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, 2011
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File No. 001-34449
AMERICAN LORAIN CORPORATION
(Exact name of registrant as specified in its charter)
Nevada
|
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 Securities 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 [_]
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 [X] No [_]
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 [_]
|
Accelerated filer [_]
|
Non-accelerated filer [_]
|
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 [_] No [X]
The numbers of shares outstanding
of the issuers class of common stock as of September 30, 2011 was 34,471,801.
Table of Contents
|
|
Page
|
|
Part I - Financial
Information
|
|
Item 1
|
Financial Statements
|
2
|
Item 2
|
Managements Discussion and
Analysis of Financial Condition and Results of Operations
|
31
|
Item 3
|
Quantitative and Qualitative Disclosures about
Market Risk
|
41
|
Item 4
|
Controls and Procedures
|
41
|
|
|
|
|
Part II - Other
Information
|
|
Item 1
|
Legal Proceedings
|
42
|
Item 1A
|
Risk Factors
|
42
|
Item 2
|
Unregistered Sales of Equity Securities and Use
of Proceeds
|
42
|
Item 3
|
Defaults Upon Senior Securities
|
42
|
Item 4
|
Removed and Reserved
|
42
|
Item 5
|
Other Information
|
42
|
Item 6
|
Exhibits
|
42
|
Signatures
|
|
43
|
1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN LORAIN CORPORATION
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)
2
AMERICAN LORAIN CORPORATION
CONTENTS
|
PAGES
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
|
4
|
CONSOLIDATED BALANCE SHEETS
|
5 - 6
|
CONSOLIDATED STATEMENTS OF INCOME
|
7
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
8 - 9
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY
|
10
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
11 - 30
|
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, 2011
and December 31, 2010, and the related statements of income, stockholders
equity, and cash flows for the three-month and nine-month periods ended
September 30, 2011 and 2010. 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.
San Mateo, California
|
Samuel H. Wong & Co., LLP
|
November 1, 2011
|
Certified Public Accountants
|
4
AMERICAN LORAIN CORPORATION
|
CONSOLIDATED BALANCE SHEETS
|
AT SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
|
|
|
|
|
|
|
(Audited)
|
|
|
|
Note
|
|
|
At September 30,
|
|
|
At December 31,
|
|
ASSETS
|
|
|
|
|
2011
|
|
|
2010
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
2(d)
|
|
$
|
11,439,874
|
|
$
|
12,730,626
|
|
Restricted cash
|
|
3
|
|
|
8,881,019
|
|
|
2,308,898
|
|
Short-term investment
|
|
|
|
|
117,074
|
|
|
9,447,585
|
|
Trade accounts receivable
|
|
4
|
|
|
35,105,826
|
|
|
33,226,612
|
|
Other receivables
|
|
5
|
|
|
6,389,505
|
|
|
1,492,850
|
|
Inventories
|
|
6
|
|
|
34,829,858
|
|
|
29,807,198
|
|
Advance to suppliers
|
|
|
|
|
10,747,976
|
|
|
7,744,976
|
|
Prepaid expenses and taxes
|
|
|
|
|
396,960
|
|
|
434,061
|
|
Deferred tax asset
|
|
|
|
|
107,338
|
|
|
103,713
|
|
Security deposits and other Assets
|
|
|
|
|
628,998
|
|
|
693,858
|
|
Total current assets
|
|
|
|
$
|
108,644,428
|
|
$
|
97,990,377
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
469,594
|
|
|
-
|
|
Property, plant and equipment,
net
|
|
7
|
|
|
74,819,359
|
|
|
72,095,007
|
|
Land use rights,
net
|
|
8
|
|
|
4,929,838
|
|
|
4,877,438
|
|
Deposit
|
|
|
|
|
33,812
|
|
|
20,297
|
|
TOTAL ASSETS
|
|
|
|
$
|
188,897,031
|
|
$
|
174,983,119
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Short-term bank loans
|
|
9
|
|
$
|
14,824,640
|
|
$
|
25,164,469
|
|
Long-term debt current portion
|
|
13
|
|
|
56,743
|
|
|
218,935
|
|
Notes payable
|
|
10
|
|
|
782,656
|
|
|
4,249,977
|
|
Accounts payable
|
|
|
|
|
4,961,054
|
|
|
6,284,532
|
|
Taxes payables
|
|
11
|
|
|
3,146,526
|
|
|
3,266,502
|
|
Accrued liabilities and other payables
|
|
12
|
|
|
1,164,310
|
|
|
1,335,947
|
|
Customers deposits
|
|
|
|
|
33,421
|
|
|
89,370
|
|
Total current liabilities
|
|
|
|
$
|
24,969,350
|
|
$
|
40,609,732
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
13
|
|
|
15,509,447
|
|
|
5,030,930
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
|
$
|
40,478,797
|
|
$
|
45,640,662
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
5
AMERICAN LORAIN CORPORATION
|
CONSOLIDATED BALANCE SHEETS
|
AT SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
|
|
|
|
|
|
|
(Audited)
|
|
|
|
Note
|
|
|
At September 30,
|
|
|
At December 31,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
Preferred Stock, $.001 par value, 5,000,000 shares
authorized; 0 shares issued and outstanding at September 30, 2011 and
December 31, 2010, respectively
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 200,000,000 shares
authorized; 34,471,801 and 34,419,709 shares issued and outstanding as of
September 30, 2011 and December 31, 2010, respectively
|
|
14
|
|
|
34,472
|
|
|
34,420
|
|
Additional paid-in capital
|
|
14
|
|
|
52,823,660
|
|
|
52,371,481
|
|
Statutory reserves
|
|
2(r)
|
|
|
12,078,429
|
|
|
11,340,739
|
|
Retained earnings
|
|
|
|
|
60,710,712
|
|
|
48,688,375
|
|
Accumulated other comprehensive income
|
|
|
|
|
14,169,939
|
|
|
9,475,745
|
|
Non-controlling interests
|
|
15
|
|
|
8,601,022
|
|
|
7,431,697
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS EQUITY
|
|
|
|
$
|
148,418,234
|
|
$
|
129,342,457
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
|
|
$
|
188,897,031
|
|
$
|
174,983,119
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
6
AMERICAN LORAIN CORPORATION
|
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME
|
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011
AND 2010
|
(Stated in US Dollars)
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
Note
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
2(t),16
|
|
$
|
55,642,041
|
|
$
|
48,073,224
|
|
$
|
121,818,496
|
|
$
|
101,851,754
|
|
Cost of revenues
|
|
|
|
|
(43,291,417
|
)
|
|
(37,293,496
|
)
|
|
(95,036,378
|
)
|
|
(78,629,267
|
)
|
Gross profit
|
|
|
|
$
|
12,350,624
|
|
$
|
10,779,728
|
|
$
|
26,782,118
|
|
$
|
23,222,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
|
|
(2,538,469
|
)
|
|
(2,072,152
|
)
|
|
(4,989,922
|
)
|
|
(4,639,500
|
)
|
General and administrative expenses
|
|
|
|
|
(1,611,242
|
)
|
|
(1,643,967
|
)
|
|
(4,680,555
|
)
|
|
(3,592,629
|
)
|
|
|
|
|
|
(4,149,711
|
)
|
|
(3,716,119
|
)
|
|
(9,670,477
|
)
|
|
(8,232,129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
$
|
8,200,913
|
|
$
|
7,063,609
|
|
$
|
17,111,641
|
|
$
|
14,990,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government subsidy income
|
|
|
|
|
47,657
|
|
|
321,537
|
|
|
643,009
|
|
|
698,961
|
|
Interest and other income
|
|
22
|
|
|
2,135,832
|
|
|
628,008
|
|
|
2,285,288
|
|
|
759,579
|
|
Other expenses
|
|
|
|
|
(54,269
|
)
|
|
(16,269
|
)
|
|
(235,324
|
)
|
|
(88,506
|
)
|
Interest expense
|
|
|
|
|
(550,657
|
)
|
|
(1,127,993
|
)
|
|
(1,813,891
|
)
|
|
(3,071,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before tax
|
|
|
|
$
|
9,779,476
|
|
$
|
6,868,892
|
|
$
|
17,990,723
|
|
$
|
13,288,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
2(q),17
|
|
|
(1,887,950
|
)
|
|
(1,476,363
|
)
|
|
(4,061,371
|
)
|
|
(3,005,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
$
|
7,891,526
|
|
$
|
5,392,529
|
|
$
|
13,929,352
|
|
$
|
10,282,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
|
|
1,664,668
|
|
|
1,755,844
|
|
|
4,772,659
|
|
|
2,175,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
$
|
9,556,194
|
|
$
|
7,148,373
|
|
$
|
18,702,011
|
|
$
|
12,458,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Common Stockholders
|
|
|
|
$
|
7,071,288
|
|
$
|
5,084,475
|
|
$
|
12,760,027
|
|
$
|
9,624,619
|
|
-Non-controlling Interest
|
|
|
|
|
820,238
|
|
|
308,054
|
|
|
1,169,325
|
|
|
658,268
|
|
Net income
|
|
|
|
$
|
7,891,526
|
|
$
|
5,392,529
|
|
$
|
13,929,352
|
|
$
|
10,282,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
2(u), 18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
|
$
|
0.21
|
|
$
|
0.16
|
|
$
|
0.37
|
|
$
|
0.32
|
|
- Diluted
|
|
|
|
$
|
0.20
|
|
$
|
0.16
|
|
$
|
0.37
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
|
|
34,466,144
|
|
|
31,083,710
|
|
|
34,440,483
|
|
|
30,525,487
|
|
- Diluted
|
|
|
|
|
34,605,668
|
|
|
31,679,871
|
|
|
34,754,552
|
|
|
31,221,758
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
7
AMERICAN LORAIN CORPORATION
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011
AND 2010
|
(Stated in US Dollars)
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
7,891,526
|
|
$
|
5,392,529
|
|
$
|
13,929,352
|
|
$
|
10,282,887
|
|
Stock and share based compensation
|
|
146,806
|
|
|
195,868
|
|
|
452,179
|
|
|
650,817
|
|
Depreciation
|
|
333,588
|
|
|
554,385
|
|
|
1,475,523
|
|
|
1,242,370
|
|
Amortization
|
|
41,854
|
|
|
40,053
|
|
|
141,997
|
|
|
109,114
|
|
Write down/(gain) on short-term investment
|
|
(30,702
|
)
|
|
(479,332
|
)
|
|
(78,465
|
)
|
|
(479,332
|
)
|
(Increase)/decrease in accounts & other
receivables
|
|
(13,203,625
|
)
|
|
(12,081,954
|
)
|
|
(6,831,817
|
)
|
|
(3,787,024
|
)
|
(Increase)/decrease in inventories
|
|
6,268,000
|
|
|
(979,407
|
)
|
|
(5,022,660
|
)
|
|
(8,655,050
|
)
|
(Increase)/decrease in prepayment
|
|
(2,650,221
|
)
|
|
(5,152,378
|
)
|
|
(2,965,900
|
)
|
|
(4,418,283
|
)
|
Increase/(decrease) in deferred tax asset
|
|
(1,237
|
)
|
|
-
|
|
|
(3,625
|
)
|
|
-
|
|
Increase/(decrease) in accounts and other
payables
|
|
2,359,115
|
|
|
(2,425,974
|
)
|
|
(1,615,090
|
)
|
|
(4,376,091
|
)
|
Net cash (used in)/provided by operating activities
|
|
1,155,104
|
|
|
(14,936,210
|
)
|
|
(518,506
|
)
|
|
(9,430,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Shandong Greenpia acquisition net of cash
