UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2009
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 001-34449
AMERICAN LORAIN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
|
87-0430320
|
|
|
(State or other jurisdiction of
|
(I.R.S. Employer
|
incorporation or organization)
|
Identification No.)
|
Beihuan Road
Junan County
Shandong, China
276600
(Address, including zip code, of principal executive offices)
(86) 539-7318818
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definitions of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one)
Large accelerated filer
o
|
Accelerated filer
o
|
Non-accelerated filer
o
|
Smaller reporting company
x
|
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
The numbers of shares outstanding of the issuer's class of
common stock as of November 9, 2009 was 33,239,985.
Table of Contents
|
|
Page
|
|
Part I - Financial Information
|
|
Item 1
|
Financial Statements and
Accountants Report
|
3
|
Item 2
|
Management's Discussion and Analysis of
Financial Condition and Results of Operations
|
24
|
Item 3
|
Quantitative and Qualitative
Disclosures about Market Risk
|
32
|
Item 4
|
Controls and Procedures
|
32
|
|
Part II - Other Information
|
|
Item 6
|
Exhibits
|
32
|
Signatures
|
|
33
|
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND ACCOUNTANTS REPORT.
AMERICAN LORAIN CORPORATION
CONTENTS
|
PAGE
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
|
4
|
CONSOLIDATED BALANCE SHEETS
|
5 6
|
CONSOLIDATED STATEMENTS OF INCOME
|
7
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
8
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY
|
9
|
NOTES TO FINANCIAL STATEMENTS
|
10 23
|
3
REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
To:
|
The Board of Directors and Stockholders of
|
|
American Lorain Corporation
|
We have reviewed the accompanying interim consolidated balance
sheets of American Lorain Corporation (the Company) as of September 30, 2009
and December 31, 2008, and the related statements of income, stockholders
equity, and cash flows for the three-month and nine-month periods ended
September 30, 2009 and 2008. These interim consolidated financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying interim consolidated
financial statements for them to be in conformity with U.S. generally accepted
accounting principles.
South San Francisco, California
|
Samuel H. Wong & Co., LLP
|
November 2, 2009
|
Certified Public Accountants
|
4
AMERICAN LORAIN CORPORATION
CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(Stated in US
Dollars)
|
|
|
|
|
|
|
|
(Audited)
|
|
|
|
Note
|
|
|
9/30/2009
|
|
|
12/31/2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
|
$
|
4,161,802
|
|
$
|
2,841,339
|
|
Restricted cash
|
|
3
|
|
|
1,008,007
|
|
|
3,715,998
|
|
Short-term
investment
|
|
|
|
|
51,919
|
|
|
113,069
|
|
Trade accounts receivable
|
|
4
|
|
|
17,745,011
|
|
|
25,293,326
|
|
Other
receivables
|
|
5
|
|
|
4,402,879
|
|
|
5,107,719
|
|
Inventory
|
|
6
|
|
|
35,606,922
|
|
|
24,827,922
|
|
Advance to
suppliers
|
|
7
|
|
|
12,528,032
|
|
|
415,009
|
|
Prepaid expenses and taxes
|
|
|
|
|
1,077,904
|
|
|
1,228,648
|
|
Total
current assets
|
|
|
|
$
|
76,582,476
|
|
$
|
63,543,030
|
|
Property, plant and equipment,
net
|
|
8
|
|
|
40,667,653
|
|
|
40,201,686
|
|
Land use rights,
net
|
|
9
|
|
|
3,918,315
|
|
|
3,950,927
|
|
Other assets
& goodwill
|
|
|
|
|
2,047
|
|
|
-
|
|
TOTAL ASSETS
|
|
|
|
$
|
121,170,491
|
|
$
|
107,695,643
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Short-term bank loans
|
|
10
|
|
$
|
34,588,160
|
|
$
|
14,414,996
|
|
Long-term bank
loans current portion
|
|
|
|
|
83,000
|
|
|
-
|
|
Notes payable
|
|
11
|
|
|
-
|
|
|
5,208,485
|
|
Accounts payable
|
|
|
|
|
2,417,468
|
|
|
6,072,883
|
|
Taxes payable
|
|
|
|
|
1,413,194
|
|
|
2,682,658
|
|
Accrued
liabilities and other payables
|
|
12
|
|
|
4,788,869
|
|
|
10,291,237
|
|
Customers deposits
|
|
|
|
|
78,836
|
|
|
748,732
|
|
Total
Current Liabilities
|
|
|
|
$
|
43,369,527
|
|
$
|
39,418,991
|
|
Long Term Liabilities
|
|
|
|
|
|
|
|
|
|
Long term bank
loans
|
|
13
|
|
|
321,544
|
|
|
576,975
|
|
TOTAL LIABILITIES
|
|
|
|
$
|
43,691,071
|
|
$
|
39,995,966
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
5
AMERICAN LORAIN CORPORATION
CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(Stated in US
Dollars)
|
|
|
|
|
|
|
|
(Audited)
|
|
|
|
Note
|
|
|
9/30/2009
|
|
|
12/31/2008
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value,
200,000,000
shares
authorized;
25,177,640 and 25,172,640 shares issued
and
outstanding as of
September 30, 2009 and December
31,
2008, respectively
|
|
15
|
|
|
25,177
|
|
|
25,172
|
|
Additional paid-in
capital
|
|
|
|
|
24,273,650
|
|
|
24,187,019
|
|
Statutory reserves
|
|
|
|
|
5,680,512
|
|
|
5,438,723
|
|
Retained earnings
|
|
|
|
|
35,615,406
|
|
|
27,748,126
|
|
Accumulated other comprehensive income
|
|
|
|
|
6,212,145
|
|
|
5,178,616
|
|
Non-controlling
interests
|
|
14
|
|
|
5,672,530
|
|
|
5,122,021
|
|
|
|
|
|
$
|
77,479,420
|
|
$
|
67,699,677
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS
EQUITY
|
|
|
|
$
|
121,170,491
|
|
$
|
107,695,643
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
6
AMERICAN LORAIN CORPORATION
CONSOLIDATED STATEMENTS OF
INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND
2008
(Stated in US Dollars)
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
Note
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
17
|
|
$
|
38,674,651
|
|
$
|
36,727,394
|
|
$
|
83,841,112
|
|
$
|
75,680,120
|
|
Cost of revenues
|
|
|
|
|
(29,566,601
|
)
|
|
(29,000,724
|
)
|
|
(64,279,971
|
)
|
|
(58,819,320
|
)
|
Gross profit
|
|
|
|
$
|
9,108,050
|
|
$
|
7,726,670
|
|
$
|
19,561,141
|
|
$
|
16,860,800
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
expenses
|
|
|
|
|
(1,165,107
|
)
|
|
(831,138
|
)
|
|
(3,556,271
|
)
|
|
(2,066,156
|
)
|
General and administrative expenses
|
|
|
|
|
(
906,847
|
)
|
|
(847,896
|
)
|
|
(
2,798,044
|
)
|
|
(2,480,240
|
)
|
Operating income
|
|
|
|
$
|
7,036,096
|
|
$
|
6,047,636
|
|
$
|
13,206,826
|
|
$
|
12,314,404
|
|
Investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government subsidy income
|
|
|
|
|
43,864
|
|
|
393
|
|
|
240,118
|
|
|
37,635
|
|
Interest and other income
|
|
|
|
|
24,196
|
|
|
180,641
|
|
|
232,844
|
|
|
288,439
|
|
Other expenses
|
|
|
|
|
(52,694
|
)
|
|
56,706
|
|
|
(234,298
|
)
|
|
(48,281
|
)
|
Interest expense
|
|
|
|
|
(857,089
|
)
|
|
(627,148
|
)
|
|
(2,205,740
|
)
|
|
(1,900,846
|
)
|
Earnings before tax
|
|
|
|
$
|
6,194,373
|
|
$
|
5,658,228
|
|
$
|
11,239,750
|
|
$
|
10,691,351
|
|
Income tax
|
|
2(r), 16
|
|
|
(1,396,694
|
)
|
|
(904,827
|
)
|
|
(2,580,172
|
)
|
|
(1,788,402
|
)
|
Income before minority interests
|
|
|
|
$
|
4,797,679
|
|
$
|
4,753,401
|
|
$
|
8,659,578
|
|
$
|
8,902,949
|
|
Net income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Parent
|
|
|
|
$
|
4,497,364
|
|
$
|
4,458,659
|
|
$
|
8,109,069
|
|
$
|
8,307,737
|
|
-Non-controlling Interest
|
|
|
|
|
300,315
|
|
|
294,742
|
|
|
550,509
|
|
|
595,212
|
|
|
|
|
|
$
|
4,797,679
|
|
$
|
4,753,401
|
|
$
|
8,659,578
|
|
$
|
8,902,949
|
|
Earnings per share
|
|
2(v)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.32
|
|
$
|
0.33
|
|
-
Diluted
|
|
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.32
|
|
$
|
0.33
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
|
|
25,177,640
|
|
|
24,923,178
|
|
|
25,177,640
|
|
|
24,923,178
|
|
- Diluted
|
|
|
|
|
25,200,136
|
|
|
24,923,178
|
|
|
25,717,588
|
|
|
25,282,206
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
7
AMERICAN LORAIN CORPORATION
CONSOLIDATED STATEMENTS OF
CASH FLOW
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND
2008
(Stated in US Dollars)
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
4,497,364
|
|
$
|
4,458,659
|
|
$
|
8,109,069
|
|
$
|
8,307,737
|
|
Minority interest
|
|
300,316
|
|
|
294,741
|
|
|
550,509
|
|
|
595,212
|
|
Share based compensation
|
|
80,484
|
|
|
0
|
|
|
86,636
|
|
|
0
|
|
Depreciation
|
|
276,693
|
|
|
461,968
|
|
|
942,173
|
|
|
975,125
|
|
Amortization
|
|
22,217
|
|
|
11,332
|
|
|
158,209
|
|
|
209,102
|
|
(Increase)/decrease
in accounts & other receivables
|
|
1,776,531
|
|
|
10,487,405
|
|
|
7,583,260
|
|
|
23,939,692
|
|
(Increase)/decrease in inventories
|
|
(8,751,246
|
)
|
|
(12,644,355
|
)
|
|
(10,778,999
|
)
|
|
(14,099,060
|
)
|
Increase/(decrease)
in accounts & other payables
|
|
(961,609
|
)
|
|
(1,722,767
|
)
|
|
(22,389,528
|
)
|
|
(15,296,367
|
)
|
Net cash (used in)/provided by
operating activities
|
|
(2,759,250
|
)
|
|
1,346,983
|
|
|
(15,738,671
|
)
|
|
4,631,441
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of plant and equipment
|
|
(881,610
|
)
|
|
(82,023
|
)
|
|
(1,408,140
|
)
|
|
(5,739,946
|
)
|
Payment of
construction in progress
|
|
0
|
|
|
(1,294,028
|
)
|
|
0
|
|
|
0
|
|
(Increase)/decrease in restricted
cash
|
|
(14,642
|
)
|
|
(242,639
|
)
|
|
2,707,991
|
|
|
(2,472,807
|
)
|
Payments for land
use rights
|
|
(4,590
|
)
|
|
(174,839
|
)
|
|
(125,600
|
)
|
|
(1,123,069
|
)
|
Proceeds from sale of investment
securities
|
|
58,384
|
|
|
0
|
|
|
61,151
|
|
|
0
|
|
Purchase of
investment securities
|
|
0
|
|
|
(31,539
|
)
|
|
0
|
|
|
(1,620,924
|
)
|
Payments for deposits
|
|
0
|
|
|
(2,751,740
|
)
|
|
(2,045
|
)
|
|
(2,751,740
|
)
|
Net cash used in investing activities
|
|
(842,458
|
)
|
|
(4,576,808
|
)
|
|
1,233,357
|
|
|
(13,708,486
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank borrowings
|
|
2,465,431
|
|
|
3,405,635
|
|
|
20,000,733
|
|
|
4,738,607
|
|
Notes payable
|
|
(1,614,364
|
)
|
|
(2,070,085
|
)
|
|
(5,208,485
|
)
|
|
1,743,973
|
|
Net cash provided by/(used in) financing
activities
|
$
|
851,067
|
|
$
|
1,335,550
|
|
$
|
14,792,248
|
|
$
|
6,482,580
|
|
Net Increase/(decrease) of cash and cash equivalents
|
|
(2,750,641
|
)
|
|
(1,894,275
|
)
|
|
286,934
|
|
|
(2,594,465
|
)
|
Effect of foreign currency translation
|
|
80,722
|
|
|
1,960,246
|
|
|
1,033,529
|
|
|
4,384,819
|
|
Cash and cash equivalentsbeginning of year
|
|
6,831,721
|
|
|
8,494,356
|
|
|
2,841,339
|
|
|
6,769,973
|
|
Cash and cash equivalentsend of year
|
$
|
4,161,802
|
|
$
|
8,560,327
|
|
$
|
4,161,802
|
|
$
|
8,560,327
