UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2014
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to ____________
Commission File Number: 001-34449
AMERICAN LORAIN CORPORATION
(Exact name of registrant as specified in its charter)
Nevada |
87-0430320 |
(State or other jurisdiction of |
(I.R.S. Employer Identification Number)
|
incorporation or organization) |
|
BeihuanZhong Road
Junan County
Shandong, Peoples Republic of China, 276600
(Address of principal executive office and zip code)
(86) 539-7317959
(Registrants
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
Title of each class |
Name of each exchange on which registered
|
Common Stock, par value $0.001 per share
|
NYSE MKT |
Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [
]
No [X]
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [
]
No [X]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
issuer was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes
[X]
No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [ ]
No [X]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and
will not be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] |
Accelerated filer [ ] |
Non-accelerated filer [ ] |
Smaller reporting company [X] |
(Do not check if a smaller reporting company) |
|
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes [
]
No [X]
The number of shares and aggregate market value of common stock
held by non-affiliates as of the last business day of the registrants most
recently completed second fiscal quarter were 19,220,142 and $23,103,163,
respectively.
There were 34,916,714 shares of common stock outstanding as of
March 31, 2015.
Documents Incorporated by Reference: Portions of the
registrant's Proxy Statement related to its 2015 Annual Stockholders' Meeting to
be filed subsequently are incorporated by reference into Part III of this Annual
Report on Form 10-K. Except as expressly incorporated by reference, the
registrant's Proxy Statement shall not be deemed to be part of the report.
FORM 10-K INDEX
1
PART I
Use of Certain Defined Terms
In this annual report on Form 10-K:
|
We, us and our refer to ALN, and except
where the context requires otherwise, our wholly-owned and majority-owned
direct and indirect operating subsidiaries. |
|
ALN refers to American Lorain Corporation, a
Nevada corporation (formerly known as Millennium Quest, Inc.). |
|
Athena refers to Athena, a limited liability
company organized under the laws of France that is majority-owned by Junan
Hongrun. |
|
ILH refers to International Lorain Holding,
Inc., a Cayman Islands company that is wholly - owned by ALN. |
|
Junan Hongrun refers to Junan Hongrun
Foodstuff Co., Ltd. |
|
Luotian Lorain refers to Luotian Green
Foodstuff Co., Ltd. |
|
Beijing Lorain refers to Beijing Green
Foodstuff Co., Ltd. |
|
Shandong Lorain refers to Shandong Green
Foodstuff Co., Ltd. |
|
Dongguan Lorain refers to Dongguan Green
Foodstuff Co., Ltd. |
|
Shandong Greenpia refers to Shandong Greenpia
Foodstuff Co., Ltd. |
|
RMB refers to Renminbi, the legal currency of
China. |
|
U.S. dollar, $ and US$ refer to the legal
currency of the United States. |
|
China and PRC refer to the Peoples
Republic of China (excluding Hong Kong and Macau). |
This report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including, without limitation, statements
regarding our expectations, beliefs, intentions or future strategies that are
signified by the words expect, anticipate, intend, believe, or similar
language. All forward-looking statements included in this document are based on
information available to us on the date hereof, and we assume no obligation to
update any such forward-looking statements. Our business and financial
performance are subject to substantial risks and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements.
In evaluating our business, you should carefully consider the information set
forth under the heading Risk Factors. Readers are cautioned not to place undue
reliance on these forward-looking statements.
2
ITEM 1. BUSINESS
Overview of Our Business
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 in China and through our
majority-owned subsidiary in France. 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,
France, Japan and South Korea. In 2015, 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. We also plan to launch mass-consumed food product series whose market
is highly fragmented in China.
Organizational Structure
ALN is a Nevada corporation that was incorporated on February
4, 1986 and was formerly known as Millennium Quest, Inc. Effective November
12, 2009, ALN reincorporated in Nevada from Delaware.
ALN owns 100% of ILH. ILH wholly owns two Chinese operating
subsidiaries, Luotian Lorain and Junan Hongrun, directly. Junan Hongrun, in
turn, owns 100% and 51% of Dongguan Lorain and Athena respectively. In addition,
together with Junan Hongrun, ILH wholly owns Beijing Lorain, Shandong Greenpia,
and owns approximately 80% of Shandong Lorain (Shandong Economic Development
Investment Co. Ltd. owns approximately 20%). We sometimes refer to our six
Chinese operating subsidiaries and the Athena Group throughout this annual report on Form
10-K as the Lorain Group Companies. Below is an organizational chart of ALN, ILH
and the Lorain Group Companies:
3
![](form10kx5x1.jpg)
* Athena is a holding company which holds all of the
capital and the voting shares of Conserverie Minerve, a company organized under
French law. Conserverie Minerve specializes in the processing and sale of
chestnut and prepared foods products in Europe. Conserverie Minerve operates its
businesses through the following, direct and indirect, wholly owned
subsidiaries:
|
Sojafrais, a company organized under French
law; |
|
SCI SIAM, a real estate company organized under
French law; |
|
SCI GIU LONG, a real estate company organized
under French law; and |
|
CACOVIN, a company organized under Portuguese
law. |
Products
Our products are categorized into the following three segments:
|
Chestnut products, |
|
Convenience food products, and |
|
Frozen food products. |
We produced 237 products in 2014, including 3 new products in
the chestnut and convenience segment.
Historically, chestnut products and convenience foods were our
main profit centers. Despite the fact that sales slowed down in the China
domestic market due to weaker market demand, our revenue increased during 2014,
which was mainly attributable to the increase of sales in the European market.
After acquisition of the Athena Group whom we believe to be one of the top
chestnut producers in Europe, we may use the synergy, such as branding, customer
base and sales channels, to further enhance our competitive advantage in the
future.
Chestnut Products
We believe that we are the largest chestnut processor and
manufacturer in China. In addition, we have been giving increasing emphasis in
recent years to building a stronger international sales network. As a result of
our acquisition of control in Athena in 2014, we now have chestnut processing
and manufacturing capabilities in France which will enable us to achieve a
strategic position in the chestnut industry in Europe.
4
We have developed brand equity for our chestnut products in
China, Japan and South Korea over the past 16 years. We produced 59 high
value-added processed chestnut products in 2014. In 2014 and 2013, this segment
contributed 56.6% and 53.3% of our total revenues, respectively.
Our best selling products in 2014 included our frozen chestnuts
and aerated
open-bottom chestnuts, which are chestnuts packaged with nitrogen. The majority
of our chestnut products are natural and do not contain chemical additives.
The chestnut, in contrast to many other tree nuts, contains
small quantities of oil and is very high in complex carbohydrates. This makes
them useful for a wider food range than other common nuts. Chestnuts are
commonly steamed, boiled, sugar stir-fried, roasted or added into dishes or
desserts as an ingredient.