required
|
|
-
|
|
|
(1,929,773
|
)
|
|
-
|
|
|
(1,929,773
|
)
|
Sales/(purchase) of short-term investments
|
|
(807,647
|
)
|
|
(183,966
|
)
|
|
1,358,573
|
|
|
(161,739
|
)
|
(Increase)/decrease in restricted cash
|
|
(1,816,892
|
)
|
|
(103,792
|
)
|
|
(6,572,121
|
)
|
|
454,656
|
|
Payment of construction in progress
|
|
(507,155
|
)
|
|
-
|
|
|
(978,260
|
)
|
|
-
|
|
Payment of land use rights
|
|
(60,047
|
)
|
|
(72,466
|
)
|
|
(194,397
|
)
|
|
(105,671
|
)
|
Payments for purchase of equipment & plant
|
|
(874,224
|
)
|
|
(1,295,379
|
)
|
|
(3,221,615
|
)
|
|
(11,341,132
|
)
|
Decrease/(increase) in deposit
|
|
136,099
|
|
|
-
|
|
|
51,345
|
|
|
-
|
|
Sales /(purchase) of land investment
|
|
7,502,344
|
|
|
-
|
|
|
7,502,344
|
|
|
-
|
|
Net cash used in investing activities
|
|
3,572,478
|
|
|
(3,585,376
|
)
|
|
(2,054,131
|
)
|
|
(13,083,659
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank borrowings
|
|
3,853,879
|
|
|
41,717,825
|
|
|
22,036,891
|
|
|
64,869,426
|
|
Repayment of bank loans
|
|
(5,278,540
|
)
|
|
(32,736,075
|
)
|
|
(22,060,396
|
)
|
|
(53,597,904
|
)
|
Proceeds from issuance of notes
|
|
-
|
|
|
716,621
|
|
|
782,656
|
|
|
716,621
|
|
Repayment of notes
|
|
(3,085,517
|
)
|
|
-
|
|
|
(4,249,977
|
)
|
|
-
|
|
Issue of common stock
|
|
27
|
|
|
8,693,478
|
|
|
52
|
|
|
8,693,478
|
|
Net cash provided by/(used in) financing activities
|
$
|
(4,510,151
|
)
|
$
|
18,391,849
|
|
$
|
(3,490,774
|
)
|
$
|
20,681,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase/(decrease) of Cash and Cash Equivalents
|
|
217,431
|
|
|
(129,737
|
)
|
|
(6,063,411
|
)
|
|
(1,832,630
|
)
|
Effect of foreign currency translation on
cash and cash equivalents
|
|
1,616,905
|
|
|
1,676,496
|
|
|
4,772,660
|
|
|
1,606,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalentsbeginning of
period/year
|
|
9,605,539
|
|
|
10,338,791
|
|
|
12,730,626
|
|
|
12,111,532
|
|
Cash and cash equivalentsend of period/year
|
$
|
11,439,874
|
|
$
|
11,885,550
|
|
$
|
11,439,874
|
|
$
|
11,885,550
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
8
AMERICAN LORAIN CORPORATION
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011
AND 2010
|
(Stated in US Dollars)
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Supplementary cash flow
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest received
|
$
|
26,171
|
|
$
|
5,096
|
|
$
|
36,526
|
|
$
|
11,898
|
|
Interest paid
|
$
|
502,519
|
|
$
|
991,634
|
|
$
|
1,766,318
|
|
$
|
2,930,588
|
|
Income taxes paid
|
$
|
1,116,795
|
|
$
|
856,944
|
|
$
|
4,962,052
|
|
$
|
3,346,075
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
9
AMERICAN LORAIN CORPORATION
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
FOR THE PERIOD ENDED SEPTEMBER 30, 2011 AND YEAR ENDED
DECEMBER 31, 2010
|
(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, 2010
|
|
30,240,202
|
|
$
|
30,240
|
|
$
|
35,268,603
|
|
$
|
8,895,477
|
|
$
|
38,455,349
|
|
$
|
6,068,569
|
|
$
|
6,022,883
|
|
$
|
94,741,121
|
|
Issuance of share based compensation
|
|
7,000
|
|
|
7
|
|
|
890,203
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
890,210
|
|
Issuance of common stock for
cash
|
|
3,440,800
|
|
|
3,441
|
|
|
9,630,800
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,634,241
|
|
Issuance cost of common stock
|
|
-
|
|
|
-
|
|
|
(678,567
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(678,567
|
)
|
Appropriations to additional
paid in capital
|
|
-
|
|
|
-
|
|
|
5,161,175
|
|
|
-
|
|
|
(5,161,175
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Acquisition of Shandong Greenpia
|
|
731,707
|
|
|
732
|
|
|
2,099,267
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,099,999
|
|
Net income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
19,248,277
|
|
|
-
|
|
|
-
|
|
|
19,248,277
|
|
Appropriations to statutory reserves
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,445,262
|
|
|
(2,445,262
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Allocation to non-controlling
interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,408,814
|
)
|
|
-
|
|
|
1,408,814
|
|
|
-
|
|
Unrealized gain (loss) on investment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(587,117
|
)
|
|
-
|
|
|
(587,117
|
)
|
Foreign currency translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,994,293
|
|
|
-
|
|
|
3,994,293
|
|
Balance, December 31, 2010
|
|
34,419,709
|
|
$
|
34,420
|
|
$
|
52,371,481
|
|
$
|
11,340,739
|
|
$
|
48,688,375
|
|
$
|
9,475,745
|
|
$
|
7,431,697
|
|
$
|
129,342,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2011
|
|
34,419,709
|
|
$
|
34,420
|
|
$
|
52,371,481
|
|
$
|
11,340,739
|
|
$
|
48,688,375
|
|
$
|
9,475,745
|
|
$
|
7,431,697
|
|
$
|
129,342,457
|
|
Issuance of share based
compensation
|
|
-
|
|
|
-
|
|
|
452,179
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
452,179
|
|
Issuance of common stock
|
|
52,092
|
|
|
52
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
52
|
|
Net income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,929,352
|
|
|
-
|
|
|
-
|
|
|
13,929,352
|
|
Appropriations to statutory reserves
|
|
-
|
|
|
-
|
|
|
-
|
|
|
737,690
|
|
|
(737,690
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Allocation to non-controlling
interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,169,325
|
)
|
|
-
|
|
|
1,169,325
|
|
|
-
|
|
Unrealized gain (loss) on investment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(78,465
|
)
|
|
-
|
|
|
(78,465
|
)
|
Foreign currency translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,772,659
|
|
|
-
|
|
|
4,772,659
|
|
Balance, September 30, 2011
|
|
34,471,801
|
|
|
34,472
|
|
|
52,823,660
|
|
|
12,078,429
|
|
|
60,710,712
|
|
|
14,169,939
|
|
|
8,601,022
|
|
|
148,418,234
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
10
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
1.
|
ORGANIZATION, BASIS OF PRESENTATION, AND PRINCIPAL
ACTIVITIES
|
|
(a)
|
Organization history of American Lorain Corporation
(formerly known as Millennium Quest, Inc.)
|
|
|
|
|
|
American Lorain Corporation (the Company or ALN) was
originally a Delaware corporation incorporated on February 4, 1986. From
inception through May 3, 2007, the Company did not engage in any active
business operations other than in search and evaluation of potential
business opportunity to become an acquiree of a reverse-merger deal. On
May 3, 2007, the Company entered into a share exchange agreement as
described under Reverse-Merger below. On November 12, 2009, the Company
filed a statement of merger in the state of Nevada to transfer the
Companys jurisdiction from Delaware to Nevada.
|
|
|
|
|
(b)
|
Organization History of International Lorain Holding
Inc. and its subsidiaries
|
|
|
|
|
|
ALN owns 100% of the equity of International Lorain
Holding Inc. (ILH). ILH is a Cayman Islands company incorporated on
August 4, 2006 and was wholly-owned by Mr. Hisashi Akazawa until May 3,
2007. ILH presently has two direct wholly-owned subsidiaries, Junan
Hongrun and Luotian Lorain, and three indirectly wholly-owned subsidiaries
through Junan Hongrun, which are Beijing Lorain, Dongguan Lorain, and
Shandong Greenpia Foodstuff Co., Ltd. (Shandong Greenpia).
|
|
|
|
|
|
In addition, the Company directly and indirectly has
80.2% ownership of Shandong Lorain. The other 19.8% interest is owned by
the State under the name of Shandong Economic Development Investment Co.
Ltd., which is not included as a part of the Group.
|
|
|
|
|
|
On April 9, 2009, the Company, through its Junan Hongrun
subsidiary, invested cash to establish Dongguan Lorain. Dongguan Lorain is
indirectly 100% beneficially owned by the Company.
|
|
|
|
|
|
On June 28, 2010, the Company signed an equity transfer
agreement with Shandong Greenpia. Shandong Greenpia was originally
directly owned by Taebong Inc. and Shandong Luan Trade Company. The
Company paid $2,100,000 to Korean Taebong Inc. for 50% equity of Shandong
Greenpia on September 20, 2010. On September 23, 2010, the Company issued
731,707 shares of restricted stock at an agreed price of $2.87 per share
to the owner of Shandong Luan Trade Company, Mr. Ji Zhenwei, for the
remaining 50% equity of Shandong Greenpia. Since September 23, 2010,
Shandong Greenpia was directly owned by both Junan Hongrun and ILH. As a
result, Shandong Greenpia is 100% owned by the Company.
|
|
|
|
|
(c)
|
Reverse-Merger
|
|
|
|
|
|
On May 3, 2007, the Company entered into a share exchange
agreement with ILH whereby the Company consummated its acquisition of ILH
by issuance of 697,663 Series B voting convertible preferred shares to the
shareholders of ILH in exchange of 5,099,503 ILH shares. Concurrently on
May 3, 2007, the Company also entered into a securities purchase agreement
with certain investors and Mr. Hisashi Akazawa and Mr. Si Chen (each a
beneficial owner) whereby the Company issued 319,913 (after
reverse-split at 32.84 from 10,508,643) common shares to its shareholders
as consideration of the Companys reverse-merger with Lorain.
|
|
|
|
|
|
The share exchange transaction is sometimes referred to
hereafter as the reverse-merger transaction. The share exchange
transaction has been accounted for as a recapitalization of ALN where the
Company (the legal acquirer) is considered the accounting acquiree and ILH
(the acquiree) is considered the accounting acquirer. As a result of this
transaction, the Company is deemed to be a continuation of the business of
ILH.
|
|
|
|
|
|
Accordingly, the accompanying consolidated financial
statements are those of the accounting acquirer, ILH. The historical
stockholders equity of the accounting acquirer prior to the share
exchange has been retroactively restated as if the share exchange
transaction occurred as of the beginning of the first period presented.
