ITEM 1. Financial Statements
AMERICAN LORAIN CORPORATION
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
2
|
AMERICAN LORAIN CORPORATION
|
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
MARCH 31, 2014 AND DECEMBER 31, 2013
|
(Stated in US Dollars)
|
CONTENTS
|
PAGES
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
|
4
|
CONSOLIDATED BALANCE SHEET
|
5 6
|
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
|
7
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
8
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY
|
9
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
10 33
|
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 March 31, 2014 and
December 31, 2013, and the related statements of income, stockholders equity,
and cash flows for the three months period ended March 31, 2014 and 2013. 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 reviews, 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.
We have previously audited, in accordance with auditing
standards of the Public Company Accounting Oversight Board (United States), the
balance sheets of American Lorain Corporation as of December 31, 2013, and the
related statements of income, comprehensive income, retained earnings, and cash
flows for the year then ended (not presented herein); and in our report dated
March 25, 2014, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet as of December 31, 2013, is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
San Mateo, California
|
WWC, P.C.
|
May 10, 2014
|
Certified Public
Accountants
|
4
AMERICAN LORAIN CORPORATION
CONSOLIDATED BALANCE
SHEETS
AT MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in
US Dollars)
|
|
|
|
|
(Audited)
|
|
|
|
At March 31,
|
|
|
At December 31,
|
|
ASSETS
|
|
2014
|
|
|
2013
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
42,718,737
|
|
$
|
33,857,193
|
|
Restricted cash
|
|
3,582,526
|
|
|
1,842,989
|
|
Trade accounts receivable
|
|
37,958,359
|
|
|
54,071,475
|
|
Other receivables
|
|
6,601,741
|
|
|
5,698,020
|
|
Related party receivable
|
|
3,429,180
|
|
|
-
|
|
Inventory
|
|
53,119,664
|
|
|
41,950,253
|
|
Advance to suppliers
|
|
37,010,073
|
|
|
42,400,517
|
|
Prepaid expenses
and taxes
|
|
3,593,944
|
|
|
2,168,573
|
|
Deferred tax
asset
|
|
179,169
|
|
|
180,679
|
|
Security deposits and
other assets
|
|
3,215,161
|
|
|
3,242,259
|
|
Total current assets
|
$
|
191,408,554
|
|
$
|
185,411,958
|
|
|
|
|
|
|
|
|
Non-current
assets
|
|
|
|
|
|
|
Investment
|
|
2,100,000
|
|
|
-
|
|
Property,
plant and equipment,
net
|
|
86,916,090
|
|
|
87,561,341
|
|
Construction in Progress,
net
|
|
13,555,072
|
|
|
13,665,470
|
|
Land use
rights,
net
|
|
16,168,475
|
|
|
16,407,543
|
|
TOTAL ASSETS
|
$
|
310,148,191
|
|
$
|
303,046,312
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Short-term bank
loans
|
$
|
36,068,420
|
|
$
|
29,400,694
|
|
Convertible promissory note
|
|
3,500,000
|
|
|
-
|
|
Long-term debt
current portion
|
|
5,697,451
|
|
|
5,713,865
|
|
Accounts payable
|
|
3,388,991
|
|
|
4,015,502
|
|
Taxes payable
|
|
2,293,125
|
|
|
4,422,133
|
|
Accrued liabilities and other payables
|
|
4,952,894
|
|
|
2,315,815
|
|
Customers deposits
|
|
91,009
|
|
|
166,450
|
|
Total current liabilities
|
$
|
55,991,890
|
|
$
|
46,034,459
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
Long-term bank
loans
|
|
6,184,314
|
|
|
8,079,831
|
|
Notes payable
and debenture
|
|
45,440,530
|
|
|
45,823,514
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
$
|
107,616,734
|
|
$
|
99,937,804
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
5
AMERICAN LORAIN CORPORATION
CONSOLIDATED BALANCE
SHEETS
AT MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in
US Dollars)
|
|
|
|
|
(Audited)
|
|
|
|
At March 31,
|
|
|
At December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
Preferred Stock, $.001 par
value, 5,000,000 shares authorized; 0 shares issued and outstanding at
March 31, 2014 and December 31, 2013, respectively
|
|
-
|
|
|
-
|
|
Common
Stock, $0.001 par value, 200,000,000 shares authorized; 34,616,714 shares
issued and outstanding as of March 31, 2014 and December 31, 2013,
respectively
|
|
34,617
|
|
|
34,617
|
|
Additional paid-in capital
|
|
53,487,389
|
|
|
53,487,389
|
|
Statutory reserves
|
|
18,396,513
|
|
|
18,396,513
|
|
Retained earnings
|
|
100,848,325
|
|
|
99,257,837
|
|
Accumulated other
comprehensive income
|
|
18,606,036
|
|
|
20,928,244
|
|
Non-controlling interests
|
|
11,158,577
|
|
|
11,003,908
|
|
TOTAL STOCKHOLDERS
EQUITY
|
$
|
202,531,457
|
|
$
|
203,108,508
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
|
$
|
310,148,191
|
|
$
|
303,046,312
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
6
AMERICAN LORAIN CORPORATION
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS
PERIOD ENDED MARCH 31, 2014 AND 2013
(Stated in US Dollars)
|
|
For the
three months period ended
|
|
|
|
March
31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Net revenues
|
$
|
31,689,458
|
|
$
|
34,809,916
|
|
Cost of revenues
|
|
(25,584,237
|
)
|
|
(27,412,665
|
)
|
Gross profit
|
$
|
6,105,221
|
|
$
|
7,397,251
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
(1,074,791
|
)
|
|
(1,791,483
|
)
|
General and administrative
expenses
|
|
(2,089,541
|
)
|
|
(1,421,984
|
)
|
|
|
(3,164,332
|
)
|
|
(3,213,467
|
)
|
|
|
|
|
|
|
|
Operating income
|
$
|
2,940,889
|
|
$
|
4,183,784
|
|
|
|
|
|
|
|
|
Government subsidy income
|
|
1,508,250
|
|
|
318,593
|
|
Interest income
|
|
16,056
|
|
|
6,909
|
|
Other income
|
|
88,940
|
|
|
186,649
|
|
Other expenses
|
|
(134,140
|
)
|
|
(7,118
|
)
|
Interest expense
|
|
(1,924,973
|
)
|
|
(1,060,767
|
)
|
|
|
|
|
|
|
|
Earnings before tax
|
$
|
2,495,022
|
|
$
|
3,628,050
|
|
|
|
|
|
|
|
|
Income tax
|
|
(749,865
|
)
|
|
(1,014,398
|
)
|
|
|
|
|
|
|
|
Net income
|
$
|
1,745,157
|
|
$
|
2,613,652
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
Foreign currency
translation gain/(loss)
|
|
(2,322,208
|
)
|
|
783,291
|
|
Comprehensive Income/(Loss)
|
|
(577,051
|
)
|
|
3,396,943
|
|
Net income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Common stockholders
|
$
|
1,590,488
|
|
$
|
2,518,686
|
|
-Non-controlling interest
|
|
154,669
|
|
|
94,966
|
|
|
$
|
1,745,157
|
|
$
|
2,613,652
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
- Basic
|
$
|
0.05
|
|
$
|
0.07
|
|
- Diluted
|
$
|
0.05
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding
|
|
|
|
|
|
|
- Basic
|
|
34,616,714
|
|
|
34,616,714
|
|
- Diluted
|
|
34,616,714
|
|
|
34,616,714
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
7
AMERICAN LORAIN CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS PERIOD ENDED MARCH 31,
2014 AND 2013
(Stated in US Dollars)
|
|
For the
Three Months Ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
Net income
|
$
|
1,745,157
|
|
$
|
2,613,652
|
|
Stock and share
based compensation
|
|
-
|
|
|
-
|
|
Depreciation of fixed assets
|
|
799,679
|
|
|
972,550
|
|
Amortization of
intangible assets
|
|
91,027
|
|
|
42,519
|
|
Adjustment to statutory reserve
|
|
-
|
|
|
-
|
|
(Increase)/decrease in accounts & other receivables
|
|
17,095,217
|
|
|
9,525,967
|
|
(Increase)/decrease in
inventories
|
|
(11,169,411
|
)
|
|
(9,672,367
|
)
|
Decrease/(increase) in prepayment
|
|
(1,425,371
|
)
|
|
(1,259,125
|
)
|
Decrease/(increase) in deferred
tax asset
|
|
1,510
|
|
|
(965
|
)
|
Increase/(decrease) in accounts and other payables
|
|
(118,439
|
)
|
|
(3,586,059
|
)
|
Net cash (used
in)/provided by operating activities
|
|
7,019,369
|
|
|
(1,363,828
|
)
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
(Purchase)/Sale
of investment
|
|
(2,100,000
|
)
|
|
270,019
|
|
Purchase of plant and equipment
|
|
(44,031
|
)
|
|
(615,497
|
)
|
Payment for the
purchase of land use rights
|
|
148,041
|
|
|
(34,689
|
)
|
(Increase)/decrease in
restricted cash
|
|
(1,739,537
|
)
|
|
1,701,157
|
|
(Increase)/decrease in deposit
|
|
27,098
|
|
|
(3,194,815
|
)
|
Net cash used in investing
activities
|
|
(3,708,429
|
)
|
|
(1,873,825
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Repayment of
bank borrowings
|
|
(14,050,278
|
)
|
|
(3,510,676
|
)
|
Proceeds from bank borrowings
|
|
18,423,090
|
|
|
7,351,838
|
|
Proceeds from
long-term borrowings and notes payable
|
|
3,500,000
|
|
|
(1,863,002
|
)
|
Net cash provided by/(used in)
financing activities
|
$
|
7,872,812
|
|
$
|
1,978,160
|
|
|
|
|
|
|
|
|
Net Increase/(decrease) of Cash and Cash
Equivalents
|
|
11,183,752
|
|
|
(1,259,493
|
)
|
|
|
|
|
|
|
|
Effect of foreign currency translation on
cash and cash equivalents
|
|
(2,322,208
|
)
|
|
783,291
|
|
|
|
|
|
|
|
|
Cash and cash equivalentsbeginning of period
|
|
33,857,193
|
|
|
32,345,603
|
|
Cash and cash equivalentsend
of period
|
$
|
42,718,737
|
|
$
|
31,869,400
|
|
|
|
|
|
|
|
|
Supplementary cash flow
information:
|
|
|
|
|
|
|
Interest
received
|
$
|
16,056
|
|
$
|
6,909
|
|
Interest paid
|
$
|
|
|
$
|
1,039,123
|
|
Income
taxes paid
|
$
|
|
|
$
|
3,125,023
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
8
AMERICAN
LORAIN
CORPORATION
CONSOLIDATED
STATEMENTS
OF
STOCKHOLDERS
EQUITY
FOR THE
THREE
MONTH
PERIOD
ENDED
MARCH
31, 2014 AND YEAR
ENDED
DECEMBER
31, 2013
(STATED
IN US
DOLLARS)
|
|
Number
Of
Shares
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Statutory
Reserves
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Non-
Controlling
Interests
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2013
|
|
34,616,714
|
|
|
34,617
|
|
|
53,487,389
|
|
|
16,922,494
|
|
|
84,097,961
|
|
|
16,210,661
|
|
|
9,949,228
|
|
|
180,702,350
|
|
Net income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
17,688,575
|
|
|
-
|
|
|
-
|
|
|
17,688,575
|
|
Allocation to non-controlling
interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,054,680
|
)
|
|
-
|
|
|
1,054,680
|
|
|
-
|
|
Appropriations to statutory reserve
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,474,019
|
|
|
(1,474,019
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Foreign currency translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,717,583
|
|
|
-
|
|
|
4,717,583
|
|
Balance, December 31, 2013
|
|
34,616,714
|
|
|
34,617
|
|
|
53,487,389
|
|
|
18,396,513
|
|
|
99,257,837
|
|
|
20,928,244
|
|
|
11,003,908
|
|
|
203,108,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2014
|
|
34,616,714
|
|
|
34,617
|
|
|
53,487,389
|
|
|
18,396,513
|
|
|
99,257,837
|
|
|
20,928,244
|
|
|
11,003,908
|
|
|
203,108,508
|
|
Net income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,745,157
|
|
|
-
|
|
|
-
|
|
|
1,745,157
|
|
Allocation to non-controlling interests
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(154,669
|
)
|
|
-
|
|
|
154,669
|
|
|
-
|
|
Foreign currency translation
adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,322,208
|
)
|
|
-
|
|
|
(2,322,208
|
)
|
Balance, March 31, 2014
|
|
34,616,714
|
|
|
34,617
|
|
|
53,487,389
|
|
|
18,396,513
|
|
|
100,848,325
|
|
|
18,606,036
|
|
|
11,158,577
|
|
|
202,531,457
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
9
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(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. 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 rest of the 19.8%, which is owned
by the State under the name of Shandong Economic Development Investment
Co. Ltd., 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 $2,100,000to 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. Accordingly, the
Company booked a gain of $383,482 which is included in the statement of
income as other income.