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
received
|
$
|
3,892
|
|
$
|
34,200
|
|
$
|
70,502
|
|
$
|
68,612
|
|
Interest paid
|
$
|
857,089
|
|
$
|
627,148
|
|
$
|
2,205,740
|
|
$
|
1,900,846
|
|
Taxes
paid
|
$
|
1,396,694
|
|
$
|
904,827
|
|
$
|
2,580,172
|
|
$
|
1,788,402
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
8
AMERICAN
LORAIN
CORPORATION
STATEMENT
OF
STOCKHOLDERS
EQUITY
FOR THE
YEARS
ENDED
SEPTEMBER
30, 2009 AND
DECEMBER
31, 2008
(STATED
IN US
DOLLARS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
of
|
|
|
Common
|
|
|
Paid-in
|
|
|
Statutory
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
controlling
|
|
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Reserves
|
|
|
Earnings
|
|
|
Income
|
|
|
Interests
|
|
|
Total
|
|
Balance, January 1, 2008
|
|
24,923,178
|
|
$
|
24,923
|
|
$
|
24,187,268
|
|
$
|
4,497,647
|
|
$
|
13,985,824
|
|
$
|
1,846,708
|
|
$
|
3,887,021
|
|
$
|
48,429,391
|
|
Issuance of Common Stock
|
|
249,455
|
|
|
249
|
|
|
(249
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Share Adjustment to Match Transfer
Agent
|
|
7
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net Income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
14,703,378
|
|
|
-
|
|
|
-
|
|
|
14,703,378
|
|
Appropriations to Statutory Reserves
|
|
-
|
|
|
-
|
|
|
-
|
|
|
941,076
|
|
|
(941,076
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Non-controlling Interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,235,000
|
|
|
1,235,000
|
|
Foreign Currency Translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,331,908
|
|
|
-
|
|
|
3,331,908
|
|
Balance, December 31, 2008
|
|
25,172,640
|
|
$
|
25,172
|
|
$
|
24,187,019
|
|
$
|
5,438,723
|
|
$
|
27,748,126
|
|
$
|
5,178,616
|
|
$
|
5,122,021
|
|
$
|
67,699,677
|
|
Balance, January 1, 2009
|
|
25,172,640
|
|
$
|
25,172
|
|
$
|
24,187,019
|
|
$
|
5,438,723
|
|
$
|
27,748,126
|
|
$
|
5 ,178,616
|
|
$
|
5,122,021
|
|
$
|
67,699,677
|
|
Issuance of Common Stock
|
|
5,000
|
|
|
5
|
|
|
6,147
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,152
|
|
Issuance Stock Options
|
|
|
|
|
|
|
|
80,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,484
|
|
Net Income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,109,069
|
|
|
-
|
|
|
-
|
|
|
8,109,069
|
|
Appropriations to Statutory Reserves
|
|
-
|
|
|
-
|
|
|
-
|
|
|
241,789
|
|
|
(241,789
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Non-controlling Interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
550,509
|
|
|
550,509
|
|
Foreign Currency Translation
Adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,033,529
|
|
|
-
|
|
|
1,033,529
|
|
Balance, September 30, 2009
|
|
25,177,640
|
|
$
|
25,177
|
|
$
|
24,273,650
|
|
$
|
5,680,512
|
|
$
|
35,615,406
|
|
$
|
6,212,145
|
|
$
|
5,672,530
|
|
$
|
77,479,420
|
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
|
|
|
|
Income
|
|
|
Income
|
|
|
|
|
|
|
9/30/2009
|
|
|
12/31/2008
|
|
|
Total
|
|
Net Income
|
$
|
8,109,069
|
|
$
|
14,703,378
|
|
$
|
22,812,447
|
|
Foreign Currency Translation Adjustment
|
|
1,033,542
|
|
|
3,331,908
|
|
|
4,365,450
|
|
|
$
|
9,142,611
|
|
$
|
18,035,286
|
|
$
|
27,177,897
|
|
See
Accompanying
Notes to the
Financial
Statements
and
Accountants
Report
9
AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL
STATEMENTS - SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(STATED IN US
DOLLARS)
1.
|
PRINCIPAL ACTIVITIES
|
|
|
|
|
The Company develops, manufactures, and sells convenience
foods (such as cut fruit and premixed salads, which are known as lightly
processed; ready-to-cook (or RTC) meals; ready-to-eat (or RTE) meals
and meals ready-to-eat (or MRE); chestnut products; and frozen, canned,
and bulk foods, in hundreds of varieties. The Company operates through
indirect Chinese subsidiaries. The products are sold in 26 provinces and
administrative regions in China and 42 foreign countries. Food products
are categorized into three types: (1) chestnut products, (2) convenience
food, and (3) frozen, canned, and bulk food (FCB food).
|
|
|
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
|
|
|
|
(a)
|
Method of Accounting
|
|
|
|
|
|
The Company maintains its general ledger and journals
with the accrual method accounting for financial reporting purposes. The
financial statements and notes are representations of management.
Accounting policies adopted by the Company conform to generally accepted
accounting principles in the United States of America and have been
consistently applied in the presentation of financial statements, which
are compiled on the accrual basis of accounting.
|
|
|
|
|
(b)
|
Principles of consolidation
|
|
|
|
|
|
The consolidated financial statements, which include the
Company and its subsidiaries, are compiled in accordance with generally
accepted accounting principles in the United States of America. All
significant inter-company accounts and transactions have been eliminated.
The consolidated financial statements include 100% of assets, liabilities,
and net income or loss of those wholly-owned subsidiaries; ownership
interests of minority investors are recorded as minority
interests.
|
|
|
|
|
|
As of September 30, 2009, the detailed identities of the
consolidating subsidiaries are as follows: -
|
|
|
|
Place of
|
|
|
Attributable
|
|
|
Registered
|
|
|
|
|
|
Name of Company
|
|
incorporation
|
|
|
equity interest
|
|
|
capital
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
Shandong Green Foodstuff Co., Ltd
|
|
PRC
|
|
|
80.2
|
|
$
|
12,901,823
|
|
|
(RMB 100,860,000
|
)
|
|
Luotian Green Foodstuff Co., Ltd
|
|
PRC
|
|
|
100
|
|
$
|
3,240,013
|
|
|
(RMB 25,328,800
|
)
|
|
Junan Hongrun Foodstuff Co., Ltd
|
|
PRC
|
|
|
100
|
|
$
|
16,245,603
|
|
|
(RMB 127,000,000
|
)
|
|
Beijing Green Foodstuff Co., Ltd
|
|
PRC
|
|
|
100
|
|
$
|
1,279,181
|
|
|
(RMB 10,000,000
|
)
|
|
International Lorain Holding, Inc
|
|
Cayman Islands
|
|
|
100
|
|
|
|
|
|
|
|
|
(c)
|
Use of estimates
|
|
|
|
|
|
The preparation of the financial statements in conformity
with generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
periods. Management makes these estimates using the best information
available at the time the estimates are made; however actual results could
differ materially from those estimates.
|
|
|
|
|
(d)
|
Economic and political risks
|
|
|
|
|
|
The Companys operations are conducted in the PRC.
Accordingly, the Companys 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 Companys 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 Companys 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 abroad, and
rates and methods of taxation, among other things.
|
10
AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL
STATEMENTS - SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(STATED IN US
DOLLARS)
|
(e)
|
Lease prepayments
|
|
|
|
|
|
Lease prepayments represent the cost of land use rights
in the PRC. Land use rights are carried at cost and amortized on a
straight-line basis over the period of rights of 50 years.
|
|
|
|
|
(f)
|
Property, plant and equipment
|
|
|
|
|
|
Plant and equipment are carried at cost less accumulated
depreciation. Depreciation is provided over their estimated useful lives,
using the straight-line method. Estimated useful lives of the plant and
equipment are as follows:
|
|
Buildings
|
40 years
|
|
Machinery and equipment
|
10 years
|
|
Motor vehicles
|
10 years
|
|
Office equipment
|
5 years
|
|
|
The cost and related accumulated depreciation of assets
sold or otherwise retired are eliminated from the accounts and any gain or
loss is included in the statement of income. The cost of maintenance and
repairs is charged to income as incurred, whereas significant renewals and
betterments are capitalized.
|
|
|
|
|
|
(g)
|
Accounting for the Impairment of Long-Lived
Assets
|
|
|
|
|
|
|
The long-lived assets held and used by the Company are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable. It is
reasonably possible that these assets could become impaired as a result of
technology or other industry changes. Determination of recoverability of
assets to be held and used is by comparing the carrying amount of an asset
to future net undiscounted cash flows to be generated by the
assets.
|
|
|
|
|
|
|
If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. During the reporting years, there was no
impairment loss.
|
|
|
|
|
|
(h)
|
Construction in progress
|
|
|
|
|
|
|
Construction in progress represents direct costs of
construction or acquisition and design fees incurred. Capitalization of
these costs ceases and the construction in progress is transferred to
plant and equipment when substantially all the activities necessary to
prepare the assets for their intended use are completed. No depreciation
is provided until it is completed and ready for intended use.
|
|
|
|
|
|
(i)
|
Investment securities
|
|
|
|
|
|
|
The Company classifies its equity securities into trading
or available-for-sale. Trading securities are bought and held principally
for the purpose of selling them in the near term. All securities not
included in trading securities are classified as
available-for-sale.
|
|
|
|
|
|
|
Trading and available-for-sale securities are recorded at
fair value. Unrealized holding gains and losses on trading securities are
included in the net income. Unrealized holding gains and losses, net of
the related tax effect, on available for sale securities are excluded from
net income and are reported as a separate component of other comprehensive
income until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific-identification
basis.
|
|
|
|
|
|
|
A decline in the market value of any available-for-sale
security below cost that is deemed to be other-than-temporary results in a
reduction in carrying amount to fair value. The impairment is charged as
an expense to the statement of income and comprehensive income and a new
cost basis for the security is established. To determine
whether impairment is other-than-temporary, the Company considers
whether it has the ability and intent to hold the investment until a
market price recovery and considers whether evidence indicating the cost
of the investment is recoverable outweighs evidence to the contrary.
