China
is the Chinese Renminbi ("RMB"). The financial statements of our subsidiaries
incorporated in China are translated to U.S. dollars using period end rates of
exchange for assets and liabilities, and average rates of exchange (for the
period) for revenue, costs, and expenses. Net gains and losses resulting from
foreign exchange transactions are included in the consolidated statements of
operations and comprehensive income (loss). As a result of foreign currency
translations, which are a non-cash adjustment, we reported a foreign currency
translation loss of $2,861,319 for the year ended December 31, 2019, as compared
to a foreign currency translation loss of $8,387,092 for the year ended December
31, 2018. This non-cash loss had the effect of increasing/decreasing our
reported comprehensive loss/gain and this non-cash gain had the effect of
decreasing/increasing our reported comprehensive loss/gain.



Comprehensive income


Due to our currency translation adjustment, we had comprehensive income for the year ended December 31, 2019 of $ 3,518,746, compared to the overall result of $ 6,425,606 for the year ended December 31, 2018.

Cash flow for the year ended December 31, 2020 compared to the closed financial year
December 31, 2019

The following summarizes the key elements of our cash flows for the years ended. December 31, 2020 and 2019:



                                                Year Ended December 31,
                                                2020               2019
Net cash used in operating activities       $ (32,578,152 )   $  (30,573,780 )
Net cash used in investing activities         (70,166,436 )     (132,464,184 )
Net cash provided by financing activities     101,922,460        171,562,601
Effect of exchange rate on cash                 1,334,522           (399,287 )
Net increase in cash                        $     512,394     $    8,125,350




Net cash flow used in operating activities was $32,578,152 for the year ended
December 31, 2020 as compared to net cash flow used in operating activities of
$30,573,780 for the year ended December 31, 2019, a change of $2,004,372.



       ?   Net cash flow used in operating activities for the year ended December
           31, 2020 primarily reflected our net loss of approximately

$ 77,619,000,

           and the add-back of non-cash items, mainly consisting of 

depreciation

           of approximately $14,722,000, an increase in allowance for doubtful
           accounts of approximately $381,000, an increase in reserve for
           inventories of approximately $14,958,000, loss on our equity method
           investment of approximately $156,000, impairment loss of assets of
           approximately $67,713,000 and issuance of ordinary shares for
           professional fee valued at approximately $210,000, and changes in
           operating assets and liabilities primarily consisting of an

increase in

           accounts receivable of approximately $21,222,000, an increase in
           inventory of approximately $48,067,000 due to our business 

expansion

           resulting from more fishing vessels put in operations, an 

increase in

           prepaid expenses-related parties of approximately $1,906,000, an
           increase in other receivables of approximately $1,178,000 and a
           decrease in advance from customers of approximately $801,000, offset by
           a decrease in prepaid expenses of approximately $1,200,000, an increase
           in accounts payable of approximately $9,735,000, an increase in
           accounts payable-related parties of approximately $7,702,000, an
           increase in accrued liabilities and other payables of

approximately

           $739,000 and an increase in due to related parties of
approximately
           $673,000.



? Net cash flow used in operating activities for the year ended the 31st of December,

2019 mainly reflects our net profit of approximately $ 6,380,000, and the

addition of non-cash items, consisting mainly of a depreciation of approximately

$ 11,309,000, increase in the allowance for doubtful accounts by approximately

$ 8,000, a decrease in the reserve for stocks of approximately $ 142,000, Gain

on sale of fixed assets disposal of approximately $ 59,000, loss on equity

investment method of approximately $ 487,000, loss on interest sold of

approximately $ 87,000, depreciation of fishing vessels of about

$ 7,944,000, and variations in operating assets and liabilities mainly

consisting of a reduction in other receivables of approximately $ 75,000, a

increase prepaid expenses by approximately $ 728,000 and an increase in accrued charges

liabilities and other debts of approximately $ 5,528,000, compensated by a

increase in accounts receivable by approximately $ 3,111,000, an augmentation of

stocks of about $ 24,919,000 due to the expansion of our business

resulting from more fishing vessels put into service, increased prepaid fees

expenses of about $ 728,000, a decrease in accounts payable by

approximately $ 22,444,000, a decrease in accounts payable related to

    approximately $1,502,000 and a decrease in due to related parties of
    approximately $9,484,000.




