Unassociated Document

OUR CORPORATE HISTORY AND STRUCTURE

Our Corporate Structure

We are a BVI holding company incorporated on April 14, 2010. We conduct our dredging operations through our PRC subsidiary, Fujian Service. Before the reorganization in May 2010, Fujian Service was owned by Mr. Qing Lin and Mr. Panxing Zhuo, who are, respectively, the brother-in-law and the father of Mr. Xinrong Zhuo, our Chairman and Chief Executive Officer. Mr. Qing Lin and Mr. Panxing Zhuo, pursuant to an agreement, held their interests as the representatives of the family. The agreement also gave Mr. Xinrong Zhuo the exclusive right to make executive decisions and manage Fujian Service. China Dredging is incorporated by three entities, namely, Venus Seed Co. Ltd., or Venus, whose beneficial owner is Kit Chan, one of our independent directors, Saturn Glory Co. Ltd., or Saturn, whose beneficial owner is Bin Lin, our Senior Vice President, and Mars Harvest Co. Ltd., or Mars, whose beneficial owner is Xinrong Zhuo, our Chairman and Chief Executive Officer.

Our wholly owned subsidiary, China Dredging HK, was organized under the laws of Hong Kong on April 26, 2010 to serve as a holding company for Fujian WangGang, a PRC company organized on June 12, 2010 and a WFOE under PRC law. On June 29, 2010, Fujian WangGang acquired a 50% direct equity interest in Fujian Service. The remaining 50% equity interest in Fujian Service is held by Wonder Dredging, a PRC company owned by Qing Lin and Panxing Zhuo who, pursuant to an agreement hold their interests in Fujian Service indirectly as the representatives of the family. The agreement also gave Xinrong Zhuo the exclusive rights to make executive decisions and manage Fujian Service. Pursuant to its certificate of incorporation, Fujian Service’s corporate existence terminates on January 7, 2028.

Fujian Service, which is our operating entity with Renminbi 200,000,000 ($29,002,371 at December 31, 2010) registered capital, was incorporated in January 2008. Before the reorganization in May 2010, Fujian Service was originally owned by two individuals, Qing Lin and Panxing Zhuo, who respectively held 91% and 9% ownership interests. Pursuant to an agreement, they held their interests as representatives of the family and accepted Xinrong Zhuo’s right to make all executive decisions and manage the business. Qing Lin and Panxing Zhuo are the brother-in-law and the father of Mars’ sole shareholder, Xinrong Zhuo.

In May 2010, Qing Lin and Panxing Zhuo sold all of their ownership interests of Fujian Service to Wonder Dredging, which they also owned fully and in the same percentages as their ownership interests in Fujian Service. Subsequent to this transaction, Wonder Dredging owned 100% of Fujian Service.

In June 2010, Fujian WangGang acquired a 50% ownership interest in Fujian Service from Wonder Dredging by committing to invest, as a capital contribution, approximately $23.6 million into Fujian Service, which commitment was fully satisfied in January 2011. This reduced Wonder Dredging’s ownership interest in Fujian Service to 50%.

In June 2010, Fujian WangGang entered into the VIE Agreements with Fujian Service, Wonder Dredging, Mr. Qing Lin and Mr. Panxing Zhuo to obtain irrevocable management control over both Wonder Dredging and Fujian Service. Through these agreements, Fujian WangGang (1) receives substantially all of the economic benefits of Fujian Service’s ongoing operations, (2) has the right to purchase the other 50% interest in Fujian Service from Wonder Dredging for consideration which is equivalent to the net asset value of the latest quarterly report of Fujian Service under U.S. GAAP preceding the purchase date, (3) has the right to receive all the payment by Fujian Service payable to Wonder Dredging.

In October 2010, we merged with CAC, a public reporting, non-trading shell company domiciled in the BVI. CAC had become a public company in the U.S. in December 2008 by filing a Form 10 registration statement pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended, of the Exchange Act. The former executive officer and director of CAC currently owns less than 1% of our outstanding ordinary shares and serves as the president of Chardan Capital Markets LLC, or Chardan, the lead placement agent in our 2010 Private Placement. We chose to merge with CAC because we believed becoming a public company would facilitate the consummation of a private placement on more favorable terms than would otherwise be available to us as a private company. We believe that investors are more likely to give lower valuations, require warrant coverage or other economic rights, and attempt to obtain special voting and information rights or to otherwise gain influence on corporate decisions in a private company, particularly one having substantial operations in China, as compared to a public company that is subject to audit, internal control and public disclosure obligations. In addition, we believed that the Merger with CAC was in our best interest because, we may be regarded as more creditworthy, have greater access to the capital markets, and enjoy other advantages associated with being a public company.

The terms of the Merger were set forth in the Merger Agreement, which provided that China Dredging would continue as the surviving company following the Merger. We have accounted for the Merger as a recapitalization, with China Dredging being treated as the accounting acquirer. Immediately prior to, and in contemplation of, the consummation of the Merger, we redesignated our shares to retroactively adjust our legal capital. At the time of the Merger, all of the issued shares of CAC were exchanged for 500,000 of our ordinary shares, or 0.95% of our outstanding ordinary shares, while our shareholders immediately prior to the Merger retained 52,177,323 of our ordinary shares, or 99.05% of our outstanding ordinary share. As a result of the Merger, we became a public reporting company. CAC, being the non-surviving company, ceased its corporate existence, and was removed from the Register of Companies in the BVI.

The following diagram illustrates our current corporate structure:

(1)

Xinrong Zhuo is our Chairman of the Board of Directors and Chief Executive Officer, Bin Lin is our Senior Vice President, and Kit Chan is one of our independent directors.

(2)

Assumes the conversion of all of our preferred shares into ordinary shares.

(3)

Qing Lin is the brother-in-law of Xinrong Zhuo, our Chairman of the Board of Directors and Chief Executive Officer, and holds 91% interest as the representative of the family.

(4)

Panxing Zhuo is the father of Xinrong Zhuo, our Chairman of the Board of Directors and Chief Executive Officer, and holds 9% interest as the representative of the family.

2010 Private Placement

Concurrently with the closing of the Merger, we entered into a securities purchase agreement, or the Purchase Agreement, with certain investors. Pursuant to the Purchase Agreement, through multiple closings between October and December 2010, such investors purchased 10,012,987 of our preferred shares, at a purchase price of $5.00 per share, for aggregate proceeds of approximately $50.1 million. Each preferred share is convertible into one of our ordinary shares. Chardan acted as the lead placement agent in connection with the private placement. Net proceeds to us, after deducting offering expenses of approximately $3.6 million, were approximately $46.5 million. We paid Chardan a cash fee of approximately $3.1 million in addition to a $50,000 retainer fee.

Make-Good Escrow

On October 29, 2010, our controlling shareholder, a company controlled by Mr. Xinrong Zhuo, our Chairman of the Board of Directors and Chief Executive Officer, placed 15,000,000 of our ordinary shares into the Make-Good Escrow for the purpose of providing protection to the investors in our 2010 Private Placement in the event we do not achieve certain net income thresholds for the years ended 2010 and 2011. If we were not to achieve the thresholds set forth below, holders of the preferred shares would receive additional shares from the Make-Good Escrow, up to the full number of shares held in the Make-Good Escrow. The number of additional shares that may be released to investors in our 2010 Private Placement if we fail to meet the Adjusted Net Income targets set forth below is equal to: (Original Invested Shares * (Target EPS/Actual EPS)) — Original Invested Shares. “Actual EPS” means the Adjusted Net Income for fiscal year 2010 or 2011, as applicable, divided by the number of our fully diluted outstanding shares. “Target EPS” means the performance threshold for the applicable year divided by the number of our fully diluted outstanding shares. Adjusted Net Income means after-tax net income based on U.S. GAAP, adjusted to exclude (i) non-cash charges associated with the Merger, our 2010 Private Placement and any public offering or other financing by us, (ii) expenses related to the release of the escrow shares, and (iii) expenses related to implementation of any of the agreements related to our 2010 Private Placement. Adjusted Net Income for 2010 is calculated by adding the Adjusted Net Income of Fujian Service for the six months ended June 30, 2010 and our Adjusted Net Income on a consolidated basis for the six months ended December 31, 2010. The pro-rata right to receive shares issuable pursuant to the Make-Good Escrow is based upon the preferred shares issued to investors. Shares not distributed from the Make-Good Escrow will be returned to the shareholder that contributed them. The Adjusted Net Income targets for the 2010 and 2011 fiscal years are $48.1 million and $87.0 million, respectively.

Registration Rights Agreement

In connection with our 2010 Private Placement, we entered into a registration rights agreement pursuant to which we agreed to use our best efforts to file within 60 days of the date we would no longer accept funds for the purchase of our preferred shares in the private placement a registration statement with the SEC to register the sale by us of our ordinary shares by means of a firm commitment underwritten offering and to register for resale (i) the ordinary shares underlying the preferred shares issued in our 2010 Private Placement, (ii) the 15,000,000 shares held in the Make-Good Escrow, (iii) 37,177,323 ordinary shares held by certain of our founding shareholders which are not part of the Make-Good Escrow and (iv) the 500,000 shares issued to Chardan pursuant to the Merger Agreement. If the registration statement covering these securities is not filed by such date or not declared effective by the SEC within 180 days of such date, subject to certain exceptions, liquidated damages of 0.3% of the purchase price per month will accrue and will be payable in cash on a monthly basis, provided that in no event shall the amount of liquidated damages payable at any time to any holder of preferred shares exceed 10% of the amount of such holder’s initial investment in our 2010 Private Placement. The effectiveness deadline has been extended to January 31, 2012.

Variable Interest Entity Agreements

Under applicable PRC law, foreign ownership in certain industries is restricted and may not exceed a government specified level. WFOEs may only undertake certain types of construction projects, and foreign ownership in a Chinese-foreign joint venture construction enterprise is restricted to no more than 75% according to the RAFCE. Additionally, as a marine contractor working on restricted projects within the PRC, Fujian Service is required to register its vessels under the flag of the PRC, and foreign ownership of the enterprises which own the PRC-registered vessels is limited to no more than 50%. While Wonder Dredging qualifies as a PRC entity under PRC law and owns 50% equity of Fujian Service, Fujian WangGang’s direct ownership of 50% of Fujian Service allows Fujian Service to meet both the requirements for foreign ownership under its qualifications as a marine construction company and as an operator of dredging vessels within PRC waters.

In June 2010, Fujian WangGang entered into an equity investment agreement with Wonder Dredging pursuant to which Fujian WangGang invested approximately $23.6 million in Fujian Service in exchange for a 50% equity interest in Fujian Service. Accordingly, Wonder Dredging holds 50% of the equity interest of Fujian Service and Fujian WangGang holds the other 50%. Fujian Service, Wonder Dredging, Fujian WangGang, Mr. Qing Lin and Mr. Panxing Zhuo have entered into the VIE Agreements that allow Fujian WangGang to, among other things, fully control Fujian Service’s business operations, policies and management, approve all matters requiring shareholder approval, and receive 100% of the annual net income earned by Fujian Service. Below is a summary of the VIE Agreements.

Exclusive Purchase Right of Equity Interest

In June 2010, Wonder Dredging, Fujian WangGang and Fujian Service entered into an exclusive option agreement, or the Exclusive Option Agreement, pursuant to which Wonder Dredging irrevocably granted to Fujian WangGang an exclusive right to purchase up to all of the equity interest in Fujian Service that is held by Wonder Dredging, to the extent allowed under the current PRC law. Accordingly, if and when the current limitations on direct ownership of Fujian Service by Fujian WangGang are eased or cease, Fujian WangGang may exercise its option to purchase and directly own the equity interests of Fujian Service. The purchase price for the equity interest in Fujian Service held by Wonder Dredging would be equivalent to the net asset value reflected in Fujian Service’s then current quarterly report prepared according to U.S. GAAP. The term of the Exclusive Option Agreement is 20 years, which term continuously renews unless the option is exercised in full or the agreement is otherwise terminated by the parties. The agreement also provides that upon consummation of the exercise of the option, Wonder Dredging will contribute, without additional consideration, any funds actually received by it from Fujian WangGang for the transfer of its equity interest in Fujian Service to Fujian WangGang. The agreement further provides that, as of the date of the agreement, Fujian WangGang is entitled to all the future payments by Fujian Service to Wonder Dredging, together with all the profits of Fujian Service.

Contracted Management Agreement

In June 2010, Wonder Dredging, Fujian WangGang and Fujian Service entered into a management agreement, or the Management Agreement, pursuant to which Fujian WangGang has the exclusive right to manage, operate and control the business operations of Fujian Service, including, but not limited to, establishing and implementing policies for management, using all of the assets of Fujian Service, appointing Fujian Service’s directors and senior management, directing Fujian Service to enter into loan agreement, making administrative decisions regarding employee wages or hiring and firing employees and other actions customarily associated with Fujian Service’s senior management. As consideration for its business management services, Fujian WangGang has agreed to pay to Fujian Service an annual fee of approximately $149,000 (RMB1 million), and Fujian Service will pay to Fujian WangGang 100% of the net profits of Fujian Service. The Management Agreement terminates upon the earlier of (i) Fujian WangGang’s exercise in full of the option to purchase the equity interests of Fujian Service, pursuant to the Exclusive Option Agreement, and Fujian WangGang and/or its designees individually or jointly own all of the equity interests in Fujian Service, or (ii) June 30, 2030, subject to the right of Fujian WangGang to renew the term of the Management Agreement for additional consecutive 20-year periods.

Equity Interest Pledge Agreement

In June 2010, Qing Lin, Panxing Zhuo, Fujian WangGang and Wonder Dredging entered into an equity interest pledge agreement, or the Equity Interest Pledge Agreement. To ensure that Fujian Service and its shareholders perform their obligations under the Exclusive Option Agreement, the Management Agreement, and a letter of undertaking whereby Wonder Dredging waived its right to receive a dividend of approximately $51.1 million declared by Fujian Service in May 2010, Qing Lin and Panxing Zhuo, who collectively hold 100% of the equity interests in Fujian Service, pledged their entire interest in Wonder Dredging to Fujian WangGang. The Equity Interest Pledge Agreement terminates upon the earlier of (i) the purchase of the entire equity interest in Fujian Service by Fujian WangGang or (ii) June 30, 2030, subject to the right of Fujian WangGang to renew the term of the Equity Interest Pledge Agreement for additional consecutive 20 year periods.

Powers of Attorney

In June 2010, Wonder Dredging executed irrevocable power of attorney granting to Fujian WangGang or its designees the power to vote, pledge or dispose of all equity interests in Fujian Service that Wonder Dredging holds. Additionally, the powers of attorney allow Fujian WangGang or its designees to sign and carry out the intentions of the Management Agreement, the Equity Pledge Agreement and the Exclusive Option Agreement. At the same time, Qing Lin and Panxing Zhuo executed irrevocable power of attorney granting to Fujiang WangGang or its designees the power to vote, pledge, or dispose of all equity interests in Wonder Dredging, and to appoint directors and senior management of Wonder Dredging.

Our Corporate Information

We are a BVI holding company and we conduct our dredging operations through our PRC subsidiary and variable interest entities. China Dredging Group Co. Ltd. was incorporated under the BVI Business Companies Act, 2004, or the Companies Act. China Dredging HK was organized under the Hong Kong Companies Ordinance. Fujian WangGang was organized under the Company Law of the PRC (2006), the Wholly-Foreign Owned Enterprise Law (1986), as amended, and the Wholly-Foreign Owned Enterprise Law Implementing Rules (1990), as amended. Fujian Service was organized under the Company Law of the PRC (2006). Wonder Dredging was organized under the Company Law of the PRC (2006). For further information regarding the legislation under which we operate, please see “— Our Corporate Structure.” Our principal executive offices are located at Floor 18, Tower A, Zhongshan Building No. 154, Hudong Road, Gulou District, Fuzhou City, Fujian Province 350001, PRC. Our telephone number at this address is +86-591-8727-1266. Our registered office in the BVI is located at Kingston Chambers, PO Box 173, Road Town, Tortola, BVI. For a description of our principal capital expenditures and divestitures in the past three fiscal years and currently in progress, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Investors should submit any inquiries to the address and telephone number of our principal executive offices. Our main website is www.chinadredgingco.com. The information contained on our website is not a part of this prospectus. Our agent for service of process in the United States is C T Corporation System.

BUSINESS

Overview

We provide specialized dredging services exclusively to the Chinese marine infrastructure market and, based on the number and capacity of the dredging vessels we operate, we believe that we are one of the leading independent (not state-owned) providers of such services in the PRC. Since inception, we have functioned exclusively as a specialist subcontractor, performing dredging services for other companies licensed to function as general contractors. We engage in capital dredging, maintenance dredging and reclamation dredging projects. Currently, we primarily source our projects by subcontracting projects from general contractors. Through our management skills, efficient operation and effective cost control, we believe that we have established a competitive edge and gained a credible reputation in our market. Moreover, by successfully executing numerous projects, we have strengthened our relationship with our general contractors, an important factor in establishing a secure pipeline of future business.

Two of our largest customers have indicated to us through non-binding long-term cooperation agreements their intent to increase the level of project activity subcontracted to us over the five year period from 2010 through 2014. Collectively, these non-binding agreements represent approximately $3.4 billion of estimated aggregate revenue over the remaining four years and approximately $537 million during 2011 that we believe is potentially available to us and that could sustain the anticipated growth of our fleet and ongoing high utilization levels. However, as these agreements are non-binding, they may not actually result in any potential contract value and we may realize considerably less value under each of these agreements.

Operating Process

Our operations principally involve identifying potential projects, signing subcontracts and carrying out the contract dredging work. We have developed a comprehensive project management system spanning the project execution process, including project planning, contract management, contract performance, project control and project completion.

Our Role and Participation Level

We participate in dredging activities solely as a subcontractor to qualified large general contractors such as China Communications and Changjiang Waterway, since our dredging projects are typically one portion of a much larger-scale construction project that could cover elements such as port construction, cofferdam, and other fields of work in which we do not engage. The terms of the main contracts with the underlying customers are generally reflected in the contracts we sign with the general contractors.

These general contractors with which we generally work have strict evaluation procedures based on a number of parameters including their evaluation of subcontractor performance on previous jobs. We have observed that our general contractor customers prefer to maintain long and close relationships with reliable subcontractors like us and to establish with them training programs and technical cooperation arrangements that bolster consistency and quality of work. We also perceive that the subcontracting levels of the PRC’s largest general contractors have increased in the past few years as the gap continues to widen between their capacity and the national backlog of dredging projects. In some cases, we believe that subcontracting is appealing to our customers because it allows the subcontractors to improve overall efficiency and make the total project more manageable by outsourcing some fraction of the work. Accordingly, we believe, based on the non-binding cooperation agreements that we have executed with our largest general-contractor customers that those customers intend to increase the amount of work that is subcontracted to specialist subcontractors such as us.

Identifying Projects

We identify potential projects from a variety of sources, including advertisements by governmental agencies, through the efforts of our business development personnel and through meetings with general contractors and other industry participants. After determining which projects are available, we make a decision on which projects to pursue based on factors including project size, duration, availability of personnel, current backlog, competitive advantages and disadvantages, prior experience, geographic location and type of contract.

Pre-Qualification

We are generally required to complete a prequalification process with the applicable general contractor for the project. General contractors generally require that we meet certain qualification requirements before negotiating or accepting our application for a project. The prequalification process may require the submission of information concerning financial condition, past experience and the availability of personnel and equipment. If a general contractor determines that a prospective subcontractor does not meet its criteria it will not award the proposed project to the subcontractor.

Project Pricing and Negotiation

Prior to agreeing on a subcontract, we perform a study of the proposed project, including an evaluation of the technical and commercial conditions and requirements of the project followed by a site visit. The information we collect is then analyzed to arrive at the cost of items included in a detailed project budget used in the negotiation of price terms with the general contractors. Most of our dredging contracts are awarded and carried out on a fixed-price basis, subject to adjustment factors for unforeseen conditions, with a predetermined timetable for project completion. These types of contracts generally commit the contractor to provide specified resources and to complete the project for a fixed sum or at fixed unit prices on a specified schedule. As is typical for dredging subcontracts, our contracts to date were the result of negotiations with the general contractor customers and are not competitively bid.

Our contracts to date have not contained escalation clauses since they are of short duration and raw materials with volatile prices, such as fuel, are typically supplied by the prime contractor for use on the job at no cost to us. Correctly estimating the costs involved in a fixed-price contract is crucial to achieving profitability. We carefully estimate the costs of each project prior to signing a subcontract. Our estimates are based upon both the general contractors’ estimates of material quantities to be dredged and our own experience in estimating project costs. There are a number of factors that can influence the final project costs as compared to the original contract price. The most important factors include site and environmental conditions that differ from those assumed in the original bid, the geographic location of the project, the availability and pricing of raw materials, and inclement weather conditions.

Payment Terms

The specific payment terms on our subcontracts vary from project to project. However, they have generally provided for us to receive payments following completion of each stage of completed work, which is customary in the industry. Our typical short-duration subcontract provides for payment to us of 20% to 30% at the end of the second month of work, 20% to 30% at the end of the third month of work and the balance within ten to fifteen days after completion. Prior to payment, each stage of the project is certified as completed by a site engineer and accepted by the general contractor. All of our projects completed to date have been performed within the range of two to nine months. We carefully monitor our costs throughout the life of a project to protect us against and reduce significant cost overruns.

Project Implementation

We appoint a project manager to be responsible for all project activities. The project manager divides work on a project into distinct components and assigns each component to a responsible crew based upon the nature of such work and the crew’s qualifications and experience. Project managers typically prepare a detailed plan for the project that includes the following elements:

project schedule (consistent with the project conditions and payment schedule);

labor deployment (consistent with the skill level and the estimated number of workers for each type of work);

provision of temporary office and public utilities, for example, water, electricity and telephone; and

work plans/instructions detailed for each phase of the project.

The implementation process includes devising detailed dredging plans, procuring materials, assigning work to captains, coordinating with general contractors or their consultants, coordinating with suppliers, and taking charge in the overall management of the project.

Project History

As of December 31, 2010, we had successfully completed 53 projects since our formation in January 2008. From January 1, 2011 through the date of this prospectus, we commenced work on an additional 14 projects.

Vessels

As of the date of this prospectus, we operate trailer suction hopper dredgers, non-self-propelling cutter suction dredgers and grab dredgers. Trailer suction hopper dredgers are typically self-propelled and have the general appearance of an ocean-going vessel. The dredger has hollow hulls, or “hoppers,” into which material is suctioned hydraulically and deposited. Once the hoppers are filled, the dredger sails to the designated disposal site and either bottom-dumps the material or pumps the material from the hoppers through a pipeline to a designated location. Hopper dredgers can operate in rough waters, and are less likely to interfere with ship traffic than other types of dredgers. They can also move quickly from one project to another.

Cutter suction dredgers remove material using a revolving cutter head which cuts and churns the sediment on the ocean floor and hydraulically pumps the material by pipe to the disposal location. These dredgers are very powerful and can dredge some types of rock. Certain materials can be directly pumped as far as seven miles with the aid of booster pumps. Cutter suction dredgers work with an assortment of support equipment that assists with the positioning and movement of the dredger, handling of the pipelines, and the placement of the dredged material.

Grab dredgers are a type of mechanical dredger that remove hard-packed sediments and debris and can work in tight areas, such as areas along docks or terminals. Grab dredgers with specialized buckets are more suitable for handling material requiring controlled disposal. The dredged material is placed onto material barges for transport to the designated relocation site. The barges are emptied by bottom-dumping, direct pump-out or removal by crane.

The following tables set forth information regarding the vessels we operate as of the date of this prospectus:

Trailer Suction Hopper Dredgers	Capacity (cubic meters per hour)	Leased/Owned	Purchase/Lease Date	Year Built
Hengshengjun #88	3,500	Leased	January 2008	1983
Liya #10	6,500	Leased	June 2010	1990
Fuyuan #7	7,000	Leased	July 2011	2009

Non-Self-Propelling Cutter Suction Dredgers	Capacity (cubic meters per hour)	Leased/Owned	Purchase/Lease Date	Year Built
Xinggangjun #3	2,000	Owned	May 2008	2008
Xinggangjun #66	3,500	Owned	March 2008	2008
Xinggangjun #6	2,500	Owned	May 2008	2008
Xinggangjun #9	2,500	Owned	June 2008 (1)	2008
Xiechang #18	2,500	Leased	June 2010	2009
Honglinjun #19	3,800	Leased	April 2011	2009
Fuyuan #5	3,000	Leased	July 2011	2009
Minningdejun #0099	2,500	Leased	September 2011	1986

Grab Dredgers	Capacity (cubic meters per hour)	Leased/Owned	Purchase/Lease Date	Year Built
Hengshunda #1	350	Leased	June 2011	2007
Liya #2	350	Leased	June 2011	2007

(1)

We commenced leasing Xinggangjun #9 in June 2008 and acquired it in January 2011.

In May 2009 we entered into a purchase agreement with Yiyang Zhonghai Vellel LLC, or Yiyang, an unrelated company, for a new non-self-propelling cutter suction dredger, at a purchase price of approximately $30.3 million, on which we made a down payment of approximately $2.3 million. The contract stipulates that payments toward the purchase price of the new dredger, after giving effect to the down payment, are payable according to the following schedule: 30% within three months after delivery, 25% within six months after delivery, 25% within nine months after delivery and 20% within twelve months after delivery. Delivery of the vessel is expected in or before May 2012.

In May 2011, we entered into a construction agreement with Yiyang to build a new non-self-propelling 3,800 m 3 /h cutter suction dredger, for approximately $39.4 million (RMB260 million). Construction is expected to take approximately 18 months. Payments toward the construction price of the new dredger are to be made by us as follows: 20% within seven days after signing the agreement, 30% within one month after signing the agreement, 20% within seven days after the completion of the main dredger hull, 20% within seven days after the dredger is launched, and 10% after completion of mooring trial of the dredger but before delivery. Delivery of the vessel is expected in or before December 2012. We will withhold approximately $0.1 million as quality earnest money, to be paid after a one-year warranty period.

Component Suppliers

We purchase supplies and component parts from recognized suppliers with pricing terms negotiated on a yearly basis. These contracts are generally fixed price supply contracts, under which we are obligated to procure a fixed amount of supplies and consumable parts annually. The following table sets forth information regarding the suppliers that, as of December 31, 2010, 2009 and 2008 are listed below.

Supplier	Vessel Component List	Purchase Amount in 2008 ($ in millions)		Purchase Amount in 2009 ($ in millions)		Purchase Amount in 2010 ($ in millions)
Dalian Locomotive and Rolling Stock Co., Ltd. CNR Group	mud tube, steel tube, floating body, anchors floating, rubber hose, etc.		11.6		19.5		9.6
Tianjin Puyou Mech. & Elec. Equipment MFG. Co., Ltd.	anchor, pump, solenoid valve, governor rotating components, pressure sensors, etc.		6.1		9.2		—
Taizhou Haiguang Mechanical Manufacturing Industrial Co., Ltd	steel plate, angle iron, one-piece compound plate, etc.		1.1		1.5		1.4
Shijiazhuang Shengshi Pump Co., Ltd	rake head, lacquer, seal ring, steel tube, etc.		—		—		9.1
Sinohydro Bureau 13 Co., Ltd Rubber & Plastic Factory	floating pipe, rubber hose, rubber mat, etc.		—		—		9.1

Purchasing of major components such as mud pipes are budgeted and ordered after thorough on-site investigation and a calculation of the demands of each project, and usually are exclusively used in one project. We usually buy an extra percentage of each component to use as replacement parts. All materials bought from these three suppliers are delivered to the construction site of each project after the suppliers received all the payment. After completion of each project, used and abandoned components are sent back to the suppliers.

Dredging Service Procedure

Dredging Methods

Three dredging methods are commonly used: the stow-and-hold method, the side discharge method and the reclamation method. Our trailing suction hopper dredgers use the stow-and-hold method, which is illustrated in the following chart:

Our cutter suction dredgers use the reclamation method, which is illustrated in the following chart:

Our grab dredgers use the side discharge method, which is illustrated in the following chart:

Quality, Safety and Environmental Protection Control

We have established and implemented a unified quality, safety and environmental protection control and management system that govern all projects. The management system specifies the standards to be met in terms of quality, safety and environmental protection control, clarifies the responsibility of various departments and personnel, identifies procedures, materials and other factors that are subject to the control of management, and provides for measures to be undertaken to ensure that various standards are met. We are committed to achieving a high standard of quality in the management and performance of our contract work. We believe we have established a favorable reputation for quality and technical ability.

We have a Safety and Dispatching Department which is responsible for regulating labor, hygiene and safety conditions, and monitoring compliance with statutory environmental regulations relating to air, water, noise and solid waste pollution. Department managers focus on applying safety and anti-pollution measures, as well as regular internal safety and environmental inspections, at all stages of the operational process to reduce the possibility of work-related accidents and injuries, occupational illness and environmental contamination. Our general contractor customers also monitor the safety of workers and environmental impact of our work. It is our policy and practice to provide safety education to employees and safety standards have been established in connection with matters such as purchasing, installing and operating new equipment, constructing new facilities and improving existing facilities.

We seek to develop new technology and operational know-how to improve safety conditions and to protect the environment. Management believes that our safety control systems, environmental protection systems and facilities are adequate to comply with applicable PRC national and local regulations.

Customers

We have established close, cooperative relationships with China Communications, the largest state-owned general contractor in the PRC that undertakes dredging projects, and with and Changjiang Waterway. The following table sets forth all our customers, the revenues derived from such customers, and the percent of total revenue for the periods indicated:

	For the Years Ended December 31,										For the Period from January 8, 2008 (Inception) to
	2010					2009					December 31, 2008
Customer	Revenue		Percent of Total Revenue			Revenue		Percent of Total Revenue			Revenue		Percent of Total Revenue
China Communications Guangzhou Dredging Co., Ltd (State-Owned)	$	27,171,214		20.7	%	$	25,832,823		32.2	%	$	26,300,469		48.3	%
Shenzhen Guoyuan Engineering Co., Ltd		7,682,169		5.8	%		8,804,504		10.9	%		11,537,796		21.2	%
Shenzhen Guangjun Engineering Co., Ltd		—		—			—		—			13,028,044		23.9	%
Shenzhen Shekou Merchants Harbor Engineering Co., Ltd		—		—			—		—			3,613,962		6.6	%
China Communications Shanghai Dredging Co., Ltd (State-Owned)		47,876,031		36.4	%		13,354,633		16.6	%		—		—
Changjiang Wuhan Waterway Engineering Company (State-Owned)		5,086,628		3.9	%		32,341,931		40.3	%		—		—
Guangdong Jindonghai Holding Co., LTD		4,297,557		3.3	%		—		—			—		—
Tianjin Hongdeshengyu Port Engineering Co., LTD		13,920,732		10.6	%		—		—			—		—
CCCC Tianjin Dredging Co., LTD		13,694,917		10.4	%		—		—			—		—
COECG Dalian Bureau		10,739,467		8.2	%		—		—			—		—
ShenZhen Hangfeng Dredging Engineering Co., Ltd.		936,950		0.7	%		—		—			—		—
Total	$	131,405,665		100.0	%	$	80,333,891		100.0	%	$	54,480,271		100.0	%

Through our performance in a diverse range of dredging projects, we believe we have developed a favorable reputation among local governments, suppliers and contractors, as well as a loyal customer base.

Competition

We face significant competition in the PRC markets in which we operate. Our competition comes from various sources, including the internal operations of our general contractor customers and numerous private companies providing dredging services as general contractors or subcontractors. Some of our competitors may have advantages over us in terms of capacity, access to capital pricing and management expertise. Our market position and growth prospects depend on our ability to anticipate and respond to various competitive factors, including pricing strategies adopted by competitors, changes in customer preferences or work priorities, availability of capital and financing resources and the introduction of new or improved equipment, technology and services.

Our current or potential competitors may offer services or products comparable or superior to those that we offer at the same or lower prices or adapt more quickly than we do to evolving industry trends or changing market conditions. We may lose our customers to our competitors if, among other things, we fail to keep our prices at competitive levels or to sustain and upgrade our capacity and technology. Increased competition may result in price reductions, reduced profit margins and loss of market share.

Employees

We had 58, 70 and 81 full-time employees as of December 31, 2008, December 31, 2009 and December 31, 2010, respectively. However, as of December 31, 2010, we utilized 298 people in our day-to-day operations, of which 81 persons were directly employed by us, 175 persons were hired by owners of our leased vessels and 43 persons were supplied by a labor service company.

Approximately 28 crew members are staffed on each dredger, with one captain, three vice captains, four engineers, nine machinists, ten sailors and one cook. Our policy is to appoint employees (as opposed to outsourced staff) to important positions in our three company-owned dredgers, such as captain and chief engineer. We believe this enables us to build an effective personnel training system and establish a professional team.

We generally sign engagement contracts of five years with our employees working on our vessels. These agreements are at competitive salaries and generally provide for social and medical insurance. We believe that the use of long-term employment contracts helps to maintain a stable work force. In accordance with applicable PRC regulations, the insurance encompasses pension contributions and medical, unemployment, maternity and personal injury insurance. The amount of contributions is based on the specified percentages of a particular employee’s aggregate salary as provided for by relevant PRC law.

The crew for our leased dredgers are hired by the dredger owners and the labor costs are included in the vessel lease contracts. As of June 30, 2011 and December 31, 2010, a total of 141 and 175 crew members worked on the leased dredgers, respectively. Welfare and benefit payments for the crew are paid by the lessors. The labor supply contracts for the leased dredgers coincide with the termination of the respective boat leases. We pay a fixed quarterly payment to each lessor, as shown in the table below.

Dredger	Quarterly Payment		Expiration Time
Hengshengjun #88	$	137,918	January 9, 2016
Xiechang #18		147,113	June 24, 2013
Liya #10		142,516	June 14, 2013
Honglinjun #19		160,905	April 26, 2014
Fuyuan #5		156,307	July 16, 2012
Fuyuan #7		160,905	July 18, 2012
Hengshunda #1		68,959	June 29, 2013
Liya #2		68,959	June 29, 2013
Minningdejun #0099		156,307	December 31, 2012
TOTAL	$	1,199,889

We also outsource labor from one labor supply company to meet our changing requirements for personnel. As of both June 30, 2011 and December 31, 2010, 43 crew members were outsourced under three agreements for our dredgers, for which the total monthly payments were approximately $34,000 during 2010. Welfare and benefit payments for such personnel are covered by the company supplying the laborers.

We have not experienced any significant labor disputes and we believe that we maintain satisfactory relationships with our employees. We invest in continuing education and training programs for staff with a view to constantly upgrading their skills and knowledge. Individual employment contracts with employees to cover matters such as wages, employee benefits, training programs, safety and sanitary conditions in the workplace, confidentiality of our proprietary information and grounds for termination.

Intellectual Property

We have no material intellectual property.

Research and Development

As part of our ordinary business operations, we explore new and more efficient methods of performing dredging services. However, from inception through June 30, 2011, we have not recorded any costs that are classified as research and development expenses.

Legal Proceedings

Fujian Service was sued in four related lawsuits brought by several individuals in Wenzhou, China, in May 2010. The lawsuits related to a traffic accident that allegedly caused the deaths of two people and injuries to two other people. The plaintiffs alleged that a truck was hired for the Lingkun Construction Project, and that the owner, the general contractor and Fujian Service as the subcontractor of the Lingkun Construction Project, all of whom were named as co-defendants in these lawsuits, were responsible for the damages. The plaintiffs claimed total damages of approximately $0.6 million. The court in the first instance for these four lawsuits held that Fujian Service was not responsible for any of the claims by the plaintiffs. Such court decisions are legally effective as they were not appealed. From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

Facilities

Under current PRC law, land is owned by the state, and parcels of land in rural areas, which is known as collective land, is owned by the rural collective economic organization. “Land use rights” are granted to an individual or entity after payment of a land use right fee is made to the applicable state or rural collective economic organization. Land use rights allow the holder the right to use the land for a specified long-term period. On January 1, 2008, we entered into an office lease with Ping Lin, the wife of Xinrong Zhuo, our Chairman and Chief Executive Officer, for approximately 1,086 square feet of space located at Floor 18, Tower A, Zhongshan Building, No. 154, Hudong Road, Gulou District, Fuzhou City, Fujian Province, PRC. This agreement was renewed and extended from January 1, 2010 to December 31, 2015. Annual lease payments to Ping Lin were approximately $9,000 in each of 2008 and 2009 and approximately $12,000 in 2010.

On April 29, 2011, Wonder Dredging entered into an office lease with Ping Lin, the wife of Xinrong Zhuo, our Chairman and Chief Executive Officer, for approximately 538 square feet of space located in the same building. Pursuant to the lease agreement, Wonder Dredging is obligated to make annual lease payments of approximately $6,000.

On June 8, 2011, Fujian WangGang entered into an office lease with Ping Lin, the wife of Xinrong Zhuo, our Chairman and Chief Executive Officer, for approximately 645 square feet of space located in the same building. Pursuant to the lease agreement, Fujian WangGang is obligated to make annual lease payments of approximately $7,000.

We do not own or occupy any other property in the PRC or elsewhere in the world, other than temporary arrangements for project office or storage/staging space that may be contracted from time to time. We believe that our existing facilities and equipment are well maintained and in good condition, and are sufficient to meet our needs for the foreseeable future.

PRC GOVERNMENT REGULATIONS

This section sets forth a summary of all regulations that materially affect our business activities in China or our shareholders’ rights to receive dividends and other distributions from us. As the dredging and marine industries in China continue to develop, new laws and regulations may be adopted from time to time that will require us to obtain licenses and permits in addition to those that we currently have and address new issues that arise from time to time. As a result, substantial uncertainties exist regarding the interpretation and implementation of current and any future Chinese laws and regulations applicable to us. See “Risk Factors — Risks Relating to Doing Business in the PRC.”

Principal Regulatory Authorities

We are regulated by several governmental authorities in China. The Ministry of Transport of the PRC, or MOTRAN, is responsible for the administration and construction of ports and highways at the national level. The Ministry of Construction implements centralized supervision and administration on construction works throughout China. The Development and Reform Commission, either at the provincial or local level, is responsible for the investment plan of transportation construction works. The transportation administration authorities, either at the provincial or local level, are responsible for the construction plan of transportation construction works. The construction administration authorities, either at the provincial or local level, are responsible for the examination and approval of transportation construction works.

Administration of Qualifications

Responsible Regulatory Authorities

Under the provisions of the Port Law of the PRC, or the Port Law, which took effect in January 2004, and the Construction Law of the PRC, or the Construction Law, which took effect in March 1998, and other relevant laws and regulations, an enterprise engaged in construction, reconnaissance, design and supervision activities for water transport and other construction engineering works may only enter into those contracts for which it is qualified. The Ministry of Construction and the provincial level administrative authorities responsible for construction works oversee issues relating to the issuance and application of contractor qualifications. MOTRAN and its provincial-level administrative authorities are responsible for communications to coordinate with the Ministry of Construction and provincial-level administrative authorities are responsible for administration and enforcement of qualification requirements for construction performed in their respective jurisdictions.

Qualification Categories for Construction Enterprises

Qualification of construction enterprises can be divided into three categories: general contractors, professional services contractors and labor services sub-contractors.

A general contractor is permitted to contract for the overall work entailed in a project. A general contractor can perform all works that are contracted for itself, or subcontract non-core construction works or labor services to qualified professional services contractors or qualified labor services sub-contractors.

A qualified professional service contractor may enter into a contract to provide professional services subcontracted out by a main contractor. Under such contracts, a professional services contractor may undertake all of the contracted work by itself, or subcontract out the labor services to qualified labor services sub-contractors.

A qualified labor services sub-contractor may enter into a contract to provide labor services contracted out by a general contractor or a professional services contractor.

As of the date of this prospectus, we function as a qualified professional service contractor.

Criterion for Qualifications of Construction Enterprises

Criterion for Qualifications of Construction Enterprise, or the Qualification Regulations, jointly issued by PRC Ministry of Commerce, the PRC Ministry of Railways and other related government authorities, set forth the criteria for three different levels of construction work qualifications. Currently Fujian Service has obtained the Level-III qualification for enterprises undertaking waterway engineering projects and plans to apply for the Level-II qualification, which is superior to the Level-III qualification. According to the Qualification Regulations, the criteria for Level-II qualification are as follows: (i) the applicant should have completed at least 3 out of 5 types of projects listed below in recent 5 years: 20,000 tons of coastal or 300 tons of inland navigation channel, 2,000,000 cubic meters of dredging project, 1,500,000 cubic meters of reclamation project, 10,000 cubic meters of reef removing project, a single port contract valued at $5,860,000 or a river navigation project contract valued at $2,930,000; (ii) the project manager of the applicant should have no less than 10 years of experience in construction management with a minimum of mid-level class qualification; the chief engineer of the applicant should have no less than 10 years of experience in engineering construction technical management with senior professional qualification; the chief accountant of the applicant should have a minimum of mid-level accountant qualification; the applicant should have no less than 150 engineers and financial managers, of which at least 80 engineers (at least 10 with senior professional qualification and 20 with mid-level qualification); (iii) the registered capital of the applicant should be no less than $2,930,000 and the net assets should be no less than $3,660,000; (iv) the highest annual project revenue in recent 3 years should be more than $5,860,000; (v) the applicant should have at least one 500 cubic meters per hour trailing suction hopper dredger or one 1,000 cubic meters per hour sucking vessel, or one mud-blowing vessel, one 400 cubic meters per hour cutter suction dredger, and one dredger with 2 cubic meters volume; and (vi) the applicant should have GPS and depth finder. Currently Fujian Service has met all of the criteria for Level-II qualification, except the following: (i) it does not have a dredger with 2 cubic meters volume; (ii) it does not have 150 or more engineers and financial managers; (iii) the project manager does not have 10 years or more experience in construction management with a minimum of mid-level class qualification. Fujian Service has planned to recruit the personnel with the requisite experiences and qualifications and to purchase a dredger with 2 cubic meters volume in order to be eligible for the Level-II qualification. However, it may take significant time for Fujian Service to meet such criteria.

Supervision of Quality

Under the Regulations on the Quality Management of Construction Projects issued by the State Council which took effect in January 2000, or the Supervision of Quality Regulations, sponsoring enterprises, reconnaissance firms, design firms, construction enterprises and project supervisory enterprises will all be responsible for the quality of construction projects. For complex construction projects that are governed by a main contract, the general contractor is responsible for the quality of the whole construction project and, where it subcontracts part of the project work, the subcontractors will be jointly and severally responsible for the quality of the construction work. If Fujian Service does not comply with the Supervision of Quality Regulations, it may be subject to fines, suspension of operations, degradation of the construction qualification, rework, repair and compensation. As of the date of this prospectus, Fujian Service has not been imposed any of the above penalties. Construction enterprises should present quality guarantees and maintenance certificates to the sponsoring enterprises when tendering the project completion report to the sponsoring enterprises.

Construction Law

According to the 1997 PRC Construction Law and other related regulations, if a general contractor subcontracts part of the projects to subcontractors with appropriate qualifications, except for the subcontracting as permitted in the general contracting agreement, prior approval from project owners is required. According to the Interpretation by the PRC Supreme Court Concerning the Application of Law in Trial of Dispute Cases Involving Construction Project Contracts, if a contractor illegally assigns or subcontracts the construction project, such act is invalid. The people’s court may confiscate the illegal income already obtained by the party.

Among the current and effective subcontracts to which Fujian Service is a party, only a few of them have obtained the approval from the project owner. Fujian Service has not been involved in disputes with general contractors or project owners so far, but it may encounter such disputes in the future. In the event a general contractor is decided by a court to subcontract the construction project illegally, the illegal income of Fujian Service may be confiscated, which could materially and adversely affect China Dredging’s business and results of operations. See “Risk Factors — Risks Relating to Doing Business in the PRC — Fujian Service has not obtained the consents from construction project owners for a substantial number of contracts currently in-progress and which therefore may be held invalid and subject it to confiscation of the associated income.”

Administration of Acceptance and Inspection for Completion

Pursuant to the Measures for Acceptance and Inspection for the Completion of Waterway Projects which took effect on March 1, 2008, upon completion of a port or waterway project, the project will be put into operation only after acceptance and inspection by the relevant construction authorities. It is the project owner’s obligation to apply to the administrative construction authorities for the acceptance and inspection of the project.

Environmental Protection Rules and Regulations

The Environmental Protection Law of the PRC, which took effect in December 1989, and the Marine Environmental Protection Law of the PRC, or the MEP Law, which took effect in March 1983 and amended in December 1999, provide that the State Environmental Protection Administration and the State Oceanic Administration oversee land and ocean environmental protection.

Pursuant to the Environmental Protection Law, the State Environmental Protection Administration sets the national discharge standards for pollutants. The government of provinces, autonomous regions and directly administered municipalities may issue local standards that are stricter than the national standards on the pollutants which are covered by the State standards. As to the pollutants which are not covered by the State standards, the government of provinces, autonomous regions and directly administered municipalities may issue local standards. An entity discharging pollutants in a region that has local standards must comply with the local standard for the discharge of pollutants. Entities discharging pollutants must report to and register with the environmental protection authorities. Entities discharging pollutants in excess of the standards must pay a charge for the excessive discharge and assume responsibility for the remediation of the pollution.

The MEP Law prohibits the discharge of certain pollutants into the sea under the jurisdiction of the PRC. All entities and individuals practicing direct discharge of pollutants into the sea shall, in accordance with the State regulations, pay pollutant discharging fees. Those who dump waste shall, in accordance with the State regulations, pay dumping fees. According to the MEP Law, the relevant government authorities may impose different penalties against persons or enterprises in violation of the MEP Law depending on the individual circumstances and extent of contamination. Such penalties include warnings, fines, imposition of deadlines for cure, orders to pay a pollutant discharge fee, payment of the cost for eliminating the pollution and compensation for the losses incurred by the state. According to the Regulations of the PRC on the Control over Prevention of Pollution by Vessels in Marine Environment promulgated by the State Council, vessels should also be equipped with all marine environment pollution prevention documents as required by the applicable laws, regulations and international treaties, and, the owner and the operator of the vessels of Chinese registry should establish the management system for safety operation and pollution prevention. Furthermore, all the owners of the vessels navigating in Chinese water must purchase the Ship Pollution Liability insurance, or obtain the relevant financial guarantee, and such insurance coverage should be no less than the oil pollution compensation limitation required by applicable laws and international treaties. Currently we have Ship Pollution Liability insurance for the dredgers we own. All the dredgers owned or leased by us are equipped with the oil pollution prevention certificates. Compliance with these regulations requires significant financial and other resources to establish effective compliance and monitoring systems.

Construction Work Safety Regulations

The regulations governing work safety for Fujian Service’s business are the Work Safety Law, the Regulations on License for Work Safety and the Regulations on Administration of Work Safety of Construction Projects.

According to the Work Safety Law of the PRC that took effect in November 2002, the State Administration of Work Safety of the PRC is in charge of the overall administration of work safety nationwide. The Ministry of Construction and the MOTRAN are also responsible for the administration of work safety of the relevant industries.

The Work Safety Law provides that a production entity must meet the state’s legal standard or industrial standard on work safety and provide work conditions set out in relevant laws, administrative rules and State or industry standards. An entity that cannot provide required work conditions may not engage in production activities. The designers and the design firms for the safety facilities of a construction project are liable for their designs. A production entity must install prominent warning signs at relevant dangerous operation sites, facilities and equipment.

Pursuant to the Regulations on Licenses for Work Safety promulgated by the State Council, which took effect in January 2004, a construction entity should not engage in construction activities unless it has a license for work safety. Fujian Service has obtained the license for work safety on August 10, 2011.

Pursuant to the Regulations on Administration of Work Safety of Construction Projects promulgated by the State Council, which took effect in February 2004, the sponsoring enterprise, reconnaissance enterprise, design enterprise, construction enterprise, supervisory enterprise and other related entities bear their respective responsibility for work safety. In the case of a project covered by a main contract, the general contractor will be liable for the general work safety of the construction site, and assume joint and several obligations for the sub-contracted portions of the project together with the sub-contractors. An entity in the construction industry must purchase accidental injury insurance for the workers engaged in dangerous works on the construction site for injuries suffered in work-related accidents, and the insurance premium will be paid by such entity. In the case of a construction work covered by a general contract, the insurance premium will be paid by the general contractor. The period covered by the insurance policies should commence on the commencement date of the construction project and terminate on the date of the acceptance and inspection upon the completion of the project.

Above-water and Under-water Constructions Work Permission Regulation

The PRC Ministry of Transportation has promulgated the Safety Administration Regulation on Above-water and Under-water Construction Works and Navigation, or the Above-water and Under-water Regulation, which took effect in January 2000. The Above-water and Under-water Regulation provides that the project owner or the constructing enterprise in above-water or under-water construction work must apply to the local maritime affairs authorities for inspection of safe navigation and construction, and may not commence any construction works until it has obtained the permit for above-water or under-water construction work upon inspection. Under the Above-water and Under-water Regulation, the project owner or the contractor of a construction project is required to obtain the permit for above-water and under-water construction works and navigation. However, it is not explicitly specified whether the project owner, the general contractor or the various subcontractors are ultimately responsible for obtaining the permit. If the permit is not obtained upon the commencement of an above-water or under-water construction project, the relevant government authorities may impose penalties upon any of the enterprises involved in the project for violation of such regulations. The penalties may include fines and orders to rebuild, move or remove the works. Although Fujian Service has not received any notice regarding penalties, it may be subject to penalties due to non-compliance.

Business License

Fujian Service’s most recent business license was issued in November 2010 by the Fujian Provincial Industry and Commerce Administration with term of operation from January 2008 to January 2028. The scope of Fujian Service’s business license covers Fujian Service’s present business to undertake port dredging and navigation channel dredging and to sell construction material, machinery and electrical equipment and parts.

Fujian WangGang was established as a WFOE and issued a business license in June 2010 by the Fujian Provincial Industry and Commerce Administration, with term of operation from June 2010 to June 2060. According to the articles of association and business license of Fujian WangGang, the scope of Fujian WangGang’s business covers port dredging, navigation channel dredging and investment in other enterprises within the same industry.

Regulations Related to the Ship Nationality Registration

According to the Regulation of Ship Registration of the PRC and other related regulations, a ship owned by the enterprise with more than 50% foreign ownership may not be registered with China nationality. In addition, a ship without a China nationality is not allowed to operate within the waters in the PRC. According to the requirements of the Rules of PRC Governing Vessels of Foreign Nationality, effective as of September 18, 1979, and other applicable rules and regulations, foreign vessels are required to obtain applicable permissions from the PRC administrative authorities for port entries into, navigations in, and exits from the PRC inland waterways and territorial seas. Consequently, the business operations of our operating company, Fujian Service, will be adversely affected if its foreign-owned equity is increased to more than 50%.

Regulations Related to Foreign-Invested Construction Enterprises

The RAFCE provides that wholly foreign-owned construction enterprises may only undertake certain types of construction projects prescribed by the RAFCE within the scope of their qualifications. In the case of a Chinese-foreign construction joint venture enterprise, the foreign ownership should be no more than 75%. The 50% equity interest of Fujian Service is held by Wonder Dredging, a domestic PRC enterprise, and the remaining equity interest of Fujian Service is held by Fujian WangGang, a WFOE. Accordingly, the foreign ownership of Fujian Service is no more than 50%.

Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents

Under SAFE Circular No. 75, PRC citizens and residents without PRC citizenship must register with the relevant local SAFE branch prior to their establishment or control of an offshore entity established for the purpose of an overseas equity financing involving onshore assets or equity interests held by them, and must also make filings with SAFE thereafter upon the occurrence of certain material capital changes. The registration and filing procedures under SAFE Circular No. 75 are prerequisites for other approval and registration procedures necessary for capital inflow from the offshore entity, such as inbound investments or shareholders’ loans, or capital outflow to the offshore entity, such as the payment of profits or dividends, liquidating distributions, equity sale proceeds or the return of funds upon a capital reduction.

A notice issued by SAFE in May 2007, or Circular 106, provides more detailed provisions and requirements regarding the foreign exchange registration under SAFE Circular No. 75. Under Circular 106, the PRC subsidiary of an offshore SPV is required to coordinate and supervise the filing of foreign exchange registrations by the offshore holding company’s shareholders who are PRC residents in a timely manner. Furthermore, individuals who do not have domestic legal status in the PRC but reside in the PRC habitually for the purpose of economic interests are also subject to the foreign exchange registration procedure regardless whether he or she has a PRC statutory identification certificate. Such procedure includes (i) individuals who have domestic permanent residence and leave their domestic permanent residence temporarily for reasons such as overseas travel, study, medical treatment, work, or the requirements of overseas residence; (ii) individuals who hold domestic-funded rights and interests in domestic enterprises; or (iii) individuals who hold domestic-funded rights and interests in domestic enterprises which were converted into foreign-funded rights and interests with the same individual holding the aforementioned rights and interests.

A notice issued by SAFE on May 20, 2011, or Circular 19, further provides detailed provisions and requirements regarding the foreign exchange registration under SAFE Circular No. 75. Under Circular No. 19, any PRC citizen, resident, or entity which is a direct or indirect shareholder of an SPV is required to update the previously filed registration with the local branch of SAFE, with respect to that SPV, to refelct any material change. Moreover, any SPV which fails to comply with Circular No. 75 may rectify to make the registration with the local branch of SAFE after fulfillment of the administrative penalties imposed by the related SAFE branch.

We conduct business in China primarily through contractual arrangements with Wonder Dredging and its respective shareholders. The shareholders of Wonder Dredging are Qing Lin and Panxing Zhuo. Because our founder and controlling shareholder, Mr. Xinrong Zhuo, obtained his Hong Kong identity card in 2005 and surrendered his PRC identity subsequently thereto but still resides in mainland China, there is a risk that he may be determined as the PRC resident defined in SAFE Circular No. 75. Due to the uncertainty over how SAFE Circular No. 75 will be interpreted and implemented, we cannot predict how it will affect our business operations or future strategies. If SAFE Circular No. 75 were determined to apply to us or any of our PRC resident shareholders, currently none of whom has made registrations or filings according to SAFE Circular No. 75, a failure by any of our shareholders or beneficial owners to comply with SAFE Circular No. 75 may subject the relevant shareholders or beneficiaries to penalties under PRC foreign exchange administrative regulations, and may subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure and capital inflow from the offshore entity, which would have a material adverse effect on our business, financial condition, results of operations and liquidity as well as our ability to pay dividends or make other distributions to our shareholders. In addition, we may not be informed of the identities of the beneficial owners of our company and our Chinese resident beneficial owners, if any, may not comply with SAFE Circular No. 75. The failure or inability of our beneficial owners who are PRC citizens, residents or entities to make or amend any required registrations may subject these PRC residents or our PRC subsidiary to fines and legal sanctions, and may also limit our ability to contribute additional capital into our PRC subsidiaries and limit our PRC subsidiaries’ ability to make distributions or pay dividends to us, as a result of which our business operations and our ability to distribute profits to you may be materially and adversely affected.

M&A Regulations and Overseas Listings

In August 2006, six PRC regulatory agencies, including MOFCOM and the CSRC, promulgated the M&A Regulations, which took effect in September 2006. The M&A Regulations purport to require an offshore SPV to obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange, and under the M&A Regulations, an SPV is defined as an offshore company directly or indirectly controlled by PRC domestic companies or individuals for the purposes of listing the equity interests in PRC companies on overseas stock exchanges. In September 2006, the CSRC published on its official website the procedures regarding its approval of overseas listings by SPVs. The approval procedures require the filing of a number of documents and would take several months. However, it remains unclear whether the M&A Regulations and the requirement of the CSRC approval apply to our offering. Up to the date of this prospectus, the CSRC has not issued any rules or written interpretation clarifying whether offerings like ours under this prospectus are subject to this new procedure.

Our PRC legal Counsel, Dacheng Law Offices LLP (Fuzhou), based on its understanding of current PRC laws, regulations and rules, has advised us that the M&A Regulations are not applicable to us or the series of transactions we have already consummated to establish our current corporate structure, and that any potential quotation of our ADSs on the OTCBB or any listing and trading of our ADSs on a U.S. stock exchange would not require CSRC’s approval because our founder and controlling shareholder, Mr. Xinrong Zhuo, is not a mainland PRC natural person. However, the relevant PRC government authorities, including MOFCOM and the CSRC may reach a different conclusion than our PRC counsel. If prior approval from MOFCOM or the CSRC is required but not obtained, we may face sanctions by MOFCOM, the CSRC or other PRC regulatory agencies. Consequently, MOFCOM, the CSRC or other PRC regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operations in the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. MOFCOM, the CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, not to commence a public offering. We would have to file the documents as required and comply with any sanctions imposed by the relevant regulatory agencies if such approval is required.

Regulations of Security Review

The Circular of the General Office of the State Council on the Establishment of Security Review System Regarding the Merger & Acquisition of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, or the Circular of Security Review, and the Regulations of Implementing the Security Review System Regarding Merger & Acquisition of Domestic Enterprises by Foreign Investors promulgated by MOFCOM on August 25, 2011, or the Regulations of Security Review collectively, provide that any foreign investor should file the application to the MOFCOM for the merger & acquisition of domestic enterprises in sensitive sectors or industries. Furthermore, the aforementioned security review shall not be substantially evaded by VIE control or any other methods. The Circular of Security Review was put into effect on March 5, 2011. As our current ownership structure or contractual arrangements were established before 2011, our PRC counsel, Dacheng Law Offices LLP (Fuzhou), is of the view that the Regulations of Security Review do not apply to us or the series of transactions we have already consummated to establish our current corporate structure. However, the relevant PRC regulatory authorities may have a different view or interpretation in this regard when implementing the Regulations of Security Review. As a result, our future mergers and acquisitions of PRC domestic enterprises may be subject to PRC security review, which could be time-consuming and complex, and in turn affect our ability to expand our business or maintain our market share.

Employment Laws

We are subject to laws and regulations governing our relationship with our employees, including: wage and hour requirements, working and safety conditions, citizenship requirements, work permits and travel restrictions. These include local labor laws and regulations, which may require substantial resources for compliance. Fujian Service has been issued, and Fujian WangGang is currently in the process of application for, the statistic registration certificate and social insurance registration certificate.

China’s Labor Law, which became effective in January 1995, and China’s Labor Contract Law, which became effective in January 2008, provide for strong protection for the employees. According to the Labor Contract Law, employers have the obligation to enter into written labor contracts with employees to specify the key terms of the employment relationship. The law also stipulates, among other things, (i) that all written labor contracts shall contain certain requisite terms; (ii) that the length of trial employment periods must be in proportion to the terms of the relevant labor contracts, which in any event may not be longer than six months; (iii) that in certain circumstances, a labor contract is deemed to be without a fixed term and thus an employee may only be terminated with cause; and (iv) that there are certain restrictions on the circumstances under which employers may terminate labor contracts as well as the economic compensations to employees upon termination of the employee’s employment.

Housing Fund Law

Under the Administrative Regulation on Housing Fund, an employer must make a housing fund payment and deposit registration upon its establishment and pay the housing fund for and on behalf of its employees at a percentage between 5% and 12% of the respective employee’s monthly average wage of the preceding year. Where an employer fails to make the housing fund payment and deposit registration, the housing fund administration authority may order it to complete the registration within a time limit or be assessed a fine of RMB10,000 to RMB50,000. Where an employer fails to make the housing fund payment for and on behalf of its employees within the time limit or under the requisite percentage, it may be ordered by the housing fund administration authority to deposit the fund within a time limit, together with late fees of 0.03% of such amount; otherwise, the authority may apply to the local court for enforcement.

Fujian Service has not made the housing fund payment and deposit registration or paid the housing fund for and on behalf of its employees due to inconsistent implementation and interpretation by local authorities in the PRC and different levels of acceptance of the social security system by employees. In the future, Fujian Service may be required to make such past housing fund payments, pay late fees, and pay fines for non-compliance. Any judgment or decision against Fujian Service in respect of outstanding housing fund matters could have an adverse effect on our results of operations. See “Risk Factors — Risks Relating to Doing Business in the PRC — Fujian Service has not made past housing fund payments for and on behalf of its employees and may be required to make such payments and may be subject to fines or penalties.”

Regulations on Foreign Currency Exchange

Under BVI law, there is no exchange control legislation and accordingly there are no exchange control regulations imposed under BVI law, including foreign exchange controls or restrictions, that affect the remittance of dividends, interest or other payments to BVI nonresident holders of our shares.

Foreign currency exchange in the PRC is governed by a series of regulations. One of the key regulations governing foreign currency exchange in China is the Foreign Exchange Administration Regulation, most recently amended on August 5, 2008. Under this regulation, Renminbi is freely convertible only to the extent of current account items, such as trade-related receipts and payments, interest and dividends. Capital account items, such as direct equity investments, loans and repatriation of investment, require the prior approval from SAFE or its local branch for conversion of Renminbi into a foreign currency, such as U.S. dollars. Payments for transactions that take place within the PRC must be made in Renminbi. Domestic companies or individuals can repatriate foreign currency payments received from abroad, or deposit these payments abroad subject to the requirement that such payments by repatriated within a certain period of time. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks. Foreign currencies received for current account items can be either retained or sold to financial institutions that have foreign exchange settlement or sales business without prior approval from SAFE, subject to certain regulations. Foreign exchange income under capital account can be retained or sold to financial institutions that have foreign exchange settlement and sales business, with prior approval from SAFE, unless otherwise provided.