|
|
|
|
|
(c)
|
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 domestic markets as well as
exported to foreign countries and regions such as Japan, Korea and
Europe.
|
|
|
|
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 periods ended March 31, 2014 in order to be consistent with
the presentation provided for the year ended December 31, 2013. There was
no impact in earnings for the regrouping.
|
10
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
|
(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 non-controlling investors are recorded as non-controlling
interests.
|
|
|
|
|
|
As of March 31, 2014, the detailed identities of the
consolidating subsidiaries are as follows:
|
|
|
|
Place of
|
|
|
Attributable
|
|
|
Registered
|
|
|
Name of Company
|
|
incorporation
|
|
|
equity interest
%
|
|
|
capital
|
|
|
Shandong Lorain Co., Ltd.
|
|
PRC
|
|
|
80.2
|
|
$
|
13,122,576
|
|
|
Luotian Lorain Co., Ltd.
|
|
PRC
|
|
|
100
|
|
|
4,110,550
|
|
|
Junan Hongrun Foodstuff Co.,
Ltd.
|
|
PRC
|
|
|
100
|
|
|
48,556,452
|
|
|
Beijing Lorain Co., Ltd.
|
|
PRC
|
|
|
100
|
|
|
1,622,876
|
|
|
Shandong Greenpia Foodstuff
Co., Ltd.
|
|
PRC
|
|
|
100
|
|
|
2,492,738
|
|
|
Dongguan Lorain Co., Ltd.
|
|
PRC
|
|
|
100
|
|
|
162,288
|
|
|
International Lorain Holding
Inc.
|
|
Cayman
Islands
|
|
|
100
|
|
|
50,501,875
|
|
|
|
On February 7, 2014, Junan Hongrun acquired 51% of Athena group and its
subsidiaries. The investment of Athena group is not yet consolidated into
the financial statements since the acquisition is still subject to the
approval of Department of Commerce of Shandong Province, PRC although the
title has been passed to Junan Hongrun.
|
|
|
|
|
(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.
|
|
|
|
|
(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.
|
11
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
|
|
Premiums and discounts are amortized or accreted over the
life of the related available-for-sale security as an adjustment to yield
using the effective-interest method. Dividend and interest income are
recognized when earned.
|
|
|
|
|
(f)
|
Trade receivables
|
|
|
|
|
|
Trade receivables are recognized and carried at the
original invoice amount less allowance for any uncollectible amounts. An
estimate for doubtful accounts is made when collection of the full amount
is no longer probable. Bad debts are written off as incurred.
|
|
|
|
|
(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.
|
|
|
|
|
|
Advance to suppliers is a good faith deposit paid to the
supplier for the purpose of committing the supplier to provide product
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
|
|
|
|
|
|
Plant and equipment are carried at cost less accumulated
depreciation. Depreciation is provided over their estimated useful lives,
using the straight-line method with a salvage value of 10%. Estimated
useful lives of the plant and equipment are as
follows:
|
|
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.
|
12
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
|
(k)
|
Land Use Rights
|
|
|
|
|
|
Land use rights are carried at cost and amortized on a
straight-line basis over a specified period. Amortization is provided using
the straight-line method over 40-50 years.
|
|
|
|
|
(l)
|
Accounting for the Impairment of Long-Lived
Assets
|
|
|
|
|
|
The long-lived assets held by the Company are reviewed in
accordance with Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Subtopic 360-10-35, Accounting for the
Impairment or Disposal of Long-Lived Assets, 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.
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 2014 and 2013.
|
|
|
|
|
(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.
|
|
|
|
|
|
The Company has implemented ASC Topic 740, 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.
|
13
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
Effective January 1, 2008, PRC
government implemented a new 25% tax rate across the board for all enterprises
regardless of whether domestic or foreign enterprise without any tax holiday
which is defined as "two-year exemption followed by three-year half exemption"
hitherto enjoyed by tax payers. As a result of the new tax law of a standard 25%
tax rate, tax holidays terminated as of December 31, 2007. However, PRC
government has established a set of transition rules to allow enterprises
already started tax holidays before January 1, 2008, to continue enjoying the
tax holidays until being fully utilized.
The Company is subject to United
States Tax according to Internal Revenue Code Sections 951 and 957. Corporate
income tax is imposed on progressive rates in the range of: -
Taxable Income
|
|
Rate
|
|
Over
|
|
|
But Not Over
|
|
|
Of Amount Over
|
|
15%
|
|
0
|
|
|
50,000
|
|
|
0
|
|
25%
|
|
50,000
|
|
|
75,000
|
|
|
50,000
|
|
34%
|
|
75,000
|
|
|
100,000
|
|
|
75,000
|
|
39%
|
|
100,000
|
|
|
335,000
|
|
|
100,000
|
|
34%
|
|
335,000
|
|
|
10,000,000
|
|
|
335,000
|
|
35%
|
|
10,000,000
|
|
|
15,000,000
|
|
|
10,000,000
|
|
38%
|
|
15,000,000
|
|
|
18,333,333
|
|
|
15,000,000
|
|
35%
|
|
18,333,333
|
|
|
-
|
|
|
-
|
|
|
(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
$1,474,019 and$2,264,420from retained earnings to statutory reserves for
the years ended December 31, 2013 and 2012. PRC laws prescribe that an
enterprise operating at a profit, must appropriate, on an annual basis, an
amount equal to 10% of its profit. Such an appropriation is necessary
until the reserve reaches a maximum that is equal to 50% of the
enterprises PRC registered capital.
|
|
|
|
|
(s)
|
Foreign currency translation
|
|
|
|
|
|
The accompanying financial statements are presented in
United States dollars. The functional currency of the Company is the
Renminbi (RMB). The financial statements are translated into United States
dollars from RMB at year-end exchange rates as to assets and liabilities
and average exchange rates as to revenues and expenses. Capital accounts
are translated at their historical exchange rates when the capital
transactions occurred.
|
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
3/31/2013
|
|
|
Period end/Year end RMB: US$
exchange rate
|
|
6.1619
|
|
|
6.1104
|
|
|
6.2666
|
|
|
Average period/yearly RMB: US$ exchange rate
|
|
6.1156
|
|
|
6.1905
|
|
|
6.2769
|
|
|
|
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.
|
14
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
|
|
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 its 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 is computed by dividing net
income by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed by
dividing net income by the sum of the weighted average number of ordinary
shares outstanding and potential dilutive securities during the year.
During the period ended December 31, 2013, no warrants were issued nor
options were granted. For the year ended December 31, 2010, 81,155 warrants
were issued to certain service providers. For the year ended December 31,
2009, 1,334,573 stock options were granted to employees pursuant to the
Companys equity incentive plan; 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, including cash and
equivalents, accounts and other receivables, accounts and other payables,
accrued liabilities and short-term debt, the carrying amounts approximate
their fair values due to their short maturities. ASC Topic 820, Fair
Value Measurements and Disclosures, requires disclosure of the fair value
of financial instruments held by the Company. ASC Topic 825, Financial
Instruments, defines fair value, and establishes a three-level valuation
hierarchy for disclosures of fair value measurement that enhances
disclosure requirements for fair value measures. The carrying amounts
reported in the consolidated balance sheets for receivables and current
liabilities each qualify as financial instruments and are a reasonable
estimate of their fair values because of the short period of time between
the origination of such instruments and their expected realization and
their current market rate of interest. The three levels of valuation
hierarchy are defined as follows:
|
-
Level 1 inputs to the valuation methodology are quoted prices for
identical assets or liabilities in active markets.
-
Level 2 inputs to the valuation methodology include quoted prices for
similar assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument.
-
Level 3 inputs to the valuation methodology are unobservable and
significant to the fair value measurement.
15
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
The Company analyzes all financial
instruments with features of both liabilities and equity under ASC 480,
Distinguishing Liabilities from Equity, and ASC 815.
As of March 31, 2014 and December 31,
2013, the Company did not identify any assets and liabilities that were required
to be presented on the balance sheet at fair value.