                                       39





Net cash flow used in investing activities was $70,166,436 for the year ended
December 31, 2020 as compared to $132,464,184 for the year ended December 31,
2019. During the year ended December 31, 2020, we made prepayments for long-term
assets of approximately $12,913,000 and made payments for the purchase of
property, plant and equipment of approximately $86,611,000, offset by proceeds
received from government subsidies for fishing vessels construction of
approximately $29,358,000. During the year ended December 31, 2019, we made
payments for the purchase of property, plant and equipment of approximately
$118,469,000 and prepayments made for the purchase of long-term assets of
approximately $49,593,000, offset by proceeds received from government grants
for fishing vessel construction of approximately $35,525,000.



Net cash flow provided by financing activities was $101,922,460 for the year
ended December 31, 2020 as compared to net cash flow provided by financing
activities of $171,562,601 for the year ended December 31, 2019. During the year
ended December 31, 2020, we received short-term bank loans of approximately
$93,076,000, long-term bank loans of approximately $108,821,000 and proceeds
from due from related party of approximately $12,620,000, offset by the
repayments of short-term bank loans of approximately $53,642,000 and the
repayment of long-term bank loans of approximately $58,953,000. During the year
ended December 31, 2019, we received proceeds from short-term bank loan of
approximately $10,147,000 and proceeds from long-term bank loan of approximately
$208,023,000, offset by the repayments of short-term bank loans of approximately
$5,063,000, the repayment of long-term bank loans of approximately $18,881,000,
the repayment of advances to related parties of approximately $10,046,010, loans
issued to related parties of approximately 12,618,000.



Cash flow for the year ended December 31, 2019 compared to the closed financial year
December 31, 2018

The following summarizes the key elements of our cash flows for the years ended. December 31, 2019 and 2018:


                                                                     Year Ended December 31,
                                                                      2019              2018
Net cash (used in) provided by operating activities              $  (30,573,780 )   $  53,302,882
Net cash used in investing activities                              (132,464,184 )     (55,706,559 )
Net cash provided by financing activities                           171,562,601         1,443,061
Effect of exchange rate on cash                                        (399,287 )        (899,256 )
Net increase (decrease) in cash                                  $    8,125,350     $  (1,859,872 )




Net cash flow used in operating activities was $30,573,780 for the year ended
December 31, 2019 as compared to net cash flow provided by operating activities
was $53,302,882 for the year ended December 31, 2018, a change of $83,876,662.



       ?   Net cash flow used in operating activities for the year ended December
           31, 2019 primarily reflected our net income of approximately
           $6,380,000, and the add-back of non-cash items, mainly

made up of

           depreciation of approximately $11,309,000, increase in allowance 

for

           doubtful accounts of approximately $8,000, an decrease in 

book for

           inventories of approximately $142,000, gain on sale of fixed 

assets

           disposal of approximately $59,000, loss on equity method 

investment of

           approximately $487,000, loss on the interest sold of

approximately

           $87,000, impairment loss of fishing vessels of approximately
           $7,944,000, and changes in operating assets and liabilities primarily
           consisting of a decrease in other receivables of approximately $75,000,
           an increase prepaid expenses of approximately $728,000 and an increase
           in accrued liabilities and other payables of approximately

$ 5,528,000,

           offset by an increase in accounts receivable of approximately
           $3,111,000, an increase in inventories of approximately 

$ 24,919,000 of

           to our business expansion resulting from more fishing vessels put in
           operations, an increase in prepaid expenses of approximately $728,000,
           a decrease in accounts payable of approximately $22,444,000, a decrease
           in accounts payable-related parties of approximately $1,502,000 and a
           decrease in due to related parties of approximately $9,484,000.




       ?   Net cash flow provided by operating activities for the year ended
           December 31, 2018 primarily reflected our net income of

approximately

           $14,813,000, and the add-back of non-cash items, mainly 

made up of

           depreciation of approximately $9,142,000, decrease in allowance 

for

           doubtful accounts of approximately $67,000, an increase in 

book for

           inventories of approximately $429,000, loss on disposal of fixed assets
           of approximately $2,017,000, loss on equity method investment of
           approximately $193,000, impairment loss of fishing vessels of
           approximately $9,715,000, and changes in operating assets and
           liabilities primarily consisting of a decrease in accounts

admissible

           of approximately $6,374,000 as we intensified more strict 

collection

           policy, an increase in accounts payable of approximately 

$ 1,045,000, a

           increase in accounts payable- related parties of approximately
           $1,584,000, an increase in accrued liabilities and other 

debts of

           approximately $996,000 and an increase in due to related parties of
           approximately $11,080,000, offset by an increase in inventories of
           approximately $2,971,000, an increase in prepaid expenses of
           approximately $560,000, an increase in other receivables of
           approximately $451,000 and a decrease in accrued liabilities and other
           payables-related party of approximately $37,000.