On March 3, 2003, SAFE issued the Notice on the Relevant Issues concerning the Improvement of Foreign Exchange Administration of Direct Investments by Foreign Investors which provides that the capital contributions by foreign investors in a foreign-invested enterprise should be reviewed and approved by SAFE or its local counterpart.

On August 29, 2008, SAFE issued another circular, or Circular 142, which regulates the conversion by foreign-invested enterprises of foreign currency into Renminbi by restricting how the converted Renminbi may be used. Circular 142 requires that Renminbi converted from the foreign currency-dominated capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the relevant government authority and may not be used to make equity investments in PRC, unless specifically provided otherwise. SAFE further strengthened its oversight over the flow and use of Renminbi funds converted from the foreign currency-dominated capital of a foreign-invested enterprise. The use of such Renminbi may not be changed without approval from SAFE, and may not be used to repay Renminbi loans if the proceeds of such loans have not yet been used. Any violation of Circular 142 may result in severe penalties, including substantial fines.

In addition, under the Regulations of Settlement, Sale and Payment of Foreign Exchange issued by the PBOC, foreign invested enterprises are required to comply with certain procedural requirements to settle foreign currencies, such as providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from SAFE or its local counterpart. Furthermore, the PRC entity cannot settle foreign currencies, including loans or direct investments, from offshore entity or natural persons without the prior approval by SAFE or its local counterpart.

We have historically received all of our revenues in Renminbi and we expect that to continue to be the case in the foreseeable future. Our inability to obtain the requisite approvals or any future restrictions on currency exchanges could limit our liability to utilize revenue generated in Renminbi to fund our business activities outside the PRC, or to repay foreign currency obligations. See “Risk Factors — Risk Relating to Doing Business in the PRC — Currency fluctuations and restrictions on currency exchange may adversely affect our business, including limiting our ability to convert Renminbi into foreign currencies and, if Renminbi were to decline in value, reducing our revenue in U.S. dollar terms.”

Furthermore, any loans or direct investments by us in our PRC entities are subject to the applicable regulations on Foreign Currency Exchange. We may not be able to obtain the required registration on a timely basis.

Administration of Foreign Debts

According to the Interim Provisions on the Administration of Foreign Debts jointly issued by the National Development and Planning Commission of the PRC, the Ministry of Finance of the PRC and SAFE, or Rule 28, the aggregate of the accumulated medium-term and long-term debts and the balance of short-term debts incurred by a foreign invested enterprise shall not exceed the difference between the total investment amount in projects and the registered capital of the foreign invested enterprise approved by the related authorities. Within the range of such difference, a foreign invested enterprise may borrow foreign loans at its discretion. If the loans exceed such difference, a foreign invested enterprise should apply to the related approval authority to increase the total investment amount in projects before the loans are made. The approved total investment of Fujian WangGang is equal to its registered capital. In the event that Fujian WangGang intends to borrow any foreign loan, Fujian WangGang should apply to the related approval authority to increase its total investment amount in advance.

Regulations on Dividend Distribution

The principal regulation governing distribution of dividends paid by wholly foreign-owned enterprises is the Company Law of the PRC (2006), the Wholly-Foreign Owned Enterprise Law (1986), as amended, and the Wholly-Foreign Owned Enterprise Law Implementing Rules (1990), as amended. Under these regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a foreign-invested enterprise in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends except upon liquidation. The board of directors, in the case of a foreign-invested enterprise, or the shareholders at a meeting, in the case of WFOEs, has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.

Annual Inspections

In accordance with relevant PRC laws, all types of enterprises incorporated under the PRC laws are required to conduct annual inspections with the State Administration for Industry and Commerce of PRC or its local branches. In addition, foreign-invested enterprises are also subject to annual inspections conducted by other applicable PRC government authorities. In order to reduce enterprises’ burden of submitting inspection documentation to different government authorities, the Measures on Implementing Joint Annual Inspection issued by the PRC Ministry of Commerce together with other six ministries in 1998 stipulated that foreign-invested enterprises shall participate in a joint annual inspection jointly conducted by all relevant PRC government authorities. Fujian Service and Fujian WangGang have passed all annual inspections since their establishment.

Foreign Investment in PRC Dredging Industry

The Foreign Investment Industrial Catalogue, or the Catalogue Regulation, jointly issued by the MOFCOM and the National Development and Reform Commission, or the NDRC, in 2007 classifies industries/businesses into three different categories: (i) encouraged for foreign investment; (ii) restricted for foreign investment; and (iii) prohibited from foreign investment. According to Guiding the Direction of Foreign Investment Provisions, issued by the State Council, for any industry/business not covered by any of these three categories, they will be deemed industries/businesses permitted for foreign investment. Except for those expressly provided restrictions, encouraged and permitted industries/businesses are usually 100% open to foreign investment and ownership. Fujian Service’s business is not restricted or prohibited from foreign investment by the Catalogue Regulation.

While foreign ownership of Fujian Service’s business is permitted without limitation under the Catalogue Regulation, having more than 50% foreign ownership in Fujian Service would prevent Fujian Service’s vessels from being registered as PRC vessels under the Regulation of Ship Registration of the PRC. To comply with applicable PRC laws, rules and regulations, we directly own 50% equity interests of Fujian Service, our operating company, and entered into VIE Agreements with Wonder Dredging, which is a PRC domestic company and legal owner of the other 50% equity interests of Fujian Service, and the shareholders of Wonder Dredging. We believe these contractual arrangements give us total control and 100% beneficial interest in the 50% of Fujian Service and 100% of Wonder Dredging that we do not directly own. If the PRC government determines that our contractual arrangements that support the structure for our business operations do not comply with applicable PRC laws, rules and regulations, we could be subject to severe penalties or be forced to restructure our ownership structure.

MANAGEMENT

Directors and Executive Officers

The following table sets forth information regarding our directors and executive officers as of the date of this prospectus.

Name	Age	Position in China Dredging
Mr. Xinrong Zhuo	47	Chairman of the Board of Directors and Chief Executive Officer
Mr. Alfred Ho	54	Chief Financial Officer
Mr. Fangjie Gu	33	Chief Operating Officer and Director
Mr. Bin Lin	53	Senior Vice President
Mr. Kit Chan	64	Independent director
Mr. Yeliang Zhou	62	Independent director
Mr. Zengbiao Zhu	62	Independent director

Mr. Xinrong Zhuo has served as chairman of our board and chief executive officer since August 2010, has served as director of Fujian Road & Bridge Construction Co., Ltd., an infrastructure construction company, since December 2008, has served as the sole director of Tian Yuan Co., Ltd., a real estate investment company, since September 2007, has served as the chairman and legal representative of Fuzhou Dongxing Longju Real Estate Development Co., Ltd., a real estate development company, since March 2007, has served as the vice general manager of Fujian Huashang Real Estate Development Co., Ltd., a real estate development company, since December 2006, and has served as the supervisor of Fuzhou Haiyiyongyu Import & Export Co., Ltd., a trading company, since June 1995. From November 2005 to December 2008, Mr. Zhuo served as the legal representative and the chairman of Fujian Road & Bridge Construction Co., Ltd. From June 2005 to September 2007, Mr. Zhuo served as vice general manager of Tian Yuan Co. Ltd. From February 2002 to September 2009, Mr. Zhuo served as the legal representative and executive director of Fuzhou Baojie Haiyi Ocean Fishing Co., Ltd., an aquatic products company. From June 1995 to September 2006, Mr. Zhuo served as the supervisor at Fuzhou Hong Long Ocean Fishery Co., Ltd., a marine fishery.

Mr. Alfred Ho has served as our chief financial officer since November 2010. Mr. Ho has been the sole proprietor of Alfred Ho & Co., a certified public accounting firm in Hong Kong, since January 2001 and has served as an independent non-executive director of New Universe International Group Limited, an environmental company listed in Hong Kong, since October 2004. From October 2007 to April 2009, he served as the finance director of Sinosoft Technology plc, a software company listed in the United Kingdom, from 1997 to 1999 he served as Tax Manager at PricewaterhouseCoopers in Hong Kong, and from 1993 to 1995 he served as a Senior Appeals Officer with Revenue Canada, Taxation. Mr. Ho received his bachelor’s degree in Science from the University of Toronto in 1980. He is a member of the Canadian Institute of Chartered Accountants, the Hong Kong Institute of Certified Public Accountants, and the Taxation Institute of Hong Kong, and he serves on the Examination & Accreditation Committee of Hong Kong Institute of Accredited Accounting Technicians and as an External Examiner of Hong Kong Institute of Vocational Education.

Mr. Fangjie Gu has served as our chief operating officer and one of our directors since August 2010 and as the general manager of Fujian Service since June 2010. Mr. Gu has served as the legal representative and chairman of Shenzhen West Coast Fisherman’s Wharf Business Co., Ltd., an aquatic products company, since August 2010, has served as the supervisor of Fujian Lutong Highway Engineering Construction Co. Ltd., or Fujian Lutong, a construction materials company, since October 2006, and has served as the vice general manager of Fujian Yihai Investment Co., Ltd., an infrastructure projects investment company, since March 2005. From January 2004 to June 2007, Mr. Gu served as vice general manager in Fuzhou Honglong Ocean Fishery Co., Ltd., a marine fishery. From September 2001 to August 2004, he served as the project manager of China Overseas Engineering Group Co., Ltd., an architecture firm. Mr. Gu earned his BA degree in English from Beijing Language and Culture University in 2001.

Mr. Bin Lin has served as our senior vice president since August 2010. From January 2007 to August 2010, Mr. Lin served as vice general manager of Tianyuan Co., Ltd., an investment company. From May 2003 to March 2007, he served as vice chairman of Fujian Tianxiang Group Co., Ltd, an agricultural company listed on the China Shanghai Stock Exchange. From November 2003 to October 2006, he served as a member of the board of directors of Industrial Securities Co., Ltd., a financial services company. Mr. Lin received his BS degree in Pharmacy from Shanghai Medical College of Fudan University (formerly Shanghai Number One School of Medicine) in 1982.

Mr. Kit Chan has served as a director since August 2010, and has been appointed as an independent director since April 2011. Mr. Chan has served as a director of Haifeng Dafu Enterprise Company Limited, a Hong Kong shipping company, since April 2010, as a director of Hai Yi Shipping Ltd., a shipping company in Hong Kong, since May 2009, as a manager at Hua Shang Resources Group Ltd., a Hong Kong real estate investment firm, since October 2007, and as a director of Ee Hing Resources Company Ltd., a Hong Kong chemical trading company, since February 1991. Mr. Chan received his BA degree in Chinese Language and Literature from Huaqiao University in 1967.

Mr. Yeliang Zhou has served as an independent director since April 2011. Mr. Zhou has served as an advisor to the PBOC and as the deputy director of Zhejiang Province People’s Political Consultative Conference, economic committee, since January 2009, and has served as the president of Zhejiang Province Venture Capital and Private Equity Association since May 2010. Mr. Zhou has served as a supervisor of Industrial Bank, a commercial bank listed in the Shanghai stock exchange in China, since November 2010, and has served as an independent director of Union Trust Limited in China, since November 2009. From 2004 to September 2009, he served as the president of the PBOC, Zhejiang sub-branch and the director of the SAFE Zhejiang sub-branch, and from 1993 to 2004, he first served as the vice-president and then president of the PBOC Fujian sub-branch and the director of SAFE Fujian sub-branch. Mr. Zhou received his bachelor’s degree in Finance from Xiamen University in 1974.

Mr. Zengbiao Zhu has served as an independent director since April 2011. Mr. Zhu has been a member of the National People’s Congress, or NPC, Standing Committee of Fujian Province and a member of the NPC Financial and Economic Committee of Fujian Province since January 2008. From 2004 to December 2009 he served as the director of the China Insurance Regulatory Commission Fujian Bureau, from 2000 to 2004 he first served as the deputy director and then the director of the China Insurance Regulatory Commission Fujian Bureau Fuzhou Office, and from 1995 to 2000 he served as the president of the PBOC Fuzhou sub-branch. Mr. Zhu received his bachelor’s degree in Finance from Xiamen University in 1974.

Board of Directors

Our board of directors consists of five directors. Our directors are elected for a one-year term to hold office until the next annual meeting of our shareholders and until their successors have been duly elected and qualified, or until their earlier resignation or removal. Our officers are appointed by our board of directors and hold office until removed by our board of directors. We are not aware of any agreements with respect to the election of directors.

Director Independence

Our board of directors has determined that Yeliang Zhou, Kit Chan and Zengbiao Zhu are each “independent directors” as defined in Nasdaq listing rules. In making these determinations, our board of directors has concluded that none of our independent directors has an employment, business, family or other relationship which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our other two directors, Xinrong Zhuo and Fanjie Gu, are not considered independent under these rules because they each serve as one of our executive officers. We expect that our independent directors will meet in executive session (without the participation of executive officers or other non-independent directors) at least two times each year.

Committee Composition

Our board of directors has an audit committee, a compensation committee, and a nomination committee, each of which is currently composed entirely of independent directors. Each committee conducts its business pursuant to a written charter approved by our board of directors. The following table sets forth the current membership of each of these committees:

Audit Committee	Compensation Committee	Nomination Committee
Yeliang Zhou*	Zengbiao Zhu*	Kit Chan*
Kit Chan	Kit Chan	Yeliang Zhou
Zengbiao Zhu	Yeliang Zhou	Zengbiao Zhu

Chairman of the committee

Audit Committee

Our audit committee consists of Yeliang Zhou (Chair), Kit Chan and Zengbiao Zhu, each of whom is an independent director as defined in Nasdaq listing rules and SEC rules. Based upon past employment experience in finance and other business experience requiring accounting knowledge and financial sophistication, our board of directors has determined that we have at least one audit committee financial expert, Mr. Zhou, serving on our audit committee, and that each member of our audit committee is able to read and understand fundamental financial statements. Pursuant to its written charter, our audit committee is responsible for:

appointing, compensating, retaining, overseeing and terminating our independent auditors and pre-approving all audit and non-audit services permitted to be performed by the independent auditors;

discussing with management and the independent auditors our annual audited financial statements, our internal control over financial reporting, and related matters;

reviewing and approving any related party transactions, after reviewing each such transaction for potential conflicts of interest and other improprieties;

assisting with the administration of our code of conduct;

meeting separately, periodically, with management, the internal auditors and the independent auditors;

annually reviewing and reassessing the adequacy of our audit committee charter;

such other matters that are specifically delegated to our audit committee by our board of directors from time to time; and

reporting regularly to our board of directors.

Compensation Committee

Our compensation committee consists of Zengbiao Zhu (Chair), Kit Chan and Yeliang Zhou, each of whom is an independent director as defined in Nasdaq listing rules, a “non-employee director” under Rule 16b-3 promulgated under the Exchange Act, and an “outside director” for purposes of Section 162(m) of the Code. Pursuant to its written charter, our compensation committee is responsible for:

reviewing and making recommendations to our board of directors regarding our compensation policies and forms of compensation provided to our directors and officers;

reviewing and making recommendations to our board of directors regarding bonuses for our officers and other employees;

reviewing and making recommendations to our board of directors regarding share-based compensation for our directors and officers;

administering our share option plans in accordance with the terms thereof; and

such other matters that are specifically delegated to the compensation committee by our board of directors after the business combination from time to time.

Nomination Committee

Our nomination committee consists of Kit Chan (Chair), Yeliang Zhou and Zengbiao Zhu, each of whom is an independent director as defined in Nasdaq listing rules. Pursuant to its written charter, our nomination committee is responsible for:

overseeing the process by which individuals may be nominated to our board of directors after the business combination;

identifying potential directors and making recommendations as to the size, functions and composition of our board of directors after the business combination and its committees;

considering nominees proposed by our shareholders;

establishing and periodically assessing the criteria for the selection of potential directors; and

making recommendations to our board of directors on new candidates for board membership.

In making nominations, the nominating committee intends to submit candidates who have high personal and professional integrity, who have demonstrated exceptional ability and judgment and who are effective, in conjunction with the other nominees to our board of directors, in collectively serving the long-term interests of the shareholders. In evaluating nominees, the nominating committee intends to take into consideration attributes such as leadership, independence, interpersonal skills, financial acumen, business experiences, industry knowledge, and diversity of viewpoints.

Duties of Directors

Under BVI law, our directors have a statutory duty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise care, skill, and diligence that a reasonable person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our Articles of Association. A shareholder has the right to seek damages if a duty owed by our directors is breached.

Employment Agreements

In August 2010, we entered into three-year employment agreements with three of our executive officers, Mr. Zhuo, Mr. Lin and Mr. Gu, pursuant to which they each receive aggregate annual compensation of approximately $116,000. In November 2010, we entered into a three-year employment agreement with Alfred Ho, pursuant to which he receives aggregate annual compensation of approximately $77,000. In January 2011, Fujian Service entered into a three-year employment agreement with Mr. Gu, which collectively amended and restated our prior employment agreement with him. Pursuant to the agreements, in addition to serving as our executive officer, Mr. Gu also serves as Fujian Service’s general manager, Fujian Service agreed to pay his salary payable from China Dredging, including bonuses, and Mr. Gu receives aggregate annual compensation from Fujian Service aggregating approximately $14,000. Pursuant to the agreements, each executive is eligible to receive our standard employee benefits and has agreed to devote all of his working time to his respective duties to us, not to become employed in any competitive business while employed by us or for two years following the termination of his employment with us, and not to solicit the services of any of our employees for two years following the termination of his employment with us. We may terminate the executive for cause at any time without notice, or without cause upon one month prior written notice to the executive. In the event of termination without cause, we have agreed to pay to the executive a cash severance payment equal to three months of the executive’s then current base salary. In the event of a material and substantial reduction in the executive’s existing authority and responsibilities, the executive may resign upon one-month prior written notice to us.

Compensation of Directors and Executive Officers

Prior to the Merger, CAC did not pay any compensation to Kerry Propper, the former President, Chief Executive Officer, Chief Financial Officer and sole director, who served from incorporation through July 29, 2010. CAC did not pay any compensation to Congyan Xue or William Morro, CAC’s former sole director and Chief Executive Officer, respectively. Mr. Xue served from July 29, 2010 through the date of the Merger, and Mr. Morro served from July 30, 2010 through the date of the Merger. Following the Merger, Mr. Morro and Mr. Xue ceased to have a management role with us. We did not pay any compensation to any of our directors or executive officers in 2009.

The following table sets forth compensation information for our executive officers for the fiscal years ended December 31, 2011 and 2010:

Summary Compensation Table

Name and Principal Position	Year	Salary ($)		Bonus ($)		Total ($)
Mr. Xinrong Zhuo, Chairman of the Board of Directors and Chief Executive Officer	2011 2010		40,104 13,384		0 0		40,104 13,384
Mr. Fangjie Gu, Chief Operating Officer and Director	2011 2010		15,107 4,120		0 0		15,107 4,120
Mr. Alfred Ho, Chief Financial Officer	2011 2010		77,124 9,653		0 0		77,124 9,653
Mr. Bin Lin, Senior Vice President	2011 2010		35,484 11,840		0 0		35,484 11,840

We have not granted any options or other equity compensation to directors or executive officers. Other than statutory severance payments to executive officers who are employees, which are required under PRC law, we do not provide benefits for directors or executive officers upon termination of service.

In April 2011, our board of directors determined that our independent directors would receive annual compensation of HK$100,000 (or the equivalent currency) for service as independent directors, which is paid on the first month of each year during the term in which they are serving as independent directors.

PRINCIPAL SHAREHOLDERS

Except as specifically noted in the table, the following table sets forth information with respect to the beneficial ownership of our ordinary shares as of the date of this prospectus by:

each of our directors and executive officers;

our directors and executive officers as a group; and

each person known to us to own beneficially 5% or more of our ordinary shares.

Beneficial ownership is determined in accordance with SEC rules and generally includes the power to direct the voting or the disposition of the securities or to receive the economic benefits of ownership of the securities. Unless otherwise indicated, the shareholders listed in the table have sole voting and investment power with respect to the ordinary shares indicated. Unless otherwise noted, the principal address of each of the shareholders, directors and officers listed below is c/o China Dredging Group Co., Ltd., 18th Floor, Tower A, Zhongshan Building, No. 154, Hudong Road, Fuzhou, Fujian Province, PRC.

All share ownership figures include securities convertible or exchangeable into our ordinary shares within sixty (60) days of the date of this prospectus, which are deemed outstanding and beneficially owned by such person for purposes of computing his or her percentage ownership, but not for purposes of computing the percentage ownership of any other person.

As of the date of this prospectus, 52,677,323 ordinary shares were issued and outstanding, 1,365,000 of which were held of record in the United States by seven shareholders, and 10,012,987 preferred shares were issued and outstanding, 2,653,000 of which were held of record in the United States by 48 shareholders. Pursuant to our Articles of Association, holders of preferred shares do not have the right to vote on any resolutions of shareholders.

	Shares Beneficially Owned
	Ordinary Shares
	Number		Percent of Class
Directors and Executive Officers:
Mr. Xinrong Zhuo (1)		33,852,703		64.3	%
Mr. Kit Chan (2)		2,608,866		4.9	%
Mr. Fangjie Gu		0		0	%
Mr. Bin Lin (3)		2,608,866		4.9	%
Mr. Alfred Ho		0		0	%
Mr. Yeliang Zhou		0		0	%
Mr. Zengbiao Zhu		0		0	%
All directors and executive officers as a group (7 persons)		39,070,435		74.2	%
Principal Shareholders:
SCGC Capital Holding Company Limited (4)		3,440,000		6.1	%

Less than 1% of total outstanding ordinary shares or preferred shares, as applicable.

(1)

Shares are held of record by Mars Harvest Co. Ltd, Building 26, Mingyang Tianxia, No. 1 Yuquan Road, Fuzhou, Fujian Province, PRC. Mr. Zhuo is the sole director of Mars Harvest and has the power to vote and dispose of all of our ordinary shares that it holds.

(2)

Shares are held of record by Venus Seed Co., Ltd, Flat B, 27/F, Ko On Mansion, Taikoo Shing, Quarry Bay, Hong Kong. Mr. Chan is the sole director of Venus Seed and has the sole power to vote and dispose of all of our ordinary shares that it holds.

(3)

Shares are held of record by Saturn Glory Co., Ltd., Room 1402, Building 8, D District, Rongqiao Jinjiang, No. 66, Jiangbin West Road, Fuzhou, Fujian Province, PRC. Mr. Lin is the sole director of Saturn Glory and has the sole power to vote and dispose of all of our ordinary shares that it holds.

(4)

SCGC Capital Holding Company Limited acquired 3,440,000 preferred shares in our 2010 Private Placement, each of which is convertible into one of our ordinary shares.

SELLING SHAREHOLDERS

This prospectus relates to the resale, by the selling shareholders named below, of our ordinary shares (in the form of ADSs) issued or issuable to the selling shareholders. The table below sets forth the name of each selling shareholder, the number of shares and percentage of our ordinary shares and preferred shares beneficially owned by each selling shareholder as of the date of this prospectus, the number of ordinary shares (in the form of ADSs) being offered for resale for the account of the selling shareholder, and the number of shares and the percentage of our ordinary shares to be beneficially owned by each selling shareholder after the completion of this offering (assuming all of the offered shares are sold by the selling shareholders), as adjusted to reflect the sale of ADSs offered in this offering. The selling shareholders may offer the shares under this prospectus from time to time and may elect to sell none, some or all of the shares set forth next to their names. We may amend or supplement this prospectus from time to time in the future to update or change this list and shares which may be resold.

In October 2010, we merged with CAC, a public reporting, non-trading shell company domiciled in the BVI. The terms of the Merger were set forth in the Merger Agreement, which provided that China Dredging would continue as the surviving company following the Merger. At the time of the Merger, all of the issued and outstanding shares of CAC were exchanged for 500,000, or 0.95%, of our issued and then outstanding ordinary shares. At the time of the Merger, our shareholders immediately prior to the Merger retained 52,177,323, or 99.05%, of our issued and then outstanding ordinary shares, 52,677,323 ordinary shares (in the form of ADSs) offered by selling shareholders reflect the ordinary shares outstanding since the Merger.

Concurrently with the closing of the Merger, we conducted our 2010 Private Placement. Pursuant to the Purchase Agreement, through multiple closings between October and December 2010, the selling shareholders purchased 10,012,987 of our preferred shares, at a purchase price of $5.00 per share, each of which is convertible into one of our ordinary shares. 10,012,987 ordinary shares (in the form of ADSs) offered by the selling shareholders reflect the ordinary shares issuable upon conversion of 10,012,987 preferred shares that were previously issued to the selling shareholders in our 2010 Private Placement.

Mr. Xinrong Zhuo is our Chairman of the Board of Directors and Chief Executive Officer. In September 2008 and February 2010, we entered into loan agreements which aggregate approximately $9.0 million. One of these loans is guaranteed by Mr. Xinrong Zhuo. Mr. Kit Chan is one of our directors. Mr. Bin Lin is our Senior Vice President. Kerry Propper was the former President, Chief Executive Officer, Chief Financial Officer and sole director of CAC until July 2010. Chardan Capital Markets, LLC acted as the lead placement agent in connection with our 2010 Private Placement.

Except as disclosed in this prospectus, none of the selling shareholders has held a position or office or had a material relationship with us within the past three years, other than as a result of the ownership of our securities.

We will not receive any proceeds from the ADSs sold by the selling shareholders, if any, all of which will be received by the selling shareholders.

	Shares Beneficially Owned Prior to This Offering
	Ordinary Shares
			Number													Ordinary Shares
			Underlying								Ordinary Shares					Beneficially Owned
			Preferred						Preferred Shares (1)		Being Offered					After This Offering
	Number		Shares			Percent of			Number	Percent of	Number		Percent of			Number		Percent of
	Outstanding		Outstanding(1)	Total		Class			Outstanding	Class	Outstanding		Class			Outstanding		Class
Mr. Xinrong Zhuo (3)		33,852,703			33,852,703		64.3	%				33,852,703		64.3	%		0		0	%
Mr. Kit Chan (4)		2,608,866			2,608,866		4.9	%				2,608,866		4.9	%		0		0	%
Mr. Bin Lin (5)		2,608,866			2,608,866		4.9	%				2,608,866		4.9	%		0		0	%
Regent Fill Investment Group Limited (6)		325,000			325,000		*					325,000		*			0		0	%
Poying Holdings Limited (7)		325,000			325,000		*					325,000		*			0		0	%
Yu Jianliang (8)		162,500			162,500		*					162,500		*			0		0	%
Ding Nan (9)		270,833			270,833		*					270,833		*			0		0	%
Gala Fortune Limited (10)		135,000			135,000		*					135,000		*			0		0	%
Country Vitality Enterprises Limited (11)		2,600,000			2,600,000		4.9	%				2,600,000		4.9	%		0		0	%

	Shares Beneficially Owned Prior to This Offering
	Ordinary Shares
				Number Underlying Preferred									Preferred Shares (1)						Ordinary Shares Being Offered						Ordinary Shares Beneficially Owned After This Offering
	Number Outstanding			Shares Outstanding (1)			Total			Percent of Class			Number Outstanding			Percent of Class			Number Outstanding			Percent of Class			Number Outstanding		Percent of Class
Partner One Holdings Limited (12)		2,550,000						2,550,000			4.8	%								2,550,000			4.8	%		0		0	%
Windham Investments Limited (13)		2,580,000						2,580,000			4.9	%								2,580,000			4.9	%		0		0	%
Fresh Reward Development Limited (10)		100,000						100,000			*									100,000			*			0		0	%
Propper Entities		128,515						128,515			*									128,515			*			0		0	%
Delaware Charter FBO Kerry Propper IRA (14)		91,755	(2)					91,755	(2)		*									91,755	(2)		*			0		0	%
Kerry Propper (17) (18)		36,760	(2)					36,760	(2)		*									36,760	(2)		*			0		0	%
Steven A. Urbach (14)		128,515						128,515			*									128,515			*			0		0	%
Todd A. Gold (14)		3,350						3,350			*									3,350			*			0		0	%
WHI, Inc. Retirement Savings Plan (19)		15,000						15,000			*									15,000			*			0		0	%
Chardan Capital Markets, LLC (17)		74,620						74,620			*									74,620			*			0		0	%
NewMargin Entities		2,000,000						2,000,000			3.8	%								2,000,000			3.8	%		0		0	%
NewMargin Growth Fund, L.P. (15)		1,600,000	(2)					1,600,000	(2)		3.0	%								1,600,000	(2)		3.0	%		0		0	%
NewMargin Partners Ltd (15)		400,000	(2)					400,000	(2)		*									400,000	(2)		*			0		0	%
Linkstate Global Investment Limited (16)		600,000						600,000			1.1	%								600,000			1.1	%		0		0	%
AQR Affiliated Funds (20):					1,750,000			1,750,000			3.3	%		1,750,000			17.5	%		1,750,000			3.3	%		0		0	%
AQR Funds – AQR Diversified Arbitrage Fund					1,000,000	(2)		1,000,000	(2)		1.9	%		1,000,000	(2)		10.0	%		1,000,000	(2)		1.9	%		0		0	%
AQR Absolute Return Master Account, L.P.					500,000	(2)		500,000	(2)					500,000	(2)		5.0	%		500,000	(2)		*			0		0	%
AQR Opportunistic Premium Offshore Fund, L.P.					250,000	(2)		250,000	(2)					250,000	(2)		2.5	%		250,000	(2)		*			0		0	%
Cadman Investments Ltd. (21)		1,593,555			1,000,000			2,593,555			4.8	%		1,000,000			10.0	%		2,593,555			4.8	%		0		0	%
D’Alessandro Family (22):					213,000			213,000			*			213,000			2.1	%		213,000						0		0	%
Garrett R. D’Alessandro					200,000	(2)		200,000	(2)		*			200,000	(2)		2.0	%		200,000	(2)					0		0	%
Garrett R. D’Alessandro & Amy Rappaport					13,000	(2)		13,000	(2)		*			13,000	(2)		*			13,000	(2)					0		0	%
CNH Diversified Opportunities Master Account, L.P. (23)					150,000			150,000			*			150,000			1.5	%		150,000						0		0	%
Advanced Series Trust, solely on behalf of AST Academic Strategies Asset Allocation Portfolio (23)					100,000			100,000			*			100,000			*			100,000						0		0	%
Morse Entities					460,000			460,000			*			460,000			4.6	%		460,000			*			0		0	%

	Shares Beneficially Owned Prior to This Offering
	Ordinary Shares
		Number Underlying Preferred								Preferred Shares (1)						Ordinary Shares Being Offered					Ordinary Shares Beneficially Owned After This Offering
	Number Outstanding	Shares Outstanding (1)			Total			Percent of Class		Number Outstanding			Percent of Class			Number Outstanding			Percent of Class		Number Outstanding		Percent of Class
Sidney N. Morse Trust B UAD 12/06/99 Birgit F. Morse & E. Richard Baum & Mary Susan Leahy Esq. TTEES (25)			100,000	(2)		100,000	(2)		*		100,000	(2)		*			100,000	(2)		*		0		0	%
U/W/O Sidney N. Morse FBO Sidney N. Morse Jr. (30)			220,000	(2)		220,000	(2)		*		220,000	(2)		2.2	%		220,000	(2)		*		0		0	%
Elizabeth S. Morse Irrevocable Trust DTD 11/8/90 (25)			60,000	(2)		60,000	(2)		*		60,000	(2)		*			60,000	(2)		*		0		0	%
Birgit Faber Morse Trust UAD 12/6/99 (25)			20,000			20,000			*		20,000			*			20,000			*		0		0	%
Trust DTD 7/21/70 FBO Christina S. Morse (25)			20,000	(2)		20,000	(2)		*		20,000	(2)		*			20,000	(2)		*		0		0	%
Thomas F. Morse Trust UAD 3/16/01 Thomas Morse Trustee (30)			40,000	(2)		40,000	(2)		*		40,000	(2)		*			40,000	(2)		*		0		0	%
Strauss Affiliated Funds (26) :			100,000			100,000			*		100,000			*			100,000			*		0		0	%
Straus Partners, L.P.			75,000	(2)		75,000	(2)		*		75,000	(2)		*			75,000	(2)		*		0		0	%
Straus China Partners, L.P.			25,000	(2)		25,000	(2)		*		25,000	(2)		*			25,000	(2)		*		0		0	%
Rochdale Affiliated Funds (27):			290,000			290,000			*		290,000			2.9	%		290,000			*		0		0	%
Rochdale Large Growth Portfolio			60,000	(2)		60,000	(2)		*		60,000	(2)		*			60,000	(2)		*		0		0	%
Rochdale Large Value Portfolio			60,000	(2)		60,000	(2)		*		60,000	(2)		*			60,000	(2)		*		0		0	%
Rochdale Mid-Small Growth Portfolio			60,000	(2)		60,000	(2)		*		60,000	(2)		*			60,000	(2)		*		0		0	%
Rochdale Offshore Global Opportunities Fund LP			60,000	(2)		60,000	(2)		*		60,000	(2)		*			60,000	(2)		*		0		0	%
Rochdale Mid-Small Value Portfolio			50,000	(2)		50,000	(2)		*		50,000	(2)		*			50,000	(2)		*		0		0	%
Shira Capital LLC (28)			60,000			60,000			*		60,000			*			60,000			*		0		0	%
Hammerman Capital Partners, LP (29)			40,000			40,000			*		40,000			*			40,000			*		0		0	%
Peggy Casper (31)			30,000			30,000			*		30,000			*			30,000			*		0		0	%
Robert J. Guttag (32)			30,000			30,000			*		30,000			*			30,000			*		0		0	%
Guerrino De Luca Revocable Trust (33)			30,000			30,000			*		30,000			*			30,000			*		0		0	%
Jeffrey I. Blake (34)			20,000			20,000			*		20,000			*			20,000			*		0		0	%
Jerry Roland (35)			20,000			20,000			*		20,000			*			20,000			*		0		0	%
Pappas Partners Limited Partnership (36)			20,000			20,000			*		20,000			*			20,000			*		0		0	%
Daniel S. Van Riper Revocable Trust DTD 10/5/04 (38)			12,000			12,000			*		12,000			*			12,000			*		0		0	%
Elizabeth Grover Living Trust (39)			10,000			10,000			*		10,000			*			10,000			*		0		0	%

	Shares Beneficially Owned Prior to This Offering
	Ordinary Shares
			Number Underlying Preferred							Preferred Shares (1)					Ordinary Shares Being Offered					Ordinary Shares Beneficially Owned After This Offering
	Number Outstanding		Shares Outstanding (1)		Total		Percent of Class			Number Outstanding		Percent of Class			Number Outstanding		Percent of Class			Number Outstanding		Percent of Class
Wei Li (40)				9,000		9,000		*			9,000		*			9,000		*			0		0	%
The Tucker/Enander Living Trust (41)				7,000		7,000		*			7,000		*			7,000		*			0		0	%
Bruce Groom Separate Property (42)				5,000		5,000		*			5,000		*			5,000		*			0		0	%
Kassirer Opportunities, L.P. (43)				5,000		5,000		*			5,000		*			5,000		*			0		0	%
Thomas Lee (44)				5,000		5,000		*			5,000		*			5,000		*			0		0	%
Paul Guerney (45)				3,000		3,000		*			3,000		*			3,000		*			0		0	%
Kurt A. Hawkesworth & Esmat Bahar Hawkesworth JTTEN (46)				2,000		2,000		*			2,000		*			2,000		*			0		0	%
SEI Private Trust Co FAO Jim Smucker Co Master Trust (47)				100,000		100,000		*			100,000		*			100,000		*			0		0	%
Utilico Emerging Markets Limited (48)				300,000		300,000		*			300,000		3.0	%		300,000		*			0		0	%
Coronado Capital Parnters LP (49)				40,000		40,000		*			40,000		*			40,000		*			0		0	%
Antoine De Sejournet (50)				24,994		24,994		*			24,994		*			24,994		*			0		0	%
Stourbridge Investments LLC (51)				5,000		5,000		*			5,000		*			5,000		*			0		0	%
SCGC Capital Holding Company Limited (52)				3,440,000		3,440,000		6.1	%		3,440,000		34.4	%		3,440,000		6.1	%		0		0	%
Septwolves Group (Asia) Investments Limited (53)				799,997		799,997		1.5	%		799,997		8.0	%		799,997		1.5	%		0		0	%
Splendid Max Limited (54)				400,000		400,000		*			400,000		4.0	%		400,000		*			0		0	%
CIVC Investment LTD (55)				360,000		360,000		*			360,000		3.6	%		360,000		*			0		0	%
China Select Capital Partners Corp. (56)				29,996		29,996		*			29,996		*			29,996		*			0		0	%
Genesis Opportunity Fund L.P. (57)				80,000		80,000		*			80,000		*			80,000		*			0		0	%
WEC Partners LLC (57)				60,000		60,000		*			60,000		*			60,000		*			0		0	%
George B. Kaufman (58)		15,000		2,000		17,000		*			2,000		*			17,000		*			0		0	%
Total		52,677,323		10,012,987		62,690,310		100	%		10,012,987		100	%		62,690,310		100	%		0		0	%

* Less than 1% of total outstanding ordinary shares or preferred shares, as applicable.

(1)

Each preferred share is automatically convertible into one share of our ordinary shares, which we call the Conversion Ratio, upon occurrence of both of the following: (a) the registration of the underlying ordinary shares is declared effective by the SEC or other applicable regulatory authority designed by the holders of a majority of the preferred shares pursuant to the terms of the registration rights agreement with such holders, or the underlying ordinary shares become freely tradable in the United States or pursuant to any available exemption; and (b) the commencement of the trading of our ordinary shares on a national U.S. stock exchange or such other recognized international exchange as the holders of a majority of preferred shares may approve. The Conversion Ratio is subject to proportional adjustment for share splits, divisions, share dividends, recapitalization and similar transactions. Each preferred share is also convertible into one of our ordinary shares at the option of the holder at any time prior to automatic conversion. Holders of the preferred shares have no right to vote on any matters that requires shareholder approval; provided, however, we may not issue any shares that have a liquidation preference that is senior to that of the preferred shares without the consent of the holders of at least two-thirds of the preferred shares then issued and outstanding.

(2)	These figures represent record ownership and not beneficial ownership.

(3)	Shares are held of record by Mars Harvest Co. Ltd, Building 26, Mingyang Tianxia, No. 1 Yuquan Road, Fuzhou, Fujian Province, PRC. Mr. Zhuo is the sole director of Mars Harvest and has the power to vote and dispose of all of our ordinary shares that it holds.

(4)	Shares are held of record by Venus Seed Co., Ltd, Flat B, 27/F, Ko On Mansion, Taikoo Shing, Quarry Bay, Hong Kong. Mr. Chan is the sole director of Venus Seed and has the sole power to vote and dispose of all of our ordinary shares that it holds.

(5)	Shares are held of record by Saturn Glory Co., Ltd., Room 1402, Building 8, D District, Rongqiao Jinjiang, No. 66, Jiangbin West Road, Fuzhou, Fujian Province, PRC. Mr. Lin is the sole director of Saturn Glory and has the sole power to vote and dispose of all of our ordinary shares that it holds.

(6)	The business address is Room 2508 A, 25/F Bank of America Tower, Central, Hong Kong.

(7)	The business address is Unit 1001, Fourseas Building, 208-212 Nathan Road, Kowloon, Hong Kong.

(8)	The address is No. 18-2 Yonghe Road, Wuxi City, Jiangsu Province, China.

(9)	The address is 18M, Tower A, Marriott International Apartment, No. 5 Lingtongguan, Jianguomenwai, Chaoyang District, Beijing, China.

(10)	The business address is No. 2206, Tower A, Chaowai SOHO, No. 6B Chaowai Street, Chaoyang District, Beijing, China.

(11)	The business address is 28/F, Guangdong Finance Building, 88 Connaught Road West, Sheung Wan, Hong Kong.

(12)	The business address is 22/F, Sunshine Golf Building, No. 7009 Shennan Street, Futian District, Shenzhen, China.

(13)	The business address is Flat B. 19/F, Macdonald Mansion, No. 8 MacDonald Road, Hong Kong.

(14)	The business address is 17 State Street, Suite 1600, New York, NY 10004, United States of America.

(15)

The business address for NewMargin Growth Fund, L.P. is PO Box 309, Ugland House, Grand Cayman, KYl-1104, Cayman Islands. The business address for NewMargin Partners Ltd. is P.O. Box 3321, Drake Chambers, Tortola, British Virgin Islands. Includes 1,600,000 ordinary shares held by NewMargin Growth Fund, L.P. and 400,000 ordinary shares held by NewMargin Partners Ltd.

(16)	The business address is OMC Chambers, P.O. Box 3152, Road Town, Tortola, British Virgin Islands.

(17)	The business address is 17 State Street, 16th Floor, New York, NY 10004, United States of America. Chardan Capital Markets, LLC is a registered broker dealer.

(18)	Kerry Propper is the former President of Chardan and has voting and investment control over the shares. Mr. Propper disclaims the beneficial ownership of the shares held by Chardan listed in the table except to the extent of his pecuniary interest therein, if any.

(19)	The business address is 410 South Michigan Ave., Suite 620, Chicago, IL 606011, United States of America.

(20)

The business address is c/o CNH Partners, LLC, Two Greenwich Plaza, Greenwich, CT 06830, United States of America. Includes 1,000,000 preferred shares held by AQR Funds - AQR Diversified Arbitrage Fund, 500,000 preferred shares held by AQR Absolute Return Master Account, L.P.; and 250,000 preferred shares held by AQR Opportunistic Premium Offshore Fund, L.P.

(21)	The business address is Unit C, CNT Tower, 338 Hennessy Road, Wanchai, Hong Kong.

(22)	The business address is c/o Rochdale Investment Management, 570 Lexington Ave., 9th Floor, New York, NY 10022, United States of America. Includes 200,000 preferred shares held by Garrett R. D’Alessandro and 13,000 preferred shares held jointly by Garrett R. D’Alessandro & Amy Rappaport.

(23)	The business address is c/o CNH Partners, LLC, Two Greenwich Plaza, Greenwich, CT 06830, United States of America.

(24)	[Reserved.]

(25)	The business address is c/o E. Richard Baum, Anchin, Block & Anchin LLP, 1375 Broadway, New York, NY 10018, United States of America.

(26)	The business address is c/o Straus Asset Management, 767 Third Avenue, 21st Floor, New York, NY 10017, United States of America. Includes 75,000 preferred shares held by Straus Partners L.P. and 25,000 preferred shares held by Straus China Partners, L.P.

(27)

The business address is c/o Physical Processing, MK-WI S302, U.S. Bank Trust Services, 1555 N. River Center Drive, Suite 302, Milwaukee, WI 53212, United States of America. Includes 60,000 preferred shares held by Rochdale Large Growth Portfolio, 60,000 preferred shares held by Rochdale Large Value Portfolio, 60,000 preferred shares held by Rochdale Mid-Small Growth Portfolio, 60,000 shares of preferred shares held by Rochdale Offshore Global Opportunities Fund LP, and 50,000 preferred shares held by Rochdale Mid-Small Value Portfolio.

(28)	The business address is 71 S. Walker, Suite 1900, Chicago, IL 60606, United States of America.

(29)	The business address is 1232 Rose Lane, Lafayette, CA 94549, United States of America.

(30)	The business address is 3200 Plumfield, Milford, MI 48380, United States of America.

(31)	The business address is 45 East 89th St., #35E, New York NY 10128-1232, Untied States of America.

(32)	The business address is c/o Peggy Casper, 45 East 89th St., #35E, New York NY 10128-1232, Untied States of America.

(33)	The business address is 2866 Pine Street, San Francisco, CA 94115, United States of America.

(34)	The business address is 2216 South Shore Dr., Erie, PA 16505, United States of America.

(35)	The business address is 33 Julia Court, Twp. of Washington, NJ 07676, United States of America.

(36)	The business address is c/o Mr. Harry G. Pappas Jr., 12500 Jarretsville Pike, Phoenix, MD 21131, United States of America.

(37)	[Reserved.]

(38)	The business address is 1920 Virginia Ave., Apt 1303, Fort Myers, FL 33901, United States of America.

(39)	The business address is 3867 La Donna Ave., Palo Alto, CA 94306-3153, United States of America.

(40)	The business address is 3540 W. Sahara Ave., #325, Las Vegas, NV 89102-5816, United States of America.

(41)	The business address is c/o Mr. Michael G. Tucker, 517 Panchita Way, Los Altos, CA 94022, United States of America.

(42)	The business address is 1628 California Ave., SW, Apt. A, Seattle, WA 98161-1692, United States of America.

(43)	The business address is c/o Mark Kassirer, 55 University Ave., Suite 1604, Toronto, Ontario, Canada, M5J2H7.

(44)	The business address is 14A East Coast Terrace, Singapore 458926.

(45)	The business address is 34 Morton Pl, Chappaqua, NY 10514, United States of America.

(46)	The business address is 7400 River Road, Apt. 320, North Bergen, NJ 07047, United States of America.

(47)	The business address is c/o SPTC Specialized Trust Admin, 1 Freedom Valley Dr., Oaks, PA 19456, United States of America.

(48)	The business address is P.O. Box 208, Epsom Surrey, KT 18 7YF, United Kingdom.

(49)	The business address is 111 Town Square Place #1500, Jersey City, NJ 07310, United States of America.

(50)	The business address is 56 Dreve D’Argenteuil, B-1410 Waterloo, Belgium.

(51)	The business address is 700 Summit Road, Union, NJ 07083, United States of America.

(52)	The business address is Floor 11, Investment Building, No. 4009, Shen Nan Road, Futian District, Shenzhen, Guangdong Province, China.

(53)	The business address is c/o Septwolves Group Holding Co., Ltd., No. 6 Building, Wuyi Industry & Trading District, No. 189, Lianyue Rd., Xiamen, Fujian, China.

(54)	The business address is c/o Sinocap Investment Holdings Limited, P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

(55)	The business address is PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

(56)	The business address is 300-1055 West Hastings St., Vancouver, BC, Canada, V6E 2E9.

(57)	The business address is 61 Paine Avenue, New Rochelle, NY 10804, United States of America.

(58)	The business address is 310 Greenwich St., Apt. 9.G., New York, NY 10013, United States of America.

RELATED PARTY TRANSACTIONS

In January 2008, we entered into an office lease with Ping Lin, the wife of Xinrong Zhuo, our Chairman and Chief Executive Officer. This agreement was renewed and extended from January 1, 2010 to December 31, 2015. Annual lease payments to Ping Lin were approximately $9,000 in each of 2008 and 2009 and approximately $12,000 in 2010.

In May 2008, we entered into two three-year agreements with Fujian Lutong, a related party, to lease a dredger and crew. In April 2010, the dredger leasing agreement was extended through May 31, 2016. In May 2010, the crew leasing agreement was extended to May 31, 2016. Fujian Lutong owned 70% of Fujian Service from September 2009 to March 2010. From September 2009 to October 2009, Fujian Lutong was owned by Fangjie Gu, our Chief Operating Officer, and Panxing Zhuo, father of Mr. Xinrong Zhuo. In October 2009, Fangjie Gu and Panxing Zhuo transferred part of their equity interest in Fujian Lutong to Fujian Yihai Invest Co., Ltd., or Fujian Yihai, and Fujian Lutong has been owned by Fujian Yihai, Fangjie Gu and Pangxing Zhuo since then. Lease payments on the dredger for the years ended December 31, 2010 and 2009 and for the 2008 period were approximately $1.0 million, $1.0 million and $0.6 million, respectively. Lease payments for the crew for the years ended December 31, 2010 and 2009 and for the 2008 period were $0.5 million, $0.5 million and $0.3 million, respectively. In January 2011, we acquired this dredger for a purchase price of $13.6 million, all of which has been paid, and payments pursuant to the dredging lease agreement and crew leasing agreement were suspended at the acquisition date.

In September 2008 and February 2010, we entered into loan agreements which aggregate approximately $14.7 million. These loans are secured by one of our dredgers, Xinggangjun #66. One of these loans is guaranteed by Xinrong Zhuo, our Chairman and Chief Executive Officer, and the son of Panxing Zhuo, one of the shareholders of Wonder Dredging. The other loan is guaranteed by Xinrong Zhuo and Qing Lin, one of the shareholders of Wonder Dredging. There are no restrictive financial covenants associated with the loans, which are all non-recourse to us. We repaid these loans in December 2010 and the title of Xinggangjun #66 was released by the bank in January 2011.

In March 2009, we pledged one of our dredgers, Xinggangjun #6, to secure an approximately $7.9 million credit facility granted to a related party, Fujian Province Pingtan County Ocean Fishery Holdings Limited. Principal and interest on the loan was due in full by September 1, 2010. The related company was indirectly under control of Fuzhou Honglong Ocean Fishery Co., Ltd., which is controlled by Ping Lin, a relative of Panxing Zhuo and Qing Lin, the collective owners of Wonder Dredging, a PRC company that holds a 50% interest in Fujian Service. The loan underlying the pledge was repaid in full and the pledge terminated in August 2010.

In May and June 2010, Wonder Dredging and Fujian WangGang entered into one-year office leases with Ping Lin, respectively. Pursuant to the lease agreements. Wonder Dredging is obligated to make annual lease payments of approximately $6,000 and Fujian WangGang is obligated to make annual lease payments of approximately $7,000.

In April and June 2011, Wonder Dredging and Fujian WangGang entered into one-year office leases with Ping Lin, respectively. Pursuant to the lease agreements, Wonder Dredging is obliged to make annual lease payments of approximately $6,000 and Fujian WangGang is obliged to make annual lease payments of approximately $7,000.

In June 2010, Fujian WangGang entered into an equity investment agreement with Wonder Dredging pursuant to which it invested approximately $23.6 million in Fujian Service in exchange for a 50% equity interest in Fujian Service. In connection therewith, Fujian Service, Wonder Dredging, Fujian WangGang, Mr. Qing Lin and Mr. Panxing Zhuo have entered into a series of contractual arrangements that allow Fujian WangGang to, among other things, fully control Fujian Service’s business operations, policies and management, approve all matters requiring shareholder approval, and receive 100% of the annual net income earned by Fujian Service. These contractual arrangements include the Exclusive Option Agreement, Management Agreement, Equity Interest Pledge Agreement and irrevocable power of attorney described in detail under “Our Corporate History and Structure — Variable Interest Entity Agreements.”

DESCRIPTION OF SHARES

The following is a summary description of our shares and certain provisions of our Articles of Association, copies of which have been filed as exhibits to our registration statements of which this prospectus forms a part.

General

We are a BVI company incorporated with limited liability and our affairs are governed by the provisions of our Articles of Association, each as amended and restated from time to time, and by the provisions of applicable BVI law.

As of the date of this prospectus, we are authorized to issue a maximum of 225,000,000 ordinary shares, no par value per share, and 25,000,000 preferred shares, no par value per share. As of the date of this prospectus, 52,677,323 ordinary shares were issued and outstanding and 10,012,987 preferred shares were issued and outstanding.

No public market currently exists for our shares or ADSs. We may in the future pursue a trading market for our shares or ADSs, although we may not do so, we may be unable to maintain any such a trading market, and any such trading market may never be active.

The following is a summary of the material provisions of our ordinary shares, our Articles of Association and the Companies Act.

Ordinary Shares

General. All of our outstanding ordinary shares are fully paid and non-assessable. Ordinary shares are issued in registered form. Our shareholders who are nonresidents of the BVI may freely hold and vote their ordinary shares.

Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors in accordance with the Companies Act and other applicable BVI law.

Voting Rights. All of our shareholders have the right to receive notice of shareholders’ meetings and to attend, speak and vote at such meetings. With respect to matters requiring a shareholder vote, each ordinary share is entitled to one vote. A shareholder may participate at a shareholders’ meeting in person, by proxy or by telephone conference or other electronic means by which all the shareholders participating in the meeting can communicate with each other. A poll may be demanded by our Chairman or any shareholder holding at least 10% of the voting power of ordinary shares with the right to vote at the meeting, present in person or by proxy.

A quorum for a shareholders’ meeting consists of holders of at least half of the voting rights of the total ordinary shares entitled to vote thereat present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. Shareholders’ meetings may be convened by our board of directors on its own initiative or by the holders of at least 30% of the voting power attaching to the ordinary shares. Advance notice of at least ten days is required for the convening of our annual general meeting and other shareholders’ meetings.

A resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the shares entitled to vote and voting on the resolution.

Transfer of Ordinary Shares. Subject to the restrictions of our Articles of Association, as more fully described below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer signed by the transferor and containing the name and address of the transferee.

There is currently no legal requirement under BVI law for instruments of transfer for our ordinary shares to be stamped. In addition, our board of directors has no present intention to charge any fee in connection with the registration of a transfer of ordinary shares.

Liquidation. Under our Articles of Association, the liquidator may, in accordance with a resolution of the shareholders, divide among the shareholders in specie or in kind the whole or any part of our assets and may for such purposes set such value as he deems fair upon any such property to be divided as aforesaid and may determine how such division is to be carried out as between the shareholders or different classes of shareholders.

Redemption of Shares. Subject to the provisions of the Companies Act, the stock market rules, our Articles of Association and to any special rights conferred on the holders of any shares or class of shares, we may issue shares on terms that they are subject to redemption at our option or at the option of the holders, on such terms and in such manner as may be determined by a resolution of shareholders or resolution of directors amending and restating our Articles of Association to create the rights and obligations attaching to such new redeemable shares. Our currently outstanding ordinary shares are not subject to redemption at the option of the holders.

Variations of Rights of Shares. All or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Act be varied with the sanction of a board resolution with the consent in writing of the holders of not less than a majority of the issued shares of that class and the holders of not less than a majority of the issued shares of any other class of shares which may be adversely affected by such variation. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such previously existing class of shares.

Inspection of Books and Records. Holders of our ordinary shares will have no general right under BVI law to inspect or obtain copies of our list of shareholders or our corporate records.

Notices of Call. While all of our ordinary shares are fully paid and non-assessable, under our Articles of Association we may, at any time after the due date for payment, serve on a member who has not paid in full for shares registered in the name if that member, a written notice of call specifying a date for payment to be made. The notice of call must name a further date not earlier than the expiration of 14 days from the date of service of the notice of call on or before which the payment required by the notice of call is to be made, and it must contain a statement that in the event of non-payment at or before such time the shares in respect of which payment is not made will be liable to be forfeited. Where a written notice of call has been issued and the requirements of the notice of call have not been complied with, the directors may, at any time before tender of payment, forfeit and cancel the shares to which the notice of calls relates.

Differences in Corporate Law

We were incorporated under, and are governed by, the laws of the BVI. The corporate statutes of the State of Delaware and the BVI are similar, and the flexibility available under BVI law has enabled us to adopt Articles of Association that will provide shareholders with rights that are similar in many respects with those they would enjoy under the Delaware General Corporation Law, or Delaware corporate law. Set forth below is a summary of some of the differences between provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in Delaware and their stockholders.

Director’s Fiduciary Duties

Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its stockholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to stockholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its stockholders take precedence over any interest possessed by a director, officer or controlling stockholder and not shared by the stockholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

BVI law provides that every director of the company in exercising his power or performing his duties, shall act honestly and in good faith and in what the director believes to be in the best interests of the company. Additionally, the director shall exercise the same care, diligence, and skill that a reasonable director would exercise in the same circumstances taking into account the nature of the company, and the nature of the decision and the position of the director and his responsibilities. In addition, BVI law provides that a director shall exercise his powers as a director for a proper purpose and shall not act, or agree to the company acting, in a manner that contravenes BVI law or memorandum or articles of association of the company.

Under the Companies Act and common law in the BVI, directors’ duties are owed to the company, not to individual shareholders.

Amendment of Governing Documents

Under Delaware corporate law, with very limited exceptions, a vote of the stockholders is required to amend the certificate of incorporation. Under BVI law, our board of directors can have broad authority to amend our Articles of Association. Our board of directors may amend our Articles of Association by a resolution of directors so long as the amendment does not:

restrict the rights or powers of the shareholders to amend our Articles of Association;

change the percentage of shareholders required to pass a resolution of shareholders to amend our Articles of Association;

amend our Articles of Association in circumstances where our Articles of Association can only be amended by the shareholders; or

Holders of the preferred shares do not have the right to vote on any resolutions of the shareholders; provided, however, that we may not issue any shares that have a liquidation preference that is senior to that of the preferred shares without the consent of the holders of at least two-thirds of the preferred shares the issued and outstanding. In addition, pursuant to the terms of the Purchase Agreement, approval of holders of the preferred shares is required before we take certain actions, including, among other things:

change the maximum number of authorized shares or change the rights attached to any class of ordinary or preferred shares, or capitalize any debenture; or

issue any new shares or options (including warrants, options or other rights to acquire shares) which issuance would exceed 5% of our issued shares on a fully diluted basis.

Written Consent of Directors

Under Delaware corporate law, directors may act by written consent only on the basis of a unanimous vote. Under BVI law, directors’ consents need only a majority of directors signing to take effect unless otherwise provided in our Articles of Association.

Written Consent of Shareholders

Under Delaware corporate law, unless otherwise provided in the certificate of incorporation, any action to be taken at any annual or special meeting of stockholders of a corporation, may be taken by written consent of the holders of outstanding stock having not less than the minimum number of votes that would be necessary to take such action at a meeting. Under BVI law, provided a company’s memorandum and articles of association so allow, shareholders’ consents need only a majority of shareholders signing to take effect.

Shareholder Proposals

Under Delaware corporate law, a stockholder has the right to put any proposal before the annual meeting of stockholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but stockholders may be precluded from calling special meetings. BVI law and our Articles of Association provide that our directors shall call a meeting of the shareholders if requested in writing to do so by shareholders entitled to exercise at least 30% of the voting rights in respect of the matter for which the meeting is requested.

Sale of Assets

Under Delaware corporate law, a vote of the stockholders is required to approve the sale of assets only when all or substantially all assets are being sold. Under BVI corporate law, shareholder approval is required when more than 50% of the company’s assets by value are being sold or otherwise disposed of, unless such requirement is excluded by the company’s memorandum and articles of association.

Dissolution; Winding Up

Under Delaware corporate law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by stockholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware corporate law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board of directors. As permitted by BVI law and our Articles of Association, we may be voluntarily liquidated under Part XII of the Companies Act if we have no liabilities and we are able to pay our debts as they fall due. A liquidator may, subject to the Companies Act, be appointed by a resolution of directors or by a resolution of shareholders.

Redemption of Shares

Under Delaware corporate law, any stock may be made subject to redemption by the corporation at its option or at the option of the holders of such stock provided there remains outstanding shares with full voting power. Such stock may be made redeemable for cash, property or rights, as specified in the certificate of incorporation or in the resolution of the board of directors providing for the issue of such stock. As permitted by BVI law, subject to the requirements set out in the Companies Act and our Articles of Association, shares may be repurchased, redeemed or otherwise acquired by us. Generally, our directors must be able to determine that immediately following any such redemption or repurchase that we will be able to satisfy our debts as they fall due and the value of our assets will exceed our liabilities.

Removal of Directors

Under Delaware corporate law, a director of a corporation with a classified board of directors may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate provides otherwise. As permitted by BVI law, directors may, subject to the memorandum and articles of association of a BVI company, be removed by resolution of shareholders. Where permitted by the memorandum and articles of incorporation of a BVI company, a director may be removed by a resolution of directors.

Mergers

Under the Companies Act, two or more companies may merge or consolidate in accordance with the statutory provisions. A merger means the merging of two or more constituent companies into one of the constituent companies, and a consolidation means the uniting of two or more constituent companies into a new company. In order to merge or consolidate, the directors of each constituent company must approve a written plan of merger or consolidation which, unless the merger is between a parent company and one or more subsidiaries, must be authorized by a resolution of shareholders.

Shareholders not otherwise entitled to vote on the merger or consolidation may still acquire the right to vote if the plan of merger or consolidation contains any provision which, if proposed as an amendment to the memorandum or articles of association, would entitle them to vote as a class on the proposed amendment. In any event, all shareholders must be given a copy of the plan of merger or consolidation irrespective of whether they are entitled to vote at the meeting or consent to the written resolution to approve the plan of merger or consolidation.

Under Delaware corporate law, any two or more corporations existing under Delaware law may merge into a single corporation, which may be any one of the constituent corporations or may consolidate into a new corporation formed by the consolidation, pursuant to an agreement of merger or consolidation, as the case may be, complying and approved in accordance with Delaware corporate law.

Inspection of Books and Records

Under Delaware corporate law, any stockholder of a corporation may for any proper purpose inspect or make copies of the corporation’s stock ledger, list of stockholders and other books and records. Under the Companies Act, a shareholder is generally entitled, on giving written notice to the company, to inspect the memorandum and articles of association, the shareholders register, the directors register and minutes of meetings and resolutions of shareholders and those classes of members of which he is a member. However, the directors may, if they are satisfied that it would be contrary to the company’s interests to allow a member to inspect any such document (other than the memorandum and articles of association), refuse to permit the member to inspect the document or limit the inspection of the document, including limiting the making of copies or taking of extracts from the records. We will provide holders of our shares with annual audited financial statements. See “Where You Can Find Additional Information.”