Evidence considered in this assessment includes the reasons for the
impairment, the severity and duration of the impairment, changes in value
subsequent to year end, and forecasted performance of the
investee.
|
11
AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL
STATEMENTS - SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(STATED IN US
DOLLARS)
|
|
Premiums and discounts are amortized or accreted over the
life of the related available-for-sale security as an adjustment to yield
using the effective-interest method. Dividend and interest income are
recognized when earned.
|
|
|
|
|
(j)
|
Inventories
|
|
|
|
|
|
Inventories consisting of finished goods and raw
materials are stated at the lower of cost or market value. Finished goods
are comprised of direct materials, direct labor and an appropriate
proportion of overhead.
|
|
|
|
|
(k)
|
Trade receivables
|
|
|
|
|
|
Trade receivables are recognized and carried at the
original invoice amount less allowance for any uncollectible amounts. An
estimate for doubtful accounts is made when collection of the full amount
is no longer probable. Bad debts are written off as incurred.
|
|
|
|
|
(l)
|
Customer deposits
|
|
|
|
|
|
Customer deposits were cash received from customers in
connection with orders of products to be delivered in future
periods.
|
|
|
|
|
(m)
|
Cash and cash equivalents
|
|
|
|
|
|
The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
|
|
|
|
|
(n)
|
Advertising
|
|
|
|
|
|
All advertising costs are expensed as incurred.
|
|
|
|
|
(o)
|
Shipping and handling
|
|
|
|
|
|
All shipping and handling are expensed as
incurred.
|
|
|
|
|
(p)
|
Research and development
|
|
|
|
|
|
All research and development costs are expensed as
incurred.
|
|
|
|
|
(q)
|
Retirement benefits
|
|
|
|
|
|
Retirement benefits in the form of contributions under
defined contribution retirement plans to the relevant authorities are
charged to the consolidated statement of income as incurred.
|
|
|
|
|
(r)
|
Income taxes
|
|
|
|
|
|
The Company uses the accrual method of accounting to
determine and report its taxable reduction of income taxes for the year in
which they are available. The Company has implemented Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes. Income tax liabilities computed according to the United States and
Peoples Republic of China (PRC) tax laws are provided for the tax effects
of transactions reported in the financial statements and consists of taxes
currently due plus deferred taxes related primarily to differences between
the basis of fixed assets and intangible assets for financial and tax
reporting. The deferred tax assets and liabilities represent the future
tax return consequences of those differences, which will be either taxable
or deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses that are
available to offset future income taxes. A
valuation allowance is created to evaluate deferred tax assets if it is more
likely than not that these items will either expire before the Company is able
to realize that tax benefit, or that future realization is uncertain.
|
12
AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL
STATEMENTS - SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(STATED IN US
DOLLARS)
Effective January 1, 2008, PRC
government implemented a new 25% tax rate across the board for all enterprises
regardless of whether domestic or foreign enterprise without any tax holiday
which is defined as "two-year exemption followed by three-year half exemption"
hitherto enjoyed by tax payers. As a result of the new tax law of a standard 25%
tax rate, tax holidays terminated as of December 31, 2007. However, PRC
government has established a set of transition rules to allow enterprises
already started tax holidays before January 1, 2008, to continue enjoying the
tax holidays until being fully utilized.
The Company is subject to United
States Tax according to Internal Revenue Code Sections 951 and 957. Corporate
income tax is imposed on progressive rates in the range of: -
Taxable Income
|
Rate
|
Over
|
But Not Over
|
Of Amount Over
|
15%
|
0
|
50,000
|
0
|
25%
|
50,000
|
75,000
|
50,000
|
34%
|
75,000
|
100,000
|
75,000
|
39%
|
100,000
|
335,000
|
100,000
|
34%
|
335,000
|
10,000,000
|
335,000
|
35%
|
10,000,000
|
15,000,000
|
10,000,000
|
38%
|
15,000,000
|
18,333,333
|
15,000,000
|
35%
|
18,333,333
|
-
|
-
|
|
|
Based on the consolidated net income for the period ended
September 30, 2009 and the year ended December 31, 2008, the Company shall
not be subject to income tax.
|
|
|
|
|
(s)
|
Statutory reserves
|
|
|
|
|
|
Statutory reserves are referring to the amount
appropriated from the net income in accordance with laws or regulations,
which can be used to recover losses and increase capital, as approved, and
are to be used to expand production or operations.
|
|
|
|
|
(t)
|
Foreign currency translation
|
|
|
|
|
|
The accompanying financial statements are presented in
United States dollars. The functional currency of the Company is the
Renminbi (RMB). The financial statements are translated into United States
dollars from RMB at year-end exchange rates as to assets and liabilities
and average exchange rates as to revenues and expenses. Capital accounts
are translated at their historical exchange rates when the capital
transactions occurred.
|
|
|
|
9/30/2009
|
|
|
12/31/2008
|
|
|
9/30/2008
|
|
|
Period end RMB : US$ exchange rate
|
|
6.8376
|
|
|
6.8542
|
|
|
6.8551
|
|
|
Average period RMB : US$ exchange rate
|
|
6.8425
|
|
|
6.9622
|
|
|
6.9989
|
|
|
|
The RMB is not freely convertible into foreign currency
and all foreign exchange transactions must take place through authorized
institutions. No representation is made that the RMB amounts could have
been, or could be, converted into US$ at the rates used in
translation.
|
|
|
|
|
(u)
|
Revenue recognition
|
|
|
|
|
|
The Company's revenue recognition policies are in
compliance with Staff accounting bulletin (SAB) 104. Sales revenue is
recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no
other significant obligations of the Company exist and collectibility
is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as
unearned revenue.
|
13
AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL
STATEMENTS - SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(STATED IN US
DOLLARS)
|
|
The Company's revenue consists of invoiced value of
goods, net of a value-added tax (VAT). No product return or sales discount
allowance is made as products delivered and accepted by customers are
normally not returnable and sales discount is normally not granted after
products are delivered.
|
|
|
|
|
(v)
|
Earnings per share
|
|
|
|
|
|
Basic earnings per share is computed by dividing net
income by the weighted average number of ordinary shares outstanding
during the period. Diluted earnings per share is computed by dividing net
income by the sum of the weighted average number of ordinary shares
outstanding and dilutive potential ordinary shares during the years.
During the nine months ended September 30, 2009 and the year ended
December 31, 2008, no dilutive potential ordinary shares were
issued.
|
|
|
|
|
|
The Company computes earnings per share (EPS) in
accordance with Statement of Financial Accounting Standards No. 128,
Earnings per share (SFAS No. 128), and SEC Staff Accounting Bulletin
No. 98 (SAB 98). SFAS No. 128 requires companies with complex capital
structures to present basic and diluted EPS. Basic EPS is measured as the
income or loss available to common shareholders divided by the weighted
average common shares outstanding for the period. Diluted EPS is similar
to basic EPS, but presents the dilutive effect on a per share basis of
potential common shares (e.g., convertible securities, options, and
warrants) as if they had been converted at the beginning of the periods
presented, or issuance date, if later. Potential common shares that have
an anti-dilutive effect (i.e., those that increase income per share or
decrease loss per share) are excluded from the calculation of diluted
EPS.
|
|
|
|
|
(w)
|
Commitments and contingencies
|
|
|
|
|
|
Liabilities for loss contingencies arising from claims,
assessments, litigation, fines and penalties and other sources are
recorded when it is probable that a liability has been incurred and the
amount of the assessment can be reasonably estimated.
|
|
|
|
|
(x)
|
Comprehensive income
|
|
|
|
|
|
Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions
to owners. Among other disclosures, all items that are required to be
recognized under current accounting standards as components of
comprehensive income are required to be reported in a financial statement
that is presented with the same prominence as other financial statements.
The Companys current component of other comprehensive income is the
foreign currency translation adjustment.
|
|
|
|
|
(y)
|
Recent accounting pronouncements
|
|
|
|
|
|
In May 2009, the FASB issued SFAS No. 165, "Subsequent
Events" ("SFAS 165"). SFAS 165 is intended to establish general standards
of accounting for and disclosure of events that occur after the balance
sheet date but before financial statements are issued or are available to
be issued. It requires the disclosure of the date through which an entity
has evaluated subsequent events and the basis for that date, that is,
whether that date represents the date the financial statements were issued
or were available to be issued. SFAS 165 is effective for interim or
annual financial periods ending after June 15, 2009.
|
|
|
|
|
|
In June 2009, FASB issued FASB Statement No. 166,
Accounting for Transfers for Financial Assets and FASB Statement No. 167,
a revision to FASB Interpretation No. 46 (Revised December 2003),
Consolidation of Variable Interest Entities.
|
|
|
|
|
|
Statement 166 is a revision to FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and will require more information about
transfers of financial assets, including securitization transactions, and
where entities have continuing exposure to the risks related to
transferred financial assets. It eliminates the concept of a "qualifying
special-purpose entity," changes the requirements for derecognizing
financial assets, and requires additional disclosures.
|
14
AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL
STATEMENTS - SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(STATED IN US
DOLLARS)
|
|
Statement 167 is a revision to FASB Interpretation No.
46 (Revised December 2003), Consolidation of Variable Interest Entities,
and changes how a reporting entity determines when an entity that is
insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. The determination of whether a reporting
entity is required to consolidate another entity is based on, among other
things, the other entitys purpose and design and the reporting entitys
ability to direct the activities of the other entity that most
significantly impact the other entitys economic performance.
|
|
|
|
|
|
On July 1, 2009, FASB issued FASB Statement No. 168,
The "FASB Accounting Standards Codification" and the Hierarchy of
Generally Accepted Accounting Principles. The ASC has become the source of
authoritative US GAAP recognized by the FASB to be applied by
nongovernmental entities and provides that all such guidance carries an
equal level of authority. The ASC is not intended to change or alter
existing GAAP. The ASC is effective for interim and annual periods ending
after September 15, 2009.
|
|
|
|
|
|
The Company is currently evaluating the
potential impact, if any, of the adoption of the above recent accounting
pronouncements on its consolidated results of operations and financial
condition.
|
|
|
|
3.
|
RESTRICTED CASH
|
|
|
|
|
Restricted Cash represents interest bearing deposits
placed with banks to secure banking facilities in the form of loans and
notes payable. The restriction of funds is based upon the duration of the
related borrowing facility. The funds that collateralize loans are held
for 60 days in savings account that pay interest at the prescribed
national daily savings account rate. For funds that underline notes
payable, the cash is deposited in nine month time deposits that pay
interest at the national time deposit rate.
|
|
|
|
4.
|
TRADE ACCOUNTS
RECEIVABLE
|
|
|
|
9/30/2009
|
|
|
12/31/2008
|
|
|
Trade accounts receivable
|
$
|
17,970,577
|
|
$
|
25,421,293
|
|
|
Less
:
Allowance for doubtful accounts
|
|
(225,566
|
)
|
|
(127,967
|
)
|
|
|
$
|
17,745,011
|
|
$
|
25,293,326
|
|
|
Allowance for bad debt:
|
|
9/30/2009
|
|
|
12/31/2008
|
|
|
Beginning balance
|
$
|
(127,967
|
)
|
$
|
(172,309
|
)
|
|
Additions to allowance
|
|
(97,599
|
)
|
|
-
|
|
|
Bad debt written-off
|
|
-
|
|
|
44,342
|
|
|
|
$
|
(225,566
|
)
|
$
|
(127,967
|
)
|
The Company offers credit terms of
between 30 to 60 days to most of their international distributors as well as
domestic supermarkets and wholesalers, and between 0 to 15 days for most of
their agents.