See also Note 14 Capitalization.
|
11
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
(d)
|
Business Activities
|
|
|
|
|
|
The Company develops, manufactures, and sells convenience
foods (including ready-to-cook (or RTC) foods; ready-to-eat (or RTE) foods
and meals ready-to-eat (or MRE); chestnut products; and frozen 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 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.
|
|
|
|
|
|
The Company regrouped certain accounts in its
presentation of changes in assets and liabilities in the statement of cash
flows for the three and nine months periods ended September 30, 2011 in
order to be consistent with the presentation provided for the three and
nine months periods ended September 30, 2010. There was no impact in
earnings for the regrouping.
|
|
|
|
|
(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, 2011, the detailed identities of the
consolidating subsidiaries are as follows:
|
|
|
|
Place of
|
|
|
Attributable equity
|
|
|
Registered
|
|
|
Name of Company
|
|
incorporation
|
|
|
interest %
|
|
|
capital
|
|
|
Shandong Lorain Co., Ltd
|
|
PRC
|
|
|
80.20
|
|
$
|
15,787,744
|
|
|
Luotian Lorain Co., Ltd
|
|
PRC
|
|
|
100
|
|
|
3,964,749
|
|
|
Junan Hongrun Foodstuff Co., Ltd
|
|
PRC
|
|
|
100
|
|
|
46,834,155
|
|
|
Beijing Lorain Co., Ltd
|
|
PRC
|
|
|
100
|
|
|
1,565,313
|
|
|
Shandong Greenpia Foodstuff Co.,Ltd
|
|
PRC
|
|
|
100
|
|
|
2,404,320
|
|
|
Dongguan Lorain Co,,Ltd
|
|
PRC
|
|
|
100
|
|
|
156,531
|
|
|
International Lorain Holding Inc.
|
|
Cayman Islands
|
|
|
100
|
|
|
48,710,564
|
|
|
(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)
|
Cash and cash equivalents
|
|
|
|
|
|
The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
|
12
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
(e)
|
Investment securities
|
|
|
|
|
|
The Company classifies securities it holds for investment
purposes 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.
|
|
|
|
|
|
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.
|
|
|
|
|
(f)
|
Trade accounts receivables
|
|
|
|
|
|
Trade accounts 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.
|
|
|
|
|
(g)
|
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.
|
|
|
|
|
(h)
|
Customer deposits and advances to
suppliers
|
|
|
|
|
|
Customer deposits were received from customers in
connection with orders of products to be delivered in future
periods.
|
|
|
|
|
|
Advances to suppliers are good faith deposits paid to
suppliers for the purpose of committing suppliers to provide products
promptly upon delivery of the Companys purchase order for raw materials,
supplies, equipment, building materials etc. Pursuant to the Companys
arrangements with its suppliers, this deposit is generally 20% of the
total amount contracted for. This type of transaction is classified as a
prepayment category under the account name Advance to Suppliers until
such time as the Companys purchase order is delivered, at which point
this account is reduced by reclassification of the applicable amount to
the appropriate asset account such as inventory or fixed assets or
construction in progress.
|
|
|
|
|
(i)
|
Property, plant and equipment, net
|
|
|
|
|
|
Property, plant and equipment, net 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 property, plant and equipment are as
follows:
|
13
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
Buildings
|
40 years
|
|
Landscaping, plant and tree
|
30 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.
|
|
|
|
|
(j)
|
Construction in progress
|
|
|
|
|
|
Construction in progress represents direct and indirect
construction or acquisition costs. 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 the asset is completed and ready for
intended use.
|
|
|
|
|
(k)
|
Land Use Rights
|
|
|
|
|
|
Land use rights are carried at cost and amortized on a
straight-line basis over a specified period.
|
|
|
|
|
(l)
|
Accounting for the Impairment of Long-Lived
Assets
|
|
|
|
|
|
The long-lived assets held 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. An impairment is present if carrying amount of
an asset is less than its undiscounted cash flows to be
generated.
|
|
|
|
|
|
If an asset is considered impaired, a loss is recognized
based on the amount by which the carrying amount exceeds the fair market
value of the asset. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. The Company believes
no impairment has occurred to its assets during 2010 and through September
30, 2011.
|
|
|
|
|
(m)
|
Advertising
|
|
|
|
|
|
All advertising costs are expensed as incurred.
|
|
|
|
|
(n)
|
Shipping and handling
|
|
|
|
|
|
All shipping and handling are expensed as
incurred.
|
|
|
|
|
(o)
|
Research and development
|
|
|
|
|
|
All research and development costs are expensed as
incurred.
|
|
|
|
|
(p)
|
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.
|
|
|
|
|
(q)
|
Income taxes
|
|
|
|
|
|
The Company accounts for income tax using an asset and
liability approach and allows for recognition of deferred tax benefits in
future years. Under the asset and liability approach, deferred taxes are
provided for the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation
allowance is provided for deferred tax assets if it is more likely than not these items
will either expire before the Company is able to realize their benefits, or that
future realization is uncertain.
|
14
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
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.
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 15%
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
|
|
|
-
|
|
|
-
|
|
|
(r)
|
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. The Company transferred
$737,690 and $2,445,262 from retained earnings to statutory reserves for
the periods ended September 30, 2011 and December 31, 2010. PRC laws
prescribe that an enterprise operating at a profit, must appropriate, on
an annual basis, an amount equal to 10% of its profit. Such an
appropriation is necessary until the reserve reaches a maximum that is
equal to 50% of the enterprises PRC registered capital.
|
|
|
|
|
(s)
|
Foreign currency translation
|
|
|
|
|
|
The accompanying financial statements are presented in
United States dollars. The functional currency of the Company is the
Renminbi (RMB). The financial statements are translated into United States
dollars from RMB at year-end exchange rates as to assets and liabilities
and average exchange rates as to revenues and expenses. Capital accounts
are translated at their historical exchange rates when the capital
transactions occurred.
|
15
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
9/30/2010
|
|
|
Year/quarter end RMB : US$ exchange rate
|
|
6.3885
|
|
|
6.6118
|
|
|
6.6981
|
|
|
Average yearly/quarterly RMB : US$ exchange rate
|
|
6.4884
|
|
|
6.7788
|
|
|
6.8164
|
|
|
|
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 Dollars at the rates used in
translation.
|
|
|
|
|
(t)
|
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.
|
|
|
|
|
|
The Company's revenue consists of invoiced value of
goods, net of a value-added tax (VAT). The Company allows its customers to
return products if they are defective. However, this rarely happens and
amounts returned have been de minimis.
|
|
|
|
|
|
The Company gradually switched its sales model from
direct sales to third party distributor model and issues 1% sales
incentive to distributors. The Company modified it accounting policy for
the recognition of revenue accordingly. Given the circumstances of how the
Company conducts its incentive program, the Company books the payments
settled in cash as a contra-account to Gross Revenue, and includes the
amount in its reported net revenue. The Company has considered the
guidance in FASB
ASC
605-50 (
EITF 01-9
) and will account for
its sales incentive program accordingly.
|
|
|
|
|
(u)
|
Earnings per share
|
|
|
|
|
|
Basic earnings per share are computed by dividing net
income by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share are computed by
dividing net income by the sum of the weighted average number of ordinary
shares outstanding and potential dilutive securities during the year.
During the period ended September 30, 2011, no warrants were issued and no
stock options were granted. During the year ended December 31, 2010,
81,155 warrants were issued to certain service providers. During the year
ended December 31, 2009, 1,334,573 stock options were granted to employees
pursuant to the Companys equity incentive plan and; 2,255,024 warrants
were issued to investors in connection with a PIPE financing. These
warrants and options could be potentially dilutive if the market price of
the Companys common stock exceeds the exercise price for these
securities.
|
|
|
|
|
|
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.
|
|
|
|
|
(v)
|
Financial Instruments
|
|
|
|
|
|
The Companys financial instruments are cash and cash
equivalents, accounts receivable, other receivable, advances to suppliers,
advances to employees, bank loans and notes, accounts payable, other
payable, dividend payable, accrued liabilities, and long-term liabilities.
The recorded values of cash and cash equivalents, accounts receivable,
other receivable, advances to suppliers, advances to employees, bank loans
and notes, accounts payable, other payable, dividend payable and accrued
liabilities approximate their fair values
based on their short-term nature. The recorded values of
long-term liabilities approximate their fair values, as interest
approximates market rates.
|
16
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
(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 includes the
foreign currency translation adjustment and unrealized gain or
loss.
|
|
|
|
|
(y)
|
Recent accounting pronouncements
|
|
|
|
|
|
In January 2011, the FASB issued an Accounting Standard
Update (ASU) No. 2011-01, Receivables Topic 310): Disclosures about the
Credit Quality of Financing Receivables and the Allowance for Credit
Losses, to be concurrent with the effective date of the guidance for
determining what constitutes a troubled debt restructuring, as presented
in proposed Accounting Standards Update, Receivables (Topic 310):
Clarifications to Accounting for Troubled Debt Restructurings by
Creditors. The amendments in this Update apply to all public-entity
creditors that modify financing receivables within the scope of the
disclosure requirements about troubled debt restructurings in Update
2010-20. Under the existing effective date in Update 2010-20, public-
entity creditors would have provided disclosures about troubled debt
restructurings for periods beginning on or after December 15, 2010. The
amendments in this Update temporarily defer that effective date, enabling
public-entity creditors to provide those disclosures after the Board
clarifies the guidance for determining what constitutes a troubled debt
restructuring. The deferral in this Update will result in more consistent
disclosures about troubled debt restructurings. This amendment does not
defer the effective date of the other disclosure requirements in Update
2010-20. In the proposed Update for determining what constitutes a
troubled debt restructuring, the Board proposed that the clarifications
would be effective for interim and annual periods ending after June 15,
2011. For the new disclosures about troubled debt restructurings in Update
2010-20, those clarifications would be applied retrospectively to the
beginning of the fiscal year in which the proposal is adopted. This new
accounting standard is not expected to have a material impact on the
Companys consolidated financial position or results of the
operations.
|
|
|
|
|
|
In June 2011, the FASB issued an Accounting Standard
Update (ASU No. 2011-05, Comprehensive Income (Topic 220). Under the
amendments to Topic 220, Comprehensive Income, entities have the option to
present the total of comprehensive income, the components of net income,
and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but
consecutive statements. In both choices, an entity is required to present
each component of net income along with total net income, each component
of other comprehensive income along with a total for other comprehensive
income, and a total amount for comprehensive income. This Update
eliminates the option to present the components of other comprehensive
income as part of the statement of changes in stockholders' equity. The
amendments in this Update should be applied retrospectively. For public
entities, the amendments are effective for fiscal years, and interim
periods within those years, beginning after December 15, 2011. For
nonpublic entities, the amendments are effective for fiscal years ending
after December 15, 2012, and interim and annual periods thereafter. This
new accounting standard is not expected to have a material impact on the
Companys consolidated financial position or results of the
operations.
|
17
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
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 on time. 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 six month time
deposits that pay interest at the national time deposit rate.
|
|
|
4.
|
TRADE ACCOUNTS
RECEIVABLE
|
|
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
Trade accounts receivable
|
$
|
35,595,007
|
|
$
|
33,562,514
|
|
|
Less
:
Allowance for doubtful accounts
|
|
(489,181
|
)
|
|
(335,902
|
)
|
|
|
$
|
35,105,826
|
|
$
|
33,226,612
|
|
|
Allowance for bad debt:
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
Beginning balance
|
$
|
(335,902
|
)
|
$
|
(267,590
|
)
|
|
Additions to allowance
|
|
(153,278
|
)
|
|
(68,312
|
)
|
|
Reversal of allowance
|
|
-
|
|
|
-
|
|
|
Ending balance
|
$
|
(489,181
|
)
|
$
|
(335,902
|
)
|
|
The Company offers credit terms of between 30 to 60 days
to most of their domestic customers, including supermarkets and
wholesalers, around 90 days to most of their international customers, and
between 0 to 15 days for most of the third-party distributors the Company
works with.
|
|
|
5.
|
OTHER RECEIVABLES
|
|
|
|
Other receivables consisted of the following as of
September 30, 2011 and December 31, 2010:
|
|
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
Advances to employees for job/travel
disbursements
|
$
|
535,764
|
|
$
|
764,725
|
|
|
Amount due by a non-related enterprise
|
|
156,532
|
|
|
215,685
|
|
|
Other non-related receivables
|
|
5,697,209
|
|
|
512,440
|
|
|
|
$
|
6,389,505
|
|
$
|
1,492,850
|
|
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.
Specifically, the company uses every
available employee to arrange purchases with desirable chestnut or other raw
material growers. However, because many of these growers are in rural farming
areas of China where traditional banking and credit arrangements are difficult
to implement, the Company must utilize cash purchases and also must contract for
its future needs by placing a good faith deposit in cash with the growers.
However none of these advances to employees for delivery to the growers on
behalf of the Company are personal loans to the employees. Advances to
employees for purchase of materials in other receivables are adjusted to
advances to suppliers as of September 30, 2011.