Conflict of Interest

The Companies Act provides that a director shall, after becoming aware that he is interested in a transaction entered into by the company, disclose that interest to the board of directors of the company. Failure of a director to disclose that interest does not affect the validity of a transaction entered into by the director or the company, so long as the director’s interest was disclosed to the board of directors prior to the company’s entry into the transaction or is not required to be disclosed (for example where the transaction is between the company and the director himself or is otherwise in the ordinary course of business and on usual terms and conditions). As permitted by BVI law and our Articles of Association, a director interested in a particular transaction may vote on it, attend meetings at which it is considered, and sign documents on our behalf which relate to the transaction.

Transactions with Interested Shareholders

Delaware corporate law contains a business combination statute applicable to Delaware public corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested stockholder” for three years following the date that such person becomes an interested stockholder. An interested stockholder generally is a person or group who or that owns or owned 15% or more of the target’s outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all stockholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such stockholder becomes an interested stockholder, the board of directors approves either the business combination or the transaction that resulted in the person becoming an interested stockholder. This encourages any potential acquirer of a Delaware public corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.

BVI law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although BVI law does not regulate transactions between a company and its significant shareholders, the directors in deciding whether the company should enter into any such transaction are subject to the fiduciary duties referred to under “Director’s Fiduciary Duties” above. Additionally, there are certain statutory minority shareholder actions under BVI law which may be available to protect the interests of minority shareholders depending on the circumstances and the particular transaction with the interested shareholder.

Independent Directors

There are no provisions under Delaware corporate law or under the Companies Act that require a majority of our directors to be independent.

Cumulative Voting

Under Delaware corporate law, cumulative voting for elections of directors is not permitted unless the company’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority stockholders on a board of directors since it permits the minority stockholder to cast all the votes to which the stockholder is entitled on a single director, which increases the stockholder’s voting power with respect to electing such director. There are no prohibitions to cumulative voting under the laws of the BVI, but our Articles of Association do not provide for cumulative voting.

Anti-Takeover Provisions in Our Articles of Association

Some provisions of our Articles of Association may discourage, delay or prevent a change in control of our company or management that a shareholder might deem to be in his, her or its best interest. For instance, our board of directors may issue preference shares in one or more series and designate the price, rights, preferences, privileges and restrictions of such preference shares, including the right to approve or not approve an acquisition or other change in control. In addition, our Articles of Association do not provide for cumulative voting, which may make it more difficult for minority shareholders owning less than a majority of our ordinary shares to elect members of our board of directors. Our board of directors has broad authority to amend our Articles of Association, and such future amendments could discourage, delay or prevent a change in control.

Registration Rights

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

American Depositary Shares

The Bank of New York Mellon, as depositary, will register and deliver American Depositary Shares, also referred to as ADSs. Each ADS will represent one ordinary share (or a right to receive one ordinary share) deposited with the principal Hong Kong office of The Hongkong and Shanghai Banking Corporation Limited, as custodian for the depositary. Each ADS will also represent any other securities, cash or other property which may be held by the depositary. The depositary’s corporate trust office at which the ADSs will be administered is located at 101 Barclay Street, New York, New York 10286. The Bank of New York’s principal executive office is located at One Wall Street, New York, New York 10286.

You may hold ADSs either (A) directly (i) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs, registered in your name, or (ii) by having ADSs registered in your name in the Direct Registration System, or (B) indirectly by holding a security entitlement in ADSs through your broker or other financial institution. If you hold ADSs directly, you are a registered ADS holder, also referred to as an ADS holder. This description assumes you are an ADS holder. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.

The Direct Registration System, or DRS, is a system administered by The Depository Trust Company, also referred to as DTC, pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership is confirmed by periodic statements sent by the depositary to the registered holders of uncertificated ADSs.

As an ADS holder, we will not treat you as one of our ordinary shareholders and you will not have ordinary shareholder rights. BVI law governs ordinary shareholder rights. The depositary will be the holder of the ordinary shares underlying your ADSs. As a registered holder of ADSs, you will have ADS holder rights. A deposit agreement among us, the depositary and you, as an ADS holder, and all other persons indirectly holding ADSs sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADSs.

The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit agreement and the form of ADR. For directions on how to obtain copies of those documents, see “Where You Can Find Additional Information.”

Dividends and Other Distributions

How will you receive dividends and other distributions on the ordinary shares?

The depositary has agreed to pay to ADS holders the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent.

Cash. The depositary will convert any cash dividend or other cash distribution we pay on the ordinary shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the respective accounts of the ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest.

Before making a distribution, any withholding taxes, or other governmental charges that must be paid will be deducted. See “Taxation.” It will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the distribution.

Ordinary shares. The depositary may distribute additional ADSs representing any ordinary shares we distribute as a dividend or free distribution. The depositary will only distribute whole ADSs. It will sell ordinary shares which would require it to deliver a fractional ADS and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADSs, the outstanding ADSs will also represent the new ordinary shares. The depositary may sell a portion of the distributed ordinary shares sufficient to pay its fees and expenses in connection with that distribution.

Rights to purchase additional ordinary shares. If we offer holders of our securities any rights to subscribe for additional ordinary shares or any other rights, the depositary may make these rights available to ADS holders. If the depositary decides it is not legal and practical to make the rights available but that it is practical to sell the rights, the depositary will use reasonable efforts to sell the rights and distribute the proceeds in the same way as it does with cash. The depositary will allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.

Other Distributions. The depositary will send to ADS holders anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. It may decide to sell what we distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed, in which case ADSs will also represent the newly distributed property. However, the depositary is not required to distribute any securities (other than ADSs) to ADS holders unless it receives satisfactory evidence from us that it is legal to make that distribution. The depositary may sell a portion of the distributed securities or property sufficient to pay its fees and expenses in connection with that distribution.

The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. The depositary would continue to hold any property received in respect of deposited shares that is not distributed as deposited securities under the deposit agreement, in its account with the custodian or in another place it determines, for the benefit of ADS holders, until that property can be distributed to ADS holders or otherwise disposed of for their benefit. We have no obligation to register ADSs, ordinary shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to ADS holders. This means that you may not receive the distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you .

Deposit, Withdrawal and Cancellation

How are ADSs issued?

The depositary will deliver ADSs if you or your broker deposit ordinary shares or evidence of rights to receive ordinary shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the person or persons that made the deposit.

How can ADS holders withdraw the deposited securities?

You may surrender your ADSs at the depositary’s corporate trust office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the ordinary shares and any other deposited securities underlying the ADSs to the ADS holder or a person the ADS holder designates at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited securities at its corporate trust office, if feasible.

How do ADS holders interchange between certificated ADSs and uncertificated ADSs?

You may surrender your ADR to the depositary for the purpose of exchanging your ADR for uncertificated ADSs. The depositary will cancel that ADR and will send to the ADS holder a statement confirming that the ADS holder is the registered holder of uncertificated ADSs. Alternatively, upon receipt by the depositary of a proper instruction from a registered holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, the depositary will execute and deliver to the ADS holder an ADR evidencing those ADSs.

Voting Rights

How do you vote?

ADS holders may instruct the depositary to vote the number of deposited ordinary shares their ADSs represent. The depositary will notify ADS holders of ordinary shareholders’ meetings and arrange to deliver our voting materials to them if we ask it to. Those materials will describe the matters to be voted on and explain how ADS holders may instruct the depositary how to vote. For instructions to be valid, they must reach the depositary by a date set by the depositary.

Otherwise, you won’t be able to exercise your right to vote unless you withdraw the ordinary shares. However, you may not know about the meeting enough in advance to withdraw the ordinary shares.

The depositary will try, as far as practical, subject to the laws of the British Virgin Islands and of our Articles of Association, to vote or to have its agents vote the ordinary shares or other deposited securities as instructed by ADS holders. The depositary will only vote or attempt to vote as instructed.

We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ordinary shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if your ordinary shares are not voted as you requested.

In order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to deposited securities, if we request the depositary to act, we agree to give the depositary notice of any such meeting and details concerning the matters to be voted upon at least 45 days in advance of the meeting date.

The depositary is not required to vote in any particular manner, and accordingly it may vote in person, by proxy, electronically or otherwise to the extent then permitted by applicable law.

Fees and Expenses

Persons depositing or withdrawing ordinary shares or ADS holders must pay:		For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)	·	Issuance of ADSs, including issuances resulting from a distribution of ordinary shares or rights or other property
	·	Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
$0.05 (or less) per ADS	·	Any cash distribution to ADS holders
A fee equivalent to the fee that would be payable if securities distributed to you had been ordinary shares and the ordinary shares had been deposited for issuance of ADSs	·	Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders
$0.05 (or less) per ADSs per calendar year	·	Depositary services
Registration or transfer fees	·	Transfer and registration of ordinary shares on our ordinary share register to or from the name of the depositary or its agent when you deposit or withdraw ordinary shares
Expenses of the depositary	·	Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
	·	converting foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or ordinary share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes	·	As necessary
Any charges incurred by the depositary or its agents for servicing the deposited securities	·	As necessary

The Bank of New York Mellon, as depositary, has agreed to reimburse us for expenses we incur that are related to establishment and maintenance of the ADS program, including investor relations expenses and stock market application and listing fees. There are limits on the amount of reimbursement available to us. The amounts that will be available to us in future years are related to the number of ADSs that are outstanding and the number of ADSs that have been issued and cancelled on a year-by-year basis and the fees the depositary collected in connection with those ADSs and those transactions. We do not expect to receive any other payments from the depositary.

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

Payment of Taxes

You will be responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs. The depositary may refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented by your ADSs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your ADSs to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds, or send to ADS holders any property, remaining after it has paid the taxes.

Reclassifications, Recapitalizations and Mergers

If we:		Then:
	· Change the nominal or par value of our ordinary shares	The cash, ordinary shares or other securities received by the depositary will become deposited securities. Each ADS will automatically represent its equal ordinary share of the new deposited securities. The depositary may, and will if we ask it to, distribute some or all of the cash, ordinary shares or other securities it received. It may also deliver new ADRs or ask you to surrender your outstanding ADRs in exchange for new ADRs identifying the new deposited securities.
	· Reclassify, split up or consolidate any of the deposited securities
	· Distribute securities on the ordinary shares that are not distributed to you
	· Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action

Amendment and Termination

How may the deposit agreement be amended?

We may agree with the depositary to amend the deposit agreement and the ADRs without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial right of ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended.

How may the deposit agreement be terminated?

The depositary will terminate the deposit agreement at our direction by mailing notice of termination to the ADS holders then outstanding at least 30 days prior to the date fixed in such notice for such termination. The depositary may also terminate the deposit agreement by mailing notice of termination to us and the ADS holders if 60 days have passed since the depositary told us it wants to resign but a successor depositary has not been appointed and accepted its appointment.

After termination, the depositary and its agents will do the following under the deposit agreement but nothing else: collect distributions on the deposited securities, sell rights and other property, and deliver ordinary shares and other deposited securities upon cancellation of ADSs. Four months after termination, the depositary may sell any remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement for the pro rata benefit of the ADS holders that have not surrendered their ADSs. It will not invest the money and has no liability for interest. The depositary’s only obligations will be to account for the money and other cash. After termination our only obligations will be to indemnify the depositary and to pay fees and expenses of the depositary that we agreed to pay.

Limitations on Obligations and Liability

Limits on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of ADSs

The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. We and the depositary:

are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;

are not liable if we are or it is prevented or delayed by law or circumstances beyond our control from performing our or its obligations under the deposit agreement;

are not liable if we or it exercises discretion permitted under the deposit agreement;

are not liable for the inability of any holder of ADSs to benefit from any distribution on deposited securities that is not made available to holders of ADSs under the terms of the deposit agreement, or for any special, consequential or punitive damages for any breach of the terms of the deposit agreement;

have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the deposit agreement on your behalf or on behalf of any other person; and

may rely upon any documents we believe or it believes in good faith to be genuine and to have been signed or presented by the proper person.

In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.

Requirements for Depositary Actions

Before the depositary will deliver or register a transfer of an ADS, make a distribution on an ADS, or permit withdrawal of ordinary shares, the depositary may require:

payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any ordinary shares or other deposited securities;

satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and

compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.

The depositary may refuse to deliver ADSs or register transfers of ADSs generally when the transfer books of the depositary or our transfer books are closed or at any time if the depositary or we think it advisable to do so.

Your Right to Receive the Ordinary Shares Underlying your ADSs

ADS holders have the right to cancel their ADSs and withdraw the underlying ordinary shares at any time except:

When temporary delays arise because: (i) the depositary has closed its transfer books or we have closed our transfer books; (ii) the transfer of ordinary shares is blocked to permit voting at a ordinary shareholders’ meeting; or (iii) we are paying a dividend on our ordinary shares.

When you owe money to pay fees, taxes and similar charges.

When it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities.

This right of withdrawal may not be limited by any other provision of the deposit agreement.

Pre-release of ADSs

The deposit agreement permits the depositary to deliver ADSs before deposit of the underlying ordinary shares. This is called a pre-release of the ADSs. The depositary may also deliver ordinary shares upon cancellation of pre-released ADSs (even if the ADSs are canceled before the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying ordinary shares are delivered to the depositary. The depositary may receive ADSs instead of ordinary shares to close out a pre-release. The depositary may pre-release ADSs only under the following conditions: (1) before or at the time of the pre-release, the person to whom the pre-release is being made represents to the depositary in writing that it or its customer owns the ordinary shares or ADSs to be deposited; (2) the pre-release is fully collateralized with cash or other collateral that the depositary considers appropriate; and (3) the depositary must be able to close out the pre-release on not more than five business days’ notice. In addition, the depositary will limit the number of ADSs that may be outstanding as a result of pre-release generally to a number that represents not more than 30% of the shares deposited under the deposit agreement, although the depositary may disregard that limit from time to time if it thinks it is appropriate to do so.

Direct Registration System

In the deposit agreement, all parties to the deposit agreement acknowledge that the DRS and Profile Modification System, or Profile, will apply to uncertificated ADSs upon acceptance thereof to DRS by DTC. DRS is the system administered by DTC pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership is evidenced by periodic statements sent by the depositary to the registered holders of uncertificated ADSs. Profile is a required feature of DRS which allows a DTC participant, claiming to act on behalf of a registered holder of ADSs, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder to register that transfer.

In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement understand that the depositary will not verify, determine or otherwise ascertain that the DTC participant which is claiming to be acting on behalf of an ADS holder in requesting registration of transfer and delivery described in the paragraph above has the actual authority to act on behalf of the ADS holder (notwithstanding any requirements under the Uniform Commercial Code). In the deposit agreement, the parties agree that the depositary’s reliance on and compliance with instructions received by the depositary through the DRS/Profile System and in accordance with the deposit agreement shall not constitute negligence or bad faith on the part of the depositary.

Ordinary Shareholder Communications; Inspection of Register of Holders of ADSs

The depositary will make available for your inspection at its office all communications that it receives from us as a holder of deposited securities that we make generally available to holders of deposited securities. The depositary will send you copies of those communications if we ask it to. You have a right to inspect the register of holders of ADSs, but not for the purpose of contacting those holders about a matter unrelated to our business or the ADSs. If we request in writing, the depositary will arrange for the mailing, at our expense, of copies of such notices, reports and communications to all shareholders. We will timely provide the depositary with the quantity of such notices, reports, and communications, as requested by the depositary from time to time, in order for the depositary to effect such mailings.

TAXATION

The following summaries set forth the material BVI, PRC and U.S. federal income tax consequences of the acquisition, ownership and disposition of our ADSs or ordinary shares covered by this prospectus, based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. The summaries do not address all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences under state, local and other tax laws, except where specifically addressed, and are based on the facts and subject to the limitations and qualifications set forth herein. The discussion under the heading (i) “— BVI Taxation” is the opinion of Maples and Calder, our BVI counsel, (ii) “— PRC Taxation” is the opinion of Dacheng Law Offices LLP (Fuzhou), our PRC counsel, and (iii) “ — United States Federal Income Taxation” is the opinion of DLA Piper LLP (US), our U.S. counsel. You should consult with your own tax adviser regarding the tax consequences of the acquisition, ownership and disposition of our ADSs or ordinary shares in your particular circumstances.

BVI Taxation

Under the laws of the BVI as currently in effect, a holder of our ADSs or ordinary shares is not liable for BVI income tax on dividends paid with respect to the ADSs or ordinary shares or on gains realized on the sale or disposal of such ADSs or ordinary shares. The BVI does not impose a withholding tax on dividends paid by a company incorporated or registered under the BVI Act.

There are no capital gains, gift or inheritance taxes levied by the BVI on companies incorporated or registered under the BVI Act. In addition, transfers of ordinary shares of companies incorporated or registered under the BVI Act are not subject to transfer taxes, stamp duties or similar charges.

There is no income tax treaty or convention currently in effect between the United States and the BVI, although a tax information exchange agreement between the United States and the BVI is in force.

PRC Taxation

Resident Enterprise Treatment

In March 2007, the Fifth Session of the Tenth National People’s Congress passed the Enterprise Income Tax Law of the PRC, or the EIT Law, which became effective on January 1, 2008. Under the EIT Law, enterprises are classified as “resident enterprises” and “non-resident enterprises.” Pursuant to the EIT Law and its implementing rules, enterprises established outside the PRC whose “de facto management bodies” are located in the PRC are considered “resident enterprises” and subject to the uniform 25% enterprise income tax rate on their worldwide taxable income. In addition, dividends from a PRC subsidiary to its foreign parent company would be subject to a withholding tax at the rate of 10%, unless such foreign parent company’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax, or the tax is otherwise exempted or reduced pursuant to the PRC tax laws. According to the implementing rules of the EIT Law, “de facto management body” refers to a managing body that in practice exercises overall management control over the production and business, personnel, accounting and assets of an enterprise.

In April 2009, the State Administration of Taxation, or SAT, issued the Notice on the Issues Regarding Recognition of Overseas Incorporated Enterprises that are Domestically Controlled as PRC Resident Enterprises Based on the De Facto Management Body Criteria, or Circular 82, which was retroactively effective as of January 2008. Circular 82 provides that an overseas incorporated enterprise that is controlled by a PRC company or a PRC company group will be recognized as a “tax-resident enterprise” if it satisfies all of the following conditions: (i) the senior management responsible for daily production/business operations are primarily located in the PRC, and the location(s) where such senior management execute their responsibilities are primarily in the PRC; (ii) strategic financial and personnel decisions are made or approved by organizations or personnel located in the PRC; (iii) major properties, accounting ledgers, company seals and minutes of board meetings and shareholder meetings are maintained in the PRC; and (iv) 50% or more of the board members with voting rights or senior management habitually reside in the PRC. Our PRC counsel, Dacheng Law Offices LLP (Fuzhou), is of the view that the criteria set forth in Circular 82 do not apply to us directly because our BVI holding company was incorporated and has been controlled by Mr. Xinrong Zhuo, an individual, and therefore is not a “foreign enterprise controlled by a PRC company or a PRC company group.”

Given the short history of the EIT Law and lack of applicable legal precedent, it remains unclear how the PRC tax authorities will determine the resident enterprise status of a company organized under the laws of a foreign, or non-PRC, jurisdiction and controlled by individuals. If the PRC tax authorities determine that we are a “resident enterprise” under the EIT Law, a number of tax consequences should follow. First, we should be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income, as well as PRC enterprise income tax reporting obligations. Second, our shareholders who are not Chinese residents will be subject to 10% withholding tax upon dividends payable by us. Third, the EIT Law provides that dividend income between resident enterprises is exempted from enterprise income tax. As a result, if we and China Dredging (HK) are treated as a “resident enterprise,” all dividends paid from Fujian WangGang to us (through China Dredging (HK)) should be exempted from the PRC enterprise income tax. See “Risk Factors — Risks Relating to Doing Business in the PRC — The dividends we receive from our Chinese subsidiaries and our global income may be subject to Chinese tax under the Enterprise Income Tax Law, or the EIT Law, which would have a material adverse effect on our results of operations; our foreign ADS holders will be subject to a Chinese withholding tax upon the dividends payable by us and subject to the income tax on the gains on the sale of ADSs, if we are classified as a Chinese “resident enterprise.”

As of the date of this prospectus, there has not been a definitive determination as to the “resident enterprise” or “non-resident enterprise” status of us. However, because it is not anticipated that we would receive dividends or generate other income in the near future, we are not expected to have any income that would be subject to the 25% enterprise income tax on worldwide taxable income in the near future. We will make any necessary tax payment if we (based on future clarifying guidance issued by the PRC) or the PRC tax authorities determine that we are a resident enterprise under the EIT Law, and if we were to have income in the future.

Dividends From Fujian WangGang

If China Dredging (HK) is not treated as a resident enterprise under the EIT Law, then dividends that China Dredging (HK) receives from Fujian WangGang may be subject to PRC withholding tax. The EIT Law and the implementing rules of the EIT Law provide that (A) an income tax rate of 25% normally will be applicable to “non-resident enterprises” that (i) have an establishment or place of business inside the PRC, and (ii) have income in connection with their establishment or place of business that is sourced from the PRC or is earned outside the PRC but has an actual connection with their establishment or place of business inside the PRC, and (B) a PRC withholding tax at a rate of 10% will normally be applicable to dividends payable to non-resident enterprises that (i) do not have an establishment or place of business in the PRC or (ii) have an establishment or place of business in the PRC, but the relevant income is not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources within the PRC.

As described above, the PRC tax authorities may determine the resident enterprise status of entities organized under the laws of foreign jurisdictions on a case-by-case basis. China Dredging (HK) is a holding company and substantially all of its income may be derived from dividends. Thus, if China Dredging (HK) is considered a “non-resident enterprise” under the EIT Law and the dividends paid to China Dredging (HK) are considered income sourced within the PRC, such dividends received may be subject to PRC withholding tax as described in the foregoing paragraph.

The State Council of the PRC or a tax treaty between China and the jurisdiction in which the non-resident enterprise resides may reduce such income or withholding tax, with respect to such non-resident enterprise. Pursuant to the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income, or the PRC-Hong Kong Tax Treaty, and relevant circulars issued by the SAT, if the Hong Kong resident enterprise that is not deemed to be a conduit by the PRC tax authorities owns more than 25% of the equity interests in a PRC resident enterprise, the 10% PRC withholding tax on the dividends the Hong Kong resident enterprise receives from the PRC resident enterprise is reduced to 5%.

China Dredging is a BVI holding company, has a subsidiary in Hong Kong, China Dredging (HK), which in turns owns a 100% equity interest in Fujian WangGang, a 50% indirect ownership of Fujian Service, and variable interest entity arrangements with Wonder Dredging, which are PRC companies. As a result, if China Dredging (HK) were treated as a “non-resident enterprise” under the EIT Law, then dividends that it receives from Fujian WangGang and Fujian Service (assuming such dividends were considered sourced within the PRC) (i) may be subject to a 5% PRC withholding tax, if the PRC-Hong Kong Tax Treaty were applicable, or (ii) if such treaty does not apply (i.e., because the PRC tax authorities may deem China Dredging (HK) to be a conduit not entitled to treaty benefits), may be subject to a 10% PRC withholding tax. Similarly, if we were treated as a “non-resident enterprise” under the EIT Law, and China Dredging (HK) were treated as a “resident enterprise” under the EIT Law, then dividends that we receive from China Dredging (HK) (assuming such dividends were considered sourced within the PRC) may be subject to a 10% PRC withholding tax. Any such taxes on dividends could materially reduce the amount of dividends, if any, we could pay to our shareholders.

As of the date of this prospectus, there has not been a definitive determination as to the “resident enterprise” or “non-resident enterprise” status of us or China Dredging (HK). As indicated above, however, none of Fujian WangGang, Fujian Service and China Dredging (HK) are expected to pay any dividends in the near future. Fujian WangGang, Fujian Service and China Dredging (HK) will make any necessary tax withholding if, in the future, they were to pay any dividends and, based on future clarifying guidance issued by the PRC determine that China Dredging (HK) is or we are a non-resident enterprise under the EIT Law.

Dividends that Non-PRC Resident Investors Receive From Us; Gain on the Sale or Transfer of Our ADSs or Ordinary Shares

If we are determined to be a resident enterprise under the EIT Law and dividends payable to (or gains realized by) our investors that are not tax residents of the PRC, or non-resident investors, are treated as income derived from sources within the PRC, then the dividends that the non-resident investors receive from us and any such gain derived by such investors on the sale or transfer of our ADSs or ordinary shares may be subject to income tax under the PRC tax laws. As indicated below, under the PRC tax laws, we would not have an obligation to withhold PRC income tax in respect of gains that non-resident investors may realize from the sale or transfer of our ADSs or ordinary shares (regardless of whether such gains would be regarded as income from sources within the PRC), but we would have an obligation to withhold PRC income tax at the applicable rate described below (subject to reduction by applicable tax treaties) on dividends that non-resident investors receive from us if such dividends are regarded as income derived from sources within the PRC.

Under the EIT Law and its implementing rules, PRC withholding tax at the rate of 10% is applicable to dividends payable to non-resident investors that are enterprises (but not individuals) and that (i) do not have an establishment or place of business in the PRC or (ii) have an establishment or place of business in the PRC but the relevant income is not effectively connected with the establishment or place of business, to the extent that such dividends are deemed to be sourced within the PRC. Similarly, any gain realized on the transfer of our ADSs or ordinary shares by such investors also is subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC.

Under the PRC Individual Income Tax Law and its implementing rules, a potential 20% PRC withholding tax may be applicable to dividends payable to non-resident investors who are individuals and who (i) are not domiciled in the PRC and do not reside in the PRC or (ii) are not domiciled in the PRC and have resided in the PRC for less than one year, to the extent that such dividends are deemed to be sourced within the PRC. Similarly, any gain realized on the transfer of our ADSs or ordinary shares by such investors may be subject to a 20% PRC income tax if such gain is regarded as income derived from sources within the PRC.

The dividends paid by us to non-resident investors in respect to our ADSs or ordinary shares, or the gain non-resident investors may realize from the sale or transfer of our ADSs or ordinary shares, may be treated as PRC-sourced income and, as a result, may be subject to PRC income tax. In such event, we may be required to withhold the applicable PRC income tax on any dividends paid to non-resident investors. In addition, non-resident investors in our ADSs or ordinary shares may be responsible for paying the applicable PRC income tax on any gain realized from the sale or transfer of our ADSs or ordinary shares if such non-resident investors and the gain satisfy the requirements under the PRC tax laws. However, under the PRC tax laws, we would not have an obligation to withhold PRC income tax in respect of the gains that non-resident investors (including U.S. investors) may realize from the sale or transfer of our ADSs or ordinary shares.

If we were to pay any dividends in the future, and if we (based on future clarifying guidance issued by the PRC), or the PRC tax authorities, determine that we must withhold PRC tax on any dividends payable by us under the PRC tax laws, we will make any necessary tax withholding on dividends payable to our non-resident investors. If non-resident investors as described under the PRC tax laws (including U.S. investors) realize any gain from the sale or transfer of our ADSs or ordinary shares, and if such gain were considered as PRC-sourced income, such non-resident investors would be responsible for paying the applicable PRC income tax on the gain from the sale or transfer of our ADSs or ordinary shares. As indicated above, under the PRC tax laws, we would not have an obligation to withhold PRC income tax in respect of the gains that non-resident investors (including U.S. investors) may realize from the sale or transfer of our ADSs or ordinary shares.

Penalties for Failure to Pay Applicable PRC Income Tax

A non-resident investor in us may be responsible for paying PRC income tax on any gain realized from the sale or transfer of our ADSs or ordinary shares, if such non-resident investor and the gain satisfy the requirements under the PRC tax laws, as described above. In addition, the penalties for failure to pay applicable PRC income taxes will not be affected by the Agreement between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income.

According to the EIT Law and its implementing rules, the PRC Tax Administration Law, or Tax Administration Law, and its implementing rules, the Provisional Measures for the Administration of Withholding of Enterprise Income Tax for Non-Resident Enterprises, or Administration Measures, and other applicable PRC laws or regulations, collectively, the Tax Related Laws, where any gain derived by a non-resident investor from the sale or transfer of our ADSs or ordinary shares, is subject to any income tax in the PRC, and such non-resident investor fails to file any tax return or pay tax in this regard pursuant to the Tax Related Laws, such investor may be subject to certain fines, penalties or punishments, including without limitation: (1) if the non-resident investor fails to file a tax return and present the relevant information in connection with tax payments, the competent PRC tax authorities may order it to do so within the prescribed time limit and may impose a fine up to RMB 2,000, and in egregious cases, may impose a fine ranging from RMB 2,000 to RMB 10,000; (2) if the non-resident investor fails to pay all or part of the amount of tax payable, the non-resident investor may be required to pay the unpaid tax amount payable, a surcharge on overdue tax payments (the daily surcharge is 0.05% of the overdue amount, beginning from the day the deferral begins) and a fine ranging from 50% to 500% of the unpaid amount of the tax payable; (3) if the non-resident investor fails to file a tax return and to pay the tax within the prescribed time limit according to the order by the PRC tax authorities, the PRC tax authorities may collect and check information about the income receivable by the non-resident investor in the PRC from other payers, or Other Payers, who will pay amounts to such non-resident investor, and send a “Notice of Tax Issues” to the Other Payers to collect and recover the tax payable and overdue fines imposed on such non-resident investor from the amounts otherwise payable to such non-resident investor by the Other Payers; (4) if the non-resident investor fails to pay the tax payable within the prescribed time limit as ordered by the PRC tax authorities, a fine may be imposed on the non-resident investor ranging from 50% to 500% of the unpaid tax payable, and the PRC tax authorities may, upon approval by the director of the tax bureau (or sub-bureau) of, or higher than, the county level, take the following compulsory measures: (i) notify in writing the non-resident investor’s bank or other financial institution to withhold from the account thereof for payment of the amount of tax payable, and (ii) detain, seal off, or sell by auction or on the market the non-resident investor’s commodities, goods or other property in a value equivalent to the amount of tax payable; or (5) if the non-resident investor fails to pay all or part of the amount of tax payable or the surcharge for the overdue tax payment, and cannot provide a guarantee to the PRC tax authorities, the tax authorities may notify the frontier authorities to prevent the non-resident investor or its legal representative from leaving the PRC.

United States Federal Income Taxation

General

The following are the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our ADSs or ordinary shares covered by this prospectus. The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to a beneficial owner of our ADSs or ordinary shares:

(a) who is, for U.S. federal income tax purposes, one of the following:

an individual citizen or resident of the United States;

a corporation (or other entity treated as a corporation) that is created or organized (or treated as created or organized) in or under the laws of the United States, any state thereof or the District of Columbia;

an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or

a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (ii) it has in effect a valid election to be treated as a U.S. person; or

(b) who holds the shares or ADSs as capital assets for U.S. federal income tax purposes; and

(c) who owns, directly, indirectly or by attribution, less than 10% of the total combined voting power of our voting share.

This discussion does not address all of the tax considerations that may apply to holders that are subject to special tax rules, such as U.S. expatriates, insurance companies, tax-exempt organizations, certain financial institutions, persons subject to the alternative minimum tax, dealers and certain traders in securities, persons holding shares or ADSs as part of a straddle, hedging, conversion or other integrated transaction, persons who acquired their shares or ADSs pursuant to the exercise of employee stock options or otherwise as compensation, partnerships or other entities classified as partnerships for U.S. federal income tax purposes or persons whose functional currency is not the U.S. dollar. Such holders may be subject to U.S. federal income tax consequences different from those set forth below.

If a partnership holds shares or ADSs, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partner in a partnership that holds shares or ADSs is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of the shares or ADSs.

This discussion is based on the Code, its legislative history, regulations promulgated thereunder, published rulings and court decisions, all as in effect as of the date of this prospectus. These authorities are subject to differing interpretations or change at any time, possibly on a retroactive basis.

The U.S. Treasury Department has expressed concerns that parties to whom ADSs are pre-released may be taking actions that are inconsistent with the claiming, by U.S. Holders of ADSs, of foreign tax credits for U.S. federal income tax purposes. Such actions also would be inconsistent with the claiming of the reduced rate of tax applicable to dividends received by certain non-corporate U.S. Holders, as described below. Accordingly, the availability of foreign tax credits or the reduced tax rate for dividends received by certain non-corporate U.S. Holders could be affected by actions that may be taken by parties to whom ADSs are pre-released, or by future actions of the U.S. Treasury Department.

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If a beneficial owner of our ADSs or ordinary shares is not described as a U.S. Holder, such owner will be considered a “Non-U.S. Holder.” The material U.S. federal income tax consequences applicable specifically to Non-U.S. Holders are described below under the heading “Non-U.S. Holders.”

We have not sought, and do not intend to seek, a ruling from the Internal Revenue Service, or the IRS, as to any U.S. federal income tax consequence described herein. The IRS may disagree with the description herein, and its determination may be upheld by a court. Moreover, future legislation, regulations, administrative rulings or court decisions may adversely affect the accuracy of the statements in this discussion.

U.S. Holders

Taxation of Dividends

Subject to the PFIC rules discussed below, distributions received by a U.S. Holder on our ordinary shares or ADSs, other than certain pro rata distributions of shares to all shareholders (including ADS holders), will constitute foreign source dividend income to the extent paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Because we do not intend to maintain calculations of our earnings and profits under U.S. federal income tax principles it is expected that distributions generally will be reported to U.S. Holders as dividends. In the case of corporate U.S. Holders, dividends paid on our shares or ADSs will generally be taxable at regular corporate rates of up to 35% and the corporate U.S. Holders will not be entitled to claim the dividends-received deduction. In the case of non-corporate U.S. Holders, dividends are generally subject to tax at ordinary income rates of up to 35% (39.6% if paid after December 31, 2012, unless current rates are extended); however, such dividends, if paid before January 1, 2013, and provided we are not treated as a PFIC as described below, may be eligible for the reduced capital gains of 15%, provided that (a) our ADSs or ordinary shares become listed and readily tradable on an established securities market in the United States, or (b) in the event we are deemed to be a PRC “resident enterprise” under the EIT Law, we are eligible for the benefits of the Agreement between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, or the U.S.-PRC Tax Treaty. Under published IRS authority, shares are considered for purposes of clause (a) above to be readily tradable on an established securities market in the United States only if they are listed on certain exchanges. Because no public market currently exists for our ADSs or ordinary shares, the ADSs and ordinary shares currently are not considered to be readily tradable on an established securities market.

Certain pro rata distributions of shares to all shareholders (including ADS holders) are not generally subject to tax.

If PRC income taxes are withheld from dividends on ADSs or ordinary shares, such taxes will be creditable against a U.S. Holder’s U.S. federal income tax liability, subject to applicable restrictions and limitations that may vary depending upon the U.S. Holder’s circumstances and the discussion above regarding concerns expressed by the U.S. Treasury Department. Instead of claiming a credit, a U.S. Holder may elect to deduct foreign taxes (including the PRC taxes) in computing its taxable income, subject to generally applicable limitations. An election to deduct foreign taxes (instead of claiming foreign tax credits) applies to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States. The amount of foreign income taxes which may be claimed as a credit in any year is subject to complex limitations and restrictions, which must be determined on an individual basis by each U.S. Holder. These limitations include, among others, rules which limit foreign tax credits allowable with respect to specific classes of foreign source income to the U.S. federal income taxes otherwise payable with respect to each such class of foreign source income. Therefore, U.S. Holders should consult their own tax advisors regarding the availability of foreign tax credits in their particular circumstances.

Taxation on the Sale or Other Disposition of ADSs or Ordinary Shares

Subject to the PFIC rules discussed below, a U.S. Holder will generally recognize U.S. source capital gain or loss on the sale or other disposition of shares or ADSs, which will be long-term capital gain or loss if the U.S. Holder has held such shares or ADSs for more than one year. The amount of the U.S. Holder’s gain or loss will be equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in the ADSs or ordinary shares.

The regular U.S. federal income tax rate on capital gains recognized by U.S. Holders generally is the same as the regular U.S. federal income tax rate on ordinary income, except that long term capital gains recognized by non-corporate U.S. Holders generally are subject to U.S. federal income tax at a maximum regular rate of 15% for taxable years beginning before January 1, 2013 (and 20% thereafter, unless current rates are extended). The deductibility of capital losses is subject to various limitations. Any such gain or loss generally will be U.S. source income or loss for U.S. foreign tax credit limitation purposes.

If a PRC income tax applies to any gain from the disposition of our ADSs or ordinary shares by a U.S. Holder, such tax should be treated as a foreign tax eligible for a deduction from such holder’s U.S. federal taxable income or a foreign tax credit against such holder’s U.S. federal income tax liability (subject to applicable conditions and limitations). In addition, if such PRC tax applies to any gain, such U.S. Holder may be entitled to treat such gain as PRC source for foreign tax credit purposes under the U.S.-PRC Tax Treaty if such holder is considered a resident of the United States for purposes of the U.S.-PRC Tax Treaty. If such gain is not treated as PRC source gain, however, a U.S. Holder will not be able to obtain a United States foreign tax credit for any PRC tax withheld or imposed unless such U.S. Holder has other foreign source income in the appropriate category for the applicable tax year. U.S. Holders should consult their own tax advisors regarding the deduction or credit for any such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.

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Passive Foreign Investment Company Rules

A foreign (i.e., non-U.S.) corporation will be a PFIC if either (a) at least 75% of its gross income in a taxable year of the foreign corporation, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income, or (b) at least 50% of its assets in a taxable year of the foreign corporation, ordinarily determined based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any corporation in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than certain rents or royalties derived from the active conduct of a trade or business), and gains from the disposition of passive assets.

Based on the composition of our assets and income (and the assets and income of our subsidiaries) and our current plans of operation, we do not expect to be treated as a PFIC for the current taxable year or in the near future. Our expectation is based on our direct ownership of 50% of the equity interests of Fujian Service and, through the VIE Agreements with Wonder Dredging and the shareholders of Wonder Dredging, our total control and 100% beneficial ownership of the 50% of Fujian Service that we do not directly own. For U.S. federal income tax purposes, we treat Fujian Service as wholly-owned by us. Fujian Service operates an active dredging contracting services business in the PRC. Accordingly, we believe that we primarily operate an active dredging contracting services business in the PRC. Our expectation is also based on assumptions as to our projections for the use of cash that we will hold and generate in the ordinary course of our business throughout the current taxable year. Despite our expectation, there can be no assurance that we will not be a PFIC for the current taxable year and/or later taxable years, as PFIC status is retested each year and depends on the actual facts in such year. We could be a PFIC, for example, if our business and assets evolve in ways that are different from what we currently anticipate, or if we are required to restructure our VIE Agreements with Wonder Dredging and the shareholders of Wonder Dredging in a manner that causes us to be classified as a PFIC. In addition, though we believe that a majority of our assets (by value) and the income derived from such assets do not constitute passive assets and income under the PFIC rules, there is no assurance that the IRS will agree with us. As they are inherently factual matters, our U.S. counsel expresses no opinion with respect to our expectations contained in this paragraph.

If we are treated as a PFIC for any taxable year (or portion thereof) that is included in the holding period of such U.S. Holder of our ADSs or ordinary shares, gain recognized by such U.S. Holder on a sale or other disposition of a share or ADS would be allocated ratably over the U.S. Holder’s holding period for the share or ADS. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, and an interest charge would be imposed on the resulting tax liability. The same treatment would apply to any distribution in respect of shares or ADSs to the extent it exceeds 125% of the average of the annual distributions on shares or ADSs received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter. In addition, if we were treated as a PFIC in a taxable year in which we pays a dividend or in the prior taxable year, the favorable dividend rate discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply.

If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares and any of our non-United States subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC and would be subject to the rules described above on certain distributions by a lower-tier PFIC and a disposition of shares of a lower-tier PFIC even though such U.S. Holder would not receive the proceeds of those distributions or dispositions. U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.

As an alternative to the foregoing rules, a U.S. Holder of ADSs or ordinary shares may make a mark-to-market election with respect to the ADSs or ordinary shares, provided that the ADSs or ordinary shares are “regularly traded” on a “qualified exchange or other market,” as provided in applicable Treasury regulations. Because no public market currently exists for our ADSs or ordinary shares, the ADSs and ordinary shares currently do not qualify for the mark-to-market election. It is unclear whether the ADSs or ordinary shares will ever qualify for the mark-to-market election and prospective investors should not assume that the ADSs or ordinary shares will qualify for the mark-to-market election. If the ADSs or ordinary shares qualify for the mark-to-market election in the future, and a U.S. Holder makes this election, the U.S. Holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the U.S. Holder will not be required to take into account the mark-to-market gain or loss described above during any period that such corporation is not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of our ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election.

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Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder will continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.

Under the Code, a qualified electing fund election, or a “QEF election,” could also ameliorate certain of the tax consequences referred to above. Pursuant to a QEF election with respect to ADSs or common shares and any subsidiary of the company that is treated as PFIC, an electing U.S. Holder would report for U.S. federal income tax purposes the U.S. Holder’s pro rata share of each PFIC’s ordinary earnings and net capital gain, if any, for each taxable year for which it is a PFIC that ends with or within his or her taxable year, regardless of whether or not the U.S. Holder’s received any distributions on their ADSs or common shares. However, because we do not expect to make available the information necessary for U.S. Holders to report income and gain in a manner consistent with the requirements for the QEF election, U.S. Holders will not be able to make a valid QEF election with respect to us or our subsidiaries.

Under newly enacted legislation, unless otherwise provided by the U.S. Treasury, each U.S. Holder of a PFIC is required to file an annual report containing such information as the U.S. Treasury may require. Prior to such legislation, a U.S. Holder of a PFIC was required to file U.S. Internal Revenue Service Form 8621 only for each taxable year in which such shareholder received distributions from the PFIC, recognized gain on a disposition of the PFIC stock, or made a “reportable election.” If we are or become a PFIC, U.S. Holders are urged to consult their tax advisors regarding any reporting requirements that may apply to them.

The rules dealing with PFICs are very complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of our ADSs or ordinary shares should consult their own tax advisors concerning the application of the PFIC rules to our ADSs or ordinary shares under their particular circumstances.

Additional Taxes After 2012

For taxable years beginning after December 31, 2012, U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally will be subject to a 3.8% Medicare contribution tax on unearned income, including, among other things, cash dividends on, and capital gains from the sale or other taxable disposition of, our ADSs or ordinary shares, subject to certain limitations and exceptions. U.S. Holders should consult their own tax advisors regarding the effect, if any, of such tax on their ownership and disposition of our ADSs or ordinary shares.

Non-U.S. Holders

Dividends paid to a Non-U.S. Holder in respect to our ADSs or ordinary shares generally will not be subject to U.S. federal income tax unless such dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (or, if an income tax treaty is applicable, are attributable to a permanent establishment or fixed base that such holder maintains in the United States).

In addition, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other taxable disposition of our ADSs or ordinary shares unless such gain is effectively connected with its conduct of a trade or business in the United States (or, if an income tax treaty is applicable, is attributable to a permanent establishment or fixed base that such holder maintains in the United States), or the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of sale or other taxable disposition and certain other conditions are met (in which case, such gain from United States sources generally is subject to U.S. federal income tax at a 30% rate or a lower applicable tax treaty rate).

Dividends and gains that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (or if an income tax treaty is applicable, are attributable to a permanent establishment or fixed base in the United States) generally will be subject to U.S. federal income tax (but not the Medicare contribution tax) at the same regular U.S. federal income tax rates as applicable to a comparable U.S. Holder and, in the case of a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes, may also be subject to an additional branch profits tax at a 30% rate or a lower applicable tax treaty rate.

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Backup Withholding and Information Reporting

In general, information reporting for U.S. federal income tax purposes should apply to distributions made on our ADSs or ordinary shares within the United States to a U.S. Holder (other than an exempt recipient) and to the proceeds from sales and other dispositions of our ADSs or ordinary shares by a U.S. Holder (other than an exempt recipient) to or through a U.S. office of a broker. Payments made (and sales and other dispositions effected at an office) outside the United States will be subject to information reporting in limited circumstances.

In addition, backup withholding of U.S. federal income tax, at a rate of 28% on payments until December 31, 2012 (31% on payments thereafter, unless the current rate is extended), generally will apply to dividends paid on our ADSs or ordinary shares to a U.S. Holder (other than an exempt recipient) and the proceeds from sales and other dispositions of our ADSs or ordinary shares by a U.S. Holder (other than an exempt recipient), in each case who:

fails to provide an accurate taxpayer identification number;

is notified by the IRS that backup withholding is required; or

in certain circumstances, fails to comply with applicable certification requirements.

Non-U.S. Holders generally are not subject to information reporting or backup withholding with respect to dividends paid on shares, or the proceeds from the sale, exchange or other disposition of shares or warrants, unless the payments are made by or through a U.S. person or a U.S. office of a non-U.S. person (as defined in Regulation S under the Securities Act). If the payments are made by or through a U.S. person or a U.S. office of a non-U.S. person (as defined in Regulation S under the Securities Act), information reporting and backup withholding will apply, unless each such Non-U.S. Holder certifies as to its foreign status on the applicable duly executed IRS Form W-8 or otherwise establishes an exemption.

Backup withholding is not an additional tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S. Holder’s or a Non-U.S. Holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished to the IRS. Holders are urged to consult their own tax advisors regarding the application of backup withholding and the availability of and procedures for obtaining an exemption from backup withholding in their particular circumstances.

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PLAN OF DISTRIBUTION

The selling shareholders and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their ADSs included in this prospectus on any stock exchange, market or trading facility on which the ADSs are traded or in private transactions. These sales may be at fixed or negotiated prices. However, selling shareholders must sell at a fixed price of $5.00 per share until there is a public market for the ADSs. A selling shareholder may use any one or more of the following methods when selling ADSs at the time such sales are permitted:

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

purchases by a broker-dealer as principal and resale by the broker-dealer for its account; an exchange distribution in accordance with the rules of the applicable exchange;

privately negotiated transactions;

settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

broker-dealers may agree with the selling shareholders to sell a specified number of such shares at a stipulated price per share;

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

a combination of any such methods of sale; or

any other method permitted pursuant to applicable law.

The selling shareholders may also sell their shares (whether or not in the form of ADSs) under Rule 144 under the Securities Act, if available, rather than under this prospectus.

In the event that we undertake a public offering, we plan to instruct each of the selling shareholder holders to suspend the use of this registration statement. In such event, each of the selling shareholders has agreed, at the request of the lead underwriter, to execute a lock-up agreement that would provide that such shareholder will not sell, transfer or dispose of their ordinary shares for certain periods of time after the consummation of such offering, subject to certain exceptions, without the prior written consent of the representative of the underwriters of such offering. We expect that such periods of time would be, in the case of selling shareholders who are:

our directors and executive officers, including their respective affiliates, 360 days,

Regent Fill Investment Group, Poying Holdings Limited, Yu Jianliang, Ding Nan and all the holders of preferred shares, 180 days, and

our other shareholders, 270 days.

We further expect that such time periods may be extended for an additional 18 days if, during the last 17 days of the applicable restricted period we issue an earnings release or material news or a material event relating to us occurs, or we announce that we will release earnings results during the 16-day period beginning on the last day of the applicable restricted period.

Broker-dealers engaged by the selling shareholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with the Financial Industry Regulatory Authority’s, or FINRA, NASD Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA’s NASD IM-2440.

In connection with the sale of our ordinary shares or interests therein, the selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the ordinary shares in the course of hedging the positions they assume. The selling shareholders may also sell shares of our ordinary shares short and deliver these securities to close out their short positions, loan or pledge the ordinary shares to broker-dealers that in turn may sell these securities, or enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

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The selling shareholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In the event such persons may be deemed to be “underwriters,” any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling shareholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

We are paying the cost of registering the ordinary shares covered by this prospectus as well as various related expenses, which are estimated to be approximately $300,000. We have agreed to indemnify the selling shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Because the selling shareholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. There is no underwriter or coordinating broker acting in connection with the proposed sale of the shares registered hereunder by the selling shareholders. We have advised the selling shareholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling shareholders and their affiliates. In addition, we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling shareholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling shareholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

We have agreed to keep this prospectus effective pursuant to Rule 415 under the Securities Act until the earlier of (i) the date on which all the shares registered for the selling shareholders have been sold, (ii) the date on which the shares registered for the selling shareholders hereunder are eligible to be sold pursuant to Rule 144 without any restriction pursuant to Rule 144.

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LEGAL MATTERS

The validity of the ordinary shares represented by the ADSs offered in this offering will be passed upon for us by Maples and Calder.

EXPERTS

The financial statements of our company as of December 31, 2010, 2009 and 2008, and for the years ended December 31, 2010 and 2009 and from January 8, 2008 (Inception) to December 31, 2008 appearing in this prospectus and registration statement have been audited by UHY Vocation HK CPA Limited, or UHY, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The offices of UHY are located at 3/F., Malaysia Building, 50 Gloucester Road, Wanchai, Hong Kong.

The financial statements of Chardan Acquisition Corp. as of September 30, 2009 and 2008 and January 31, 2010 for the 4-month period ended January 31, 2010, for the year ended September 30, 2009 and for the period from September 26, 2008 (inception) to September 30, 2008 appearing in this prospectus and registration statement have been audited by Webb & Company, P.A., or Webb & Company, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report on the authority of such firm as experts in accounting and auditing. The offices of Webb & Company are located at 1500 Gateway Blvd, Suite 202, Boynton Beach, Florida, The United States of America.

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WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form F-1, including relevant exhibits and securities under the Securities Act with respect to underlying ordinary shares represented by the ADSs, to be sold in our public offering. We have also filed with the SEC a related registration statement on F-6 to register the ADSs. This prospectus, which constitutes a part of the registration statement, does not contain all of the information contained in the registration statement. You should read the registration statement on Form F-1 and its exhibits and schedules for further information with respect to us and our ADSs.

Following the Merger, we have been subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we are required to file reports, including annual report on Form 20-F, within six months of our fiscal year end, with the SEC. All information filed with the SEC can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. You may also obtain additional information over the Internet at the SEC’s website at www.sec.gov.

As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of proxy statements to shareholders, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. However, we intend to furnish the depositary with our annual reports, which will include a review of operations and annual audited consolidated financial statements, and all notices of shareholders’ meetings and other reports and communications generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our written request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.

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CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

Contents		Page(s)
Fujian Xing Gang Port Services Co., Ltd.
Report of Independent Registered Public Accounting Firm		F-2
Balance Sheets of Fujian Xing Gang Port Services Co., Ltd.at December 31, 2009 and 2008		F-3
Statements of Income of Fujian Xing Gang Port Services Co., Ltd.for the year ended December 31, 2009 and from January 8, 2008 (Inception) to December 31, 2008		F-4
Statement of Changes in Owners’ Equity of Fujian Xing Gang Port Services Co., Ltd. for the year ended December 31, 2009 and from January 8, 2008 (Inception) to December 31, 2008		F-5
Statements of Cash Flows of Fujian Xing Gang Port Services Co., Ltd.for the year ended December 31, 2009 and from January 8, 2008 (Inception) to December 31, 2008		F-6
Notes to the Financial Statements of Fujian Xing Gang Port Services Co., Ltd.for the year ended December 31, 2009 and from January 8, 2008 (Inception) to December 31, 2008		F-7 to F-20
Balance Sheets of Fujian Xing Port Services Co., Ltd. at June 30, 2010 (Unaudited) and December 31, 2009		F-21
Statements of Income of Fujian Xing Port Services Co., Ltd. for the three and six months ended June 30, 2010 and 2009 (Unaudited)		F-22
Statement of Changes in Owners’ Equity of Fujian Xing Port Services Co., Ltd. for the six months ended June 30, 2010 (Unaudited)		F-23
Statements of Cash Flows of Fujian Xing Port Services Co., Ltd. for the six months ended June 30, 2010 and 2009 (Unaudited)		F-24
Notes to the Financial Statements of Fujian Xing Port Services Co., Ltd. as of and for the six months ended June 30, 2010 (Unaudited)		F-25 to F-40

China Dredging Group Co., Ltd and Subsidiaries
Report of Independent Registered Public Accounting Firm		F-42
Consolidated Balance Sheets of China Dredging Group Co., Ltd and Subsidiaries at December 31, 2010 and December 31, 2009		F-43
Consolidated Statements of Income of China Dredging Group Co., Ltd and Subsidiaries for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Date of Inception) to December 31, 2008		F-44
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income of China Dredging Group Co., Ltd and Subsidiaries for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Date of Inception) to December 31, 2008		F-45 to F-46
Consolidated Statements of Cash Flows of China Dredging Group Co., Ltd and Subsidiaries for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Date of Inception) to December 31, 2008		F-47
Notes to Consolidated Financial Statements of China Dredging Group Co., Ltd and Subsidiaries for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Date of Inception) to December 31, 2008		F-48 to F-77
Consolidated Balance Sheets of China Dredging Group Co., Ltd and subsidiaries at June 30, 2011 (Unaudited) and December 31, 2010		F-78
Consolidated Statements of Income for the six months ended June 30, 2011 and 2010 (Unaudited)		F-79
Consolidated Statements of Comprehensive Income for the six months ended June 30, 2011 and 2010 (Unaudited)		F-80
Consolidated Statement of Changes in Shareholders' Equity for the six months ended June 30, 2011 (Unaudited)		F-81
Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (Unaudited)		F-82
Notes to the Consolidated Financial Statements (Unaudited) of China Dredging Group Co., Ltd and subsidiaries as of and for the six months ended June 30, 2011		F-83 to F-110

Chardan Acquisition Corp.
Index to Condensed Financial Statements of Chardan Acquisition Corp. (A development stage company) as of and for the periods ended June 30, 2010 (Unaudited) and September 30, 2009		F-111
Index to Condensed Financial Statements of Chardan Acquisition Corp. (A development stage company) as of and for the periods ended January 31, 2010 and September 30, 2009		F-119
Index to Condensed Financial Statements of Chardan Acquisition Corp. (A development stage company) as of and for the periods ended September 30, 2010 (Unaudited) and January 31, 2010		F-129

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE OWNERS AND THE BOARD OF DIRECTORS OF

FUJIAN XING GANG PORT SERVICE CO., LTD.

We have audited the accompanying balance sheets of Fujian Xing Gang Port Service Co., Ltd. (the “Company”) as of December 31, 2009 and 2008, and the related statements of income, statement of changes in owners’ equity, and cash flows for the year ended December 31, 2009 and from January 8, 2008 (Inception) to December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fujian Xing Gang Port Service Co., Ltd. as of December 31, 2009 and 2008 and the results of its operations and its cash flows for the year ended December 31, 2009 and from January 8, 2008 (Inception) to December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

UHY VOCATION HK CPA LIMITED

Certified Public Accountants

Hong Kong, the People’s Republic of China,

October 6, 2010, except for Note 20, as to which the date is May 18, 2011

F-2

FUJIAN XING GANG PORT SERVICE CO., LTD.

BALANCE SHEETS

(IN U.S. DOLLARS)

	December 31,
	2009			2008
Assets
Current assets
Cash	$	23,343,469		$	1,362,142
Cost and estimated earnings in excess of billings on contracts in progress		2,211,411			—
Other receivables		312			—
Inventories		429,226			—
Total current assets		25,984,418			1,362,142
Other assets
Prepaid dredger deposit		2,197,158			—
Security deposits		8,422,440			8,427,995
Property, plant and equipment, net		43,511,237			48,497,870
Total other assets		54,130,835			56,925,865
Total assets	$	80,115,253		$	58,288,007
Liabilities and owners’ equity
Current liabilities
Term loans	$	7,030,906		$	1,832,173
Dredgers payable		—			17,859,098
Income tax payable		2,042,047			2,223,002
Accrued liabilities and other payables		209,680			154,575
Total current liabilities		9,282,633			22,068,848
Non-current liabilities
Term loans, net of current portion		3,295,738			6,962,257
Total non-current liabilities		3,295,738			6,962,257
Total liabilities		12,578,371			29,031,105
Owners’ equity
Registered capital		29,002,371			8,501,266
Statutory reserves		4,888,018			2,009,023
Retained earnings		43,946,972			18,061,369
Accumulated other comprehensive income		682,256			685,244
Subscription receivable		(10,982,735	)		—
Total owners’ equity		67,536,882			29,256,902
Total liabilities and owners’ equity	$	80,115,253		$	58,288,007

See notes to the financial statements.

F-3

FUJIAN XING GANG PORT SERVICE CO., LTD.

STATEMENTS OF INCOME

(IN U.S. DOLLARS)

	For the year Ended December 31, 2009			For the period from January 8, 2008 (Inception) to December 31, 2008
Contract revenue	$	80,333,891		$	54,480,271
Cost of contract revenue, includes depreciation expense of $4,951,518 and $3,686,503 for the year ended December 31, 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008, respectively		(38,715,490	)		(25,424,227	)
Gross profit		41,618,401			29,056,044
General and administrative expenses		(2,531,132	)		(2,152,575	)
Income from operations		39,087,269			26,903,469
Other income (expense):
Interest income		29,833			43,172
Interest expenses		(755,853	)		(179,504	)
Total other income (expense)		(726,020	)		(136,332	)
Income before income taxes		38,361,249			26,767,137
Income tax expense		(9,596,651	)		(6,696,745	)
Net income	$	28,764,598		$	20,070,392

See notes to the financial statements.

F-4

FUJIAN XING GANG PORT SERVICE CO., LTD.

STATEMENTS OF CHANGES IN OWNERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2009 AND FROM

JANUARY 8, 2008 (INCEPTION) TO DECEMBER 31, 2008

(IN U.S. DOLLARS)

	Registered Capital		Statutory Reserves		Retained Earnings			Accumulated Other Comprehensive Income			Subscription Receivable			Total
Balance as of January 8, 2008	$	—	$	—	$	—		$	—		$	—		$	—
Capital contributed by owners		8,501,266		—		—			—			—			8,501,266
Net income		—		—		20,070,392			—			—			20,070,392
Appropriation to statutory reserves		—		2,009,023		(2,009,023	)		—			—			—
Foreign currency translation gain		—		—		—			685,244			—			685,244
Balance as of December 31, 2008		8,501,266		2,009,023		18,061,369			685,244			—			29,256,902
Capital contributed by owners		20,501,105		—		—			—			—			20,501,105
Subscription receivable		—		—		—			—			(10,982,735	)		(10,982,735	)
Net income		—		—		28,764,598			—			—			28,764,598
Appropriation to statutory reserves		—		2,878,995		(2,878,995	)		—			—			—
Foreign currency translation loss		—		—		—			(2,988	)		—			(2,988	)
Balance as of December 31, 2009	$	29,002,371	$	4,888,018	$	43,946,972		$	682,256		$	(10,982,735	)	$	67,536,882

See notes to the financial statements.

F-5

FUJIAN XING GANG PORT SERVICE CO., LTD.

STATEMENTS OF CASH FLOWS

(IN U.S. DOLLARS)

	For the year Ended December 31, 2009			For the period from January 8, 2008 (Inception) to December 31, 2008
Cash flows from operating activities:
Net income	$	28,764,598		$	20,070,392
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		4,952,236			3,686,744
Changes in operating assets and liabilities:
Cost and estimated earnings in excess of billings on contracts in progress		(2,210,343	)		—
Other receivables		(311	)		—
Inventories		(429,018	)		—
Income tax payable		(179,402	)		2,186,909
Accrued liabilities and other payables		55,179			152,067
Net cash provided by operating activities		30,952,939			26,096,112
Cash flows from investing activities:
Deposit paid for dredgers		(2,196,096	)		—
Changes in security deposits		—			(8,291,156	)
Payment of purchases of property, plant and equipment		—			(33,768,198	)
Net cash used in investing activities		(2,196,096	)		(42,059,354	)
Cash flows from financing activities:
Repayment of term loans		(1,830,080	)		—
Proceeds from term loans		3,367,348			8,651,641
Payment of dredger payable		(17,838,704	)		—
Capital contributions from owners		9,516,419			8,651,641
Net cash (used in)/provided by financing activities		(6,785,017	)		17,303,282
Net increase in cash		21,971,826			1,340,040
Effect of exchange rate changes on cash		9,501			22,102
Cash at beginning of year/period		1,362,142			—
Cash at end of year/period	$	23,343,469		$	1,362,142
Non-cash investing and financing transactions:
Purchases of property, plant and equipment with issuance of debt	$	—		$	17,569,133
Supplemental information:
Cash paid for income tax	$	9,776,053		$	4,509,876
Cash paid for interest	$	753,776		$	154,451

See notes to the financial statements.

F-6

FUJIAN XING GANG PORT SERVICE CO., LTD.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2009 AND

FROM JANUARY 8, 2008 (INCEPTION) TO DECEMBER 31, 2008

DESCRIPTION OF BUSINESS AND ORGANIZATION

Fujian Xing Gang Port Service Co., Ltd. (the “Company”) formerly known as Fujian Xing Gang Shipping Co., Ltd., is a China-based company that provides subcontracting dredging services to dredging general contractors throughout the People’s Republic of China (“PRC”). The Company has focused its services on reclamation and maintenance dredging projects.

The Company was incorporated on January 8, 2008 with total registered capital $8,501,266 (RMB60,000,000). The Company was owned by two individuals, Qing Lin and Ping Lin. Qing Lin contributed cash of $5,950,886 (RMB42,000,000) holding 70% of the total ownership, while Ping Lin contributed cash of $2,550,380 (RMB18,000,000) holding 30% of the total ownership.

On April 14, 2008, Ping Lin sold all of her ownership to her father-in-law, Panxing Zhuo.