                                       40





Net cash flow used in investing activities was $132,464,184 for the year ended
December 31, 2019 as compared to $55,706,559 for the year ended December 31,
2018. During the year ended December 31, 2019, we made payments for purchase of
property, plant and equipment of approximately $118,469,000 and prepayment made
for long-term assets of approximately $49,593,000, offset by proceeds received
from government grants for fishing vessel construction of approximately
$35,525,000. During the year ended December 31, 2018, we made payments for
purchase of property, plant and equipment of approximately $60,930,000, offset
by proceeds received from government grants for fishing vessel construction
of
approximately $5,224,000.



Net cash flow provided by financing activities was $171,562,601 for the year
ended December 31, 2019 as compared to net cash flow used in financing
activities of $1,443,061 for the year ended December 31, 2018. During the year
ended December 31, 2019, we received proceeds from short-term bank loan of
approximately $10,147,000 and proceeds from long-term bank loan of approximately
$208,023,000, offset by the repayments of short-term bank loans of approximately
$5,063,000, the repayment of long-term bank loans of approximately $18,881,000,
the repayment of advances to related parties of approximately $10,046,010, loans
issued to related parties of approximately 12,618,000. During the year ended
December 31, 2018, we received advances from related parties of approximately
$3,891,000, proceeds from short-term bank loan of approximately $14,961,000 and
proceeds from long-term bank loan of approximately $5,479,000, offset by the
repayments of short-term bank loans of approximately $14,622,000, the repayment
of long-term bank loans of approximately $5,894,000 and cash made for dividend
payments of approximately $2,372,000.



LIQUIDITY AND CAPITAL RESOURCES



Liquidity is the ability of a company to generate funds to support its current
and future operations, satisfy its obligations and otherwise operate on an
ongoing basis. Our principal liquidity demands are based on the capital needs of
Pingtan Fishing related to the acquisition or construction of new fishing
vessels and continuously upgrading and renovating existing vessels, and our
general corporate purposes. We have historically relied on cash flow provided by
operations and bank loans to supplement our working capital. We also receive
government subsidies as a government incentive for encouraging development of
ocean fishing industry. Since the outbreak of COVID-19, we have been paying
close attention to the operations of our customers and optimizing the collection
of accounts receivable. For new customers, we have adopted a policy of receiving
payment before pick-up. At December 31, 2020 and 2019, we had cash balances of
approximately $691,933 and $10,092,205, respectively. The significant portion of
these funds are located in financial institutions located in the PRC and will
continue to be indefinitely reinvested in our operations in the PRC. 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 following table presents a summary of the changes in our working capital since
December 31, 2019 To December 31, 2020:


                                                                                    December 31, 2019 to
                                                                                      December 31, 2020
                                           December 31,      December 31,                         Percentage
                                               2020              2019             Change            Change
Working capital (deficit):
Total current assets                       $ 114,249,453     $  64,338,693     $  49,910,760              77.6 %
Total current liabilities                    133,364,200        88,788,156        44,576,044              50.2 %
Working capital (deficit):                 $ (19,114,747 )   $ (24,449,463 )   $   5,334,716             (21.8 )%




Our working capital deficit decreased $5,334,716 to a working capital deficit of
$19,114,747 at December 31, 2020 from working capital deficit of $24,449,463 at
December 31, 2019. This decrease in working capital deficit is primarily
attributable to an increase in restricted cash of approximately $9,913,000, an
increase in accounts receivable, net of allowance for doubtful accounts, of
approximately $22,673,000, an increase in inventories, net of reserve for
inventories, of approximately $37,083,000 due to our business expansion
resulting from having more fishing vessels in operations, an increase in prepaid
expenses-related parties of approximately $2,015,000, an increase in other
receivables of approximately $1,288,000, a decrease in long-term bank loans -
current portion approximately of $17,135,000 due to the repayment schedule, a
decrease in lease liability-current liability approximately of $344,000 and a
decrease in due to related parties of approximately $150,000, offset by a
decrease in due from related parties approximately of $12,478,000, a decrease in
prepaid expenses approximately of $1,183,000, an increase in accounts payable of
approximately $10,841,000, an increase in accounts payable - related parties of
approximately $8,259,000, a significant increase in short-term bank loans of
approximately $42,380,000 and an increase in accrued liabilities and other
payables of approximately $724,000.