15
AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL
STATEMENTS - SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(STATED IN US
DOLLARS)
5.
|
OTHER RECEIVABLES
|
|
|
|
Other receivables consisted of the following as of
September 30, 2009 and December 31, 2008:
|
|
|
|
9/30/2009
|
|
|
12/312008
|
|
|
|
|
|
|
|
|
|
|
Advances to employees for job/travel
disbursements
|
$
|
2,180,628
|
|
$
|
3,160,886
|
|
|
Amount due by a non-related enterprise
|
|
1,991,252
|
|
|
1,278,501
|
|
|
Tender deposit
|
|
36,563
|
|
|
-
|
|
|
Other
|
|
194,436
|
|
|
668,332
|
|
|
|
$
|
4,402,879
|
|
$
|
5,107,719
|
|
|
Advances to employees for job/travel disbursements
consisted of advances to employees for transportation, meals, client
entertainment, commissions, and procurement of certain raw materials. The
advances issued to employees may be carried for extended periods of time
because employees may spend several months out in the field working to
procure new sales contracts or fulfill existing contracts.
|
|
|
6.
|
INVENTORY
|
|
|
|
Inventories consisted of the following as of September
30, 2009 and December 31, 2008:
|
|
|
|
9/30/2009
|
|
|
12/312008
|
|
|
Raw materials
|
$
|
17,607,376
|
|
$
|
9,636,050
|
|
|
Work in progress
|
|
-
|
|
|
1,143,766
|
|
|
Finished goods
|
|
17,999,546
|
|
|
14,048,106
|
|
|
|
$
|
35,606,922
|
|
$
|
24,827,922
|
|
7.
|
ADVANCE TO SUPPLIERS
|
|
|
|
Advance to suppliers represents prepayments made to
vendors for goods and services that the Company anticipates using within
its one year operating cycle. As a result of the seasonality of the
Companys business, there are significant increases in the balance of this
account before the Companys peak season, which are the third and fourth
quarters of the calendar year.
|
|
|
|
Advance to suppliers consisted of the following as of
September 30, 2009:
|
|
|
|
|
|
|
|
9/30/2009
|
|
Raw materials
|
$
|
3,647,645
|
|
Packaging materials
|
|
675,073
|
|
Shipping
|
|
55,900
|
|
Equipment
|
|
136,525
|
|
Construction materials
|
|
7,843,049
|
|
Other
|
|
169,840
|
|
|
$
|
12,528,032
|
16
AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL
STATEMENTS - SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(STATED IN US
DOLLARS)
8.
|
PROPERTY, PLANT, AND EQUIPMENT
|
|
|
|
Property, plant, and equipment consisted of the following
as of September 30, 2009 and December 31,
2008:
|
|
|
|
9/30/2009
|
|
|
12/31/2008
|
|
|
At Cost:
|
|
|
|
|
|
|
|
Buildings
|
$
|
27,866,338 $
|
|
|
27,798,849
|
|
|
Landscaping, plant, and
tree
|
|
2,758,782
|
|
|
2,752,101
|
|
|
Machinery and equipment
|
|
7,494,138
|
|
|
7,229,512
|
|
|
Office equipment
|
|
796,557
|
|
|
859,818
|
|
|
Motor vehicles
|
|
25,926
|
|
|
39,824
|
|
|
|
$
|
38,941,741 $
|
|
|
38,680,104
|
|
|
Less
:
Accumulated depreciation
|
|
|
|
|
|
|
|
Buildings
|
|
(1,657,426
|
)
|
|
(1,192,855
|
)
|
|
Landscaping, plant, and tree
|
|
-
|
|
|
-
|
|
|
|
|
(3,072,410
|
)
|
|
|
|
|
Machinery and equipment
|
|
|
|
|
(2,628,710
|
)
|
|
Office equipment
|
|
(455,071
|
)
|
|
(414,478
|
)
|
|
Motor vehicles
|
|
(18,302
|
)
|
|
(24,992
|
)
|
|
|
|
(5,203,209
|
)
|
|
(4,261,035
|
)
|
|
Construction in Progress
|
|
6,929,121
|
|
|
5,782,617
|
|
|
|
$
|
40,667,653 $
|
|
|
40,201,686
|
|
|
Construction in progress is mainly comprised of capital
expenditures for construction of the Companys new corporate campus,
including offices, factories, and staff dormitories. Capital commitments
for the construction are immaterial for the two years above.
|
|
|
|
Landscaping, plants, and trees are the Chestnut
subsidiarys investment in the development of agricultural operations,
which have not been the significant source of the raw materials needed for
the Companys operations to date.
|
|
|
9.
|
LAND USE RIGHTS, NET
|
|
|
|
Land use rights consisted of the following as of
September 30, 2009 and December 31,
2008
:
|
|
|
|
9/30/2009
|
|
|
12/31/2008
|
|
|
Land use rights,
at cost
|
$
|
4,361,862
|
|
$
|
4,236,266
|
|
|
Less
:
Accumulated
amortization
|
|
(443,547
|
)
|
|
(285,339
|
)
|
|
|
$
|
3,918,315
|
|
$
|
3,950,927
|
|
Land use rights represent the Companys
purchase of usage rights for a parcel of land for a specified duration of time.
The PRC government owns the land on which the Companys corporate campus is
being constructed.
17
AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL
STATEMENTS - SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(STATED IN US
DOLLARS)
10.
|
SHORT-TERM BANK LOANS
|
|
|
|
Short-term bank loans consisted of the following as of
September 30, 2009 and December 31, 2008:
|
|
|
|
9/30/2009
|
|
|
12/31/2008
|
|
|
Loans from Junan County Construction
Bank,
|
|
|
|
|
|
|
|
●
Interest rate at 5.3460% per annum due1/07/2010
|
$
|
1,462,501
|
|
$
|
-
|
|
|
●
Interest rate at 5.3460% per annum due 9/1/2010
|
|
1,170,001
|
|
|
-
|
|
|
●
Interest rate at 5.3460% per annum due 12/15/2010
|
|
394,875
|
|
|
-
|
|
|
●
Interest rate at 5.3460% per annum due12/19/2009
|
|
1,170,001
|
|
|
-
|
|
|
●
Interest rate at 7.452% per annum due 2/24/2009
|
|
-
|
|
|
102,127
|
|
|
●
Interest rate at 10.452% per annum due 1/22/2009
|
|
-
|
|
|
1,575,676
|
|
|
●
Interest rate at 7.236% per annum due 2/3/2009
|
|
-
|
|
|
116,717
|
|
|
Loan from Junan County Agriculture Bank,
|
|
|
|
|
|
|
|
●
Interest rate at 7.9650% per annum due 8/23/2010
|
|
1,608,752
|
|
|
-
|
|
|
●
Interest rate at 7.2900% per annum due 12/01/2009
|
|
1,901,252
|
|
|
-
|
|
|
●
Interest rate at 7.027% per annum due 11/21/2009
|
|
643,501
|
|
|
-
|
|
|
●
Interest rate at 7.9650% per annum due 3/17/2010
|
|
3,363,753
|
|
|
-
|
|
|
●
Interest rate at 8.2620% per annum due12/17/2009
|
|
1,755,002
|
|
|
-
|
|
|
●
Interest rate at 8.2620% per annum due 12/17/2009
|
|
2,193,752
|
|
|
-
|
|
|
●
Interest rate at 7.290% per annum due 9/23/2010
|
|
1,447,877
|
|
|
|
|
|
●
Interest rate at 12.699% per annum due 8/6/2009
|
|
|
|
|
583,584
|
|
|
●
Interest rate at 12.699% per annum due 8/18/2009
|
|
|
|
|
656,532
|
|
|
●
Interest rate at 12.699% per annum due 8/1/2009
|
|
|
|
|
364,740
|
|
|
●
Interest rate at 10.577% per annum due 3/27/2009
|
|
-
|
|
|
1,458,959
|
|
|
Loan from Junan County Industrial and
Commercial Banks,
|
|
|
|
|
|
|
|
●
Interest rate at 5.3460% per annum due10/9/2009
|
|
438,750
|
|
|
-
|
|
|
●
Interest rate at 5.3460% per annum due10/13/2009
|
|
541,126
|
|
|
-
|
|
|
●
Interest rate at 5.3460% per annum due11/19/2009
|
|
694,688
|
|
|
-
|
|
|
●
Interest rate at 5.3460% per annum due 10/25/2009
|
|
614,251
|
|
|
-
|
|
|
●
Interest rate at 5.3460% per annum due 11/23/2009
|
|
497,251
|
|
|
-
|
|
|
●
Interest rate at 5.3460% per annum due 12/22/2009
|
|
463,613
|
|
|
|
|
|
●
Interest rate at 6.120% per annum due 1/10/2009
|
|
-
|
|
|
145,896
|
|
|
●
Interest rate at 8.541% per annum due 3/4/2009
|
|
-
|
|
|
393,919
|
|
|
●
Interest rate at 3.1725% per annum due 2/19/2009
|
|
-
|
|
|
240,035
|
|
|
●
Interest rate at 3.1725% per annum due 2/19/2009
|
|
-
|
|
|
118,161
|
|
|
●
Interest rate at 10.1825% per annum due 2/26/2009
|
|
-
|
|
|
120,762
|
|
|
●
Interest rate at 10.1825% per annum due 3/5/2009
|
|
-
|
|
|
173,670
|
|
|
Loan from Junan County Agricultural Financial Institution,
|
|
|
|
|
|
|
|
●
Interest rate at 9.1155% per annum due 1/22/2010
|
|
1,170,001
|
|
|
-
|
|
|
●
Interest rate at 9.1155% per annum due 12/23/2009
|
|
438,750
|
|
|
-
|
|
|
●
Interest rate at 9.1155% per annum due 12/23/2009
|
|
146,250
|
|
|
-
|
|
|
●
Interest rate at 9.1155% per annum due 12/23/2009
|
|
438,750
|
|
|
-
|
|
18
AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL
STATEMENTS - SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(STATED IN US
DOLLARS)
|
|
|
9/30/2009
|
|
|
12/31/2008
|
|
|
Loan from Linyi Commercial Bank,
|
|
|
|
|
|
|
|
●
Interest rate at 9.293% per annum due 6/15/2010
|
$
|
1,462,501 $
|
|
|
-
|
|
|
●
Interest rate at 9.293% per annum due
1/19/2010
|
|
658,126
|
|
|
-