China is the largest grower of chestnuts in the world, followed
by South Korea and Japan. The total annual output of chestnut in China reaches
1.95 million metric tons, which accounts for 84% of global output. In recent
years, the chestnut production in South Korea and Japan has declined. This has
been attributed to the increasing labor costs and operational costs incurred in
growing chestnuts. Because of the declining domestic production, South Korean
and Japanese customers have grown to rely more on imported chestnut products.
Our strategy is to take advantage of these trends.
We position our chestnut products as middle to high end
products. We differentiate our chestnut products based on production process,
high quality raw materials inputs, flavor, size and method of packaging. For
instance, some of our chestnut products that are sold in Japan are packaged in
plastic bags or tin cans, each considered a different product. Similarly, some
of our chestnut products are processed with hot water or cold water, each
considered a different product.
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.
Convenience Foods
Our convenience food products are characterized as follows:
|
Ready-to-cook, or RTC, food products, |
|
Ready-to-eat, or RTE, food products, and |
|
Meals ready-to-eat, or MRE, food products.
|
These products are intended to meet the current demands of our
customers for safe, wholesome and tasty foods that are easily prepared.
RTCs can be served after a few easy cooking procedures.
Typically, when preparing a RTC, customers need only to heat the food in a
microwave or boil it for several minutes before eating. Our best-selling RTCs in
2014 were French fries.
RTEs can be served without any cooking. Our best-selling RTEs
in 2014 were various bean products and pickle products.
MREs are meal kits with self-heating devices or microwavable
kits, such as microwavable rice boxes. Our self-heating MREs are primarily for
military use where no cooking device or other means are needed other than water.
We also introduced microwavable MREs for civilian uses such as camping,
traveling and other occasions where only simple preparation using a cooking
device such as a microwave oven is required.
We produce various MREs based on Chinese cuisine, the best
sellers of which were our pork with garlic sauce over rice and kungpao chicken
with rice in 2014. Many of our convenience products are natural and do not
contain chemical additives.
5
We produced 116 convenience food products in 2014, including 2
new products, Chinese doughnuts and sweet potato balls. In 2014 and 2013, this
segment contributed 27.1% and 28.9%, respectively, of our total revenues.
Frozen Food Products
We produce a variety of frozen foods, mostly frozen vegetables
and frozen fruits. We produced 62 frozen food products in 2014. Our best-selling
frozen foods in 2014 were mixed vegetables, frozen asparagus and frozen
strawberries.
Our frozen food business allows us to mitigate the significant
production seasonality of chestnut products and to increase the utilization rate
of our production capacity. Through our sales network, we are seeking to further
penetrate into domestic and overseas market for our frozen food segment as it
may not only raise our spare production capacity without additional heavy
capital investment, but also boost our brand equity as we are selected to be
the provider for international fast food giants. The frozen foods accounted for
in our total revenue decreased from 17.8% in 2013 to 16.4% in 2014. Gross
margins in this segment are lower than the margins for chestnut products and
convenience foods.
Our Manufacturing Facilities
General
We currently manufacture our products in six facilities in
China, three of which are located in Junan County, Shandong Province, one in
Luotian County, Hubei Province, one in Miyun County, Beijing and one leased
facility in Dongguan, Guangdong Province. In addition, as a result of our
acquisition of control in Athena in 2014, we now have chestnut and manufacturing
capabilities in France.
The following table indicates the year that operations
commenced at each of the facilities and the size of the facilities.
|
Year Operations
Facility Size |
Facility |
Commenced |
(square meters) |
Junan Hongrun |
2002 |
38,865 |
Shandong Lorain |
1995 |
15,392 |
Beijing Lorain |
2003 |
21,000 |
Luotian Lorain |
2003 |
9,558 |
Dongguan |
2008 |
9,250 |
Shandong Greenpia |
2010 |
9,179 |
Conserverie Minerve* |
1968 |
15,142
|
* a wholly-owned subsidiary of Athena, a company controlled by Junan Hongrun
Production Lines
We currently manufacture our products using 35 production
lines. Except Chinese doughnuts production lines, each production line is used
to produce between 10 and 50 products. We currently run four types of product
lines:
|
Deep-freezing lines, which are used to freeze
raw materials for year-round production and to produce frozen food; |
|
Canning lines, which are used to produce canned
products, including chestnut products; |
|
Convenience food lines, which are used for
producing RTCs, RTEs and MREs, all of which have
nitrogen preservation capacity; and |
|
Chinese doughnuts lines, which are used to
produce Chinese doughnut products. |
The production process for our chestnut products initially
involves sorting and cleaning the raw chestnuts purchased during the chestnut
season. We then store the raw chestnuts in our refrigerated storage facilities
throughout the year. Once we obtain a purchase order, we remove the chestnuts
from storage and process them by steaming, decladding and deep-freezing the
chestnuts, depending on the particular product. We then package and ship the
processed chestnuts within one day of production.
The production process of our convenience products generally
involves various steps, including soaking, boiling, coating, drying, deep
freezing, packing, sealing and sterilizing.
6
The following table shows the number and types of production
lines, the types of products produced and the production capacity at each
facility:
Facilities |
Production Lines |
Product Portfolio |
2014 Capacity |
Junan Hongrun |
3 Deep-freezing line 3
Convenience food lines 4 Canning lines 4 Chinese doughnut lines
|
Chestnut products, frozen foods, beans, bean paste
|
Multi-purpose production lines with 54,000 tons of
production capacity and Chinese doughnut lines with 2000 tons production
capacity 24,900 tons of cold and frozen storage |
Shandong Lorain
|
1 Deep-freezing line 1 Convenience food line
|
Chestnut products, convenience frozen foods |
foods, Multi-purpose production lines with 20,000 tons of
production capacity and 3,500 tons of cold and frozen storage |
Beijing Lorain |
6 Convenience food lines 1
Deep-freezing line |
Chestnut products, frozen foods |
Multi-purpose production lines with 34,000 tons of
production capacity and 4,650 tons of cold and frozen storage |
Luotian Lorain |
3 Convenience food lines 2 Deep-freezing lines
|
Chestnut products, convenience foods, frozen foods
|
Multi-purpose production lines with 24,000 tons of
production capacity and 6,500 tons of cold and frozen storage |
Dongguan factory |
2 Convenience food lines |
Convenience food |
Multi-purpose production lines with 3,000 tons of
production capacity and 2,250 tons of cold and frozen storage |
Shandong Greenpia
|
2 Convenience food lines |
Chestnut products, convenience foods |
Multi-purpose production lines with 9,000 tons of
production capacity and 1,500 tons of cold and frozen storage |
Conserverie Minerve* |
2 Convenience food lines 1
Deep-freezing line |
Chestnut products, convenience foods |
Multi-purpose production lines with 8,900 tons of
production capacity and 11,920 tons of cold and frozen storage
|
* a wholly-owned subsidiary of Athena, a company controlled by
Junan Hongrun
We allocate our production lines based upon the location of our
facilities to take advantage of efficiencies in the transportation of required
raw materials. For example, Junan Hongrun and Shandong Lorain, which manufacture
primarily chestnut and frozen products, are located in Shandong Province, which
is Chinas largest supplier of fresh products by volume. Shandong Province is
also a major chestnut producing region.