The following tables present the
Companys financial assets and liabilities at fair value in accordance to ASC
820-10:
|
At March 31,
|
|
Quoted in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
2014:
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
42,718,737
|
|
$
|
-
|
|
$
|
-
|
|
$
|
42,718,737
|
|
|
Restricted Cash
|
|
3,582,526
|
|
|
-
|
|
|
-
|
|
|
3,582,526
|
|
|
Total financial assets
|
$
|
46,301,263
|
|
$
|
-
|
|
$
|
-
|
|
$
|
46,301,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Total financial liabilities
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
At December 31,
|
|
Quoted in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
2013:
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
33,857,193
|
|
$
|
-
|
|
$
|
-
|
|
$
|
33,857,193
|
|
|
Restricted Cash
|
|
1,842,989
|
|
|
-
|
|
|
-
|
|
|
1,842,989
|
|
|
Total financial assets
|
$
|
35,700,182
|
|
$
|
-
|
|
$
|
-
|
|
$
|
35,700,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Total financial liabilities
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
(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.
|
16
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
|
|
The Company uses FASB ASC Topic 220, Reporting
Comprehensive Income. Comprehensive income is comprised of net income and
all changes to the statements of stockholders equity, except the changes
in paid- in capital and distributions to stockholders due to investments
by stockholders. Comprehensive income for the periods ended March 31, 2014
and 2013 included net income and foreign currency translation
adjustments.
|
|
|
|
|
(y)
|
Recent accounting pronouncements
|
|
|
|
|
|
In July 2013, the FASB issued ASU No. 2013-11, Income
Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit When a
Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit
Carryforward Exists, does not include explicit guidance on the financial
statement presentation of an unrecognized tax benefit when a net operating
loss carryforward, a similar tax loss, or a tax credit carryforward
exists. There is diversity in practice in the presentation of unrecognized
tax benefits in those instances. Some entities present unrecognized tax
benefits as a liability unless the unrecognized tax benefit is directly
associated with a tax position taken in a tax year that results in, or
that resulted in, the recognition of a net operating loss or tax credit
carryforward for that year and the net operating loss or tax credit
carryforward has not been utilized. Other entities present unrecognized
tax benefits as a reduction of a deferred tax asset for a net operating
loss or tax credit carryforward in certain circumstances. The objective of
the amendments in this Update is to eliminate that diversity in
practice.
|
|
|
|
|
|
As of March 31, 2014, there are no other recently issued
accounting standards not yet adopted that would have a material effect on
the Companys consolidated financial
statements
|
3.
|
RESTRICTED CASH
|
|
|
|
Restricted Cash represents interest bearing deposits
placed with banks to secure banking facilities in the form of loans and
notes payable. The restriction of funds is based 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.
|
17
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
4.
|
TRADE ACCOUNTS
RECEIVABLE
|
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
Trade accounts receivable
|
$
|
38,394,557
|
|
$
|
54,511,350
|
|
|
Less
:
Allowance for
doubtful accounts
|
|
(436,198
|
)
|
|
(439,875
|
)
|
|
|
$
|
37,958,359
|
|
$
|
54,071,475
|
|
|
|
|
|
|
|
|
|
|
Allowance for bad debt:
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
Beginning balance
|
$
|
(439,875
|
)
|
$
|
(443,898
|
)
|
|
Additions to allowance
|
|
-
|
|
|
-
|
|
|
Bad debt written-off
|
|
3,677
|
|
|
4,023
|
|
|
Ending balance
|
$
|
(436,198
|
)
|
$
|
(439,875
|
)
|
|
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 March
31, 2014 and December 31, 2013:
|
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
Advances to employees for
job/travel disbursements
|
|
1,578,805
|
|
|
637,808
|
|
|
Amount due by a non-related enterprise
|
|
169,030
|
|
|
163,656
|
|
|
Other non-related receivables
|
|
328,336
|
|
|
333,411
|
|
|
Other related receivables
|
|
148,666
|
|
|
149,350
|
|
|
Short-term investment sale
receivable
|
|
4,376,904
|
|
|
4,413,795
|
|
|
|
$
|
6,601,741
|
|
$
|
5,698,020
|
|
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 December 31, 2013.
Related party receivable consisted of
the following as of March 31, 2014 and December 31, 2013:
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
Chen, Si
|
$
|
67,523
|
|
$
|
67,523
|
|
|
You, Huadong
|
|
81,143
|
|
|
81,827
|
|
|
|
$
|
148,666
|
|
$
|
149,350
|
|
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.
18
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
In order to satisfy certain criteria
for obtaining the long-term loan with DEG, as noted in footnote 12, Junan
Hongrun lent money to Mr. You, Huadong to purchase life insurance.
Related party receivable amounts are
disclosed as other related receivables in other receivables.
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 was
recorded as other income on the statements of income and comprehensive income.
Title of the land transferred from the Company to Jiangsu Heng An with receipt
of an initial deposit of RMB 15,000,000. As of March 31, 2014, a total of RMB
42,029,955 has been received and RMB 26,970,045 (USD 4,376,904) 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.
6.
|
INVENTORIES
|
|
|
|
Inventories consisted of the following as of March 31,
2014 and December 31, 2013:
|
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
Raw materials
|
$
|
34,261,281
|
|
$
|
26,262,278
|
|
|
Finished goods
|
|
18,858,383
|
|
|
15,687,975
|
|
|
|
$
|
53,119,664
|
|
$
|
41,950,253
|
|
7.
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
Property, plant, and equipment consisted of the following
as of March 31, 2014 and December 31, 2013:
|
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
At Cost:
|
|
|
|
|
|
|
|
Buildings
|
$
|
80,645,722
|
|
$
|
81,325,426
|
|
|
Landscaping, plant and tree
|
|
10,882,285
|
|
|
10,974,003
|
|
|
Machinery and equipment
|
|
11,456,220
|
|
|
12,837,463
|
|
|
Office
equipment
|
|
679,594
|
|
|
681,060
|
|
|
Motor vehicles
|
|
2,890,688
|
|
|
582,128
|
|
|
|
$
|
106,554,509
|
|
$
|
106,400,080
|
|
|
Less
:
Accumulated
depreciation
|
|
|
|
|
|
|
|
Buildings
|
|
(8,364,611
|
)
|
|
(7,975,238
|
)
|
|
Landscaping, plant and
tree
|
|
(3,293,182
|
)
|
|
(3,081,369
|
)
|
|
Machinery
and equipment
|
|
(5,955,216
|
)
|
|
(6,916,526
|
)
|
|
Office equipment
|
|
(528,155
|
)
|
|
(524,931
|
)
|
|
Motor
vehicles
|
|
(1,497,255
|
)
|
|
(340,675
|
)
|
|
|
|
(19,638,419
|
)
|
|
(18,838,739
|
)
|
|
|
$
|
86,916,090
|
|
$
|
87,561,341
|
|
19
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
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. During the year ended
December 31, 2013, the Company purchased three greenhouses to grow seasonal
crops in order to lower cost.
8.
|
LAND USE RIGHTS, NET
|
|
|
|
Land use rights consisted of the following as of March
31, 2014 and December 31, 2013
:
|
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
Land use rights,
at
cost
|
$
|
17,453,839
|
|
$
|
17,600,945
|
|
|
Utilities rights,
at cost
|
|
50,484
|
|
|
50,909
|
|
|
Software,
at cost
|
|
58,999
|
|
|
59,496
|
|
|
Patent,
at cost
|
|
1,530
|
|
|
1,543
|
|
|
|
|
17,564,852
|
|
|
17,712,893
|
|
|
|
|
|
|
|
|
|
|
Less
:
Accumulated amortization
|
|
(1,396,377
|
)
|
|
(1,305,350
|
)
|
|
|
$
|
16,168,475
|
|
$
|
16,407,543
|
|
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 March 31, 2014 and 2013were $91,027and $42,519, respectively.
9.
|
SHORT-TERM BANK LOANS
|
|
|
|
Short-term bank loans consisted of the following as of
March 31, 2014 and December 31, 2013:
|
|
|
|
Remark
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
Loan from Junan County
Industrial and Commercial Bank of
China,
|
|
|
|
|
|
|
|
|
|
|
Interest rate at
6.3% per annum; due 2/21/2014
|
|
|
|
|
-
|
|
|
4,091,386
|
|
|
Interest rate at 5.88% per annum; due 1/8/2014
|
|
|
|
|
-
|
|
|
1,145,588
|
|
|
Interest rate at
5.88% per annum; due 4/15/2014
|
|
|
|
|
1,119,784
|
|
|
1,129,222
|
|
|
Interest rate at 5.88% per annum; due 4/23/2014
|
|
|
|
|
1,079,213
|
|
|
1,088,308
|
|
|
Interest rate at
6.44% per annum; due 7/2/2014
|
|
|
|
|
1,476,817
|
|
|
-
|
|
|
Interest rate at 6.72% per annum; due 7/7/2014
|
|
|
|
|
1,168,471
|
|
|
-
|
|
|
Interest rate at
7.20% per annum; due 12/10/2014
|
|
|
|
|
1,622,876
|
|
|
-
|
|
20
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
|
Interest rate
at 7.125% per annum; due 3/27/2015
|
|
|
|
|
4,057,190
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from Linyi Commercial Bank,
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 1.512% per
annum due 1/9/2014
|
|
|
|
|
-
|
|
|
1,636,554
|
|
|
Interest rate
at 1.26% per annum due 1/10/2014
|
|
|
|
|
-
|
|
|
1,472,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from China Minsheng Bank
Corporation, Linyi Branch
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 7.8% per
annum due 2/26/2014
|
|
|
|
|
-
|
|
|
2,454,831
|
|
|
Interest rate
at 7.8% per annum due 1/17/2015
|
|
|
|
|
2,434,314
|
|
|
-
|
|
|
Interest rate at 7.8% per
annum due 2/26/2015
|
|
|
|
|
1,622,876
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from China Agricultural Bank, Luotian Branch
|
|
|
|
|
|
|
|
|
|
|
Interest rate
at 7.8% per annum due 8/20/2014
|
|
|
|
|
1,622,876
|
|
|
1,636,554
|
|
|
Interest rate at 7.8% per
annum due 9/3/2014
|
|
|
|
|
1,622,876
|
|
|
1,636,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Agricultural Development Bank
|
|
|
|
|
|
|
|
|
|
|
Interest rate
at 6.0% per annum due 1/3/2014
|
|
|
|
|
-
|
|
|
654,622
|
|
|
Interest rate at 6.0% per annum
due 8/19/2014
|
|
|
|
|
811,438
|
|
|
818,277
|
|
|
Interest rate
at 6.0% per annum due 1/5/2015
|
|
|
|
|
811,438
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Beijing,
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 7.2% per
annum due 6/19/2014
|
|
|
|
|
1,298,301
|
|
|
1,309,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luotian Sanliqiao Credit Union,
|
|
|
|
|
|
|
|
|
|
|
Interest rate
at 9.360% per annum due 12/31/2014
|
|
|
|
|
1,136,013
|
|
|
-
|
|
|
Interest rate at 9.360% per
annum due 1/21/2015
|
|
|
|
|
162,288
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beijing International Trust Co., Ltd.,
|
|
|
|
|
|
|
|
|
|
|
Interest rate
at 6.00% per annum due 9/23/2014
|
|
|
|
|
1,622,876
|
|
|
1,636,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Ningbo ,
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 7.20% per
annum due 9/25/2014
|
|
|
|
|
1,622,876
|
|
|
1,636,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hankou Bank, Guanggu Branch,
|
|
|
|
|
|
|
|
|
|
|
Interest rate
at 6.60% per annum due 9/12/2014
|
|
|
|
|
1,622,876
|
|
|
1,636,554
|
|
21
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
|
Agricultural Bank of China, Shandong
Branch
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 7.2% per
annum due 8/22/2014
|
|
|
|
|
-
|
|
|
1,636,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural Bank of China, Junan Branch
|
|
|
|
|
|
|
|
|
|
|
Interest rate
at 7.2% per annum due 1/9/2015
|
|
|
|
|
210,974
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ping An Bank, Jinan Branch
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 6.72% per
annum due 1/3/2014
|
|
|
|
|
-
|
|
|
1,145,588
|
|
|
Interest rate
at 6.72% per annum due 5/2/2014
|
|
|
|
|
-
|
|
|
818,277
|
|
|
Interest rate at 7.00% per
annum due 7/13/2014
|
|
|
|
|
1,136,013
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luzhen Credit Union,
|
|
|
|
|
|
|
|
|
|
|
Interest rate
at 10.40% per annum due 2/27/2014
|
|
|
|
|
-
|
|
|
490,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postal Savings Bank of China
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 8.75% per
annum due 12/27/2014
|
|
|
|
|
4,868,628
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Rizhao
|
|
|
|
|
|
|
|
|
|
|
Interest rate
at 7.80% per annum due 1/17/2015
|
|
|
|
|
1,622,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Construction Bank
|
|
|
|
|
|
|
|
|
|
|
Variable Interest rate, due
4/1/2014
|
|
|
|
|
795,210
|
|
|
801,912
|
|
|
Variable
Interest rate, due 4/30/2014
|
|
|
|
|
519,320
|
|
|
523,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,068,420
|
|
$
|
29,400,694
|
|
|
The short-term loans, which are denominated in the
functional currency Renminbi (RMB), were primarily obtained for general
working capital. If not otherwise indicated in the below remarks,
short-term loans are guaranteed by either companies within the group or
personnel who hold a management role within the group.