Related party receivable consisted of
the following as of September 30, 2011 and December 31, 2010:
18
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
Chen Si
|
$
|
133,024
|
|
$
|
123,467
|
|
|
Liu, Lihua
|
|
78,266
|
|
|
-
|
|
|
|
$
|
211,289
|
|
$
|
123,467
|
|
|
Related party receivable represented advances issued by
management for job or travel disbursement in the normal course of
business. The receivable had no impact on earnings. As with other
employees, officers sign notes when cash is issued to them as job or
travel disbursement.
|
|
|
6.
|
INVENTORIES
|
|
|
|
Inventories consisted of the following as of September
30, 2011 and December 31, 2010:
|
|
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
Raw materials
|
$
|
11,020,616
|
|
$
|
18,128,883
|
|
|
Finished goods
|
|
23,809,242
|
|
|
11,678,315
|
|
|
|
$
|
34,829,858
|
|
$
|
29,807,198
|
|
7.
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
Property, plant, and equipment consisted of the following
as of September 30, 2011 and December 31,
2010:
|
|
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
At Cost:
|
|
|
|
|
|
|
|
Buildings
|
$
|
51,147,622
|
|
$
|
48,612,643
|
|
|
Landscaping, plant and
tree
|
|
2,952,720
|
|
|
2,852,998
|
|
|
Machinery and equipment
|
|
10,374,769
|
|
|
9,544,910
|
|
|
Office equipment
|
|
614,069
|
|
|
501,977
|
|
|
Motor vehicles
|
|
464,766
|
|
|
420,020
|
|
|
|
$
|
65,553,945
|
|
$
|
61,932,548
|
|
|
Less
:
Accumulated depreciation
|
|
|
|
|
|
|
|
Buildings
|
|
(3,672,300
|
)
|
|
(2,729,161
|
)
|
|
Landscaping, plant and tree
|
|
(123,030
|
)
|
|
(23,775
|
)
|
|
Machinery and equipment
|
|
(4,749,410
|
)
|
|
(3,998,121
|
)
|
|
Office equipment
|
|
(376,893
|
)
|
|
(312,872
|
)
|
|
Motor vehicles
|
|
(243,433
|
)
|
|
(225,832
|
)
|
|
|
|
(9,165,067
|
)
|
|
(7,289,761
|
)
|
|
|
|
|
|
|
|
|
|
Construction in Progress
|
|
18,430,481
|
|
|
17,452,220
|
|
|
|
$
|
74,819,359
|
|
$
|
72,095,007
|
|
Construction in progress is mainly
comprised of capital expenditures for construction of the Companys new
corporate campus, including offices, factories, and staff dormitories located at
Junan Hongrun. Capital commitments for the construction are immaterial for the
two years above.
Landscaping, plants, and trees accounts
for the orchards that the Company has developed for agricultural operations.
These orchards as well as the young trees which were purchased as nursery stock
are capitalized into fixed assets. The depreciation is then calculated on a
30-year straight-line method when production in commercial quantities begins.
The orchards have begun production in small quantities and the Company has accounted for depreciation commencing July 1, 2010.
Depreciation expense for the period ended September 30, 2011 and year
ended December 31, 2010 were $ 1,475,523 and $1,360,134,
respectively.
19
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
8.
|
LAND USE RIGHTS
|
|
|
|
Land use rights consisted of the following as of
September 30, 2011 and December 31, 2010:
|
|
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
Land use rights,
at cost
|
$
|
5,704,322
|
|
$
|
5,509,925
|
|
|
Less
:
Accumulated amortization
|
|
(774,485
|
)
|
|
(632,487
|
)
|
|
|
$
|
4,929,838
|
|
$
|
4,877,438
|
|
|
All lands are owned by the government in China. Land use
rights represent the Companys purchase of usage rights for a parcel of
land for a specified duration of time, typically 50 years. The land use
rights are then amortized over the period of usage. Amortization expense
for the years ended September 30, 2011 and December 31, 2010 were $
141,997 and $144,611, respectively.
|
|
|
9.
|
SHORT-TERM BANK LOANS
|
|
|
|
Short-term bank loans consisted of the following as of
September 30, 2011 and December 31, 2010:
|
|
|
|
Remark
|
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
Loans from Junan County Construction
Bank,
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 5.610% per
annum due 1/6/2011
|
|
|
|
$
|
-
|
|
$
|
128,558
|
|
|
Interest rate
at 5.841% per annum due 1/14/2011
|
|
|
|
|
-
|
|
|
483,983
|
|
|
Interest rate at 5.610% per
annum due 1/28/2011
|
|
|
|
|
-
|
|
|
3,223
|
|
|
Interest rate
at 5.841% per annum due 3/4/2011
|
|
|
|
|
-
|
|
|
393,236
|
|
|
Interest rate at 5.841% per
annum due 9/9/2011
|
|
|
|
|
-
|
|
|
1,209,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from Junan County Agriculture Bank,
|
|
|
|
|
|
|
|
|
|
|
Interest rate
at 6.903% per annum due 3/30/2011
|
|
|
|
|
-
|
|
|
95,284
|
|
|
Interest rate at 7.434% per
annum due 8/23/2011
|
|
A
|
|
|
|
|
|
1,512,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from Junan County Industrial and Commercial
Banks,
|
|
|
|
|
|
|
|
|
|
|
Interest rate
at 5.100% per annum due 1/18/2011
|
|
|
|
|
-
|
|
|
756,224
|
|
|
Interest rate at 5.100% per
annum due 1/20/2011
|
|
|
|
|
-
|
|
|
756,224
|
|
|
Interest rate
at 5.100% per annum due 1/26/2011
|
|
|
|
|
-
|
|
|
1,134,336
|
|
|
Interest rate at 5.100% per
annum due 2/8/2011
|
|
|
|
|
-
|
|
|
635,228
|
|
|
Interest rate
at 5.100% per annum due 2/22/2011
|
|
|
|
|
-
|
|
|
1,240,207
|
|
|
Interest rate at 4.860% per
annum due 3/15/2011
|
|
|
|
|
-
|
|
|
1,134,336
|
|
|
Interest rate
at 7.44% per annum due 10/17/2011
|
|
B
|
|
|
626,125
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from Linyi Commercial Bank,
|
|
|
|
|
|
|
|
|
|
20
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
Interest rate
at 11.510% per annum due 1/21/2011
|
|
|
|
|
-
|
|
|
680,601
|
|
|
Interest rate at 11.676% per
annum due 12/15/2011
|
|
C
|
|
|
704,391
|
|
|
680,601
|
|
|
Interest rate
at 12.201% per annum due 1/10/2012
|
|
C
|
|
|
704,391
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from Minsheng Bank, Luotian
Branch
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 8.203% per
annum due 4/15/2012
|
|
|
|
|
2,347,969
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from China Agricultural Bank, Luotian Branch
|
|
|
|
|
|
|
|
|
|
|
Interest rate
at 6.372% per annum due 9/12/2011
|
|
|
|
|
939,188
|
|
|
1,134,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Beijing,
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 6.672% per
annum due 10/28/2011
|
|
|
|
|
313,063
|
|
|
302,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East West Bank (Formerly United Commercial Bank),
China
|
|
|
|
|
|
|
|
|
|
|
Branch,
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 5.494% per
annum due 11/14/2011
|
|
D
|
|
|
580,295
|
|
|
897,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC Miyun Branch,
|
|
|
|
|
|
|
|
|
|
|
Interest rate
at 5.840% per annum due 6/09/2011
|
|
|
|
|
-
|
|
|
302,489
|
|
|
Interest rate at 6.372% per
annum due 6/29/2011
|
|
|
|
|
-
|
|
|
983,091
|
|
|
Interest rate
at 6.804% per annum due 4/8/2011
|
|
|
|
|
-
|
|
|
302,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shenzhen Development Bank, Zhenhua
Branch
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 5.310% per
annum due 9/14/2011
|
|
|
|
|
-
|
|
|
756,224
|
|
|
Interest rate
at 6.710% per annum due 3/15/2011
|
|
|
|
|
782,656
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Development Bank,
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 5.841% per
annum due 6/27/2011
|
|
|
|
|
-
|
|
|
3,024,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luotian Agricultural Development Bank,
|
|
|
|
|
|
|
|
|
|
|
Interest rate
at 0.670% per month due 12/11/2010
|
|
|
|
|
-
|
|
|
113,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luotian Sanliqiao Credit Union,
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 6.300% per
annum due 11/5/2011
|
|
|
|
|
782,656
|
|
|
756,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beijing Rural Commercial Bank, Shilibao Branch,
|
|
|
|
|
|
|
|
|
|
|
Interest rate
at 7.434% per annum due 8/10/2011
|
|
|
|
|
2,661,032
|
|
|
2,571,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Agricultural Bank, Shandong
Branch
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 7.2280% per
annum due 12/27/2011
|
|
|
|
|
1,565,313
|
|
|
1,512,447
|
|
21
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
Shandong Junan Rural Credit Union
|
|
|
|
|
|
|
|
Interest rate at 9.1155% per annum due 2/07/2011
|
|
-
|
|
|
1,209,958
|
|
|
|
|
|
|
|
|
|
|
Beijing International Trust Co., Ltd., (BITIC)
|
|
|
|
|
|
|
|
Interest rate
at 6.600% per annum due 12/14/2011
|
|
469,594
|
|
|
453,734
|
|
|
|
|
|
|
|
|
|
|
Shenzhen Development Bank,
|
|
|
|
|
|
|
|
Interest rate at 6.435% per
annum due 12/7/2011
|
|
2,347,969
|
|
|
-
|
|
|
|
$
|
14,824,640
|
|
$
|
25,164,469
|
|
The short-term loans, which are
denominated in the functional currency Renminbi (RMB), were primarily obtained
for general working capital.
Remark:
A: A parcel of 12,726
square meters land use right and an 8,162 square meters building was used as
collateral for this loan.
B: Accounts Receivable in the amount of $1,650,000
was used as collateral for this loan
C: Machinery of $857,737 was used as
collateral for these two loans.
D: A parcel of 19,507 square meters land use
right, owned by Sishui Xinlu, was used as collateral for this loan.
10.
|
NOTES PAYABLE
|
|
|
|
Notes payable consisted of the following as of September
30, 2011 and December 31, 2010:
|
|
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
Junan County Construction Bank,
|
|
|
|
|
|
|
|
due at 1/26/2011
|
$
|
-
|
|
$
|
378,112
|
|
|
due at
1/30/2011
|
|
-
|
|
|
846,971
|
|
|
|
|
|
|
|
|
|
|
Qingdao Evergrowing Bank,
|
|
|
|
|
|
|
|
due at 6/13/2011
|
|
-
|
|
|
3,024,895
|
|
|
|
|
|
|
|
|
|
|
Shenzhen Development Bank
|
|
|
|
|
|
|
|
due at
10/8/2011
|
|
782,656
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
$
|
782,656
|
|
$
|
4,249,977
|
|
11.
|
TAXES PAYABLES
|
|
|
|
Taxes payable consisted of the following as of September
30, 2011 and December 31, 2010:
|
22
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
Value added tax payable
|
$
|
1,128,345
|
|
$
|
377,562
|
|
|
Corporate income tax payable
|
|
1,917,279
|
|
|
2,808,466
|
|
|
Employee payroll tax withholding
|
|
5,353
|
|
|
5,096
|
|
|
Property tax payable
|
|
50,080
|
|
|
38,819
|
|
|
Stamp duty tax payable
|
|
1,421
|
|
|
4,679
|
|
|
Sales tax payable
|
|
199
|
|
|
76
|
|
|
Land use tax payable
|
|
41,832
|
|
|
24,943
|
|
|
City maintenance and construction tax payable
|
|
2,017
|
|
|
-
|
|
|
Import tariffs
|
|
-
|
|
|
6,861
|
|
|
|
$
|
3,146,526
|
|
$
|
3,266,502
|
|
12.