|
|
|
●
Interest rate at 9.293%per annum due 12/14/2009
|
|
687,376
|
|
|
-
|
|
|
●
Interest rate at 9.293% per annum due
6/16/2010
|
|
1,462,501
|
|
|
-
|
|
|
●
Interest rate at 13.073% per annum due 1/5/2009
|
|
-
|
|
|
685,711
|
|
|
●
Interest rate at 13.073% per annum due
1/5/2009
|
|
-
|
|
|
656,532
|
|
|
●
Interest rate at 8.539% per annum due 3/27/2009
|
|
-
|
|
|
1,458,959
|
|
|
●
Interest rate at 8.539% per annum due
3/27/2009
|
|
-
|
|
|
141,885
|
|
|
Loan from Beijing Miyun County Shilipu Rural
Financial Institution,
|
|
|
|
|
|
|
|
●
Interest rates at 7.434% per annum due
1/20/2010
|
|
1,462,502
|
|
|
-
|
|
|
●
Interest rates at 8.539% per annum due 9/30/2009
|
|
-
|
|
|
2,772,023
|
|
|
Loan from China Merchants Bank,
Beijing
|
|
|
|
|
|
|
|
●
Interest rate at 5.310% per annum due 3/29/2010
|
|
731,251
|
|
|
-
|
|
|
Loan from China Agricultural Bank,
Luotian
Branch
|
|
|
|
|
|
|
|
●
Interest rate at 6.372% per annum due 8/25/2010
|
|
1,901,252
|
|
|
-
|
|
|
●
Interest rate at 7.47% per annum due
9/7/2009
|
|
-
|
|
|
817,017
|
|
|
●
Interest rate at 7.47% per annum due 9/7/2009
|
|
-
|
|
|
291,792
|
|
|
Bank of Beijing
|
|
|
|
|
|
|
|
●
Interest rate at 6.903% per annum due 7/29/2010
|
|
292,500
|
|
|
-
|
|
|
●
Interest rate at 7.722% per annum due
7/28/2009
|
|
-
|
|
|
291,792
|
|
|
Bank of China, Junan Branch,
|
|
|
|
|
|
|
|
●
Interest rate at 7.500% per annum due
5/19/2009
|
|
-
|
|
|
4,014
|
|
|
United Commercial Bank, China Branch
|
|
|
|
|
|
|
|
●
Interest rate at 5.494% per annum due
1/14/2010
|
|
1,050,077
|
|
|
-
|
|
|
●
Interest rate at 5.494% per annum due 1/14/2009
|
|
-
|
|
|
1,156,955
|
|
|
HSBC Miyun Branch
|
|
|
|
|
|
|
|
●
Interest rate at 6.804% per annum due 11/13/2009
|
|
351,000
|
|
|
-
|
|
|
Credit Union, Junan
|
|
|
|
|
|
|
|
●
Interest rate at 8.5837% per annum due 1/7/2009
|
|
-
|
|
|
43,769
|
|
|
●
Interest rate at 8.5837% per annum due
1/12/2009
|
|
-
|
|
|
43,769
|
|
|
LinYi Yizhou Limited Company
|
|
|
|
|
|
|
|
●
Interest rate at 0.9% per month due
11/13/2009
|
|
1,257,751
|
|
|
-
|
|
|
●
Interest rate at 0.9% per month due 10/08/2009
|
|
716,626
|
|
|
-
|
|
|
|
$
|
34,588,160 $
|
|
|
14,414,996
|
|
The short-term loans are revolving
lines of credit, which are denominated in the functional currency Renminbi
(RMB), were primarily obtained for general working capital.
All overdue loans were extended by the
financial institution.
19
AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL
STATEMENTS - SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(STATED IN US
DOLLARS)
11.
|
NOTES PAYABLE
|
|
|
|
Notes payable consisted of the following as of September
30, 2009 and December 31, 2008:
|
|
|
|
9/30/2009
|
|
|
12/31/2008
|
|
|
|
|
|
|
|
|
|
|
Notes to Junan County Construction
Bank,
|
|
|
|
|
|
|
|
●
Bank commission charge at 4%, due 1/12/2009
|
$
|
-
|
|
$
|
554,405
|
|
|
●
Bank commission charge at 5.8320%, due
8/13/2009
|
|
-
|
|
|
-
|
|
|
●
Bank commission charge at 5.8320%, due 8/25/2009
|
|
-
|
|
|
-
|
|
|
Notes to Junan County Agriculture Bank,
|
|
|
|
|
|
|
|
●
Bank commission charge at 4%, due 1/16/2009
|
|
-
|
|
|
277,202
|
|
|
Loan to Jinan Branch, Shenzhen Development
Bank,
|
|
|
|
|
|
|
|
●
Bank charge commission charge at 3.96%, due 2/6/2009
|
|
-
|
|
|
4,376,878
|
|
|
|
$
|
-
|
|
$
|
5,208,485
|
|
12.
|
ACCRUED EXPENSES AND OTHER PAYABLE
|
|
|
|
Accrued expenses and other payables consisted of the
following as of September 30, 2009 and December 31,
2008:
|
|
|
|
9/30/2009
|
|
|
12/31/2008
|
|
|
Business and other taxes
|
$
|
960,758
|
|
$
|
1,979,650
|
|
|
Accrued staff welfare
|
|
556,316
|
|
|
103,269
|
|
|
Accrued salaries and wages
|
|
109,123
|
|
|
605,471
|
|
|
Accrued utility expenses
|
|
289,246
|
|
|
481,678
|
|
|
Accrued interest expenses
|
|
-
|
|
|
-
|
|
|
Accrued transportation expenses
|
|
314,075
|
|
|
1,103,112
|
|
|
Other accruals
|
|
1,337,486
|
|
|
-
|
|
|
Purchases disbursements payables
|
|
1,221,865
|
|
|
6,018,057
|
|
|
|
$
|
4,788,869
|
|
$
|
10,291,237
|
|
13.
|
LONG-TERM DEBTS
|
|
|
|
Long-term debts consisted of the following as of
September 30, 2009 and December 31, 2008:
|
|
|
|
9/30/2009
|
|
|
12/31/2008
|
|
|
Loan from Agricultural Development
Luotian Government,
|
|
|
|
|
|
|
|
●
Interest rates at 0.67% per annum due 12/11/2010
|
$
|
109,688
|
|
$
|
-
|
|
|
●
Interest rates at 2.10% per annum due
12/11/2011
|
|
25,594
|
|
|
25,532
|
|
|
Loan from United Commercial Bank, China Branch
|
|
|
|
|
|
|
|
●
Interest rates at 5.494% per annum due
1/14/2011
|
|
186,262
|
|
|
551,443
|
|
|
|
$
|
321,544
|
|
$
|
576,975
|
|
14.
|
NON-CONTROLLING INTERESTS
|
|
|
|
The non-controlling interests represents the 19.8% equity
of Shandong Green Foodstuff Co., Ltd. held by the Shandong Economic
Development Investment Corporation, which is a state-owned
interest.
|
20
AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL
STATEMENTS - SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(STATED IN US
DOLLARS)
15.
|
CAPITALIZATION
|
|
|
|
Dating back to May 3, 2007, the Company underwent a
reverse-merger and a concurrent financing transaction that resulted in
24,923,178 shares of outstanding common stock that remained unchanged
until through December 31, 2007. During the course of 2008, several
holders of warrants issued in connection with the financing transaction
exercised their rights to purchase shares at the prescribed exercise
price. The holders of the warrants exercised the right to purchase a total
of 360,207; however, because the holders did not pay in cash for the
warrants, 110,752 of those shares were cancelled as consideration in lieu
of the warrant holders paying in cash. Ultimately, 249,455 of new shares
were issued to those who exercised their warrant. The total number of
outstanding shares at September 30, 2009 was 25,177,640.
|
|
|
16.
|
INCOME TAXES
|
|
|
|
All of the Groups income before income taxes and related
tax expenses are from PRC sources. In accordance with the relevant tax
laws and regulations of PRC, the corporation income tax rate is 33%.
However, also in accordance with the relevant taxation laws in the PRC,
some of the subsidiaries of the Group are eligible for tax exemption. In
particular, from the time that a company has its first profitable tax
year, the company is exempt from corporate income tax for its first two
year and is then entitled to a 50% tax reduction for the succeeding three
year. Actual income tax expenses reported in the consolidated statements
of income and comprehensive income differ from the amounts computed by
applying the PRC statutory income tax rate of 33% to income before income
tax for the period from August 4, 2006 (date of incorporation) to
September 30, 2009 for the following reasons:
-
|
|
|
|
9/30/2009
|
|
|
9/30/2008
|
|
|
Income before tax
|
$
|
11,439,761
|
|
$
|
10,691,351
|
|
|
Tax at the income tax rate
|
|
2,859,940
|
|
|
2,672,838
|
|
|
Effect of tax exemption granted
|
|
(279,768
|
)
|
|
(884,436
|
)
|
|
Income tax
|
$
|
2,580,172
|
|
$
|
1,788,402
|
|
Per Share Effect of Tax
Exemption
|
|
|
9/30/2009
|
|
|
12/31/2008
|
|
|
Effect of tax exemption granted
|
$
|
279,768
|
|
$
|
884,436
|
|
|
Weighted-Average Shares Outstanding
|
|
25,177,640
|
|
|
24,923,178
|
|
|
Per share effect
|
$
|
0.01
|
|
$
|
0.04
|
|
Effective January 1, 2008, PRC
government implemented a new 25% tax rate across the board for all enterprises
regardless of whether domestic or foreign enterprise without any tax holiday
which is defined as two-year exemption followed by three-year half exemption
hitherto enjoyed by tax payers. As a result of the new tax law of a standard 25%
tax rate, tax holidays terminated as of December 31, 2007. However, PRC
government has established a set of transition rules to allow enterprises
already started tax holidays before January 1, 2008, to continue enjoying the
tax holidays until being fully utilized.