Our production lines and facilities have all been designed to
meet the standards and requirements of our largest customers in Europe and
Japan, with France and Japan being our two top overseas markets in value term.
We employ advanced methods of quality control and have obtained
various certifications for many of our products, packages and processes,
including ISO 9000 or ISO 9001 certification for certain of our chestnut and
frozen vegetable products, BRC certification for certain of our frozen fruit and
vegetable products and HACCP certification for certain of our frozen vegetable,
fruit and chestnut products and our bottom-open chestnuts. We believe that our
quality controls and standards of products distinguish us from other
manufacturers in both domestic and international markets.
With limited exception, we operate our production lines year
round. In the past, when our production was focused almost exclusively on
chestnuts, we experienced seasonal underutilization of our product lines.
However, our current facilities have multiple-function designs allowing us to
use our production lines for our convenience and frozen products when we are not
producing chestnuts at full capacity. Consequently, as we have increased our
processed and convenience food offerings over the last several years, we have
generally been able to run our production lines at increasing efficiency.
7
Previously, most of our convenience foods were produced at our
Beijing Lorain plant. With the introduction of bean products in 2009, we
expanded our facility in Junan Hongrun with the addition of three convenience
food production lines designed specifically for bean products with current
annual capacity of 13,500 metric tons.
We believe our facilities are adequate for our current levels
of production. We anticipate, however, that we may require additional facilities
and/or product lines as our business grows. We are exploring the possibility of
alliances with one or more OEM partners for the production, in the short-term,
of some of our convenience food products and frozen products should our
facilities be inadequate to meet increasing demand. We are also exploring the
possibility of leasing additional production lines to expand our production
capacity. We did not lease any production facility during 2014. We may decide to
lease additional facilities in 2015, should circumstances require and subject to
acceptable costing. In the long-term, we plan to increase our own production
capacity by acquiring or building new facilities, subject to the availability of
adequate sources of funding.
Storage Capacity
Storage of our raw materials and inventory is a critical
element of our business. Our raw materials and partially finished products need
to be preserved in frozen storages (-18ºC to -20ºC) or constant temperature
storages (-5ºC to 5ºC). Storage is particularly critical for our chestnut
products because chestnuts are a seasonal fruit.
The following table illustrates on a facility by facility basis
the type and capacity of our storage resources:
|
|
Number of |
Capacity |
Facility |
Storage Type |
Storage Units |
(metric tons) |
Junan Hongrun |
Frozen Storage |
19 |
20,100 |
|
Constant Temperature |
8 |
4,800 |
Shandong Lorain |
Frozen Storage |
5 |
2,000 |
|
Constant Temperature |
3 |
1,500 |
Beijing Lorain |
Frozen Storage |
6 |
2,850 |
|
Constant Temperature |
3 |
1,800 |
Luotian Lorain |
Frozen Storage |
8 |
4,500 |
|
Constant Temperature |
4 |
2,000 |
Dongguan |
Frozen Storage |
2 |
800 |
|
Constant Temperature |
2 |
1,450 |
Shandong Greenpia |
Constant Temperature |
4 |
1,500 |
Conserverie Minerve* Frozen Storage |
|
7 |
420 |
|
Constant Temperature |
3 |
11,500 |
TOTAL |
|
74 |
55,220 |
* a wholly-owned subsidiary of Athena, a company controlled by
Junan Hongrun
As we have expanded our production capacity, we have also
expanded our storage capacity. All of the listed storage facilities are owned by
us. In 2009, we expanded our storage capacity in Junan Hongrun by an additional
3,600 metric tons. In 2010, we also expanded our storage facility in Dongguan by
1,000 metric tons and, through our acquisition of Shandong Greenpia, we have
added four additional storage units with an aggregate capacity of 1,500 metric
tons. We also added 13,500 metric tons of cold storage at the Junan Hongrun
facility during 2011. We did not add to our storage capacity during 2014. In
2015, we may build or lease additional storage facilities from time to time
should circumstance require.
Agricultural Operations
We grow or set up agricultural co-ops with local farmers to
supply ourselves with a small portion of chestnut, fruit and vegetable products.
For the year ended December 31, 2014, the supplies coming from
agricultural operations increased compared to that of 2013, while it is still of
low proportion of the total. We believe that we will continue to develop more
agricultural facilities in the long-term. We anticipate that self-grown
agricultural products and agricultural products grown in cooperation with local
farmers will enable us to assure adequacy of supply, promote quality and reduce
cost, particularly for our high margin offerings. For example, by growing Korean
cultivar chestnuts domestically, we expect to significantly reduce our supply
costs for this premium product, while ensuring superior quality.
8
Lands in which we grow our agricultural products for such
products are shown in the following table.
|
Area |
Location |
Harvest |
(acres) |
(PRC) |
Chestnut (South Korean, Japanese,
Australian cultivar) |
329 |
Shandong |
Chestnut (Japanese cultivar) |
165 |
Beijing |
Sticky Corn |
342 |
Beijing |
Sweet Corn |
118 |
Beijing |
Green Pea |
217 |
Beijing |
Sweet Pea |
167 |
Beijing |
Organic Chestnut |
165 |
Beijing |
Mixed Vegetables |
417 |
Shandong |
Mixed Vegetables |
83 |
Beijing |
|
|
Inner |
Japanese Pumpkin |
197 |
Mongolia |
Black Beans |
500 |
Shandong |
Strawberry |
392 |
Shandong |
Broccoli |
165 |
Beijing |
Green Asparagus |
591 |
Beijing |
White Asparagus |
263 |
Shandong |
Sweet Potato |
500 |
Shandong |
Peach |
329 |
Beijing |
Apricot |
411 |
Beijing |
Pear |
329 |
Beijing |
Blackberry |
165 |
Beijing |
We began growing chestnuts in Shandong Province in 2003. Unlike
most vegetables and fruits, chestnut trees have a 3-5 year growing phase before
they can be harvested. Our current chestnut planting base has been
self-supplying limited quantities of chestnuts to our production since 2007.