|
ACCRUED EXPENSES AND OTHER PAYABLES
|
|
|
|
Accrued expenses and other payables consisted of the
following as of September 30, 2011 and December 31,
2010:
|
|
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
Accrued salaries and wages
|
$
|
254,557
|
|
$
|
-
|
|
|
Accrued utility expenses
|
|
57,704
|
|
|
24,825
|
|
|
Accrued interest expenses
|
|
51,104
|
|
|
38,353
|
|
|
Accrued transportation expenses
|
|
250,009
|
|
|
472,836
|
|
|
Other accruals
|
|
183,140
|
|
|
110,683
|
|
|
Business and other taxes
|
|
242,209
|
|
|
479,850
|
|
|
Disbursement payable
|
|
3,532
|
|
|
177,543
|
|
|
Accrued staff welfare
|
|
122,054
|
|
|
31,857
|
|
|
|
$
|
1,164,310
|
|
$
|
1,335,947
|
|
13.
|
LONG-TERM DEBT
|
|
|
|
Current portions of long-term debt consisted of the
following as of September 30, 2011 and December 31,
2010:
|
|
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
Loans from Luotian Agricultural
Development Bank
|
|
|
|
|
|
|
|
Interest rate at 2.100% per annum due 12/11/2011
|
|
56,743
|
|
|
26,468
|
|
|
|
|
|
|
|
|
|
|
Loans from East West Bank (Formerly United
Commercial
Bank), China Branch
|
|
|
|
|
|
|
|
Interest rate at 5.494% per annum
due 11/14/2011
|
|
-
|
|
|
192,467
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56,743
|
|
$
|
218,935
|
|
Non-current portions of long-term debt
consisted of the following as of September 30, 2011 and December 31, 2010:
|
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
Loans from Deutsche Investitions-und
Entwicklungsgesellschaft mbH (DEG)
|
|
|
|
|
|
|
|
Interest rate at 5.510% per annum due 3/15/2016
|
|
15,509,477
|
|
|
5,030,930
|
|
|
|
$
|
15,509,477
|
|
$
|
5,030,930
|
|
The Companys loan with DEG will be
repaid in semi-annual installments beginning September 15, 2012. The loan was
collateralized with the following terms:
23
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
(a.)
|
Create and register a first ranking mortgage in the
amount of about USD 12,000,000 on its land and building in favor of DEG.
|
|
(b.)
|
Undertake to provide a share pledge of Mr. Si Chen shares
in the sponsor in the amount of about USD 12,000,000 and being the
majority shareholder in the sponsor in form and substance satisfactory to
DEG
|
|
(c.)
|
The total amount of the first ranking mortgage as
indicated in the Loan Agreement (Article 12(1)(a)) and the value of the
pledged shares of Mr. Si Chen (Loan Agreement (Article 12(1)(a))) should
be at least USD 24,000,000.
|
|
(d.)
|
Undertake to provide a guarantee from the Shareholder in
form and substance satisfactory to DEG.
|
14.
|
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. In connection with the financing, the
Company also issued 1,037,858 and 489,330 warrants to the PIPE investors
and placement agent, respectively. During 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
shares; 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 Company also made an
adjustment to its outstanding share count for rounding errors as result of
the split and reverse splits made at the time of the reverse merger. The
number of shares in the adjustment was an addition of seven shares. The
Company believes the adjustment of seven shares is immaterial to both
prior and current earnings per share calculation. As detailed in the table
below, the total number of outstanding shares at September 30, 2011 was
34,471,801.
|
|
|
|
During the year 2009, the Company issued 56,393 shares of
stock to its employees and vendors and 5,011,169 shares to investors. The
Company issued 1,334,573 stock options to employees on July 28, 2009.
1,753,909 shares of Series A warrants and 501,115 shares of Series B
warrants were issued to investors on October 28, 2009.
|
|
|
|
During the year 2010, the Company issued 2,000 shares to
a service provider on February 10, 2010 and 81,155 warrants to various
service providers on January 5, 2010. The Company issued to investors
3,440,800 shares at an agreed price of $2.80 per share for a PIPE
financing on September 10, 2010. This financing brought $8,955,730 net
proceeds to the Company. The Company issued 5,000 shares to its employee
on September 23, 2010. 731,707 shares of restricted stock were issued to
the owner of Shandong Greenpia, Mr. Ji Zhenwei on September 24, 2010 as
part of acquisition cost. The total number of shares issued and
outstanding is 34,444,709 as of September 30, 2011.
|
|
|
|
During the year 2010, the Company transferred 5,161,176
from retained earnings to additional paid up capital and 2,445,262 from
retained earnings to statutory reserve. These transfers are to be used for
future company development, recovery of losses and increase of capital, as
approved, to expand production or operations.
|
|
|
|
For the period ended September 30, 2011, the Company
transferred 737,690 from retained earnings to statutory reserve. These
transfers are to be used for future company development, recovery of
losses and increase of capital, as approved, to expand production or
operations.
|
American Lorain Corporation Capitalization Reconciliation Table
|
Par value authorized
|
Issuance date
|
Shares outstanding
|
Common stock at 1/1/2009
|
200,000,000
|
|
25,172,640
|
New shares issued to employees and vendors during 2009
|
|
Various dates
|
56,393
|
New shares issued to PIPE investors
|
|
10/28/2009
|
5,011,169
|
New shares issued to service provider during 2010
|
|
2/10/2010
|
2,000
|
New shares issued
to PIPE investors
|
|
9/10/2010
|
3,440,800
|
New shares issued
to employee
|
|
9/23/2010
|
5,000
|
New shares issued as acquisition consideration
|
|
9/24/2010
|
731,707
|
New shares issued to service provider during 2011
|
|
5/5/2011
|
25,000
|
New shares issued to employees per stock incentive plan
|
|
7/20/2011
|
27,092
|
Common stock at
9/30/2011
|
|
|
34,471,801
|
24
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
Warrants and options
|
Number of warrants or options
|
Issuance date
|
Expiration date
|
Warrants issued to
investors in 2007 PIPE
|
1,037,858
|
5/3/2007
|
5/2/2010
|
Warrants issued to placement agent in 2007
PIPE
|
489,330
|
5/3/2007
|
5/2/2010
|
Employee stock
options
|
1,334,573
|
7/28/2009
|
7/27/2014
|
Warrants issued to investors in 2009 PIPE -
Series A
|
1,753,909
|
10/28/2009
|
4/28/2015
|
Warrants issued to investors in 2009 PIPE - Series B
|
501,115
|
10/28/2009
|
10/28/2012
|
Issued to service provider A during 2010
|
50,722
|
1/5/2010
|
1/2/2014
|
Issued to service
provider B during 2010
|
20,289
|
1/5/2010
|
1/2/2014
|
Issued to service provider C during 2010
|
10,144
|
1/5/2010
|
1/2/2014
|
Total warrants and
options
|
5,197,940
|
|
|
15.
|
NON-CONTROLLING INTERESTS
|
|
|
|
The non-controlling interest represents the 19.8% equity
of Shandong Lorain held by the Shandong Economic Development Investment
Corporation, which is a state-owned interest.
|
|
|
16.
|
SALES BY PRODUCT TYPE
|
|
|
|
Sales by categories of product consisted of the following
during the nine months ended September 30, 2011 and
2010:
|
|
Category
|
|
9/30/2011
|
|
|
9/30/2010
|
|
|
Chestnut
|
$
|
57,238,463
|
|
$
|
49,062,130
|
|
|
Convenience food
|
|
45,100,128
|
|
|
35,911,359
|
|
|
Frozen food
|
|
19,479,905
|
|
|
16,878,265
|
|
|
Total
|
$
|
121,818,496
|
|
$
|
101,851,754
|
|
Revenue by geography consisted of the
following during the nine months ended September 30, 2011 and 2010:
|
Country
|
|
9/30/2011
|
|
|
9/30/2010
|
|
|
Australia
|
$
|
362,673
|
|
$
|
174,840
|
|
|
Belgium
|
|
1,635,002
|
|
|
1,618,314
|
|
|
Canada
|
|
110,298
|
|
|
-
|
|
|
China
|
|
93,497,740
|
|
|
80,882,742
|
|
|
Denmark
|
|
22,853
|
|
|
-
|
|
|
France
|
|
1,138,793
|
|
|
418,819
|
|
|
Germany
|
|
1,330,082
|
|
|
779,334
|
|
|
Hong Kong
|
|
385,454
|
|
|
73,192
|
|
|
Indonesia
|
|
20,950
|
|
|
134,577
|
|
|
Israel
|
|
238,921
|
|
|
13,219
|
|
|
Japan
|
|
12,295,910
|
|
|
7,134,484
|
|
|
Malaysia
|
|
1,518,689
|
|
|
1,345,771
|
|
|
Netherlands
|
|
584,981
|
|
|
118,318
|
|
|
Philippines
|
|
248,615
|
|
|
175,691
|
|
|
Poland
|
|
145,061
|
|
|
17,052
|
|
|
Singapore
|
|
557,151
|
|
|
464,069
|
|
|
South Korea
|
|
2,933,657
|
|
|
5,384,258
|
|
|
Spain
|
|
712,327
|
|
|
375,779
|
|
|
Taiwan
|
|
1,057,119
|
|
|
322,089
|
|
|
United Kingdom
|
|
2,583,897
|
|
|
1,734,090
|
|
|
United States
|
|
207,144
|
|
|
685,116
|
|
|
Others
|
|
33,656
|
|
|
-
|
|
|
Total
|
$
|
121,818,496
|
|
$
|
101,851,754
|
|
25
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
17.
|
INCOME TAXES
|
|
|
|
All of the Companys operations are in the PRC, and in
accordance with the relevant tax laws and regulations of PRC, the
corporate income tax rate is 25%.
|
|
|
|
The following tables provide the reconciliation of the
differences between the statutory and effective tax expenses as of
September 30, 2011 and 2010.
|
|
|
|
September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Income attributed to PRC
|
$
|
18,674,583
|
|
$
|
14,237,959
|
|
|
Loss attributed to US*
|
|
(683,860
|
)
|
|
(949,113
|
)
|
|
Income before tax
|
|
17,990,723
|
|
|
13,288,846
|
|
|
|
|
|
|
|
|
|
|
PRC Statutory Tax at 25% Rate
|
|
4,061,371
|
|
|
3,559,490
|
|
|
Effect of tax exemption granted
|
|
-
|
|
|
(552,531
|
)
|
|
Income tax
|
$
|
4,061,371
|
|
$
|
3,005,959
|
|
|
Per Share Effect of Tax Exemption
|
|
September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Effect of tax exemption granted
|
$
|
-
|
|
$
|
553,531
|
|
|
Weighted-Average Shares Outstanding Basic
|
|
34,440,483
|
|
|
30,525,487
|
|
|
Per share effect
|
$
|
- $
|
|
|
0.02
|
|
The difference between the U.S. federal
statutory income tax rate and the Companys effective tax rate was as follows as
of September 30, 2011 and 2010:
|
|
|
September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
U.S. federal statutory income tax rate
|
$
|
35%
|
|
$
|
35%
|
|
|
Lower rates in PRC, net
|
|
-10%
|
|
|
-10%
|
|
|
Tax holiday for foreign investments
|
|
2.43%
|
|
|
2.38%
|
|
|
The Companys effective tax rate
|
$
|
22.57%
|
|
$
|
22.62%
|
|
26
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
Effective January 1, 2008, the 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 were 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 has accrued a deferred tax
asset as a result of its net operating loss in 2009 because the Company planned
to setup operations in the United States. The company anticipates that the
operations within the United States will generate income in the future so that
it will be able to take full advantage of the accrued asset. Accordingly the
Company has not provided a valuation allowances for the accrued tax asset.