|
|
|
10.
|
CONVERTIBLE PROMISSORY NOTE
|
|
|
|
Convertible Promissory Note consisted of the following as
of March 31, 2014 and December 31, 2013:
|
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
|
|
|
|
|
|
|
|
Note issued by Jade Lane
Group Limited
|
|
|
|
|
|
|
|
Interest rate at 4.50% per annum due
9/13/2014
|
$
|
3,500,000
|
|
$
|
-
|
|
|
|
$
|
3,500,000
|
|
$
|
-
|
|
22
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
Under the terms of the Note, interest
on the outstanding Principal Amount accrues at a rate of 4.5% per annum, and all
accrued but unpaid interest is due and payable on June 30, 2014 and on the last
day of each quarter thereafter. If the Note is not converted pursuant to the
terms of the Note, additional interest on the outstanding Principal Amount shall
accrue at a rate of 4.5% per annum and payable at the maturity of the Note.
Unless the Note is otherwise accelerated or converted, the unpaid Principal
Amount of the Note, together with all accrued but unpaid interest, is due and
payable, at the election of the Holder, on September 13, 2014 or March 13, 2015
(Maturity Date), provided, however, if Holder fails to notify the Company in
writing by August 13, 2014 that it elects the maturity date of September 13,
2014, then the Maturity Date will be extended to March 13, 2015.
In addition, under the terms of the
Note, at any time commencing on or after September 13, 2014 and before March 13,
2015, the Holder, at Holders option and upon five (5) days prior written notice
to the Company, may convert in whole or in part the outstanding Principal Amount
into a number of shares of Common Stock of the Company (Common Stock) on a per
share conversion price of $1.15 per share, as may be adjusted from time to time
pursuant to the terms and conditions of the Note (Conversion Price); provided,
however, the Company will not effect any conversion of the Note, and the Holder
will not have the right to convert any portion of the Note, to the extent (but
only to the extent) that the Holder would beneficially own in excess of the
Beneficial Ownership Limitation (as defined below), which beneficial ownership
will be calculated in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended. The Beneficial Ownership Limitation is 9.99% of the
number of shares of Common Stock outstanding immediately after giving effect to
the issuance of shares of Common Stock issuable upon conversion of the Note.
The Note is secured by the personal
guarantee of Si Chen, the Companys chief executive officer and chairman.
11.
|
TAXES PAYABLES
|
|
|
|
Taxes payable consisted of the following as of March 31,
2014 and December 31, 2013:
|
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
Value added tax payable
|
$
|
106,628
|
|
$
|
592,341
|
|
|
Corporate income tax payable
|
|
1,003,247
|
|
|
2,572,663
|
|
|
Employee payroll tax
withholding
|
|
6,333
|
|
|
6,344
|
|
|
Property tax payable
|
|
48,589
|
|
|
73,768
|
|
|
Stamp tax payable
|
|
1,473
|
|
|
1,485
|
|
|
Business tax payable
|
|
157,593
|
|
|
158,921
|
|
|
Land use tax payable
|
|
24,943
|
|
|
64,062
|
|
|
Import tariffs
|
|
-
|
|
|
271
|
|
|
Capital gain tax payable
|
|
944,319
|
|
|
952,278
|
|
|
|
$
|
2,293,125
|
|
$
|
4,422,133
|
|
12.
|
ACCRUED EXPENSES AND OTHER PAYABLE
|
|
|
|
Accrued expenses and other payables consisted of the
following as of March 31, 2014 and December 31,
2013:
|
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
Accrued salaries and wages
|
$
|
155,796
|
|
$
|
32,731
|
|
|
Accrued utility expenses
|
|
163,568
|
|
|
39,765
|
|
|
Accrued interest expenses
|
|
1,775,466
|
|
|
927,986
|
|
|
Accrued transportation expenses
|
|
229,423
|
|
|
144,061
|
|
|
Other accruals
|
|
324,575
|
|
|
-
|
|
|
Business and other taxes
|
|
2,091,340
|
|
|
885,972
|
|
|
Disbursement payable
|
|
203,309
|
|
|
-
|
|
|
Accrued staff welfare
|
|
9,417
|
|
|
285,300
|
|
|
|
$
|
4,952,894
|
|
$
|
2,315,815
|
|
23
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
13.
|
LONG-TERM DEBT
|
|
|
|
Current portions of long-term debt consisted of the
following as of March 31, 2014 and December 31,
2013:
|
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
|
|
|
|
|
|
|
|
Loans from China Development Bank
|
|
|
|
|
|
|
|
Interest rate at 7.07% per annum due 5/20/2014
|
|
$ 973,725
|
|
|
$ 981,933
|
|
|
Interest rate at 7.07% per annum due 11/20/2014
|
|
973,726
|
|
|
981,932
|
|
|
|
|
|
|
|
|
|
|
Loans from Deutsche Investitions-und
Entwicklungsgesellschaft mbH (DEG)
|
|
|
|
|
|
|
|
Interest rate at 5.510% per annum due 3/15/2014
|
|
-
|
|
|
1,875,000
|
|
|
Interest rate at 5.510% per annum due 9/15/2014
|
|
1,875,000
|
|
|
1,875,000
|
|
|
Interest rate at 5.510% per annum due 3/15/2015
|
|
1,875,000
|
|
|
-
|
|
|
|
$
|
5,697,451
|
|
$
|
5,713,865
|
|
Non-current portions of long-term debt consisted of the
following as of March 31, 2014 and December 31, 2013:
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
Loans from Deutsche Investitions-und
Entwicklungsgesellschaft mbH (DEG)
|
|
|
|
|
|
|
|
  Interest rate at 5.510% per annum due 9/16/2016
|
$
|
3,750,000
|
|
$
|
5,625,000
|
|
|
|
|
|
|
|
|
|
|
Loans from China Development Bank
|
|
|
|
|
|
|
|
Interest rate at 7.07% per annum due 9/24/2015
|
|
2,434,314
|
|
|
2,454,831
|
|
|
|
$
|
6,184,314
|
|
$
|
8,079,831
|
|
The Companys loan with DEG began repaying the loan in
semi-annual installments on September 15, 2012. As of March 31, 2014 and
December 31, 2013, the Company has repaid $7,500,000 and $5,625,000 in
principal. The loan was collateralized with the following terms:
|
(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.
|
Non-current portions of notes payable and debentures consisted
of the following as of March 31, 2014 and December 31, 2013:
|
|
|
3/31/2014
|
|
|
12/31/2013
|
|
|
Note payable issued by Shanghai Pudong Development
Bank
|
|
|
|
|
|
|
|
Interest rate at 5.9% per annum due 12/28/2015
|
|
12,983,008
|
|
|
13,092,432
|
|
|
Debenture issued by
Guoyuan Securities Co., Ltd.
|
|
|
|
|
|
|
|
Interest rate at 10% per annum due
8/28/2016
|
|
16,228,761
|
|
|
16,365,541
|
|
|
|
|
|
|
|
|
|
|
Debenture issued by Daiwa SSC
Securities Co. Ltd.
|
|
|
|
|
|
|
|
Interest rate at 9.5% per
annum due 11/8/2015
|
|
16,228,761
|
|
|
16,365,541
|
|
|
|
$
|
45,440,530
|
|
$
|
45,823,514
|
|
24
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
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 December 31, 2013 was
34,616,714.
|
|
|
|
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.
|
|
|
|
For 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 year 2011, the Company transferred 2,636,160 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 year 2012, the Company issued 108,840 shares to
its employees as employee stock compensation. The Company transferred
2,264,420 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.
|
25
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
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
|
|
New shares issued to employees per stock
incentive plan
|
|
11/21/2011
|
36,073
|
|
New shares issued to employees per stock
incentive plan
|
|
10/5/2012
|
108,840
|
|
Common stock at 3/31/2014
|
|
|
34,616,714
|
|
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.
|
26
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
16.