Based on the background of each
constituent of our group, the income tax rates applicable to the four
constituents for 2008 and 2009 are depicted in the following table.
|
Income Tax Rate
|
2008
|
2009
|
|
Junan Hongrun
|
15%
|
25%
|
|
Luotian Lorain
|
15%
|
15%
|
|
Beijing Lorain
|
0%
|
15%
|
|
Shandong Lorain
|
25%
|
25%
|
21
AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL
STATEMENTS - SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(STATED IN US
DOLLARS)
17.
|
SALES BY PRODUCT TYPE
|
|
|
|
Sales by categories of product at September 30, 2009 and
2008 was as follows: -
|
|
Category
|
|
9/30/2009
|
|
|
9/30/2008
|
|
|
|
|
|
|
|
|
|
|
Chestnut
|
$
|
44,852,695
|
|
$
|
39,609,810
|
|
|
Convenience Food
|
|
18,099,093
|
|
|
16,364,820
|
|
|
FCB Food
|
|
20,858,242
|
|
|
19,705,490
|
|
|
Others
|
|
31,082
|
|
|
-
|
|
|
Total
|
$
|
83,841,112
|
|
$
|
75,680,120
|
|
Revenue by geography at September 30,
2009 and 2008 was as follows: -
|
Country
|
|
9/30/2009
|
|
|
9/30/2008
|
|
|
|
|
|
|
|
|
|
|
Belgium
|
$
|
1,203,354
|
|
$
|
1,797,772
|
|
|
Italy
|
|
-
|
|
|
177,153
|
|
|
Chile
|
|
-
|
|
|
426,507
|
|
|
China
|
|
68,980,929
|
|
|
59,321,493
|
|
|
France
|
|
723,383
|
|
|
868,028
|
|
|
Germany
|
|
395,209
|
|
|
722,394
|
|
|
Holland
|
|
142,385
|
|
|
-
|
|
|
Hong Kong
|
|
342,428
|
|
|
-
|
|
|
Japan
|
|
4,245,059
|
|
|
4,374,448
|
|
|
India
|
|
-
|
|
|
519,401
|
|
|
Malaysia
|
|
422,013
|
|
|
144,469
|
|
|
Netherlands
|
|
-
|
|
|
508,340
|
|
|
Saudi Arabia
|
|
993,350
|
|
|
110,292
|
|
|
Kuwait
|
|
76,989
|
|
|
-
|
|
|
Singapore
|
|
725,402
|
|
|
207,396
|
|
|
South Korea
|
|
4,206,399
|
|
|
3,833,565
|
|
|
Sweden
|
|
-
|
|
|
83,606
|
|
|
Taiwan
|
|
399,103
|
|
|
523,231
|
|
|
United Arab Emirates
|
|
-
|
|
|
174,323
|
|
|
United Kingdom
|
|
289,426
|
|
|
1,457,012
|
|
|
United States of America
|
|
541,028
|
|
|
207,711
|
|
|
Spain
|
|
154,655
|
|
|
222,979
|
|
|
Total
|
$
|
83,841,112
|
|
$
|
75,680,120
|
|
18.
|
SUBSEQUENT EVENT
|
|
|
|
On October 13, 2009, the Company filed a Definitive
Information Statement on Schedule 14C with the US Securities and Exchange
Commission and mailed it to shareholders disclosing that a written consent
in lieu of an annual meeting had been signed and delivered to the Company
by the majority shareholder authorizing the following actions: To elect
six directors to hold office until 2010; to ratify the Companys
independent registered public accounting firm
for fiscal year 2009; and to reincorporate the Company in the
State of Nevada through a redomicile merger. On November 9, 2009, the
waiting period pursuant to Exchange Act Rule 14c-2 expired, and the first
two actions became effective. In addition, the Company anticipates closing
the redomicile merger as promptly as practicable.
|
22
AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL
STATEMENTS - SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(STATED IN US
DOLLARS)
|
On October 28, 2009, the Company filed a Form 8-K with
the US Securities and Exchange Commission disclosing that the Company
entered into a Securities Purchase Agreement dated on the same date by and
between the Company and the accredited investors signatories thereto.
Pursuant to the agreement the Company agreed to issue to the Investors (i)
5,011,169 shares (the "Shares") of common stock, par value $0.001 per
share (the "Common Stock"), (ii) Series A Warrants to purchase 1,753,909
shares of Common Stock (the "Series A Warrant Shares") and (iii) Series B
Warrants to purchase 501,115 shares of Common Stock (the "Series B Warrant
Shares" and, collectively with the Series A Warrant Shares, the "Warrant
Shares"). The aggregate purchase price is approximately $12 million.
Pursuant to the Purchase Agreement, Investors have a right to participate
in up to 25%, in the aggregate, of certain future financing transactions
conducted by the Company within the next eighteen (18) months.
|
|
|
|
The Company entered into a registration rights agreement:
the Company agreed to prepare and file a registration statement covering
the resale of the Shares and the Warrant Shares with the SEC.
|
|
|
|
The Company is obligated to pay Rodman & Renshaw,
LLC, as lead placement agent, and FT Global Inc., as co-lead placement
agent, in the aggregate, a commission equal to 6% of the aggregate
purchase price.
|
|
|
19.
|
SHARE BASED COMPENSATION
|
|
|
|
On July 27, 2009, the Companys Board of Directors
adopted the American Lorain Corporation 2009 Incentive Stock Plan (the
Plan). The Plan provides that the maximum number of shares of the
Companys common stock that may be issued under the Plan is 2,500,000
shares. The Companys employees, directors, and service providers are
eligible to participate in the Plan.
|
|
|
|
For the nine months ended September 30, 2009, the Company
recorded a total of $86,636 of shared based compensation expense. The
Company issued warrants that upon exercise would result in the issuance of
1,321,385 common shares. These warrants vest over three years, where
33.33% vest annually. The expense related to the warrants was $31,677. The
Company also recorded expenses of $48,808 and $6,152 for the expected
issuance of 30,891 common shares and the already issued 5,000 common
shares to participants, respectively. The common shares to be and already
issued to participants vest immediately. The entire stock option
compensation expenses were recorded as general and administrative expenses
given the nature of the work contribution of the grantees.
|
|
|
|
The range of the exercise prices of the stock options
granted since inception of the plan are shown in the following
table:
|
|
Price Range
|
Number of Shares
|
|
$0 - $4.99
|
1,344,586 shares
|
|
$5.00 - $9.99
|
0 shares
|
|
$10.00 - $14.99
|
0 shares
|
No tax benefit has yet to be accrued or
realized. For the nine months ended September 30, 2009 the Company has yet to
repatriate its earnings, accordingly it has not recognized any deferred tax
assets or liability in regards to benefits derived from the issuance of stock
options.
The Company used the Black-Scholes
Model to value the warrants granted. The following shows the weighted average
fair value of the grants and the assumptions that were employed in the model:
|
Weighted-average fair value of grants:
|
$
|
0.2877
|
|
|
Risk-free interest rate:
|
|
2.51%
|
|
|
Expected volatility:
|
|
7.15%
|
|
|
Expected life in months:
|
|
60.00
|
|
23
ITEM 2.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
Caution Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking
statements. These statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements to
be materially different from any future results, performances or achievements
expressed or implied by the forward-looking statements. These risks and
uncertainties include, but are not limited to, the factors described in the
section captioned Risk Factors in our Annual Report on Form 10-K for the year
ended December 31, 2008 filed with the Securities and Exchange Commission.
In some cases, you can identify forward-looking statements by
terms such as anticipates, believes, could, estimates, expects,
intends, may, plans, potential, predicts, projects, should,
would and similar expressions intended to identify forward-looking statements.
Forward-looking statements reflect our current views with respect to future
events and are based on assumptions and are subject to risks and uncertainties.
Given these uncertainties, you should not place undue reliance on these
forward-looking statements.
Also, forward-looking statements represent our estimates and
assumptions only as of the date of this report. You should read this report
completely and with the understanding that our actual future results may be
materially different from what we expect.
Except as required by law, we assume no obligation to update
any forward-looking statements publicly, or to update the reasons actual results
could differ materially from those anticipated in any forward-looking
statements, even if new information becomes available in the future.
Overview
We are an integrated food manufacturing company with
headquarters in Shandong Province, China. We develop, manufacture and sell the
following types of food products:
-
chestnut products,
-
convenience foods (including ready-to-cook foods, ready-to-eat foods, and
meals ready-to-eat); and
-
frozen, canned, and bulk food.
We conduct our production activities in China. Our products are
sold in 26 provinces and administrative regions in China and 42 foreign
countries. We believe that we are the largest processed chestnut foods
manufacturer in China. We have developed brand equity for our chestnut products
in China, Japan and South Korea over the past 10 to 15 years. We produced over
50 high value-added processed chestnut products in the third quarter of 2009. We
derive most of our revenues from sales in China, Japan and South Korea. Our
primary strategy for 2009 is to expand our brand equity in the Chinese market
for our chestnut and convenience foods products. In addition, we are working to
expand our marketing efforts in Asia, North America, Europe and the Middle East.
We currently have limited sales and marketing activity in the United States,
although our long-term plan is to significantly expand our activities there.
Production Factors that Affect our Financial and
Operational Condition
Our business depends on obtaining a reliable supply of various
agricultural products, including chestnuts, vegetables, fruits, red meat, fish,
eggs, rice, flour and packaging products. During the third quarter of 2009, the
cost of our raw materials increased from $27.1 million to $27.2 million, as
compared to the third quarter of 2008, for an increase of approximately 0.4% .
We may have to increase the number of our suppliers of raw materials and expand
our own agricultural operations in the future to meet growing production
demands. Despite our efforts to control our supply of raw materials and maintain
good relationships with our suppliers, we could lose one or more of our
suppliers at any time. The loss of several suppliers may be difficult to replace
and could increase our reliance on higher cost or lower quality suppliers, which
could negatively affect our profitability. In addition, if we have to increase
the number of our suppliers of raw materials in the future to meet growing
production demands, we may not be able to locate new suppliers who could provide
us with sufficient materials to meet our needs. Any interruptions to, or decline
in, the amount or quality of our raw materials supply could materially disrupt
our production and adversely affect our business and financial condition and
financial prospects.
Uncertainties that Affect our Financial Condition
We spend a significant amount of cash on our operations,
principally to procure raw materials for our products. Many of our suppliers,
including chestnut, vegetable and fruit farmers, and suppliers of packaging
materials, require us to prepay for their supplies in cash or pay on the same
day that such supplies are delivered to us. However, some of the suppliers with
whom we have a long-standing business relationship allow us to pay on
credit. In the third quarter of 2009, we paid for approximately 10% of our raw
materials on credit. We fund the majority of our working capital requirements
out of cash flow generated from operations. If we fail to generate sufficient
sales, or if our suppliers stop offering us credit terms, we may not have
sufficient liquidity to fund our operating costs and our business could be
adversely affected.
24
We also fund approximately 31% of our working capital
requirements from the proceeds of short-term loans from Chinese banks. We expect
to continue to do so in the future. Such loans are generally secured by our
fixed assets, receivables and/or guarantees by third parties. Our loan balance
from short-term bank loans as of September 30, 2009 was approximately $34.6
million. The term of almost all such loans is one year or less. Historically, we
have rolled over such loans on an annual basis. However, we may not have
sufficient funds available to pay all of our borrowings upon maturity. Failure
to roll over our short-term borrowings at maturity or to service our debt could
result in the imposition of penalties, including increases in rates of interest,
legal actions against us by our creditors, or even insolvency.
We anticipate that our existing capital resources and cash
flows from operations and current and expected short-term bank loans will be
adequate to satisfy our liquidity requirements for the next 12 months. However,
if available liquidity is not sufficient to meet our operating and loan
obligations as they come due, our plans include considering pursuing alternative
financing arrangements or further reducing expenditures as necessary to meet our
cash requirements. However, there is no assurance that, if required, we will be
able to raise additional capital or reduce discretionary spending to provide the
required liquidity. Currently, the capital markets for small capitalization
companies are extremely difficult and banking institutions have become stringent
in their lending requirements. Accordingly, we cannot be sure of the
availability or terms of any third party financing. However, we are pleased to
disclose that we did successfully consummate a private placement financing of
approximately $12.0 million through the sale of common stock and warrants to
several accredited investors on November 3, 2009. We intend to use the proceeds
to support a planned nationwide commercial campaign to promote our convenience
food products in the Chinese market and to increase brand awareness for our
Ready-to-Cook foods, Ready-to-Eat foods, and Meals Ready-to-Eat, as well as our
chestnut products
The crisis of the financial and credit markets worldwide in the
second half of 2008 has led to a severe economic recession worldwide, and the
outlook for the remainder of 2009 is uncertain. A continuation or worsening of
unfavorable economic conditions, including the ongoing credit and capital
markets disruptions, could have an adverse impact on our business, operating
results or financial condition in a number of ways. For example, we may
experience declines in revenues, profitability and cash flows as a result of
reduced orders, delays in receiving orders, delays or defaults in payment or
other factors caused by the economic problems of our customers and prospective
customers. We may experience supply chain delays, disruptions or other problems
associated with financial constraints faced by our suppliers and subcontractors.