The Companys has detailed the tax
rates for its subsidiaries for 2011 and 2010 in the following table.
|
Income Tax Rate
|
|
2011
|
|
|
2010
|
|
|
International Lorain
|
|
0%
|
|
|
0%
|
|
|
Junan Hongran
|
|
25%
|
|
|
25%
|
|
|
Luotian Lorain
|
|
25%
|
|
|
15%
|
|
|
Beijing Lorain
|
|
15%
|
|
|
15%
|
|
|
Shandong Lorain
|
|
25%
|
|
|
25%
|
|
|
Shandong Greenpia
|
|
25%
|
|
|
25%
|
|
|
Dongguan Lorain
|
|
25%
|
|
|
25%
|
|
18.
|
EARNINGS PER SHARE
|
|
|
|
Components of basic and diluted earnings per share were
as follows for the three and nine months periods ended September 30, 2011
and 2010:
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Basic Earnings Per Share Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
$
|
7,071,288
|
|
$
|
5,084,475
|
|
$
|
12,760,027
|
|
$
|
9,624,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Available to Common Stockholders
|
|
7,071,288
|
|
|
5,084,475
|
|
|
12,760,027
|
|
|
9,624,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Available to Common Stockholders
|
|
7,071,288
|
|
|
5,084,475
|
|
|
12,760,027
|
|
|
9,624,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Available to Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders on Converted Basis
|
|
7,071,288
|
|
|
5,084,475
|
|
|
12,760,027
|
|
|
9,624,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions from Actual Events
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Issuance of Common Stock
|
|
34,466,144
|
|
|
31,083,710
|
|
|
34,440,483
|
|
|
30,525,487
|
|
|
Basic Weighted Average Shares Outstanding
|
|
34,466,144
|
|
|
31,083,710
|
|
|
34,440,483
|
|
|
30,525,487
|
|
27
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
Dilutive Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions from Potential Events
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of Employee & Director Stock Options
|
|
139,524
|
|
|
596,161
|
|
|
314,068
|
|
|
696,271
|
|
|
Diluted Weighted Average Shares
Outstanding:
|
|
34,605,668
|
|
|
31,679,871
|
|
|
34,754,552
|
|
|
31,221,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
0.21
|
|
|
0.16
|
|
|
0.37
|
|
|
0.32
|
|
|
- Diluted
|
$
|
0.20
|
|
$
|
0.16
|
|
$
|
0.37
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
34,466,144
|
|
|
31,083,710
|
|
|
34,440,483
|
|
|
30,525,487
|
|
|
- Diluted
|
|
34,605,668
|
|
|
31,679,871
|
|
|
34,754,552
|
|
|
31,221,758
|
|
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 year ended December 31, 2009, the Company
recorded a total of $166,346 of shared based compensation expense. The
Company issued warrants that upon exercise would result in the issuance of
1,334,573 common shares. These stock options vest over three years, where
33.33% vest annually. The expense related to the stock options was
$107,375. The Company also recorded expense of $58,971 for the issuance of
56,393 common shares to participants, respectively. The common shares
vested immediately. Given the materiality and nature of share based
compensation, the entire expense has been recorded as general and
administrative expenses.
|
|
|
|
During the period ended September 30, 2011 and December
31, 2010, the Company recorded a total of $452,179 and $890,209 stock
option and its related general and administrative expenses.
|
|
|
|
The range of the exercise prices of the stock options
granted since inception of the plan are shown in the following
table:
|
28
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
Price Range
|
Number of Shares
|
|
$0 - $4.99
|
1,334,573 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 period ended September 30, 2011, 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:
|
$
|
1.2392
|
|
|
Risk-free interest rate:
|
|
0.96%
|
|
|
Expected volatility:
|
|
4.59%
|
|
|
Expected life in months:
|
|
36.00
|
|
20.
|
LEASE COMMITMENTS
|
|
|
|
The Company has entered into an operating lease agreement
leasing a factory building located in Dongguan, China. The lease was
signed by Shandong Lorain on behalf of Dongguan Lorain and expires on
August 9, 2018.
|
|
|
|
The minimum future lease payments for this property at
September 30, 2011 are shown in the following
table:
|
|
From
|
|
To
|
|
|
Lease payment
|
|
|
10/1/2011
|
|
12/31/2011
|
|
|
22,541
|
|
|
1/1/2012
|
|
12/31/2012
|
|
|
90,162
|
|
|
1/1/2013
|
|
12/31/2013
|
|
|
93,693
|
|
|
1/1/2014
|
|
12/31/2014
|
|
|
99,178
|
|
|
1/1/2015
|
|
12/31/2015
|
|
|
99,178
|
|
|
1/1/2016
|
|
12/31/2016
|
|
|
99,178
|
|
|
1/1/2017
|
|
12/31/2017
|
|
|
99,178
|
|
|
1/1/2018
|
|
8/9/2018
|
|
|
60,581
|
|
|
|
|
|
|
$
|
663,690
|
|
The outstanding lease commitment as of
September 30, 2011 was $663,690.
The minimum future lease payments for
this property at December 31, 2010 are shown in the following table:
|
From
|
|
To
|
|
|
Lease payment
|
|
|
1/1/2011
|
|
12/31/2011
|
|
|
84,245
|
|
|
1/1/2012
|
|
12/31/2012
|
|
|
84,245
|
|
|
1/1/2013
|
|
12/31/2013
|
|
|
87,521
|
|
|
1/1/2014
|
|
12/31/2014
|
|
|
92,670
|
|
|
1/1/2015
|
|
12/31/2015
|
|
|
92,670
|
|
|
1/1/2016
|
|
12/31/2016
|
|
|
92,670
|
|
|
1/1/2017
|
|
12/31/2017
|
|
|
92,670
|
|
|
1/1/2018
|
|
8/9/2018
|
|
|
56,631
|
|
|
|
|
|
|
$
|
683,332
|
|
The outstanding lease commitment as of
December 31, 2010 was $683,332.
29
AMERICAN LORAIN CORPORATION
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
|
(Stated in US Dollars)
|
|
A.
|
Credit risk
|
|
|
|
|
|
Since the Companys inception, the age of account
receivables have been less than one year indicating that the Company is
subject to minimal risk borne from credit extended to customers.
|
|
|
|
|
B.
|
Interest risk
|
|
|
|
|
|
The company subject to the interest rate risk when their
short term loans become due and require refinancing.
|
|
|
|
|
C.
|
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 changes in the political, economic, and
legal environments in the PRC.
|
|
|
|
|
|
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.
|
|
|
|
|
D.
|
Environmental risks
|
|
|
|
|
|
The Company has procured environmental licenses required
by the PRC government. The Company has both a water treatment facility for
water used in its production process and secure transportation to remove
waste off site. In the event of an accident, the Company has purchased
insurance to cover potential damage to employees, equipment, and local
environment.
|
|
|
|
|
E.
|
Inflation Risk
|
|
|
|
|
|
Management monitors changes in prices levels.
Historically inflation has not materially impacted the companys financial
statements; however, significant increases in the price of raw materials
and labor that cannot be passed on the Companys customers could adversely
impact the Companys results of operations.
|
22.
|
OTHER INCOME
|
|
|
|
On March 13, 2011, the Company entered into an agreement
with Jiangsu Heng An Industrial Investment Group Co., Ltd. to sell the
Companys short-term investment in the amount of $ 7,764,577 (RMB
49,604,000) of a parcel of land located in Junan Town, Shandong Province,
to construct residential buildings. The land was sold to Jiangsu Heng An
at a total sale price of RMB 69,604,000 and a guaranteed gross profit of
RMB 20,000,000 without consideration of profit / loss of the residential
building project. The gain on the sale of the short-term investment
excluding taxes payable is recorded as other income on the statements of
income and comprehensive income. Title of the land will transfer from the
Company to Jiangsu Heng An upon receipt of an initial deposit of RMB
15,000,000. As of September 30,
2011, a total of RMB 33,000,000 has been paid and RMB 36,000,000 is
classified as other receivable. According to the contract, the Company
will be entitled to receive RMB 9,000,000 within 5 days after the title
transfer and construction approval is complete, and RMB 27,000,000 within
5 days after the residential building main frame is
completed.
|
30
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, 2010 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 foods.
|
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 recognition 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 2011. We derive most of our revenues from sales in China, Japan and
South Korea. Our primary strategy for 2011 is to expand our brand equity in the
Chinese market for our convenience foods products while maintaining the steady
growth and brand recognition for our chestnut products and frozen 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.
Sales in the nine months ended September 30, 2011 continue to
exhibit steady growth. Sales continue to be heavily concentrated in the Asian
regions, with mainland China, Japan and South Korea accounting for 89.3% of
total sales during the nine months ended September 30, 2011, as compared to
91.7% over the same period of last year. In the fourth quarter, American Lorain
expects to continue seeing higher demand for its chestnut products as we enter
traditionally strong quarter, as well as its fast growing convenience food
products such as rice boxes, bean products, and pickle vegetables.
Frozen foods sold primarily to select export markets in Europe
and wholesale customers like Yums! Foods in China contributed approximately
16.0% in revenues for the first nine months of 2011, compared with 16.6% in the
same period of 2010. Currently, American Lorain uses mostly outsourced, third
party manufacturing facilities for its frozen foods and maintains limited
production exposure and contractual obligations in this segment as part of a
broader marketing strategy and in response to a highly competitive environment.
31
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 nine months ended September
30, 2011, the cost of our raw materials increased from $75.5 million to $86.9
million, as compared to the nine months ended September 30, 2010, for an
increase of approximately 15.2% . During the third quarter of 2011, the cost of
our raw materials increased from $34.8 million to $39.9 million, as compared to
the third quarter of 2010, for an increase of approximately 14.7% due to a
combined effect of increased sales and general inflation. China currently faces
high domestic inflation pressures, especially in agricultural products and
consumer foods. The prolonged continuation or worsening of such pressure may
negatively our sales or profitability. 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.
Seasonality
Chestnut season in China lasts from September to January. We
purchase and produce raw chestnuts during these months and store them in our
refrigerated storage facilities throughout the year. Once we obtain a purchase
order during the rest of the year, we remove the chestnuts from storage, process
them and ship them within one day of production. Since most chestnuts are
produced and sold in the fourth quarter, the Company generally performs best in
the fourth quarter.
We have also been working to reduce the seasonality in our
business primarily by expanding sales of our convenience food business line. The
percentage revenue contribution from convenience food increased from 35.3% in
the first nine months of 2010 to 37.0% in the first nine months of 2011, while
revenue contribution from chestnuts declined from 48.2% to 47.0% over the same
period of time.
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 first nine months of 2011, we paid for approximately 4.6% of our raw
materials on credit. In the third quarter of 2011, we paid for approximately
12.9% of our raw materials on credit. We fund the majority of our working
capital requirements out of cash flow generated from operations as well as bank
loans. 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.
We also fund approximately 17.7% of our working capital
requirements from the proceeds of short-term loans from Chinese banks, as
compared to 79.8% over the same period last year, as we obtained, and have fully
drawn from, a $15 million long term loan from Deutsche Investitions- und
Entwicklungsgesellshaft (DEG) and thus reduced our reliance on short term bank
loans. However, we expect to continue to fund our working capital requirements
with such loans in the future. Such loans are generally secured by our fixed
assets, receivables and/or guarantees by third parties. Our balance from
short-term bank loans as of September 30, 2011 was approximately $14.8 million.
The term of almost all such loans is one year or less. Historically, our lenders
have permitted us to roll over such loans on an annual basis. However, we may
not have sufficient funds available to pay all of our borrowings upon maturity,
and our lenders may not permit us to roll over the loans in the future. 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. In addition, we
completed two private placement financings in September 2010 and October 2009
with net proceeds of $9.0 million and $10.9 million, respectively, the proceeds
of which were primarily used for working capital. We can provide no assurances
that we will be able to enter into any future financing or refinancing
agreements on terms favorable to us, especially considering the current
instability of the capital markets.