|
SALES BY PRODUCT TYPE
|
|
|
|
Sales by categories of product consisted of the following
as of March 31, 2014 and 2013:
|
|
Category
|
|
3/31/2014
|
|
|
3/31/2013
|
|
|
Chestnut
|
$
|
17,354,271
|
|
$
|
16,654,887
|
|
|
Convenience food
|
|
7,430,682
|
|
|
10,620,643
|
|
|
Frozen food
|
|
6,904,505
|
|
|
7,534,386
|
|
|
Total
|
$
|
31,689,458
|
|
$
|
34,809,916
|
|
Revenue by geography consisted of the
following as of March 31, 2014 and 2013:
|
Country
|
|
3/31/2014
|
|
|
3/31/2013
|
|
|
Australia
|
$
|
-
|
|
$
|
-
|
|
|
Belgium
|
|
539,242
|
|
|
-
|
|
|
China
|
|
21,485,129
|
|
|
26,011,792
|
|
|
Denmark
|
|
-
|
|
|
1,467,653
|
|
|
France
|
|
156,315
|
|
|
463,415
|
|
|
Germany
|
|
-
|
|
|
431,619
|
|
|
Hong Kong
|
|
48,644
|
|
|
46,377
|
|
|
Israel
|
|
52,938
|
|
|
-
|
|
|
Japan
|
|
2,091,541
|
|
|
2,536,962
|
|
|
Malaysia
|
|
330,060
|
|
|
382,432
|
|
|
Netherlands
|
|
-
|
|
|
264,859
|
|
|
Philippines
|
|
247,730
|
|
|
78,222
|
|
|
Portugal
|
|
2,768,464
|
|
|
-
|
|
|
Saudi Arabia
|
|
111,381
|
|
|
-
|
|
|
Russia
|
|
-
|
|
|
117,160
|
|
|
Singapore
|
|
309,962
|
|
|
113,416
|
|
|
South Korea
|
|
2,581,086
|
|
|
2,515,014
|
|
|
Taiwan
|
|
80,496
|
|
|
|
|
|
Thailand
|
|
397,506
|
|
|
45,404
|
|
|
United Kingdom
|
|
447,493
|
|
|
292,475
|
|
|
United States
|
|
41,471
|
|
|
43,116
|
|
|
Total
|
$
|
31,689,458
|
|
$
|
34,809,916
|
|
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%.
|
27
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
The following tables provide the
reconciliation of the differences between the statutory and effective tax
expenses for the periods ended March 31, 2014 and 2013:
|
|
|
3/31/2014
|
|
|
3/31/2013
|
|
|
Income attributed to PRC
|
$
|
2,548,148
|
|
$
|
3,704,227
|
|
|
Loss attributed to US
|
|
(53,125
|
)
|
|
(76,177
|
)
|
|
Income before tax
|
|
2,495,023
|
|
|
3,628,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC Statutory Tax at 25% Rate
|
|
749,865
|
|
|
1,014,398
|
|
|
Effect of tax exemption
granted
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
$
|
749,865
|
|
$
|
1,014,398
|
|
Per Share Effect of Tax
Exemption
|
|
|
3/31/2014
|
|
|
3/31/2013
|
|
|
Effect of tax exemption
granted
|
$
|
-
|
|
$
|
-
|
|
|
Weighted-Average Shares Outstanding Basic
|
|
34,616,714
|
|
|
34,616,714
|
|
|
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
for the periods ended March 31, 2014 and 2013:
|
|
|
3/31/2014
|
|
|
3/31/2013
|
|
|
U.S. federal statutory income
tax rate
|
|
35%
|
|
|
35%
|
|
|
Lower rates in PRC, net
|
|
-10%
|
|
|
-10%
|
|
|
Tax holiday for foreign
investments
|
|
5.05%
|
|
|
2.96%
|
|
|
The Companys effective tax rate
|
|
30.05%
|
|
|
27.96%
|
|
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 and before March 31, 2014because
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 2014 and 2013 in the following table.
|
|
|
China Income Tax Rate
|
|
|
|
Subsidiary
|
|
2014
|
|
|
2013
|
|
|
|
International Lorain
|
|
0%
|
|
|
0%
|
|
|
|
Junan Hongrun
|
|
25%
|
|
|
25%
|
|
|
|
Luotian Lorain
|
|
25%
|
|
|
25%
|
|
|
|
Beijing Lorain
|
|
25%
|
|
|
25%
|
|
|
|
Shandong Lorain
|
|
25%
|
|
|
25%
|
|
|
|
Shandong Greenpia
|
|
25%
|
|
|
25%
|
|
|
|
Dongguan Lorain
|
|
25%
|
|
|
25%
|
|
|
28
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
18.
|
EARNINGS PER SHARE
|
|
|
|
Components of basic and diluted earnings per share were
as follows:
|
|
|
|
3/31/2014
|
|
|
3/31/2013
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
Numerator
|
|
|
|
|
|
|
|
Net Income
|
$
|
1,590,488
|
|
$
|
2,518,686
|
|
|
Income
Available to Common Stockholders
|
$
|
1,590,488
|
|
$
|
2,518,686
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
Numerator
|
|
|
|
|
|
|
|
Income
Available to Common Stockholders
|
$
|
1,590,488
|
|
$
|
2,518,686
|
|
|
|
|
|
|
|
|
|
|
Income Available to Common Stockholders on
Converted Basis
|
$
|
1,590,488
|
|
$
|
2,518,686
|
|
|
|
|
|
|
|
|
|
|
Original Shares:
|
|
|
|
|
|
|
|
Additions from Actual
Events
|
|
|
|
|
|
|
|
-Issuance of Common Stock
|
|
34,616,714
|
|
|
34,616,714
|
|
|
Basic Weighted Average Shares
Outstanding
|
|
34,616,714
|
|
|
34,616,714
|
|
|
|
|
|
|
|
|
|
|
Dilutive Shares:
|
|
|
|
|
|
|
|
Additions from Potential Events
|
|
|
|
|
|
|
|
-Exercise of Investor
Warrants & Placement Agent Warrants
|
|
-
|
|
|
-
|
|
|
- Exercise of Employee & Director Stock
Options
|
|
-
|
|
|
-
|
|
|
Diluted Weighted Average
Shares Outstanding:
|
|
34,616,714
|
|
|
34,616,714
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
- Basic
|
$
|
0.05
|
|
$
|
0.07
|
|
|
- Diluted
|
$
|
0.05
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares
Outstanding
|
|
|
|
|
|
|
|
- Basic
|
|
34,616,714
|
|
|
34,616,714
|
|
|
- Diluted
|
|
34,616,714
|
|
|
34,616,714
|
|
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. For the
year ended December 31, 2010, the Company recorded a total of $890,209 stock
option and its related general and administrative expenses.
|
29
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
During the years ended December 31,
2013 and 2012, the Company recorded a total of $0 and $503,493 stock option and
its related general and administrative expenses.
During the period ended March 31, 2014,
the Company did not grant any stock option.
The range of the exercise prices of the
stock options granted since inception of the plan are shown in the following
table:
|
Price Range
|
Number of Shares
|
|
|
$0 - $4.99
|
1,334,573 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 December 31, 2013, 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:
|
|
|
2012
|
|
|
2011
|
|
|
Weighted-average fair value
of grants:
|
$
|
1.3629
|
|
$
|
1.1909
|
|
|
Risk-free interest rate:
|
|
0.33%
|
|
|
0.96%
|
|
|
Expected volatility:
|
|
59.93%
|
|
|
4.58%
|
|
|
Expected life in months:
|
|
36.00
|
|
|
36.00
|
|
20.
|
LEASE COMMITMENTS
|
|
|
|
|
(a.)
|
The Company 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
March 31, 2014 are shown in the following
table:
|
|
From
|
|
To
|
|
|
Lease payment
|
|
|
|
1/1/2014
|
|
12/31/2014
|
|
$
|
69,514
|
|
|
|
1/1/2015
|
|
12/31/2015
|
|
|
92,685
|
|
|
|
1/1/2016
|
|
12/31/2016
|
|
|
92,685
|
|
|
|
1/1/2017
|
|
12/31/2017
|
|
|
92,685
|
|
|
|
1/1/2018
|
|
8/9/2018
|
|
|
56,641
|
|
|
|
|
|
|
|
$
|
404,210
|
|
|
The outstanding lease commitment as of
December 31, 2013 was $404,210.
The minimum future lease payments for
this property at December 31, 2013 are shown in the following table:
30
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
|
From
|
|
To
|
|
|
Lease payment
|
|
|
|
1/1/2014
|
|
12/31/2014
|
|
$
|
92,685
|
|
|
|
1/1/2015
|
|
12/31/2015
|
|
|
92,685
|
|
|
|
1/1/2016
|
|
12/31/2016
|
|
|
92,685
|
|
|
|
1/1/2017
|
|
12/31/2017
|
|
|
92,685
|
|
|
|
1/1/2018
|
|
8/9/2018
|
|
|
56,641
|
|
|
|
|
|
|
|
$
|
427,381
|
|
|
|
|
The outstanding lease commitment as of December
31, 2013 was $427,381.
|
|
|
|
|
(b.)
|
During the year ended December 31, 2013, the Company
entered into three operating lease agreement leasing three plots of land
of where greenhouses are maintained to grow seasonal crops. The lease was
signed by Junan Hongrun Foodstuff Co., Ltd. and expires on April 25, 2033,
May 19, 2033, and June 19, 2033, respectively.