We began growing strawberries in 2008 in Shandong and peaches,
apricots, pears and blackberries in 2009 in Beijing. We use these fruits in some
of our frozen fruit products. We plan to continue to expand our agricultural
operations over the next few years. Among other things, we plan to increase our
self-production in China of Korean cultivar chestnuts. We expect to obtain
funding for this expansion through a combination of commercial and government
loans, including loans under Chinese government programs to promote agricultural
industrialization. There is no assurance, however, that adequate funding for
these purposes will be available to us.
Raw Materials
In 2014 and 2013, approximately 81% and 85% of our procured raw
materials, respectively, consisted of agricultural products, including primarily
chestnuts and vegetables, approximately 8% and 7%, respectively, consisted of
packaging materials and approximately 11% and 8% consisted of condiments such as
sugar, salt and flour.
Our Supply Sources
Our business depends on obtaining a reliable supply of various
agricultural products, including chestnuts, vegetables, red meat, fish, eggs,
rice and flour. Because of the diversity of available sources of these raw
materials, we believe that our raw materials are currently in adequate supply
and will continue to be so in the future.
We obtain our agricultural raw materials from three sources:
domestic procurement (excluding self-supply), overseas markets, and self-supply.
Domestic and overseas procurement accounted for 91.3% and 8.3%, respectively, of
our total raw material costs in 2014, with self-supply accounted for less than
1%. We obtained substantially all of our agricultural raw materials from
domestic sources during 2014.
9
In 2014 and 2013, respectively, we procured approximately
40,801 and 53,559 metric tons of chestnuts and approximately 55,321 and 49,909
metric tons of vegetables and other raw materials from a number of third party
suppliers, domestic and overseas, and produced approximately 637 and 255 metric
tons of chestnuts and other products from our own agricultural operations.
We select suppliers based on price and product quality. We
typically rely on numerous domestic and international suppliers, including some
with whom we have a long-term relationship. Our top 10 suppliers accounted for
17.6% and 23.7% of the total procurement in 2014 and 2013 in value
terms respectively. We purchase from suppliers and farmers pursuant to supply
contracts and underlying purchase orders. We have not entered into any long-term
contracts with any of our suppliers.
Our suppliers generally include wholesale agricultural product
companies, agricultural associations and distributors. Some raw materials must
be imported at higher costs, however. Occasionally, we also work directly with
farmers. For instance, we operate an initiative which involves a series of
cooperation and lease agreements between Shandong Lorain, Beijing Lorain and
local farmers. This initiative involves approximately 1,000 acres of land which
is used primarily to produce Japanese and Korean style chestnuts, sticky corn
and pumpkins for our operations.
Procurement Cost and Quality Control
To control procurement costs, we have built our facilities near
domestic sources of agricultural raw materials. For example, Junan Hongrun and
Shandong Lorain are located in Shandong Province, which is Chinas largest
supplier of fresh products by volume. Shandong Province is also a major chestnut
producing region. Local procurement reduces our costs, especially transportation
costs. It also gives us first-hand harvest and market information, which
provides us with an advantage in price negotiations with suppliers.
Some raw materials must be imported at higher cost. As
discussed, we have begun to develop our agricultural capabilities in order to
control costs, particularly with respect to imported raw materials such as
Korean-style chestnuts.
Pricing for agricultural products reflects several external
factors, such as weather conditions and commodity market fluctuations, which are
beyond our control. We obtain contemporaneous information on local harvests and
collect daily reported price information on harvests in other markets from which
we procure our products. We also attempt to predict harvest yields in advance
based on our information gathering. We use this harvest information to negotiate
best pricing with our suppliers.
We impose strict standards on our suppliers. During the harvest
season, our internal procurement function personnel may visit our sources of supply to
assure that the products we are purchasing comply with our standards.
Our Customers
Our products are sold in Chinese domestic markets as well as
exported to foreign countries and regions such as Japan, South Korea and Europe.
In 2014 and 2013, approximately 64.2% and 73.8%, respectively of our sales were
made domestically in China and approximately 35.8% and 26.2% were to
international customers, primarily France, Japan, South Korea and Portugal. Our
top ten customers contributed 12.2% and 12.9% of our total revenues in 2014 and
2013 respectively.
Domestic
In China, we sell our products through our own sales team and
through third-party distributors. We have 36 sales offices in 31 provinces in
China. In 2014 and 2013, we sold approximately 80.9% and 74.6%, respectively, of
our products directly to our Chinese and overseas customers and approximately
19.1% and 25.4% through third-party distributors. We are planning to increase
the portion of sales to third party distributors in order to access new markets
in China and overseas in a cost efficient manner and to improve our cash
position. Such plans are subject to our ability to restructure the sales force
and manage the increased number of distributors without compromising our profit
margins. Generally, our direct sales customers are required to pay us on 30 to
60 day credit terms. Third-party distributors, however, generally do not pay on
credit, allowing us to obtain quicker payment terms and thereby decrease our
accounts receivables.
We sell our products in all first-tier cities in China,
including Beijing, Shanghai, Tianjin and Guangzhou. Our sales team sells our
products directly to supermarket chains, mass merchandisers, large wholesalers
and others in these markets. In second-tier and third-tier cities, we currently
sell our products to third-party distributors, such as food companies or trading
companies with established distribution channels in such regions, rather than
through our own sales team, in order to enable us to penetrate such markets more
quickly without spending significant capital. We also sell to small customers
through independent sales representatives.
10
The terms of a typical sales contract between us and our
distributors provide that we are responsible for transportation costs and the
distributors are responsible for storage costs. Furthermore, the distributors
have the right to return products that fail to satisfy specified quality
standards, at our cost. The majority of such contracts require the distributors
to pay us in cash in full upon delivery, and the remaining contracts provide for
short-term credit, usually two to three weeks. In addition, we typically offer
distributors performance-based incentives, such as a cash bonus equal to 1% to
1.5% of total revenues generated by such distributor which exceed previously
established sales targets.
International
Our export sales destinations include:
|
Asia pacific, primarily Japan, South Korea and
Malaysia, but also Singapore, Philippines, and Australia;
|
|
Europe, primarily France and Portugal, but also
Belgium, the United Kingdom, Italy, Germany and Spain; |
|
the Middle East, primarily Saudi Arabia and
Israel; |
|
North America, including the United States and
Canada |
Outside China, sales in Europe increased rapidly and its
revenue is close to that achieved in the Asia-Pacific Region. In 2014 and 2013,
respectively, approximately 50.1% and 72.0% of our international sales were in
the Asia-Pacific Region and approximately 48.8% and 25.3% were in Europe.
We sell our products to international markets primarily through
export and trading agents and companies in China, as well as our own sales team
located in China and Europe. Our sales team sells directly to wholesalers, food
processors and mass merchandisers. Many of our customers are well known in their
local food market. We have established long-term relationships with many
international customers, especially in Japan and South Korea. Now that we have
acquired the Athena Group, we may use its existing sales channels and further
penetrate to Europe market. We also attend trade shows in Europe and other
international markets in order to promote our products.