32
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 obtaining 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.
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, as more fully described in the Companys Annual Report on
Form 10-K.
The crisis of the financial and credit markets worldwide in the
second half of 2008 has led to a severe economic recession worldwide.
Furthermore, the on-going European debt crisis is still weighing on the global
economic conditions as well as the financial market. The continuation or
worsening of unfavorable economic conditions, including the on-going global
economy and capital markets disruptions, could have adverse impacts on our
business, operating results or financial conditions 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 2010, we shortened credit terms for many of our
international and domestic distributors from between 30 and 180 days to between
30 and 60 days for domestic distributors, and around 90 days for international
distributors. 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.
Results of Operations
Three Months Ended September 30, 2011 Compared to Three
Months Ended September 30, 2010
The following table summarizes the results of our operations
during the three month period ended September 30, 2011 and September 30, 2010,
respectively, and provides information regarding the dollar and percentage
increase or (decrease) of the three month period ended September 30, 2011
compared to the three month period ended September 30, 2010.
(All amounts, other than percentages, stated in U.S. dollar)
|
|
Three months ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Dollar($)
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
(%)
|
|
|
|
2011
|
|
|
2010
|
|
|
Increase
|
|
|
Increase
|
|
|
|
(In US
|
|
|
(In US
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
Dollar)
|
|
|
Dollar)
|
|
|
|
|
|
|
|
Net revenues
|
|
55,642,041
|
|
|
48,073,224
|
|
|
7,568,817
|
|
|
15.7%
|
|
Cost of revenues
|
|
(43,291,417
|
)
|
|
(37,293,496
|
)
|
|
(5,997,921
|
)
|
|
16.1%
|
|
Gross profit
|
|
12,350,624
|
|
|
10,779,728
|
|
|
1,570,896
|
|
|
14.6%
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
(2,538,469
|
)
|
|
(2,072,152
|
)
|
|
(466,317
|
)
|
|
22.5%
|
|
General and administrative expenses
|
|
(1,611,242
|
)
|
|
(1,643,967
|
)
|
|
32,725
|
|
|
-2.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
8,200,913
|
|
|
7,063,609
|
|
|
1,137,304
|
|
|
16.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government subsidy income
|
|
47,657
|
|
|
321,537
|
|
|
(273,880
|
)
|
|
-85.2%
|
|
Interest and other income
|
|
2,135,832
|
|
|
628,008
|
|
|
1,507,824
|
|
|
240.1%
|
|
Other expenses
|
|
(54,269
|
)
|
|
(16,269
|
)
|
|
(38,000
|
)
|
|
233.6%
|
|
Interest expense
|
|
(550,657
|
)
|
|
(1,127,993
|
)
|
|
577,336
|
|
|
-51.2%
|
|
Earnings before tax
|
|
9,779,476
|
|
|
6,868,892
|
|
|
2,910,584
|
|
|
42.4%
|
|
Income tax
|
|
(1,887,950
|
)
|
|
(1,476,363
|
)
|
|
(411,587
|
)
|
|
27.9%
|
|
Income before minority interests
|
|
7,891,526
|
|
|
5,392,529
|
|
|
2,498,997
|
|
|
46.3%
|
|
Net income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock holders
|
|
7,071,288
|
|
|
5,084,475
|
|
|
1,986,813
|
|
|
39.1%
|
|
Minority interests
|
|
820,238
|
|
|
308,054
|
|
|
512,184
|
|
|
166.3%
|
|
33
Revenue
Net Revenues
. Our net revenue for the three months ended
September 30, 2011 amounted to $55.6 million, which represents an increase of
approximately $7.6 million, or 15.7%, from the three-month period ended on
September 30, 2010, in which our net revenue was $48.1 million. This increase
was attributable to the increased revenues generated from sales of each of our
product segments, as reflected in the following table:
|
|
Three months ended
|
|
|
|
|
|
|
|
(in thousands of U.S.
|
|
9/30/2011
|
|
|
9/30/2010
|
|
|
Increase
|
|
|
Increase
|
|
dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(%)
|
|
Chestnut
|
|
24,468,233
|
|
|
21,233,329
|
|
|
3,234,904
|
|
|
15.2%
|
|
Convenience food
|
|
22,288,710
|
|
|
18,552,192
|
|
|
3,736,518
|
|
|
20.1%
|
|
Frozen food
|
|
8,885,098
|
|
|
8,287,703
|
|
|
597,395
|
|
|
7.2%
|
|
Total
|
|
55,642,041
|
|
|
48,073,224
|
|
|
7,568,817
|
|
|
15.7%
|
|
Cost of Revenues.
During the three months ended
September 30, 2011, we experienced an increase in cost of revenue, which
consists of raw materials, direct labor and manufacturing overhead expenses, of
$6.0 million, in comparison to the three months ended September 30, 2010, from
approximately $37.3 million to $43.3 million, reflecting an increase of
approximately 16.1% . Approximately 85.5%, or $5.1 million, of this increase was
attributable to an increase in raw material costs, which increased from $34.8
million during the three months ended September 30, 2010 to $39.9 million, or
approximately 14.7%, during the three months ended September 30, 2011 due to
higher production volume as our business expands, as well as higher prices for
chestnut and other agricultural products caused by general inflation.
The factors that contributed to the remaining 14.5% 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 $1.6 million,
or 14.6%, to $12.4 million for the three months ended September 30, 2011 from
$10.8 million for the same period in 2010 as a result of higher revenues, offset
by higher costs of revenues, for the reasons indicated immediately above. Our
gross margins decreased slightly from 22.4% to 22.2% for the period ended
September 30, 2011, as compared to the period ended September 30, 2010 due to
inflation pressure in the Chinese domestic market. Gross profit margins by
product segment for the three months ended September 30, 2011 were: 23-26% for
chestnuts, 20-23% for convenience foods and 16-18% for frozen foods.
Operating Expenses
Selling and Marketing Expenses
. Our selling and
marketing expenses increased $466,317, or 22.5%, to $2.5 million in the third
quarter of 2011 from $2.1 million in the third quarter of 2010. 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. The increases
listed in the table below were partially offset by decreases in dollar amount of
other selling and marketing expenses, including sales commission and sea
transportation.
(in U.S. dollars)
|
|
Increase in Costs in the
|
|
|
|
Three Months Ended September 30,
2011 over
|
|
|
|
the Three Months Ended September
30, 2010
|
|
|
|
|
|
Wages and Benefit
|
$
|
193,578
|
|
Port Fees
|
|
50,313
|
|
Entertainment Expense
|
|
56,929
|
|
Exhibition Expense
|
|
39,285
|
|
34
Selling and marketing expenses increased as we enhanced our
efforts to expand our distribution channels in China as well as internationally,
and to build the brand recognition for our chestnut and convenience food
products.
General and Administrative Expenses.
We experienced a
decrease in general and administrative expense of $32,725 from $1,643,967 to
$1,611,242 for the three months ended September 30, 2011, compared to the same
period in 2010. The general and administrative expenses are higher for the three
months ended September 30, 2010 mostly due to expenses related to the Companys
$9.6 million private placement such as filing expense and legal expense. These
higher expenses are partially offset by the increase of other expenses during
the three months ended September 30, 2011 compared to the same period of last
year, as detailed in the following table:
(In U.S Dollars)
|
|
Increase in Costs in the
|
|
|
|
Three Months Ended September 30,
2011
|
|
|
|
over the Three Months Ended
September 30, 2010
|
|
|
|
|
|
Wage and Benefit
|
$
|
223,250
|
|
Land Use Expense
|
|
95,978
|
|
Entertainment Expense
|
|
50,754
|
|
Fuel Expense
|
|
23,304
|
|
Interest Expenses.
We experienced a decrease in interest
expenses of approximately $0.6 million from approximately $1.1 million to $0.6
million for the three months ended September 30, 2011, compared to the same
period in 2010. The decrease was mainly due to the decrease in outstanding
balance of our short term bank loans, which was $14.8 million at the end of
September 30, 2011, compared to $46.8 million at the end of September 30, 2010.
Income Before Taxation and Minority Interest
Income before taxation and minority interest increased $2.9
million, or 42.4%, to $9.8 million for the three months ended September 30, 2011
from $6.9 million for the same period of 2010. The increase was largely
attributable to $2.1 million of other income we recognized in the third quarter
when we sold the land previously carried on our balance sheet as a short term
investment. Without the effect of the land sale, our earnings before tax and
minority interest increased 11.9% to $7.7 million for the three months ended
September 30, 2011 from $6.9 million in the same period of last year. Please
refer to note 22 to the financial statements for details.
Income Taxes
Income taxes increased $411,587, or 27.9%, to $1.9 million in
the third quarter of 2011, as compared to $1.5 million in the third quarter of
2010. This increase was attributable to the higher earnings before tax and a
higher income tax rate in 2011 as compared to 2010.
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 2011 and 2010 are depicted in the following table:
|
2011
|
2010
|
Junan Hongrun
|
25%
|
25%
|
Luotian Lorain
|
25%
|
15%
|
Beijing Lorain
|
15%
|
15%
|
Shandong Lorain
|
25%
|
25%
|
Dongguan Lorain
|
25%
|
25%
|
Shandong Greenpia
|
25%
|
25%
|
Net Income
Net income increased $2.0 million, or 39.1%, to $7.1 million
for the three months ended September 30, 2011 from $5.1 million for the same
period of 2010. The increase was largely attributable to the $2.1 million other
income we recognized in the third quarter when we sold the land previously carried on
our balance sheet as short term investment. Without the effect of the land sale,
our net income increased 6.1% to $5.4 million for the three months ended
September 30, 2011 from $5.1 million in the same period of last year. Please
refer to note 22 to the financial statements for details.
Nine Months Ended September 30, 2011 Compared to Nine Months
Ended September 30, 2010
The following table summarizes the results of our operations
during the nine month period ended September 30, 2011 and September 30, 2010,
respectively and provides information regarding the dollar and percentage
increase or (decrease) of the nine month period ended September 30, 2011
compared to the nine month period ended September 30, 2010.
35
|
|
Nine
months ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Dollar($)
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
(%)
|
|
|
|
2011
|
|
|
2010
|
|
|
Increase
|
|
|
Increase
|
|
|
|
(In US Dollar)
|
|
|
(In US Dollar)
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Net revenues
|
|
121,818,496
|
|
|
101,851,754
|
|
|
19,966,742
|
|
|
19.6%
|
|
Cost of revenues
|
|
(95,036,378
|
)
|
|
(78,629,267
|
)
|
|
(16,407,111
|
)
|
|
20.9%
|
|
Gross profit
|
|
26,782,118
|
|
|
23,222,487
|
|
|
3,559,631
|
|
|
15.3%
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
(4,989,922
|
)
|
|
(4,639,500
|
)
|
|
(350,422
|
)
|
|
7.6%
|
|
General and administrative expenses
|
|
(4,680,555
|
)
|
|
(3,592,629
|
)
|
|
(1,087,926
|
)
|
|
30.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
17,111,641
|
|
|
14,990,358
|
|
|
2,121,283
|
|
|
14.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government subsidy income
|
|
643,009
|
|
|
698,961
|
|
|
(55,952
|
)
|
|
-8.0%
|
|
Interest and other income
|
|
2,285,288
|
|
|
759,579
|
|
|
1,525,709
|
|
|
200.9%
|
|
Other expenses
|
|
(235,324
|
)
|
|
(88,506
|
)
|
|
(146,818
|
)
|
|
165.9%
|
|
Interest expense
|
|
(1,813,891
|
)
|
|
(3,071,546
|
)
|
|
1,257,655
|
|
|
-40.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before tax
|
|
17,990,723
|
|
|
13,288,846
|
|
|
4,701,877
|
|
|
35.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
(4,061,371
|
)
|
|
(3,005,959
|
)
|
|
(1,055,412
|
)
|
|
35.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests
|
|
13,929,352
|
|
|
10,282,887
|
|
|
3,646,465
|
|
|
35.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock holders
|
|
12,760,027
|
|
|
9,624,619
|
|
|
3,135,408
|
|
|
32.6%
|
|
Minority interests
|
|
1,169,325
|
|
|
658,268
|
|
|
511,057
|
|
|
77.6%
|
|
36
Revenue
Net Revenues
. Our net revenue for the nine months ended
September 30, 2011 amounted to $121.8 million, which is approximately $20.0
million, or 19.6%, more than that of the same period ended on September 30, 2010
where we had revenue of $101.9 million. This increase was attributable to the
increased revenues generated from sales of each of our product segments, as
reflected in the following table:
|
|
Nine months ended
|
|
|
|
|
|
|
|
(in thousands of U.S.
|
|
9/30/2011
|
|
|
9/30/2010
|
|
|
|
|
|
|
|
dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(%)
|
|
Chestnut
|
|
57,238,463
|
|
|
49,062,130
|
|
|
8,176,333
|
|
|
16.7%
|
|
Convenience food
|
|
45,100,128
|
|
|
35,911,359
|
|
|
9,188,769
|
|
|
25.6%
|
|
Frozen food
|
|
19,479,905
|
|
|
16,878,265
|
|
|
2,601,640
|
|
|
15.4%
|
|
Total
|
|
121,818,496
|
|
|
101,851,754
|
|
|
19,966,742
|
|
|
19.6%
|
|
Cost of Revenues.