On September 21, 2009, the Company’s registered capital was increased to $29,002,371 (RMB200,000,000). $20,501,105 (RMB140,000,000) was contributed by Fujian Lutong Highway Engineering Construction Co. Ltd (“Lutong Highway”). As a result, Qing Lin’s ownership was reduced to 21%, and Panxing Zhuo’s ownership was reduced to 9% and Lutong Highway held the remaining 70% as of December 31, 2009. Lutong Highway has only funded $9,518,370 (RMB65,000,000) of the $20,501,105 (RMB140,000,000) commitment thereby creating a subscription receivable of $10,982,735 (RMB75,000,000) which is classified as a reduction of equity. The subscription receivable of $10,982,735 (RMB75,000,000) was originally payable by Lutong Highway, however, on March 3, 2010, Lutong Highway sold all its ownership to Qing Lin, who assumed the obligation to fulfill the unfunded subscription amount. Following the transfer of ownership interests to Qing Lin, his ownership percentage increased to 91% and Panxing Zhuo continued to hold 9% of the ownership.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

The Company’s financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (the “U.S. GAAP”).

Reclassifications

Certain reclassifications have been made to the financial statement presentations in the previous periods to correspond to the current period’s format. Total equity and net income are unchanged due to these reclassifications.

(b) Use of estimates

The preparation of the financial statements in conformity with U.S. GAAP requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the years. Significant items subject to such estimates and assumptions include the recoverability of the carrying amount and the estimated useful lives of long-lived assets; valuation allowances for receivables, percentage of completion of contracts and realizable values for inventories. Accordingly, actual results could differ from those estimates.

Assets and liabilities of foreign operation are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rate of exchange prevailing during the year. The year-end rates for December 31, 2009 and 2008 of Renminbi to one US dollar were 6.8270 and 6.8225, respectively; average rates for the year-end December 31, 2009 and 2008 were 6.8303 and 6.9351, respectively. The related translation adjustments are reflected in “Accumulated other comprehensive income” in the owners’ equity section of the balance sheet. As of December 31, 2009 and 2008, the accumulated foreign currency translation gain was $682,256 and $685,244, respectively. Foreign currency gains and losses resulting from transactions are included in earnings.

(d) Cash

Cash consists of cash on hand and at banks. Substantially all of the Company’s cash deposits are held with financial institutions located in the PRC where there is currently no rule or regulation mandated on obligatory insurance of bank accounts. Management believes these financial institutions are of high credit quality.

F-7

(e) Cost and estimated earnings in excess of billings on contracts in progress

Cost and estimated earnings in excess of billings represent amounts of revenue earned under contracts in progress but not billed at the balance sheet date. These amounts become billable according to the contract terms, which usually consider passage of time, and/or completion of the project. As of December 31, 2009 and 2008, the balance of cost and estimated earnings in excess of billings on contracts in progress were $2,211,411 and zero, respectively.

(f) Inventories

Inventories mainly consist of consumable parts including pipe, spare parts, and supplies used in the Company’s dredging operations. Inventories are stated at the lower of cost or market, using a weighted average cost method.

(g) Property, plant and equipment

Property, plant and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and betterments are capitalized. Depreciation of property, plant and equipment is computed by the straight-line method over the assets estimated useful lives ranging from five to ten years. Building improvements, are amortized on a straight-line basis over the estimated useful life.

Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations.

The estimated useful lives of the assets are as follows:

	Estimated lives
Dredgers		10
Office equipment		5

Expenditures for repairs and maintenance, which do not extend the useful life of the assets, are expensed as incurred.

(h) Impairment of long-lived assets

In accordance with ASC 360, “Property Plant and Equipment,” the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

As individual dredger generates its own cash flow, each individual dredger is separately reviewed for impairment. If long-lived assets are to be disposed, depreciation is discontinued, if applicable, and the assets are reclassified as held for sale at the lower of their carrying amounts or fair values less costs to sell.

Based on the Company’s assessment, no triggering events were identified as of December 31, 2009 and 2008.

(i) Fair value measurements

In April 2009, the FASB issued ASC 820-10-65-4 (formerly FSP No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”). This standard emphasizes that even if there has been a significant decrease in the volume and level of activity, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants. This standard provides a number of factors to consider when evaluating whether there has been a significant decrease in the volume and level of activity for an asset or liability in relation to normal market activity. In addition, when transactions or quoted prices are not considered orderly, adjustments to those prices based on the weight of available information may be needed to determine the appropriate fair value. This standard is effective for interim and annual reporting periods ending after June 15, 2009, and is applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The adoption of this standard did not have a material effect on the financial statements.

F-8

In August 2009, the FASB issued Accounting Standards Update “ASU” 2009-5 “Measuring Liabilities at Fair Value.” This ASU provides amendments to ASC 820-10 “Fair Value Measurements and Disclosures” to address concerns regarding the determination of the fair value of liabilities. Because liabilities are often not “traded”, due to restrictions placed on their transferability, there is typically a very limited amount of trades (if any) from which to draw market participant data. As such, many entities have had to determine the fair value of a liability through the use of a hypothetical transaction. This ASU clarifies the valuation techniques that must be used when the liability subject to the fair value determination is not traded as an asset in an active market. The management does not expect the adoption of this ASU to have a material effect on the financial statements.

(j) Revenue recognition

The Company recognizes contract revenues under the percentage-of-completion method to determine the appropriate amount to be recognized in a given period. Depending on the nature of contracts, the stage of completion is measured by reference to (a) the proportion of contract costs incurred for work performed to date to estimated total contract costs; (b) the amount of work certified by site engineer; or (c) completion of physical proportion of the contract work. The difference between amounts billed and recognized as revenue is reflected in the balance sheet as either contract revenues in excess of billings or billings in excess of contract revenues. Provisions for estimated losses on contracts in progress will be made in the period in which they are identified. In the event that contract revenue cannot be estimated reliably, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable. Costs that are incurred for a specific anticipated contract are deferred and recognized as prepaid expenses until the contracts are successfully bid, unless the costs are insignificant and in such case they are treated as expenses. These expenditures will be reported as prepaid expenses. Approved and unapproved change orders are considered a change in the scope of the original contracts to which they relate. Claims for additional compensation due to the Company are not recognized in contract revenues until such claims are settled.

(k) Cost and expenses

The components of costs of contract revenues include consumable parts, dredgers’ hire charges, salaries and wages and depreciation of dredgers. Costs of contract revenues vary significantly depending on the type, project size and location of work performed and assets utilized.

(l) Income taxes

The Company accounts for income taxes under ASC 740, “Income Taxes.” Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be effective when the differences are expected to reverse.

Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of income in the period that includes the enactment date.

The Company adopted ASC 740, “Income Taxes,” which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken in the tax return. This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.

The Company recognizes interest and penalty related to income tax matters as income tax expense. As of December 31, 2009 and 2008, there was no penalty or interest recognized as income tax expenses.

(m) Other comprehensive income

The Company has adopted ASC 220 “Comprehensive Income.” This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income consists of net income and foreign currency translation adjustments.

Other comprehensive income consists of the following:

	Year ended December 31, 2009			For the period from January 8, 2008 (Inception) to December 31, 2008
Net income	$	28,764,598		$	20,070,392
Other comprehensive income
– Foreign currency translation adjustments		(2,988	)		685,244
Total comprehensive income	$	28,761,610		$	20,755,636

F-9

(n) Commitments and contingencies

In the normal course of business, the Company is subject to contingencies, including legal proceedings and environmental claims arising out of the normal course of businesses that relate to a wide range of matters, including among others, contracts breach liability. The Company records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, scientific evidence and the specifics of each matter.

As of December 31, 2009 and 2008, the Company’s management has evaluated all such proceedings and claims. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, liquidity or results of operations.

(o) Economic and political risks

The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances aboard, and rates and methods of taxation, among other things.

(p) Pension and employee benefits

Full time employees of the Company participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Company to accrue for these benefits based on certain percentages of the employees’ salaries. Costs for pension and employee benefits for the years ended December 31, 2009 and 2008 were $34,618 and $19,856, respectively.

(q) Segment information

ASC 280, “Segment Reporting” establishes standards for reporting information on operating segments in interim and annual financial statements. The Company has only one segment, all of the Company’s operations and customers are in the PRC and all income are derived from the services of dredging. Accordingly, no geographic information is presented.

(r) Financial guarantee

Under ASC 460-25-4, the Company should recognize in the statement of financial position a liability for guarantee and the amount of recognition, pursuant to ASC 460-30-2, should be the premium received or receivable by the Company. As the Company has not received (or does not have any receivable for) any premium for the guarantee, the Company does not have an amount to recognize in the statement of financial position. In addition, the Company is not required to recognize a liability under ASC 450-20-25 as the information available before the financial statements were issued indicates that the probability is remote that an asset had been impaired or a liability had been incurred at the date of the financial statements.

There was no financial guarantee incurred as of December 31, 2009.

(s) Recently issued accounting standards

Set forth below are recent pronouncements that have had or may have a significant effect on the Company’s financial statements. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, or disclosures.

F-10

In May 2009, the FASB issued guidance within Topic 855-10 (formerly SFAS 165, “Subsequent Events”) relating to subsequent events. This guidance establishes principles and requirements for subsequent events. This guidance defines the period after the balance sheet date during which events or transactions that may occur would be required to be disclosed in a company’s financial statements. Public entities are required to evaluate subsequent events through the date that financial statements are issued. This guidance also provides guidelines in evaluating whether or not events or transactions occurring after the balance sheet date should be recognized in the financial statements. This guidance requires disclosure of the date through which subsequent events have been evaluated. This guidance is effective for interim and annual periods ending after June 15, 2009. The Company has adopted this guidance as of December 31, 2009. The adoption of this guidance did not have a material impact on the Company’s financial statements.

In June 2009, the FASB issued FASB ASC 105-10-05, 10, 15, 65, 70 (“FASB ASC 105-10-05, 10, 15, 65, 70”), (formerly FASB Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162). FASB ASC 105-10-05, 10, 15, 65, 70 establishes the FASB ASC as the source of authoritative GAAP for nongovernmental entities. The ASC does not change GAAP, instead it takes individual pronouncements that currently comprise GAAP and reorganizes them into Topics. Contents in each Topic are further organized by Subtopic, then Section and finally Paragraph. The Paragraph level is the only level that contains substantive content. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure. FASB suggests that all citations begin with “FASB ASC.” FASB ASC 105-10-05, 10, 15, 65, 70 was effective for interim and annual periods ending after September 15, 2009 and did not have an impact on the Company’s financial statements.

In August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value. ASU 2009-05 amended ASC 820, Fair Value Measurements. Specifically, ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or 2) a valuation technique that is consistent with the principles of ASC 820 (e.g., an income approach or market approach). ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. The adoption of this standard did not have a material impact on the Company’s financial statements.

In December 2009, the Financial Accounting Standards Board (“FASB”) issued an amendment to the accounting and disclosure requirements for the consolidation of VIEs, ASU No. 2009-17, Consolidations, Improvements to Financial Reporting by Enterprises involved with Variable Interest Entities (“ASU No. 2009-17”), to codify in ASC 810-10 the amendments to Interpretation 46R contained in Statement 167. The amendment requires an entity to qualitatively, rather than quantitatively, assess the determination of the primary beneficiary of a VIE. This determination should be based on whether the entity has the power to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Other key changes include: the requirement for an ongoing reconsideration of the primary beneficiary, the criteria for determining whether service provider or decision maker contracts are variable interests, the consideration of kick-out and removal rights in determining whether an entity is a VIE, the types of events that trigger the reassessment of whether an entity is a VIE and the expansion of the disclosures previously required. The impact of the adoption may be applied retrospectively with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restated, or through a cumulative-effect adjustment on the date of adoption. The new accounting guidance for VIEs is effective for fiscal years beginning after November 15, 2009, or January 1, 2010 for the Company. Early adoption is prohibited. The adoption of this standard did not have a material impact on the Company’s financial statements.

3. CASH

Cash represents cash in the bank and cash on hand. Cash as of December 31, 2009 and 2008 was $23,343,469 and $1,362,142, respectively. Renminbi is not a freely convertible currency and the remittance of funds out of the PRC is subject to the exchange restrictions imposed by the PRC government.

4. COST AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON CONTRACT IN PROGRESS

F-11

Name of contract		Estimated contract value		Total revenue recognized		Amount received/billed		Cost and estimated earnings in excess of billings		Status of contract (Completion %)
1.	Zhuhai Gaolan Port Dredging I	$	3,593,400	$	3,562,573	$	3,562,573	$	—		100	%
2.	Zhuhai Gaolan Port Dredging II		4,160,871		4,057,455		4,057,455		—		100	%
3.	Zhuhai Gaolan Port Dredging III		1,669,034		1,184,474		834,347		350,127		71	%
4.	Zhanjiang Industrial Centre Dredging and Reclamation I		2,912,024		2,839,336		2,839,336		—		100	%
5.	Dalin Chandao Hulushan Dredging I		7,378,885		7,332,395		7,332,395		—		100	%
6.	Dalin Chandao Hulushan Dredging II		8,608,699		8,623,406		8,623,406		—		100	%
7.	Oujiang Port Lantian Dredging I		7,589,711		7,210,493		7,210,493		—		100	%
8.	Oujiang Port Lantian Dredging II		7,115,354		6,336,300		5,691,971		644,329		89	%
9.	Taishan Tongguhai Zone Guohuatai Dianmei Port Dredging I		674,641		674,469		674,469		—		100	%
10.	Taishan Tongguhai Zone Guohuatai Dianmei Port Dredging II		3,513,755		3,383,060		3,383,060		—		100	%
11.	Fangchengguang Steel Project I		19,025,519		18,357,311		18,357,311		—		100	%
12.	Fangchengguang Steel Steel Project II		3,474,225		3,417,983		3,417,983		—		100	%
13.	Tangshan Caofeidian Dredging and Reclamation I		9,220,678		6,028,905		5,532,167		496,738		65	%
14.	Tangshan Caofeidian Dredging and Reclamation II		11,009,765		7,325,728		6,605,511		720,217		67	%
		$	89,946,561	$	80,333,888	$	78,122,477	$	2,211,411

Most of the Company’s customers are China state-owned companies. There are no credit terms and customers settle the balances according to percentage of completion of contracts and the date of settlement has been specified in the contracts. The Company believes all outstanding balances can be fully collected within 10 to 15 days after the completion of contracts and project completed reports issued. Therefore, no provision on allowance for doubtful accounts was provided as of December 31, 2009 and 2008.

The following schedule summarizes changes in backlog on contracts during the year ended December 31, 2009. Backlog represents the amount of revenue the Company expects to realize from work to be performed pursuant to contractual agreements on projects in progress and on projects for which work has not yet begun.

Backlog balance at December 31, 2008	$	—
New contracts during the year		89,946,562
Less: Adjustment of contracts due to change orders during the year		(1,473,249	)
Adjusted contract amount at December 31, 2009		88,473,313
Less: Contract revenue earned during the year		(80,333,891	)
Backlog balance at December 31, 2009	$	8,139,422

F-12

INVENTORIES

The Company provides dredging services for its customers in the PRC. Inventories consist of consumable parts which are used for dredging projects. As of December 31, 2009 and 2008, the balance of inventories was $429,226 and zero, respectively.

OTHER RECEIVABLES

Other receivables as of December 31, 2009 and 2008 consisted of the following:

		2009				2008
Social insurance prepaid for staff		$	312			$	—

Other receivables mainly represent social insurance prepaid for staff’s portion by the Company, this amount will be directly deducted from staff’s salaries and it is interest free.

PREPAID DREDGER DEPOSIT AND CAPITAL COMMITMENT

(a) Prepaid dredger deposit

Prepaid dredger deposit as of December 31, 2009 and 2008 consisted of the following:

		2009				2008
Prepaid dredger deposit		$	2,197,158			$	—

Prepaid dredger deposit represents a deposit for a new dredger before delivery. The Company paid a deposit for the acquisition of a dredger which will be used for the expansion of dredging operations. The total expected cost of the dredger is $29,295,444 and it is expected to be delivered on or before May 31, 2012.

(b) Capital commitment

The Company had the following capital commitment as of December 31, 2009:

Contracted, but not provided for:
Acquisition of dredger, net of deposit paid		$	27,098,286

On May 20, 2009, the Company entered into a dredger purchase contract with Yiyang Zhonghai Vellel LLC (“Yiyang”), a non-related party of the Company. According to the dredger purchase contract, the Company paid a deposit of 7.5%, or $2,197,158 (RMB15,000,000), of the total purchase price on June 2, 2009. The balance due on the dredger amounted to $27,098,286 (RMB185,000,000), payable in 4 installments:

Payment Due Date (end of month after delivery)	Payment Amount
August 31, 2012	$	8,129,485
November 30, 2012		6,774,572
February 28, 2013		6,774,572
May 31, 2013		5,419,657
	$	27,098,286

The dredger is expected to be delivered to the Company on or before May 31, 2012.

F-13

SECURITY DEPOSITS

Security deposits represent amounts on deposit with the owners of dredgers leased by the Company. Such amounts will be returned to the Company when the corresponding leases end. Security deposits as of December 31, 2009 and 2008 were $8,422,440 and $8,427,995, respectively.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of December 31, 2009 and 2008 consisted of the following:

	2009			2008
Dredgers	$	52,146,433		$	52,180,828
Office equipment		3,784			3,786
		52,150,217			52,184,614
Less: Accumulated depreciation		(8,638,980	)		(3,686,744	)
	$	43,511,237		$	48,497,870

Total depreciation expense for the year ended December 31, 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008 was $4,952,236 and $3,686,744, respectively, in which depreciation expense of dredgers (2009: $4,951,518 and for the period from January 8, 2008 (Inception) to December 31, 2008: $3,686,503) has been included in cost of revenue.

As of December 31, 2009, the Company owned three dredgers. As of December 31, 2009 and 2008, the total net book value of the three dredgers was $43,508,412 and $48,494,325, respectively. Two dredgers, Xinggangjun 66 and Xinggangjun 3, with an aggregate net book value as of December 31, 2009 and 2008 of $31,541,841 and $35,170,013, were pledged as collateral for bank term loans (see Notes 10 and 13). Another dredger, Xinggangjun 6, was pledged as a financial guarantee to a bank for the Company’s related company, Fujian Province Pingtan County Ocean Fishery Holdings Limited, to obtain a bank loan (see Note 16(b)).

10.

TERM LOANS

In order to provide working capital for operations, on February 23, 2009 and September 28, 2008, the Company entered into following loan agreements:

	2009			2008
Fuzhou City Rural Credit Cooperative	$	3,368,976		$	—
Fujian Haixia Bank Co., Ltd		3,661,930			1,832,173
	$	7,030,906		$	1,832,173
Interest expenses incurred during the year/period	$	209,212		$	—
Range of monthly interest rate		5.974	‰		N/A
Weighted average monthly interest rate		5.974	‰		N/A

Term loan $3,368,976 borrowed from Fuzhou City Rural Credit Cooperative is fixed term loan with a period of twelve months and it was due on February 22, 2010. The term loan is secured by one of the Company’s dredgers with net book value of $11,951,900 at December 31, 2009. There are no financial covenants associated with the term loan.

As of December 31, 2009 and 2008, $3,661,930 and $1,832,173, respectively, of term loans in Fujian Haixia Bank Co., Ltd was reclassified from the term loan, net of current portion (see Note 13).

Interest expense on the term loans was $209,212 and zero for the year ended December 31, 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008, respectively.

11.

ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables as of December 31, 2009 and 2008 consisted of the following:

	2009		2008
Accrued interest	$	27,527	$	25,466
Accrued salaries and wages		69,405		66,145
Accrued staff benefits		103,671		44,909
Other tax payables		9,077		18,055
	$	209,680	$	154,575

F-14

Other tax payables represent payables other than income tax which consist of business tax, individual salary tax, stamp duty, embankment tax and other small local taxes. Business tax was 3% of revenue recognized, no business tax payable was included in other tax payable as of December 31, 2009 and 2008.

12. DREDGERS PAYABLE

Dredgers payable as at December 31, 2008 represented the amount due to dredger manufacturers for the acquisition of three dredgers. Such liability amounted to $17,859,098 at December 31, 2008 and was fully paid in April 2009.

13. TERM LOANS, NET OF CURRENT PORTION

The Company entered into a loan agreement with a bank in the PRC to obtain fixed-rate term loans with maturities exceeding 12 months to meet its working capital needs. The term loans, net of current portion as of December 31, 2009 and 2008, consisted of the following:

	2009		2008
Fujian Haixia Bank Co., Ltd.	$	3,295,738	$	6,962,257
Maximum balance outstanding during the year/period	$	8,788,633	$	8,794,430
Interest expenses incurred during the year/period		546,641		179,504
Range of monthly interest rate		5.400 – 5.850%		5.850 – 7.6055%
Weighted average monthly interest rate		5.717%		6.7276%

The term loan, net of current portion entered into on September 28, 2008 was secured by one of the Company’s dredgers, Xinggangjun 66, and guaranteed by Xinrong Zhuo, the Chairman and Chief Executive Officer of the Company’s holding company, China Dredging Group Co., Ltd. (“China Dredging”), and the son of Pangxing Zhuo (an owner of Wonder Dredging). There are no restrictive financial covenants associated with the term loan. Such loan is payable on every six months with principal payments amounting to $6,957,668.

Interest expense on the term loan, net of current portion was $546,641 and $179,504 for the year ended December 31, 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008, respectively.

The term loan, net of current portion was a fixed term loan. The scheduled principal payments through the maturity date at December 31, 2009 were as follows:

	Note
2010	10	$	3,661,930
2011			3,295,738
		$	6,957,668

14. OWNERS’ EQUITY AND RETAINED EARNINGS

(a) Registered capital

The Company was incorporated on January 8, 2008 in the PRC with total registered capital of $8,501,266 (RMB60,000,000) contributed by Qing Lin ($5,950,886, RMB42,000,000) and Ping Lin ($2,550,380, RMB18,000,000). On September 21, 2009, the Company’s registered capital was increased to $29,002,371 (RMB200,000,000). $20,501,105 (RMB140,000,000) through an additional capital contribution by Lutong Highway. As a result, Qing Lin’s ownership was reduced to 21%, and Panxing Zhuo’s ownership was reduced to 9% and Lutong Highway held the remaining 70% as of December 31, 2009. Lutong Highway has only funded $9,518,370 (RMB65,000,000) of the $20,501,105 (RMB140,000,000) commitment thereby creating a subscription receivable which is classified as a reduction of equity. The subscription receivable of $10,982,735 (RMB75,000,000) was originally payable by Lutong Highway, however, on March 3, 2010, Lutong Highway sold all its ownership to Qing Lin, who assumed the obligation to fulfill the unfunded subscription amount. Following the transfer of ownership interests to Qing Lin, his ownership percentage increased to 91% and Panxing Zhuo continued to hold 9% of the ownership.

F-15

(b) Retained earnings and statutory reserves

Retained earnings and statutory reserves as of December 31, 2009 and 2008 consisted of the following:

	2009		2008
Retained earnings	$	43,946,972	$	18,061,369
Statutory reserves	$	4,888,018	$	2,009,023

The Company is required to make appropriations of retained earnings set at certain percentages of after-tax profits determined in accordance with the PRC accounting rules and regulations (“PRC GAAP”). The general reserve fund requires annual appropriations of 10% of after-tax profit as determined under PRC GAAP at each year-end and after setting off against any accumulated losses from prior years until such fund has reached 50% of the registered capital.

Appropriation to the statutory reserve must be made before distribution of dividends to owners. This statutory reserve is not distributable in the form of cash dividends.

15. INCOME TAXES

All of the Company’s income was generated in the PRC.

		For the year ended December 31, 2009				For the period from January 8, 2008 (Inception) to December 31, 2008
Current income tax expense		$	9,596,651			$	6,696,745

The Company’s income tax provision in respect of operations in PRC is calculated at the applicable tax rates on the estimated assessable profits for the year based on existing legislation, interpretations and practices in respect thereof. The standard tax rate applicable to the Company was 25% which was effective on January 1, 2008.

A reconciliation of the expected income tax expense to the actual income tax expense was as follows:

	For the year ended December 31, 2009		For the period from January 8, 2008 (Inception) to December 31, 2008
Income before tax	$	38,361,249	$	26,767,137

Expected PRC income tax expense at statutory tax rate of 25%	$	9,590,312	$	6,691,784
Effect of exchange rate		6,339		4,961
Actual income tax expense	$	9,596,651	$	6,696,745

The PRC tax system is subject to substantial uncertainties and has been subject to recently enacted changes, the interpretation and enforcement of which are also uncertain. There can be no assurance that changes in PRC tax laws or their interpretation or their application will not subject the Company to substantial PRC taxes in future.

No deferred tax liability has been provided as the amount involved is immaterial. The Company has analyzed the tax positions taken or expected to be taken in its tax filings and has concluded it has no material liability related to uncertain tax positions.

F-16

For the year ended December 31, 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008, there was no unrecognized tax benefit. Management does not anticipate any potential future adjustments in the next twelve months which would result in a material change to its financial tax position. As of December 31, 2009 and 2008, the Company did not accrue any interest and penalties.

16. RELATED PARTY TRANSACTIONS

(a) Operating lease commitments

In 2008, the Company entered into an office rental agreement with Ping Lin, a relative of one of the owners, Qing Lin, from January 8, 2008 to December 31, 2009. This agreement has been renewed and extended the period from January 1, 2010 to December 31, 2015. The Company also entered into a dredger and crew hire agreement from June 1, 2008 and May 31, 2016 with Lutong Highway, a company owned by Xiu Zhen Lin, one of the former owners of the Company. Office rental, dredger rental and crew hire charge paid for the year ended December 31, 2009 and for the period from January 8, 2008 (inception) to December 31, 2008 were as follows:

	Name of related party	For the year ended December 31, 2009		For the period from January 8, 2008 (Inception) to December 31, 2008
Office rental	Ping Lin	$	8,872	$	8,738
Hire charge of dredger	Fujian Lutong Highway Engineering Construction Co., Ltd		1,024,845		588,792
Hire charge of crew	Fujian Lutong Highway Engineering Construction Co., Ltd		527,063		302,807
		$	1,560,780	$	900,337

Hire charges of dredger and crew are included as part of the cost of revenue. Office rental is included in the general and administrative expenses.

The total future minimum lease payments under non-cancellable operating leases with respect to office as of December 31,2009 were payable to the related party as follows:

	Office rental
For the year ended December 31,
2010	$	11,539
2011		11,539
2012		11,539
2013		11,539
2014		11,539
Thereafter		11,539
	$	69,234

Operating lease commitments for both related parties commitments and non-related parties commitments is summarized in note 18.

On January 4, 2011, the Company entered into a purchase agreement with Lutong Highway for the purchase of dredger Xinggangjun 9. The total purchase price was approximately $13.6 million (equivalent to RMB89.8 million). Since Xinggangjun 9 had been hired by the Company, the hire of the dredger was terminated effective on the date the agreement was signed (see note 20(d)). The Company also terminated the crew hire agreement with Lutong Highway effective on the same date.

(b) Financial Guarantee

The Company had the following financial guarantees as of December 31, 2009:

F-17

Guarantees given to the bank to secure the bank loan granted to related party

7,909,770

The Company has provided financial guarantee to a bank to secure the bank loan granted to a related party, Fujian Province Pingtan County Ocean Fishery Holdings Limited which engages in fishery, for the period of the loan outstanding, the maximum guaranteed amount is $7,909,770, and the Company pledged one of its dredger, Xinggangjun 6, to the bank for security. The Company is required to pay under the guarantee the loan principal, accrued interest and penalty, etc, when the related company failed to repay its loans in time. The indebtedness of the related party has all been repaid and there was no outstanding contingent payment obligation by the Company in respect to the indebtedness of the related party.

The related company is indirectly under control of Fujian Honglong Ocean Fishery Huanghe Company Limited (“Honglong”), which Ping Lin had 92.5% of the ownership holding of Honlong. Ping Lin is the daughter-in-law of Panxing Zhuo, the owner of the Company and sister of Qing Lin, the principal owner of the Company.

As of December 31, 2009 and 2008, one term loan from Fujian Haixia Bank was secured by one of the Company’s dredgers, Xinggangjun 66. The loan was guaranteed by Xinrong Zhuo, the Chairman and Chief Executive Officer of the Company’s holding company, China Dredging, and son of Pangxing Zhuo, an owner of Wonder Dredging.

17. CERTAIN RISKS AND CONCENTRATIONS

(a) Credit risk

As of December 31, 2009 and 2008, substantially all of the Company’s cash included bank deposits in accounts maintained within the PRC where there is currently no rule or regulation in place for obligatory insurance to cover bank deposits in the event of bank failure. However, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.

(b) Major customers

Customers accounting for 10% or more of the Company’s revenues were as follows:

	For the year ended December 31, 2009	For the period from January 8, 2008 (Inception) to December 31, 2008
Customer A	40%	—
Customer B*	32%	48%
Customer C*	17%	—
Customer D	11%	21%
Customer E	—	24%
	100%	93%

Indicates customers under control of a common parent company.

Suppliers accounting for 10% or more of the Company’s total purchases were as follows:

	For the year ended December 31, 2009	For the period from January 8, 2008 (Inception) to December 31, 2008
Supplier A	65%	62%
Supplier B	30%	32%
	95%	94%

F-18

The Company is dependent on third-party consumable parts manufacturers for all of its supply of dredging consumable parts. Both for the year ended December 31, 2009 and the period from January 8, 2008 (Inception) to December 31, 2008, products purchased from the Company’s three largest suppliers accounted for 100% of product purchases. The Company is dependent on the ability of its suppliers to provide products on a timely basis and on favorable pricing terms. The loss of certain principal suppliers or a significant reduction in product availability from principal suppliers could have a material adverse effect on the Company. The Company believes that its relationships with its suppliers are satisfactory, and the Company has never experienced inadequate supply from suppliers.

18. OPERATING LEASE COMMITMENTS

The total future minimum lease payments under non-cancellable operating leases with respect to dredgers crew and office as of December 31, 2009 were payable as follows:

	Hire charge of dredger		Hire charge of crew		Office rental		Total
For the year ended December 31,
2010	$	695,767	$	930,716	$	11,539	$	1,638,022
2011		695,767		637,909		11,539		1,345,215
2012		695,767		527,318		11,539		1,234,624
2013		695,767		527,318		11,539		1,234,624
2014		695,767		527,318		11,539		1,234,624
Thereafter		695,767		527,318		11,539		1,234,624
	$	4,174,602	$	3,677,897	$	69,234	$	7,921,733

Rental expenses under non-cancellable operating leases arrangements for the year ended December 31, 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008, were $3,186,476 and $2,392,600, respectively, $1,560,780 and $900,337 was of the rental expenses paid to the related parties for the year ended December 31, 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008, respectively (see Note 16(a)).

The operating commitments below include both the related parties commitments and non-related parties commitments. The total future lease payments as of December 31, 2009 is summarized as follows:

	Note	Hire charge of dredgers		Hire charge of crew		Office rental		Total

Related parties commitments	16(a)	$	—	$	—	$	69,234	$	69,234
Non-related parties commitments			4,174,602		3,677,897		—		7,852,499
		$	4,174,602	$	3,677,897	$	69,234	$	7,921,733

19. CONTINGENCIES

Legal proceeding

The Company was sued in four related lawsuits brought by several individuals in Wenzhou, China, in May 2010. The lawsuits related to a traffic accident that allegedly caused the deaths of two people and injuries to two other people. The plaintiffs alleged that a truck was hired for a port construction project referred to as the Lingkun Construction Project, and that the owner, the general contractor and the Company as the subcontractor of the Lingkun Construction Project, all of whom were named as co-defendants in these lawsuits, were responsible for the damages. The plaintiffs claimed total damages of approximately $0.6 million. The court in the first instance for these four lawsuits held that the Company was not responsible for any of the claims by the plaintiffs. Such court decisions are legally effective as they were not appealed. From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business.

F-19

20. SUBSEQUENT EVENTS

(a) Long-term loans

In order to meet the Company’s working capital needs, the Company has entered into two loan agreements in February 2010 with banks in the PRC to obtain fixed-rate term loans with maturities exceeding 12 months. The Company pledged two dredgers in connection with these loans and the loans are further guaranteed by Qing Lin, an owner of Wonder Dredging and Xinrong Zhuo the Chairman and Chief Executive Officer of the Company and the son of Panxing Zhuo (the other owner of Wonder Dredging). Such loans are summarized as follows:

Fujian Haixia Bank Co., Ltd	$	5,859,088
Fuzhou City Rural Credit Cooperative		3,368,976
	$	9,228,064

The Company made loan repayments of $1.8 million and entered into new loans amounting to $9.2 million in the first quarter of 2010. The new loans were fully repaid by the Company in June and December 2010.

(b) Dividend payable

On May 27, 2010, the Company declared a dividend to its owner, Wonder Dredging, in the amount of $51,087,387 (RMB350,803,477), representing the entire retained profits of the Company through March 31, 2010. Wonder Dredging agreed this amount would be retained by the Company and not be drawn as a commitment to the investment of Fujian WangGang in the Company.

On May 20, 2010, Qing Lin and Panxing Zhuo sold all of their ownership interests in the Company to Wonder Dredging Engineering Limited Liability Company (“Wonder Dredging”) and Wonder Dredging assumed the unfunded subscription obligation of Qing Lin. Accordingly, as of May 20, 2010, Wonder Dredging held 100% of the ownership of the Company. The total registered capital contributed or committed remained unchanged at $29,002,371(RMB200,000,000), of which $10,982,735 (RMB75,000,000) was unfunded.

On June 29, 2010, Fujian WangGang Dredging Construction Co., Ltd. (“Fujian WangGang”), a wholly owned subsidiary of China Dredging Group Co., Ltd., obtained 50% ownership of the Company from Wonder Dredging by virtue of a capital contribution commitment of $23,602,460 (RMB158,597,183) into the Company, which amount included the unfunded subscription amount of $10,982,735 (RMB75,000,000). Fujian WangGang funded the total capital commitment in January 2011. As of June 29, 2010, Wonder Dredging held 50% of the ownership of the Company and Fujian WangGang held the remaining 50%.

(d) Purchase of a dredger

On January 4, 2011, the Company entered into a purchase agreement with Lutong Highway, a related party of the Company, for the purchase of dredger Xinggangjun 9. The total purchase price was approximately $13.6 million (equivalent to RMB89.8 million). The consideration was determined by reference to the valuation report value of $14.6 million (RMB96.6 million) with a 7% discount. The consideration was payable before January 31, 2011, and on January 21, 2011, the full consideration was paid.

F-20

FUJIAN XING GANG PORT SERVICE CO., LTD.

BALANCE SHEETS

(IN US DOLLARS)

	(Unaudited) June 30, 2010			December 31, 2009
Assets
Current assets
Cash	$	22,894,565		$	23,343,469
Accounts receivable, net		3,692,713			—
Cost and estimated earnings in excess of billings on contracts in progress		5,152,615			2,211,411
Other receivables		1,079			312
Due from related companies		12,693,456			—
Inventories		1,193,210			429,226
Total current assets		45,627,638			25,984,418
Other assets
Prepaid dredger deposit		2,211,932			2,197,158
Security deposits		25,968,089			8,422,440
Property, plant and equipment, net		41,689,943			43,511,237
Total other assets		69,869,964			54,130,835
Total assets	$	115,497,602		$	80,115,253
Liabilities and owners’ equity
Current liabilities
Term loans	$	4,423,865		$	7,030,906
Accounts payable		789,086			—
Income tax payable		3,418,577			2,042,047
Accrued liabilities and other payables		771,486			209,680
Dividend payable		51,087,387			—
Total current liabilities		60,490,401			9,282,633
Non-current liabilities
Term loans, net of current portion		7,962,957			3,295,738
Total non-current liabilities		7,962,957			3,295,738
Total liabilities		68,453,358			12,578,371
Owners’ equity
Registered capital		29,002,371			29,002,371
Statutory reserves		4,888,018			4,888,018
Additional paid-in capital		12,619,725			—
Retained earnings		10,219,693			43,946,972
Accumulated other comprehensive income		1,297,172			682,256
Subscription receivable		(10,982,735	)		(10,982,735	)
Total owners’ equity		47,044,244			67,536,882
Total liabilities and owners’ equity	$	115,497,602		$	80,115,253

See notes to the financial statements

F-21

FUJIAN XING GANG PORT SERVICE CO., LTD.

STATEMENTS OF INCOME (UNAUDITED)

(IN US DOLLARS)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2010			2009			2010			2009
Contract revenue	$	25,955,955		$	22,723,001		$	45,981,433		$	40,825,253
Cost of contract revenue, includes depreciation of $1,249,866 and $1,500,647 for the three months ended June 30, 2010 and 2009, respectively and $2,497,042 and $2,475,070 for the six months ended June 30, 2010 and 2009, respectively		(10,882,457	)		(10,332,609	)		(20,389,446	)		(18,830,015	)
Gross profit		15,073,498			12,390,402			25,591,987			21,995,238
General and administrative expenses		(1,237,460	)		(849,048	)		(2,049,384	)		(1,224,771	)
Income from operations		13,836,038			11,541,354			23,542,603			20,770,467
Other income (expense):
Interest income		27,258			7,202			44,585			12,638
Interest expenses		(241,275	)		(216,368	)		(442,827	)		(395,337	)
Sundry income		—			—			88			—
Total other expenses		(214,017	)		(209,166	)		(398,154	)		(382,699	)
Income before income taxes		13,622,021			11,332,188			23,144,449			20,387,768
Income tax expense		(3,402,328	)		(2,834,991	)		(5,784,341	)		(5,100,233	)
Net income	$	10,219,693		$	8,497,197		$	17,360,108		$	15,287,535

See notes to the financial statements

F-22

FUJIAN XING GANG PORT SERVICE CO., LTD.

STATEMENT OF CHANGES IN OWNERS’ EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2010

(IN US DOLLARS)

	Registered Capital		Statutory reserves		Additional paid-in capital		Retained earnings			Accumulated other comprehensive income		Subscription receivable			Total
Balance as of December 31, 2009	$	29,002,371	$	4,888,018	$	—	$	43,946,972		$	682,256	$	(10,982,735	)	$	67,536,882
Capital contributed by Fujian WangGang Dredging Construction Co., Ltd.		—		—		12,619,725		—			—		—			12,619,725
Net income		—		—		—		17,360,108			—		—			17,360,108
Dividend		—		—		—		(51,087,387	)		—		—			(51,087,387	)
Foreign currency translation gain		—		—		—		—			614,916		—			614,916
Balance as of June 30, 2010	$	29,002,371	$	4,888,018	$	12,619,725	$	10,219,693		$	1,297,172	$	(10,982,735	)	$	47,044,244

See notes to the financial statements

F-23

FUJIAN XING GANG PORT SERVICE CO., LTD.

STATEMENTS OF CASH FLOWS (UNAUDITED)

(IN US DOLLARS)

	For the Six Months Ended June 30,
	2010			2009
Cash flows from operating activities:
Net income	$	17,360,108		$	15,287,535
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		2,497,401			2,475,429
Changes in operating assets and liabilities:
Accounts receivable, net		(3,672,405	)		—
Cost and estimated earnings in excess of billings on contracts in progress		(2,910,240	)		(439,238	)
Other receivables		(761	)		(329	)
Inventories		(756,912	)		(92,464	)
Accounts payable		784,746			—
Income tax payable		1,355,304			422,462
Accrued liabilities and other payables		557,315			400,237
Net cash provided by operating activities		15,214,556			18,053,632
Cash flows from investing activities:
Deposit paid for dredgers		—			(20,029,229	)
Changes in security deposits		(17,392,834	)		—
Payment of purchases of property, plant and equipment		(323,644	)		—
Advance to related companies		(73,731	)		—
Net cash used in investing activities		(17,790,209	)		(20,029,229	)
Cash flows from financing activities:
Proceeds from short-term loans		—			3,366,411
Repayment of short-term loans		(3,372,978	)		—
Proceeds from long-term loans		9,239,026			—
Repayment of long-term loans		(3,886,257	)		—
Net cash provided by financing activities		1,979,791			3,366,411
Net (decrease)/increase in cash		(595,862	)		1,390,814
Effect of exchange rate changes on cash		146,958			(1,363	)
Cash at beginning of period		23,343,469			1,362,142
Cash at end of period	$	22,894,565		$	2,751,593
Supplemental information:
Cash paid for income tax	$	4,429,037		$	4,677,770
Cash paid for interest	$	445,781		$	390,945

See notes to the financial statements

F-24

FUJIAN XING GANG PORT SERVICE CO., LTD.

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

1. DESCRIPTION OF BUSINESS AND ORGANIZATION

Fujian Xing Gang Port Service Co., Ltd. (the “Company” or “Fujian Service”) formerly known as Fujian Xing Gang Shipping Co., Ltd., is a China-based company that performs dredging services specifically, capital dredging, maintenance dredging and reclamation dredging throughout mainland China. The Company provides its services directly to its customers in the People’s Republic of China (PRC).

On April 14, 2008, Ping Lin sold all of her ownership to her father-in-law, Panxing Zhuo.

On September 21, 2009, the Company’s registered capital was increased to $29,002,371 (RMB200,000,000). $20,501,105 (RMB140,000,000) was contributed by Fujian Lutong Highway Engineering Construction Co. Ltd (“Lutong Highway”). As a result, Qing Lin’s ownership was reduced to 21%, and Panxing Zhuo’s ownership was reduced to 9% and Lutong Highway held the remaining 70% as of December 31, 2009. Lutong Highway has only funded $9,518,370 (RMB65,000,000) of the $20,501,105 (RMB140,000,000) commitment thereby creating a subscription receivable which is classified as a reduction of equity. The subscription receivable of $10,982,735 (RMB75,000,000) was originally payable by Lutong Highway, however, on March 3, 2010, Lutong Highway sold all its ownership to Qing Lin, who assumed the obligation to fulfill the unfunded subscription amount. Following the transfer of ownership interests to Qing Lin, his ownership percentage increased to 91% and Panxing Zhuo continued to hold 9% of the ownership.

On June 29, 2010, Fujian WangGang Dredging Construction Co., Ltd. (“Fujian WangGang”) obtained 50% ownership of the Company from Wonder Dredging by virtue of a capital contribution commitment of $23,602,460 (RMB158,597,183) into the Company, which amount included the unfunded subscription amount of $10,982,735 (RMB75,000,000). Fujian WangGang funded the total capital commitment in January 2011. As of June 29, 2010, Wonder Dredging held 50% of the ownership of the Company and Fujian WangGang held the remaining 50%.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

The Company’s financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (the “U.S. GAAP”).

Reclassifications

(b) Use of estimates

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Assets and liabilities of foreign operation are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rate of exchange prevailing during the period. The period-end rates for June 30, 2010 and December 31, 2009 of Renminbi to one US dollar were 6.7814 and 6.8270, respectively; average rates for the six months ended June 30, 2010 and 2009 were 6.8189 and 6.8322, respectively. The related translation adjustments are reflected in “Accumulated other comprehensive income” in the owners’ equity section of the balance sheet. As of June 30, 2010 and December 31, 2009, the accumulated foreign currency translation gain was $1,297,172 and $682,256, respectively. Foreign currency gains and losses resulting from transactions are included in earnings.

(d) Cash

Cash consist of cash on hand and at banks. Substantially all of the Company’s cash deposits are held with financial institutions located in the PRC where there is currently no rule or regulation mandated on obligatory insurance of bank accounts. Management believes these financial institutions are of high credit quality. The Company maintains bank accounts in the PRC.

(e) Accounts receivable, net

Accounts receivable represent amounts billed under the terms of contracts with customers. There is no amount related to retainage. The Company anticipates collection of all the outstanding balances within 10 to 15 days after completion reports of the contracts are issued. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing receivable. The Company provides an allowance for estimated uncollectible receivables when events or conditions indicate that amounts outstanding are not recoverable. Outstanding account balances are reviewed individually for collectability. Based on the Company’s assessment of collectability, there has been no allowance for doubtful accounts recognized for the six months ended June 30, 2010 and the year ended December 31, 2009.

(f) Cost and estimated earnings in excess of billings on contracts in progress

Cost and estimated earnings in excess of billings represent amounts of revenue earned under contracts in progress but not billed at the balance sheet date. These amounts become billable according to the contract terms, which usually consider passage of time, and/or completion of the project. As of June 30, 2010 and December 31, 2009, cost and estimated earnings in excess of billings on contracts in progress were $5,152,615 and $2,211,411, respectively.

(g) Inventories

(h) Property, plant and equipment

Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations.

The estimated useful lives of the assets are as follows:

	Estimated lives
Dredgers		10
Machinery		5
Office equipment		5

Expenditures for repairs and maintenance, which do not extend the useful life of the assets, are expensed as incurred.

(i) Impairment of long-lived assets

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Based on the Company’s assessment, no triggering events were identified as of June 30, 2010 and December 31, 2009.

(j) Fair value measurements

In August 2009, the FASB issued Accounting Standards Update “ASU” 2009-5 “Measuring Liabilities at Fair Value”. This ASU provides amendments to ASC 820-10 “Fair Value Measurements and Disclosures” to address concerns regarding the determination of the fair value of liabilities. Because liabilities are often not “traded”, due to restrictions placed on their transferability, there is typically a very limited amount of trades (if any) from which to draw market participant data. As such, many entities have had to determine the fair value of a liability through the use of a hypothetical transaction. This ASU clarifies the valuation techniques that must be used when the liability subject to the fair value determination is not traded as an asset in an active market. The management does not expect the adoption of this ASU to have a material effect on the financial statements.

(k) Revenue recognition

(l) Cost and expenses

(m) Income taxes

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The Company recognizes interest and penalty related to income tax matters as income tax expense. As of June 30, 2010 and December 31, 2009, there was no penalty or interest recognized as income tax expenses.

(n) Other comprehensive income

The Company has adopted ASC 220, “Comprehensive Income.” This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income consists of net income and foreign currency translation adjustments.

Other comprehensive income consists of the following for the six months ended June 30, 2010 and 2009:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2010		2009		2010		2009
Net income	$	10,219,693	$	8,497,197	$	17,360,108	$	15,287,535
Other comprehensive income
– Foreign currency translation adjustments		602,366		15,366		614,916		(35,681	)
Total comprehensive income	$	10,822,059	$	8,512,563	$	17,975,024	$	15,251,854

(o) Commitments and contingencies

As of June 30, 2010 and December 31, 2009, the Company’s management has evaluated all such proceedings and claims. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, liquidity or results of operations.

(p) Economic and political risks

(q) Pension and employee benefits

Full time employees of the Company participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Company to accrue for these benefits based on certain percentages of the employees’ salaries. Costs for pension and employee benefits for the periods ended June 30, 2010 and 2009 were $19,494 and $17,212, respectively.

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(r) Segment information

(s) Financial guarantee

There was no financial guarantee incurred as of June 30, 2010.

(t) Recently issued accounting standards

In August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value. ASU 2009-05 amended ASC 820, Fair Value Measurements. Specifically, ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or 2) a valuation technique that is consistent with the principles of ASC 820 (e.g. an income approach or market approach). ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. The adoption of this standard did not have a material impact on the Company’s financial statements.

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3. CASH

Cash represents cash in bank and cash on hand. Cash as of June 30, 2010 and December 31, 2009 was $22,894,565 and $23,343,469, respectively. Renminbi is not a freely convertible currency and the remittance of funds out of the PRC is subject to the exchange restrictions imposed by the PRC government.

4. ACCOUNTS RECEIVABLE, NET

As of June 30, 2010 and December 31, 2009, the balance of accounts receivable was $3,692,713 and zero, respectively, is set out as follows:

June 30, 2010

Name of contract		Estimated contract value		Total revenue recognized		Amount received/ billed		Accounts receivable		Status of contract (Completion %)
1.	Tangshan Caofeidian Dredging and Reclamation I*	$	9,236,094	$	3,241,748	$	3,241,748	$	—		100	%
2.	Tangshan Caofeidian Dredging and Reclamation II*		11,028,172		3,691,289		3,691,289		—		100	%
3.	Oujiang Port Lantian Dredging II*		7,127,249		797,081		797,081		—		100	%
4.	Oujiang Port Lantian Dredging III		I4,197,158		4,245,908		4,245,908		—		100	%
5.	Zhuhai Gaolan Port Dredging III*		1,671,824		517,523		517,523		—		100	%
6.	Zhuhai Gaolan Port Dredging IV		2,089,780		2,104,910		2,104,910		—		100	%
7.	Zhanjiang Steel Base Dredging and Reclamation I		13,588,702		13,648,548		9,955,835		3,692,713		100	%
		$	48,938,979	$	28,247,007	$	24,554,294	$	3,692,713

Note:

* The contract was commenced in 2009 and completed in 2010.

Most of the Company’s customers are state-owned companies of China. There is no credit term, customers settle the balances according to percentage of completion of contracts and the date of settlement has been specified in the contracts. The Company believes all outstanding balances can be fully collected within 10 to 15 days after the completion of contracts and project completed reports issued, therefore, no provision on allowance for doubtful accounts was provided as of June 30, 2010 and December 31, 2009.

5. COST AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON CONTRACTS IN PROGRESS

Cost and estimated earnings in excess of billings represent amounts of revenue earned under contracts in progress but not billed at the balance sheet date. These amounts become billable according to the contract terms, which usually consider passage of time, and/or completion of the project. As of June 30, 2010 and December 31, 2009, the balance of cost and estimated earnings in excess of billings on contracts in progress was $5,152,615 and $2,211,411, respectively. Cost and estimated earnings in excess of billings include the following:

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June 30, 2010

Name of contract		Estimated contract value		Total revenue recognized		Amount received/ billed		Cost and estimated earnings in excess of billings		Status of contract (Completion %)
1.	Tangshan Caofeidian Dredging and Reclamation III	$	10,019,505	$	4,982,377	$	4,002,413	$	979,964		50	%
2.	Tangshan Caofeidian Dredging and Reclamation IV		8,830,750		3,876,915		3,530,395		346,520		44	%
3.	Tangshan Caofeidian Dredging and Reclamation V		7,896,728		3,520,228		3,156,692		363,536		45	%
4.	Zhuhai Gaolan Port Dredging V		2,867,031		2,524,234		1,907,965		616,269		88	%
5.	Qinzhou Port Channel Dredging I		1,343,325		1,007,494		—		1,013,065		75	%
6.	Tianjin South Port Industrial Zone Dredging & Reclamation I		6,371,937		884,991		—		889,885		14	%
7.	Jingtang Port Channel Dredging I		4,730,382		656,997		—		660,631		14	%
8.	Panjin Vessels Industrial Base Project I		10,628,987		281,190		—		282,745		3	%
		$	52,688,645	$	17,734,426	$	12,597,465	$	5,152,615

December 31, 2009

Name of contract		Estimated contract value		Total revenue recognized		Amount received/billed		Cost and estimated earnings in excess of billings		Status of contract (Completion %)
1.	Zhuhai Gaolan Port Dredging I	$	3,593,400	$	3,562,573	$	3,562,573	$	—		100	%
2.	Zhuhai Gaolan Port Dredging II		4,160,871		4,057,455		4,057,455		—		100	%
3.	Zhuhai Gaolan Port Dredging III		1,669,034		1,184,474		834,347		350,127		71	%
4.	Zhanjiang Industrial Centre Dredging and Reclamation I		2,912,024		2,839,336		2,839,336		—		100	%
5.	Dalin Chandao Hulushan Dredging I		7,378,885		7,332,395		7,332,395		—		100	%
6.	Dalin Chandao Hulushan Dredging II		8,608,699		8,623,406		8,623,406		—		100	%
7.	Oujiang Port Lantian Dredging I		7,589,711		7,210,493		7,210,493		—		100	%
8.	Oujiang Port Lantian Dredging II		7,115,354		6,336,300		5,691,971		644,329		89	%
9.	Taishan Tongguhai Zone Guohuatai Dianmei Port Dredging I		674,641		674,469		674,469		—		100	%
10.	Taishan Tongguhai Zone Guohuatai Dianmei Port Dredging II		3,513,755		3,383,060		3,383,060		—		100	%
11.	Fangchengguang Steel Project I		19,025,519		18,357,311		18,357,311		—		100	%
12.	Fangchengguang Steel Steel Project II		3,474,225		3,417,983		3,417,983		—		100	%
13.	Tangshan Caofeidian Dredging and Reclamation I		9,220,678		6,028,905		5,532,167		496,738		65	%
14.	Tangshan Caofeidian Dredging and Reclamation II		11,009,765		7,325,728		6,605,511		720,217		67	%
		$	89,946,561	$	80,333,888	$	78,122,477	$	2,211,411

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The following schedule summarizes changes in backlog on contracts during the six months ended June 30, 2010. Backlog represents the amount of revenue the Company expects to realize from work to be performed pursuant to contractual agreements on projects in progress and on projects for which work has not yet begun.

Backlog balance at December 31, 2009	$	8,139,422
New contracts entered during the six months ended June 30, 2010		173,105,868
Add: Adjustment of contracts due to change orders during the period		231,945
Adjusted contract amount at June 30, 2010		181,477,235
Less: Contract revenue earned during the six months ended June 30, 2010		(45,981,433	)
Backlog balance at June 30, 2010	$	135,495,802

6. INVENTORIES

The Company provides dredging services for its customers in the PRC of China. Inventories consist of consumable parts which are used for dredging projects. As of June 30, 2010 and December 31, 2009, the balance of inventories was $1,193,210 and $429,226, respectively.

7. OTHER RECEIVABLES

Other receivables as of June 30, 2010 and December 31, 2009 consisted of the following:

		June 30, 2010				December 31, 2009
Social insurance prepaid for staff		$	1,079			$	312

Other receivables mainly represent social insurance prepaid for staff’s portion by the Company, this amount will be directly deducted from staff’s salaries and it is interest free.

8. DUE FROM RELATED COMPANIES

Due from related companies as of June 30, 2010 and December 31, 2009 consisted of the following:

	June 30, 2010		December 31, 2009
China Dredging Group Co., Ltd.	$	73,731	$	—
Fujian WangGang Dredging Construction Co., Ltd.		12,619,725		—
	$	12,693,456	$	—

The amount due from China Dredging Group Co., Ltd. (“China Dredging”) was to reimburse a legal fee paid by the Company on behalf of China Dredging.

The amount due from Fujian WangGang Dredging Construction Co., Ltd. (“Fujian WangGang”) was the remaining balance of the capital contribution commitment of $23,602,460 (RMB158,597,183) for which Fujian WangGang received a 50% ownership interest in the Company. The contribution commitment included a subscription receivable of $10,982,735 (RMB75,000,000) that is classified as a reduction of equity. Therefore, the balance is classified as due from a related company.

Fujian WangGang is a subsidiary of China Dredging (HK) Company Limited which is wholly owned by China Dredging.

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The amount due from related companies is unsecured, interest free and have no fixed terms of repayment.

9. PREPAID DREDGER DEPOSIT AND CAPITAL COMMITMENT

(a) Prepaid dredger deposit

Prepaid dredger deposit as of June 30, 2010 and December 31, 2009 consisted of the following:

		June 30, 2010				December 31, 2009
Prepaid dredger deposit		$	2,211,932			$	2,197,158

Prepaid dredger deposit represents a deposit for a new dredger before delivery. The Company paid a deposit for the acquisition of a dredger which will be used for the expansion of dredging operations. The total expected cost of the dredger is $29,492,435 and it is expected to be delivered on or before May 31, 2012.

(b) Capital commitment

The Company had the following capital commitment as of June 30, 2010:

Contracted, but not provided for:
Acquisition of dredger, net of deposit paid		$	27,280,503

On May 20, 2009, the Company entered into a dredger purchase contract with Yiyang Zhonghai Vellel LLC (“Yiyang”), a non-related party of the Company. According to the dredger purchase contract, the Company paid a deposit of 7.5%, or $2,211,932 (RMB15,000,000), of the total purchase price on June 2, 2009. The balance due on the dredger amounted to $27,280,503 (RMB185,000,000), payable in 4 installments:

Payment Due Date (end of month after delivery)	Payment Amount
August 31, 2012	$	8,184,151
November 30, 2012		6,820,126
February 28, 2013		6,820,126
May 31, 2013		5,456,100
	$	27,280,503

The dredger is expected to be delivered to the Company on or before May 31, 2012.

10. SECURITY DEPOSITS

Security deposits represent amounts on deposit with the owners of dredgers leased by the Company. Such amounts will be returned to the Company when the corresponding leases end. Security deposits as of June 30, 2010 and December 31, 2009 were $25,968,089 and $8,422,440, respectively.

11. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of June 30, 2010 and December 31, 2009 consisted of the following:

	June 30, 2010			December 31, 2009
Dredgers	$	52,784,632		$	52,146,433
Machinery		37,883			—
Office equipment		3,808			3,783
		52,826,323			52,150,216
Less: Accumulated depreciation		(11,136,380	)		(8,638,979	)
	$	41,689,943		$	43,511,237

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Total depreciation expense for the six months ended June 30, 2010 and 2009 was $2,497,401 and $2,475,429, respectively in which depreciation expense of dredgers and machinery (2010: $2,497,042 and 2009: $2,475,070) has been included in cost of revenue.

As of June 30, 2010, the Company owned three dredgers. As of June 30, 2010 and December 31, 2009, the total net book value of the three dredgers was $41,653,130 and $43,508,412, respectively. Two dredgers, Xinggangjun 66 and Xinggangjun 3, with an aggregate net book value as of June 30, 2010 and December 31, 2009 of $30,266,386 and $31,541,841, respectively, were pledged as collateral for bank term loans (see Note 13). Another dredger, Xinggangjun 6, was pledged as a financial guarantee to a bank for the Company’s related company, Fujian Province Pingtan County Ocean Fishery Holdings Limited, to obtain a bank loan (see Note 16(b)).

12. ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables as of June 30, 2010 and December 31, 2009 consisted of the following:

	June 30, 2010		December 31, 2009
Accrued interest	$	24,741	$	27,527
Accrued salaries and wages		74,372		69,405
Accrued staff benefits		129,853		103,671
Other payables		405,055		—
Other tax payables		137,465		9,077
	$	771,486	$	209,680

13. TERM LOANS

The Company entered into three loan agreements with two banks in the PRC to obtain fixed-rate term loans to meet its working capital needs. Two loan agreements were signed on September 28, 2008 and February 5, 2010 with Fujian Haixia Bank Co., Ltd. One loan in the amount of $8,847,731 is due on September 28, 2011, whereas the second loan in the amount of $5,898,487 is due on February 8, 2013. A third loan agreement was signed by the Company on February 22, 2010 in the amount of $3,391,630 is due on February 24, 2012 with Fuzhou City Rural Credit Cooperative.

The current portion of the term loans as of June 30, 2010 and December 31, 2009 is shown in the table below.

	June 30, 2010		December 31, 2009
Fujian Haixia Bank Co., Ltd	$	4,423,865	$	3,661,930
Fuzhou City Rural Credit Cooperative		—		3,368,976
	$	4,423,865	$	7,030,906
Range of monthly interest rate		5.400‰		5.974‰
Weighted average monthly interest rate		5.358‰		5.974‰

The loan agreements provide for principal payments of $1,843,277, $1,843,277 and $737,311 on July 20, 2010, January 20, 2011 and February 8, 2011, respectively.

The term loan amounts recorded as non-current as of June 30, 2010 and December 31, 2009 consisted of the following:

	June 30, 2010		December 31, 2009
Fujian Haixia Bank Co., Ltd	$	6,635,798	$	3,295,738
Fuzhou City Rural Credit Cooperative		1,327,159		—
	$	7,962,957	$	3,295,738

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Interest expense on the term loans was $442,827 and $395,337 for the six months ended June 30, 2010 and 2009, respectively.

A summary of the principal payments for the outstanding term loans during the following three fiscal years is as follows:

			Principal payment due during								Total outstanding loan amount
Name of bank	Collateral	Term of loans	2010		2011		2012		2013
Fujian Haixia Bank Co., Ltd	Secured by one of dredgers, Xingganjun 66 and guaranteed by Xinrong Zhuo	January 21, 2010 to September 28, 2011	$	1,843,277	$	3,317,899	$	—	$	—	$	5,161,176
Fujian Haixia Bank Co., Ltd	Secured by one of dredgers, Xingganjun 66 and guaranteed by Qing Lin and Xinrong Zhuo	February 8, 2010 to February 8 2013		—		737,311		2,211,932		2,949,243		5,898,486
Fuzhou City Rural Credit Cooperative	Secured by dredger, Xingganjun 3	August 10, 2010 to February 24 2012		—		—		1,327,160		—		1,327,160
			$	1,843,277	$	4,055,210	$	3,539,092	$	2,949,243	$	12,386,822

Two of the term loans were secured by the Company’s two dredgers, Xinggangjun 66 and Xinggangjun 3. As of June 30, 2010, the net book value of Xinggangjun 66 and Xinggangjun 3 was $21,962,983 and $8,303,403, respectively.

14. OWNERS’ EQUITY AND RETAINED EARNINGS

(a) Registered capital

The Company was incorporated on January 8, 2008 in the PRC. On September 21, 2009, the Company’s registered capital was increased to $29,002,371 (RMB200,000,000). $20,501,105 (RMB140,000,000) was contributed by Lutong Highway. As a result, Qing Lin’s ownership was reduced to 21%, and Panxing Zhuo’s ownership was reduced to 9% and Lutong Highway held the remaining 70% as of December 31, 2009. Lutong Highway has only funded $9,518,370 (RMB65,000,000) of the $20,501,105 (RMB140,000,000) commitment thereby creating a subscription receivable which is classified as a reduction of equity. The subscription receivable of $10,982,735 (RMB75,000,000) was originally payable by Lutong Highway, however, on March 3, 2010, Lutong Highway sold all its ownership to Qing Lin, who assumed the obligation to fulfill the unfunded subscription amount. Following the transfer of ownership interests to Qing Lin, his ownership percentage increased to 91% and Panxing Zhuo continued to hold 9% of the ownership.