|
|
|
|
|
|
The minimum future lease payments for this
property at March 31, 2014 are shown in the following tables:
|
From
|
|
To
|
|
|
Greenhouse 1
|
|
|
From
|
|
|
To
|
|
|
Greenhouse 2
|
|
|
From
|
|
|
To
|
|
|
Greenhouse 3
|
|
4/1/2014
|
|
12/31/2014
|
|
$
|
58,596
|
|
|
4/1/2014
|
|
|
12/31/2014
|
|
$
|
71,336
|
|
|
4/1/2014
|
|
|
12/31/2014
|
|
$
|
8,504
|
|
1/1/2015
|
|
12/31/2015
|
|
|
78,128
|
|
|
1/1/2015
|
|
|
12/31/2015
|
|
|
95,114
|
|
|
1/1/2015
|
|
|
12/31/2015
|
|
|
11,339
|
|
1/1/2016
|
|
12/31/2016
|
|
|
78,128
|
|
|
1/1/2016
|
|
|
12/31/2016
|
|
|
95,114
|
|
|
1/1/2016
|
|
|
12/31/2016
|
|
|
11,339
|
|
1/1/2017
|
|
12/31/2017
|
|
|
78,128
|
|
|
1/1/2017
|
|
|
12/31/2017
|
|
|
95,114
|
|
|
1/1/2017
|
|
|
12/31/2017
|
|
|
11,339
|
|
1/1/2018
|
|
12/31/2018
|
|
|
78,128
|
|
|
1/1/2018
|
|
|
12/31/2018
|
|
|
95,114
|
|
|
1/1/2018
|
|
|
12/31/2018
|
|
|
11,339
|
|
1/1/2019
|
|
12/31/2019
|
|
|
78,128
|
|
|
1/1/2019
|
|
|
12/31/2019
|
|
|
95,114
|
|
|
1/1/2019
|
|
|
12/31/2019
|
|
|
11,339
|
|
1/1/2020
|
|
12/31/2020
|
|
|
78,128
|
|
|
1/1/2020
|
|
|
12/31/2020
|
|
|
95,114
|
|
|
1/1/2020
|
|
|
12/31/2020
|
|
|
11,339
|
|
1/1/2021
|
|
12/31/2021
|
|
|
78,128
|
|
|
1/1/2021
|
|
|
12/31/2021
|
|
|
95,114
|
|
|
1/1/2021
|
|
|
12/31/2021
|
|
|
11,339
|
|
1/1/2022
|
|
12/31/2022
|
|
|
78,128
|
|
|
1/1/2022
|
|
|
12/31/2022
|
|
|
95,114
|
|
|
1/1/2022
|
|
|
12/31/2022
|
|
|
11,339
|
|
1/1/2023
|
|
12/31/2023
|
|
|
85,773
|
|
|
1/1/2023
|
|
|
12/31/2023
|
|
|
102,527
|
|
|
1/1/2023
|
|
|
12/31/2023
|
|
|
12,097
|
|
1/1/2024
|
|
12/31/2024
|
|
|
89,289
|
|
|
1/1/2024
|
|
|
12/31/2024
|
|
|
105,683
|
|
|
1/1/2024
|
|
|
12/31/2024
|
|
|
12,757
|
|
1/1/2025
|
|
12/31/2025
|
|
|
89,289
|
|
|
1/1/2025
|
|
|
12/31/2025
|
|
|
105,683
|
|
|
1/1/2025
|
|
|
12/31/2025
|
|
|
12,757
|
|
1/1/2026
|
|
12/31/2026
|
|
|
89,289
|
|
|
1/1/2026
|
|
|
12/31/2026
|
|
|
105,683
|
|
|
1/1/2026
|
|
|
12/31/2026
|
|
|
12,757
|
|
1/1/2027
|
|
12/31/2027
|
|
|
89,289
|
|
|
1/1/2027
|
|
|
12/31/2027
|
|
|
105,683
|
|
|
1/1/2027
|
|
|
12/31/2027
|
|
|
12,757
|
|
1/1/2028
|
|
12/31/2028
|
|
|
89,289
|
|
|
1/1/2028
|
|
|
12/31/2028
|
|
|
105,683
|
|
|
1/1/2028
|
|
|
12/31/2028
|
|
|
12,757
|
|
1/1/2029
|
|
12/31/2029
|
|
|
89,289
|
|
|
1/1/2029
|
|
|
12/31/2029
|
|
|
105,683
|
|
|
1/1/2029
|
|
|
12/31/2029
|
|
|
12,757
|
|
1/1/2030
|
|
12/31/2030
|
|
|
89,289
|
|
|
1/1/2030
|
|
|
12/31/2030
|
|
|
105,683
|
|
|
1/1/2030
|
|
|
12/31/2030
|
|
|
12,757
|
|
1/1/2031
|
|
12/31/2031
|
|
|
89,289
|
|
|
1/1/2031
|
|
|
12/31/2031
|
|
|
105,683
|
|
|
1/1/2031
|
|
|
12/31/2031
|
|
|
12,757
|
|
1/1/2032
|
|
12/31/2032
|
|
|
89,289
|
|
|
1/1/2032
|
|
|
12/31/2032
|
|
|
105,683
|
|
|
1/1/2032
|
|
|
12/31/2032
|
|
|
12,757
|
|
1/1/2033
|
|
4/25/2033
|
|
|
42,261
|
|
|
1/1/2033
|
|
|
5/19/2033
|
|
|
50,322
|
|
|
1/1/2033
|
|
|
6/19/2033
|
|
|
5,530
|
|
|
|
|
|
$
|
1,615,255
|
|
|
|
|
|
|
|
$
|
1,936,244
|
|
|
|
|
|
|
|
$
|
231,656
|
|
The outstanding lease commitment for
the three greenhouses as of March 31, 2014 was $3,783,155.
The minimum future lease payments for
this property at December 31, 2013 are shown in the following tables:
31
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
From
|
|
To
|
|
|
Greenhouse 1
|
|
|
From
|
|
|
To
|
|
|
Greenhouse 2
|
|
|
From
|
|
|
To
|
|
|
Greenhouse 3
|
|
1/1/2014
|
|
12/31/2014
|
|
$
|
78,128
|
|
|
1/1/2014
|
|
|
12/31/2014
|
|
$
|
95,114
|
|
|
1/1/2014
|
|
|
12/31/2014
|
|
$
|
11,339
|
|
1/1/2015
|
|
12/31/2015
|
|
|
78,128
|
|
|
1/1/2015
|
|
|
12/31/2015
|
|
|
95,114
|
|
|
1/1/2015
|
|
|
12/31/2015
|
|
|
11,339
|
|
1/1/2016
|
|
12/31/2016
|
|
|
78,128
|
|
|
1/1/2016
|
|
|
12/31/2016
|
|
|
95,114
|
|
|
1/1/2016
|
|
|
12/31/2016
|
|
|
11,339
|
|
1/1/2017
|
|
12/31/2017
|
|
|
78,128
|
|
|
1/1/2017
|
|
|
12/31/2017
|
|
|
95,114
|
|
|
1/1/2017
|
|
|
12/31/2017
|
|
|
11,339
|
|
1/1/2018
|
|
12/31/2018
|
|
|
78,128
|
|
|
1/1/2018
|
|
|
12/31/2018
|
|
|
95,114
|
|
|
1/1/2018
|
|
|
12/31/2018
|
|
|
11,339
|
|
1/1/2019
|
|
12/31/2019
|
|
|
78,128
|
|
|
1/1/2019
|
|
|
12/31/2019
|
|
|
95,114
|
|
|
1/1/2019
|
|
|
12/31/2019
|
|
|
11,339
|
|
1/1/2020
|
|
12/31/2020
|
|
|
78,128
|
|
|
1/1/2020
|
|
|
12/31/2020
|
|
|
95,114
|
|
|
1/1/2020
|
|
|
12/31/2020
|
|
|
11,339
|
|
1/1/2021
|
|
12/31/2021
|
|
|
78,128
|
|
|
1/1/2021
|
|
|
12/31/2021
|
|
|
95,114
|
|
|
1/1/2021
|
|
|
12/31/2021
|
|
|
11,339
|
|
1/1/2022
|
|
12/31/2022
|
|
|
78,128
|
|
|
1/1/2022
|
|
|
12/31/2022
|
|
|
95,114
|
|
|
1/1/2022
|
|
|
12/31/2022
|
|
|
11,339
|
|
1/1/2023
|
|
12/31/2023
|
|
|
85,773
|
|
|
1/1/2023
|
|
|
12/31/2023
|
|
|
102,527
|
|
|
1/1/2023
|
|
|
12/31/2023
|
|
|
12,097
|
|
1/1/2024
|
|
12/31/2024
|
|
|
89,289
|
|
|
1/1/2024
|
|
|
12/31/2024
|
|
|
105,683
|
|
|
1/1/2024
|
|
|
12/31/2024
|
|
|
12,757
|
|
1/1/2025
|
|
12/31/2025
|
|
|
89,289
|
|
|
1/1/2025
|
|
|
12/31/2025
|
|
|
105,683
|
|
|
1/1/2025
|
|
|
12/31/2025
|
|
|
12,757
|
|
1/1/2026
|
|
12/31/2026
|
|
|
89,289
|
|
|
1/1/2026
|
|
|
12/31/2026
|
|
|
105,683
|
|
|
1/1/2026
|
|
|
12/31/2026
|
|
|
12,757
|
|
1/1/2027
|
|
12/31/2027
|
|
|
89,289
|
|
|
1/1/2027
|
|
|
12/31/2027
|
|
|
105,683
|
|
|
1/1/2027
|
|
|
12/31/2027
|
|
|
12,757
|
|
1/1/2028
|
|
12/31/2028
|
|
|
89,289
|
|
|
1/1/2028
|
|
|
12/31/2028
|
|
|
105,683
|
|
|
1/1/2028
|
|
|
12/31/2028
|
|
|
12,757
|
|
1/1/2029
|
|
12/31/2029
|
|
|
89,289
|
|
|
1/1/2029
|
|
|
12/31/2029
|
|
|
105,683
|
|
|
1/1/2029
|
|
|
12/31/2029
|
|
|
12,757
|
|
1/1/2030
|
|
12/31/2030
|
|
|
89,289
|
|
|
1/1/2030
|
|
|
12/31/2030
|
|
|
105,683
|
|
|
1/1/2030
|
|
|
12/31/2030
|
|
|
12,757
|
|
1/1/2031
|
|
12/31/2031
|
|
|
89,289
|
|
|
1/1/2031
|
|
|
12/31/2031
|
|
|
105,683
|
|
|
1/1/2031
|
|
|
12/31/2031
|
|
|
12,757
|
|
1/1/2032
|
|
12/31/2032
|
|
|
89,289
|
|
|
1/1/2032
|
|
|
12/31/2032
|
|
|
105,683
|
|
|
1/1/2032
|
|
|
12/31/2032
|
|
|
12,757
|
|
1/1/2033
|
|
4/25/2033
|
|
|
42,261
|
|
|
1/1/2033
|
|
|
5/19/2033
|
|
|
50,322
|
|
|
1/1/2033
|
|
|
6/19/2033
|
|
|
5,530
|
|
|
|
|
|
$
|
1,634,787
|
|
|
|
|
|
|
|
$
|
1,960,022
|
|
|
|
|
|
|
|
$
|
234,491
|
|
The outstanding lease commitment for
the three greenhouses as of December 31, 2013 was $3,829,300.
21.
|
INVESTMENT COMMITMENTS AND LIABILITIES
|
|
|
|
On February 7, 2014, American Lorain Corporation (the "Company"), through
its indirect wholly owned subsidiary, Junan Hongrun Foodstuff Co., Ltd. (Junan
Hongrun) entered into a Share Purchase Agreement with Intiraimi, a
limited liability company organized under the laws of France (the "Intiraimi
Purchase Agreement"). Pursuant to the terms of the Intiraimi Purchase
Agreement, Junan Hongrun agreed to acquire from Intiraimi 10,000 shares of
Athena, a limited liability company organized under the laws of France
(Athena), or 40% of the share capital of Athena, for an aggregate
purchase price of 1,500,000 (or approximately US$2,032,050) of which (i)
1,000,000 (or approximately US$1,354,700) will be payable within 20 days
of the execution of the Intiraimi Purchase Agreement, and (ii) the
remaining 500,000 (or approximately US$677,350) (Deferred Payment) will
be payable on February 7, 2015 if certain conditions are met.