In order to mitigate our liquidity risk, we plan 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.



                                       41




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 about
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 the management has control over the timing and scope of
investments in vessel building and 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 1 new krill
fishing vessel was in building stage. The deployment of more vessels in
operation will generate more revenue and cash inflows to the Company. In
addition, the Company receives subsidies for modification and rebuilding
projects and reimbursement of certain operating expenses from the Chinese
government, as an encouragement of the development of the ocean fishing
industry.



In addition, the Company received a partial government subsidy for modification
and rebuilding projects and reimbursement of certain operating expenses of
approximately $22.5 million from January through September 2021, and it expects
to receive more government subsidies in 2021.



The COVID-19 pandemic continues to cause major disruptions to businesses and
markets worldwide as the virus spreads or a resurgence in certain jurisdictions.
This has caused our unit selling prices to decrease, our inventory levels to
increase and our accounts receivables are not being timely paid as anticipated.
In order to maintain our liquidity, the management of the Company has been
paying close attention to the operations and optimizing the collection of
accounts receivable. For new customers, the Company has adopted a policy of
receiving payment before pick-up. In 2020, the Company obtained $93.1 million
and $108.8 million in short-term and long-term loans from banks, respectively,
to maintain our liquidity.


Since the exchange rate translation is different for Consolidated Balance Sheets and Consolidated Statements of Cash Flows, changes in assets and liabilities reflected in the Consolidated Statements of Cash Flows are not necessarily the same as comparable changes reflected in consolidated balance sheets.

Contractual obligations and off-balance sheet arrangements


Contractual obligations


We have certain fixed contractual obligations and commitments that include
future estimated payments. Changes in our business needs, cancellation
provisions, changing interest rates, and other factors may result in actual
payments differing from the estimates. We cannot provide certainty regarding the
timing and amounts of payments. We have presented below a summary of the most
significant assumptions used in our determination of amounts presented in the
tables, in order to assist in the review of this information within the context
of our consolidated financial position, results of operations, and cash flows.



The following table summarizes our contractual obligations as of December 31,
2020, and the effect these obligations are expected to have on our liquidity and
cash flows in future periods.



                                                                Payments Due by Period
                                                     Less than
Contractual obligations:              Total            1 year          1-3 years        3-5 years         5+ years
Office lease obligation           $      32,349     $     32,349     $           -     $          -     $          -
Short-term bank loans (1)            52,414,596       52,414,596                 -                -                -
Long-term bank loans                285,103,665       39,987,577       130,056,853       98,622,201       16,437,034
Total                             $ 337,550,610     $ 92,434,522     $ 130,056,853     $ 98,622,201     $ 16,437,034



(1) Historically, we have refinanced these short-term bank loans for a

     additional term of six months to one year and we expect to continue to
     refinance these loans upon expiration.



Off-balance sheet provisions


None.


Critical accounting conventions and estimates



Our management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with United States generally accepted accounting
principles. The preparation of these consolidated financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets,
liabilities, and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements, as well as revenues and expenses
incurred during the reporting periods. Our estimates are based on our historical
experience and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.



We believe that the following accounting policies are those most critical to the
judgments and estimates used in the preparation of our consolidated financial
statements for the periods in this report.



                                       42





Revenue Recognition


As a result of the adoption of ASC 606 on January 1, 2018, we have changed our
accounting policy for revenue recognition. Revenue is recognized when control of
the promised goods or services, through performance obligations by the Company,
is transferred to the customer in an amount that reflects the consideration it
expects to be entitled to in exchange for the performance obligations.