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On June 29, 2010, Fujian WangGang Dredging Construction Co., Ltd. (“Fujian WangGang”) obtained 50% ownership of the Company from Wonder Dredging by virtue of a capital contribution commitment of $23,602,460 (RMB158,597,183) into the Company, which amount includes the unfunded subscription amount of $10,982,735 (RMB75,000,000). Fujian WangGang funded the total capital commitment in January 2011. As of June 29, 2010, Wonder Dredging held 50% of the ownership of the Company and Fujian WangGang held the remaining 50%.

(b) Retained earnings and statutory reserves

Retained earnings and statutory reserves as of June 30, 2010 and December 31, 2009 consisted of the following:

	June 30, 2010		December 31, 2009
Retained earnings	$	10,219,693	$	43,946,972
Statutory reserves	$	4,888,018	$	4,888,018

The Company is required to transfer 10% of its net profits after income tax, as determined in accordance with the PRC accounting rules and regulations. Appropriation to the statutory reserve by the Company is based on profit arrived at under PRC accounting standards for business enterprises for each year.

The profit arrived at must be set off against any accumulated losses sustained by the Company in prior years, before allocation is made to the statutory reserve. Appropriation to the statutory reserve must be made before distribution of dividends to owners. The appropriation is required until the statutory reserve reaches 50% of the owners’ equity. This statutory reserve is not distributable in the form of cash dividends.

15. INCOME TAXES

All of the Company’s income was generated in the PRC.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2010		2009		2010		2009
Current income tax expense	$	3,402,328	$	2,834,991	$	5,784,341	$	5,100,233

A reconciliation of the expected income tax expense to the actual income tax expense for the three and six months ended June 30, 2010 and 2009 was as follows:

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2010			2009		2010			2009
Income before tax	$	13,622,021		$	11,332,188	$	23,144,449		$	20,387,768
Expected PRC income tax expense at statutory tax rate of 25%	$	3,405,505		$	2,833,047	$	5,786,112		$	5,096,942
Effect of exchange rate		(3,177	)		1,944		(1,771	)		3,291
Actual income tax expense	$	3,402,328		$	2,834,991	$	5,784,341		$	5,100,233

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For the six months ended June 30, 2010 and 2009, there was no unrecognized tax benefit. Management does not anticipate any potential future adjustments in the next twelve months which would result in a material change to its financial tax position. As of June 30, 2010 and December 31, 2009, the Company did not accrue any interest and penalties.

16. RELATED PARTY TRANSACTIONS

(a) Operating lease commitments

In 2008, the Company entered into an office rental agreement with Ping Lin, a relative of one of the former owners, Qing Lin, from January 1, 2008 to December 31, 2009. This agreement has been renewed and extended the period from January 1, 2010 to December 31, 2015. The Company also entered into dredger and crew hire agreements from June 1, 2008 and May 31, 2016 with Lutong Highway, a company owned by Xiu Zhen Lin, one of the former owners of the Company. Office and dredger rental paid for the six months ended June 30, 2010 and 2009 were as follows:

		For the Six Months Ended June 30,
	Name of related party	2010		2009
Office rental	Ping Lin	$	11,553	$	8,870
Hire charge of dredger	Fujian Lutong Highway Engineering Construction Co., Ltd		513,279		512,280
Hire charge of crew	Fujian Lutong Highway Engineering Construction Co., Ltd		263,972		263,458
		$	788,804	$	784,608

Hire charges of dredger and crew are included as part of the cost of revenue. Office rental is included in the general and administrative expenses.

The total future minimum lease payments under non-cancellable operating leases with respect to office as of June 30, 2010 were payable to the related party as follows:

	Office rental
For the year ended December 31,
2010	$	—
2011		11,617
2012		11,617
2013		11,617
2014		11,617
Thereafter		11,617
	$	58,085

Operating lease commitments for both related parties commitments and non-related parties commitments is summarized in note 18.

F-37

On January 4, 2011, the Company entered into a purchase agreement with Lutong Highway for the purchase of dredger Xinggangjun 9. The total purchase price was approximately $13.6 million (equivalent to RMB89.8 million). Since Xinggangjun 9 had been hired by the Company, the hire of the dredger was terminated effective on the date the agreement was signed (see Note 20). The Company also terminated the crew hire agreement with Lutong Highway effective on the same date.

(b) Financial Guarantee

The Company had the following financial guarantee as of June 30, 2010:

Guarantees given to the bank to secure the bank loan granted to related party

7,850,960

The Company pledged one of dredgers, Xinggangjun 6, to bank for the related party, Fujian Province Pingtan County Ocean Fishery Holdings Limited which engages in fishery, to obtain a bank loan. There was no outstanding contingent payment obligation by the Company in respect to the indebtedness of the related party.

The related company is indirectly under control of Fujian Honglong Ocean Fishery Company Limited (“Honglong”), which Ping Lin had 92.5% of the ownership holding of Honlong. Ping Lin is the daughter-in-law of Panxing Zhuo, one of owners of Wonder Dredging which held 50% ownership of Xing Gang, and sister of Qing Lin, the principal owner of Wonder Dredging.

17. CERTAIN RISKS AND CONCENTRATIONS

(a) Credit risk

As of June 30, 2010 and December 31, 2009, substantially all of the Company’s cash included bank deposits in accounts maintained within the PRC where there is currently no rule or regulation in place for obligatory insurance to cover bank deposits in the event of bank failure. However, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.

(b) Major customers

Customers accounting for 10% or more of the Company’s revenues were as follows:

	For the Six Months Ended June 30,
	2010			2009
Customer A*		42.0	%		—
Customer B*		29.7	%		24.5	%
Customer C		11.2	%		18.6	%
Customer D		11.0	%		56.9	%
		93.9	%		100.0	%

*	Indicates customers under control of a common parent company.

Suppliers accounting for 10% or more of the Company’s total purchases were as follows:

	For the Six Months Ended June 30,
	2010			2009
Supplier A		31.3	%		64.6	%
Supplier B		29.8	%		—
Supplier C		29.6	%		—
Supplier D		—			30.1	%
		90.7	%		94.7	%

F-38

The Company is dependent on third-party consumable parts manufacturers for all of its supply of dredging consumable parts. For the six months ended June 30, 2010 and the same period for 2009, products purchased from the Company’s three largest suppliers accounted for approximately 90.7% and 100% of product purchases, respectively. The Company is dependent on the ability of its suppliers to provide products on a timely basis and on favorable pricing terms. The loss of certain principal suppliers or a significant reduction in product availability from principal suppliers could have a material adverse effect on the Company. The Company believes that its relationships with its suppliers are satisfactory, and the Company has never experienced inadequate supply from suppliers.

18. OPERATING LEASE COMMITMENTS

The total future minimum lease payments under non-cancellable operating leases with respect to dredgers, crew, consumable parts and office as of June 30, 2010 were payable as follows:

	Hire charge of dredgers		Hire charge of crew		Consumable parts supply		Office rental		Total
For the year ended December 31,
2010	$	5,404,489	$	1,600,997	$	13,448,550	$	—	$	20,454,036
2011		10,808,977		2,907,217		26,897,100		11,617		40,624,911
2012		10,808,977		2,795,883		26,897,100		11,617		40,513,577
2013		5,413,559		1,586,593		12,539,609		11,617		19,551,378
2014		700,445		530,864		—		11,617		1,242,926
Thereafter		700,445		530,864		—		11,617		1,242,926
	$	33,836,892	$	9,952,418	$	79,782,359	$	58,085	$	123,629,754

Rental expenses under non-cancellable operating leases arrangements for the six months ended June 30, 2010 and 2009, was $2,018,641 and $1,597,229, respectively. $788,804 and $784,608 was of the rental expenses paid to the related parties for the six months ended June 30, 2010 and 2009, respectively (see Note 16(a)).

The operating lease commitments below include both the related parties commitments and non-related parties commitments. The total future lease payments as of June 30, 2010 is summarized as follows:

	Note	Hire charge of dredgers		Hire charge of crew		Consumable parts supply		Office rental		Total
Related parties commitments	16(a)	$	—	$	—	$	—	$	58,085	$	58,085
Non-related parties commitments			33,836,892		9,952,418		79,782,359		—		123,571,669
		$	33,836,892	$	9,952,418	$	79,782,359	$	58,085	$	123,629,754

19. CONTINGENCIES

Legal proceeding

F-39

20. SUBSEQUENT EVENT

Purchase of a dredger

On January 4, 2011, the Company entered into a purchase agreement with Lutong Highway, a related party of the Company, for the purchase of dredger Xinggangjun 9. The total purchase price was approximately $13.6 million (equivalent to RMB89.8 million). The consideration was determined by reference to the valuation report value of $14.6 million (RMB96.6 million) with a 7% discount. On January 21, 2011, the full consideration was paid.

F-40

CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

Index to Financial Statements

	Page
Consolidated Financial Statements of China Dredging Group Co., Ltd and Subsidiaries (Audited)
Report of Independent Registered Public Accounting Firm	F-42
Consolidated Balance Sheets at December 31, 2010 and December 31, 2009	F-43
Consolidated Statements of Income for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Date of Inception) to December 31, 2008	F-44
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Date of Inception) to December 31, 2008	F-45 to F-46
Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Date of Inception) to December 31, 2008	F-47
Notes to the Consolidated Financial Statements	F-48 to F-77

Consolidated Financial Statements of China Dredging Group Co., Ltd and Subsidiaries (Unaudited)
Consolidated Balance Sheets at June 30, 2011 (Unaudited) and December 31, 2010	F-78
Consolidated Statements of Income for the six months ended June 30, 2011 and 2010 (Unaudited)	F-79
Consolidated Statements of Comprehensive Income for the six months ended June 30, 2011 and 2010 (Unaudited)	F-80
Consolidated Statement of Changes in Shareholders' Equity for the six months ended June 30, 2011 (Unaudited)	F-81
Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (Unaudited)	F-82
Notes to the Consolidated Financial Statements (Unaudited)	F-83 to F-110

F-41

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

We have audited the accompanying consolidated balance sheets of China Dredging Group Co., Ltd. and its subsidiaries (collectively the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income and cash flows for each of the two years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our report dated June 24, 2011, we expressed an opinion that financial statements for the year ended December 31, 2010 fairly presented consolidated balance sheets, consolidated statements of income, changes in shareholders’ equity and comprehensive income, and cash flows in conformity with the standards of the Public Company Accounting Oversight Board (United States). As described in Note 21, the Company recalculated and reallocated the proceeds of its 2010 private placement to the estimated fair value of the holders’ contingent right to a variable number of shares under a make-good escrow arrangement. The Company has changed its method of accounting for these items and restated its financial statements for the year ended December 31, 2010 to conform with the standards of the Public Company Accounting Oversight Board (United States). Accordingly, our present opinion on the financial statements for the year ended December 31, 2010, as presented herein, is different from that expressed in our reports.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Dredging Group Co., Ltd. and Subsidiaries as of December 31, 2010 and 2009, the consolidated results of its operations and its consolidated cash flows for each of the two years ended December 31, 2010 and for the period from January 8, 2008 (Inception) to December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

UHY VOCATION HK CPA LIMITED

Hong Kong, the People’s Republic of China,

June 24, 2011, except for Note 21 and 22 as to which the date is December 7, 2011

F-42

CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN US DOLLARS)

	December 31,
	2010 (as restated)		2009
Assets
Current assets
Cash	$	88,532,472	$	23,343,469
Accounts receivable, net		12,841,108		—
Cost and estimated earnings in excess of billings on contracts in progress		834,909		2,211,411
Inventories		202,213		429,226
Other receivables		1,246		312
Total current assets		102,411,948		25,984,418
Other assets
Prepaid dredger deposits		14,764,074		2,197,158
Security deposits		21,454,545		8,422,440
Property, plant and equipment, net		40,604,784		43,511,237
Total other assets		76,823,403		54,130,835
Total assets	$	179,235,351	$	80,115,253
Liabilities and equity
Liabilities
Current liabilities
Term loans	$	—	$	7,030,906
Accounts payable		4,487,373		—
Income tax payable		4,833,193		2,042,047
Accrued liabilities and other payables		2,589,510		209,680
Total current liabilities		11,910,076		9,282,633
Non-current liabilities
Term loan, net of current portion		—		3,295,738
Contingent liability for a variable number of shares		14,101,247		—
Derivative liability		1,517,748		—
Total non-current liabilities		15,618,995		3,295,738
Total liabilities		27,529,071		12,578,371
Class A Preferred Shares, no par value; 25,000,000 shares authorized; 10,012,987 shares issued and outstanding (liquidation preference $50,064,935, less $6,135,012 discount) as of December 31, 2010 and 0 shares issued and outstanding as of December 31, 2009		43,929,923		—
Shareholders’ equity
Ordinary shares, 225,000,000 shares authorized with no par value; 52,677,323 shares issued and outstanding as of December 31, 2010 and 52,177,323 issued and outstanding as of December 31, 2009		—		—
Statutory reserves		10,295,279		4,888,018
Additional paid-in capital		79.185,284		29,002,371
Retained earnings		13,392,884		43,946,972
Accumulated other comprehensive income		4,902,910		682,256
Subscription receivable		—		(10,982,735	)
Total shareholders’ equity		107,776,357		67,536,882
Total liabilities and equity	$	179,235,351	$	80,115,253

See accompanying notes to the consolidated financial statements.

F-43

CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(IN US DOLLARS, EXCEPT SHARE AMOUNTS)

	For the Years Ended December 31,						For the period from January 8, 2008 (Inception) to December 31,
	2010 (as restated)			2009			2008
Contract revenue	$	131,405,665		$	80,333,891		$	54,480,271
Cost of contract revenue, includes depreciation of $5,037,318, $4,951,518 and $3,686,503 for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008, respectively		(58,723,528	)		(38,715,490	)		(25,424,227	)
Gross profit		72,682,137			41,618,401			29,056,044
General and administrative expenses		(7,159,793	)		(2,531,132	)		(2,152,575	)
Income from operations		65,522,344			39,087,269			26,903,469
Other income (expense):
Interest income		123,536			29,833			43,172
Loss on derivative		(11,298	)		-			-
Interest expenses		(843,995	)		(755,853	)		(179,504	)
Sundry income		89			—			—
Total other income (expense)		(731,668	)		(726,020	)		(136,332	)
Income before income taxes		64,790,676			38,361,249			26,767,137
Income tax expense		(16,556,396	)		(9,596,651	)		(6,696,745	)
Net income		48,234,280			28,764,598			20,070,392
Accretion of discount on Class A Preferred Shares		(22,293,720	)		—			—
Net income attributable to ordinary shareholders	$	25,940,560		$	28,764,598		$	20,070,392
Earnings per ordinary share
- Basic	$	0.50		$	0.55		$	0.38
- Diluted	$	0.50		$	0.55		$	0.38
Weighted average number of ordinary shares outstanding
- Basic		52,264,994			52,177,323			52,177,323
- Diluted		52,264,994			52,177,323			52,177,323

See accompanying notes to the consolidated financial statements.

F-44

CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND FOR THE PERIOD FROM JANUARY 8, 2008 (INCEPTION) TO DECEMBER 31, 2008

(IN US DOLLARS, EXCEPT SHARE AMOUNTS)

	Ordinary Shares, with no Par Value				Statutory Reserves		Additional Paid-in Capital		Retained Earnings						Accumulated Other			Total Shareholders’			Total Comprehensive
	Number of Shares		Amount		(2010 as restated)		(2010 as restated)		(2010 as restated)			Subscription Receivable			Comprehensive Income			Equity (2010 as restated)			Income (2010 as restated)
Balance as of January 8, 2008		—	$	—	$	—	$	—	$	—		$	—		$	—		$	—		$	—
Capital contributed by owners		—		—		—		8,501,266		—			—			—			8,501,266			—
Recapitalization		52,177,323		—		—		—		—			—			—			—			—
Net income		—		—		—		—		20,070,392			—			—			20,070,392			20,070,392
Transfer to statutory reserves		—		—		2,009,023		—		(2,009,023	)		—			—			—			—
Foreign currency translation gain		—		—		—		—		—			—			685,244			685,244			685,244
Balance as of December 31, 2008		52,177,323	$	—	$	2,009,023	$	8,501,266	$	18,061,369		$	—		$	685,244		$	29,256,902		$	20,755,636
Capital contributed by owners		—		—		—		20,501,105		—			—			—			20,501,105			—
Subscription receivable		—		—		—		—		—			(10,982,735	)		—			(10,982,735	)		—
Net income		—		—		—		—		28,764,598			—			—			28,764,598			28,764,598
Transfer to statutory reserves		—		—		2,878,995		—		(2,878,995	)		—			—			—			—
Foreign currency translation gain		—		—		—		—		—			—			(2,988	)		(2,988	)		(2,988	)
Balance as of December 31, 2009		52,177,323	$	—	$	4,888,018	$	29,002,371	$	43,946,972		$	(10,982,735		$	682,256		$	67,536,882		$	28,761,610
Shares issued:
October 27, 2010 (reverse merger)		500,000		—		—		—		—			—			—			—			—

F-45

CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

(IN US DOLLARS, EXCEPT SHARE AMOUNTS)

	Ordinary Shares, with no Par Value						Additional							Accumulated other		Total			Total
	Number of Shares		Amount		Statutory reserves		paid-in capital		Retained earnings			Subscription receivable		comprehensive income		shareholders’ equity			comprehensive income
Contribution of dividends from Wonder Dredging’s shareholders generated by Fujian Service through March 31, 2010. Applied first as payment of subscription receivable, netted of the registered capital of Fujian Service of $29,002,371		—		—		—		22,085,016		—			—		—		22,085,016			—
Contribution of shareholders’ loans and net assets into statutory reserves and equity upon acquisition of interest in Wonder Dredging		—		—		—		18,019,636		—			—		—		18,019,636			—
Capital contributed in Wonder Dredging		—		—		—		878,876		—			—		—		878,876			—
Subscription receivable		—		—		—		—		—			10,982,735		—		10,982,735			—
Net income		—		—		—		—		48,234,280			—		—		48,234,280			48,234,280
Transfer to statutory reserves		—		—		5,407,261		—		(5,407,261	)		—		—		—			—
Dividend – contributed back in a non-cash transaction (See above)		—		—		—		—		(51,087,387	)		—		—		(51,087,387	)		—
Allocation of Preferred Share proceeds to beneficial conversion feature								9,199,385									9,199,385
Accretion of Class A Preferred Shares discount		—		—		—		—		(22,293,720	)		—		—		(22,293,720	)		—
Foreign currency translation gain		—		—		—		—		—			—		4,220,654		4,220,654			4,220,654
Balances as of December 31, 2010 (as restated)		52,677,323	$	—	$	10,295,279	$	79,185,284	$	13,392,884		$	—	$	4,902,910	$	107,776,357		$	52,454,934

See accompanying notes to the consolidated financial statements.

F-46

CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN US DOLLARS)

	For the Years Ended December 31,						For the period from January 8, 2008 (Inception) to December 31,
	2010 (as restated)			2009			2008
Cash flows from operating activities:
Net income	$	48,234,280		$	28,764,598		$	20,070,392
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		5,038,074			4,952,236			3,686,744
Loss on derivative		11,298			—			—
Changes in operating assets and liabilities:
Accounts receivable, net		(12,536,435	)		—			—
Cost and estimated earnings in excess of billings on contracts in progress		1,418,098			(2,210,343	)		—
Other receivables		(905	)		(311	)		—
Inventories		236,039			(429,018	)		—
Accounts payable		4,380,904			—			—
Income tax payable		2,656,355			(179,402	)		2,186,909
Accrued liabilities and other payables		2,320,868			55,179			152,067
Net cash provided by operating activities		51,758,576			30,952,939			26,096,112
Cash flows from investing activities:
Deposits paid for dredgers		(12,194,972	)		(2,196,096	)		—
Changes in security deposits		(12,440,092	)		—			(8,291,156	)
Purchase of property, plant and equipment		(329,951	)		—			(33,768,198	)
Net cash used in investing activities		(24,965,015	)		(2,196,096	)		(42,059,354	)
Cash flows from financing activities:
Repayment of term loans		(21,818,236	)		(1,830,080	)		—
Proceeds from term loans		11,389,859			3,367,348			8,651,641
Payment of dredger payable		—			(17,838,704	)		—
Proceeds from share issue		46,443,286			—			—
Capital contributions from capital issue to Wonder Dredging/Fujian Service		878,876			9,516,419			8,651,641
Net cash provided by/(used in) financing activities		36,893,785			(6,785,017	)		17,303,282
Net increase in cash		63,687,346			21,971,826			1,340,040
Effect of exchange rate changes on cash		1,501,657			9,501			22,102
Cash at beginning of year/period		23,343,469			1,362,142			—
Cash at end of year/period	$	88,532,472		$	23,343,469		$	1,362,142
Supplemental disclosures of cash flow information
Cash paid:
Interest paid	$	871,794		$	753,776		$	154,451
Income tax paid	$	13,900,042		$	9,776,053		$	4,509,836
Supplemental disclosures of non-cash transactions:
Accretion of discount on Class A Preferred Shares	$	22,293,720		$	—		$	—
Purchases of property, plant and equipment with issuance of debt	$	—		$	—		$	17,569,133

See accompanying notes to the consolidated financial statements.

F-47

CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

1. DESCRIPTION OF BUSINESS AND ORGANIZATION

On April 14, 2010, China Dredging Group Co., Ltd (“the Company”) was incorporated in the British Virgin Islands (“BVI”) as a limited liability company by the three shareholders, Mars Harvest Co., Ltd. (“Mars”), Venus Seed Co., Ltd. (“Venus”) and Saturn Glory Co., Ltd. (“Saturn”)(together, the “Shareholders”), by subscribing to 104,355 ordinary shares (after giving effect of the recapitalization as described below). The proportionate ownership percentage of the Company was 90%, 5% and 5% held by Mars, Venus and Saturn, respectively. The principal activity of the Company is to hold its interests in its subsidiaries. The Company, together with its wholly owned subsidiaries and variable interest entities (“VIEs”), of which one of the Company’s subsidiaries is the primary beneficiary, (collectively referred as the “Group”) is engaged in performing dredging services, specifically capital dredging, maintenance dredging and reclamation dredging throughout mainland China. The Group provides its services directly to its customers in the People’s Republic of China (“PRC”).

On May 26, 2010, the Company was recapitalized by increasing its number of authorized shares, changing its par value and by issuing 52,072,968 ordinary shares (after giving effect of the recapitalization as described below) to the three founding shareholders, Mars, Venus and Saturn, and four new shareholders (collectively “New Shareholders”), Regent Fill Investment Group Limited (“Regent Fill”), Poying Holdings Limited (“Poying”), Jianliang Yu and Nan Ding. At the time of recapitalization, the Company had not commenced operations and had no assets.

Pursuant to a unanimous resolution of the Company’s board of directors, the Company’s Memorandum and Articles of Association (“M&A”) was amended as of October 25, 2010 to increase its maximum number of authorised shares from 50,000 ordinary shares of one class with a par value of $1.00 each to a maximum 250,000,000 shares of no par value divided into two classes of shares: (i) 225,000,000 ordinary shares and 25,000,000 Class A Preferred Shares. The Company’s recapitalization was consummated on October 25, 2010, however, retroactively applied to reflect the recapitalized shares. On October 27, 2010, the Company entered into a merger with Chardan Acquisition Corp. (“CAC”), a BVI company (the “Merger”). The Company was the surviving entity in the Merger. Pursuant to the Merger Agreement, the shareholders of CAC received 500,000 of the Company’s ordinary shares. Following the recapitalization and reverse merger, the number and percentage of issued shares was distributed among shareholders as follows:

Name	No. of ordinary shares		%
Mars Harvest Co., Ltd.		33,852,703		64.26	%
Venus Seed Co., Ltd.		2,608,866		4.95	%
Saturn Glory Co., Ltd.		2,608,866		4.95	%
Country Vitality Enterprises Limited		2,600,000		4.94	%
Windham Investments Limited		2,580,000		4.90	%
Partner One Holdings Limited		2,550,000		4.84	%
NewMargin Growth Fund, L.P.		1,600,000		3.04	%
Cadman Investments Ltd.		1,593,555		3.03	%
Linkstate Global Investment Limited		600,000		1.14	%
NewMargin Partners Ltd.		400,000		0.76	%
Regent Fill Investment Group Limited		325,000		0.62	%
Poying Holdings Limited		325,000		0.62	%
Nan Ding		270,833		0.51	%
Jianliang Yu		162,500		0.31	%
Gala Fortune Limited		135,000		0.25	%
Steven A. Urbach		128,515		0.24	%
Fresh Reward Development Limited		100,000		0.19	%
Delaware Charter FBO Kerry Propper IRA		91,755		0.17	%
Chardan Capital Markets, LLC		74,620		0.14	%
Kerry Propper		36,760		0.07	%
George B. Kaufman		15,000		0.03	%
WHI, Inc. Retirement Savings Plan		15,000		0.03	%
Todd A. Gold		3,350		0.01	%
		52,677,323		100	%

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All references in the accompanying financial statements to the number of ordinary shares issued and earnings per share have been retroactively restated to reflect the recapitalization.

During October through December, 2010, the Company completed multiple closings of a private placement of 10,012,987 shares of its Class A Preferred Shares (no par value) for gross proceeds of $50.06 million. Under the terms of the Securities Purchase Agreement, up to a total of 15,000,000 Class A Preferred Shares may be sold by the Company (the “Offering”). Net proceeds to the Company of the Offering, after deducting offering expenses of $3.61 million were $46.45 million. For these proceeds, the investors also received the right to up to 15,000,000 additional shares from the Company’s principal shareholder if the Company fails to meet certain net income thresholds. See Note 13 for a description of the rights and privileges of Class A Preferred Shares.

The Company’s holdings are comprised of China Dredging (HK) Company Limited (“China Dredging HK”), a wholly owned subsidiary of the Company (formed on April 26, 2010), Fujian WangGang Dredging Construction Co., Ltd (“Fujian WangGang”) (formed on June 12, 2010), a wholly foreign-owned enterprise of China Dredging HK, and a 50% controlling interest on Fujian Xing Gang Port Service Co., Ltd (“Fujian Service”), an operating company incorporated and operating in PRC. Fujian WangGang acquired a 50% direct ownership interest in Fujian Service on June 29, 2010 whereas the remaining 50% interest in Fujian Service is owned by Wonder Dredging Engineering Limited Liability Company (“Wonder Dredging”). Wonder Dredging was formed on May 10, 2010 by the same owners of Fujian Service. Through various agreements (collectively the “VIE Agreements”), Fujian WangGang has obtained irrevocable management control over both Wonder Dredging and Fujian Service. Through these agreements Fujian WangGang 1) receives substantially all of the economic benefits of Fujian Service’s ongoing operations, 2) has the right to purchase the other 50% interest in Fujian Service from Wonder Dredging for consideration which is equivalent to the net asset value of the latest quarterly report of Fujian Service with the consideration then contributed back to Fujian Service and 3) has the right to receive all other assets of Wonder Dredging with consideration which is equivalent to the net asset value of the latest quarterly report of Fujian Service.

The VIE Agreements include:

Management Agreement — Fujian WangGang has the exclusive right to manage, operate and control the business operations of Fujian Service, including, but not limited to, establishing and implementing policies for management, using all of the assets of Fujian Service, appointing Fujian Service’s directors and senior management, directing Fujian Service to enter into loan agreement, making administrative decisions regarding employee wages or hiring and firing employees and other actions customarily associated with Fujian Service’s senior management. As consideration for its business management services, Fujian WangGang has agreed to pay to Fujian Service an annual fee of approximately $149,000 (RMB1 million), and Fujian Service will pay to Fujian WangGang 100% of the net profits of Fujian Service. The Management Agreement terminates upon the earlier of (i) Fujian WangGang’s exercise in full of the option to purchase the equity interests of Fujian Service, pursuant to the Exclusive Option Agreement, and Fujian WangGang and/or its designees individually or jointly own all of the equity interests in Fujian Service, or (ii) June 30, 2030, subject to the right of Fujian WangGang to renew the term of the Management Agreement for additional consecutive 20-year periods.

Exclusive Option Agreement — Fujian WangGang has the exclusive right to purchase up to all of the equity interest in Fujian Service that is held by Wonder Dredging, to the extent allowed under the current PRC law. Accordingly, if and when the current limitations on direct ownership of Fujian Service by Fujian WangGang are eased or ceased, Fujian WangGang may exercise its option to purchase and directly own the equity interests of Fujian Service. The purchase price for the equity interest in Fujian Service held by Wonder Dredging would be equivalent to the net asset value reflected in Fujian Service’s then current quarterly report prepared according to U.S. GAAP. The term of the Exclusive Option Agreement is 20 years, which term continuously renews unless the option is exercised in full or the agreement is otherwise terminated by the parties. The agreement also provides that upon consummation of the exercise of the option, Wonder Dredging will contribute, without additional consideration, any funds actually received by it from Fujian WangGang for the transfer of its equity interest in Fujian Service to Fujian WangGang. The agreement further provides that, as of the date of the agreement, Fujian WangGang is entitled to all the future payments by Fujian Service to Wonder Dredging, together with all the profits of Fujian Service.

Equity Interest Pledge Agreement — To ensure that Fujian Service and its shareholders perform their obligations under the Exclusive Option Agreement, the Management Agreement, and a letter of undertaking whereby Wonder Dredging waived its right to receive a dividend of approximately $51.1 million declared by Fujian Service in May 2010, the owners of 100% of the equity interests in Fujian Service, pledged their entire interest in Wonder Dredging to Fujian WangGang. The Equity Interest Pledge Agreement terminates upon the earlier of (i) the purchase of the entire equity interest in Fujian Service by Fujian WangGang or (ii) June 30, 2030, subject to the right of Fujian WangGang to renew the term of the Equity Interest Pledge Agreement for additional consecutive 20 year periods.

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Powers of Attorney — Wonder Dredging executed irrevocable power of attorney granting to Fujian WangGang or its designees the power to vote, pledge or dispose of all equity interests in Fujian Service that Wonder Dredging holds. Additionally, the powers of attorney allow Fujian WangGang or its designees to sign and carry out the intentions of the Management Agreement, the Equity Pledge Agreement and the Exclusive Option Agreement. At the same time, the owners of the equity interests in Wonder Dredging executed powers of attorney granting to Fujian WangGang or its designees the power to vote, pledge, or dispose of all equity interests in Wonder Dredging, and to appoint directors and senior management of Wonder Dredging.

Below is the organization chart in existence as of December 31, 2010:

In management’s judgment Fujian Service was and is a VIE and Fujian WangGang was and is its primary beneficiary. This judgment is based on the following:

Fujian Service is a VIE

There is no “equity investment at risk” as defined in ASC 810-10-15-14a.1 because no equity holders participate in profits as holders of the legal and accounting equity. Fujian WangGang, in its capacity as holder of the Management Agreement has the right to a fee equal to 100% of profits. With no equity investment at risk it cannot be said that the equity investment at risk is sufficient to finance the activities of Fujian Service. Consequently, Fujian Service is defined as a VIE under ASC 810-10-15-14a.

Even if management’s judgment concerning the lack of equity investment at risk were to be determined inappropriate and the legal equity interests did represent equity investment at risk, the equity investors as a group do not have the power to direct the activities of Fujian Service that most significantly affect its economic performance. All such control rights rest with Fujian WangGang in its capacity as holder of the Management Agreement. Consequently, Fujian Service would be defined as a VIE under ASC 810-10-15-14b.1.

Additionally, even if management’s judgment concerning the lack of equity investment at risk were to be determined inappropriate and the legal equity interests did represent equity investment at risk, the equity investors as a group do not have the right to receive the expected residual returns of Fujian Service. Fujian WangGang in its capacity as holder of the Management Agreement has the right to a fee equal to 100% of profits leaving no residual returns of Fujian Service for the equity investors. Consequently, Fujian Service would be defined as a VIE under ASC 810-10-15-14b.3.

Fujian WangGang is the primary beneficiary of Fujian Service

Fujian WangGang has the controlling financial interest, as defined in ASC 810-10-25-38, in Fujian Service because it 1) has the power to direct the activities of Fujian Service that most significantly impact Fujian Service’s economic performance and 2) the obligation to absorb losses of Fujian Service that could potentially be significant to Fujian Service or the right to receive benefits from Fujian Service that could potentially be significant to the Fujian Service. Management’s judgment is based on the following:

1) Power to direct the activities of Fujian Service:

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a)	Fujian WangGang has the power to direct the activities of Fujian Service that most significantly impact Fujian Service’s economic performance because the Management Agreement gives Fujian WangGang all power to control the activities of Fujian Service.

Even if management’s judgment that the Management Agreement gives Fujian WangGang that power were determined to be incorrect, Fujian WangGang would still have that power through i) its 50% legal voting interest and ii) its sole right under the Powers of Attorney, to use the voting power of Wonder Dredging’s 50% voting interest.

2) Obligation to absorb losses of Fujian Service or the right to receive benefits from Fujian Service. Each of the following would by itself suffice to meet this criterion:

a)	Fujian WangGang has a direct 50% ownership interest in Fujian Service which has an obligation to absorb losses.

b)	Fujian WangGang, in its capacity as holder of the Management Agreement has the right to 100% of the profits of Fujian Service.

Fujian WangGang through the Exclusive Option Agreement is the beneficial owner of Wonder Dredging’s 50% ownership interest in Fujian Service, which is an additional source of both the obligation to absorb losses and the right to receive benefits that could potentially be significant to Fujian Service.

Also, in management’s judgment Wonder Dredging was and is a VIE and Fujian WangGang was and is its primary beneficiary. This judgment was based on the following:

Wonder Dredging is a VIE

There is no “equity investment at risk” as defined in ASC 810-10-15-14a.1 because no equity holders participate in profits or losses as holders of the legal equity interests. Wonder Dredging’s only material asset is its 50% ownership interest in Fujian Service. Fujian WangGang, in its capacity as holder of the Exclusive Option Agreement receives all benefits and absorbs all losses of that asset, and therefore of Wonder Dredging. With no equity investment at risk it cannot be said that the equity investment at risk is sufficient to finance the activities of Wonder Dredging. Consequently, Wonder Dredging is defined as a VIE under ASC 810-10-15-14a.

Even if management’s judgment concerning the lack of equity investment at risk were to be determined inappropriate and the legal equity interests did represent equity investment at risk, the equity investors as a group do not have the power to direct the activities of Wonder Dredging that most significantly affect its economic performance. All such control rights rest with Fujian WangGang, under the Powers of Attorney. Consequently, Wonder Dredging would be defined as a VIE under ASC 810-10-15-14b.1.

Additionally, even if management’s judgment concerning the lack of equity investment at risk were to be determined inappropriate and the legal equity interests did represent equity investment at risk, the equity investors as a group do not have the right to receive the expected residual returns of Fujian Service. Fujian WangGang in its capacity as holder of the Exclusive Option Agreement has the right to all profits and gains on the Wonder Dredging’s only material asset, the ownership interest in Fujian Service, leaving no residual returns of Wonder Dredging for the equity investors. Consequently, Wonder Dredging would be defined as a VIE under ASC 810-10-15-14b.3.

Fujian WangGang is the primary beneficiary of Wonder Dredging

Fujian WangGang has the controlling financial interest, as defined in ASC 810-10-25-38, in Wonder Dredging because it 1) has the power to direct the activities of Wonder Dredging that most significantly impact Wonder Dredging’s economic performance and 2) the obligation to absorb losses of Wonder Dredging that could potentially be significant to Wonder Dredging or the right to receive benefits from Wonder Dredging that could potentially be significant to the Wonder Dredging. Management’s judgment is based on the following:

1)	Power to direct the activities of Wonder Dredging:

Fujian WangGang has the power to direct the activities of Wonder Dredging that most significantly impact Wonder Dredging’s economic performance because the Powers of Attorney give Fujian WangGang all power to control the activities of Wonder Dredging.

Even if management’s judgment that the Powers of Attorney give Fujian WangGang that power were determined to be incorrect, Fujian WangGang would still have that power through its control of Wonder Dredging’s only significant activity, its ownership of a 50% interest in Fujian Service. Such control is held by Fujian WangGang even without consideration of the Powers of Attorney through i) Wonder Dredging’s inability to transfer the ownership interest in Fujian Service because of the Exclusive Option Agreement and ii) Wonder Dredging’s inability to exercise control over Fujian Service because of Fujian WangGang’s right under the Management Agreement to appoint all Directors of Fujian Service.

Obligation to absorb losses of Wonder Dredging or the right to receive benefits from Wonder Dredging. In its capacity as holder of the Exclusive Option Agreement, Fujian WangGang receives all value of Wonder Dredging’s only material asset, its ownership interest in Fujian Service. Consequently, Fujian WangGang absorbs all losses and receives all benefits of this sole material asset.

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Accordingly, the balance sheets of Wonder Dredging and Fujian Service are included in the Group’s consolidated financial statements. Since the Company has determined that the acquisition of Wonder Dredging and Fujian Service as VIE subsidiaries on June 29, 2010 was a combination of entities under common control and only Fujian Service had substantive operations Fujian Service is considered to be the continuing reporting entity that was reorganized into the current structure. The financial statements include the balance sheets, results of operations and cash flows of Fujian Service for all periods presented and the other members in the Group from their respective incorporation dates.

Fujian Service, which is the operating entity with RMB200,000,000 ($29,002,371 at December 31, 2010) registered capital, was incorporated on January 8, 2008. Fujian Service was originally owned by two individuals, Qing Lin and Panxing Zhuo, with holdings of 91% and 9%, respectively, of the total ownership. Qing Lin and Panxing Zhuo held their ownership interests in Fujian Service as the representatives of the family under an agreement that gave Xinrong Zhuo the exclusive right to make executive decisions and manage Fujian Service.

On May 20, 2010, Qing Lin and Panxing Zhuo sold all of their ownership interests of Fujian Service to Wonder Dredging, which they also owned fully and in the same percentages as their ownership interests in Fujian Service. Subsequent to this transaction Wonder Dredging owned 100% of Fujian Service and owed a total of $18,019,636 to Mr. Lin and Mr. Zhuo. These former owners of Fujian Service agreed to contribute the full purchase amount receivable to the capital of Wonder Dredging.

On June 29, 2010, Fujian WangGang acquired a 50% ownership interest in Fujian Service from Wonder Dredging by committing to invest, as a capital contribution, $23,602,460 (RMB158,597,183) into Fujian Service. This reduced Wonder Dredging’s ownership interest in Fujian Service to 50%.

In conjunction with the effectiveness of the VIE Agreements, Wonder Dredging and its shareholders became obligated to contribute to the capital of Fujian WangGang a dividend receivable from Fujian Service together with all retained earnings of Fujian Service of which Wonder Dredging is the beneficiary under the purchase agreement with Mr. Lin and Mr. Zhuo.

At the close of business on June 30, 2010, various agreements became effective under which Fujian WangGang irrevocably obtained; 1) management control over all of the business and activities of Fujian Service and Wonder Dredging, 2) a direct right to receive substantially all of the economic benefits of Fujian Service, and 3) the right to acquire 50% equity interest in Fujian Service owned by Wonder Dredging.

According to the “Ordinance of Ship Registration of People’s Republic of China” and other relevant regulations, the maximum shareholding by foreign sources of capital in an entity operating in the PRC cannot exceed 50%. Also no operating entity’s vessels are entitled to be registered as Chinese ships if foreign-owners hold more that 50% of the equity interest in the operating entity. The Company’s management believes the corporate structure now in effect and set forth above permits Fujian Service to operate in the PRC and conduct its dredging contracts operations in compliance with PRC law.

The acquisition of Wonder Dredging and Fujian Service as VIE subsidiaries on June 29, 2010 was deemed to be a combination of entities under common control. Consequently, these financial statements have been prepared as if the entities in the Group had always been consolidated. The financial statements are principally those of Fujian Service with the other Group members included from their various dates of incorporation in 2010. The financial statements reflect the capital structure adopted the Company.

Management determined that the VIE Agreements constituted a combination of entities under common control, because the Company’s Chief Executive Officer, Mr. Xinrong Zhuo, controlled China Dredging and its subsidiary Fujian WangGang, as the 90% owner of the Company when the Company incepted, and then diluted to 88.27% after new shareholders acquired the Company’s ordinary shares in May 2010, and also had the right to make all executive and management decisions for Wonder Dredging and its subsidiary Fujian Service through an agreement with the legal owners, his brother-in-law and father, that predated the formation of Fujian Service. Under the agreement, Mr. Qing Lin and Mr. Panxing Zhuo, who hold 100% equity interests in Wonder Dredging collectively and own 50% equity interests in Fujian Service indirectly, hold those interests as representatives of the family.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2009-01, “Generally Accepted Accounting Principles” (ASC Topic 105) which establishes the FASB Accounting Standards Codification (“the Codification” or “ASC”) as the official single source of authoritative U.S. generally accepted accounting principles (“GAAP”). All existing accounting standards are superseded. All other accounting guidance not included in the Codification will be considered non-authoritative. The Codification also includes all relevant Securities and Exchange Commission (“SEC”) guidance organized using the same topical structure in separate sections within the Codification. Following the Codification, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASU”) which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification.

The Codification is not intended to change GAAP, but it will change the way GAAP is organized and presented. The adoption of ASC 105 does not have an impact on the Group’s financial statements.

(b) Variable interest entity

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and variable interest entities (“VIE”) in which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated. The consolidated financial statements of the Company have been prepared as if the existing corporate structure had been in existence throughout the periods presented and as if the reorganization had occurred as of the beginning of the earliest period presented.

The following table shows the assets and liabilities of Wonder Dredging and Fujian Service after eliminating the intercompany balances as of December 31, 2010:

	Wonder Dredging		Fujian Service
ASSETS
Cash and cash equivalents	$	909,353	$	60,555,411
Accounts receivable, net		—		12,841,108
Cost and estimated earnings in excess of billings on contracts in progress		—		834,909
Other current assets		—		203,337
Property, plant and equipment, net		—		40,604,784
Prepaid dredger deposits		—		14,764,074
Security deposits		—		21,454,545
	$	909,353	$	151,258,168
LIABILITIES
Accounts payable	$	—	$	4,487,373
Income tax payable		—		4,833,193
Accrued liabilities and other payables		5,911		2,398,015
	$	5,911	$	11,718,581

The creditors of Wonder Dredging and Fujian Service do not have recourse against the general creditors of its primary beneficiary or other Group members.

The following table shows the contract revenue, cost of contract revenue, and net income/(loss) of Wonder Dredging and Fujian Service after eliminating the intercompany balances for the year ended December 31, 2010. This was the only period during the year ended December 31, 2010 for which the results of Wonder Dredging and Fujian Service were included in the consolidated Group.

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	Year Ended December 31, 2010
	Wonder Dredging			Fujian Service
Contract revenue	$	—		$	131,405,665
Cost of contract revenue	$	—		$	(58,723,528	)
Net (loss)/income attributable to the Company	$	(5,515	)	$	49,678,234

The following table shows the condensed cash flow activities of Wonder Dredging and Fujian Service for the year ended December 31, 2010:

	Wonder Dredging		Fujian Service
Net cash provided by operating activities	$	396	$	52,999,859
Net cash provided by/(used in) investing activities		878,876		(30,305,428	)
Net cash provided by financing activities		—		13,174,083
Net increase in cash		879,272		35,868,514
Effect on change of exchange rates		30,081		1,343,428
Cash at the beginning of the year		—		23,343,469
Cash at the end of the year	$	909,353	$	60,555,411

The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (the “U.S. GAAP”) which requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the years. Significant items subject to such estimates and assumptions include the recoverability of the carrying amount and the estimated useful lives of long-lived assets; valuation allowances for receivables, percentage of completion of contracts and realizable values for inventories. Accordingly, actual results could differ from those estimates.

(d) Foreign currency translation

Assets and liabilities of foreign subsidiaries are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rate of exchange prevailing during the period. The related transaction adjustments are reflected in “Accumulated other comprehensive income/(loss)” in the equity section of the Company’s consolidated balance sheet. A summary of exchange rate is as follows:

Renminbi to one US dollar
Rate as of December 31, 2010			6.6000
Average rate for the year ended December 31, 2010			6.7604
Rate as of December 31, 2009			6.8270
Average rate for the year ended December 31, 2009			6.8303
Average rate for the period from January 8, 2008 (Inception) to December 31, 2008			6.9351
Hong Kong dollar to one US dollar
Rate as of December 31, 2010			7.7810
Average rate for the twelve months ended December 31, 2010			7.7700

(e) Cash

Cash consists of cash on hand and at banks.

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(f) Accounts receivable, net

Accounts receivable represent billed under the terms of contracts with customers. There is no amount related to retainage. The Group anticipates collection of all the outstanding balances within 10 to 15 days after completion reports of the contracts are issued. The allowance for doubtful accounts is the Group’s best estimate of the amount of probable credit losses in the Group’s existing receivable. The Group provides an allowance for estimated uncollectible receivables when events or conditions indicate that amounts outstanding are not recoverable. Outstanding account balances are reviewed individually for collectability. Based on the Group’s assessment of collectability, there has been no allowance for doubtful accounts recognized for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008.

(g) Cost and estimated earnings in excess of billings on contracts in progress

Cost and estimated earnings in excess of billings represent amounts of revenue earned under contracts in progress but not billed at the balance sheet date. These amounts become billable according to the contract terms, which usually consider passage of time, and/or completion of the project. As of December 31, 2010 and 2009, cost and estimated earnings in excess of billings on contracts in progress were $834,909 and $2,211,411, respectively.

(h) Inventories

Inventories mainly consist of consumable parts including pipe, spare parts, and supplies used in the Group’s dredging operations. Inventories are stated at the lower of cost or market, using a weighted average cost method.

(i) Property, plant and equipment

Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations.

The estimated useful lives of the assets are as follows:

	Estimated lives
Dredgers		10
Machinery		5
Office equipment		5

Expenditures for repairs and maintenance, which do not extend the useful life of the assets, are expensed as incurred.

(j) Impairment of long-lived assets

In accordance with ASC 360, Property Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. As individual dredger generates its own cash flow, each individual dredger is separately reviewed for impairment. If long-lived assets are to be disposed, depreciation is discontinued, if applicable, and the assets are reclassified as held for sale at the lower of their carrying amounts or fair values less costs to sell.

Based on the Group’s assessment, no triggering events were identified as of December 31, 2010 and 2009.

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(k) Fair value measurements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update “ASU 2010-06” “Fair Value Measurements and Disclosures.” The new guidance clarifies two existing disclosure requirements and requires two new disclosures as follows: (1) a “gross” presentation of activities (purchases, sales, and settlements) within the Level 3 roll forward reconciliation, which will replace the “net” presentation format; and (2) detailed disclosures about the transfers in and out of Level 1 and 2 measurements. This guidance is effective for the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 roll forward information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods thereafter. The Company adopted the amended fair value disclosures guidance on January 1, 2010, except for the gross presentation of the Level 3 roll forward information, which the Company is not required to adopt until January 1, 2011.

(l) Revenue recognition

The Group generates revenue primarily from dredging services.

The Group recognizes contract revenues under the percentage-of-completion method to determine the appropriate amount to be recognized in a given period. Depending on the nature of each contract, the stage of completion is measured by reference to (a) the proportion of contract costs incurred for work performed to date to estimated total contract costs; (b) the amount of work certified by site engineer; or (c) completion of physical proportion of the contract work. The difference between amounts billed and recognized as revenue is reflected in the balance sheet as either contract revenues in excess of billings or billings in excess of contract revenues. Provisions for estimated losses on contracts in-progress will be made in the period in which they are identified. In the event that contract revenue cannot be estimated reliably, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable. Costs that are incurred for a specific anticipated contract are deferred and recognized as prepaid expenses until the contracts are successfully bid, unless the costs are insignificant and in such case they are treated as expenses. Approved and unapproved change orders are considered a change in the scope of the original contracts to which they relate. Claims for additional compensation due to the Company are not recognized in contract revenues until such claims are settled.

(m) Costs and expenses

(n) Income taxes

The Group accounts for income taxes under ASC 740, “Income Taxes.” Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be effective when the differences are expected to reverse.

The Group adopted ASC 740, “Income Taxes,” which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken in the tax return. This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.

The Group recognizes interest and penalty related to income tax matters as income tax expense. As of December 31, 2010 and 2009, there was no penalty or interest recognized as income tax expenses.

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(o) Commitments and contingencies

In the normal course of business, the Group is subject to contingencies, including legal proceedings and environmental claims arising out of the normal course of businesses that relate to a wide range of matters, including among others, contracts breach liability. The Group records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, scientific evidence and the specifics of each matter.

As of December 31, 2010 and 2009, the Group’s management has evaluated all such proceedings and claims. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Group’s financial position, liquidity or results of operations.

(p) Economic and political risks

The Group’s operations are conducted in the PRC. Accordingly, the Group’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

The Group’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Group’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances aboard, and rates and methods of taxation, among other things.

(q) Pension and employee benefits

Full time employees of the Group participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Group to accrue for these benefits based on certain percentages of the employees’ salaries. Cost for pension and employee benefits of the Group was $39,888, $34,618 and $19,856 for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008, respectively.

(r) Segment information

ASC 280, “Segment Reporting” establishes standards for reporting information on operating segments in interim and annual financial statements. The Group has only one segment, all of the Group’s operations and customers are in the PRC and all income are derived from the services of dredging. Accordingly, no line of business or geographic information is presented.

(s) Escrow shares, embedded derivative and preferred shares discount

On October 29, 2010, the Company’s controlling shareholder, a company controlled by Mr. Xinrong Zhuo, the Company’s Chairman of the Board of Directors and Chief Executive Officer, placed into escrow 15,000,000 of the Company’s ordinary shares (the “Make-Good Escrow”), pursuant to a securities escrow agreement, for the purpose of providing protection to the investors in the 2010 Private Placement in the event the Company does not achieve certain net income thresholds for the years ended 2010 and 2011. If the Company were not to achieve the thresholds set forth below, holders of the preferred shares would receive additional shares from the Make-Good Escrow, up to the full number of shares held in the Make-Good Escrow. The number of additional shares that may be released to investors in the 2010 Private Placement if the Company fails to meet the Adjusted Net Income targets set forth below is equal to: (Original Invested Shares * (Target EPS/Actual EPS)) — Original Invested Shares. “Actual EPS” means the Adjusted Net Income for fiscal year 2010 or 2011, as applicable, divided by the number of the Company’s fully diluted outstanding shares. “Target EPS” means the performance threshold for the applicable year divided by the number of the Company’s fully diluted outstanding shares. Adjusted Net Income means after-tax net income based on U.S. GAAP, adjusted to exclude (i) non-cash charges associated with the Merger, the 2010 Private Placement and a public offering or other financing by the Company, (ii) expenses related to the release of the escrow shares, and (iii) expenses related to implementation of any of the agreements related to the 2010 Private Placement. Adjusted Net Income for 2010 is calculated by adding the Adjusted Net Income of Fujian Service for the six months ended June 30, 2010 and the Company’s Adjusted Net Income on a consolidated basis for the six months ended December 31, 2010. The pro-rata right to receive shares issuable pursuant to the Make-Good Escrow is based upon the initial preferred shares issued to investors. Shares not distributed from the Make-Good Escrow will be returned to the shareholder that contributed them. The Adjusted Net Income targets for the 2010 and 2011 fiscal years are $48.1 million and $87.0 million, respectively. Adjusted Net Income is net income excluding non-cash charges incurred as a result of the financing transaction, including without limitation, as a result of the issuance and/or conversion of the preferred shares, or as a result of the issuance of warrants to any placement agent and its designees in connection with another financing transaction. For 2010, Adjusted Net Income was determined as follows:

F-57

Net Income	$	48,234,280
Add:
Loss on derivative		11,298

Adjusted Net Income	$	48,245,578

The Company has already achieved the Target EPS for 2010 and believes that it will have sufficient Actual EPS in 2011 such that most, if not all, of the escrow shares will be released back to the shareholder. If the Company does achieve sufficient Actual EPS for 2011 and releases the escrow shares back to the shareholder, the Company does not believe the fair value of the escrow shares should be recognized as compensation or an expense. According to SEC Staff Announcement Topic No. D-110 (ASC 718-10-S99-2), to overcome the presumption that the release of shares are compensatory, the Company is required to “consider the substance of the arrangement, including whether the arrangement was entered into for purposes unrelated to, and not contingent upon, continued employment. For example, as a condition of a financing transaction, investors may request that specific significant shareholders, who also may be officers or directors, participate in an escrowed share arrangement. If the escrowed shares will be released or canceled without regard to continued employment, specific facts and circumstances may indicate that the arrangement is in substance an inducement made to facilitate the transaction on behalf of the Company, rather than as compensatory. In such cases, the SEC staff generally believes that the arrangement should be recognized and measured according to its nature and reflected as a reduction of the proceeds allocated to the newly-issued securities.”

The Make-Good Escrow was not entered into for purposes related to, or contingent upon, continued employment of the key executive. The sole reason for the Company and Mr. Zhuo’s company to enter into the escrow arrangement was to induce the 2010 Private Placement investors to close the financing transaction. The Make-Good Escrow must still comply with ASC 225-10-S99-3 through S99-4 and reflect the rights granted by Mr. Zhuo to the investors personally as being rights given to the investors by the Company. Therefore, the Company believes the proceeds of the 2010 Private Placement should be treated as being received for a combination of the preferred shares issued to the investors and the contingent right to a variable number of ordinary shares under the Make-Good Escrow. The Company further believes this requires that the 2010 Private Placement proceeds be allocated first to the contingent right to a variable number of shares based on the estimated fair value of that right, with the remaining proceeds allocated to the preferred shares. In effect, Mr. Zhuo’s company would be treated as having contributed, to the Company, a contingent right to a variable number of shares while the Company is treated as having sold an identical right to the 2010 Private Placement investors. Pursuant to ASC 480-10-25-14, the Company’s contingent obligation to deliver a variable number shares sold to the investors is recorded as a liability. It was initially recorded at its $14,101,247 estimated fair value. The effective right to receive an equal number of shares from Mr. Zhuo is not an asset but instead represents a potential future capital contribution.

Prospectively, the Company will adjust the liability for the contingent obligation to deliver a variable number of shares to its estimated fair value at each balance sheet date. Changes to the liability will be recorded as gains or losses in the determination of net income. Upon settlement (or cancellation if the Company meets the Target EPS for 2011) the liability will first be adjusted to the fair value of the shares actually delivered. Any difference between that amount, and the amount previously recorded, will be reflected as a gain or loss in the determination of net income. The liability will then be eliminated with a corresponding increase in additional paid-in capital reflecting the fact that Mr. Zhuo will be providing the shares to the investors for settlement.

As discussed in Note 13, the holders of the preferred shares have the right to receive 20% of the $5.00 purchase price on the second anniversary of issuance if not yet converted. Substantially, this is the right to $1.00 per share if the Company fails to have the ordinary shares underlying the preferred shares both successfully registered with the SEC and listed on a suitable exchange by October 2012. The Company has determined that this contingent right of the holders of the preferred shares is an embedded derivative financial instrument which must, for financial reporting purposes, be separated from the host instrument (i.e., from the preferred shares) and treated as a separate instrument. Proceeds of the 2010 Private Placement were allocated to the derivative liability in an amount equal to its estimated fair value. Prospectively, the derivative liability will be adjusted to its estimated fair value at each balance sheet date with changes in its fair value recorded in the Company’s statements of operations.

F-58

There were no readily ascertainable market prices for the ordinary shares or the rights that investors hold under the Make-Good Escrow. The Company estimated the fair value of obligation under the Make-Good Escrow by using a Monte Carlo valuation model using as variables 1) gross margin on dredgers within the range of historical experience, 2) the addition of new dredgers within a range bounded by new lease opportunities known at the time of the 2010 Private Placement and resources of the company available at the time of the 2010 Private Placement to secure additional leased vessels during 2011, 3) revenue for both existing dredgers and potential new dredgers within a range bounded by historical experience and existing backlog, 4) RMB/USD exchange rates within a range consistent with PRC government guidance available at the time of the 2010 Private Placement, 5) sales, general and administrative expenses as a percentage of revenue within parameters known at the time of the 2010 Private Placement. The result was an expected escrow share issuance of 3,234,231 shares. That number of expected shares was then multiplied by the $4.36 estimated fair value of each share, determined as discussed below, to produce the estimated $14,101,247 fair value of Make-Good Escrow obligation. There was only a short period of time from the final closing of the 2010 Private Placement (December 21, 2010) until December 31, 2010, and the 2010 Private Placement closed on various dates in the fourth quarter of 2010 all at the same price. The Company believes that no material information was available at December 31, 2010 that was not available throughout the 2010 Private Placement. Accordingly, the Company does not believe the value of the Make-Good Escrow obligation changed materially during the period. The estimation of the fair value of the Make-Good Escrow obligation is based on level 3 inputs.

The Company has estimated the value of the embedded derivative based on the $10,012,987 proceeds that would be paid, discounted at an interest rate of 9.0% and multiplied by 18%, representing the probability, viewed from the time of the 2010 Private Placement, that the underlying ordinary shares would not be registered and listed. The Company believes the 9.0% interest rate, which is consistent with then-effective high-yield rates in US markets, is appropriate for debt in such amount at the parent-company level that is unsecured, illiquid and structurally subordinated to creditor claims at the operating companies (the locus of substantially all of the Company’s assets). The probability of the Company not being registered and listed by October 2012 was estimated to be the same as the actual percentage of all Form F-1 filers in 2009 and 2010 failing to achieve effectiveness of their registration statements. However, the Company’s actual probability of success could differ from that of companies who filed registration statements during the reference period, or an actual market participant could take a different view. The Company believes that, in its case, once its registration statement becomes effective, all other requirements to achieve a national exchange listing would be satisfied or within its control, which would is sufficient to extinguish the embedded derivative. While listing requirements relating to market capitalization are not directly in the Company’s control, the Company should have sufficient market capitalization based on its cash alone to meet requisite listing standards. Even under the lowest 1% tail scenario of the Monte Carlo valuation model discussed above, the Company would have positive net income which should not detract from the value of the cash in determining market capitalization.

The embedded derivative is part of the preferred shares and was entered into as an inducement to the 2010 Private Placement investors to purchase the preferred shares. It is not used for hedging purposes. The estimate of the embedded derivative’s fair value is based on “level 3” inputs, meaning unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The embedded derivative, and the obligation under the Make-Good Escrow are the only instruments held by the Company that is carried at fair value estimated using level 3 inputs. The changes in the carrying value of the level 3 instruments during the year ended December 31, 2010 was as follows:

Liability balance December 31, 2009	$	-
Additional liabilities entered into – 2010		15,607,697
Increase in liability fair value – 2010		11,298
Liability balance – December 31, 2010	$	15,618,995

Reducing the gross proceeds of the 2010 Private Placement by the $14,101,247 allocated to the contingent right to shares pursuant to the Make-Good Escrow and $1,506,450 to the embedded derivative resulted in $34,457,238 being initially allocated to the 10,012,987 preferred shares. This amount was reduced by the $3,621,649 of offering costs relating to the 2010 Private Placement resulting in $30,835,589 initially allocated to the preferred shares. At December 31, 2010, the derivative liability was increased by an additional $11,298 to its estimated fair value of $1,517,748. This resulted in a total derivative loss of $11,298 for the year ended December 31, 2010 as shown on the Company’s statements of operations. The 10,012,987 preferred shares are convertible into an equal number of ordinary shares which for which a fair value was estimated to determine if the preferred shares contained a beneficial conversion feature.

F-59

The Company calculated an estimated the fair value of its ordinary shares by applying to its trailing earnings the price-earnings ratio equal to the average price-earnings ratio of the only two other public companies (as of fourth quarter 2010) in the dredging industry, the peer companies, after making the adjustments described below. The peer companies, whose trailing price-earnings ratios averaged 10.5, are domiciled in developed countries, specifically the Netherlands and the United States, no single shareholder or group controls the peer companies and their shares are liquid and actively traded. To adjust the price-earnings ratio for the peer companies for differences in the Company’s circumstances, the Company applied two discount factors. The first was a 24.5% discount to reflect the market discount applicable to Chinese companies of scale consistent with that of the Company. The Company determined this discount by calculating the average price-earnings ratio of the 34 U.S.-listed Chinese companies with market capitalizations between $100 million and $400 million and positive 1-year trailing earnings and comparing it with the average price earnings ratio of the S&P 500 over the time period when the 2010 Private Placement occurred. The Company then applied an additional 40% discount to reflect the lack of marketability and control of the Company as compared with public companies generally. The lack of marketability was based on the fact that none of the Company’s shares were registered and there was no ready market for the shares. The size of the discount needed for lack of marketability was limited by the fact that the Company was a public company through its reverse merger with Chardan Acquisition Corp. and had plans and a clear intention to register its shares and list on an exchange. The control element of the discount was necessary because a majority of the Company’s voting shares are controlled by Mr. Xingrong Zhuo and would continue to be controlled by him based on the Monte Carlo simulation of the shares to be transferred from the Make-Good Escrow.

