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CGEI > SEC Filings for CGEI > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for CHINA GROWTH EQUITY INVESTMENT LTD

Form 10-Q for CHINA GROWTH EQUITY INVESTMENT LTD


14-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References to the "Company," "us" or "we" refer to China Growth Equity Investment Ltd. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the condensed 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.

Special Note Regarding Forward-Looking Statements

All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Form 10-Q, words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to us or the Company's management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company's management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on the Company's behalf are qualified in their entirety by this paragraph.

Overview

We are a newly organized blank check company formed on January 18, 2010 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We are not limited to a particular industry or minimum transaction value for purposes of consummating a Business Combination. In addition, we will not effect a business combination with another blank check company or a similar company with nominal operations.

Results of Operations

Through September 30, 2012, our efforts have been limited to organizational activities, activities relating to our Offering, identifying and evaluating prospective acquisition candidates and general corporate matters. We have not generated any revenues, other than interest income earned on the proceeds held in the Trust Account. As of September 30, 2012, $50,267,002 was held in the Trust Account (including $2,250,000 of deferred underwriting discounts and commissions and $2,975,000 from the sale of the Insider Warrants). In addition we have cash outside of trust of $131,208 available to pay operating expenses, including proceeds of $75,137 borrowed through entering an unsecured promissory note with an officer of the Company. Through September 30, 2012, the Company had not withdrawn any funds from interest earned on the Trust Account proceeds. Other than the deferred underwriting discounts and commissions, no amounts are payable to the underwriters of our Offering in the event of a business combination. For the period from January 18, 2010 (inception) through September 30, 2012, we had a net loss of $805,816.

We have agreed to pay Chum Capital Group, an entity owned and controlled by the Company's Chairman and Chief Financial Officer, a total of $10,000 per month for office space, administrative services and secretarial support. For the three months ended September 30, 2012 and 2011 we have incurred $30,000 and $30,000 of these costs, respectively. Total expenses for the nine months ended September 30, 2012 and 2011 and the period from January 18, 2010 (inception) to September 30, 2012 were $90,000, $40,000 and $160,000, respectively.

Liquidity and Capital Resources

As of September 30, 2012, we had cash of $131,208 and $50,267,002 in investments held in trust. Until the consummation of the Offering the Company's only source of liquidity was the initial purchase of Founder Shares by the Sponsor and two unsecured promissory notes with an officer of the Company.

On June 2, 2011, we consummated the Offering of 5,000,000 units at a price of $10.00 per unit. Simultaneously with the consummation of the Offering, we consummated the private sale of 3,966,667 Insider Warrants for $2,975,000 in proceeds. We received net proceeds from the Offering and the sale of the Insider Warrants of approximately $51,151,641, net of the non-deferred portion of the underwriting commissions of $1,250,000 and offering costs and other expenses of approximately $573,359

We will depend on sufficient interest being earned on the proceeds held in the Trust Account to provide us with additional working capital we may need to identify one or more target businesses, conduct due diligence and complete our initial business combination, as well as to pay any franchise and income taxes that we may owe. As described elsewhere in this Report, the amounts in the Trust Account may be invested only in U.S. government treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act. The current low interest rate environment may make it more difficult for such investments to generate sufficient funds, together with the amounts available outside the Trust Account, to locate, conduct due diligence, structure, negotiate and close our Initial Business Combination. If we are required to seek additional capital, we would need to borrow funds from our Sponsor or management team to operate or may be forced to liquidate. Neither our Sponsor nor our management team is under any obligation to advance funds to us in such circumstances. Any such loans would be repaid only from funds held outside the Trust Account or from funds released to us upon completion of our Initial Business Combination. If we are unable to complete our Initial Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account.

Off-balance sheet financing arrangements

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or entered into any non-financial assets.