We recognize revenue when a sales arrangement with a customer exists (e.g.,
contract, purchase orders, etc.), the transaction price is fixed or determinable
and we have satisfied our performance obligation per the sales arrangement. Our
sales arrangements have standard payment terms that do not exceed 180 days. The
majority of our revenue originates from contracts with a single performance
obligation to deliver products. Our performance obligations are satisfied when
control of the product is transferred to the customer per the arranged shipping
terms.



We also record a contract liability when customers prepay but we have not yet
satisfied our performance obligation. We did not have any material unsatisfied
performance obligations, contract assets or liabilities as of December 31,
2020
and December 31, 2019.



With respect to the sale of frozen fish and other marine catches to third party
customers, most of which are sole proprietor regional wholesalers in China, we
recognize revenue when customers pick up purchased goods at the Company's cold
storage warehouses, after payment is received by us or a credit sale is approved
by us for recurring customers who have a history of financial responsibility. We
do not offer promotional payments, customer coupons, rebates or other cash
redemption offers to its customers. We do not accept returns from customers.



Inventories



Inventories, consisting of frozen fish and marine catches, are stated at the
lower of cost or net realizable value utilizing the weighted average method. The
cost of inventories is primarily comprised of fuel, freight, depreciation,
direct labor, consumables, government levied charges and taxes. Consumables
include fishing nets and metal containers used by fishing vessels. Our fishing
fleets in Indian waters and international waters operate throughout the year,
although the May to July period demonstrates lower catch quantities compared to
the October to January period, which is the peak season.



Due to more vessels deployed for fishing operations in international waters and
a decrease in inventory turnover due to the influence of the COVID-19, the
quantity of inventories at the end of 2020 increased by 561% compared to the
previous year and average selling prices decreased by 41% compared to last year,
resulting in a net realizable value of inventories being lower than ourcost,
which in turn led to a significant increase in the provision for excess and
obsolete inventory. The determination of the net realizable value of inventories
involves accounting estimates and assumptions, such as the expected sales price
of the inventories and the Company's expected ability to sell the inventories
before they expire. The above accounting estimates are the Company's best
estimates after taking into account historical sales prices and capacity,
current market sales prices, marketing and sales, expected market sales and the
actual achievement of estimated selling prices and sales volumes made by the
Company in the past. When recorded, inventory reserves are intended to reduce
the carrying value of inventories to their net realizable value. We recorded a
reserve for inventories in the amount of $16,125,749 and $266,405, during the
year ended December 31, 2020 and 2019, respectively.



When recorded, inventory reserves are intended to reduce the carrying value of
inventories to their net realizable value. We regularly evaluate the ability to
realize the value of inventories based on a combination of factors including the
following: forecasted sales and estimated current and future market value.

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. The Company
evaluates the impairment by comparing the carrying amount of the assets to an
estimate of future undiscounted cash flows expected to be generated from the use
of the assets and their eventual disposition. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the assets, the
Company recognizes an impairment loss based on the excess of the carrying amount
of the long-lived assets over their fair value. Impairment loss represents the
impairment loss on the vessels whenever events or changes in circumstances
indicate that the carrying amount of the assets might not be recovered. Since
2014, there has been no progress on fishing license renewals as a result of the
Indonesian government's moratorium, foreign companies, like the Company, cannot
obtain renewed fishing licenses issued by the Indonesian government. The
management of the Company determined to shift the focus of development to
international waters and consider obtaining corresponding fishing permits. In
response to impairment triggering events, the impairment loss on vessels of $
66,694,253 and $7,951,635 for the years ended 2020 and 2019, respectively. See
Note 2 for further details.



                                       43




Investment in an unconsolidated company – Global deep ocean



We use the equity method of accounting for our investment in, and earning or
loss of, companies that we do not control but over which the Company does exert
significant influence. We consider whether the fair value of our equity method
investment has declined below its carrying value whenever adverse events or
changes in circumstances indicate that the recorded value may not be
recoverable. We review our investments for other-than-temporary impairment
whenever events or changes in business circumstances indicate that the carrying
value of the investment may not be fully recoverable. Investments identified as
having an indication of impairment are subject to further analysis to determine
if the impairment is other-than-temporary and this analysis requires estimating
the fair value of the investment. The determination of fair value of the
investment involves considering factors such as current economic and market
conditions, the operating performance of the entities including current earnings
trends and forecasted cash flows, and other company and industry specific
information. If we consider any decline to be other than temporary (based on
various factors, including historical financial results and the overall health
of the investee), then a write-down would be recorded to estimated fair value.