The result of applying these two discounts in sequence to the 10.5 average for the peer companies was to lower the price-earnings ratio used to compute the Company’s per share value to 4.8. Noting that the Company had no debt, the Company multiplied the 4.8 price-earnings ratio to the projected 2010 net income of $48.4 million disclosed to investors in the 2010 Private Placement to calculate an equity value of $229.8 million. This calculated equity value was divided by the number of outstanding ordinary shares, before giving effect to the 2010 Private Placement, and yielded a value per ordinary share of $4.36. This estimate is subject to considerable uncertainty and it is likely that if ordinary shares had been sold separately at the time of the 2010 Private Placement they would have sold for amounts different than $4.36 and such differences could have been material. There were only two peer companies, and the Company’s determination to use a 40% discount for lack of marketability and control is subjective and potentially at the higher end of ranges that may be regarded as typical for such discounts.

The $43,929,923 estimated fair value of the ordinary shares into which the preferred shares would convert exceeded the $34,457,238 of gross proceeds allocated, as described above, to the preferred shares by $9,199,385. The Company consequently concluded that this was a “beneficial conversion feature” as described in ASC 470-20-25. This beneficial conversion feature resulted in the allocation of $9,199,385 additional proceeds of the 2010 Private Placement to the beneficial conversion feature (recorded in additional paid-in capital) leaving $21,636,203 as the allocation of proceeds to the preferred shares ($25,257,852 gross less $3,621,649 offering costs), representing a discount of $28,428,732 compared to the liquidation preference of $50,064,935. Because the holders of the preferred shares had the immediate right to convert the shares to ordinary shares, the $22,020,420 portion of the discount representing the excess of the estimated fair value of the underlying shares over the net proceeds allocated to the preferred shares was immediately recorded as accretion of preferred share discount in accordance with ASC 470-20-35-7b. This accretion did not affect net income, but resulted in a reduction of net income attributable to ordinary shareholders, which ultimately reduced earnings per share. The accretion reduced retained earnings and increased the preferred share account.

The $43,656,623 balance of the preferred shares, after being increased by the immediate accretion, represented a discount of $6,408,312 from the preferred shares’ $50,064,935 liquidation preference/contingent redemption price. This discount is accreted over the two year period until redemption can potentially occur. In accordance with ASC 470-25-35-7b, the accretion for each quarter is the amount necessary such that the cumulative accretion of the discount reflect the greater of the amount accreted under the interest (“effective yield”) method and the amount that would be realized by the holders of the preferred shares were they to convert on the balance sheet date at the estimated fair value of the ordinary shares into which they would convert. The accretion has no effect on net income but is recorded as a reduction of net income attributable to ordinary shareholders, which reduces earnings per share.

The additional reduction of net income attributable to ordinary shareholders for 2010 due to accretion of the preferred share discount was $273,300 occurring entirely in the fourth quarter. This was based on interest method accretion.

F-60

(t) Shares and Additional Paid-in Capital

The Company’s shares have no par value. BVI law permits the Board of Directors to pay dividends if 1) in its judgment doing so is in the best interest of the Company and 2) if the Company would remain solvent as defined under BVI law. The Company records the net amounts received for the issuance of preferred shares, to the extent allocable to the preferred shares under U.S. GAAP, in the preferred shares account so that it properly reflects the discount from shares’ liquidation preference. The Company further adds any amounts that are required under U.S. GAAP for accretion of the discount or other reasons. In the case of the preferred shares issued in 2010 Private Placement, this required $21,626,203 to be initially recorded as preferred shares, with the December 31, 2010 balance adjusted to $43,929,923. Other capital contributions, irrespective of whether they are for the issuance of shares, are recorded in the additional paid-in capital account. The balance sheet account for no par ordinary shares is kept at zero.

Pursuant to this policy, capital contributions of $8,501,266, received in 2008 for registered capital in Fujian Service has been reclassified from ordinary shares to additional paid-in capital for all periods presented. As a result ordinary shares at December 31, 2009, previously reported as $8,501,266, has been reported as zero and additional paid-in capital at December 31, 2009, previously reported as $20,501,105, has been reported as $29,002,371.

(u) Earnings per ordinary share

Earnings per ordinary share (basic and diluted) is based on the net income attributable to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during each period. Ordinary share equivalents are not included in the calculation of diluted earnings per ordinary share if their effect would be anti-dilutive. As of December 31, 2010 the weighted average outstanding ordinary share equivalents outstanding totaled 909,403 consisting of Class A Preferred Shares, all of which were anti-dilutive and, therefore, excluded in the calculation of diluted earnings per ordinary share.

(v) Recently issued accounting standards

Set forth below are recent pronouncements that have had or may have a significant effect on the Group’s consolidated financial statements. The Group does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, or disclosures.

In May 2009, the FASB issued guidance within Topic 855-10 (formerly SFAS 165, “Subsequent Events”) relating to subsequent events. This guidance establishes principles and requirements for subsequent events. This guidance defines the period after the balance sheet date during which events or transactions that may occur would be required to be disclosed in a company’s financial statements. Public entities are required to evaluate subsequent events through the date that financial statements are issued. This guidance also provides guidelines in evaluating whether or not events or transactions occurring after the balance sheet date should be recognized in the financial statements. This guidance requires disclosure of the date through which subsequent events have been evaluated. This guidance is effective for interim and annual periods ending after June 15, 2009. The Group has adopted this guidance as of December 31, 2009. The adoption of this guidance did not have a material impact on the Group’s consolidated financial statements.

In June 2009, the FASB issued FASB ASC 105-10-05, 10, 15, 65, 70 (“FASB ASC 105-10-05, 10, 15, 65, 70”) (formerly FASB Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162). FASB ASC 105-10-05, 10, 15, 65, 70 establishes the FASB ASC as the source of authoritative GAAP for nongovernmental entities. The ASC does not change GAAP, instead it takes individual pronouncements that currently comprise GAAP and reorganizes them into Topics. Contents in each Topic are further organized by Subtopic, then Section and finally Paragraph. The Paragraph level is the only level that contains substantive content. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure. FASB suggests that all citations begin with “FASB ASC.” FASB ASC 105-10-05, 10, 15, 65, 70 was effective for interim and annual periods ending after September 15, 2009 and did not have an impact on the Group’s consolidated financial statements.

In December 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of VIEs, ASU No. 2009-17, Consolidations, Improvements to Financial Reporting by Enterprises involved with Variable Interest Entities (“ASU No. 2009-17”), to codify in ASC 810-10 the amendments to Interpretation 46R contained in Statement 167. The amendment requires an entity to qualitatively, rather than quantitatively, assess the determination of the primary beneficiary of a VIE. This determination should be based on whether the entity has the power to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Other key changes include: the requirement for an ongoing reconsideration of the primary beneficiary, the criteria for determining whether service provider or decision maker contracts are variable interests, the consideration of kick-out and removal rights in determining whether an entity is a VIE, the types of events that trigger the reassessment of whether an entity is a VIE and the expansion of the disclosures previously required. The Company has assessed the terms contained in the contractual agreements among Fujian WangGang, Wonder Dredging and Fujian Service and determined that Wonder Dredging and Fujian Service are VIEs, and accordingly, consolidated them in the Group’s consolidated financial statements. The impact of the adoption may be applied retrospectively with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restated, or through a cumulative-effect adjustment on the date of adoption. The new accounting guidance for VIEs is effective for fiscal years beginning after November 15, 2009, or January 1, 2010 for the Group. Early adoption is prohibited. The adoption of this standard did not have a material impact on the Group’s consolidated financial statements.

F-61

3. CASH

Cash represents cash in bank and cash on hand. Cash as of December 31, 2010 and 2009 was $88,532,472 and $23,343,469, respectively. As of December 31, 2010, cash of $66,966,278 was held in Renminbi on deposit with banks located in the PRC. Renminbi is not a freely convertible currency and the remittance of funds out of the PRC is subject to the exchange restrictions imposed by the PRC government.

Cash is classified by geographical areas is set out as follows:

	2010		2009
Hong Kong	$	21,566,194	$	—
The PRC		66,966,278		23,343,469
	$	88,532,472	$	23,343,469
Maximum exposure to credit risk	$	88,532,472	$	23,343,469

Cash is denominated in the following currencies:

	2010		2009
USD	$	27,041,216	$	—
RMB		61,465,283		23,343,469
HKD		25,973		—
	$	88,532,472	$	23,343,469

In the PRC and Hong Kong there are currently no rules or regulations mandated on obligatory insurance of bank accounts. Management believes these financial institutions are of high credit quality.

4. ACCOUNTS RECEIVABLE, NET

As of December 31, 2010 and 2009, the balance of accounts receivable was $12,841,108 and zero, respectively, is set out as follows:

December 31, 2010

Name of contract		Estimated contract value		Total revenue recognized in 2010		Amount received/billed		Accounts receivable		Status of contract (Completion %)
1.	Zhuhai Gaolan Port Dredging III*	$	1,686,291	$	522,002	$	522,002	$	—		100	%
2.	Zhuhai Gaolan Port Dredging IV		2,107,863		2,123,125		2,123,125		—		100	%
3.	Zhuhai Gaolan Port Dredging V		2,891,841		3,022,060		3,022,060		—		100	%
4.	Zhuhai Gaolan Port Dredging VI		1,182,474		1,199,883		1,199,883		—		100	%
5.	Oujiang Port Lantian Dredging II*		7,188,924		803,979		803,979		—		100	%
6.	Oujiang Port Lantian Dredging III		4,233,477		4,282,649		4,282,649		—		100	%
7.	Tangshan Caofeidian Dredging and Reclamation I*		9,316,017		3,269,800		3,269,800		—		100	%
8.	Tangshan Caofeidian Dredging and Reclamation II*		11,123,602		3,723,230		3,723,230		—		100	%

F-62

Name of contract		Estimated contract value		Total revenue recognized in 2010		Amount received/billed		Accounts receivable		Status of contract (Completion %)
9.	Tangshan Caofeidian Dredging and Reclamation III		10,106,207		10,138,730		10,138,730		—		100	%
10.	Tangshan Caofeidian Dredging and Reclamation IV		8,907,165		8,921,169		8,921,169		—		100	%
11.	Tangshan Caofeidian Dredging and Reclamation V		7,965,061		8,000,862		8,000,862		—		100	%
12.	Tangshan Caofeidian Dredging and Reclamation VI		1,199,041		1,265,383		1,265,383		—		100	%
13.	Tangshan Caofeidian Dredging and Reclamation VII		1,370,333		1,406,454		1,406,454		—		100	%
14.	Tangshan Caofeidian Dredging and Reclamation VIII		1,370,333		1,385,751		1,385,751		—		100	%
15.	Tangshan Caofeidian Dredging and Reclamation IX		1,884,208		1,961,333		1,370,836		590,497		100	%
16.	Tangshan Caofeidian Dredging and Reclamation X		2,226,791		2,255,933		1,619,452		636,481		100	%
17.	Tangshan Caofeidian Dredging and Reclamation XI		2,226,791		2,269,310		1,619,588		649,722		100	%
18.	Qinzhou Port Channel Dredging I		1,354,949		1,367,145		1,367,145		—		100	%
19.	Qinzhou Port Channel Dredging II		3,240,489		3,278,074		2,356,958		921,116		100	%
20.	Qinzhou Port Channel Dredging III		2,864,180		2,930,412		1,203,453		1,726,959		100	%
21.	Zhanjiang Steel Base Dredging and Reclamation I		13,706,290		13,766,653		13,766,653		—		100	%
22.	Zhanjiang Steel Base Dredging and Reclamation II		7,521,744		7,562,211		7,562,211		—		100	%
23.	Guohua Taidian Coal Port Dredging I		1,389,859		1,400,272		1,400,272		—		100	%
24.	Hainan Yangpu Port Dredging I		4,422,815		4,442,077		2,307,346		2,134,731		100	%
25.	Tianjin South Port Industrial Zone Dredging and Reclamation I		6,427,075		6,439,226		6,439,226		—		100	%
26.	Tianjin South Port Industrial Zone Dredging and Reclamation II		2,591,563		2,594,554		2,594,554		—		100	%
27.	Tianjin South Port Industrial Zone Dredging and Reclamation III		4,804,449		4,886,953		1,770,347		3,116,606		100	%
28.	Jingtang Port Channel Dredging I		4,771,315		4,825,986		4,825,986		—		100	%
29.	Jingtang Port Channel Dredging II		1,363,233		1,375,678		1,375,678		—		100	%
30.	Jingtang Port Channel Dredging III		1,704,041		1,718,233		1,718,233		—		100	%

F-63

Name of contract		Estimated contract value		Total revenue recognized in 2010		Amount received/billed		Accounts receivable		Status of contract (Completion %)
31.	Qingdao Port Channel Dredging I		5,773,623		5,775,020		5,775,020		—		100	%
32.	Panjin Vessels Industrial Base Project I		10,720,963		10,739,467		7,674,471		3,064,996		100	%
33.	Tonggu Channel, Shenzhen West Port Public Dredging and Reclamation I		932,341		936,951		936,951		—		100	%
		$	150,575,348	$	130,590,565	$	117,749,457	$	12,841,108

Note: * The contract was commenced in 2009 and completed in 2010.

Most of the Group’s customers are state-owned companies of China. There is no credit term, customers settle the balances according to percentage of completion of contracts and the date of settlement has been specified in the contracts. The Group believes all outstanding balances can be fully collected within 10 to 15 days after the completion of contracts and project completed reports issued, therefore, no provision on allowance for doubtful accounts was provided as of December 31, 2010 and 2009.

5. COST AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON CONTRACTS ON CONTRACTS IN PROGRESS

Cost and estimated earnings in excess of billings represent amounts of revenue earned under contracts in progress but not billed at the balance sheet date. These amounts become billable according to the contract terms, which usually consider passage of time, and/or completion of the project. As of December 31, 2010 and 2009, the balance of cost and estimated earnings in excess of billings on contracts in progress was $834,909 and $2,211,411, respectively. Cost and estimated earnings in excess of billings on contracts in progress include the following:

December 31, 2010

Name of contract		Estimated contract value				Total revenue recognized				Amount received/billed				Cost and estimated earnings in excess of billings				Status of contract (Completion %)
Yantian Port Channel Dredging and Reclamation I		$	1,867,937			$	815,100			$	—			$	834,909				44	%

December 31, 2009

Name of contract		Estimated contract value		Total revenue recognized		Amount received/billed		Cost and estimated earnings in excess of billings		Status of contract (Completion%)
1.	Zhuhai Gaolan Port Dredging I	$	3,593,400	$	3,562,573	$	3,562,573	$	—		100	%
2.	Zhuhai Gaolan Port Dredging II		4,160,871		4,057,455		4,057,455		—		100	%
3.	Zhuhai Gaolan Port Dredging III		1,669,034		1,184,474		834,347		350,127		71	%
4.	Zhanjiang Industrial Centre Dredging and Reclamation I		2,912,024		2,839,336		2,839,336		—		100	%
5.	Dalin Chandao Hulushan Dredging I		7,378,885		7,332,395		7,332,395		—		100	%
6.	Dalin Chandao Hulushan Dredging II		8,608,699		8,623,406		8,623,406		—		100	%
7.	Oujiang Port Lantian Dredging I		7,589,711		7,210,493		7,210,493		—		100	%
8.	Oujiang Port Lantian Dredging II		7,115,354		6,336,300		5,691,971		644,329		89	%
9.	Taishan Tongguhai Zone Guohuatai Dianmei Port Dredging I		674,641		674,469		674,469		—		100	%
10.	Taishan Tongguhai Zone Guohuatai Dianmei Port Dredging II		3,513,755		3,383,060		3,383,060		—		100	%
11.	Fangchengguang Steel Project I		19,025,519		18,357,311		18,357,311		—		100	%
12.	Fangchengguang Steel Steel Project II		3,474,225		3,417,983		3,417,983		—		100	%
13.	Tangshan Caofeidian Dredging and Reclamation I		9,220,678		6,028,905		5,532,167		496,738		65	%
14.	Tangshan Caofeidian Dredging and Reclamation II		11,009,765		7,325,728		6,605,511		720,217		67	%
		$	89,946,561	$	80,333,888	$	78,122,477	$	2,211,411

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The following schedule summarizes changes in backlog on contracts during the year ended December 31, 2010. Backlog represents the amount of revenue Fujian Service expects to realize from work to be performed pursuant to contractual agreements on projects in progress and on projects for which work has not yet begun.

Backlog balance at December 31, 2009	$	8,139,422
New contracts entered during the year ended December 31, 2010		184,386,368
Add: Adjustment of contracts due to change orders during the year		1,190,626
Adjusted contract amount at December 31, 2010		193,716,416
Less: Contract revenue earned during the year ended December 31, 2010		(131,405,665	)
Backlog balance at December 31, 2010	$	62,310,751

The Group has excluded from the backlog three one-year contracts with two of its largest customers totaling approximately $44.6 million (at the closing date of December 31, 2010), which were previously reported in its backlog as of June 30, 2010. These three contracts were formally deferred in October 2010 by mutual written agreement between the Group and its customers, but discussions were underway prior to reaching agreement on the deferral. By mutual agreement, these three contracts were, subsequent to December 31, 2010, replaced by three other one-year contracts for which work has commenced with an aggregate contract value of approximately $61.0 million.

6. INVENTORIES

The Group provides dredging services for its customers in the PRC. Inventories consist of consumable parts which are used for dredging projects. As of December 31, 2010 and 2009, the balance of inventories were $202,213 and $429,226, respectively.

7. OTHER RECEIVABLES

Other receivables as of December 31, 2010 and 2009 consisted of the following:

	2010		2009
Social insurance prepaid for staff	$	1,124	$	312
Others		122		—
	$	1,246	$	312

Other receivables include social insurance prepaid for staff’s portion by the Group, this amount will be directly deducted from staff’s salaries and it is interest free.

8. PREPAID DREDGER DEPOSITS AND CAPITAL COMMITMENTS

(a) Prepaid dredger deposits

Prepaid dredger deposits as of December 31, 2010 and 2009 consisted of the following:

	2010		2009
Non-related party	$	2,272,727	$	2,197,158
Related party		12,491,347		—
	$	14,764,074	$	2,197,158

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Prepaid dredger deposits represent deposits for new dredgers before delivery. The Group paid deposits for the acquisition of two dredgers which will be used for the expansion of dredging operations.

The total expected cost of the dredger which purchased from a non-related party is $30,303,030 and it is expected to be delivered on or before May 31, 2012 (see Note 8(b)).

On January 4, 2011, Fujian Service entered into a purchase agreement with Fujian Lutong Highway Engineering Construction Co., Ltd (“Lutong Highway”), a related party of Fujian Service, for the purchase of dredger Xinggangjun 9. The total purchase price was approximately $13.6 million (equivalent to RMB89.8 million). In 2010, the parties expected that the transaction would be consummated, and Fujian Service paid $12.5 million to Lutong Highway as a deposit for the purchase of the dredger. $5.2 million of the $12.5 million was reclassified from security deposits, which was the deposit previously paid to Lutong Highway to lease the dredger. The remaining $7.3 million of the deposit was paid to Lutong Highway on November 30, 2010 in connection with the agreement to purchase the dredger, which was memorialized in a written agreement executed in January 2011. On January 21, 2011, Fujian Service fully paid the remaining amount of $1.1 million. Since the dredger had been hired by Fujian Service, the delivery of the dredger was effective on the date the agreement was signed.

(b) Capital commitments

The Group had the following capital commitments as of December 31, 2010:

Contracted, but not provided for:
Acquisition of dredgers, net of deposit paid		$	29,149,562

On May 20, 2009, the Group entered into a dredger purchase contract with Yiyang Zhonghai Vellel LLC (“Yiyang”), a non-related party of the Group. According to the dredger purchase contract, the Group paid a deposit of 7.5%, or $2,272,727 (RMB15,000,000), of the total purchase price on June 2, 2009. The balance due on the dredger amounted to $28,030,303 (RMB185,000,000), payable in 4 installments:

Payment Due Date (end of month after delivery)	Payment Amount
August 31, 2012	$	8,409,091
November 30, 2012		7,007,576
February 28, 2013		7,007,576
May 31, 2013		5,606,060
	$	28,030,303

The dredger is expected to be delivered to the Group on or before May 31, 2012.

On January 4, 2011, Fujian Service entered into a purchase agreement with Lutong Highway, a related party of Fujian Service, for the purchase of dredger Xinggangjun 9. The total purchase price was approximately $13.6 million (equivalent to RMB89.8 million). In 2010, the parties expected that the transaction would be consummated, and Fujian Service paid $12.5 million (including a reclassification of $5.2 million of a lease deposit) to Lutong Highway as a deposit for the purchase of the dredger. This amount was recorded as a dredger deposit on the balance sheet as of December 31, 2010. As of December 31, 2010, although Fujian Service intended to apply the deposit to the 2011 purchase and pay the additional consideration of $1.1 million, it was under no legal obligation to do so and could have had the deposit refunded or transferred back to the lease deposit, as applicable. On January 21, 2011, Fujian Service fully paid the total consideration. Since the dredger had been hired by Fujian Service, the delivery of the dredger was effective on the date the agreement was signed.

On May 11, 2011, the Company’s subsidiary Fujian WangGang entered into another construction contract with Yiyang to build one 3,800 cubic meters per hour cutter suction dredger. Construction is expected to take approximately 18 months. Delivery of the dredger is expected in or before December 2012. The contract price for building the dredger is approximately $39.4 million (RMB260 million), subject to certain conditions including actual building cost incurred. According to the contract, the payment schedules of the dredger building are as follows:

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Payment Due Date	Percentage of total contract sum			Payment Amount
				$		RMB
Within 7 days after contract signed		20	%		7,878,788		52,000,000
Within 1 month after contract signed		30	%		11,818,182		78,000,000
Within 7 days after completion of main dredger hull		20	%		7,878,788		52,000,000
Within 7 days after dredger launched		20	%		7,878,788		52,000,000
Before delivery of dredger after the completion of mooring trial		10	%		3,939,394		26,000,000
					39,393,940		260,000,000

9. SECURITY DEPOSITS

The Group’s security deposits represent amounts on deposit with the owners of dredgers leased by the Company’s subsidiary, Fujian Service. Such amounts will be returned to Fujian Service when the corresponding leases end. Security deposits were $21,454,545 and $8,422,440 as of December 31, 2010 and 2009, respectively.

10. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of December 31, 2010 and 2009 consisted of the following:

	2010			2009
Dredgers	$	54,235,409		$	52,146,433
Machinery		38,924			—
Office equipment		7,504			3,783
		54,281,837			52,150,216
Less: Accumulated depreciation		(13,677,053	)		(8,638,979	)
	$	40,604,784		$	43,511,237

Total depreciation expenses of the Group for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008 were $5,038,074, $4,952,236 and $3,686,744, respectively, of which $5,037,318, $4,951,518 and $3,686,503, respectively, has been included in cost of revenue.

As of December 31, 2010, the Group owned three dredgers. As of December 31, 2010 and 2009, the total net book value of the three dredgers was $40,567,273 and $43,508,412, respectively. Two dredgers, Xinggangjun 66 and Xinggangjun 3, with an aggregate net book value as of December 31, 2010 of $29,474,614, were pledged as collateral for bank term loans and their titles had not been released, although all loans had been repaid before December 31, 2010 (see Note 12). In January 2011, the titles to these two dredgers were released by the respective banks.

11. ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables as of December 31, 2010 and 2009 consisted of the following:

	2010		2009
Accrued interest	$	—	$	27,527
Accrued salaries and wages		90,380		69,405
Accrued staff benefits		154,279		103,671
Other tax payables		42,758		9,077
Accrued outsourced dredger services and labor		2,082,954		—
Other payables		219,139		—
	$	2,589,510	$	209,680

Other tax payables represent payables other than income tax which consist of business tax, individual salary tax, stamp duty, embankment tax and other small local taxes. Business tax was 3% - 5% of revenue recognized, as of December 31, 2010 and 2009, other tax payables included $28,835 and zero of business tax payable, respectively.

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12. TERM LOANS

Fujian Service entered into three loan agreements with two banks in the PRC to obtain fixed-rate term loans to meet its working capital needs. Two loan agreements were signed on September 28, 2008 and February 5, 2010 with Fujian Haixia Bank Co., Ltd. One loan in the amount of $3,409,091 is due on September 28, 2011, whereas the second loan in the amount of $6,060,606 is due on February 8, 2013. A third loan agreement was signed by Fujian Service on February 22, 2010 in the amount of $3,484,848 is due on February 24, 2012 with Fuzhou City Rural Credit Cooperative. As of December 31, 2010, Fujian Service had repaid all three loans.

The current portion of the term loans as of December 31, 2010 and 2009 is shown in the table below.

	2010		2009
Fujian Haixia Bank Co., Ltd	$	—	$	3,661,930
Fuzhou City Rural Credit Cooperative		—		3,368,976
	$	—	$	7,030,906
Range of monthly interest rate		5.400 – 5.786‰		5.974‰
Weighted average monthly interest rate		5.085‰		5.974‰

The term loan amounts recorded as non-current as of December 31, 2010 and 2009 consisted of the following:

		2010				2009
Fujian Haixia Bank Co., Ltd		$	—			$	3,295,738

Interest expense amounted to $843,995, $755,853 and $179,504 for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008, respectively.

Two of the term loans were secured by the Group’s two dredgers, Xinggangjun 66 and Xinggangjun 3. Although Fujian Service had fully repaid all loans, the title of the two dredgers were not released by banks as of December 31, 2010. As of December 31, 2010, the net book value of Xinggangjun 66 and Xinggangjun 3 was $21,384,502 and $8,090,112, respectively. In January 2011, the titles to these two dredgers were released by the respective banks.

13. CLASS A PREFERRED SHARES

Each Class A Preferred Share is automatically convertible into one of the Company’s ordinary shares, which the Company calls the Conversion Ratio, upon occurrence of both of the following: (a) the registration of the underlying ordinary shares is declared effective by the SEC or other applicable regulatory authority designed by the holders of a majority of the preferred shares pursuant to the terms of the registration rights agreement with such holders, or the underlying ordinary shares become freely tradable in the United States or pursuant to any available exemption; and (b) the commencement of the trading of the Company’s ordinary shares on a national U.S. stock exchange or such other recognized international exchange as the holders of a majority of preferred shares may approve. The Conversion Rate is subject to proportional adjustment for share splits, divisions, share dividends, recapitalization and similar transactions. Each preferred share is also convertible into one of the Company’s ordinary shares at the option of the holder at any time prior to automatic conversion.

Holders of the preferred shares have no right to vote on any matters that requires shareholder approval; provided, however, the Company may not issue any shares that have a liquidation preference that is senior to that of the preferred shares without their consent. Class A Preferred Shares are entitled to a dividends equal to any that are declared on ordinary share. The Class A Preferred Shares have a liquidation preference of $5.00 per share.

If an Automatic Conversion does not occur by the second anniversary of the closing of the October 2010 Private Placement, holders of the Preferred Shares shall have the right to receive a payment equal to 20% of $5.00 per Class A Preferred Share. If such payment is due and remains unpaid at the time of an Automatic Conversion, the holders may choose to receive this payment in ordinary shares, in lieu of cash, at a purchase price of $5.00 per share. The holders also have the right, between the second and third anniversary of the closing, if the shares have not been converted, to demand the redemption of their share for $5.00 per share.

14. SHAREHOLDERS’ EQUITY

(a) Contributed capital

In connection with the purchase of the 50% interest of Fujian Service by Fujian WangGang, the shareholders of Wonder Dredging (being the same shareholders of Fujian Service at the time) were entitled, pursuant to the purchase agreement, to declare and be paid all of the retained earnings of Fujian Service from its inception through March 31, 2010, as a dividend, which amounted to $51,087,387. As described elsewhere in these financial statements the shareholders, pursuant to an agreement, held their interests as the representatives of a family includes the Company’s Chief Executive Officer, Mr. Xinrong Zhuo. As further outlined in the agreement and described in Note 1, such shareholders also committed to contribute all such dividends back into the Company as a capital contribution along with an allocation to its statutory reserves. Such contribution of dividends has been recorded first as a payment of a $10,982,735 subscription receivable and the $40,104,652 balance as additional paid-in capital.

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Wonder Dredging was incorporated on May 10, 2010 with capital of $878,876 (RMB6 million) having been paid by the Wonder Dredging shareholders. Upon Wonder Dredging becoming a consolidated subsidiary of the Group on June 29, 2010, this amount was recorded as a capital contribution in the consolidated financial statements. In connection with the acquisition of the Company’s 50% ownership of Fujian Service, Fujian WangGang has met all of its related investment commitments to Fujian Service, having invested approximately $1.5 million in August 2010, approximately $17.1 million in November 2010 and approximately $5.0 million in January 2011.

The Company’s shares have no par value. The BVI permits the Board of Directors to pay dividends if 1) in its judgment doing so is in the best interest of the Company and 2) if the Company would remain solvent as defined under BVI law. The Company records the net amounts received for the issuance of preferred shares, to the extent allocable to the preferred shares under U.S. GAAP, in the preferred shares account. Other capital contributions, irrespective of whether they are for the issuance of shares, are recorded in the additional paid-in capital account. The balance sheet account for no par ordinary shares is kept at zero.

(b) Retained earnings and statutory reserves

Retained earnings and statutory reserves as of December 31, 2010 and 2009 consisted of the following:

	2010		2009
Retained earnings	$	13,392,884	$	43,946,972
Statutory reserves	$	10,295,279	$	4,888,018

Fujian Service, Fujian WangGang and Wonder Dredging, which are located and operate in the PRC, are required to transfer 10% of their net profits after income tax, as determined in accordance with the PRC accounting rules and regulations. Appropriation to the statutory reserve by the Group is based on profit arrived at under PRC accounting standards for business enterprises for each year. The statutory reserves of the Group represent the statutory reserves of Fujian Service and Wonder Dredging as required under the PRC law.

The profit arrived at must be set off against any accumulated losses sustained by the Group in prior years, before allocation is made to the statutory reserve. Appropriation to the statutory reserve must be made before distribution of dividends to shareholders. The appropriation is required until the statutory reserve reaches 50% of the shareholders’ equity. This statutory reserve is not distributable in the form of cash dividends.

15. INCOME TAXES

The Company is incorporated in the BVI, the laws of which do not require the Company to pay any income taxes or other taxes based on revenue, business activity or assets. The Company has subsidiaries domiciled and operating in other countries and those entities file separate tax returns in the respective jurisdictions in which they are domiciled or operate.

The Company’s subsidiary China Dredging HK is domiciled in Hong Kong and would be subject to statutory profit tax in that jurisdiction of 16.5%. Two of the Company’s subsidiaries, Fujian WangGang and Fujian Service, and Wonder Dredging operate in the PRC, where they are subject to a 25% statutory profit tax. All of the Group’s main income is generated in the PRC.

A reconciliation of the expected income tax expense to the actual income tax expense for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008 was as follows:

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	For the Years Ended December 31,					For the period from January 8, 2008 (Inception) to December 31,
	2010 (as restated)			2009		2008

Income before tax	$	64,790,676		$	38,361,249	$	26,767,137

Expected PRC income tax expense at statutory tax rate of 25%	$	16,197,669		$	9,590,312	$	6,691,784
Add: Non tax deductible expenses		361,231			-		-
Effect of exchange rate		(2,504	)		6,339		4,961
Actual income tax expense	$	16,556,396		$	9,596,651	$	6,696,745

No deferred tax liability has been provided as the amount involved is estimated to be immaterial. Fujian Service has analyzed the tax positions taken or expected to be taken in its tax filings and has concluded it has no material liability related to uncertain tax positions.

For the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008, there was no unrecognized tax benefit. Management does not anticipate any potential future adjustments in the next twelve months which would result in a material change to its financial tax position. As of December 31, 2010 and 2009, the Group did not accrue any interest and penalties.

16. RELATED PARTY TRANSACTIONS

(a) Operating lease commitments

The Company’s VIE, Fujian Service, entered into an office rental agreement in 2008 with Ping Lin, a relative of one of the former owners, Qing Lin, from January 1, 2008 to December 31, 2009. This agreement has been renewed and extended the period from January 1, 2010 to December 31, 2015. Fujian WangGang and Wonder Dredging also entered into office rental agreements in 2010 with Ping Lin from June 10, 2010 to June 9, 2011 and May 1, 2010 to April 30, 2011, respectively. In addition, Fujian Service entered into dredger (Xinggangjun 9) and crew hire agreements from June 1, 2008 and May 31, 2016 with Lutong Highway, a company owned by Xiu Zhen Lin, one of the former owners of the Fujian Service. Office and dredger rental and crew hire charge paid for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008 were as follows:

		For the Years Ended December 31,				For the period from January 8, 2008 (Inception) to
Type	Name of related party	2010		2009		December 31, 2008
Office rental	Ping Lin	$	11,653	$	8,872	$	8,738
Hire charge of dredger	Fujian Lutong Highway Engineering Construction Co., Ltd		1,035,442		1,024,845		588,792
Hire charge of crew	Fujian Lutong Highway Engineering Construction Co., Ltd		532,513		527,063		302,807
		$	1,579,608	$	1,560,780	$	900,337

Hire charges of dredger and crew are included as part of the cost of revenue. Office rental is included in the general and administrative expenses.

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The total future minimum lease payments under non-cancellable operating leases with respect to office as of December 31, 2010 were payable to the related party as follows:

	Office rental
For the year ended December 31,
2011	$	24,936
2012		11,936
2013		11,936
2014		11,936
2015		11,936
	$	72,680

Operating lease commitments for both related parties commitments and non-related parties commitments is summarized in Note 18.

On January 4, 2011, Fujian Service entered into a purchase agreement with Lutong Highway for the purchase of dredger Xinggangjun 9. The total purchase price was approximately $13.6 million (equivalent to RMB89.8 million). Since Xinggangjun 9 had been hired by Fujian Service, the hire of the dredger was terminated effective on the date the agreement was signed (see Note 22(a)). Fujian Service also terminated the crew hire agreement with Lutong Highway effective on the same date.

(b) Employment agreements

In August 2010, three of the Company’s executive officers, entered each into three-year employment agreements with the Company pursuant to which they receive aggregate annual compensation of approximately $116,000 (HK$900,000) each. Pursuant to the agreements, each executive will devote all of his working time to his respective duties at the Company and will not become employed in any competitive business while employed by the Company or for two years following the termination of his employment with the Company, and the executive will not solicit the services of any of the Company’s employees for two years after the executive terminates employment with the Company. The Company may terminate the executive for cause at any time without notice, or without cause upon one month prior written notice to the executive. In the event of termination without cause, the Company will pay to the executive a cash severance payment equal to three months of the executive’s then current base salary. In the event of a material and substantial reduction in the executive’s existing authority and responsibilities, the executive may resign upon one-month prior written notice to the Company.

17. CERTAIN RISKS AND CONCENTRATIONS

(a) Credit risk

As of December 31, 2010, substantially part of the Group’s cash included bank deposits in accounts maintained within the PRC where there is currently no rule or regulation in place for obligatory insurance to cover bank deposits in the event of bank failure. However, the Group has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.

(b) Major customers

Customers accounting for 10% or more of the Group’s revenues were as follows:

	For the Years Ended December 31,						For the period from January 8, 2008
	2010			2009			(Inception) to December 31, 2008
Customer A		—			40.3	%		—
Customer B*		20.7	%		32.2	%		48.3	%
Customer C*		36.4	%		16.6	%		—
Customer D		—			10.9	%		21.2	%
Customer E		—			—			23.9	%
Customer F		10.6	%		—			—
Customer G*		10.4	%		—			—
		78.1	%		100.0	%		93.4	%

* Indicates customers under control of a common parent company.

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Suppliers accounting for 10% or more of the Group’s total purchases were as follows:

	For the Years Ended December 31,						For the period from January 8, 2008
	2010			2009			(Inception) to December 31, 2008
Supplier A		22.4	%		64.5	%		61.7	%
Supplier B		—			30.4	%		32.4	%
Supplier C		21.3	%		—			—
Supplier D		21.3	%		—			—
Supplier E		18.0	%		—			—
		83.0	%		94.9	%		94.1	%

The Group is dependent on third-party consumable parts manufacturers for all of its supply of dredging consumable parts. For the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008, products purchased from the Group’s three largest suppliers accounted for 65%, 100% and 100% of product purchases, respectively. The Group is dependent on the ability of its suppliers to provide products on a timely basis and on favorable pricing terms. The loss of certain principal suppliers or a significant reduction in product availability from principal suppliers could have a material adverse effect on the Group. The Group believes that its relationships with its suppliers are satisfactory, and the Group has never experienced inadequate supply from suppliers.

18. OPERATING LEASE COMMITMENTS

The total future minimum lease payments under non-cancellable operating leases with respect to dredgers, crew, consumable parts and office as of December 31, 2010 were payable as follows:

	Hire charge of dredgers		Hire charge of crew		Consumable parts supply		Office rental		Total
For the years ended December 31,
2011	$	8,216,480	$	2,464,345	$	20,071,114	$	24,936	$	30,776,875
2012		4,742,425		1,690,909		11,363,636		11,936		17,808,906
2013		2,602,967		1,080,253		5,321,128		11,936		9,016,284
2014		719,697		545,455		—		11,936		1,277,088
2015		719,697		545,455		—		11,936		1,277,088
	$	17,001,266	$	6,326,617	$	36,755,878	$	72,680	$	60,156,241

Rental expenses under non-cancellable operating leases arrangements for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008 was $9,847,333, $3,186,476 and $2,392,600, respectively. $1,579,608, $1,560,780 and $900,337 was of the rental expenses paid to the related parties for the years ended December 31, 2010 and 2009 and for the period from January 8, 2008 (Inception) to December 31, 2008, respectively (see Note 16(a)).

The operating lease commitments below include both the related parties commitments and non-related parties commitments. The total future lease payments as of December 31, 2010 is summarized as follows:

	Note		Hire charge of dredgers		Hire charge of crew		Consumable parts supply		Office rental		Total
Related parties commitments		16(a)	$	—	$	—	$	—	$	72,680	$	72,680
Non-related parties commitments				17,001,266		6,326,617		36,755,878		—		60,083,561
			$	17,001,266	$	6,326,617	$	36,755,878	$	72,680	$	60,156,241

F-72

On March 7, 2011, Fujian Service entered into a non-binding lease agreement with Zhejiang Honglin Ship Engineering Co., Ltd (“Zhejiang Honglin”), an unrelated party of Fujian Service, for a trial period from March 8, 2011 to April 30, 2011 for the dredger Honglinjun 19. The lease agreement included hire charges of the dredger and crew and consumable parts supply for the trial period, which were approximately $0.6 million (RMB3.8 million), $0.09 million (RMB0.6 million) and $1.7 million (RMB11 million), respectively.

On April 27, 2011, Fujian Service entered into the formal lease agreement with Zhejiang Honglin for leasing the dredger Honglinjun 19 for three years, from April 27, 2011 to April 26, 2014. Fujian Service also entered into the crew hire agreement on the same day. Pursuant to the agreements, the payments would be approximately $3.9 million per year for hire charge of the dredger, approximately $0.6 million per year for hire charge of crew and approximately $11 million per year for consumable parts supply. A guarantee deposit of approximately $12 million (RMB80 million) was required ten days after the signing of the agreement and is refundable to the Company ten days after the contract has expired.

19. CONDENSED PARENT COMPANY FINANCIAL INFORMATION

For the purpose of preparing these supplemental condensed parent company (unconsolidated) financial statements, the Company records its investment in subsidiaries under the equity method of accounting as prescribed in ASC 323, “Investments - Equity Method and Joint Ventures.” Such investment and long-term loans to subsidiaries are presented on the balance sheet as “Investments in subsidiaries” and the income of the subsidiaries is presented as “Equity in income of subsidiaries” on the statement of income.

These supplemental condensed parent company (unconsolidated) financial statements should be read in conjunction with the notes to the Company’s Consolidated Financial Statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.

As of December 31, 2010, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except as separately disclosed in the Company’s Consolidated Financial Statements, if any.

CONDENSED BALANCE SHEET
	As of December 31,
	2010 (as restated)
Assets
Cash	$	21,509,633
Other receivables		122
Investments in subsidiaries		145,992,195
Total assets	$	167,501,950

Liabilities and equity
Current liabilities
Accrued liabilities and other payables	$	176,675

Non-current liabilities
Contingent liability for a variable number of shares		14,101,247
Derivative liability		1,517,748
Total liabilities		15,795,670

Class A Preferred Shares, no par value; 25,000,000 shares authorized; 10,012,987 shares issued and outstanding (liquidation preference $50,064,935, less $6,135,012 discount)		43,929,923

Shareholders’ equity
Total shareholders’ equity		107,776,357

Total liabilities and equity	$	167,501,950

F-73

CONDENSED STATEMENT OF INCOME
	For the Year Ended December 31, 2010

General and administrative expenses	$	(2,005,780	)
Equity income of subsidiaries		50,240,060
Net income	$	48,234,280

CONDENSED STATEMENT OF CASH FLOWS
	For the Year Ended December 31, 2010

Net cash used in operating activities	$	(1,022,324	)

Net cash used in investing activities		(23,908,485	)

Net cash provided by financing activities		46,443,286

Effect of exchange rate changes on cash		(2,844	)

Cash, end of year	$	21,509,633

20. CONTINGENCIES

Legal proceeding

Fujian Service was sued in four related lawsuits brought by several individuals in Wenzhou, China, in May 2010. The lawsuits related to a traffic accident that allegedly caused the deaths of two people and injuries to two other people. The plaintiffs alleged that a truck was hired for a port construction project referred to as the Lingkun Construction Project, and that the owner, the general contractor and Fujian Service as the subcontractor of the Lingkun Construction Project, all of whom were named as co-defendants in these lawsuits, were responsible for the damages. The plaintiffs claimed total damages of approximately $0.6 million. The court in the first instance for these four lawsuits held that Fujian Service was not responsible for any of the claims by the plaintiffs. Such court decisions are legally effective as they were not appealed. From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business.

Registration rights agreement

In connection with its private placement, the Company entered into a registration rights agreement pursuant to which it agreed to use its best efforts to file within 60 days of the date after which the Company would no longer accept funds for the purchase of preferred shares (such 60-day deadline, the “Filing Deadline”) a registration statement with the SEC to register the sale by the Company of its ordinary shares by means of a firm commitment underwritten offering and to register for resale (i) the ordinary shares underlying the preferred shares issued in the private placement, (ii) the 15,000,000 shares held in the Make-Good Escrow, (iii) 37,177,323 ordinary shares held by certain of its founding shareholders which are not part of the Make-Good Escrow and (iv) the 500,000 shares issued to its placement agent pursuant to the Merger Agreement. If the registration statement covering these securities is not filed by the Filing Deadline or not declared effective by the SEC within 180 days of the Filing Deadline (such 180-day deadline, the “Effectiveness Deadline”), subject to certain exceptions, liquidated damages of 0.3% of the purchase price per month will accrue and will be payable in cash on a monthly basis, provided that in no event shall the amount of liquidated damages payable at any time to any holder of preferred shares exceed 10% of the amount of such holder’s initial investment in the private placement. According to this formula, the monthly liquidated damages to be paid would amount to $150,195 per month and the maximum payments would total $5,006,494.

F-74

Under the registration rights agreement, the Filing Deadline was February 21, 2011 and the Effectiveness Deadline has been extended from August 22, 2011 to January 31, 2012. As of the initial date of issuance these financial statements, the Company assessed the likelihood of any liquidated damages becoming payable under the registration rights agreement and believed that the likelihood was not probable, based on its filing of a Form F-1 registration statement, engagement of professional advisers, and commitment to complete the registration process. Consequently, no liability or expense was recorded as of December 31, 2010 for liquidated damages under the registration rights agreement.

21. RESTATEMENT

The consolidated financial statements as of and for the year ended December 31, 2010, were originally issued on April 26, 2011 and included in the Company’s Form 20-F filed on April 27, 2011. Restated versions of the 2010 financial statements were included in Form F-1/A filings on May 20, June 28, and December 7, 2011. These financial statements reflect a further restatement. The discussion of the restatement below describes the cumulative changes between these 2010 financial statements and those originally issued on April 26, 2011.

The consolidated financial statements as of and for the year ended December 31, 2010, as previously issued, have been restated: 1) to classify the Class A Preferred Shares outside of shareholders’ equity because the Company might be required to redeem the shares under circumstances that are not under its control; 2) to allocate, as described in Note 2(s), proceeds of the 2010 Private Placement to a) the liability under the Make-Good Escrow obligation, b) the estimated fair value of an embedded derivative, c) a beneficial conversion feature; and 3) to record accretion of a portion of the discount on the Class A Preferred Shares.

The following financial statement line items were affected by the change:

Balance sheet as of December 31, 2010

	As previously reported		As restated		Effect of change
Contingent liability for a variable number of shares	$	-	$	14,101,247	$	14,101,247
Derivative liability	$	-	$	1,517,748	$	1,517,748
Total non-current liabilities	$	-	$	15,618,995	$	15,618,995
Total liabilities	$	11,910,076	$	27,259,071	$	15,348,995
Class A Preferred Shares(A)	$	18,591,783	$	43,929,923	$	25,338,140
Additional paid-in capital	$	97,837,402	$	79,185,284	$	(18,652,118	)
Retained earnings	$	31,029,153	$	13,392,884	$	(17,636,269	)
Total shareholders’ equity	$	167,325,275	$	107,776,357	$	(59,548,918	)

(A)	Class A Preferred Shares were originally labeled “preferred share” and included in shareholders’ equity. It has been reclassified outside of shareholders’ equity.

Statement of Income for the year ended December 31, 2010

	As previously reported			As restated			Effect of change

Loss on derivative	$	-		$	(11,298	)	$	(11,298	)
Total other income (expense)	$	(720,370	)	$	(731,668	)	$	(11,298	)
Income before income taxes	$	64,801,974		$	64,790,676		$	(11,298	)
Net income	$	48,245,578		$	48,234,280		$	(11,298	)
Accretion of discount on Class A Preferred Shares	$	-		$	(22,293,720	)	$	(22,293,720	)
Net income attributable to ordinary shareholders	$	48,245,578		$	25,940,460		$	(22,305,018	)
Earnings per ordinary share – Basic	$	0.92		$	0.50		$	(0.42	)
Earnings per ordinary share – Diluted	$	0.91		$	0.50		$	(0.41	)

Statement of Cash Flows for the year ended December 31, 2010

	As Previously reported		As restated			Effect of change
Net income	$	48,245,578	$	48,234,280		$	(11,298	)

Loss on derivative	$	-	$	(11,298	)	$	(11,298	)

F-75

Statement of Comprehensive Income for the year ended December 31, 2010

	As previously reported		As restated		Effect of change
Net income	$	48,245,578	$	48,234,280	$	(11,298	)
Total comprehensive income	$	52,466,231	$	52,454,934	$	(11,297	)

In addition, the amounts in the table contained in Note 2(s) of these financial statements showing the changes in the carrying value of level 3 instruments contains a restatement from the amounts shown in the financial statements included with the Company’s Form F-1 filed with the SEC on December 7, 2011, which had included only the amounts for the embedded derivative and excluded the Make-Good Escrow obligation. The additional liabilities entered into, originally reported as $1,506,450, was restated as $15,607,697 and the liability balance on December 31, 2010, originally reported as $1,517,748, was restated as $15,618,995. Both of these changes amounted to $14,101,995, which was the estimated and original year-end value of the Make-Good Escrow obligation.

22. SUBSEQUENT EVENTS

(a) Purchase of dredgers

On January 4, 2011, Fujian Service entered into a purchase agreement with Lutong Highway, a related party of Fujian Service, for the purchase of dredger Xinggangjun 9. The total purchase price was approximately $13.6 million (RMB89.8 million). The consideration was determined by reference to a valuation report value of $14.6 million (RMB96.6 million) with a 7% discount. On January 21, 2011, the full consideration was paid.

On May 11, 2011, the Company’s subsidiary, Fujian WangGang entered into another construction contract with Yiyang Zhonghai Vellel LLC to build one 3,800 cubic meters per hour cutter suction dredger. Construction is expected to take approximately 18 months. Delivery of the dredger is expected in or before December 2012. The contract price for building the dredger is approximately $39.4 million (RMB260 million), subject to certain conditions including actual building cost incurred.

(b) Lease agreement for a new dredger, crew and consumable parts supply

On March 7, 2011, Fujian Service entered into a non-binding lease agreement with Zhejiang Honglin for a trial period from March 8, 2011 to April 30, 2011 for the dredger Honglinjun 19. The lease agreement included hire charges of the dredger and crew and consumable parts supply for the trial period, which were approximately $0.6 million (RMB3.8 million), $0.09 million (RMB0.6 million) and $1.7 million (RMB11 million), respectively. The payments were to be made within 15 days after the trial period ended.

On April 27, 2011, Fujian Service entered into a formal lease agreement with Zhejiang Honglin to lease the dredger Honglinjun 19 for three years, from April 27, 2011 to April 26, 2014. Fujian Service also entered into a crew hire agreement on the same day. Pursuant to the agreements, the payments would be approximately $3.9 million per year for the hire charge of the dredger, approximately $0.6 million per year for the hire charge of the crew and approximately $11.3 million per year for consumable parts supply. A guarantee deposit of approximately $12.1 million (RMB80 million) was required ten days after the signing of the agreement and is refundable to the Company ten days after the contract has expired.

On June 29, 2011, Fujian Service entered into two lease agreements with Beihai Shundali Shipping Co., Ltd (“Beihai Shundali”) to lease two dredgers, Liya 2 and Hengshunda 1, for two years, both from June 29, 2011 to June 29, 2013. Fujian Service also entered into crew hire agreements on the same day. Pursuant to the agreements, the payments would be approximately $0.5 million (RMB3.6 million) per year for the hire charge of each dredger, and approximately $0.3 million (RMB1.8 million) per year for the hire charge of the crew for each dredger. Beihai Shundali is required to supply consumable parts for each dredger to Fujian Service every month, and Fujian Service is required to pay a fixed amount of approximately $1.5 million (RMB9.6 million) per year for such consumable parts. A guarantee deposit of approximately $0.8 million (RMB5.6 million) for each dredger was required five days after the signing of the agreements and is refundable to the Company ten days after the contract has expired.

On July 15, 2011, Fujian Service entered into two lease agreements with Zhejiang Fuyuan Dredging Engineering Co., Ltd (“Zhejiang Fuyuan”) to lease two dredgers, Fuyuan 5 and Fuyuan 7, for one year, from July 17, 2011 to July 16, 2012 and from July 19, 2011 to July 18, 2012, respectively. Fujian Service also entered into crew hire agreements on the same day. Pursuant to the agreements, the payments would be approximately $3.2 million (RMB21.1 million) and $2.9 million (RMB18.7 million) per year, respectively, for hire charge of dredgers, and approximately $0.6 million (RMB0.4 million) per year for the hire charge of the crew for each dredger. Zhejiang Fuyuan is required to supply consumable parts for each dredger to Fujian Service every month, and Fujian Service is required to pay a fixed amount of approximately $7.5 million (RMB49.3 million) and $5.1 million (RMB33.7 million) per year, respectively, for such consumable parts. A guarantee deposit of approximately $8.2 million (RMB54.0 million) and $9.8 million (RMB64.8 million), respectively, was required seven days after the signing of the agreements and is refundable to the Company seven days after the contract has expired.

On September 28, 2011, Fujian Service entered into a lease agreement with Binhua Yan to lease a dredger, Minningdejun 0099, and a crew hire agreement with Fujian Haiyi International Shipping Agency Co., Ltd (“Haiyi International”), for fifteen months, from October 1, 2011 to December 31, 2012. Pursuant to the agreements, the payments would be approximately $0.1 million (RMB1.0 million) per month for the hire charge of the dredger, and approximately $0.05 million (RMB0.3 million) per month for the hire charge of the crew for the dredger. Binhua Yan is required to supply consumable parts for the dredger to Fujian Service every month, and Fujian Service is required to pay a fixed amount of approximately $0.05 million (RMB0.3 million) per month for such consumable parts. A guarantee deposit of approximately $4.9 million (RMB32.5 million), respectively, was required seven days after the signing of the agreements and is refundable to the Company seven days after the contract has expired.

F-76

On June 30, 2011 and August 10, 2011, the Company’s subsidiary, Fujian Service and Zhejiang Honglin mutually agreed to terminate the lease agreements for the dredgers Honglinjun 18 and Honglinjun 9, together with the related crew hire agreements.

(d) Increase of subsidiary’s registered and authorized capital

On March 15, 2011, the Board of Directors of the Company authorized its subsidiary Fujian WangGang to increase its registered capital from $38 million to $44.3 million. The increased capital, amounting of $6.3 million, was received on May 12, 2011. The authorized capital has been increased from $38 million to $50.6 million.

F-77

CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN US DOLLARS)

	June 30, 2011		December 31, 2010
	(Unaudited)		(Restated)
Assets
Current assets
Cash	$	103,626,928	$	88,532,472
Accounts receivable, net		17,007,859		12,841,108
Cost and estimated earnings in excess of billings
on contracts in progress		7,454,599		834,909
Inventories		502,290		202,213
Other receivables		2,371		1,246
Total current assets		128,594,047		102,411,948
Other assets
Deferred offering expenses		983,702		-
Prepaid dredger deposits		16,554,498		14,764,074
Security deposits		34,284,830		21,454,545
Property, plant and equipment, net		52,894,296		40,604,784
Total other assets		104,717,326		76,823,403
Total assets	$	233,311,373	$	179,235,351
Liabilities and equity
Liabilities
Current liabilities
Accounts payable	$	6,503,184	$	4,487,373
Income tax payable		7,607,326		4,833,193
Accrued liabilities and other payables		4,758,372		2,589,510
Total current liabilities		18,868,882		11,910,076
Non-current liabilities
Contingent liability for a variable number of shares		1,667,440		14,101,247
Derivative liability		7,002,331		1,517,748
Total non-current liabilities		8,669,771		15,618,995
Total liabilities		27,538,653		27,529,071
Class A Preferred Shares, no par value; 25,000,000 shares authorized; 10,012,987 shares issued and outstanding (liquidation preference $50,064,935, less $0 and $6,135,012 discount, respectively) as of June 30, 2011 and December 31, 2010		50,064,935		43,929,923

Shareholders' equity
Ordinary shares, 225,000,000 shares authorized with no par value; 52,677,323 shares issued and outstanding as of June 30, 2011 and December 31, 2010		-		-
Statutory reserves		14,623,835		10,295,279
Additional paid-in capital		79,185,284		79,185,284
Retained earnings		52,864,282		13,392,884
Accumulated other comprehensive income		9,034,384		4,902,910
Total shareholders' equity		155,707,785		107,776,357
Total liabilities and equity	$	233,311,373	$	179,235,351

See accompanying notes to the consolidated financial statements.

F-78

CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(IN US DOLLARS)

	For the Six Months Ended
	June 30,
	2011			2010

Contract revenue	$	107,355,835		$	45,981,433
Cost of contract revenue, including depreciation of $3,509,175 and $2,497,042 for the six months ended June 30, 2011 and 2010, respectively		(45,986,853	)		(20,389,446	)
Gross profit		61,368,982			25,591,987

General and administrative expenses		(4,151,924	)		(2,367,968	)

Income from operations		57,217,058			23,224,019

Other income (expense):
Interest income		195,055			44,727
Interest expenses		-			(442,827	)
Sundry income		-			88
Gain on obligation under Make-Good Escrow		12,433,807			-
Loss on derivative		(5,484,583	)		-
Total other income (expense)		7,144,279			(398,012	)

Income before income taxes		64,361,337			22,826,007

Income tax expense		(14,426,371	)		(5,784,341	)

Net income		49,934,966			17,041,666

Accretion of discount on Class A Preferred Shares		(6,135,012	)		-

Net income attributable to ordinary shareholders	$	43,799,954		$	17,041,666

Earnings per ordinary share
- Basic	$	0.83		$	0.33

- Diluted	$	0.80		$	0.33

Weighted average number of ordinary shares outstanding
- Basic		52,677,323			52,177,323

- Diluted		62,690,310			52,177,323

See accompanying notes to the consolidated financial statements.

F-79

CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(IN US DOLLARS)

	For the Six Months
	Ended June 30,
	2011		2010

Net income	$	49,934,966	$	17,041,666

Other comprehensive income
Foreign currency translation gain		4,131,474		626,727

Total comprehensive income	$	54,066,440	$	17,668,393

See accompanying notes to the consolidated financial statements.

F-80

CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2011

(IN US DOLLARS)

	Ordinary Shares, with no Par Value											Accumulated Other		Total
	Number of				Statutory		Additional		Retained			Comprehensive		Shareholders'
	Shares		Amount		Reserves		Paid-in Capital		Earnings			Income		Equity

Balance as of December 31, 2010		52,677,323	$	-	$	10,295,279	$	79,185,284	$	13,392,884		$	4,902,910	$	107,776,357

Net income		-		-				-		49,934,966			-		49,934,966

Transfer to statutory reserves		-		-		4,328,556		-		(4,328,556	)		-		-

Accretion of Class A Preferred Shares discount		-		-		-		-		(6,135,012	)		-		(6,135,012	)
Foreign currency translation gain		-		-		-		-		-			4,131,474		4,131,474

Balances as of June 30, 2011		52,677,323	$	-	$	14,623,835	$	79,185,284	$	52,864,282		$	9,034,384	$	155,707,785

See accompanying notes to the consolidated financial statements.

F-81

CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(IN US DOLLARS)

	For the Six Months Ended
	June 30,
	2011			2010
Cash flows from operating activities:
Net income	$	49,934,966		$	17,041,666
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		3,509,896			2,497,401
Gain on obligation under Make-Good Escrow		(12,433,807	)		-
Loss on derivative		5,484,583			-
Changes in operating assets and liabilities:
Accounts receivable, net		(3,858,493	)		(3,672,405	)
Cost and estimated earnings in excess of billings on contracts in progress		(6,539,230	)		(2,910,240	)
Other receivables		(1,090	)		(883	)
Prepaid expenses		-			-
Inventories		(292,991	)		(756,912	)
Accounts payable		1,902,762			784,746
Income tax payable		2,646,634			1,355,304
Accrued liabilities and other payables		2,104,309			714,313

Net cash provided by operating activities		42,457,539			15,052,990
Cash flows from investing activities:
Deposits paid for dredgers		(14,098,320	)		-
Changes in security deposits		(12,259,409	)		(17,392,834	)
Purchase of property, plant and equipment		(1,879,843	)		(323,644	)

Net cash used in investing activities		(28,237,572	)		(17,716,478	)
Cash flows from financing activities:
Cash paid for deferred offering expenses		(983,702	)		-
Repayment from term loans		-			(7,259,235	)
Proceeds of term loans		-			9,239,026
Capital contributions from capital issue to Wonder Dredging/Fujian Service		-			878,876
Advance from a shareholder		-			1,691,221
Net cash (used in)/provided by financing activities		(983,702	)		4,549,888
Net increase in cash		13,236,265			1,886,400

Effect of exchange rate changes on cash		1,858,191			158,769
Cash as of January 1		88,532,472			23,343,469
Cash as of March 31	$	103,626,928		$	25,388,638
Supplemental disclosures of cash flow information:
Cash paid:
Interest paid	$	-		$	445,781
Income tax paid	$	11,779,737		$	4,429,037
Supplemental disclosures of non-cash transactions:
Accretion of discount on Class A Preferred Shares	$	6,135,012		$	-
Transfer of deposits paid for dredgers to property plant and equipment	$	12,633,764		$	-

See accompanying notes to the consolidated financial statements.

F-82

CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)

Basis of presentation

These interim consolidated financial statements are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim consolidated financial statements have been included. The results reported in the consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes of the Company for the year ended December 31, 2010.

The unaudited consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and variable interest entities (“VIE”) in which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated.

(b)

Variable interest entity

The following table shows the assets and liabilities of Wonder Dredging and Fujian Service after eliminating the intercompany balances as of June 30, 2011 and December 31, 2010:

	June 30, 2011				December 31, 2010
	Wonder Dredging		Fujian Service		Wonder Dredging		Fujian Service
ASSETS
Cash and cash equivalents	$	930,288	$	95,535,295	$	909,353	$	60,555,411
Accounts receivable, net		-		17,007,859		-		12,841,108
Cost and estimated earnings in excess of billings on contracts in progress		-		7,454,599		-		834,909
Other current assets		-		504,325		-		203,337
Property, plant and equipment, net		-		52,894,296		-		40,604,784
Prepaid dredger deposits		-		2,320,724		-		14,764,074
Security deposits		-		34,284,830		-		21,454,545
	$	930,288	$	210,001,928	$	909,353	$	151,258,168

LIABILITIES
Accounts payable	$	-	$	6,503,184	$	-	$	4,487,373
Income tax payable		-		7,607,326		-		4,833,193
Accrued liabilities and other payables		32		3,878,434		5,911		2,398,015
	$	32	$	17,988,944	$	5,911	$	11,718,581

F-83

The creditors of Wonder Dredging and Fujian Service do not have recourse against the general creditors of its primary beneficiary or other Group members.

The following table shows the contract revenue, cost of contract revenue, and net income/(loss) of Wonder Dredging and Fujian Service after eliminating the intercompany balances for the six months ended June 30, 2011 and 2010. This was the only period during the six months ended June 30, 2011 and 2010 for which the results of Wonder Dredging and Fujian Service were included in the consolidated Group.