On February 7, 2014, Junan Hongrun also entered into a Reiterative Share
Purchase Agreement with Biobranco II, a company organized under Portuguese
law (the " Biobranco Purchase Agreement"). Pursuant to the terms of the
Biobranco Purchase Agreement, Junan Hongrun will acquire from Biobranco
2,750 shares of Athena, or 11% of the share capital of Athena, for an
aggregate purchase price of 495,000 (or approximately US$670,600),
payable within 20 days of the execution of the Biobranco Purchase
Agreement.
Upon closing of the two transactions, the Company, through Junan Hongrun,
will own 51% of the share capital of Athena. Junan Hongrun agreed to
pledge 12,750 shares, or 51% share capital, of Athena acquired in the
above transactions to Intiraimi to guarantee the Deferred Payment. The
Company intends to proceed with the acquisition and fulfill the Deferred
Payment in good faith should the conditions set forth in the Intiraimi
Purchase Agreement are met.
As of the date of this report, the transaction is still not yet completed
because the acquisition is subject to approval by Department of Commerce
of Shandong Province, PRC and hence the accounts for Athena are not
consolidated.
In connection with the acquisition of a 51% controlling interest in
Athena, on February 7, 2014, Junan Hongrun entered into a Shareholders
Agreement (the Shareholder Agreement) with Athena and each of the other
shareholders of Athena (Current Shareholders), which defines the rights
of the Junan Hongrun and the Current Shareholders, and their respective
undertaking as it relates to Athena. The Shareholder Agreement provides,
among other things, that American Lorain will finance Cacovin, a company
based in Portugal and a wholly owned subsidiary of Athena, up to three
million Euros. Please refer the form 8-K the Company filed with Securities
and Exchange Commission on February 13 for details.
|
|
|
22.
|
RISKS
|
|
|
|
|
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.
|
32
AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2014 AND DECEMBER 31, 2013
(Stated in US Dollars)
|
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.
|
33
ITEM 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
Overview
We are an integrated food manufacturing company headquartered
in Shandong Province, China. We develop, manufacture and sell the following
types of food products:
-
Chestnut products;
-
Convenience foods (including ready-to-cook, or RTC, foods, ready-to-eat,
or RTE, foods and meals ready- to-eat, or MRE); and
-
Frozen food products.
We conduct our production activities mainly in China. Our
products are sold in Chinese domestic markets as well as exported to foreign
countries and regions such as Japan, South Korea and Europe. We derive most of
our revenues from sales in China, Japan and South Korea. In 2014, our primary
strategy is to continue building our brand recognition in China through
consistent marketing efforts towards supermarkets, wholesalers, and significant
customers, enhancing the cooperation with other manufacturers and factories and
enhancing the turnover for our existing chestnut, convenience and frozen food
products. In addition, we are working to expand our marketing efforts in Asia,
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.
Domestic sales in the first quarter of 2014 accounted for 67.8%
as compared to 74.7% over the same period of last year. In the coming quarters,
American Lorain anticipates higher demand for its traditional chestnut product
line along with its fast growing convenience business line, including the bean
products, lunch boxes, and pickle vegetables.
Frozen foods sold primarily to select export markets in Europe
and supermarkets and wholesale customers in China contributed approximately
21.8% in revenues for the quarter compared to 21.6% in the first quarter of
2013.
On February 7, 2014, American Lorain Corporation (the
"Company"), through its indirect wholly owned subsidiary, Junan Hongrun
Foodstuff Co., Ltd. (Junan Hongrun) entered into a Share Purchase Agreement
with Intiraimi, a limited liability company organized under the laws of France
(the "Intiraimi Purchase Agreement"). Pursuant to the terms of the Intiraimi
Purchase Agreement, Junan Hongrun agreed to acquire from Intiraimi 10,000 shares
of Athena, a limited liability company organized under the laws of France
(Athena), or 40% of the share capital of Athena, for an aggregate purchase
price of 1,500,000 (or approximately US$2,032,050) of which (i) 1,000,000 (or
approximately US$1,354,700) will be payable within 20 days of the execution of
the Intiraimi Purchase Agreement, and (ii) the remaining 500,000 (or
approximately US$677,350) (Deferred Payment) will be payable on February 7,
2015 if certain conditions are met.
On February 7, 2014, Junan Hongrun also entered into a Reiterative Share
Purchase Agreement with Biobranco II, a company organized under Portuguese law
(the " Biobranco Purchase Agreement"). Pursuant to the terms of the Biobranco
Purchase Agreement, Junan Hongrun will acquire from Biobranco 2,750 shares of
Athena, or 11% of the share capital of Athena, for an aggregate purchase price
of 495,000 (or approximately US$670,600), payable within 20 days of the
execution of the Biobranco Purchase Agreement.
As of the date of this report, the transaction is still not yet completed
because the acquisition is subject to approval by Department of Commerce of
Shandong Province, PRC and hence the accounts for Athena are not consolidated.
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 first quarter of 2014, the
cost of our raw materials decreased from $23.5 million to $21.5 million, as
compared to the first quarter of 2013, for a decrease of approximately 8.4% . We
may have to increase the number of our suppliers of raw materials and expand our
own agricultural operations in the future to meet growing production demands.
Despite our efforts to control our supply of raw materials and maintain good
relationships with our suppliers, we could lose one or more of our suppliers at
any time. The loss of several suppliers may be difficult to replace and could
increase our reliance on higher cost or lower quality suppliers, which could
negatively affect our profitability. In addition, if we have to increase the
number of our suppliers of raw materials in the future to meet growing
production demands, we may not be able to locate new suppliers who could provide
us with sufficient materials to meet our needs. Any interruptions to, or decline in, the amount or quality of our
raw materials supply could materially disrupt our production and adversely
affect our business and financial condition and financial prospects.
34
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.
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. We
fund the majority of our working capital requirements out of cash flow generated
from operations. If we fail to generate sufficient sales, or if our suppliers
stop offering us credit terms, we may not have sufficient liquidity to fund our
operating costs and our business could be adversely affected.
We funded approximately 26.6% of our working capital from the
proceeds of short-term loans from Chinese banks in the first quarter of 2014, as
compared to 27.0% over the same period last year. 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 of short-term bank loans as of March 31, 2014 was
approximately $36.1 million. The term of almost all such loans is one year or
less. Historically, we have rolled over such loans on an annual basis. However,
commencing 2010, the Chinese government is implementing more stringent credit
policies to curb inflation and soaring property prices, which could negatively
impact our ability to obtain or roll over these short term loans, and hence not
having sufficient funds available to pay all of our borrowings upon maturity.
Failure to roll over our short-term borrowings at maturity or to service our
debt could result in the imposition of penalties, including increases in rates
of interest, legal actions against us by our creditors, or even insolvency. 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 as working capital. We also secured a
$15 million loan from Deutsche Investitions - und Entwicklungsgesellshaft
(DEG) in May 2010, which we have fully drawn down in 2011. 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.
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.
Our business, operating results or financial condition will be
adversely affected in the event of unfavorable economic conditions, including
the ongoing global economy and capital markets disruptions. 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.
35
Results of Operations
Three Months Ended March 31, 2014 Compared to Three Months
Ended March 31, 2013
The following table summarizes the results of our operations
during the three-month periods ended March 31, 2014 and March 31, 2013,
respectively and provides information regarding the dollar and percentage
increase or (decrease) from the three-month period ended March 31, 2014 compared
to the three-month period ended March 31, 2013.
(All amounts, other than percentages, stated in thousands of
U.S. dollars)
|
|
Three months ended
March 31,
|
|
|
Increase
/
|
|
|
Increase /
|
|
|
|
|
|
|
|
|
|
Decrease
|
|
|
Decrease
|
|
(In Thousands of USD)
|
|
2014
|
|
|
2013
|
|
|
($)
|
|
|
(%)
|
|
Net revenues
|
|
31,689
|
|
|
34,810
|
|
|
-3,121
|
|
|
-9.0%
|
|
Cost of revenues
|
|
-25,584
|
|
|
-27,413
|
|
|
1,829
|
|
|
-6.7%
|
|
Gross profit
|
|
6,105
|
|
|
7,397
|
|
|
-1,292
|
|
|
-17.5%
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
-1,075
|
|
|
-1,791
|
|
|
716
|
|
|
-40.0%
|
|
General and administrative expenses
|
|
-2,089
|
|
|
-1,422
|
|
|
-667
|
|
|
46.9%
|
|
Operating Income
|
|
2,941
|
|
|
4,184
|
|
|
-1,243
|
|
|
-29.7%
|
|
Government subsidy income
|
|
1,508
|
|
|
319
|
|
|
1189
|
|
|
372.7%
|
|
Interest and other income
|
|
105
|
|
|
194
|
|
|
-89
|
|
|
-45.9%
|
|
Other expenses
|
|
-134
|
|
|
-7
|
|
|
-127
|
|
|
1814.3%
|
|
Interest expense
|
|
-1,925
|
|
|
-1,061
|
|
|
-864
|
|
|
81.4%
|
|
Earnings before tax
|
|
2,495
|
|
|
3,628
|
|
|
-1,133
|
|
|
-31.2%
|
|
Income tax
|
|
-750
|
|
|
-1,014
|
|
|
264
|
|
|
-26.0%
|
|
Income before minority interests
|
|
1,745
|
|
|
2,614
|
|
|
-869
|
|
|
-33.2%
|
|
Minority interests
|
|
155
|
|
|
95
|
|
|
60
|
|
|
63.2%
|
|
Net income
|
|
1,590
|
|
|
2,519
|
|
|
-929
|
|
|
-36.9%
|
|
Revenue
Net Revenues
. Our net revenue for the three months ended
March 31, 2014 amounted to $31.7 million, which represents a decrease of
approximately $3.1 million, or 9.0%, from the three-month period ended on March
31, 2013, in which our net revenue was $34.8 million. The overall decrease was
attributable to the increase / decrease in sales of each of our product
segments, as reflected in the following table:
36
|
|
Three
|
|
|
|
|
|
|
|
|
|
|
|
|
months
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars)
|
|
3/31/2014
|
|
|
3/31/2013
|
|
|
|
|
|
|
|
Category
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(%)
|
|
Chestnut
|
|
17,354,271
|
|
|
16,654,887
|
|
|
699,384
|
|
|
4.2%
|
|
Convenience food
|
|
7,430,682
|
|
|
10,620,643
|
|
|
-3,189,961
|
|
|
-30.0%
|
|
Frozen food
|
|
6,904,505
|
|
|
7,534,386
|
|
|
-629,881
|
|
|
-8.4%
|
|
Total
|
|
31,689,458
|
|
|
34,809,916
|
|
|
-3,120,458
|
|
|
-9.0%
|
|
Cost of Revenues.