We have also been giving increasing emphasis in recent years to
building a stronger international sales network. Our acquisition in France marks
an important step for American Lorain along with our sustained marketing and
operating efforts in Japan as well as domestic China. France is in a central
position in Europes food supply as well as logistics, and this acquisition will
potentially enable American Lorain to achieve a strategic position in the chestnut industry in Europe, yielding significant synergy together
with our China operations. We will provide strong support for raw material as
well as procurement of Asian food supplies in China, and will also be able to
take full advantage of Athenas existing sales channels in Europe to supply not
only chestnuts but also other food products desired by the European market.
Our Sales and Marketing Efforts We seek to expand
our customer base by:
|
Direct sales communications with our large
customers; |
|
Sales through distributors to new customer
bases; |
|
Referrals from existing customers; and |
|
Participation in domestic and international
food exhibitions and trade conferences. |
We have not spent a significant amount of capital on
advertising in the past, and our advertising budget continues to be limited. In
2014 our marketing and branding efforts included supermarket advertising and
internet advertising.
We intend to increase our advertising and branding efforts
given the consumer nature for many of our products. For the near future, our
marketing efforts will continue to focus primarily on the domestic Chinese and
European markets for our chestnut and convenience food products.
11
Competition and Market Position
The overall food market is diverse, both globally and in China.
We do not have a significant market share in any of our business segments.
Chestnut Products
We compete in the chestnut market primarily on the basis of the
uniqueness of our products, quality, price and brand recognition. We also
utilize our proprietary, patented and patent-pending technology in the
production of our chestnut products to our competitive advantage.
The world market for chestnut products is highly fragmented.
Our principal competitors in the chestnut product market are currently Hebei
Liyuan, a Chinese company, and Foodwell Corporation, a South Korean company and
Concept Fruit, a European company.
Convenience Food Products
The market competition for convenience food products is based
mostly upon quality and product variety. We attempt to use our modern food
processing technology, such as nitrogen preservation, to produce a wide variety
of high quality convenience foods.
The convenience food market in China is highly fragmented and
we do not face competitive pressure from any particular competitor or small
group of competitors.
Frozen Food Products
In the frozen food product market, competition is based
primarily upon quality, ability to provide a reliable product supply and
customer relationships.
Our strongest competitors in the frozen food products market
are currently Weifang Langdong Food Co. Ltd., Yuyao Hongji Food Co. Ltd. and
Yantai Pengshun Food Co. Ltd., all of which are located in China.
Competitive Advantages
We believe that we enjoy a number of competitive advantages,
both domestically and internationally.
We have developed brand equity for our chestnut products in
China, Japan and South Korea over the past 16 years. Our customers are willing
to pay a premium for some of our chestnut products because of our brand equity.
In addition, we believe that we have a strong distribution channel for our
products in the markets in which we currently operate.
We believe that we are able to provide our customers with
greater selection and a more reliable supply than many of our competitors, which
is especially important for our supermarket chain and large wholesaler
customers. We produced 59 chestnut products in 2014. We believe that we are the
sole provider of certain bottom-open chestnut and sweetheart chestnut products
in China.
Labor is a large portion of total operating costs for food
companies. We believe that we have a lower labor cost structure and a more
abundant labor supply than many of our international competitors.
We are focused on managing our costs in other ways as well. We
seek to locate our production facilities in close proximity to our main domestic
sources of raw material supply to reduce transportation costs and give us
first-hand knowledge of market factors affecting our cost of raw material
supply. Our agricultural self-supply program, while modest at present, is
expected to grow and to become a significant element of our cost containment
efforts.
We use modern food processing technology and innovation in our
formulation and manufacturing processes to create high quality products.
Nitrogen preservation in particular, used in the production of convenience
foods, is an innovative technology which has not been widely applied in China.
We are dedicated to innovation of our products. From 2012 to
2014, we were successfully granted 4 new patents. In addition, as of December
31, 2014, we possessed 16 patents for utility models and 15 patents for
appearance design. See Intellectual Property below.) We believe that our
technology gives us an advantage over our Chinese and international competitors,
allowing us to produce chestnut and convenience food products that are superior
in quality and to offer more product varieties.
12
We believe that our reputation for quality contributes to our
competitiveness. We maintain high food safety standards, in order to satisfy
both domestic and international requirements. We also regularly conduct tests
for quality of our products and compliance with standards.
Intellectual Property
Trademarks
We have registered in the PRC the trademark
which we use on all of our
products sold in China.
Patents
We were granted two patents by the State Intellectual Property
Office of the PRC during 2012, including the preparation of aerated snack beans
and frozen bottom open chestnuts. One patent for preparation of
liquor preserved fish and soup was approved in 2013. In 2014, our patent application
during 2012 for the preservation, storage and processing procedures for
chestnuts was approved.
In addition to the above-mentioned patents, we also possess
approximately 16 patents for utility models and 15 patents for appearance
design.
We take reasonable steps to protect our proprietary information
and trade secrets, such as limiting disclosure of proprietary plans, methods and
other similar information on a need-to-know basis and requiring employees with access to our
proprietary technology to enter into confidentiality arrangements. We believe
that our proprietary technology and trade secrets are adequately protected.
Our Employees
As of December 31, 2014, we had a total of 2,720 employees.
2,471 of our full-time employees are directly employed by our subsidiary
companies and the remaining employees are employed by outsourcing agents that we
use to meet our staffing needs. As required by Chinese law, all employees are
party to a written employment contract. We compensate the employees outsourced
from agents directly and pay agents a service fee. Agents are responsible for
the pension and social insurance benefits of the leased employees, as described
below.
The following table sets forth the allocation of employees,
both direct and leased, by job function.
|
Number of |
Department
|
Employees |
|
|
Production |
2,104 |
Quality Control |
92 |
Domestic Sales |
250 |
Human Resources |
11 |
Research and Development |
46 |
International Sales |
71 |
Finance |
56 |
Procurement |
20 |
Administration |
62 |
Strategic planning |
8 |
Total |
2,720 |
We believe that the relationship between management and our
employees is good. We have not experienced any significant problems or
disruption to our operations due to labor disputes, nor have we experienced any
difficulties in recruitment and retention of experienced staff.
13
Our Shandong Lorain subsidiary has an employee relations
department for the purpose of advancing employee welfare, encouraging employee
participation in decision making and enhancing relations among employees and
between employees and our management team.
We compensate our production line employees by unit produced
(piece work) and compensate other employees with a base salary and bonus based
on performance. We also provide training for our staff from time to time to
enhance their technical and product knowledge, including knowledge of industry
quality standards.