	For the Six Months Ended						For the Six Months Ended
	June 30, 2011						June 30, 2010
	Wonder Dredging			Fujian Service			Wonder Dredging			Fujian Service

Contract revenue	$	-		$	107,355,835		$	-		$	45,981,433

Cost of contract revenue	$	-		$	(45,986,853	)	$	-		$	(20,389,446	)

Net (loss)/income attributable to the Company	$	(4,444	)	$	43,285,565		$	(1,357	)	$	17,360,108

The following table shows the condensed cash flow activities of Wonder Dredging and Fujian Service for the six months ended June 30, 2011 and 2010:

	For the Six Months Ended						For the Six Months Ended
	June 30, 2011						June 30, 2010
	Wonder Dredging			Fujian Service			Wonder Dredging			Fujian Service

Net cash (used in)/provided by operating activities	$	(10,389	)	$	42,069,434		$	(907	)	$	15,214,556
Net cash provided by/(used in) investing activities		-			(8,682,005	)		878,876			(17,790,209	)
Net cash provided by financing activities		12,106			-			-			1,979,791
Net increase/(decreased) in cash		1,717			33,387,429			877,969			(595,862	)
Effect on change of exchange rates		19,218			1,592,455			5,889			146,958
Cash as of January 1		909,353			60,555,411			-			23,343,469
Cash as of June 30	$	930,288		$	95,535,295		$	883,858		$	22,894,565

F-84

(c)

Use of estimates

(d)

Foreign currency translation

The Company uses United States dollars (“U.S. Dollar” or “US$” or “$”) for financial reporting purposes. The subsidiaries within the Company maintain their books and records in their respective functional currency, Chinese Renminbi (“RMB”) and Hong Kong dollars (“HK$”), being the lawful currency in the PRC and Hong Kong, respectively. Assets and liabilities of foreign subsidiaries are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rate of exchange prevailing during the period. The related transaction adjustments are reflected in “Accumulated other comprehensive income/(loss)’’ in the equity section of the Company’s consolidated balance sheet. A summary of exchange rate is as follows:

Renminbi to one US dollar

Rate as of June 30, 2011			6.4635

Average rate for the six months ended June 30, 2011			6.5256

Rate as of June 30, 2010			6.7814

Average rate for the six months ended June 30, 2010			6.8189

Hong Kong dollar to one US dollar

Rate as of June 30, 2011			7.7814

Average rate for the six months ended June 30, 2011			7.7804

Rate as of June 30, 2010			7.7866

Average rate for the six months ended June 30, 2010			7.7726

(e)

Cash

Cash consists of cash on hand and at banks.

F-85

(f)

Accounts receivable, net

Accounts receivable represent billed under the terms of contracts with customers. There is no amount related to retainage. The Group anticipates collection of all the outstanding balances within 10 to 15 days after completion reports of the contracts are issued. The allowance for doubtful accounts is the Group’s best estimate of the amount of probable credit losses in the Group’s existing receivable. The Group provides an allowance for estimated uncollectible receivables when events or conditions indicate that amounts outstanding are not recoverable. Outstanding account balances are reviewed individually for collectability. Based on the Group’s assessment of collectability, there has been no allowance for doubtful accounts recognized for the six months ended June 30, 2011 and for the year ended December 31, 2010.

(g)

Cost and estimated earnings in excess of billings on contracts in progress

Cost and estimated earnings in excess of billings represent amounts of revenue earned under contracts in progress but not billed at the balance sheet date. These amounts become billable according to the contract terms, which usually consider passage of time, and/or completion of the project. As of June 30, 2011 and December 31, 2010, cost and estimated earnings in excess of billings on contracts in progress were $7,454,599 and $834,909, respectively.

(h)

Property, plant and equipment

Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations.

The estimated useful lives of the assets are as follows:

		Estimated lives
Dredgers		7.5-10
Machinery		5
Office equipment		5

Expenditures for repairs and maintenance, which do not extend the useful life of the assets, are expensed as incurred.

(i)

Impairment of long-lived assets

Based on the Group’s assessment, no triggering events for the testing of long-lived assets for impairment were identified as of June 30, 2011 and December 31, 2010.

(j)

Fair value measurements

F-86

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update “ASU 2010-06” “Fair Value Measurements and Disclosures”. The new guidance clarifies two existing disclosure requirements and requires two new disclosures as follows: (1) a “gross” presentation of activities (purchases, sales, and settlements) within the Level 3 roll forward reconciliation, which will replace the “net” presentation format; and (2) detailed disclosures about the transfers in and out of Level 1 and 2 measurements. This guidance is effective for the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 roll forward information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods thereafter. The Company adopted the amended fair value disclosures guidance on January 1, 2011.

The Group's financial instruments consist principally of cash, accounts receivables, cost and estimated earnings in excess of billings on contracts in progress, accounts payable and accrued liabilities. None of which are held for trading purposes. Pursuant to ASC 820, the fair value of the Group's cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Group believes that the carrying amounts of all of the Group's other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

(k)

Deferred offering expenses

Deferred offering expenses consisted principally of legal, professional and registration fees incurred that were related to the Public Offering. Such expenses were ultimately charged against the gross proceeds received from the Public Offering and financing.

(l)

Income taxes

The Group recognizes interest and penalty related to income tax matters as income tax expense. As of June 30, 2011 and 2010, there was no penalty or interest recognized as income tax expenses.

(m)

Commitments and contingencies

The Group’s management has evaluated all such proceedings and claims that existed as of June 30, 2011 and December 31, 2010. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Group’s financial position, liquidity or results of operations.

(n)

Economic and political risks

F-87

(o)

Pension and employee benefits

Full time employees of the Group participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Group to accrue for these benefits based on certain percentages of the employees’ salaries. Cost for pension and employee benefits of the Group was $34,574 and $19,494 for the six months ended June 30, 2011 and 2010, respectively.

(p)

Segment information

(q)

Escrow shares and preferred shares discount

On October 29, 2010, the Company’s controlling shareholder, a company controlled by Mr. Xinrong Zhuo, the Company’s Chairman of the Board of Directors and Chief Executive Officer, placed into escrow 15,000,000 of the Company’s ordinary shares (the “Make-Good Escrow”), pursuant to a securities escrow agreement, for the purpose of providing protection to the investors in the 2010 Private Placement in the event the Company does not achieve certain net income thresholds for the years ended 2010 and 2011. If the Company were not to achieve the thresholds set forth below, holders of the preferred shares would receive additional shares from the Make-Good Escrow, up to the full number of shares held in the Make-Good Escrow. The number of additional shares that may be released to investors in the 2010 Private Placement if the Company fails to meet the Adjusted Net Income targets set forth below is equal to: (Original Invested Shares * (Target EPS/Actual EPS)) — Original Invested Shares. “Actual EPS” means the Adjusted Net Income for fiscal year 2010 or 2011, as applicable, divided by the number of the Company’s fully diluted outstanding shares. “Target EPS” means the performance threshold for the applicable year divided by the number of the Company’s fully diluted outstanding shares. Adjusted Net Income means after-tax net income based on U.S. GAAP, adjusted to exclude (i) non-cash charges associated with the Merger, the 2010 Private Placement and the Company’s public offering or other financing, (ii) expenses related to the release of the escrow shares, and (iii) expenses related to implementation of any of the agreements related to the 2010 Private Placement. Adjusted Net Income for 2010 is calculated by adding the Adjusted Net Income of Fujian Service for the six months ended June 30, 2010 and the Company’s Adjusted Net Income on a consolidated basis for the six months ended December 31, 2010. The pro-rata right to receive shares issuable pursuant to the Make-Good Escrow is based upon the initial preferred shares issued to investors. Shares not distributed from the Make-Good Escrow will be returned to the shareholder that contributed them. The Adjusted Net Income targets for the 2010 and 2011 fiscal years are $48.1 million and $87.0 million, respectively. Adjusted Net Income is Net Income is net income excluding certain expenses including “any non-cash charges incurred as a result of the Financing Transaction, including without limitation, as a result of the issuance and/or conversion of the Preferred Shares, or as a result of the issuance of warrants to any placement agent and its designees in connection with another financing transaction,” For the six months ended June 30, 2011 and the year ended December 31, 2010, Adjusted Net Income was determined as follows:

F-88

	June 30, 2011			December 31, 2010

Net Income	$	49,934,966		$	48,234,280
Add:

Loss on derivative		5,484,583			11,298
Less:
Gain on obligation under Make-Good Escrow		(12,433,807	)		—
Adjusted Net Income	$	42,985,742		$	48,245,578

The Company has already achieved the Target EPS for 2010 and believes that it will have sufficient Actual EPS in 2011 such that most of the escrow shares will be released back to the shareholder. If the Company does achieve sufficient Actual EPS for 2011 and releases the escrow shares back to the shareholder, the Company does not believe the fair value of the escrow shares should be recognized as compensation or an expense. According to SEC Staff Announcement Topic No. D-110 (ASC 718-10-S99-2), to overcome the presumption that the release of shares are compensatory, the Company is required to “consider the substance of the arrangement, including whether the arrangement was entered into for purposes unrelated to, and not contingent upon, continued employment. For example, as a condition of a financing transaction, investors may request that specific significant shareholders, who also may be officers or directors, participate in an escrowed share arrangement. If the escrowed shares will be released or canceled without regard to continued employment, specific facts and circumstances may indicate that the arrangement is in substance an inducement made to facilitate the transaction on behalf of the Company, rather than as compensatory. In such cases, the SEC staff generally believes that the arrangement should be recognized and measured according to its nature and reflected as a reduction of the proceeds allocated to the newly-issued securities.”

The Make-Good Escrow was not entered into for purposes related to, or contingent upon, continued employment of the key executive. The sole reason for the Company and Mr. Zhuo’s company to enter into the escrow arrangement was to induce the 2010 Private Placement investors to close the financing transaction. The Make-Good Escrow must still comply with ASC 225-10-S99-3 through S99-4 and reflect the rights granted by Mr. Zhuo to the investors personally as being rights given to the investors by the Company. Therefore, the Company believes the proceeds of the 2010 Private Placement should be treated as being received for a combination of the preferred shares issued to the investors and the contingent right to a variable number of ordinary shares under the Make-Good Escrow. The Company further believes this requires that the 2010 Private Placement proceeds be allocated first to the contingent right to a variable number of shares based on the estimated fair value of that right, with the remaining proceeds allocated to the preferred shares. In effect, Mr. Zhuo’s company would be treated as having contributed, to the Company, a contingent right to a variable number of shares while the Company is treated as having sold an identical right to the 2010 Private Placement investors. Pursuant to ASC 480-10-25-14, the Company’s contingent obligation to deliver a variable number shares sold to the investors is recorded as a liability. It was initially recorded at its $14,101,247 estimated fair value as of December 31, 2010. As of June 30, 2011, it was adjusted to $1,667,440, as discuss below, because of a reduction in the number of shares expected to be issued, partially offset by an increased estimated value of each share. The effective right to receive an equal number of shares from Mr. Zhuo is not an asset but instead represents a potential future capital contribution.

Prospectively, the Company adjusts the liability for the contingent obligation to deliver a variable number of shares to its estimated fair value at each balance sheet date. Changes to the liability are recorded as gains or losses in the determination of net income. Upon settlement (or cancellation if the Company meets the Target EPS for 2011) the liability will first be adjusted to the fair value of the shares actually delivered. Any difference between that amount, and the amount previously recorded, will be reflected as a gain or loss in the determination of net income. The liability will then be eliminated with a corresponding increase in additional paid-in capital reflecting the fact that Mr. Zhuo will be providing the shares to the investors for settlement.

F-89

As discussed in Note 12, the holders of the Preferred Shares have the right to receive 20% of the $5.00 purchase price on the second anniversary of issuance if not yet converted. Substantially this is the right to $1.00 per share if the Company fails to have the ordinary shares underlying the preferred both successfully registered with the SEC and listed on a suitable exchange by December 2012. The Company has determined that this contingent right of the holders of the preferred shares is an embedded derivative financial instrument which must, for financial reporting purposes, be separated from the host instrument (i.e., from the preferred shares) and treated as a separate instrument. Proceeds of the 2010 Private Placement were allocated to the derivative liability in an amount equal to its estimated fair value. Prospectively, the derivative liability is adjusted to its estimated fair value at each balance sheet date with changes in its fair value recorded in the income statement.

As of June 30, 2011, the Monte Carlo valuation model was updated to incorporate the actual adjusted net income through that date and the revised variables for the remaining six months of the year. The model resulted in an expected share issuance 268,942. Multiplied by the $6.20 estimated June 30, 2011 value of each share to produce the estimated $1,667,440 fair value of the Make-Good Escrow obligation. This reduction in the liability resulted in a $12,433,807 gain being recorded on the income statement during the six months ended June 30, 2011.

The Company had estimated the value of the embedded derivative based on the $10,012,987 proceeds that would be paid, discounted at an interest rate of 9.0% and multiplied by 18%, representing the percentage chance, viewed from the time of the 2010 Private Placement, that the underlying ordinary shares would not be registered or not listed. The Company believes the 9.0% interest rate, which is consistent with then-effective high-yield rates in US markets, is appropriate for debt in such amount at the parent-company level that is unsecured, illiquid and structurally subordinated to creditor claims at the operating companies (the locus of substantially all of the Company’s assets). The probability of the Company not being registered and listed by October 2012 was estimated to be the same as the actual percentage of all Form F-1 filers in 2009 and 2010 failing to achieve effectiveness of their registration statements. However, the Company’s actual probability of success could differ from that of companies who filed registration statements during the reference period, or an actual market participant could take a different view. The Company believes that, in its case, based on circumstances in the fourth quarter 2010, once its registration statement becomes effective, all other requirements to achieve a national exchange listing would be satisfied or within its control, which would is sufficient to extinguish the embedded derivative. While listing requirements relating to market capitalization are not directly in the Company’s control, the Company should have sufficient market capitalization based on its cash alone to meet requisite listing standards. Even under the lowest 1% tail scenario of the Monte Carlo valuation model discussed above, the Company would have positive net income which should not detract from the value of the cash in determining market capitalization.

F-90

As of June 30, 2011, the Company estimated the fair value of the derivative using a revised estimated probability of 80% as of that date of not meeting the listing requirements, or as a permitted alternative, having a sufficiently large public offering. The revised estimate is based on new restrictions placed by significant exchanges on the listing of “reverse merger” companies. These requirements were not enacted until after June 30, 2011 but were anticipated as of that date. They include a requirement that a stock trade over-the-counter for at least one year before listing. There are no data upon which to base and estimate on the likelihood of fulfilling the new requirements and determine the odds of a successful offering in the time frame. The Company’s, in consultation with its investment banking advisors, has decided to use 80% as the probability of being unable to avoid the obligation to make the payments. The June 30, 2011 present value of the full required payment multiplied by 80% resulted in a $7,002,331 estimated fair value of the derivative. Adjusting the value of the derivative to this amount resulted in a $5,484,583 charge to net income for the six months ended June 30, 2011.

The embedded derivative, and the obligation under the Make-Good Escrow are the only instruments held by the Company that are carried at fair value estimated using level 3 inputs. The changes in the carrying value of the level 3 instruments during six months ended June 30, 2011 and the year ended December 31, 2010 was as follows:

	June 30, 2011			December 31, 2010

Liability balance b/f	$	15,618,995		$	-
Additional liabilities entered into the period/year		-			15,607,697
(Decrease)/increase in liability fair value		(6,949,224	)		11,298
Liability balance c/f	$	8,669,771		$	15,618,995

Reducing the gross proceeds of the 2010 Private Placement by the $14,101,247 allocated to the contingent right to shares pursuant to the Make-Good Escrow and $1,506,450 to the embedded derivative resulted in $34,457,238 being initially allocated to the 10,012,987 preferred shares. This amount was reduced by the $3,621,649 of offering costs relating to the 2010 Private Placement resulting in $30,835,589 initially allocated to the preferred shares. At December 31, 2010, the derivative liability was increased by an additional $11,298 to its estimated fair value of $1,517,748. This resulted in a total derivative loss of $11,298 for the year ended December 31, 2010 as shown on the income statement. The 10,012,987 preferred shares are convertible into an equal number of ordinary shares which for which a fair value was estimated to determine if the preferred shares contained a beneficial conversion feature.

F-91

The Company calculated an estimated the fair value of its ordinary shares at the time of the 2010 Private Placement by applying to its trailing earnings the price-earnings ratio equal to the average price-earnings ratio of the only two other public companies (as of fourth quarter 2010) in the dredging industry, the peer companies, after making the adjustments described below. The peer companies, whose trailing price-earnings ratios averaged 10.5, are domiciled in developed countries, specifically the Netherlands and the United States, no single shareholder or group controls the peer companies and their shares are liquid and actively traded. To adjust the price-earnings ratio for the peer companies for differences in the Company’s circumstances, the Company applied two discount factors. The first was a 24.5% discount to reflect the market discount applicable to Chinese companies of scale consistent with that of the Company. The Company determined this discount by calculating the average price-earnings ratio of the 34 U.S.-listed Chinese companies with market capitalizations between $100 million and $400 million and positive 1-year trailing earnings and comparing it with the average price earnings ratio of the S&P 500 over the time period when the 2010 Private Placement occurred. The Company then applied an additional 40% discount to reflect the lack of marketability and control of the Company as compared with public companies generally. The lack of marketability was based on the fact that none of the Company’s shares were registered and there was no ready market for the shares. The size of the discount needed for lack of marketability was limited by the fact that the Company was a public company through its reverse merger with Chardan Acquisition Corp. and had plans and a clear intention to register its shares and list on an exchange. The control element of the discount was necessary because a majority of the Company’s voting shares are controlled by Mr. Xingrong Zhuo and would continue to be controlled by him based on the Monte Carlo simulation of the shares to be transferred from the Make-Good Escrow.

The Company updated its value estimate at June 30, 2011 by reference to the same two dredging companies who had a trailing price-earnings ratio for the 12 months ended June 30, 2011 of 12.2. The Company lowered this ratio by first applying a 41% discount applicable to Chinese companies based on the ratio at June 30, 2011 between the price earnings ratio of the 34 Chinese companies to the S&P 500. It was further lowered by the same 40% lack of marketability and control discount used in the fourth quarter 2010 valuation. The result of applying these discounts was a price earnings ratio of 4.3. The market capitalization was increased by what was estimated to be excess cash at June 30, 2011 as compared to the reference companies and then decreased by the value of the derivative liability. The resulting overall value was divided by the outstanding shares on a fully diluted basis, assuming conversion of all Preferred Shares. Through this method the Company has estimated a fair value of each ordinary share as $6.20 at June 30, 2011.

The estimated $62,080,519 fair value of the ordinary shares into which the preferred shares would convert exceeded the redemption value of $50,064,935 redemption price of the preferred shares should the holders elect to redeem. Consequently, in accordance with ASC 470-25-35-7b, the entire $6,135,012 discount that existed at December 31, 2010 was accreted in the six months ended June 30, 2011 as an allocation of net income.

(r)	Shares and Additional Paid-in Capital

The Company’s shares have no par value. The BVI law permits the Board of Directors to pay dividends if 1) in its judgment doing so is in the best interest of the Company and 2) if the Company would remain solvent as defined under BVI law. The Company records the net amounts received for the issuance of preferred shares, to the extent allocable to the preferred shares under U.S. GAAP, in the preferred share account so that it properly reflects the discount from shares’ liquidation preference. The Company further adds any amounts that are required under U.S. GAAP for accretion of the discount or other reasons. In the case of the preferred share issued in the private placement, this required $21,626,203 to be initially recorded as preferred share, with the December 31, 2010 balance adjusted to $43,929,923 and the June 30, 2011 balance further adjusted to $50,064,935 its full redemption value. Other capital contributions, irrespective of whether they are for the issuance of share, are recorded in the additional paid-in capital account. The balance sheet account for no par ordinary shares is kept at zero.

F-92

As of June 30, 2011 and December 31, 2010, the balance of the additional paid-in capital was $79,185,284.

(s)	Earnings per ordinary share

Earnings per ordinary share (basic and diluted) is based on the net income attributable to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during each period. Ordinary share equivalents are not included in the calculation of diluted earnings per ordinary share if their effect would be anti-dilutive. As of June 30, 2011, the weighted average outstanding ordinary share equivalents outstanding totaled 10,012,987 consisting of Class A Preferred Shares, and all Class A Preferred Shares were used in the calculation of diluted earnings per ordinary share. For the six months ended June 30, 2011, the calculation of diluted earnings per ordinary share, the Company also added back the $6,135,011 accretion of the preferred share discount to net income attributable to ordinary shareholders.

(t)	Recently issued accounting standards

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2011-05, “Comprehensive Income (Topic 220).” This newly issued accounting standard (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity; (2) requires the consecutive presentation of the statement of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments’ in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income not do the amendments affect how earnings per share is calculated or presented. This ASU applied retrospectively and is effective for fiscal years and interim periods within years beginning after December 15, 2011, which for the Group means January 1, 2012. As this accounting standard only requires enhanced disclosure, the adoption of this standard will not impact the Group’s financial position or results of operations.

CASH

Cash represents cash in bank and cash on hand. Cash as of June 30, 2011 and December 31, 2010 were $103,626,928 and $88,532,472, respectively. As of June 30, 2011 and December 31, 2010, cash of which $102,820,359 and $66,966,278, respectively, was held, in Renminbi and U.S. dollars on deposits with banks located in the PRC. Renminbi is not a freely convertible currency and the remittance of funds out of the PRC is subject to the exchange restrictions imposed by the PRC government.

Cash is classified by geographical areas is set out as follows:

	June 30, 2011		December 31, 2010

Hong Kong	$	806,569	$	21,566,194
The PRC		102,820,359		66,966,278
	$	103,626,928	$	88,532,472

Maximum exposure to credit risk	$	103,626,928	$	88,532,472

F-93

Cash is denominated in the following currencies:
	June 30, 2011		December 31, 2010

USD	$	6,980,272	$	27,041,216
RMB		96,599,181		61,465,283
HKD		47,475		25,973
	$	103,626,928	$	88,532,472

In the PRC and Hong Kong there are currently no rules or regulations mandated on obligatory insurance of bank accounts. Management believes these financial institutions are of high credit quality.

3.	ACCOUNTS RECEIVABLE, NET

As of June 30, 2011 and December 31, 2010, the balance of accounts receivable was $17,007,859 and $12,841,108, respectively, is set out as follows:

June 30, 2011
Name of contract		Estimated contract value		Total revenue recognized during the six months ended June 30, 2011		Amount received in 2011		Accounts receivable		Status of contract (Completion %)

1. Yantian Port Channel Dredging and Reclamation I	1	$	1,935,148	$	1,097,418	$	1,912,518	$	-		100	%

2. Yantian Port Channel Dredging and Reclamation II			967,574		997,643		997,643		-		100	%

3. Yantian Port Channel Dredging and Reclamation III			1,548,118		1,551,690		1,551,690		-		100	%

4. Yantian Port Channel Dredging and Reclamation IV			1,548,118		1,549,795		1,549,795		-		100	%

5. Tangshan Caofeidian Dredging and Reclamation XII	2		3,194,189		3,195,913		3,195,913		-		100	%

6. Tangshan Caofeidian Dredging and Reclamation XII	2		3,194,189		3,206,523		3,206,523		-		100	%

5. Tangshan Caofeidian Dredging and Reclamation XII	2		2,661,824		2,805,575		2,805,575		-		100	%

6. Tangshan Caofeidian Dredging and Reclamation XIII	3		1,774,549		1,792,695		1,792,695		-		100	%

F-94

7. Tangshan Caofeidian Dredging and Reclamation XIII	3		1,774,549		1,785,449		1,785,449		-	100	%

8. Tangshan Caofeidian Dredging and Reclamation XIII	3		1,543,858		1,554,925		1,554,925		-	100	%

9. Qinzhou Port Channel Dredging IV			6,007,417		6,014,147		6,014,147		-	100	%

10. Qinzhou Port Channel Dredging V			5,439,347		5,483,221		5,483,221		-	100	%

11. Qinzhou Port Channel Dredging VI			1,930,091		1,966,730		1,966,730		-	100	%

12. Qinzhou Port Channel Dredging VII			4,240,530		4,265,276		4,265,276		-	100	%

13. Qinzhou Port Channel Dredging IX			1,943,576		1,988,435		-		2,007,540	100	%

14. Zhanjiang Baoman Jizhuangxing port Reclamation I			4,251,563		4,338,750		4,338,750		-	100	%

15. Zhanjiang Baoman Jizhuangxing port Reclamation II			7,676,689		7,687,385		4,840,291		2,847,094	100	%

16. Hainan Yangpu Port Dredging II			2,290,977		2,333,287		2,333,287		-	100	%

17. Tianjin South Port Industrial Zone Dredging and Reclamation IV			7,110,457		7,215,338		7,215,338		-	100	%

18. Tianjin South Port Industrial Zone Dredging and Reclamation V			9,243,594		8,139,927		4,861,660		3,278,267	100	%

19. Quanzhou Zhonghua New District Reclamation I			3,194,189		3,236,922		2,301,319		935,603	100	%

20. Quanzhou Zhonghua New District Reclamation I			4,613,829		4,699,012		1,973,249		2,725,763	100	%

21. Panjin Vessels Industrial Base Project II			10,390,156		10,408,085		5,194,493		5,213,592	100	%

		$	88,474,531	$	87,314,141	$	71,140,487	$	17,007,859

Notes:

The contract was commenced in 2010 and completed in January 2011.

2, 3.

Dredgers, Xinggangjun #3, #6 and #9 together worked for one project with same customer.

F-95

December 31, 2010
Name of contract		Estimated contract value		Total revenue recognized in 2010		Amount received in 2010		Accounts receivable		Status of contract (Completion %)

1. Zhuhai Gaolan Port Dredging III	1	$	1,686,291	$	522,002	$	522,002	$	-		100	%

2. Zhuhai Gaolan Port Dredging IV			2,107,863		2,123,125		2,123,125		-		100	%

3. Zhuhai Gaolan Port Dredging V			2,891,841		3,022,060		3,022,060		-		100	%

4. Zhuhai Gaolan Port Dredging VI			1,182,474		1,199,883		1,199,883		-		100	%

5. Oujiang Port Lantian Dredging II	1		7,188,924		803,979		803,979		-		100	%

6. Oujiang Port Lantian Dredging III			4,233,477		4,282,649		4,282,649		-		100	%

7. Tangshan Caofeidian Dredging and Reclamation I	1		9,316,017		3,269,800		3,269,800		-		100	%

8. Tangshan Caofeidian Dredging and Reclamation II	1		11,123,602		3,723,230		3,723,230		-		100	%

9. Tangshan Caofeidian Dredging and Reclamation III			10,106,207		10,138,730		10,138,730		-		100	%

10. Tangshan Caofeidian Dredging and Reclamation IV			8,907,165		8,921,169		8,921,169		-		100	%

11. Tangshan Caofeidian Dredging and Reclamation V			7,965,061		8,000,862		8,000,862		-		100	%

12. Tangshan Caofeidian Dredging and Reclamation VI			1,199,041		1,265,383		1,265,383		-		100	%

13. Tangshan Caofeidian Dredging and Reclamation VII			1,370,333		1,406,454		1,406,454		-		100	%

14. Tangshan Caofeidian Dredging and Reclamation VIII			1,370,333		1,385,751		1,385,751		-		100	%

15. Tangshan Caofeidian Dredging and Reclamation IX			1,884,208		1,961,333		1,370,836		590,497		100	%

F-96

16. Tangshan Caofeidian Dredging and Reclamation X		2,226,791		2,255,933		1,619,452		636,481	100	%

17. Tangshan Caofeidian Dredging and Reclamation XI		2,226,791		2,269,310		1,619,588		649,722	100	%

18. Qinzhou Port Channel Dredging I		1,354,949		1,367,145		1,367,145		-	100	%

19. Qinzhou Port Channel Dredging II		3,240,489		3,278,074		2,356,958		921,116	100	%

20. Qinzhou Port Channel Dredging III		2,864,180		2,930,412		1,203,453		1,726,959	100	%

21. Zhanjiang Steel Base Dredging and Reclamation I		13,706,290		13,766,653		13,766,653		-	100	%

22. Zhanjiang Steel Base Dredging and Reclamation II		7,521,744		7,562,211		7,562,211		-	100	%

23. Guohua Taidian Coal Port Dredging I		1,389,859		1,400,272		1,400,272		-	100	%

24. Hainan Yangpu Port Dredging I		4,422,815		4,442,077		2,307,346		2,134,731	100	%

25. Tianjin South Port Industrial Zone Dredging and Reclamation I		6,427,075		6,439,226		6,439,226		-	100	%

26. Tianjin South Port Industrial Zone Dredging and Reclamation II		2,591,563		2,594,554		2,594,554		-	100	%

27. Tianjin South Port Industrial Zone Dredging and Reclamation III		4,804,449		4,886,953		1,770,347		3,116,606	100	%

28. Jingtang Port Channel Dredging I		4,771,315		4,825,986		4,825,986		-	100	%

29. Jingtang Port Channel Dredging II		1,363,233		1,375,678		1,375,678		-	100	%

30. Jingtang Port Channel Dredging III		1,704,041		1,718,233		1,718,233		-	100	%

31. Qingdao Port Channel Dredging I		5,773,623		5,775,020		5,775,020		-	100	%

32. Panjin Vessels Industrial Base Project I		10,720,963		10,739,467		7,674,471		3,064,996	100	%

33. Tonggu Channel, Shenzhen West Port Public Dredging and Reclamation I		932,341		936,951		936,951		-	100	%

	$	150,575,348	$	130,590,565	$	117,749,457	$	12,841,108

F-97

4.	COST AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON CONTRACTS IN PROGRESS

Cost and estimated earnings in excess of billings on contracts in progress represent amounts of revenue earned under contracts in progress but not billed at the balance sheet date. These amounts become billable according to the contract terms, which usually consider passage of time, and/or completion of the project. As of June 30, 2011 and December 31, 2010, the balance of cost and estimated earnings in excess of billings on contracts in progress was $7,454,599 and $834,909, respectively. Cost and estimated earnings in excess of billings on contracts in progress include the following:

June 30, 2011
Name of contract		Estimated contract value		Total revenue recognized during six months ended June 30, 2011		Amount received in 2011		Cost and estimated earnings in excess of billings		Status of contract (Completion %)

1. Yantian Port Channel Dredging and Reclamation V		$	3,166,605	$	1,032,589	$	-	$	1,042,510		33	%

2. Tangshan Caofeidian Dredging and Reclamation XIV	1		21,699,154		5,395,145		3,301,965		2,093,180		25	%

3. Tangshan Caofeidian Dredging and Reclamation XIV	1		21,699,154		5,395,145		3,234,310		2,160,835		25	%

4. Tangshan Caofeidian Dredging and Reclamation XIV	1		18,082,628		4,495,954		2,695,258		1,800,696		25	%

5. Qinzhou Port Channel Dredging VIII			5,614,809		3,722,863		3,365,485		357,378		66	%

		$	70,262,350	$	20,041,696	$	12,597,018	$	7,454,599

Note:

Dredgers, Xinggangjun #3, #6 and #9 together worked for one project with same customer.

F-98

December 31, 2010
Name of contract	Estimated contract value		Total revenue recognized		Amount received in 2010		Cost and estimated earnings in excess of billings		Status of contract (Completion %)

Yantian Port Channel Dredging and Reclamation I	$	1,867,937	$	815,100	$	-	$	834,909		44	%

The following schedule summarizes changes in backlog on contracts during the six months ended June 30, 2011. Backlog represents the amount of revenue Fujian Service expects to realize from work to be performed pursuant to contractual agreements on projects in progress and on projects for which work has not yet begun.

Backlog balance at December 31, 2010	$	62,310,751
New contracts entered during the six months ended June 30, 2011		142,810,316
Less: Adjustment of contracts due to change orders during the period		(315,962	)
Adjusted contract amount at June 30, 2011		204,805,105
Less: Contract revenue earned during the six months ended June 30, 2011		(107,355,835	)
Backlog balance at June 30, 2011	$	97,449,270

There were two contracts included in the backlog as of December 31, 2010, in March 2011, the customers of these two contracts requested the Group's subsidiary, Fujian Service, to work on other projects which were on higher priority. Due to these requests, these two one-year contracts had been replaced by shorter term contracts in 2011. However, the customers have promised the Group that they will provide the Group the same level of work as the replaced contracts. Due to these promises, the backlog was not adjusted but would be reduced by completion of the shorter term contracts as of December 31, 2010 and was not deducted from the backlog as of June 30, 2011.

5.	INVENTORIES

The Group provides dredging services for its customers in the PRC. Inventories consist of consumable parts which are used for dredging projects. As of June 30, 2011 and December 31, 2010, the balance of inventories was $502,290 and $202,213, respectively.

6.	OTHER RECEIVABLES

Other receivables as of June 30, 2011 and December 31, 2010 consisted of the following:

	June 30, 2011		December 31, 2010

Social insurance prepaid for staff	$	2,249	$	1,124
Others		122		122
	$	2,371	$	1,246

Other receivables include social insurance prepaid for staff's portion by the Group, this amount will be directly deducted from staff's salaries and it is interest free.

F-99

7.	PREPAID DREDGER DEPOSITS AND CAPITAL COMMITMENTS

(a)

Prepaid dredger deposits

Prepaid dredgers deposits as of June 30, 2011 and December 31, 2010 consisted of the following:

	June 30, 2011		December 31, 2010

Non-related party	$	16,554,498	$	2,272,727
Related party		-		12,491,347
	$	16,554,498	$	14,764,074

Prepaid dredgers represent deposits of two new dredgers before delivery. The Group paid deposits for the acquisition of two dredgers which will be used for the expansion of dredging operations. The total expected cost of the two dredgers is approximately $30.9 million and $40.2 million respectively, both of dredgers will be delivered on or before May 31, 2012 and before December 2012 respectively (see below Note 7(b)).

(b)

Capital commitments

The Group had the following capital commitments as of June 30, 2011:
Contracted, but not provided for:-
Acquisition of dredgers, net of deposit paid	$	54,614,372

On May 20, 2009, the Company's subsidiary, Fujian Service, entered into a dredger purchase contract with Yiyang Zhonghai Vellel LLC (“Yiyang”), a non-related party of the Group. According to the dredger purchase contract, the Group paid a deposit of 7.5%, or $2,320,724 (RMB15,000,000), of the total purchase price on June 2, 2009. The balance due on the dredger amounted to $28,622,263 (RMB185,000,000), payable in 4 installments:

Payment Due Date
(end of month after delivery)	Payment Amount

August 31, 2012	$	8,586,679
November 30, 2012		7,155,566
February 28, 2013		7,155,566
May 31, 2013		5,724,452
	$	28,622,263

The dredger is expected to be delivered to the Group on or before May 31, 2012.

On May 11, 2011, the Company’s subsidiary, Fujian WangGang entered into another construction contract with Yiyang to build one 3,800 cubic meters per hour cutter suction dredger. Construction is expected to take approximately 18 months. Delivery of the dredger is expected in or before December 2012. The contract price for building the dredger is approximately $40.2 million (RMB260 million), subject to certain conditions including actual building cost incurred. According to the dredger purchase contract, the Company should pay a deposit of 50%, or $20,112,941 (RMB130,000,000), of the total purchase price within one month after the contract signed. As of June 30, 2011, the Company paid $14,233,774 (RMB92,000,000). The balance due on the dredger amounted to $25,992,109 (RMB168,000,000), payable in 4 installments:

F-100

	Percentage of
Payment Due Date	total contract sum			Payment Amount

Within 1 month after contract signed		15	%	$	5,879,167
Within 7 days after the completion of main hull of the dredger		20	%		8,045,177
Within 7 days after the dredger launched		20	%		8,045,177
Before delivery of the dredger after the completion of mooring trial		10	%		4,022,588
				$	25,992,109

On July 14 and 20, 2011, Fujian Dredging paid $2,784,869 (RMB18,000,000,000) and $3,094,298 (RMB20,000,000) respectively, as of July 20, 2011, Fujian Service has paid 50% or $20,112,941 (RMB130,000,000) deposit.

8.	SECURITY DEPOSITS

The Group’s security deposits represent amounts on deposit with the owners of dredgers leased by the Company’s subsidiary, Fujian Service. Such amounts will be returned to Fujian Service when the corresponding leases end. Security deposits were $34,284,830 and $21,454,545 as of June 30, 2011 and December 31, 2010, respectively.

9.	DEFERRED OFFERING EXPENSES

Deferred offering expenses as of June 30, 2011 and December 31, 2010 consisted of the following:

	June 30, 2011		December 31, 2010

Deferred offering expenses	$	983,702	$	-

Deferred offering expenses refer the expenses related to Initial Public Offering of the Company, including legal, professional, registration fees and other related fees incurred.

10.	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of June 30, 2011 and December 31, 2010 consisted of the following:

	June 30, 2011			December 31, 2010

Dredgers	$	70,033,836		$	54,235,409
Machinery		39,746			38,924
Office equipment		7,663			7,504
		70,081,245			54,281,837
Less: Accumulated depreciation		(17,186,949	)		(13,677,053	)
	$	52,894,296		$	40,604,784

Total depreciation expenses of the Group for the six months ended June 30, 2011 and 2010 were $3,509,896 and $2,497,401, respectively, of which $3,509,175 and $2,497,042, respectively, was included in cost of revenue.

As of June 30, 2011, the Group owned four dredgers. As of June 30, 2011 and December 31, 2010, the total net book value of the dredgers was $52,860,265 and $40,567,273, respectively.

F-101

11.	ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables as of June 30, 2011 and December 31, 2010 consisted of the following:

	June 30, 2011		December 31, 2010

Accrued salaries and wages	$	121,311	$	90,380
Accrued staff benefits		183,283		154,279
Other tax payables		638,619		42,758
Accrued outsourced dredger services and labor		2,905,675		2,082,954
Other payables		909,484		219,139
	$	4,758,372	$	2,589,510

Other tax payables represent payables other than income tax which consist of business tax, individual salary tax, stamp duty, embankment tax and other small local taxes. Business tax was 3% - 5% of revenue recognized, as of June 30, 2011 and December 31, 2010, and other tax payables included $607,673 and $28,835 of business tax payable, respectively.

12.	CLASS A PREFERRED SHARES

Each Class A Preferred Share is automatically convertible into one of the Company’s ordinary shares, which the Company calls the Conversion Ratio, upon occurrence of both of the following: (a) the registration of the underlying ordinary shares is declared effective by the SEC or other applicable regulatory authority designed by the holders of a majority of the preferred shares pursuant to the terms of the registration rights agreement with such holders, or the underlying ordinary shares become freely tradable in the United States or pursuant to any available exemption; and (b) the commencement of the trading of the Company’s ordinary shares on a national U.S. stock exchange or such other recognized international exchange as the holders of a majority of preferred shares may approve. The Conversion Rate is subject to proportional adjustment for share splits, divisions, share dividends, recapitalization and similar transactions. Each preferred share is also convertible into one of the Company’s ordinary shares at the opinion of the holder at any time prior to automatic conversion.

F-102

13.	SHAREHOLDERS' EQUITY

(a)

Contributed capital

In connection with the purchase of the 50% interest of Fujian Service by Fujian WangGang, the shareholders of Wonder Dredging (being the same shareholders of Fujian Service at the time) were entitled, pursuant to the purchase agreement, to declare and be paid all of the retained earnings of Fujian Service from its inception through March 31, 2010, as a dividend, which amounted to $51,087,387. As described elsewhere in these financial statements the shareholders, pursuant to an agreement, held their interests as the representatives of a family includes the Company’s Chief Executive Officer, Mr. Xinrong Zhuo. Such shareholders also committed to contribute all such dividends back into the Company as a capital contribution along with an allocation to its statutory reserves. Such contribution of dividends has been recorded first as a payment of a $10,982,735 subscription receivable and the $40,104,652 balance as additional paid-in capital.

The Company’s shares have no par value. The BVI permits the Board of Directors to pay dividends if 1) in its judgment doing so is in the best interest of the Company and 2) if the Company would remain solvent as defined under BVI law. The Company records the net amounts received for the issuance of preferred share, to the extent allocable to the preferred shares under U.S. GAAP, in the preferred shares account. Other capital contributions, irrespective of whether they are for the issuance of shares, are recorded in the additional paid-in account. The balance sheet account for no par ordinary shares is kept at zero.

(b)

Retained earnings and statutory reserves

Retained earnings and statutory reserves as of June 30, 2011 and December 31, 2010 consisted of the following:

	June 30, 2011		December 31, 2010

Retained earnings	$	52,864,282	$	13,392,884

Statutory reserves	$	14,623,835	$	10,295,279

Fujian Service, Fujian WangGang and Wonder Dredging, which are located and operate in the PRC, are required to transfer 10% of their net profits after income tax, as determined in accordance with the PRC accounting rules and regulations. Appropriation to the statutory reserve by the Group is based on profit arrived at under PRC accounting standards for business enterprises for each year. The statutory reserves of the Group represent the statutory reserves of Fujian Service, Fujian WangGang and Wonder Dredging as required under the PRC law.

The profit arrived at must be set off against any accumulated losses sustained by the Group in prior years, before allocation is made to the statutory reserve. Appropriation to the statutory reserve must be made before distribution of dividends to shareholders. The appropriation is required until the statutory reserve reaches 50% of the shareholders' equity. This statutory reserve is not distributable in the form of cash dividends.

14.	INCOME TAXES

F-103

A reconciliation of the expected income tax expense to the actual income tax expense for the six months ended June 30, 2011 and 2010 was as follows:

	For the Six Months Ended
	June 30,
	2011			2010

Income before tax	$	64,361,337		$	22,826,007

Expected PRC income tax expense at statutory tax rate of 25%	$	16,090,334		$	5,706,502
Add: Non tax deductible expenses		1,435,447			61,213
Less: Non-taxable income		(3,108,452	)		-
Effect of exchange rate		9,042			16,626
Actual income tax expense	$	14,426,371		$	5,784,341

For the six months ended June 30, 2011 and 2010, there was no unrecognized tax benefit. Management does not anticipate any potential future adjustments in the next twelve months which would result in a material change to its financial tax position. As of June 30, 2011 and December 31, 2010, the Group did not accrue any interest and penalties.

15.	RELATED PARTY TRANSACTIONS

(a)

Operating lease commitments

The Company’s VIE, Fujian Service, entered into an office rental agreement in 2008 with Ping Lin, a relative of one of the former owners, Qing Lin, from January 1, 2008 to December 31, 2009. This agreement has been renewed and extended the period from January 1, 2010 to December 31, 2015. Fujian WangGang and Wonder Dredging also entered into office rental agreements in 2010 with Ping Lin from June 10, 2010 to June 9, 2011 and May 1, 2010 to April 30, 2011, respectively. The office rental agreements between Fujian WangGang and Ping Lin, and Wonder Dredging and Ping Lin have been renewed and extended the period from June 10, 2011 to June 9, 2012 and May 1, 2011 to April 30, 2012, respectively. Office rental paid for the six months ended June 30, 2011 and 2010 was as follows:

F-104

		For the Six Months Ended
		June 30,
		2011		2010
Type	Name of related party
Office rental	Ping Lin	$	18,048	$	11,553
Hire charge of dredger	Fujian Lutong Highway Engineering Construction Co., Ltd		-		513,279
Hire charge of crew	Fujian Lutong Highway Engineering Construction Co., Ltd		-		263,972
		$	18,048	$	788,804

Hire charges of dredger and crew are included as part of the cost of revenue. Office rental is included in the general and administrative expenses.

Fujian WangGang and Wonder Dredging accrued and paid the full year office rental in 2010, therefore, no office rental incurred during the six months ended of June 30, 2011.

The total future minimum lease payments under non-cancellable operating leases with respect to office as of June 30, 2011 were payable to the related party as follows:

	Office rental
For the years ended December 31,
2011	$	7,241
2012		12,188
2013		12,188
2014		12,188
2015		12,188
	$	55,993

Operating lease commitments for both related parties commitments and non-related parties commitments is summarized in Note 17.

16.	CERTAIN RISKS AND CONCENTRATIONS

(a)

Credit risk

As of June 30, 2011, a substantial portion part of the Group’s cash included bank deposits in accounts maintained within the PRC where there is currently no rule or regulation in place for obligatory insurance to cover bank deposits in the event of bank failure. However, the Group has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.

(b)

Major customers

Customers accounting for 10% or more of the Group’s revenues were as follows:

F-105

		For the Six Months Ended
		June 30,
		2011			2010

Customer A	*		13.4	%		42.0	%
Customer B	*		39.0	%		29.7	%
Customer C	*		-			11.2	%
Customer D			-			11.0	%
Customer E			10.4	%		-
Customer F			14.3	%		-
Customer G			-			-
			77.1	%		93.9	%

*Indicates customers under control of a common parent company.

(c)

Major suppliers

Suppliers accounting for 10% or more of the Group’s total purchases were as follows:

	For the Six Months Ended
	June 30,
	2011			2010

Supplier A		11.8	%		31.3	%
Supplier B		18.5	%		29.8	%
Supplier C		14.9	%		29.6	%
Supplier D		35.4	%		-
		80.6	%		90.7	%

The Group is dependent on third-party consumable parts manufacturers for all of its supply of dredging consumable parts. For the six months ended June 30, 2011 and 2010, products purchased from the Group's three largest suppliers accounted for 80.6% and 90.7% of product purchases, respectively. The Group is dependent on the ability of its suppliers to provide products on a timely basis and on favorable pricing terms. The loss of certain principal suppliers or a significant reduction in product availability from principal suppliers could have a material adverse effect on the Group. The Group believes that its relationships with its suppliers are satisfactory, and the Group has never experienced inadequate supply from suppliers.

17.	OPERATING LEASE COMMITMENTS

The total future minimum lease payments under non-cancellable operating leases with respect to dredgers, crew, consumable parts and office as of June 30, 2011 were payable as follows:

	Hire charge		Hire charge		Consumable
	of dredgers		of crew		parts supply		Office rental		Total
For the years ended December 31,
2011	$	5,287,966	$	1,896,537	$	13,633,380	$	7,241	$	20,825,124
2012		9,979,114		3,375,448		26,100,409		12,188		39,467,159
2013		7,237,500		2,473,408		18,445,029		12,188		28,168,125
2014		2,075,759		894,490		5,763,131		12,188		8,745,568
2015		734,896		556,974		-		12,188		1,304,058
	$	25,315,235	$	9,196,857	$	63,941,949	$	55,993	$	98,510,034

F-106

Rental expenses under non-cancellable operating leases arrangements for the six months ended June 30, 2011 and 2010 was $8,757,542 and $2,018,641, respectively. $18,048 and $788,804 was of the rental expenses paid to the related parties for the six months ended June 30, 2011 and 2010, respectively (see Note 15(a)).

The operating lease commitments below include both the related parties commitments and non-related parties commitments. The total future lease payments as of June 30, 2011 is summarized as follows:

		Hire charge		Hire charge		Consumable
	Note	of dredgers		of crew		parts supply		Office rental		Total

Related parties commitments	15(a)	$	-	$	-	$	-	$	55,993	$	55,993
Non-related parties commitments			25,315,235		9,196,857		63,941,949		-		98,454,041
		$	25,315,235	$	9,196,857	$	63,941,949	$	55,993	$	98,510,034

On July 15, 2011, Fujian Service entered two contracts with Zhejiang Fuyuan Dredging Engineering Co., Ltd ("Zhejiang Fuyuan") for leasing the dredgers Fuyuan 5 and Fuyuan 7 for one year, from July 17, 2011 to July 16, 2012 and July 19, 2011 to July 18, 2012 respectively. Fujian Service also entered into the crew hire agreements with Zhejiang Fuyuan on the same day. Pursuant to the agreements, the total payments would be approximately $6.1 million per year for hire charge of the two dredgers, approximately $1.3 million per year for hire charge of crew for both dredgers and approximately $12.7 million per year for consumable parts supply for both dredgers. A guarantee deposit of approximately $8.3 million (RMB54 million) and $9.9 million (RMB64.8 million) for Fuyuan 5 and Fuyuan 7 respectively, was required seven days after the signing of the agreement and is refundable to the Company seven days after the contract has expired. The payments, which were excluded in the operating lease commitments table, incurred for the period from July 2011 to July 2012 is set out as follows:

	Hire charge		Hire charge		Consumable
	of dredgers		of crew		parts supply		Total
For the years ended December 31,
2011	$	2,285,916	$	476,058	$	4,779,562	$	7,541,536
2012		3,861,217		804,982		8,058,683		12,724,882
	$	6,147,133	$	1,281,040	$	12,838,245	$	20,266,418

18.	CONDENSED PARENT COMPANY FINANCIAL INFORMATION

For the purpose of preparing these supplemental condensed parent company (unconsolidated) financial statements, the Company records its investment in subsidiaries under the equity method of accounting as prescribed in ASC Topic 323, “Investments - Equity Method and Joint Ventures”. Such investment and long-term loans to subsidiaries are presented on the balance sheet as “Investments in subsidiaries” and the income of the subsidiaries is presented as “Equity in income of subsidiaries” on the statement of income.

As of June 30, 2011, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except as separately disclosed in the Company’s Consolidated Financial Statements, if any.

F-107

CONDENSED BALANCE SHEETS
	As of June 30,		As of December 31,
	2011		2010
Assets
Cash	$	788,865	$	21,509,633
Other receivables		122		122
Deferred offering expenses		983,702		-
Investments in subsidiaries		213,535,474		145,992,195
Total assets	$	215,308,164	$	167,501,950

Liabilities and equity
Current liabilities
Accrued liabilities and other payables	$	865,673	$	176,675

Non-current liabilities
Contingent liability for a variable number of shares		1,667,440		14,101,247
Derivative liability		7,002,331		1,517,748
Total non-current liabilities		8,669,771		15,618,995
Total liabilities		9,535,444		15,795,670

Class A Preferred Shares, no par value; 25,000,000 shares authorized; 10,012,987 shares issued and outstanding (liquidation preference $50,064,935, less $0 and $6,135,012 discount, respectively) as of June 30, 2011 and December 31, 2010	$	50,064,935		43,929,923
Shareholders' equity
Total shareholders' equity		155,707,785		107,776,357

Total liabilities and equity	$	215,308,164	$	167,501,950

CONDENSED STATEMENTS OF INCOME
	For the Six Months Ended June 30,
	2011			2010

General and administrative expenses	$	(191,682	)	$	(312,384	)
Other income		6,949,224			-
Equity income of subsidiaries		43,177,424			17,354,050
Net income	$	49,934,966		$	17,041,666

F-108

CONDENSED STATEMENTS OF CASH FLOWS
	For the Six Months Ended June 30,
	2011			2010

Net cash provided by operating activities	$	497,315		$	(157,374	)
Net cash used in investing activities		(20,140,000	)		(1,439,409	)
Net cash used in financing activities		(983,702	)		1,690,579
Effect of exchange rate changes on cash		(94,381	)		(407	)
Cash as of January 1		21,509,633			-

Cash as of June 30	$	788,865		$	93,389

19.	CONTINGENCIES

Legal proceeding

Fujian Service was sued in four related lawsuits brought by several individuals in Wenzhou, China, in May 2010. The lawsuits relate to a traffic accident that allegedly caused the deaths of two people and injuries to two other people. The plaintiffs alleged that a truck was hired for a port construction project referred to as the Lingkun Construction Project, and that the owner, the general contractor and Fujian Service as the subcontractor of the Lingkun Construction Project, all of whom were named as co-defendants in these lawsuits, were responsible for the damages. The plaintiffs claimed total damages of approximately $0.6 million. The court in the first instance for these four lawsuits held that Fujian Service was not responsible for any of the claims by the plaintiffs. Such court decisions are legally effective as they are not appealed. From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business.

Registration rights agreement

In connection with its private placement, the Company entered into a registration rights agreement pursuant to which it agreed to use its best efforts to file within 60 days of the date after which the Company would no longer accept funds for the purchase of preferred shares (such 60-day deadline, the "Filing Deadline") a registration statement with the SEC to register the sale by the Company of its ordinary shares by means of a firm commitment underwritten offering and to register for resale (i) the ordinary shares underlying the preferred shares issued in the private placement, (ii) the 15,000,000 shares held in the Make-Good Escrow, (iii) 37,177,323 ordinary shares held by certain of its founding shareholders which are not part of the Make-Good Escrow and (iv) the 500,000 shares issued to its placement agent pursuant to the Merger Agreement. If the registration statement covering these securities is not filed by the Filing Deadline or not declared effective by the SEC within 180 days of the Filing Deadline (such 180-day deadline, the ‘‘Effectiveness Deadline’’), subject to certain exceptions, liquidated damages of 0.3% of the purchase price per month will accrue and will be payable in cash on a monthly basis, provided that in no event shall the amount of liquidated damages payable at any time to any holder of preferred shares exceed 10% of the amount of such holder’s initial investment in the private placement. According to this formula, the monthly liquidated damages to be paid would amount to $150,195 per month and the maximum payments would total $5,006,494.

Under the registration rights agreement, the Filing Deadline was February 21, 2011 and the Effectiveness Deadline has been extended from August 22, 2011 to January 31, 2012. As of the date of issuance of these financial statements, the Company has assessed the likelihood of any liquidated damages becoming payable under the registration rights agreement and believed that the likelihood was not probable, based on its filing of a Form F-1 registration statement, engagement of professional advisers, and commitment to complete the registration process. Consequently, no liability or expense was recorded as of June 30, 2011 for liquidated damages under the registration rights agreement.

F-109

20.	SUBSEQUENT EVENTS

(a)

Lease agreement for new dredgers, crew and consumable parts supply

On July 15, 2011, Fujian Service entered into two lease agreements with Zhejiang Fuyuan Dredging Engineering Co., Ltd ("Zhejiang Fuyuan") to lease two dredgers, Fuyuan 5 and Fuyuan 7, for one year, from July 17, 2011 to July 16, 2012 and from July 19, 2011 to July 18, 2012, respectively. Fujian Service also entered into crew hire agreements on the same day. Pursuant to the agreements, the payments would be approximately $3.2 million (RMB21.1 million) and $2.9 million (RMB18.7 million) per year, respectively, for hire charge of dredgers, and approximately $0.6 million (RMB0.4 million) per year for the hire charge of the crew for each dredger. Zhejiang Fuyuan is required to supply consumable parts for each dredger to Fujian Service every month, and Fujian Service is required to pay a fixed amount of approximately $7.5 million (RMB49.3 million) and $5.1 million (RMB33.7 million) per year, respectively, for such consumable parts. A guarantee deposit of approximately $8.2 million (RMB54.0 million) and $9.8 million (RMB64.8 million), respectively, was required seven days after the signing of the agreements and is refundable to the Company seven days after the contract has expired.

On September 28, 2011, Fujian Service entered into a lease agreement with Binhua Yan to lease a dredger, Minningdejun 0099, and a crew hire agreement with Fujian Haiyi International Shipping Agency Co., Ltd (“Haiyi International”), for fifteen months, from October 1, 2011 to December 31, 2012. Pursuant to the agreements, the payments would be approximately $0.1 million (RMB1.0 million) per month for the hire charge of the dredger, and approximately $0.05 million (RMB0.3 million) per month for the hire charge of the crew for the dredger. Binhua Yan is required to supply consumable parts for the dredger to Fujian Service every month, and Fujian Service is required to pay a fixed amount of approximately $0.05 million (RMB0.3 million) per month for such consumable parts. A guarantee deposit of approximately $5.0 million (RMB32.5 million), respectively, was required seven days after the signing of the agreements and is refundable to the Company seven days after the contract has expired.

(b)

Cancellation of lease agreements

On August 10, 2011, the Company’s subsidiary, Fujian Service and Zhejiang Honglin mutually agreed to terminate the lease agreements of Honglinjun 9, together with the related crew hire agreements.

F-110

CHARDAN ACQUISITION CORP.

(A DEVELOPMENT STAGE COMPANY)

CONTENTS

	PAGE
CONDENSED BALANCE SHEETS AS OF JUNE 30, 2010 (UNAUDITED) AND AS OF SEPTEMBER 30, 2009	F-112
CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009 AND FOR THE PERIOD FROM SEPTEMBER 26, 2008 (INCEPTION) TO JUNE 30, 2010 (UNAUDITED)	F-113
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY FOR THE PERIOD FROM SEPTEMBER 26, 2008 (INCEPTION) TO JUNE 30, 2010 (UNAUDITED)	F-114
CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 2010 AND 2009 AND FOR THE PERIOD FROM SEPTEMBER 26, 2008 (INCEPTION) TO JUNE 30, 2010 (UNAUDITED)	F-115
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)	F-116 – F-118

F-111

Chardan Acquisition Corp.

(A Development Stage Company)

Condensed Balance Sheets

	June 30, 2010			September 30, 2009
	(Unaudited)
ASSETS
Current Assets
Prepaid Expense	$	1,515		$	—
Total Assets	$	1,515		$	—
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current Liabilities
Accounts payable	$	750		$	8,411
Note payable – related party		33,688			4,065
Total Liabilities		34,438			12,476
Commitments and Contingencies
Stockholders’ Deficiency
Common stock, no par value; 50,000 shares authorized, 50,000 and 50,000 shares issued and outstanding, respectively		31,499			23,010
Deficit accumulated during the development stage		(64,422	)		(35,486	)
Total Stockholders’ Deficiency		(32,923	)		(12,476	)
Total Liabilities and Stockholders’ Deficiency	$	1,515		$	—

See accompanying notes to condensed unaudited financial statements

F-112

Chardan Acquisition Corp.

(A Development Stage Company)

Condensed Statements of Operations

(Unaudited)

	For the Three Months Ended June 30, 2010			For the Three Months Ended June 30, 2009			For the Nine Months Ended June 30, 2010			For the Nine Months Ended June 30, 2009			For the Period from September 26, 2008 (Inception) to June 30, 2010
Operating Expenses
Professional fees	$	10,540		$	4,950		$	17,669		$	18,794		$	41,073
General and administrative		4,050			3,679			10,578			9,472			22,660
Total Operating Expenses		14,590			8,629			28,247			28,266			63,733
Loss from Operations		(14,590	)		(8,629	)		(28,247	)		(28,266	)		(63,733	)
Other Expenses
Interest Expense		(378	)		—			(689	)		—			(689	)
LOSS FROM OPERATIONS BEFORE INCOME TAXES		(14,968	)		(8,629	)		(28,936	)		(28,266	)		(64,422	)
Provision for Income Taxes		—			—			—			—			—
NET LOSS	$	(14,968	)	$	(8,629	)	$	(28,936	)	$	(28,266	)	$	(64,422	)
Net Loss Per Share – Basic and Diluted	$	(0.30	)	$	(0.17	)	$	(0.58	)	$	(0.64	)
Weighted average number of shares outstanding during the period – Basic and Diluted		50,000			50,000			50,000			44,493

See accompanying notes to condensed unaudited financial statements

F-113

Chardan Acquisition Corp.

(A Development Stage Company)

Condensed Statement of Changes in Stockholders’ Deficiency

For the Period from September 26, 2008 (Inception) to June 30, 2010

(Unaudited)

	Common stock				Deficit accumulated during development stage			Total Stockholders’ Deficiency
	Shares		Amount
Balance, September 26, 2008 (Inception)		—	$	—	$	—		$	—
Common stock issued for services to founder ($0.0027/Sh)		3,676		10		—			10
Net loss for the period from September 26, 2008 (inception) to September 30, 2008		—		—		(1,510	)		(1,510	)
Balance, September 30, 2008		3,676		10		(1,510	)		(1,500	)
Common stock issued for cash ($0.27/Sh)		46,324		12,600		—			12,600
In-kind contribution of services		—		10,400		—			10,400
Net loss for the year ended September 30, 2009		—		—		(33,976	)		(33,976	)
Balance, September 30, 2009		50,000		23,010		(35,486	)		(12,476	)
In-kind contribution of services		—		7,800		—			7,800
In-kind contribution of interest		—		689		—			689
Net loss for the nine months ended June 30, 2010		—		—		(28,936	)		(28,936	)
Balance, June 30, 2010		50,000	$	31,499	$	(64,422	)	$	(32,923	)

See accompanying notes to condensed unaudited financial statements

F-114

Chardan Acquisition Corp.

(A Development Stage Company)

Condensed Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended June 30, 2010			For the Nine Months Ended June 30, 2009			For the Period from September 26, 2008 (Inception) to June 30, 2010
Cash Flows Used In Operating Activities:
Net Loss	$	(28,936	)	$	(28,266	)	$	(64,422	)
Adjustments to reconcile net loss to net cash used in operations
Common stock issued for services		—			—			10
In-kind contribution of interest		689			—			689
In-kind contribution of services		7,800			7,800			18,200
Changes in operating assets and liabilities:
Increase in prepaid expenses		(1,515	)		—			(1,515	)
Increase in accounts payable		(7,661	)		3,800			750
Net Cash Used In Operating Activities		(29,623	)		(16,666	)		(46,288	)
Cash Flows From Financing Activities:
Proceeds from loan payable – related party		29,623			4,066			33,688
Proceeds from issuance of common stock		—			12,600			12,600
Net Cash Provided by Financing Activities		29,623			16,666			46,288
Net Increase in Cash		—			—			—
Cash at Beginning of Period		—			—			—
Cash at End of Period	$	—		$	—		$	—
Supplemental disclosure of cash flow information:
Cash paid for interest	$	—		$	—		$	—
Cash paid for taxes	$	—		$	—		$	—

See accompanying notes to condensed unaudited financial statements

F-115

CHARDAN ACQUISITION CORP.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

(A) Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in The United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.