In addition, changes and volatility in the equity, credit and foreign exchange
markets and in the competitive landscape make it increasingly difficult for us
to predict our revenues and earnings into the future.
In 2009, we shortened credit terms for many of our
international and domestic distributors from between 30 and 180 days to between
30 and 60 days. Our large customers may fail to meet these shortened credit
terms, in which case we may not have sufficient cash flow to fund our operating
costs and our business could be adversely affected.
In 2009, we introduced to the market several new products,
including the series of bean products. Such additions to our product family
increased the number of suppliers, many of whom were new to us. Most of these
new suppliers require prepayment, in part or in full amount, before delivery of
the supplies. Our cash flow suffered from these increased advances to suppliers.
Our suppliers may not waive or reduce their prepayment requirements, in which
case if we fail to find alternative suppliers, we may not have sufficient cash
flow to fund our operations and our business could be adversely affected.
Results of Operations
Three Months Ended September 30, 2009 Compared to Three
Months Ended September 30, 2008
The following table summarizes the results of our operations
during the three-month periods ended September 30, 2009 and September 30, 2008,
respectively and provides information regarding the dollar and percentage
increase or (decrease) from the three-month period ended September 30, 2008
compared to the three-month period ended September 30, 2009.
25
(All amounts, other than percentages, stated in thousands of
U.S. dollars)
|
|
Three months ended
|
|
|
|
|
|
Percentage
|
|
|
|
September 30,
|
|
|
Dollar($)
|
|
|
(%)
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
Increase
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
(In
Thousands)
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
Net revenues
|
$
|
38,675
|
|
$
|
36,727
|
|
$
|
1,948
|
|
|
5.3%
|
|
Cost of revenues
|
|
29,567
|
|
|
29,001
|
|
|
566
|
|
|
2.0%
|
|
Gross profit
|
|
9,108
|
|
|
7,727
|
|
|
1,381
|
|
|
17.9%
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
expenses
|
|
1,165
|
|
|
831
|
|
|
334
|
|
|
40.2%
|
|
General and
administrative expenses
|
|
907
|
|
|
848
|
|
|
59
|
|
|
7.0%
|
|
Operating Income
|
|
7,036
|
|
|
6,048
|
|
|
988
|
|
|
16.3%
|
|
Government subsidy income
|
|
44
|
|
|
0
|
|
|
44
|
|
|
|
|
Interest and other income
|
|
24
|
|
|
181
|
|
|
(157
|
)
|
|
(86.7%
|
)
|
Other expenses
|
|
53
|
|
|
(57
|
)
|
|
110
|
|
|
193%
|
|
Interest expense
|
|
857
|
|
|
627
|
|
|
230
|
|
|
36.7%
|
|
Earnings before tax
|
|
6,194
|
|
|
5,658
|
|
|
536
|
|
|
9.5%
|
|
Income tax
|
|
1,397
|
|
|
905
|
|
|
492
|
|
|
54.4%
|
|
Income before minority interests
|
|
4,798
|
|
|
4,753
|
|
|
45
|
|
|
0.9%
|
|
Minority interests
|
|
300
|
|
|
295
|
|
|
5
|
|
|
1.7%
|
|
Net income
|
$
|
4,497
|
|
$
|
4,459
|
|
$
|
38
|
|
|
0.9%
|
|
Revenue
Net Revenues
. Our net revenue for the three months ended
September, 2009 amounted to $38.7 million, which represents an increase of
approximately $1.9 million, or 5.3%, from the three-month period ended on
September 30, 2008, in which our net revenue was $36.7 million. The increased
revenues were attributable to increased revenues from sales of our chestnut and
convenience food products as a result of 16.3% and 12.0% increase in sales
respectively of such products thanks to our effective marketing efforts and well
established domestic and international distribution network.
Cost of Revenues.
During the three months ended
September 30, 2009, we experienced an increase in cost of revenue of $.566
million, in comparison to the three months ended September 30, 2008, from $29.0
million to $29.6 million, reflecting an increase of approximately 2%.
Approximately 21%, or $0.12 million, of this increase was attributable to an
increase in raw material costs, which increased from $27.1 million during the
three months ended September 30, 2008 to $27.2 million, or approximately 0.4%,
during the three months ended September 30, 2009.
The factors that contributed to the remaining 79% increase in
cost of revenues were: an increase in wage expense for factory workers, an
increase in depreciation expenses for capital equipment and an increase in the
cost of consumables used in conjunction with capital equipment.
Gross Profit
. Our gross profit increased $1.4 million,
or 17.9%, to $9.1 million for the three months ended September 30, 2009 from
$7.7 million for the same period in 2008 as a result of higher net revenues,
offset by higher costs of revenues, for the reasons indicated immediately
above.
26
Operating Expenses
Selling and Marketing Expenses
. Our selling and
marketing expenses increased approximately $0.33 million, or 40.2%, to $1.16
million in the third quarter of 2009 from $.831 million in the third quarter of
2008. The following table reflects the main factors that contributed to this
increase as well as the dollar amount that each factor contributed to this
increase:
(in U.S. dollars)
|
Increase in Costs in the Three
|
|
Months Ended September 30, 2009
|
|
over the Three Months Ended
|
|
September 30, 2008
|
Shipping and inspection fees
|
$25,682
|
Transportation
|
$354,584
|
Commissions
|
$52,971
|
Supermarket fees
|
$45,502
|
Wages (sales personnel)
|
$65,112
|
The increases listed in the table above were partially offset
by decreases in dollar amount of other factors, including customer lodging,
phone, postage and courier charges, toll road expense, warehousing costs and
expenses for professional movers.
Selling and marketing expenses increased because we expanded
the distribution of our products in China. In addition, we introduced several
new convenience food products and initiated a marketing and promotional campaign
for our chestnut and convenience food products.
General and Administrative Expenses.
We experienced an
increase in general and administrative expense of approximately $0.06 million
from approximately $0.847 million to approximately $0.907 million for the three
months ended September 30, 2009, compared to the same period in 2008. The
following table reflects the main factors that contributed to this increase as
well as the dollar amount that each factor contributed to this increase:
Factor
|
Dollar Increase
|
Office expenses
|
$85,024
|
Consultation fees
|
$21,592
|
Stamp Duty
|
$4,865
|
Waste Processing fees
|
$10,717
|
Income Before Taxation and Minority Interest
Income before taxation and minority interest increased $0.536
million, or 9.5%, to $6.19 million for the three months ended September 30, 2009
from $5.66 million for the same period of 2008. The increase was mainly
attributable to the increase of our sales revenue as described above in the
three months ended September 30, 2009 as compared to the three months ended
September 30, 2008.
Income Taxes
Income taxes increased $0.492 million, or 54.4%, to $1.396
million in the third quarter of 2009, as compared to $0.904 million in the third
quarter of 2008. This increase was attributable to the higher income tax rate in
2009 as compared to 2008.
Effective January 1, 2008, the PRC government implemented a new
25% tax rate across the board for all enterprises, without any tax holiday.
However, the PRC government has established a set of transition rules to allow
enterprises that already started tax holidays before January 1, 2008 to continue
utilizing such tax holidays until they are fully utilized.
The income tax rates applicable to our Chinese operating
subsidiaries in 2008 and 2009 are depicted in the following table:
|
2008
|
2009
|
Junan Hongrun
|
15%
|
25%
|
Luotian Lorain
|
15%
|
15%
|
Beijing Lorain
|
-
|
15%
|
Shandong Lorain
|
25%
|
25%
|
27
Net Income
Net income increased $.039 million, or 0.9%, to $4.497 million
for the three months ended September 30, 2009 from $4.458 million for the same
period of 2008. The increase was attributable to increased sales revenue and
lower cost of goods sold and partially offset by increased selling and marketing
expenses and higher income tax in the three months ended September 30, 2009 as
compared to the three months ended September 30, 2008.
Nine Months Ended September 30, 2009 Compared to Nine Months
Ended September 30, 2008
The following table summarizes the results of our operations
during the nine-month periods ended September 30, 2009 and September 30, 2008,
respectively and provides information regarding the dollar and percentage
increase or (decrease) from the nine-month period ended September 30, 2008
compared to the nine-month period ended September 30, 2009.
(All amounts, other than percentages, stated in thousands of
U.S. dollars)
|
|
Nine months ended
|
|
|
|
|
|
Percentage
|
|
|
|
September 30,
|
|
|
Dollar($)
|
|
|
(%)
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
Increase
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
(In
Thousands)
|
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
Net revenues
|
$
|
83,841
|
|
$
|
75,680
|
|
$
|
8,161
|
|
|
10.8%
|
|
Cost of revenues
|
|
64,280
|
|
|
58,819
|
|
|
5,461
|
|
|
9.3%
|
|
Gross profit
|
|
19,561
|
|
|
16,861
|
|
|
2,700
|
|
|
16.0%
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
3,556
|
|
|
2,066
|
|
|
1,490
|
|
|
72.1%
|
|
General and Administrative expenses
|
|
2,798
|
|
|
2,480
|
|
|
318
|
|
|
12.8%
|
|
Operating Income
|
|
13,207
|
|
|
12,314
|
|
|
892
|
|
|
7.2%
|
|
Government subsidy income
|
|
240
|
|
|
38
|
|
|
202
|
|
|
538.0%
|
|
Interest and other income
|
|
233
|
|
|
288
|
|
|
(56
|
)
|
|
(19.3%
|
)
|
Other expenses
|
|
234
|
|
|
48
|
|
|
186
|
|
|
385.3%
|
|
Interest expense
|
|
2,206
|
|
|
1,901
|
|
|
305
|
|
|
16.0%
|
|
Earnings before tax
|
|
11,240
|
|
|
10,691
|
|
|
548
|
|
|
5.1%
|
|
Income tax
|
|
2,580
|
|
|
1,788
|
|
|
792
|
|
|
44.3%
|
|
Income before minority interests
|
|
8,660
|
|
|
8,903
|
|
|
(243
|
)
|
|
(2.7%
|
)
|
Minority interests
|
|
551
|
|
|
595
|
|
|
(45
|
)
|
|
(7.5%
|
)
|
Net income
|
$
|
8,109
|
|
$
|
8,308
|
|
$
|
(199
|
)
|
|
(2.4%
|
)
|
Revenue
Net Revenues
. Our net revenue for the nine months ended
September 30, 2009 amounted to $83.8 million, which is approximately $8.1
million or 10.8% more than that of the same period ended on September 30, 2008
where we had revenue of $75.7 million. The increased revenues were attributable
to the success of the Company's marketing strategies, operational enhancements
and expansion of sales markets, primarily in China. In addition, through third
party agents that we contracted with, our products were sold to a total of over
3,000 supermarkets in China as of September 30, 2009.