Our employees participate in state pension scheme and various
types of social insurance organized by municipal and provincial governments. We
were required to contribute to the scheme and social insurance on behalf of our
direct employees at a rate of 75% of the total contribution amount for the years
ended December 31, 2014 and 2013. As indicated above, outsourcing agents are
responsible for contributions on behalf of the leased employees.
Our Research and Development Activities
Our research and development efforts are focused on three
objectives:
|
Superior product safety and quality; and |
|
Reduction of operating costs; and |
|
Driving growth through the development of new
products. |
We have research and development staff at each of our
facilities. In total, 46 employees are dedicated to research and development.
We rely heavily on customer feedback to assist us in the
modification and development of our products. We also utilize customer feedback
to assist us in the development of new products. In 2014, we added 3 new
products in our chestnuts and convenience foods segment.
The amount we spent on research and development activities
during the years ended December 31, 2014 and 2013 was not a material portion of
our total expenses for those years.
Government Regulation
As a manufacturer and distributor of food products, we are
subject to regulations of Chinas Agricultural Ministry and Ministry of Health.
This regulatory scheme governs the manufacture (including composition and
ingredients), labeling, packaging and safety of food. It also regulates
manufacturing practices, including quality assurance programs, for foods through
its current manufacturing practice regulations, and specifies the standards of
identity for certain foods, including the products sold by us, and prescribes
the format and content of many of the products sold by us, the format and
content of certain nutritional information required to appear on food products
labels and approves and regulates claims of health benefits of food products.
We have obtained approvals from Chinese authorities for the
production of certain categories of products that we produce, including chestnuts, frozen
vegetables and fruits, fish, and canned products. Production of new products
that do not fall into approved categories of products would require separate
approval from the appropriate Chinese authorities. We have consistently obtained
such approvals for our newly developed products in the past and do not
anticipate any difficulties in obtaining new approvals in the future if needed.
In addition, we are required to obtain governmental approval,
and to register with the State Administration for Industry and Commerce, in
order to open a new facility in China. We have consistently obtained such
approvals, and made such registrations, for our new facilities in the past and
do not anticipate any difficulties in filing new registrations and obtaining new
approvals in the future if needed.
Under the relevant PRC sanitation laws governing food export,
unless an exporters products are exempted from inspection, products must be
inspected in accordance with the Law of the PRC on Import and Export Commodity
Inspection. We have not been exempted from inspection. In the past, we were
authorized by the relevant authorities to conduct self-inspection of certain of
our export products. However, currently, the relevant authorities have imposed
tighter food safety control in China, and as a result, all of our exported food
products must be inspected by relevant government agencies. We believe that all
of our exported products are currently in compliance with such requirements and
we do not anticipate any difficulties in complying with such rules in the
future.
14
In addition, we are required to obtain a license from the local
branch of the Entry-Exit Inspection and Quarantine Bureau of China for our
exported products. We have consistently obtained such licenses in the past and
we do not anticipate any difficulties in obtaining such licenses in the future.
ITEM 1A. RISK FACTORS
RISK FACTORS
Business Risks
We may not be able to obtain an adequate supply of high
quality raw materials.
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 2014, the cost of our raw
materials increased from $141,159,775 to $146,601,039 for an increase of
approximately 3.9%. 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.
The prices that we have paid for our raw materials
recently have experienced significant fluctuation. If these price fluctuations
continue, our profit margins may be materially adversely affected.
The average price that we paid for chestnuts in China in 2014
and 2013 was approximately $1,536 per metric ton and $1,507 per metric ton,
respectively, excluding value added taxes. We do not currently hedge against
changes in our raw material prices. Consequently, if the costs of our raw
materials increase further, and we are unable to offset these increases by
raising the prices of our products, our profit margins and financial condition
could be adversely affected.
Price inflation in China could affect our results of
operation if we are unable to pass along raw material price increases to our
customers.
Inflation in China has been consistently increasing in recent
years. Because we purchase raw materials from suppliers in China, price
inflation directly causes an increase in the cost of our raw materials. Price
inflation could affect our results of operation if we are unable to pass along
raw material price increases to customers. In addition, if inflationary trends
continue in China, China could lose its competitive advantage as a low-cost
manufacturing venue, which could in turn lessen some of the competitive
advantages of our being based in China. Accordingly, inflation in China may
weaken our competitiveness domestically or in international markets.
Our sales and reputation may be affected by product
liability claims, litigation or, product recalls in relation to our products.
The sale of products for human consumption involves an inherent
risk of injury to consumers. We face risks associated with product liability
claims, litigation, or product recalls, if our products cause injury or become
adulterated or misbranded. Our products are subject to product tampering and
contamination, such as mold, bacteria, insects, shell fragments and off-flavor
contamination, during any of the procurement, production, transportation and
storage processes. If any of our products were to be tampered with, or become
tainted in any of these respects, and we were unable to detect this, our
products could be subject to product liability claims or product recalls. Our
ability to sell products could be reduced if certain pesticides, herbicides or
other chemicals used by growers have left harmful residues on portions of our
raw materials or if our raw materials have been contaminated by other agents.
We have never had a product recall in the past but we have
experienced product liability claims that were made by our customers. The
amounts of such claims were immaterial. However, claims of product defect or
product liability for material amounts, individually or in the aggregate, may be
made in the future.
15
We have not procured a product liability or general liability
insurance policy for our business, as the insurance industry in China is still
in an early stage of development. To the extent that we suffer a loss of a type
which would normally be covered by product liability or general liability
insurance in the United States, we would incur significant expenses in defending
any action against us and in paying any claims that result from a settlement or
judgment against us. Product liability claims and product recalls could have a
material adverse effect on the demand for our products and on our business
goodwill and reputation. Adverse publicity could result in a loss of consumer
confidence in our products.
We may be unable to manage future rapid growth.
We have grown rapidly over the last few years. Our sales
increased from $27,735,833 in 2004 to $217,553,660 in 2014. The number of
product types we sold increased from approximately 100 in 2004 to approximately
237 in 2014. We intend to continue to expand the volume and variety of products
we offer, as well as the geographical scope of our sales and production
facilities. Our business growth could place a significant strain on our
managerial, operational and financial resources. Our ability to manage future
growth will depend on our ability to continue to implement and improve
operational, financial and management information systems on a timely basis and
to expand, train, motivate and manage our workforce. Our personnel, systems,
procedures and controls may not be adequate to support our future growth.
Failure to effectively manage our expansion may lead to increased costs, a
decline in sales and reduced profitability.
Our expansion strategy may not prove successful and could
adversely affect our existing business.
Our growth strategy includes the expansion of our manufacturing
operations, including new production lines and agricultural operations. We plan
to expand our sales in China and internationally. We will need to engage in
various forms of promotional and marketing activities in order to further
develop the branding of our products and to increase our market share in new and
existing markets. The implementation of this strategy may involve large
transactions and present financial, managerial and operational challenges. We
could also experience financial or other setbacks if any of our growth
strategies incur problems of which we are not presently aware. If we fail to
generate sufficient sales in new markets or increase our sales in existing
markets, we may not be able to recover the production, distribution, promotional
and marketing expenses, as well as administrative costs we have incurred in
developing such markets.