Contractual obligations

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities other than a monthly fee of $10,000 for office space, administrative services and secretarial support payable to Chum Capital Group, an entity owned and controlled by the Company's Chairman and Chief Financial Officer. We began incurring this fee on June 2, 2011 and will continue to incur this fee monthly until the earlier of the completion of the Business Combination and the Company's liquidation.

Proposed Business Combination with CDGC and Pingtan Fishing

On October 24, 2012, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with China Dredging Group Co. Ltd., ("CDGC"), China Growth Dredging Sub Ltd. ("Merger Sub") and Zhuo Xinrong ("Founder"). Subject to the terms and conditions of the Merger Agreement, the Merger Sub will merge (the "Merger") with and into the CDGC, resulting in Merger Sub ceasing to exist and CDGC continuing as the surviving company in the Merger and as a wholly-owned subsidiary of the Company (the "Surviving Company").

Immediately following the execution of the Merger Agreement, the Company entered into a share purchase agreement (the "Share Purchase Agreement" and together with the Merger Agreement, the "Agreements") with Fujian Provincial Pingtan County Ocean Fishing Group Co., Ltd. ("Pingtan Fishing"), Founder, Merchant Supreme Co., Ltd ("Merchant Supreme"), Prime Cheer Corporation Limited ("Prime Cheer"), Heroic Treasure Limited ("Heroic Treasure") and Fuzhou Honglong Ocean Fishery Co., Ltd. ("Hong Long"). Subject to the terms and conditions of the Share Purchase Agreement, including pre-closing reorganization, the Company will acquire 100% of the equity interest in Merchant Supreme (which will control Pingtan Fishing) and thereby the economic interest in Pingtan Fishing (the "Share Purchase" and together with the Merger, the "Business Combination").

The Company is a blank check company whose ordinary shares, units and warrants are listed on The NASDAQ Capital Market. The Company was incorporated on January 18, 2010 for the purpose of effecting a merger, share capital exchange, asset acquisition, share purchase, reorganization or similar Business Combination with one or more operating businesses or assets. CDGC, a British Virgin Islands holding company, is one of the leading independent (not state-owned) providers of dredging services in the PRC through its PRC subsidiary Fujian Xing Gang Port Service Co., Ltd., or Fujian Service. Pingtan Fishing is a rapidly growing fishing company and provider of quality seafood incorporated in the PRC.

The combined entity, which will be renamed "Pingtan Marine Enterprise Ltd.", intends to apply to be listed on NASDAQ under the ticker symbol "PME". Upon completion of the Business Combination, successful entrepreneur Xinrong Zhuo, the founder, Chairman and controlling shareholder of both CDGC and Pingtan Fishing will be the chairman of the combined company.

Consideration

At the effective time of the Merger, each ordinary share and each Class A preferred share of the CDGC (the "CDGC Shares") issued and outstanding immediately prior to the effective time of the Merger will be redeemed and cancelled and converted into the right to receive 0.82947 of an ordinary share of the Company ("Company Shares"). No fractional Company Shares will be issued in the Merger; instead, the Company will issue one Company Share to the holder of any CDGC Shares that would otherwise be entitled to receive a fraction of a Company Share.

At the effective time of the Share Purchase, all of the issued and outstanding shares of Merchant Supreme (which will control Pingtan Fishing) will be purchased by the Company for an aggregate of 25,000,000 Company Shares.

Post-Closing Directors and Officers

The Company agreed to take such actions as may be necessary to cause each of the following persons to be appointed to the Company Board as of the effective time of the Business Combination, to serve until the next annual election of directors of the Company: Xinrong Zhuo (Chairman of the Board), Bin Lin, Lin Bao, Yeliang Zhou, Zengbiao Zhu, Xuesong Song and Jin Shi. In addition, the Company agreed to take such actions as may be necessary to cause each of the following persons to be elected as officers of the Company effective immediately after the closing under the Merger Agreement: Xinrong Zhuo, Chief Executive Officer; Bin Lin Senior Vice President; and Alfred Ho, Chief Financial Officer.

Recent accounting pronouncements

Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company's financial statements.

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