Our cost of revenues, which consists
of raw materials, direct labor and manufacturing overhead expenses, was $95.0
million for the nine month period ended September 30, 2011, an increase of $16.4
million or 20.9%, as compared to $78.6 million for the nine month period ended
September 30, 2010. Approximately 69.7%, or $11.4 million, of this increase was
attributable to an increase in raw material costs, which increased from $75.5
million during the nine months ended September 30, 2010 to $86.9 million, or
approximately 15.2%, during the nine months ended September 30, 2011.
The factors that contributed to the remaining 30.3% 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 $3.6 million,
or 15.3%, to $26.8 million for the nine months ended September 30, 2011 from
$23.2 million for the same period in 2010. This increase was attributable to
increased sales revenue, offset by higher cost as described above. Our gross
margins decreased from 22.8% to 22.0% due to inflation pressure in the Chinese
domestic market. Gross profit margins by product segment for the six months
ended September 30, 2011 were: 23-26% for chestnuts, 20-23% for convenience
foods and 16-18% for frozen foods.
Operating Expenses
Selling and Marketing Expenses
. Selling and marketing
expenses increased $350,422, or 7.6%, to $5.0 million for the nine months ended
September 30, 2011 from $4.6 million for the same period in 2010. Selling and
marketing expenses increased as we enhanced our efforts to expand our
distribution channels in China as well as internationally, and to build the
brand recognition for our chestnut and convenience food products.
General and Administrative Expenses.
General and
administrative expenses increased approximately $1.1 million, or 30.3% to $4.7
million for the nine months ended September 30, 2011 from $3.6 million for the
same period of 2010. The increase of general and administrative expenses was
primarily attributable to increased salary and benefits costs for our employees
relative to our expanded business, the increased compensation for managerial
personnel and expenses related to the Company's employee stock option plan.
Interest Expenses.
We experienced a decrease in interest
expenses of approximately $1.3 million from approximately $3.1 million to $1.8
million for the nine months ended September 30, 2011, compared to the same
period in 2010. The decrease was mainly due to the decrease in outstanding
balance of our bank loans, which was $14.8 million at the end of September 30,
2011, compared to $46.8 million at the end of September 30, 2010.
Income Before Taxation and Minority Interest
Income before taxation and minority interest increased $4.7
million or 35.4% to $18.0 million for the nine months ended September 30, 2011
from $13.3 million for the same period of 2010. The increase was largely
attributable to $2.1 million other income we recognized in the third quarter when
we sold the land previously carried on our balance sheet as short term investment.
Without the effect of the land sale, our earnings before tax and minority
interest increased 19.6% to $15.9 million for the nine months ended September
30, 2011 from $13.3 million in the same period of last year.
Income Taxes
Income taxes increased approximately $1.1 million, or 35.1% to
$4.1 million for the nine months ended September 30, 2011 from $3.0 million for
the same period of 2010. The increase of tax paid was primarily a result of the
increase of income as well as higher tax rate in the first nine months ended
September 30, 2011, as compared to the same period in 2010.
37
Net Income
Net income increased $3.1 million, or 32.6% to $12.8 million
for the nine months ended September 30, 2011 from $9.6 million for the same
period of 2010. The increase was largely attributable to the $2.1 million other
income we recognized in the third quarter when we sold the land previously carried on
our balance sheet as short term investment. Without the effect of the land sale,
our net income increased 15.1% to $11.1 million for the nine months ended
September 30, 2011 from $9.6 million in the same period of last year.
Liquidity and Capital Resources
As of September 30, 2011, we had cash and cash equivalents
(excluding restricted cash) of $11.4 million. Our cash and cash equivalents
decreased by approximately $1.3 million from December 31, 2010, primarily due to
increase in inventories, receivables and restricted cash. The following table
provides detailed information about our net cash flow for all financial
statements periods presented in this report.
(in thousands of U.S. dollars)
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
Net cash provided by (used in) operating
activities
|
|
(519
|
)
|
|
(9,431
|
)
|
Net cash provided by (used in) investing activities
|
|
(2,054
|
)
|
|
(13,084
|
)
|
Net cash provided by (used in) financing
activities
|
|
(3,491
|
)
|
|
20,682
|
|
Net cash flow (outflow)
|
|
(6,063
|
)
|
|
(1,833
|
)
|
Operating Activities
Net cash used in operating activities was $518,507 for the nine
months ended September 30, 2011 and net cash used in operating activities for
the nine months ended September 30, 2010 was $9.4 million. The increase of
approximately $8.9 million in net cash flows provided by operating activities in
the nine months ended September 30, 2011 was primarily a result of higher net
income of $3.6 million, $3.6 million less increase in inventory, and $2.8
million less decrease in accounts and other payables, partially offset by higher
increase in receivables of approximately $3.0 million as compared to the same
period in 2010.
Investing Activities
Our main uses of cash for investment activities are payments
for the acquisition of property, plants and equipment.
Net cash used in investing activities for the nine months
period ended September 30, 2011 was $2.1 million and net cash used in investing
activities for the nine months ended September 30, 2010 was $13.1 million. The
increase of $11.0 million in net cash flows provided by investing activities in
the nine months ended September 30, 2011 was primarily a result of $8.1 million
less payment for fixed assets and $7.5 million proceeds in sale of land
investment, offset by additional increase in restricted cash of $7.0 million as
compared to the same period in 2010.
Financing Activities
Net cash used in financing activities for the nine months
period ended September 30, 2011 was $3.5 million, which is a decrease of $24.2
million from $20.7 million net cash provided by financing activities during the
same period in 2010. The decrease of the net cash provided by financing
activities was primarily a result of decreased net bank borrowing and repayment
of bank notes in nine months ended September 30, 2011 compared to the same
period in 2010.
Loan Facilities
As of September 30, 2011, 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 $14.8 million as of September 30,
2011, compared with $25.2 million as of December 31, 2010. We are also carrying
a long term loan of $15 million from DEG due in March 2016, with eight equal
semi-annual principal payments commencing September 2012. In addition, on
February 8, 2011, Industrial and Commercial Bank of China granted us a line of
credit of approximately $16.2 million. The line of credit was granted to us with
specific allocation of 38% to Junan Hongrun, 38% to Shandong Lorain, and 24% to
Beijing Lorain, our three major operating subsidiaries. The line of credit is
effective for one year. As of September 30, 2011, we drew down $626,125 from
this line of credit.
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.
38
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.
39
As of September 30, 2010, the details pertaining to our
subsidiaries were as follows:
|
|
Place of
|
|
|
Attributable equity
|
|
|
Registered
|
|
Name of Company
|
|
incorporation
|
|
|
interest %
|
|
|
capital
|
|
Shandong Lorain Co., Ltd
|
|
PRC
|
|
|
80.20
|
|
$
|
15,787,744
|
|
Luotian Lorain Co., Ltd
|
|
PRC
|
|
|
100
|
|
$
|
3,964,749
|
|
Junan Hongrun Foodstuff Co., Ltd
|
|
PRC
|
|
|
100
|
|
$
|
46,834,155
|
|
Beijing Lorain Co., Ltd
|
|
PRC
|
|
|
100
|
|
$
|
1,565,313
|
|
Shandong Greenpia Foodstuff Co., Ltd
|
|
PRC
|
|
|
100
|
|
$
|
2,404,320
|
|
Dongguan Lorain Co,,Ltd
|
|
PRC
|
|
|
100
|
|
$
|
156,531
|
|
International Lorain Holding Inc.
|
|
Cayman Islands
|
|
|
100
|
|
$
|
48,710,564
|
|
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 period, 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 January 2011, the FASB issued an Accounting Standard Update
(ASU) No. 2011-01, Receivables (Topic 310): Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses, to be concurrent with the
effective date of the guidance for determining what constitutes a troubled debt
restructuring, as presented in proposed Accounting Standards Update, Receivables
(Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by
Creditors. The amendments in this Update apply to all public-entity creditors
that modify financing receivables within the scope of the disclosure
requirements about troubled debt restructurings in Update 2010-20. Under the
existing effective date in Update 2010-20, public-entity creditors would have
provided disclosures about troubled debt restructurings for periods beginning on
or after December 15, 2010. The amendments in this Update temporarily defer that
effective date, enabling public-entity creditors to provide those disclosures
after the Board clarifies the guidance for determining what constitutes a
troubled debt restructuring. The deferral in this Update will result in more
consistent disclosures about troubled debt restructurings. This amendment does
not defer the effective date of the other disclosure requirements in Update
2010-20. In the proposed Update for determining what constitutes a troubled debt
restructuring, the Board proposed that the clarifications would be effective for
interim and annual periods ending after June 15, 2011. For the new disclosures
about troubled debt restructurings in Update 2010-20, those clarifications would
be applied retrospectively to the beginning of the fiscal year in which the
proposal is adopted. This new accounting is not expected to have a material
impact on the Companys consolidated financial position or results of the
operations.
In June 2011, the FASB issued an Accounting Standard Update
(ASU) No. 2011-05, Comprehensive Income (Topic 220). Under the amendments to
Topic 220, Comprehensive Income, entities have the option to present the total
of comprehensive income, the components of net income, and the components of
other comprehensive income either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. In both
choices, an entity is required to present each component of net income along
with total net income, each component of other comprehensive income along with a
total for other comprehensive income, and a total amount for comprehensive
income. This Update eliminates the option to present the components of other
comprehensive income as part of the statement of changes in stockholders'
equity. The amendments in this Update should be applied retrospectively. For
public entities, the amendments are effective for fiscal years, and interim
periods within those years, beginning after December 15, 2011. For nonpublic
entities, the amendments are effective for fiscal years ending after December
15, 2012, and interim and annual periods thereafter. This new accounting is not
expected to have a material impact on the Companys consolidated financial
position or results of the operations.
40
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, 2011. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that as of September 30, 2011, our disclosure
controls and procedures were effective.
Changes in Internal Controls over Financial Reporting
During the fiscal quarter ended September 30, 2011, 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.
41
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we have disputes that arise in the ordinary
course of business. Currently, there are no material legal proceedings to which
we are a party, or to which any of our property is subject.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. REMOVED AND RESERVED
Not applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
42
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 14, 2011
AMERICAN LORAIN CORPORATION
/s/ Si
Chen
Si Chen
Chief Executive Officer
/s/ David
She
David She
Chief Financial Officer
43
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