Our results of operations could be affected by natural
events in the locations in which our customers operate.
Several of our customers have operations in locations that are
subject to natural disasters, such as severe weather and geological events,
which could disrupt the operations of those customers and suppliers as well as
our operations. If our customers suffer from these events, their operations may
be negatively impacted. As a result, some or all of those customers may reduce
their orders for our products, which could adversely affect our revenue and
results of operations.
The acquisition of other businesses could pose risks to
our profitability.
We may try to grow through acquisitions in the future. Any
proposed acquisition could result in accounting charges, potentially dilutive
issuances of equity securities, and increased debt and contingent liabilities,
any of which could have a material adverse effect on our existing business and
the market price of our common stock. Acquisitions, in general, entail many
risks, including risks relating to the failed integration of the acquired
operations, diversion of managements attention, and the potential loss of key
employees of the acquired organizations. We may be unable to successfully
integrate businesses or the personnel of any business that might be acquired in
the future, and our failure to do so could have a material adverse effect on our
business and on the market price of our common stock.
We are subject to risks of doing business
internationally. If the international market does not grow as we expect, our
business and financial condition may be adversely affected.
We conduct a substantial amount of business internationally.
Our export sales destinations include countries in Asia, Europe, the Middle East
and North America. Our international operations are subject to a number of
inherent risks, including:
|
chestnut products may not be widely recognized
internationally, especially in Western countries; |
|
local economic and political conditions,
including disruptions in trading markets; |
|
restrictive foreign governmental actions,
including restrictions on transfers of funds and trade; |
|
protection measures, including export duties
and quotas and customs tariffs; |
|
currency exchange rate fluctuations;
|
16
|
earthquakes, tsunamis, floods or other major
disasters may limit the imported food products; and |
|
unexpected incidents related to food safety.
|
Any of the foregoing risks could have a material and adverse
effect on our operating results.
A significant amount of our revenues is dependent on a
limited number of customers and the loss of any one of our major customers could
materially and adversely affect our growth and our revenues.
A significant portion of our revenues has historically been
derived from a limited number of customers, particularly in our chestnut
products segment. Sales to our ten largest customers accounted for approximately
12.2% and 12.9% of our total revenues in 2014 and 2013, respectively. The loss
of any one of these customers, or a material decrease in purchases by any one of
these customers, could adversely impact our revenues.
We rely primarily on distributors to sell our products.
Any delays in delivery or poor handling by our distributors or third-party
transport operators may affect our sales and damage our reputation.
In 2014, we sold our products through over 200 distribution
service providers. The services provided could be suspended and could cause
interruption to the supply of our products to domestic or overseas customers.
Delivery disruptions may occur for various reasons beyond our control, including
poor handling by service providers or third party transport operators,
transportation bottlenecks, natural disasters and labor strikes, and could lead
to delayed, damaged or lost deliveries. If our products are not delivered in a
timely manner, our reputation could be harmed. If our products are damaged in
the process of being delivered, we may be liable to pay for such damages
incurred.
Failure of the market to accept our new products, or
failure to obtain regulatory approval for our new products, may cause us to lose
our competitive position in the food industry.
We introduced 7 new products in 2012, 6 new products in 2013
and 3 new products in 2014. We plan to introduce approximately 10 new
products in 2015. The success of the new products we introduce depends on our
ability to anticipate the tastes and dietary habits of consumers and to offer
products that appeal to their preferences. We intend to introduce new products
as well as alternative flavors, sizes and packaging for our existing products.
We may not be able to gain market acceptance for our new products. Consumer
preferences change, and any new products that we introduce may fail to meet the
particular tastes or requirements of consumers, or may be unable to replace
their existing preferences. Our failure to anticipate, identify or react to
these particular tastes or changes could result in reduced demand for our
products, which could in turn cause us to be unable to recover our development,
production and marketing costs.
We are dependent on certain key personnel and loss of
these key personnel could have a material adverse effect on our research and
development, operations and revenue.
The Lorain Group Companies were founded in 1994 by Si Chen, our
chairman and chief executive officer. Mr. Chen, together with other senior
management, has been a key driver of our strategy and has been fundamental to
our achievements to date. The successful management of our business is, to a
considerable extent, dependent on the services of Mr. Chen and other senior
management. We compete for qualified personnel with other food processing
companies, food retailers and research institutions. Consequently, we may either
lose key employees to our competitors or we may need to significantly increase
the compensation of such employees in order to retain them. The loss of the
services of any key management employee or failure to recruit a suitable or
comparable replacement could have a significant impact upon our ability to
manage our business effectively, and our business and future growth may be
adversely affected.
We face increasing competition from domestic and foreign
companies.
The food industry in China is fragmented. Our ability to
compete against other national and international enterprises is, to a
significant extent, dependent on our ability to distinguish our products from
those of our competitors by providing large volumes of high quality products
that appeal to consumers tastes and preferences at reasonable prices. Some of
our competitors have been in business longer than we have and are more
established. Our competitors may provide products comparable or superior to
those we provide or adapt more quickly than we do to evolving industry trends or
changing market requirements. Increased competition may result in price
reductions, higher raw materials prices, reduced margins and loss of market
share, any of which could materially adversely affect our profit margins.
17
An increase in the cost of energy could affect our
profitability.
Recently, we have experienced significant increases in energy
costs, and energy costs could continue to rise, which would result in higher
distribution, freight and other operating costs. Our future operating expenses
and margins will be dependent on our ability to manage the impact of cost
increases.
Our products are subject to counterfeiting or imitation,
which could impact our reputation.
To date, we have experienced limited counterfeiting and
imitation of our products. However, counterfeiting or imitation of our products
may occur in the future and we may not be able to detect it and deal with it
effectively. Any occurrence of counterfeiting or imitation could impact
negatively upon our reputation, particularly if the counterfeit or imitation
products cause sickness, or injury to consumers. In addition, counterfeit or
imitation products could result in our need to incur costs with respect to the
detection or prosecution of such activities.
Regulatory Risks
We are subject to extensive regulations by the Chinese
government.
The food industry is subject to extensive regulations by
Chinese government agencies. Among other things, these regulations govern the
manufacturing, importation, processing, packaging, storage, exportation,
distribution and labeling of our products. New or amended statutes and
regulations, increased production at our existing facilities, and our expansion
into new operations and jurisdictions may require us to obtain new licenses and
permits and could require us to change our methods of operations at costs that
could be substantial.
Our failure to comply with PRC environmental laws may
require us to incur significant costs.