During the three months ended March
31, 2014, we experienced a decrease in cost of revenue of $1.8 million, in
comparison to the three months ended March 31, 2013, from approximately $27.4
million to $25.6 million, reflecting a decrease of approximately 6.7% .
Approximately a decrease of $2.0 million was attributable to raw material costs,
which decreased from $23.5 million during the three months ended March 31, 2013
to $21.5 million, or approximately 8.4%, during the three months ended March 31,
2014.
The other factors contributed to $0.2 million 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 decreased $1.3 million,
or 17.5%, to $6.1 million for the three months ended March 31, 2014 from $7.4
million for the same period in 2013 as a result of lower revenues, offset by
lower costs of revenues, for the reasons indicated immediately above. Our gross
margins decreased from 21.3% to 19.3% due to inflation pressure in the Chinese
domestic market. Gross profit margins by product segment during the three months
ended March 31, 2014 were: 25-28% for chestnuts, 22-24% for convenience foods
and 16-18% for frozen foods.
Operating Expenses
Selling and Marketing Expenses
. Our selling and
marketing expenses decreased $0.7 million during the first quarter of 2014, as
compared to the same period over last year. The following table reflects the
main factors that contributed to the decrease as well as the dollar amount that
each factor contributed to this decrease:
Decrease in Costs in the Three
Months Ended March 31,
2014 over
the Three Months Ended March 31, 2013
(in U.S. dollars)
|
|
|
|
Transportation
|
|
511,933
|
|
Port Fee
|
|
148,464
|
|
Storage Rental
|
|
309,223
|
|
The decreases listed in the table above were partially offset
by increase in other expenses such as wage fees.
General and Administrative Expenses.
We experienced an
increase in general and administrative expense of $0.7 million from
approximately $1.4 million to approximately $2.1 million for the three months
ended March 31, 2014, compared to the same period in 2013. The following table
reflects the main factors that contributed to this increase as well as the
dollar amount that each factor contributed to this increase:
Factor
|
|
Dollar
|
|
|
|
Increase
|
|
Land Use Fee
|
|
36,762
|
|
Consulting Fee
|
|
30,573
|
|
Heating Fee
|
|
35,177
|
|
37
The increases listed in the table above were partially offset
by decreases in dollar amount of other factors, including entertainment and
travel expense.
Income Before Taxation and Minority Interest
Income before taxation and minority interest decreased $1.1
million, or 31.2%, to $2.5 million for the three months ended March 31, 2014
from $3.6 million for the same period of 2013. The decrease was mainly
attributable to the decrease of our sales revenue in the three months ended
March 31, 2014 as compared to the three months ended March 31, 2013.
Income Taxes
Income taxes decreased $264,533, or 26.0%, to $0.8 million in
the first quarter of 2014, as compared to $1.0 million in the first quarter of
2013, primarily attributable to the lower earnings before tax.
Net Income
Net income decreased $0.9 million, or 36.9%, to $1.6 million
for the three months ended March 31, 2014 from $2.5 million for the same period
of 2013. The decrease was attributable to decreased sales revenue and partially
offset by decreased cost of goods sold in the three months ended March 31, 2014
as compared to the three months ended March 31, 2013.
Liquidity and Capital Resources
As of March 31, 2014, we had cash and cash equivalents
(including restricted cash) of $46.3 million. Our cash and cash equivalents
increased by approximately $10.6 million from December 31, 2013 primarily due to
cash provided by operating activities and financing activities, partially offset
by cash used in investments activities. The following table provides detailed
information about our net cash flow for all financial statements periods
presented in this report.
Cash Flow (in thousands)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Net cash provided by (used in) operating
activities
|
|
7,019
|
|
|
(1,364
|
)
|
Net cash provided by (used in) investing activities
|
|
(3,708
|
)
|
|
(1,874
|
)
|
Net cash provided by (used in) financing
activities
|
|
7,873
|
|
|
1,978
|
|
Net cash flow (outflow)
|
|
11,184
|
|
|
(1,259
|
)
|
Operating Activities
Net cash provided by operating activities was $7.0 million for
the three months period ended March 31, 2014 and net cash used in operating
activities in the first quarter of 2013 was approximately $1.4 million. The
increase of approximately $8.4 million in net cash flows provided by operating
activities in the first three months of 2014 was primarily a higher decrease in
accounts and other receivables of $7.6 million, partially offset by higher
increase in inventories of approximately $1.5 million as compared to the same
period in 2013.
Investing Activities
Net cash used in investing activities for the three months
period ended March 31, 2014 was $3.7 million, representing an increase of $1.8
million in net cash used in investing activities from $1.9 million for the same
period of 2013. The difference was primarily a result of higher
increase in restricted cash of $3.4million, partially offset by $3.2 million
decrease in deposit in 2014 compared with the same period in 2013.
38
Financing Activities
Net cash provided by financing activities for the three months
period ended March 31, 2014 was $7.9 million, representing an increase of $5.9
million from $2.0 million net cash provided by financing activities during the
same period in 2013. The increase of the net cash provided by financing
activities was primarily a result of higher net bank borrowings and issuance of
convertible promissory note in the first quarter of 2014.
Loan Facilities
As of March 31, 2014, 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 $36.1 million as of March 31, 2014, compared
with $29.4million as of December 31, 2013. In addition, 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.
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.
Critical Accounting Policies
The preparation of financial statements in conformity with
United States generally accepted accounting principles requires our management
to make assumptions, estimates and judgments that affect the amounts reported in
our financial statements, including the notes thereto, and related disclosures
of commitments and contingencies, if any. We consider our critical accounting
policies to be those that require significant judgments and estimates in the
preparation of financial statements, including the following:
Method of Accounting --
We maintain our general ledger
and journals with the accrual method accounting for financial reporting
purposes. Accounting policies adopted by us conform to generally accepted
accounting principles in the United States and have been consistently applied in
the presentation of our financial statements, which are compiled on the accrual
basis of accounting.
Use of estimates --
The preparation of the financial
statements in conformity with generally accepted accounting principles in the
United States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Management makes
these estimates using the best information available at the time the estimates
are made; however, actual results could differ materially from those
estimates.
Principles of consolidation --
Our consolidated
financial statements, which include information about our company and our
subsidiaries, are compiled in accordance with generally accepted accounting
principles in the United States. All significant inter-company accounts and
transactions have been eliminated. Our consolidated financial statements include
100% of assets, liabilities, and net income or loss of our wholly-owned
subsidiaries. Ownership interests of minority investors are recorded as minority
interests.
As of March 31, 2014, the details pertaining to our
subsidiaries were as follows:
39
|
|
Place of
|
|
|
Attributable equity
|
|
|
Registered
|
|
Name of Company
|
|
incorporation
|
|
|
interest %
|
|
|
capital
|
|
Shandong Lorain Co., Ltd
|
|
PRC
|
|
|
80.2
|
|
$
|
13,122,576
|
|
Luotian Lorain Co., Ltd
|
|
PRC
|
|
|
100
|
|
|
4,110,550
|
|
Junan Hongrun Foodstuff Co., Ltd
|
|
PRC
|
|
|
100
|
|
|
48,556,452
|
|
Beijing Lorain Co., Ltd
|
|
PRC
|
|
|
100
|
|
|
1,622,876
|
|
Shandong Greenpia Foodstuff Co., Ltd
|
|
PRC
|
|
|
100
|
|
|
2,492,738
|
|
Dongguan Lorain Co,, Ltd
|
|
PRC
|
|
|
100
|
|
|
162,288
|
|
International Lorain Holding Inc.
|
|
Cayman Islands
|
|
|
100
|
|
|
50,501,875
|
|
On February 7, 2014, Junan Hongrun acquired 51% of Athena group
and its subsidiaries. The investment of Athena group is not yet consolidated
into the financial statements since the acquisition is still subject to the
approval of Department of Commerce of Shandong Province, PRC although the title
has been passed to Junan Hongrun.
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 July 2013, the FASB issued ASU No. 2013-11, Income Taxes
(Topic 740) - Presentation of an Unrecognized Tax Benefit When a Net Operating
Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,
does not include explicit guidance on the financial statement presentation of an
unrecognized tax benefit when a net operating loss carryforward, a similar tax
loss, or a tax credit carryforward exists. There is diversity in practice in the
presentation of unrecognized tax benefits in those instances. Some entities
present unrecognized tax benefits as a liability unless the unrecognized tax
benefit is directly associated with a tax position taken in a tax year that
results in, or that resulted in, the recognition of a net operating loss or tax
credit carryforward for that year and the net operating loss or tax credit
carryforward has not been utilized. Other entities present unrecognized tax
benefits as a reduction of a deferred tax asset for a net operating loss or tax
credit carryforward in certain circumstances. The objective of the amendments in
this Update is to eliminate that diversity in practice.
As of March 31, 2014, there are no other recently issued
accounting standards not yet adopted that would have a material effect on the
Companys consolidated financial statements
40
Off-Balance Sheet Arrangements
We do not have any off-balance arrangements.
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 the design and operation of our disclosure
controls and procedures as of March 31, 2014. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that as of March
31, 2014, and as of the date that the evaluation of the effectiveness of our
disclosure controls and procedures was completed, our disclosure controls and
procedures were not effective due to the continuing material weakness in our
internal control over financial reporting.
The material weakness and significant deficiency identified by
our management as of March 31, 2014 relates to the ability of the Company to
record transactions and provide disclosures in accordance with U.S. GAAP. We did
not have sufficient and skilled accounting personnel with an appropriate level
of technical accounting knowledge and experience in the application of US GAAP
commensurate with our financial reporting requirements. For example, our staff
members do not hold licenses such as Certified Public Accountant or Certified
Management Accountant in the U.S., have not attended U.S. institutions for
training as accountants, and have not attended extended educational programs
that would provide sufficient relevant education relating to U.S. GAAP. Our
staff needs substantial training to meet the demands of a U.S. public company
and our staffs understanding of the requirements of U.S. GAAP-based reporting
are inadequate.
C
hanges in Internal Controls over Financial Reporting.
During the three months ended March 31, 2014, there were no
changes in our internal control over financial reporting identified in
connection with the evaluation performed during the period covered by this
report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Inherent Limitations Over Internal Controls.
Our internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with GAAP. Our internal control over financial reporting includes those policies
and procedures that:
(i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets;
(ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and
directors; and
41
(iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on the financial
statements.
Management, including our Chief Executive Officer and Chief
Financial Officer, does not expect that our internal controls will prevent or
detect all errors and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of internal controls
can provide absolute assurance that all control issues and instances of fraud,
if any, have been detected. Also, any evaluation of the effectiveness of
controls in future periods are subject to the risk that those internal controls
may become inadequate because of changes in business conditions, or that the
degree of compliance with the policies or procedures may deteriorate.