During the nine months ended September 30, 2009, revenues from
sales of chestnut products increased by $5.2 million, or 13.2%, and revenues
from sales of convenience food products increased by $1.7 million, or 10.6%, and
sales of frozen, canned and bulk food products increased $1.2 million, or 5.8%,
compared to the same period in 2008 .
Cost of Revenues.
Our cost of goods sold, which consists
of raw materials, direct labor and manufacturing overhead expenses, was $64.3
million for the nine month period ended September 30, 2009, an increase of $5.5
million or 9.3%, as compared to $58.8 million for the nine month period ended
September 30, 2008. The cost of goods sold increased because the sales in the
first nine months of 2009 increased as compared to the same period ended
September 30, 2008.
28
Gross Profit
. Our gross profit increased $2.7 million,
or 16% to $19.6 million for the nine months ended September 30, 2009 from $16.9
million for the same period in 2008. This increase was attributable to increased
sales revenue.
Operating Expenses
Selling and Marketing Expenses
. Selling and marketing
expenses increased $1.5 million, or 72.1% to $3.6 million for the nine months
ended September 30, 2009 from $2.1 million for the same period in 2008. This
increase mainly resulted from increased efforts to market our products in our
domestic market.
General and Administrative Expenses.
General and
administrative expenses increased $0.32 million, or 12.8% to $2.8 million for
the nine months ended September 30, 2009 from $2.5 million for the same period
of 2008. The increase of general and administrative expenses was primarily
attributable to increased office expenses relative to our expanded business, the
increased compensation for managerial personnel and
expansion of our
distribution channels.
Income Before Taxation and Minority Interest
Income before taxation and minority interest increased $0.55
million or 5.1% to $11.2 million for the nine months ended September 30, 2009
from $10.7 million for the same period of 2008.
The increase was
primarily a result of the higher revenue during the nine month period ended on
September 30, 2009 as compared to 2008.
Income Taxes
Income taxes increased $0.79 million or 44.3% to $2.6 million
for the nine months ended September 30, 2009 from $1.8 million for the same
period of 2008. The increase of tax paid was primarily a result of the increase
of income in the first nine months ended September 30, 2009 as well as increased
income tax rate, as compared to the same period in 2008.
Net Income
Net income decreased $0.2 million, or 2.4% to $8.1 million for
the nine months ended September 30, 2009 from $8.3 million for the same period
of 2008. The decrease was primarily a result of higher selling and marketing
expenses and increased income tax.
Liquidity and Capital Resources
As of September 30, 2009, we had cash and cash equivalents
(including restricted cash) of $5.2 million. The following table provides
detailed information about our net cash flow for all financial statements
periods presented in this report.
|
|
Cash Flow (in thousands)
|
|
|
|
Nine Months Ended September
|
|
|
|
30,
|
|
|
|
2009
|
|
|
2008
|
|
Net cash provided by (used in) operating
activities
|
$
|
(15,739
|
)
|
$
|
4,631
|
|
Net cash provided by (used in) investing activities
|
$
|
1,233
|
|
$
|
(13,708
|
)
|
Net cash provided by (used in) financing
activities
|
$
|
14,792
|
|
$
|
6,482
|
|
Net cash flow (outflow)
|
$
|
286
|
|
$
|
(2,594
|
)
|
Operating Activities
Net cash provided by operating activities was ($15.7) million
for the nine months period ended September 30, 2009, which is a decrease of
$20.3 million from $4.6 million for the same period of 2008. The decrease of net
cash provided by operating activities in the first nine months of fiscal 2009
was primarily a result of additional decrease in accounts and other payables of
approximately $7.1 million and less decrease in accounts and other receivables
of approximately $16.4 million as compared to the same period in 2008.
Investing Activities
Our main uses of cash for investment activities are payments
for the acquisition of property, plants and equipment.
Net cash provided by investing activities for the nine months
period ended September 30, 2009 was $1.2 million, which is an increase of $14.9
million from net cash used in investing activities of $13.7 million for the same
period of 2008. The increase was primarily due to reduced investment in fixed
assets and decrease in restricted cash in 2009.
29
Financing Activities
Net cash provided by financing activities for the nine months
period ended September 30, 2009 was $14.8 million, which is an increase of $8.3
million from $6.5 million net cash provided by financing activities during the
same period in 2008. The increase of the net cash provided by financing
activities was primarily a result of increased short term bank borrowing in
2009.
Loan Facilities
As of September 30, 2009, the amounts and maturity dates for
our short-term bank loans are as set forth in the Notes to the Financial
Statements. The total amounts outstanding were $34.6 million as of September 30,
2009, compared with $14.4 million as of December 31, 2008. We believe that our
currently available working capital, after receiving the aggregate proceeds of
the credit facilities referred to above, should be adequate to sustain our
operations at our current levels through at least the next twelve months.
Obligations under Material Contracts
We do not have any material contractual obligations as of
September 30, 2009.
Listing on the NYSE Amex Exchange
On September 3, 2009, we announced that we received
authorization to list our common stock on the NYSE Amex Exchange and we began
trading on that exchange on September 8, 2009. We are hoping our move to a
senior exchange will improve liquidity and transparency for our
shareholders.
Critical Accounting Policies
The preparation of financial statements in conformity with
United States generally accepted accounting principles requires our management
to make assumptions, estimates and judgments that affect the amounts reported in
our financial statements, including the notes thereto, and related disclosures
of commitments and contingencies, if any. We consider our critical accounting
policies to be those that require significant judgments and estimates in the
preparation of financial statements, including the following:
Method of Accounting --
We maintain our general ledger
and journals with the accrual method accounting for financial reporting
purposes. Accounting policies adopted by us conform to generally accepted
accounting principles in the United States and have been consistently applied in
the presentation of our financial statements, which are compiled on the accrual
basis of accounting.
Use of estimates --
The preparation of the financial
statements in conformity with generally accepted accounting principles in the
United States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Management makes
these estimates using the best information available at the time the estimates
are made; however, actual results could differ materially from those
estimates.
Principles of consolidation --
Our consolidated
financial statements, which include information about our company and our
subsidiaries, are compiled in accordance with generally accepted accounting
principles in the United States. All significant inter-company accounts and
transactions have been eliminated. Our consolidated financial statements include
100% of assets, liabilities, and net income or loss of our wholly-owned
subsidiaries. Ownership interests of minority investors are recorded as minority
interests.
As of September 30, 2009, the details pertaining to our
subsidiaries were as follows:
|
|
|
|
|
Attributable
|
|
|
|
|
|
|
|
|
|
Place of
|
|
|
Equity
|
|
|
Registered
|
|
|
|
|
Name of Company
|
|
Incorporation
|
|
|
Interest
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
Shandong Lorain Co., Ltd.
|
|
PRC
|
|
|
80.2
|
|
$
|
12,901,823
|
|
|
(RMB 100,860,000
|
)
|
Luotian Lorain Co., Ltd.
|
|
PRC
|
|
|
100
|
|
$
|
3,240,013
|
|
|
(RMB 25,328,800
|
)
|
Junan Hongrun Foodstuff Co., Ltd.
|
|
PRC
|
|
|
100
|
|
$
|
16,245,603
|
|
|
(RMB 127,000,000
|
)
|
Beijing Lorain Co., Ltd.
|
|
PRC
|
|
|
100
|
|
$
|
1,279,181
|
|
|
(RMB 10,000,000
|
)
|
30
Accounting for the Impairment of Long-Lived Assets
--
The long-lived assets held and used by us are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of assets
may not be recoverable. It is reasonably possible that these assets could become
impaired as a result of technology or other industry changes. Determination of
recoverability of assets to be held and used is by comparing the carrying amount
of an asset to future net undiscounted cash flows to be generated by the assets.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.
During the reporting periods, there was no impairment loss.
Revenue recognition --
Our revenue recognition policies
are in compliance with Staff Accounting Bulletin (SAB) 104. Sales revenue is
recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no other
significant obligations of ours exist and collectability is reasonably assured.
Payments received before all of the relevant criteria for revenue recognition
are satisfied are recorded as unearned revenue.
Our revenue consists of invoiced value of goods, net of a
value-added tax. No product return or sales discount allowance is made as
products delivered and accepted by customers are normally not returnable and
sales discount is normally not granted after products are delivered.
Recent Accounting Pronouncements
In May 2009, the FASB issued SFAS No. 165, "Subsequent
Events" ("SFAS 165"). SFAS 165 is intended to establish general standards
of accounting for and disclosure of events that occur after the balance
sheet date but before financial statements are issued or are available to
be issued. It requires the disclosure of the date through which an entity
has evaluated subsequent events and the basis for that date, that is,
whether that date represents the date the financial statements were issued
or were available to be issued. SFAS 165 is effective for interim or
annual financial periods ending after June 15, 2009.
|
|
In June 2009, FASB issued FASB Statement No. 166,
Accounting for Transfers for Financial Assets and FASB Statement No. 167,
a revision to FASB Interpretation No. 46 (Revised December 2003),
Consolidation of Variable Interest Entities.
|
|
Statement 166 is a revision to FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and will require more information about
transfers of financial assets, including securitization transactions, and
where entities have continuing exposure to the risks related to
transferred financial assets. It eliminates the concept of a "qualifying
special-purpose entity," changes the requirements for derecognizing
financial assets, and requires additional disclosures.
|
|
Statement 167 is a revision to FASB Interpretation No.
46 (Revised December 2003), Consolidation of Variable Interest Entities,
and changes how a reporting entity determines when an entity that is
insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. The determination of whether a reporting
entity is required to consolidate another entity is based on, among other
things, the other entitys purpose and design and the reporting entitys
ability to direct the activities of the other entity that most
significantly impact the other entitys economic performance.
|
|
On July 1, 2009, FASB issued FASB Statement No. 168,
The "FASB Accounting Standards Codification" and the Hierarchy of
Generally Accepted Accounting Principles. The ASC has become the source of
authoritative US GAAP recognized by the FASB to be applied by
nongovernmental entities and provides that all such guidance carries an
equal level of authority. The ASC is not intended to change or alter
existing GAAP. The ASC is effective for interim and annual periods ending
after September 15, 2009.
|
|
The Company is currently evaluating the
potential impact, if any, of the adoption of the above recent accounting
pronouncements on its consolidated results of operations and financial
condition.
|
31
Off-Balance Sheet Arrangements
We do not have any off-balance arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not required.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act) that are designed to ensure that
information required to be disclosed in Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is accumulated and communicated
to our management, including to our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
As required by Rule 13a-15 under the Exchange Act, our
management, including our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures as of
September 30, 2009. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that as of September 30, 2009, our disclosure
controls and procedures were effective.
Changes in Internal Controls over Financial Reporting.
During the fiscal quarter ended September 30, 2009, there were
no changes in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: November 12, 2009
AMERICAN LORAIN CORPORATION
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/s/ Si Chen
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Si Chen
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Chief Executive Officer
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/s/ Yilun Jin
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Yilun Jin
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Chief Financial Officer
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33
EXHIBIT INDEX
34
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