Recently adopted accounting standards



Codification Improvements to Topic 842, Leases ("ASU 2018-10") and ASU 2018-11,
Leases (Topic 842), Targeted Improvements ("ASU 2018-11"). The amendments in ASU
2018-10 affect only narrow aspects of the guidance issued in the amendments in
ASU 2016-02, including but not limited to lease residual value guarantees, the
rate implicit in the lease and lease term and purchase option. The amendments in
ASU 2018-11 provide an optional transition method for adoption of the new
standard, which will allow entities to continue to apply the legacy guidance in
ASC 840, including its disclosure requirements, in the comparative periods
presented in the year of adoption.



Effective January 1, 2019, we adopted the new lease standard using the modified
retrospective approach and implemented internal controls to enable the
preparation of financial information upon adoption. We elected to adopt both the
transition relief provided in ASU 2018-11 and the package of practical
expedients which allowed us, among other things, to retain historical lease
classifications and accounting for any leases that existed prior to adoption of
the standard. Additionally, we elected the practical expedients allowing us not
to separate lease and non-lease components and not record leases with an initial
term of twelve months or less ("short-term leases") on the balance sheet across
all existing asset classes.



Adoption of the new standard resulted in the recording of right use asset and
lease liability of $0.77 million as of January 1, 2019, which primarily relates
to our corporate office leases. The standard did not materially impact our
condensed consolidated statements of operations or cash flows. Adopting the new
standard did not have a material impact on the accounting for leases under
which
we are the lessee.



In August 2018, the FASB issued ASU 2018-13, "Changes to the Disclosure
Requirements for Fair Value Measurement." This standard eliminates the current
requirement to disclose the amount or reason for transfers between level 1 and
level 2 of the fair value hierarchy and the requirement to disclose the
valuation methodology for level 3 fair value measurements. The standard includes
additional disclosure requirements for level 3 fair value measurements,
including the requirement to disclose the changes in unrealized gains and losses
in other comprehensive income during the period and permits the disclosure of
other relevant quantitative information for certain unobservable inputs. The new
guidance is effective for interim and annual periods beginning after December
15, 2019. We applied the new standard beginning January 1, 2020.



                                       44




Recent accounting positions



In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses
(Topic 326), Measurement of Credit Losses on Financial Instruments", which will
be effective for fiscal years beginning after December 15, 2019, including
interim periods within those fiscal years. The guidance replaces the incurred
loss impairment methodology with an expected credit loss model for which a
company recognizes an allowance based on the estimate of expected credit loss.
In November 2019, the FASB issued ASU 2019-10. Financial Instruments - Credit
Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):
Effective Dates, finalizes effective date delays for private companies,
not-for-profit organizations, and certain smaller reporting companies applying
the credit losses, leases, and hedging standards. The effective date for SEC
filers, excluding smaller reporting companies as defined by the SEC, remains as
fiscal years beginning after December 15, 2019. The new effective date for all
other entities is fiscal years beginning after December 15, 2022. The Company is
currently evaluating the impact of adopting this standard on its consolidated
financial statements.


In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities
(Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and
Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic
321, Topic 323, and Topic 815 ("ASU 2020-01") to clarify the interaction in
accounting for equity securities under Topic 321, investments accounted for
under the equity method of accounting in Topic 323 and the accounting for
certain forward contracts and purchased options accounted for under Topic 815.
ASU 2020-01 is effective for fiscal years, and for interim periods within those
fiscal years, beginning after December 15, 2020. This ASU is not expected to
have a material effect on the Company's consolidated financial statements.



In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which eliminates
certain exceptions to the existing guidance for income taxes related to the
approach for intra-period tax allocations, the methodology for calculating
income taxes in an interim period and the recognition of deferred tax
liabilities for outside basis differences. This ASU also simplifies the
accounting for income taxes by clarifying and amending existing guidance related
to the effects of enacted changes in tax laws or rates in the effective tax rate
computation, the recognition of franchise tax and the evaluation of a step-up in
the tax basis of goodwill, among other clarifications. ASU 2019-12 is effective
for fiscal years, and for interim periods within those fiscal years, beginning
after December 15, 2020. The Company is currently evaluating the potential
effects of this ASU, however, does not expect that its adoption will have a
material effect on the Company's consolidated financial statements.

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