It is management’s opinion, however that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.

Activities during the development stage include developing the business plan and raising capital.

(B) Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. As of June 30, 2010 and September 30, 2009, respectively, the Company had no cash equivalents.

(D) Loss Per Share

Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by FASB Accounting Standards Codification Topic 260, “Earnings Per Share.” As of June 30, 2010 and September 30, 2009, respectively, there were no common share equivalents outstanding.

(E) Income Taxes

In the BVI, there are no income or other business taxes applicable to the Company. However, the facts and circumstances of the Redomestication are such that Company management believes the Company remains subject to the continuing tax jurisdiction of the United States and accruals of tax reflect that assumption. The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

(F) Business Segments

The Company operates in one segment and therefore segment information is not presented.

(G) Revenue Recognition

The Company will recognize revenue on arrangements in accordance with FASB ASC No. 605, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.

F-116

(H) Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) No. 2009-13, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit and modifies the manner in which the transaction consideration is allocated across the separately identified deliverables. The ASU significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. The ASU will be effective for the first annual reporting period beginning on or after June 15, 2010, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. Early adoption is permitted, provided that the guidance is retroactively applied to the beginning of the year of adoption. The Company does not expect the adoption of ASU No. 2009-13 to have any effect on its financial statements upon its required adoption on January 1, 2011.

(I) Fair Value of Financial Instruments

The carrying amounts on the Company’s financial instruments including accounts payable, approximate fair value due to the relatively short period to maturity for this instrument.

NOTE 2 NOTE PAYABLE — RELATED PARTY

For the year ended September 30, 2009, Chardan Capital Markets, LLC, the Company’s controlling shareholder and related party, loaned the Company $4,065. The Company entered into a written promissory note concerning this obligation. The loan is non-interest bearing and payable on demand.

For the nine months ended June 30, 2010, Chardan Capital Markets, LLC, a related party, loaned the Company $29,623. The Company entered into a written promissory note concerning this obligation. The loan is non-interest bearing and payable on demand.

As of June 30, 2010, total loan payable — related party is $33,688 (see Note 4).

NOTE 3 STOCKHOLDERS’ DEFICIENCY

(A) Stock Issued for Services

On September 26, 2008, the Company issued 3,676 shares of common stock to its founder having a fair value of $10 ($0.0027/share) in exchange for services provided. See Note 3(D) and 4.

(B) Stock Issued for Cash

On November 4, 2008, the Company issued 46,324 shares of common stock for cash of $12,600 ($0.27/share) to a related party. See Note 3(D) and 4.

For the year ended September 30, 2009, the shareholders of the Company contributed services having a fair value of $10,400 (see Note 4).

For the nine months ended June 30, 2010, the shareholders of the Company contributed services having a fair value of $7,800 (see Note 4).

For the nine months ended June 30, 2010 the shareholder of the Company contributed $689 of in kind contribution of interest on behalf of the Company (see Note 4).

(D) Amendment to Articles of Incorporation/Redomestication

Effective May 25, 2010, the Company effected a change in domicile from the State of Nevada to the Territory of the British Virgin Islands. Effective the same date, the Company’s authorized capital was changed from 100,000,000 common shares $0.0001 par value to 50,000 common shares without a par value and from 10,000,000 preferred shares $0.0001 par value to no preferred shares authorized. Common Stock is the only authorized capital of the Company. All basic and diluted loss per share and average shares outstanding information has been adjusted to reflect the Redomestication from the date of inception.

NOTE 4 RELATED PARTY TRANSACTIONS

For the year ended September 30, 2009, Chardan Capital Markets, LLC, a related party, loaned the Company $4,065. The Company entered into a written promissory note concerning this obligation. The loan is noninterest bearing and payable on demand.

F-117

As of June 30, 2010, the total loan payable — related party is $33,688 (see Note 2).

For the nine months ended June 30, 2010 a shareholder of the Company contributed $689 of in kind contribution of interest on behalf of the Company (see Note 3(C)).

For the year ended September 30, 2009, the shareholders of the Company contributed services having a fair value of $10,400 (see Note 3(C)).

For the nine months ended June 30, 2010 the shareholders of the Company contributed services having a fair value of $7,800 (see Note 3(C)).

On November 4, 2008, the Company issued 46,324 shares of common stock for cash of $12,600 ($0.27/share) to CCM, a related party (see Note 3(B)).

On September 26, 2008, the Company issued 3,676 shares of common stock to its founder having a fair value of $10 ($0.0027/share) in exchange for services provided (see Note 3(A)).

NOTE 5 GOING CONCERN

As reflected in the accompanying condensed unaudited financial statements, the Company is in the development stage with no operations and has a net loss of $64,422 for the period from September 26, 2008 (inception) to June 30, 2010; and a working capital deficiency and stockholders’ deficiency of $32,923 at June 30, 2010. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.

NOTE 6 SUBSEQUENT EVENT

On July 28, 2010, the Company’s sole Director authorized a change in the Company’s fiscal year end to January 31 from September 30.

F-118

CHARDAN ACQUISITION CORP.

(A DEVELOPMENT STAGE COMPANY)

CONTENTS

	PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-120
BALANCE SHEETS AS OF JANUARY 31, 2010 AND SEPTEMBER 30, 2009	F-121
STATEMENTS OF OPERATIONS FOR THE PERIOD FROM OCTOBER 1, 2009 TO JANUARY 31 2010, FOR THE PERIOD FROM OCTOBER 1, 2008 TO JANUARY 31, 2009 (UNAUDITED), FOR THE YEAR ENDED SEPTEMBER 30, 2009, FOR THE PERIOD FROM SEPTEMBER 26, 2008 (INCEPTION) TO SEPTEMBER 30, 2008 AND FOR THE PERIOD FROM SEPTEMBER 26, 2008 (INCEPTION) TO JANUARY 31, 2010	F-122
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY FOR THE PERIOD FROM SEPTEMBER 26, 2008 (INCEPTION) TO JANUARY 31, 2010	F-123
STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM OCTOBER 1, 2009 TO JANUARY 31 2010, FOR THE PERIOD FROM OCTOBER 1, 2008 TO JANUARY 31, 2009 (UNAUDITED), FOR THE YEAR ENDED SEPTEMBER 30, 2009, FOR THE PERIOD FROM SEPTEMBER 26, 2008 (INCEPTION) TO SEPTEMBER 30, 2008 AND FOR THE PERIOD FROM SEPTEMBER 26, 2008 (INCEPTION) TO JANUARY 31, 2010	F-124
NOTES TO FINANCIAL STATEMENTS.	F-125 – F-128

F-119

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of:

Chardan Acquisition Corp.

(A Development Stage Company)

We have audited the accompanying balance sheets of Chardan Acquisition Corp. (a development stage company) as of January 31, 2010 and September 30, 2009, and the related statements of operations, changes in stockholders’ deficiency and cash flows for the four month period ended January 31, 2010, the year ended September 30, 2009, the period from September 26, 2008 (Inception) to September 30, 2008 and the period from September 26, 2008 (Inception) to January 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of Chardan Acquisition Corp. (a development stage company) as of January 31, 2010 and September 30, 2009 and the results of its operations and its cash flows for the four month period ended January 31, 2010, the year ended September 30, 2009, the period from September 26, 2008 (Inception) to September 30, 2008 and the period from September 26, 2008 (Inception) to January 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 5 to the financial statements, the Company has no operations and has a net loss of $47,682 from Inception, a working capital and stockholders’ deficiency of $20,935 at January 31, 2010 and used cash in operations from $18,781 from Inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 5. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

WEBB & COMPANY, P.A.

Certified Public Accountants

Boynton Beach, Florida

August 30, 2010

F-120

Chardan Acquisition Corp.

(A Development Stage Company)

Balance Sheets

	January 31, 2010			September 30, 2009
ASSETS
Total Assets	$	—		$	—
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current Liabilities
Loans payable – related party	$	14,754		$	8,411
Accounts payable		6,181			4,065
Total Liabilities		20,935			12,476
Commitments and Contingencies		—			—
Stockholders’ Deficiency
Common stock, no par value; 50,000 shares authorized, 50,000 and 50,000 shares issued and outstanding, respectively		26,747			23,010
Deficit accumulated during the development stage		(47,682	)		(35,486	)
Total Stockholders’ Deficiency		(20,935	)		(12,476	)
Total Liabilities and Stockholders’ Deficiency	$	—		$	—

See accompanying notes to financial statements.

F-121

Chardan Acquisition Corp.

(A Development Stage Company)

Statements of Operations

	For the Period From October 1, 2009 to January 31, 2010			For the Period From October 1, 2008 to January 31, 2009			For the Year Ended September 30, 2009			For the Period from September 26, 2008 (Inception) to September 30, 2008			For the Period from September 26, 2008 (Inception) to January 31, 2010
				(Unaudited)
Operating Expenses
Professional fees	$	7,129		$	13,019		$	21,904		$	1,500		$	30,533
General and administrative		4,797			4,035			12,072			10			16,879
Total Operating Expenses		11,926			17,054			33,976			1,510			47,412
Loss from Operations		(11,926	)		(17,054	)		(33,976	)		(1,510	)		(47,412	)
Other Expenses
Interest Expense		(270	)		—			—			—			(270	)
LOSS FROM OPERATIONS BEFORE INCOME TAXES		(12,196	)		(17,054	)		(33,976	)		(1,510	)		(47,682	)
Provision for Income Taxes		—			—			—			—			—
NET LOSS	$	(12,196	)	$	(17,054	)	$	(33,976	)	$	(1,510	)	$	(47,682	)
Net Loss Per Share – Basic and Diluted	$	(0.24	)	$	(0.46	)	$	(0.74	)	$	(0.41	)
Weighted average number of shares outstanding during the period – Basic and Diluted		50,000			37,090			45,673			3,676

See accompanying notes to financial statements.

F-122

Chardan Acquisition Corp.

(A Development Stage Company)

Statement of Changes in Stockholders’ Deficiency

For the Period from September 26, 2008 (Inception) to January 31, 2010

	Common stock				Deficit accumulated during development stage			Total Stockholders’ Deficiency
	Shares		Amount
Balance, September 26, 2008 (inception)		—	$	—	$	—		$	—
Common stock issued for services to founder ($0.0027/Sh)		3,676		10		—			10
Net loss for the period from September 26, 2008 (inception) to September 30, 2008		—		—		(1,510	)		(1,510	)
Balance, September 30, 2008		3,676		10		(1,510	)		(1,500	)
Common stock issued for cash ($0.27/Sh)		46,324		12,600		—			12,600
In kind contribution of services		—		10,400		—			10,400
Net loss for the year ended September 30, 2009		—		—		(33,976	)		(33,976	)
Balance, September 30, 2009		50,000		23,010		(35,486	)		(12,476	)
In kind contribution of services		—		3,467		—			3,467
In kind contribution of interest		—		270		—			270
Net loss for the period from October 1, 2009 to January 31, 2010		—		—		(12,196	)		(12,196	)
Balance, January 31, 2010		50,000	$	26,747	$	(47,682	)	$	(20,935	)

See accompanying notes to financial statements.

F-123

Chardan Acquisition Corp.

(A Development Stage Company)

Statements of Cash Flows

	For the Period from October 1, 2009 to January 31, 2010			For the Period from October 1, 2008 to January 31, 2009			For the Year Ended September 30, 2009			For the Period From September 26, 2008 (Inception) to September 30, 2008			For the Period from September 26, 2008 (Inception) to January 31, 2010
				(Unaudited)
Cash Flows Used In Operating Activities:
Net Loss	$	(12,196	)	$	(17,054	)	$	(33,976	)	$	(1,510	)	$	(47,682	)
Adjustments to reconcile net loss to net cash used in operations
Common stock issued for services		—			—			—			10			10
In-kind contribution of interest		270			—			—			—			270
In-kind contribution of services		3,467			3,467			10,400			—			13,867
Changes in operating assets and liabilities:
Increase in accounts payable		6,343			987			6,911			1,500			14,754
Net Cash Used In Operating Activities		(2,116	)		(12,600	)		(16,665	)		—			(18,781	)
Cash Flows From Financing Activities:
Proceeds from loan payable – related party		2,116			—			4,065			—			6,181
Proceeds from issuance of common stock		—			12,600			12,600			—			12,600
Net Cash Provided by Financing Activities		2,116			12,600			16,665			—			18,781
Net Increase in Cash		—			—			—			—			—
Cash at Beginning of Period		—			—			—			—			—
Cash at End of Period	$	—		$	—		$	—		$	—		$	—
Supplemental disclosure of cash flow information:
Cash paid for interest	$	—		$	—		$	—		$	—		$	—
Cash paid for taxes	$	—		$	—		$	—		$	—		$	—

See accompanying notes to financial statements.

F-124

CHARDAN ACQUISITION CORP.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

(A) Organization

Chardan Acquisition Corp. (a development stage company) (the “Company”) was incorporated under the laws of the State of Nevada on September 26, 2008. Effective May 25, 2010, the Company redomesticated from the State of Nevada to the Territory of the British Virgin Islands.

The Company was formed to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. It has been in the developmental stage since inception and has no operations to date other than issuing shares to the Company’s original shareholder. It will attempt to locate and negotiate with a business entity for the combination of that target company with us. The combination will normally take the form of a merger, stock- for-stock exchange or stock-for-assets exchange. In most instances, the target company will wish to structure the business combination to be within the definition of a tax-free reorganization under Section 351 or Section 368 of the Internal Revenue Code of 1986, as amended. No assurances can be given that it will be successful in locating or negotiating with any target company.

Activities during the development stage include developing the business plan and raising capital.

(B) Use of Estimates

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. As of January 31, 2010 and September 30, 2009, respectively, the Company had no cash equivalents.

(D) Loss Per Share

Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by FASB Accounting Standards Codification Topic 260, “Earnings Per Share.” As of January 31, 2010, January 31, 2009, September 30, 2009, and September 30, 2008, respectively, there were no common share equivalents outstanding.

(E) Income Taxes

In the BVI, there are no income or other business taxes applicable to the Company. However, the facts and circumstances of the Redomestication are such that the Company management believes the Company remains subject to the continuing jurisdiction of the United States and accruals of tax reflect that assumption. The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

As of January 31, 2010, the Company has net operating loss carryforwards of approximately $33,500 available to offset future taxable income through 2030. The valuation allowance for the period from October 1, 2009 to January 31, 2010 was $11,402. The valuation allowance at September 30, 2009 was $8,526. The net change in the valuation allowance for the period ended January 31, 2010 was an increase of $2,876.

F-125

	January 31, 2010			September 30, 2009
Expected income tax recovery (expense) at the statutory rate of 34%	$	(4,147	)	$	(11,552	)
Tax effect of expenses that are not deductible for income tax purposes (net of other amounts deductible for tax purposes)		1,271			3,536
Tax effect of differences in the timing of deductibility of items for income tax purposes		—			—
Change in valuation allowance		2,876			8,016
Provision for income taxes	$	—		$	—

The components of deferred income taxes are as follows:

	January 31, 2010			September 30, 2009
Deferred income tax asset:
Net operating loss carryforwards	$	11,402		$	8,526
Valuation allowance		(11,402	)		(8,526	)
Deferred income taxes	$	—		$	—

(F) Business Segments

The Company operates in one segment and therefore segment information is not presented.

(G) Revenue Recognition

(H) Recent Accounting Pronouncements

NOTE 2 NOTE PAYABLE — RELATED PARTY

For the year ended September 30, 2009, a related party loaned the Company $4,065. The Company entered into a written promissory note concerning this obligation. The loan is noninterest bearing and payable on demand (see Note 4).

As of January 31, 2010, total loan payable — related party is $6,181 (see Note 4).

NOTE 3 STOCKHOLDERS’ DEFICIENCY

(A) Stock Issued for Services

On September 26, 2008, the Company issued 3,676 shares of common stock to its founder having a fair value of $10 ($0.0027/share) in exchange for services provided (see Note 3(D) and 4).

(B) Stock Issued for Cash

On November 4, 2008, the Company issued 46,324 shares of common stock for cash of $12,600 ($0.27/share) to a related party (see Note 3(D) and 4).

For the period from October 1, 2009 to January 31, 2010, the shareholder of the Company contributed $270 of in kind contribution of interest on behalf of the Company (see Note 4).

F-126

For the year ended September 30, 2009, the shareholders of the Company contributed services having a fair value of $10,400 (see Note 4).

For the period from October 1, 2009 to January 31, 2010, the shareholders of the Company contributed services having a fair value of $3,467 (see Note 4).

(D) Amendment to Articles of Incorporation/Redomestication

Effective May 25, 2010, the Company redomesticated from the State of Nevada to the Territory of the British Virgin Islands. Effective the same date, the Company’s authorized capital was changed from 100,000,000 of common shares $0.0001 par value to 50,000 common shares without a par value and from 10,000,000 of preferred shares $0.0001 par value to no preferred shares authorized. Common Stock is the only authorized capital of the Company. All basic and diluted loss per share and average shares outstanding information has been adjusted to reflect the aforementioned redomestication.

NOTE 4 RELATED PARTY TRANSACTIONS

For the period from October 1, 2009 to January 31, 2010, a related party loaned the Company $2,116. The Company entered into various written promissory notes concerning those obligations. These loans are non-interest bearing and payable on demand.

As of January 31, 2010, total loan payable — related party is $6,181 (see Note 2).

For the period from October 1, 2009 to January 31, 2010, the shareholder of the Company contributed $270 of in kind contribution of interest on behalf of the Company (see Note 3(C)).

For the year ended September 30, 2009, the shareholders of the Company contributed services having a fair value of $10,400 (see Note 3(C)).

For the period from October 1, 2009 to January 31, 2010, the shareholders of the Company contributed services having a fair value of $3,467 (see Note 4).

On November 4, 2008, the Company issued 46,324 shares of common stock for cash of $12,600 ($0.27/share) to a related party (see Note 3 (B)).

On September 26, 2008, the Company issued 3,676 shares of common stock to its founder having a fair value of $10 ($0.0027/share) in exchange for services provided (see Note 3(A)).

NOTE 5 GOING CONCERN

As reflected in the accompanying financial statements, the Company is in the development stage with no operations and has a net loss of $47,682 for the period from September 26, 2008 (inception) to January 31, 2010; and a working capital deficiency and stockholders’ deficiency of $20,935 at January 31, 2010. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.

NOTE 6 SUBSEQUENT EVENTS

On July 28, 2010, the Company’s Board of Directors authorized a change in the Company’s fiscal year end to January 31 from September 30.

On March 10, 2010, a related party loaned the Company $8,801. The Company entered into a written promissory note concerning this obligation. The loan is noninterest bearing and payable on demand.

On March 25, 2010, a related party loaned the Company $3,975. The Company entered into a written promissory note concerning this obligation. The loan is noninterest bearing and payable on demand.

On March 26, 2010, a related party loaned the Company $1,028. The Company entered into a written promissory note concerning this obligation. The loan is noninterest bearing and payable on demand.

On April 27, 2010, a related party loaned the Company $3,355. The Company entered into a written promissory note concerning this obligation. The loan is noninterest bearing and payable on demand.

F-127

On August 14, 2010, a related party loaned the Company $10,350. The Company entered into a written promissory note concerning this obligation. The loan is noninterest bearing and payable on demand.

F-128

CHARDAN ACQUISITION CORP. (A DEVELOPMENT STAGE COMPANY)

CONTENTS

	PAGE
CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 2010 (UNAUDITED) AND AS OF JANUARY 31, 2010	F-130
CONDENSED STATEMENTS OF OPERATIONS FOR THE PERIOD FROM FEBRUARY 1, 2010 TO SEPTEMBER 30, 2010 (UNAUDITED) AND THE PERIOD FROM SEPTEMBER 26, 2008 (INCEPTION) TO JANUARY 31, 2010	F-131
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY FOR THE PERIOD FROM SEPTEMBER 26, 2008 (INCEPTION) TO SEPTEMBER 30, 2010 (UNAUDITED)	F-132
CONDENSED STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM FEBRUARY 1, 2010 TO SEPTEMBER 30, 2010 (UNAUDITED) AND FOR THE PERIOD FROM SEPTEMBER 26, 2008 (INCEPTION) TO JANUARY 31, 2010	F-133
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)	F-134 – F-136

F-129

Chardan Acquisition Corp.

(A Development Stage Company)

Condensed Balance Sheets

	September 30, 2010			January 31, 2010
	(Unaudited)			(Audited)
ASSETS
Current Assets
Prepaid Expense	$	1,010		$	—
Total Assets	$	1,010		$	—
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current Liabilities
Accounts payable	$	16,524		$	6,181
Note payable – related party		34,640			14,754
Total Liabilities		51,164			20,935
Commitments and Contingencies Stockholders’ Deficiency
Common stock, no par value; 50,000 shares authorized, 50,000 and 50,000 shares issued and outstanding, respectively		34,098			26,747
Deficit accumulated during the development stage		(84,252	)		(47,682	)
Total Stockholders’ Deficiency		(50,154	)		(20,935	)
Total Liabilities and Stockholders’ Deficiency	$	1,010		$	—

See accompanying notes to condensed unaudited financial statements.

F-130

Chardan Acquisition Corp.

(A Development Stage Company)

Condensed Statements of Operations

	For the Period from February 1, 2010 to September 30, 2010			For the Period from September 26, 2008 (Inception) to January 31, 2010
	Unaudited			Audited
Operating Expenses
Professional fees	$	26,514		$	30,533
General and administrative		9,637			16,879
Total Operating Expenses		36,151			47,412
Loss from Operations		(36,151	)		(47,412	)
Other Expenses
Interest Expense		(419	)		(270	)
LOSS FROM OPERATIONS BEFORE INCOME TAXES		(36,570	)		(47,682	)
Provision for Income Taxes		—			—
NET LOSS	$	(36,570	)	$	(47,682	)
Net Loss Per Share – Basic and Diluted	$	(0.73	)	$	(0.95	)
Weighted average number of shares outstanding during the period – Basic and Diluted		50,000			50,000

See accompanying notes to condensed unaudited financial statements.

F-131

Chardan Acquisition Corp.

(A Development Stage Company)

Condensed Statement of Changes in Stockholders’ Deficiency

For the Period from September 26, 2008 (Inception) to September 30, 2010

(Unaudited)

	Common stock				Deficit accumulated			Total Stockholders’
	Shares		Amount		during development stage			Deficiency
Balance, September 26, 2008 (inception)	$	—	$	—	$	—		$	—
Common stock issued for services to founder ($0.0027/Sh)		3,676		10		—			10
Common stock issued for cash ($0.27/Sh)		46,324		12,600		—			12,600
In-kind contribution of service		—		13,867		—			13,867
In-kind contribution of interest		—		270		—			270
Net loss for the period September 26, 2008 (inception) to January 31, 2010		—		—		(47,682	)		(47,682	)
Balance, January 31, 2010		50,000		26,747		(47,682	)		(20,935	)
In-kind contribution of services		—		6,932		—			6,932
In-kind contribution of interest		—		419		—			419
Net loss for the period ended September 30, 2010		—		—		(36,570	)		(36,570	)
Balance, September 30, 2010		50,000	$	34,098	$	(84,252	)	$	(50,154	)

See accompanying notes to condensed unaudited financial statements.

F-132

Chardan Acquisition Corp.

(A Development Stage Company)

Condensed Statements of Cash Flows

(Unaudited)

	For the Period from February 1, 2010 to September 30, 2010			For the Period from September 26, 2008 (Inception) to January 31, 2010
	Unaudited			Audited
Cash Flows Used In Operating Activities:
Net Loss	$	(36,570	)	$	(47,682	)
Adjustments to reconcile net loss to net cash used in operations
Common stock issued for services		—			10
In-kind contribution of interest		419			270
In-kind contribution of services		6,932			13,867
Changes in operating assets and liabilities:
Increase in prepaid expenses		(1,010	)		—
Increase in accounts payable		10,343			14,754
Net Cash Used In Operating Activities		(19,886	)		(18,781	)
Cash Flows From Financing Activities:
Proceeds from loan payable-related party		19,886			6,181
Proceeds from issuance of common stock		—			12,600
Net Cash Provided by Financing Activities		28,459			18,781
Net Increase in Cash		—			—
Cash at Beginning of Period		—			—
Cash at End of Period	$	—		$	—
Supplemental disclosure of cash flow information:
Cash paid for interest	$	—		$	—
Cash paid for taxes	$	—		$	—

See accompanying notes to condensed unaudited financial statements.

F-133

CHARDAN ACQUISITION CORP.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

(A) Basis of Presentation

Activities during the development stage include developing the business plan and raising capital.

Effective May 25, 2010, the Company’s domicile was changed from the State of Nevada to the Territory of the British Virgin Islands (“BVI”) through a re-registration and continuation process (the “Redomestication”). As a result of the continuation, the Company’s ordinary shares outstanding was designated as 50,000, and this number of shares has been used on a retroactively herein as applicable.

(B) Use of Estimates

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. As of September 30, 2010 and January 31, 2010, respectively, the Company had no cash equivalents.

(D) Loss Per Share

(E) Income Taxes

(F) Business Segments

The Company operates in one segment and therefore segment information is not presented.

(G) Revenue Recognition

F-134

(H) Recent Accounting Pronouncements

In May 2009, the FASB issued guidance within Topic 855-10 (formerly SFAS 165, “Subsequent Events”) relating to subsequent events. This guidance establishes principles and requirements for subsequent events. This guidance defines the period after the balance sheet date during which events or transactions that may occur would be required to be disclosed in a company’s financial statements. Public entities are required to evaluate subsequent events through the date that financial statements are issued. This guidance also provides guidelines in evaluating whether or not events or transactions occurring after the balance sheet date should be recognized in the financial statements. This guidance requires disclosure of the date through which subsequent events have been evaluated. This Statement is effective for interim and annual periods ending after June 15, 2009. The company has adopted this standard as of September 30, 2010. The adoption of this standard does not have a material impact on the company’s financial statements.

(I) Fair Value of Financial Instruments

The carrying amounts on the Company’s financial instruments including accounts payable, approximate fair value due to the relatively short period to maturity for this instrument.

NOTE 2 NOTE PAYABLE — RELATED PARTY

For the period ended January 31, 2010, Chardan Capital Markets, LLC, the Company’s controlling shareholder and related party, loaned the Company $14,754. The Company entered into a written promissory note concerning this obligation. The loan is noninterest bearing and payable on demand.

For the period ended September 30, 2010, Chardan Capital Markets, LLC, a related party, loaned the Company $19,886. The Company entered into a written promissory note concerning this obligation. The loan is not interest-bearing and is payable on demand.

As of September 30, 2010, the total loan payable — related party is $34,640.

NOTE 3 STOCKHOLDERS’ DEFICIENCY

(A) Stock Issued for Services

On September 26, 2008, the Company issued 3,676 shares of common stock to its founder having a fair value of $10 ($0.0027/share) in exchange for services provided. See Note 3(D) and 4.

(B) Stock Issued for Cash

On November 4, 2008, the Company issued 46,324 shares of common stock for cash of $12,600 ($0.27/share) to a related party. See Note 3(D) and 4.

For the period ended January 31, 2010, the shareholders of the Company contributed services having a fair value of $13,867 (see Note 4).

For the period ended September 30, 2010, the shareholders of the Company contributed services having a fair value of $6,932 (see Note 4).

For the period ended January 31, 2010, the shareholders of the Company contributed $270 of in kind contribution of interest on behalf of the Company (see Note 4).

For the period ended September 30, 2010 the shareholder of the Company contributed $419 of in kind contribution of interest on behalf of the Company (see Note 4).

(D) Amendment to Articles of Incorporation/Redomestication

F-135

NOTE 4 RELATED PARTY TRANSACTIONS

For the period ended January 31, 2010, Chardan Capital Markets, LLC, a related party, loaned the Company $14,754. The Company entered into a written promissory note concerning this obligation. The loan is not interest-bearing and is payable on demand.

As of September 30, 2010, the total loan payable — related party is $34,640 (see Note 2).

For the period ended January 31, 2010 a shareholder of the Company contributed $270 of in kind contribution of interest on behalf of the Company (see Note 3(C)).

For the period ended September 30, 2010, the shareholders of the Company contributed $419 of in kind contribution of interest on behalf of the Company (see Note 3(C)).

On November 4, 2008, the Company issued 46,324 shares of common stock for cash of $12,600 ($0.27/share) to CCM, a related party (see Note 3 (B)).

On September 26, 2008, the Company issued 3,676 shares to its founder having a fair value of $10 ($0.0027/share) in exchange for services provided (see Note 3(A)).

NOTE 5 SUBSEQUENT EVENT

On October 27, 2010, the Company entered into a merger with China Dredging Group Co., Ltd. China Dredging Group Co., Ltd. was the surviving entity in the Merger. Pursuant to the merger agreement and upon the consummation thereof (i) all liabilities of the Company were satisfied or assumed by Chardan Capital Markets, LLC, a related party, including contingent tax liabilities arising from the merger, (ii) all promissory notes and other liabilities to Chardan Capital Markets, LLC were extinguished pursuant to a capital contribution agreement, and (iii) the Company was removed from the corporate register in the British Virgin Islands.

F-136

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under BVI law, each director of the registrant, when exercising powers or performing duties as a director, is required to act honestly and in good faith in what the director believes to be to the registrant’s best interests and to exercise the care, diligence and skill that a reasonable director would exercise in comparable circumstances. The registrant’s memorandum and articles of association provide that, to the fullest extent permitted by BVI law, the registrant may indemnify our directors against claims by its shareholders for any acts or omissions in the performance of their duties. Such indemnification does not affect the availability of equitable remedies such as injunctive relief or rescission. These provisions will not limit the liability of directors under United States federal securities laws.

The registrant may indemnify any of its directors, officers, agents, a liquidator appointed in relation to it or anyone serving at its request as a director of another entity against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings to the maximum extent permitted by law. The registrant may only indemnify a person if he or she acted honestly and in good faith in what the person believed to be the registrant’s best interests and, in the case of criminal proceedings, the person had no reasonable cause to believe that his or her conduct was unlawful. The decision of the registrant board of directors as to whether the person acted honestly and in good faith in what the person believed the registrant’s best interests and as to whether the person had no reasonable cause to believe that his or her conduct was unlawful, is, in the absence of fraud, sufficient for the purposes of indemnification, unless a question of law is involved. The termination of any proceedings by any judgment, order, settlement, conviction or the entry of no plea does not, by itself, create a presumption that a person did not act honestly and in good faith and with a view to our best interests or that the person had reasonable cause to believe that his or her conduct was unlawful. If a person to be indemnified has been successful in defense of any proceedings referred to above, the person is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the person in connection with the proceedings.

The registrant may purchase and maintain insurance in relation to any of its directors or officers against any liability asserted against the directors or officers and incurred by the directors or officers in that capacity, whether or not the registrant has or would have had the power to indemnify the directors or officers against the liability as provided in the registrant’s memorandum and articles of association.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable as a matter of United States law.

ITEM 7. RECENT SALES OF UNREGISTERED SECURITIES

The Redomicile, the Merger and 2010 Private Placement

In May 2010, CAC changed its domicile from Nevada to the BVI. In connection therewith, CAC’s only two shareholders, each accredited investors, exchanged an aggregate of 1,360,000 shares of common stock in the Nevada corporation for an aggregate of 50,000 ordinary shares of the BVI company, for no other consideration. The exchange of shares was conducted without any general solicitation or general advertising. The registrant believes that this transaction did not require registration under the Securities Act in reliance on Section 4(2) of the Securities Act regarding transactions not involving a public offering.

In October 2010, the registrant merged with CAC, a public reporting, non-trading shell company domiciled in the BVI. The registrant refers to this transaction as the “Merger.” Immediately prior to the consummation of the Merger, the registrant redesignated its shares to retroactively adjust its legal capital. At the time of the Merger, all of the issued and outstanding shares of CAC were exchanged for 500,000, or 0.95%, of the registrant’s issued and outstanding ordinary shares, while the registrant’s shareholders immediately prior to the Merger retained 52,177,323, or 99.05%, of its issued and outstanding ordinary shares.

Concurrently with the closing of the Merger, the registrant entered into a securities purchase agreement, or the Purchase Agreement, with certain accredited investors. Pursuant to the Purchase Agreement, through multiple closings between October and December 2010, such investors purchased 10,012,987 of the registrant’s preferred shares, at a purchase price of $5.00 per share, for aggregate proceeds of approximately $50.1 million. Chardan Capital Markets, LLC acted as the lead placement agent in connection with the private placement. The transaction did not involve any general advertisement or solicitation.

II-1

The registrant believes that each of the above issuances did not require registration under the Securities Act in reliance on Regulation S under the Securities Act for offshore offerings and/or Section 4(2) of the Securities Act regarding transactions not involving a public offering.

ITEM 8. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

See Exhibit Index.

The agreements included as exhibits to this registration statement contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of “materiality” that are different from “materiality” under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.

The registrant acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, the registrant is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this registration statement not misleading.

(b) Financial Statement Schedules

Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the Consolidated Financial Statements or the notes thereto.

ITEM 9. UNDERTAKINGS

a.	The undersigned registrant hereby undertakes:

To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

ii.

To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

iii.

To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3.

II-2

That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 6 of Form F-1, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Fuzhou City, China, on January 24, 2012.

		China Dredging Group Co., Ltd.

	By:	/s/ Xinrong Zhuo
		Xinrong Zhuo
		Chairman of the Board of Directors
		and Chief Executive Officer

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities indicated and on January 24, 2012.

Signature		Title

/s/ Xinrong Zhuo		Chairman of the Board of Directors and Chief Executive
Xinrong Zhuo		Officer (Principal Executive Officer)

/s/ Alfred Ho		Chief Financial Officer (Principal Accounting Officer)
Alfred Ho

/ s/ Fangjie Gu*		Chief Operating Officer and Director
Fangjie Gu

/s/ Kit Chan*		Director
Kit Chan

/s/ Yeliang Zhou*		Director
Yeliang Zhou

/s/ Zengbiao Zhu*		Director
Zengbiao Zhu

* By:	/s/ Alfred Ho
	Alfred Ho, Attorney-In-Fact

II-4

SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES

Pursuant to the Securities Act of 1933, the undersigned, the duly authorized representative in the United States of China Dredging Group Co., Ltd. has signed this registration statement or amendment thereto in Newark, Delaware, on January 24, 2012.

		Authorized U.S. Representative
		Puglisi & Associates

	By:	/s/ Donald J. Puglisi
		Name: Donald J. Puglisi
		Title: Managing Director

II-5

EXHIBIT INDEX

Exhibit Number		Description of Document
3.1 (1)		Amended and Restated Memorandum of Association of China Dredging Group Co., Ltd.
3.2 (1)		Articles of Association of China Dredging Group Co., Ltd.
4.1 (2)		Registrant’s Specimen American Depositary Receipt (included in Exhibit 4.3)
4.2 (3)		Registrant’s Specimen Certificate for Ordinary Shares
4.3 (2)		Form of Deposit Agreement, among the Registrant, the depositary and the owners and holders of American Depositary Shares
5.1		Opinion of Maples and Calder regarding the validity of the ordinary shares being registered
8.1 *		Opinion of Dacheng Law Offices LLP (Fuzhou) regarding certain PRC tax matters (included in Exhibit 99.1)
8.2		Opinion of Maples and Calder regarding certain BVI tax matters (included in Exhibit 5.1)
8.3		Opinion of DLA Piper LLP (US) regarding certain U.S. tax matters
10.1 (1)		Employment Agreement of Xinrong Zhuo
10.2 (1)		Employment Agreement of Bin Lin
10.3 (1)		Employment Agreement of Fangjie Gu
10.4 (1)		Agreement and Plan of Merger by and among Chardan Acquisition Corp., Shareholders of Chardan Acquisition Corp., China Dredging Group Co., Ltd. and Shareholders of China Dredging Group Co., Ltd. dated October 27, 2010
10.5 (1)		Securities Purchase Agreement by and among China Dredging Group Co., Ltd. and the Purchasers Listed on Exhibit A thereto, dated October 29, 2010
10.6 (1)		Registration Rights Agreement dated October 29, 2010
10.7 (1)		Securities Escrow Agreement dated October 29, 2010
10.8 (4)		Contracted Management Agreement by and among Fujian WangGang Dredging Construction Co., Ltd., Wonder Dredging LLC and Fujian Xing Gang Port Service Ltd., dated June 30, 2010
10.9 (5)		Equity Interest Pledge Agreement by and among Qing Lin, Panxing Zhuo, Fujian WangGang Dredging Construction Co., Ltd. and Wonder Dredging LLC, dated June 30, 2010
10.10 (5)		Contract Relating to the Exclusive Purchase Right of Equity Interest by and among Fujian WangGang Dredging Construction Co., Ltd., Wonder Dredging LLC and Fujian Xing Gang Port Service Ltd., dated June 30, 2010
10.11 (1)		Power of Attorney by and among Qing Lin, Panxing Zhuo and Fujian WangGang Dredging Construction Co., Ltd., dated June 30, 2010
10.12 (1)		Power of Attorney by and between Wonder Dredging LLC and Fujian WangGang Dredging Construction Co., Ltd., dated June 30, 2010
10.13 (1)		Engineering Boat Purchase and Sale Contract for Xinggangjun #3 by and between Yiyang Zhonghai Boats and Ships Limited Liability Company and Fujian Xing Gang Shipping Service Co., Ltd., January 13, 2008
10.14 (1)		“Hongtaihai” Engineering Boat Purchase and Sale Contract for Xinggangjun #66 by and between Taizhou Hongtaihai Port Engineering Co., Ltd. and Fujian Xing Gang Shipping Service Co., Ltd., March 23, 2008
10.15 (1)		Engineering Boat Purchase and Sale Contract for Xinggangjun #6 by and between Yiyang Zhonghai Boats and Ships Limited Liability Company and Fujian Xing Gang Shipping Service Co., Ltd., dated January 18, 2008
10.16 (1)		Engineering Boat Purchase and Sale Contract by and between Yiyang Zhonghai Boats and Ships Limited Liability Company and Fujian Xing Gang Shipping Service Co., Ltd., dated May 20, 2009

10.17 (1)		Crewmen Dispatch Contract for Xinggangjun #3 by and between Fujian Haiyi International Shipping Service Agency Co., Ltd. and Fujian Xing Gang Shipping Service Co., Ltd., April 21, 2008
10.18 (1)		Crewmen Dispatch Contract for Xinggangjun #66 by and between Fujian Haiyi International Shipping Service Agency Co., Ltd. and Fujian Xing Gang Shipping Service Co., Ltd., February 21, 2008
10.19 (1)		Crewmen Dispatch Contract for Xinggangjun #6 by and between Fujian Haiyi International Shipping Service Agency Co., Ltd. and Fujian Xinggang Shipping Service Co., Ltd., dated April 21, 2008
10.20 (1)		Ship Lease Contract for Hengshengjun #88 by and between Lianyungang Hengrong Shipping Service Co., Ltd. and Fujian Xing Gang Shipping Service Co., Ltd., dated January 8, 2008
10.21 (1)		Crewmen Assignment Agreement for Hengshengjun #88 by and between Lianyungang Hengrong Shipping Service Co., Ltd. and Fujian Xing Gang Shipping Service Co., Ltd., dated January 8, 2008
10.22 (1)		Ship Lease Supplemental Agreement for Hengshengjun #88 by and between Lianyungang Hengrong Shipping Service Co., Ltd. and Fujian Xing Gang Shipping Service Co., Ltd., dated April 13, 2010
10.23 (1)		Crewmen Assignment Supplemental Agreement for Hengshengjun #88 by and between Lianyungang Hengrong Shipping Service Co., Ltd. and Fujian Xing Gang Shipping Service Co., Ltd., dated May 21, 2010
10.24 (1)		Ship Lease Contract for Xinggangjun #9 by and between Fujian Lutong Highway Engineering Construction Co., Ltd. and Fujian Xing Gang Shipping Service Co., Ltd., dated May 20, 2008
10.25 (1)		Crewmen Assignment Agreement for Xinggangjun #9 by and between Fujian Lutong Highway Engineering Construction Co., Ltd. and Fujian Xing Gang Shipping Service Co., Ltd., dated May 20, 2008
10.26 (1)		Ship Lease Supplemental Agreement Contract for Xinggangjun #9 by and between Fujian Lutong Highway Engineering Construction Co., Ltd. and Fujian Xing Gang Shipping Service Co., Ltd., dated April 11, 2010
10.27 (1)		Crewmen Assignment Supplemental Agreement for Xinggangjun #9 by and between Fujian Lutong Highway Engineering Construction Co., Ltd. and Fujian Xing Gang Shipping Service Co., Ltd., dated May 21, 2010
10.28 (1)		Ship Lease Contract for Liya #10 by and between Beihai Shunda Liya Shipping Service Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd., dated June 14, 2010
10.29 (1)		Crewmen Assignment Agreement for Liya #10 by and between Beihai Shunda Liya Shipping Service Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd., dated June 14, 2010
10.30 (1)		Ship Leasing Contract for Honglinjun #9 by and between Zhejiang Honglin Ship Engineering Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd., dated June 19, 2010
10.31 (1)		Crewmen Assignment Agreement for Honglinjun #9 by and between Zhejiang Honglin Ship Engineering Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd., dated June 19, 2010
10.32 (1)		Ship Lease Contract for Honglinjun #18 by and between Zhejiang Honglin Ship Engineering Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd., dated June 18, 2010
10.33 (1)		Crewmen Assignment Agreement for Honglinjun #18 by and between Zhejiang Honglin Ship Engineering Co., Ltd. and Fujian Xing Gang Port Service Co., Ltd., dated June 18, 2010
10.34 (1)		Ship Lease Contract for Xiechang #18 by and between Zhonghai Engineering Construction General Bureau Dalian Engineering Construction Bureau and Fujian Xing Gang Port Service Co., Ltd., dated June 24, 2010
10.35 (1)		Crewmen Assignment Agreement for Xiechang #18 by and between Zhonghai Engineering Construction General Bureau Dalian Engineering Construction Bureau and Fujian Xing Gang Port Service Co., Ltd., dated June 24, 2010
10.36 (1)		Office Lease Agreement by and between LIN Ping and Fujian Xing Gang Shipping Service Co., Ltd., dated January 1, 2008
10.37 (3)		Employment Agreement of Alfred Ho
10.38 (1)		Office Lease Agreement by and between LIN Ping and Fujian Xing Gang Port Service Co., Ltd., dated January 1, 2010
10.39 (1)		Office Lease Supplemental Agreement by and between LIN Ping and Fujian Xing Gang Port Service Co., Ltd., dated March 30, 2010
10.40 (6)		Supplemental Employment Agreement of Fangjie Gu
10.41 (6)		Employment Agreement of Fangjie Gu
10.42 (2)		Engineering Boat Purchase and Sale Contract by and between Fujian WangGang Dredging Construction Co. Ltd. and Yiyang Zhonghai Boats and Ships Limited Liability Company, dated May 11, 2011
21.1 (1)		Subsidiaries of the Registrant
23.1		Consent of UHY Vocation HK CPA Limited, an independent registered public accounting firm
23.2		Consent of Maples and Calder (included in Exhibit 5.1)
23.3		Consent of Dacheng Law Offices LLP (Fuzhou) (included in Exhibit 99.1)
23.4		Consent of DLA Piper LLP (US) (included in Exhibit 8.3)
23.5		Consent of Webb & Company, P.A.
24.1 (7)		Powers of Attorney (included on signature page)
99.1*		Opinion of Dacheng Law Officers LLP (Fuzhou) regarding certain PRC law matters

(1)

To be filed by amendment.

Previously filed as an Exhibit to Form 20-F filed on November 2, 2010 (File # 000-53465).

(2)

(3)

Previously filed as an Exhibit to Form F-1, Amendment No. 1, filed on January 10, 2012 (File #333-178362).

Previously filed as an Exhibit to Form 20-F, Amendment No. 1, filed on December 15, 2011 (File # 000-53465).

(4)

Previously filed as an Exhibit to Form F-1, Amendment No. 3, filed on May 20, 2011 (File # 333-171484).

(5)

Previously filed as an Exhibit to Form F-1, Amendment No. 2, filed on March 28, 2011 (File # 333-171484).

(6)

Previously filed as an Exhibit to Form F-1, Amendment No. 1, filed on February 16, 2011 (File # 333-171484).

(7)

Previously filed as an Exhibit to Form F-1 filed on December 7, 2011 (File # 333-178362).

British Virgin Islands		1600		Not Applicable
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

Jonathan Klein, Esq.		Steven Liu, Esq.
Andrew D. Ledbetter, Esq.		DLA Piper UK LLP
DLA Piper LLP (US)		20th Floor, South Tower
1251 Avenue of the Americas		Beijing Kerry Center
New York, New York 10020-1104		1 Guanghua Road, Chaoyang District
Tel: (212) 335-4500		Beijing 100020, PRC
Fax: (212) 335-4501		Tel: +86 10 6561 1788
		Fax: +86 10 6561 5158

ADSs offered by the selling shareholders		ADSs

Ordinary shares outstanding immediately before this offering		52,677,323 ordinary shares as of January 24, 2012

Trading		No public market currently exists for our shares or ADSs. We may in the future pursue a trading market for our shares or ADSs, although we may not do so, we may be unable to maintain any such a trading market, and any such trading market may never be active.

Use of proceeds		We will not receive any proceeds from the ADSs sold by the selling shareholders, if at all, all of which will be received by the selling shareholders.

Risk factors		See “Risk Factors” and other information included in this prospectus for a discussion of risks you should carefully consider before investing in the ADSs.

Terms of the offering by selling shareholders		The selling shareholders will determine when and how they will sell the ADSs, if at all. However, selling shareholders must sell at a fixed price of $5.00 per share until there is a public market for the ADSs.

	Noon Buying Rate
Period	Period End		Average (1)	Low	High
	(RMB per $1.00)
2006		7.8041	7.9579	8.0702	7.8041
2007		7.2946	7.5806	7.8127	7.2946
2008		6.8225	6.9193	7.2946	6.7800
2009		6.8259	6.8295	6.8470	6.8176
2010		6.6000	6.7696	6.8330	6.6000
2011		6.2939	6.4633	6.6364	6.2939

	For the Six Months Ended June 30,
	2011 (China Dredging)					2010 (China Dredging)					Increase (Decrease)		Percent Change			Change in RMB
Contract revenue	$	107,355,835		100.0	%	$	45,981,433		100.0	%	$	61,374,402		133.5	%		123.4	%
Cost of contract revenue		(45,986,853	)	(42.8	)%		(20,389,446	)	(44.3	) %		25,597,407		125.5	%		115.8	%
Gross profit		61,368,982		57.2	%		25,591,987		55.7	%		35,776,995		139.8	%		129.5	%
General and administrative expenses		(4,151,924	)	(3.9	)%		(2,367,968	)	(5.1	)%		1,783,956		75.3	%		78.3	%
Income from operations		57,217,058		53.3	%		23,224,019		50.5	%		33,993,039		146.4	%		134.5	%
Other income (expense)		7,144,279		6.7	%		(398,012	)	(0.9	)%		7,542,291
Income before income taxes		64,361,337		60.0	%		22,826,007		49.6	%		41,535,330		182.0	%		168.4	%
Income tax expense		(14,426,371	)	(13.4	)%		(5,784,341	)	(12.6	)%		8,642,030		149.4	%		138.7	%
Net income	$	49,934,966		46.5	%	$	17,041,666		37.1	%	$	32,893,300		193.0	%		178.5	%

PROSPECTUS SUMMARY		1
FORWARD-LOOKING STATEMENTS		4
RISK FACTORS		5
MARKET DATA AND FORECASTS		20
USE OF PROCEEDS		20
DIVIDEND POLICY		20
CAPITALIZATION		20
EXCHANGE RATE INFORMATION		21
ENFORCEABILITY OF CIVIL LIABILITIES		22
SELECTED HISTORICAL FINANCIAL DATA		23
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		25
OUR CORPORATE HISTORY AND STRUCTURE		54
BUSINESS		58
PRC GOVERNMENT REGULATIONS		66
MANAGEMENT		73
PRINCIPAL SHAREHOLDERS		76
SELLING SHAREHOLDERS		78
RELATED PARTY TRANSACTIONS		85
DESCRIPTION OF SHARES		86
DESCRIPTION OF AMERICAN DEPOSITARY SHARES		91
TAXATION		97
PLAN OF DISTRIBUTION		105
LEGAL MATTERS		107
EXPERTS		107
WHERE YOU CAN FIND ADDITIONAL INFORMATION		108

	Actual
Liabilities – current
Unsecured	$	18,868,882
Total current liabilities		18,868,882
Liabilities – non-current
Total non-current liabilities		8,669,771
Total Liabilities	$	27,538,653
Class A Preferred Shares	$	50,064,935
Shareholders’ Equity
Ordinary Shares	$	—
Additional paid-in capital		79,185,284
Retained earnings		52,864,282
Accumulated other comprehensive income		9,034,384
Statutory reserves		14,623,835
Total shareholders’ equity	$	155,707,785
Total capitalization	$	233,311,373

													For the Period
													from January 8,
													2008 (Inception)
	For the Six Months Ended June 30,						For the Years Ended December 31,						to December 31,
Statement of Operations Data	2011			2010			2010			2009			2008
	(Unaudited)			(Unaudited)			(Restated)			(Audited)			(Audited)

Contract revenue	$	107,355,835		$	45,981,433		$	131,405,665		$	80,333,891		$	54,480,271
Cost of contract revenue		(45,986,853	)		(20,389,446	)		(58,723,528	)		(38,715,490	)		(25,424,227	)
Gross profit		61,368,982			25,591,987			72,682,137			41,618,401			29,056,044
General and administrative expenses		(4,151,924	)		(2,367,968	)		(7,159,793	)		(2,531,132	)		(2,152,575	)
Income from operations		57,217,058			23,224,019			65,522,344			39,087,269			26,903,469
Other (expense) income		7,144,279			(398,012	)		(731,668	)		(726,020	)		(136,332	)
Income before income taxes		64,361,337			22,826,007			64,790,676			38,361,249			26,767,137
Income tax expense		(14,426,371	)		(5,784,341	)		(16,556,396	)		(9,596,651	)		(6,696,745	)
Net income	$	49,934,966		$	17,041,666		$	48,234,280		$	28,764,598		$	20,070,392
Accretion of discount on Class A Preferred Shares		(6,135,012	)		-			(22,293,720	)		-			-
Net income attributable to ordinary shareholders	$	43,799,954		$	17,041,666		$	25,940,560		$	28,764,598		$	20,070,392

Earnings per share
Earnings per ordinary share
– Basic		0.83			0.33			0.50			0.55	(1)	$	0.38	(1)
– Diluted		0.80			0.33			0.50			0.55	(1)	$	0.38	(1)
Weighted average number of ordinary shares outstanding
– Basic		52,677,323			52,177,323			52,264,994			52,177,323			52,177,323
– Diluted		62,690,310			52,177,323			52,264,994			52,177,323			52,177,323

	June 30,		December 31,
Balance Sheet Data	2011		2010		2009		2008
	(Unaudited)		(Restated)		(Audited)		(Audited)
Assets
Total current assets	$	128,594,047	$	102,411,948	$	25,984,418	$	1,362,142
Total other assets		104,717,326		76,823,403		54,130,835		56,925,865
Total assets	$	233,311,373	$	179,235,351	$	80,115,253	$	58,288,007
Liabilities and equity
Liabilities
Total current liabilities	$	18,868,882	$	11,910,076	$	9,282,633	$	22,068,848
Total non-current liabilities		8,669,771		15,618,995		3,295,738		6,962,257
Total liabilities		27,538,653		27,529,071		12,578,371		29,031,105
Class A Preferred Shares		50,064,935		43,929,923		—		—
Owners’/Shareholders’ equity		155,707,785		107,776,357		67,536,882		29,256,902
Total liabilities and equity	$	233,311,373	$	179,235,351	$	80,115,253	$	58,288,007

Backlog At	Amount
Backlog balance at December 31, 2009	$	8,139,422
New contracts entered during the year ended December 31, 2010 (net of a reduction of approximately $44.6 million of contracts which were deferred by customers)		184,386,368
Add: Adjustment of contracts due to change orders during the year		1,190,626
Adjusted contract amount at December 31, 2010		193,716,416
Less: Contract revenue earned during the year ended December 31, 2010		(131,405,665	)
Backlog balance at December 31, 2010		62,310,751
New contracts entered during the six months ended June 30, 2011		142,810,316
Less: Adjustment of contracts due to change orders during the period		(315,962	)
Adjusted contract amount at June 30, 2011		204,805,105
Less: Contract revenue earned during the six months ended June 30, 2011		(107,355,835	)
Backlog balance at June 30, 2011*	$	97,449,270

																					For the Period from
																					January 8, 2008
	For the Six Months Ended June 30,										For the Years Ended December 31,										(Inception) to
	2011					2010					2010					2009					December 31, 2008
	(China Dredging)										(China Dredging)					(Fujian Service)					(Fujian Service)
	Amount		% of Cost			Amount		% of Cost			Amount		% of Cost			Amount		% of Cost			Amount		% of Cost
Wages	$	682,323		1.5	%	$	421,230		2.1	%	$	885,561		1.5	%	$	861,861		2.2	%	$	596,694		2.3	%
Leasing fees		6,869,470		14.9	%		1,200,849		5.9	%		7,150,238		12.2	%		1,720,275		4.4	%		1,273,713		5	%
Crew hire charge		1,870,024		4.1	%		806,239		4.0	%		2,685,442		4.6	%		1,457,329		3.8	%		1,110,149		4.4	%
Consumable parts		33,055,861		71.9	%		15,464,086		75.8	%		42,964,969		73.1	%		29,724,508		76.8	%		18,757,168		73.8	%
Depreciation		3,509,175		7.6	%		2,497,042		12.2	%		5,037,318		8.6	%		4,951,517		12.8	%		3,686,503		14.5	%
Cost of contract revenue	$	45,986,853		100	%	$	20,389,446		100	%	$	58,723,528		100	%	$	38,715,490		100	%	$	25,424,227		100	%

	For the Years Ended December 31,															Percent
	2010 (China Dredging)					2009 (Fujian Service)					Increase (Decrease)		Percent Change			Change in RMB
Contract revenue	$	131,405,665		100.0	%	$	80,333,891		100.0	%	$	51,071,774		63.6	%		61.9	%
Cost of contract revenue		(58,723,528	)	(44.7	)%		(38,715,490	)	(48.2	)%		20,008,038		51.7	%		50.2	%
Gross profit		72,682,137		55.3	%		41,618,401		51.8	%		31,063,736		74.6	%		72.8	%
General and administrative expenses		(7,159,793	)	(5.4	)%		(2,531,132	)	(3.2	)%		4,628,661		182.9	%		182.9	%
Income from operations		65,522,344		49.9	%		39,087,269		48.7	%		26,435,075		67.6	%		65.7	%
Other income (expense)		(731,668	)	(0.6	)%		(726,020	)	(0.9	)%		5,648		0.8	%		(0.3	)%
Income before income taxes		64,790,676		49.3	%		38,361,249		47.8	%		26,429,427		68.9	%		67.0	%
Income tax expense		(16,556,396	)	(12.6	)%		(9,596,651	)	(11.9	)%		6,959,745		72.5	%		70.8	%
Net income	$	48,234,280		36.7	%	$	28,764,598		35.8	%	$	19,469,682		67.7	%		65.7	%

	Q1			Q2			Q3			Q4			Year Average
2010		2.9	%		4.4	%		10.9	%		17.8	%		10.5	%
2009		18.0	%		2.4	%		10.0	%		3.5	%		8.4	%

	Fujian Service
	For the Year Ended December 31, 2009						For the Period from January 8, 2008 (Inception) to December 31, 2008											Percent
	Amount			% of Total Revenue			Amount			% of Total Revenue			Increase (Decrease)		Percent Change			Change in RMB
Contract revenue	$	80,333,891			100.0	%	$	54,480,271			100.0	%	$	25,853,620		47.5	%		45.2	%
Cost of contract revenue		(38,715,490	)		(48.2	)%		(25,424,227	)		(46.7	)%		13,291,263		52.3	%		50.0	%
Gross profit		41,618,401			51.8	%		29,056,044			53.3	%		12,562,357		43.2	%		41.1	%
General and administrative expenses		(2,531,132	)		(3.2	)%		(2,152,575	)		(4.0	)%		378,557		17.6	%		15.8	%
Income from operations		39,087,269			48.7	%		26,903,469			49.4	%		12,183,800		45.3	%		43.1	%
Other income (expense)		(726,020	)		(0.9	)%		(136,332	)		(0.3	)%		589,688		432.5	%		424.5	%
Income before income taxes		38,361,249			47.8	%		26,767,137			49.1	%		11,594,112		43.3	%		41.1	%
Income tax expense		(9,596,651	)		(12.0	)%		(6,696,745	)		(12.3	)%		2,899,906		43.3	%		41.1	%
Net income	$	28,764,598			35.8	%	$	20,070,392			36.8	%	$	8,694,206		43.3	%		41.1	%

	Fujian Service
	For the Year Ended December 31, 2009							For the Period from January 8, 2008 (Inception) to December 31, 2008
	Amount		Average Unit Cost (per Cubic Meter)		Percentage of Revenue			Amount		Average Unit Cost (per Cubic Meter)		Percentage of Revenue
Wages	$	861,861	$	0.02		1.1	%	$	596,694	$	0.01		1.1	%
Leasing fees		1,720,275		0.03		2.1	%		1,273,713		0.03		2.3	%
Crew hire charge		1,457,329		0.03		1.8	%		1,110,149		0.03		2.1	%
Consumable parts		29,724,508		0.57		37.0	%		18,757,168		0.47		34.4	%
Depreciation		4,951,517		0.10		6.2	%		3,686,503		0.09		6.8	%
Cost of contract revenue	$	38,715,490	$	0.75		48.2	%	$	25,424,227	$	0.63		46.7	%

	Fujian Service
	For the Year Ended December 31, 2009								For the Period from January 8, 2008 (Inception) to December 31, 2008
	Amount		% of Total G&A			% of Total Revenue			Amount		% of Total G&A			% of Total Revenue
Revenue tax expenses*	$	1,991,493		78.7	%		2.5	%	$	1,794,860		83.4	%		3.3	%
Salary and benefits		159,808		6.3	%		0.2	%		140,014		6.5	%		0.3	%
Operating insurance		187,575		7.4	%		0.3	%		103,056		4.8	%		0.2	%
Other expenses		192,256		7.6	%		0.2	%		75,632		5.3	%		0.2	%
Total G&A	$	2,531,132		100.0	%		3.2	%	$	2,152,575		100.0	%		4.0	%

													For the Period from
	For the Six Months Ended						For the Years Ended						January 8, 2008
	June 30,						December 31,						(Inception ) to
	2011			2010			2010			2009			December 31, 2008
	(China Dredging)			(China Dredging)			(China Dredging)			(Fujian Service)			(Fujian Service)
Cash flows provided by operating activities	$	42,457,539		$	15,052,990		$	51,758,576		$	30,952,939		$	26,096,112
Cash flows used in investing activities		(28,237,572	)		(17,716,478	)		(24,965,015	)		(2,196,096	)		(42,059,354	)
Cash flows provided by/(used in) financing activities		(983,702	)		4,549,888			36,893,785			(6,785,017	)		17,303,282
Net increase in cash		13,236,265			1,886,400			63,687,346			21,971,826			1,340,040
Cash at beginning of year/period		88,532,472			23,343,469			23,343,469			1,362,142			—
Cash at end of year/period	$	103,626,928		$	88,532,472		$	88,532,472		$	23,343,469		$	1,362,142

	For the Six Months Ended June 30,
	2011 (China Dredging)			2010 (China Dredging)
Net income	$	49,934,966		$	17,041,666
Adjustments to reconcile net income to net cash
Add: depreciation expense		3,509,896			2,497,401
Loss on derivative		5,484,583			-
Less: Gain on obligation under Make-Good Escrow		(12,433,807	)		-
Changes in operating assets and liabilities:
Accounts receivable, net		(3,858,493	)		(3,672,405	)
Cost and estimated earnings in excess of billings on contracts in progress		(6,539,230	)		(2,910,240	)
Other receivables		(1,090	)		(883	)
Inventories		(292,991	)		(756,912	)
Accounts payable		1,902,762			784,746
Income taxes payable		2,646,634			1,355,304
Accrued liabilities and other payables		2,104,309			714,313
Net cash provided by operating activities	$	42,457,539		$	15,052,990

	Payments due by period
Contractual Obligations	Total		< 1 year		1 – 3 years		3 – 5 years		> 5 years
Operating lease obligations
- related party transactions	$	72,680	$	24,936	$	35,808	$	11,936	$	—
- non-related party transactions		23,327,683		10,680,825		11,381,706		1,265,152		—
Purchase obligations (1)
- non-related party transactions		36,755,878		20,071,114		16,684,764		—		—
Capital commitments
- related party transactions (2)		1,119,259		1,119,259		—		—		—
- non-related party transactions (3)		28,030,303		—		28,030,303		—		—
Total	$	89,305,803	$	31,896,134	$	56,132,581	$	1,277,088	$	—

China Dredging Group Co., Ltd

18-19th Floor, Tower A, Zhongshan Building
No. 154 Hudong Road, Gulou District
Fuzhou City, 350003
China