We carry on our business in an industry that is subject to PRC
environmental protection laws and regulations. These laws and regulations
require enterprises engaged in manufacturing and construction that may cause
environmental waste to adopt effective measures to control such waste. In
addition, such enterprises are required to pay fines, or to cease operations
entirely under extreme circumstances, should they discharge waste substances.
The Chinese government may also change the existing laws or regulations or
impose additional or stricter laws or regulations, compliance with which may
cause us to incur significant capital expenditures, which we may be unable to
pass on to our customers through higher prices for our products.
Our failure to comply with PRC hygiene laws may require
us to incur significant costs.
Manufacturers in the Chinese food industry are subject to
compliance with PRC food hygiene laws and regulations. These food hygiene laws
require all enterprises engaged in the production of chestnuts and various
vegetables and fruits to obtain a hygiene license for each of their production
facilities. Such laws also require manufacturers to comply with regulations with
respect to food, food additives, packaging, and food production sites,
facilities and equipment. Failure to comply with PRC food hygiene laws may
result in fines, suspension of operations, loss of hygiene licenses and, in more
extreme cases, criminal proceedings against an enterprise and its management.
The Chinese government may also change the existing laws or regulations or
impose additional or stricter laws or regulations, compliance with which may
cause us to incur significant capital expenditures, which we may be unable to
pass on to our customers through higher prices for our products.
Financial Risks
Our operations are cash intensive, and our business could
be adversely affected if we fail to maintain sufficient levels of working
capital.
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, do not allow us to pay on credit. 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.
18
We also fund approximately 37.7% of our working capital
requirements from the proceeds of short-term loans from Chinese and overseas
banks. Our average loan balance from short-term bank loans in 2014 was
approximately $39.9 million. We expect to continue to do so in the future. Such
loans are generally secured by our fixed assets, receivables and/or guarantees
by third parties. The term of almost all such loans is one year or less.
Historically, we have rolled over such loans on an annual basis. However, we may
not be able to roll over such loans in the future or may not have sufficient
funds available to pay all of our borrowings upon maturity. Failure to roll over
our short-term borrowings at maturity or to service our debt could result in the
imposition of penalties, including increases in rates of interest, legal actions
against us by our creditors, or even insolvency.
Management anticipates 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 through 2015. However, if
available liquidity is not sufficient to meet our operating and loan obligations
as they come due, our plans include considering pursuing alternative financing
arrangements or further reducing expenditures as necessary to meet our cash
requirements. However, there is no assurance that, if required, we will be able
to raise additional capital or reduce discretionary spending to provide the
required liquidity. Currently, the capital markets for small capitalization
companies are 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.
We are subject to credit risk in respect of account
receivables.
In 2008 and 2009, some of our customers, including some of our
large supermarket customers, delayed their payments for up to 60 to 90 days
beyond their term. Our cash flow suffered while waiting for such payments.
Consequently, at times we had to delay payments to our suppliers and to postpone
business expansion as a result of these delayed payments. Starting in 2008 and
through 2014, we gradually shortened credit terms for many of our international
and domestic customers from between 30 and 180 days to between 30 and 60 days.
Our large customers may fail to meet these shortened credit terms, in which case
we may not have sufficient cash flow to fund our operating costs and our
business could be adversely affected.
We may enter into additional financing agreements which
may have a dilutive effect to our earnings per share and the rights of certain
stockholders.
Additional financings could result in significant dilution to
our earnings per share or the issuance of securities with rights superior to our
current outstanding securities. For instance, we may grant registration rights
to investors purchasing our equity or debt securities in the future.
We may be unable to raise additional capital.
If we are unable to raise additional financing when needed, we
may be unable to implement our long-term business plan, develop or enhance our
products and services, take advantage of future opportunities or respond to
competitive pressures on a timely basis, if at all. In addition, a lack of
additional financing could force us to substantially curtail or cease
operations.
We may be exposed to potential risks relating to our
internal control over financial reporting and our ability to have such controls
attested to by our independent auditors.
The SEC, under Section 404 of the Sarbanes-Oxley Act of 2002,
adopted rules requiring public companies to provide in their annual reports on
Form 10-K a report by management with respect to the companys disclosure
controls and procedures and internal control over financial reporting. We are
currently required to comply with this requirement. In addition, such rules
require the independent registered public accounting firm auditing a companys
financial statements to attest to the operating effectiveness of such companys
internal controls. However, because we are a smaller reporting company, we are
not required to receive an attestation report from a registered public
accounting firm. We can provide no assurance that we will comply with all of the
requirements imposed thereby. Further, we cannot assure that we will receive a
positive attestation from our independent auditors. Investors and others may
lose confidence in the reliability of our financial statements in the event we
identify significant deficiencies or material weaknesses in our internal
controls that we cannot remediate in a timely manner or if we are unable to
receive a positive attestation from our independent auditors with respect to our
internal controls.
Risks Related To Doing Business In China
Changes in Chinas political or economic situation could
harm us and our operating results.
19
Economic reforms adopted by the Chinese government have had a
positive effect on the economic development of the country. However, the Chinese
government could change these economic reforms at any time. Such changes could
negatively impact our operations and profitability.
The structure of the Chinese economy may inhibit our
ability to expand our business.
The Chinese economy differs from the economies of most
countries belonging to the Organization for Economic Cooperation and
Development, or OECD, in several ways. For example, state-owned enterprises
constitute a large portion of the Chinese economy. In addition, weak corporate
governance practices and the lack of flexible currency exchange policies
continue to persist. As a result of these differences, we may not develop in the
same way or at the same rate as might be expected if the Chinese economy were
similar to those of the OECD member countries.
Our business is largely subject to the uncertain legal
environment in China.
The Chinese legal system is a civil law system based on written
statutes. Unlike common law systems, it is a system in which precedents set in
earlier legal cases are not generally used. Laws, regulations and legal
requirements relating to foreign investments in China are still evolving, and
their interpretation and enforcement involve uncertainties. These uncertainties
could limit the legal protections available to foreign investors, such as the
right of foreign enterprises to hold required business licenses and permits.
It may be difficult for our stockholders to effect
service of process against our subsidiaries or our officers and directors.
Our operating subsidiaries were organized under the laws of
China and substantially all of their assets are located outside the U.S. In
addition, our executive officers and directors are residents of China and
substantially all of their assets are located outside the U.S. As a result, it
could be difficult for our stockholders to effect service of process in the
U.S., or to enforce a judgment obtained in the U.S., against our officers and
directors in China.
Restrictions on currency exchange may limit our ability
to receive and use our revenues effectively.
The majority of our revenues are settled in Renminbi and U.S.
dollars, and any future restrictions on currency exchanges may limit our ability
to use revenue generated in Renminbi to fund any future business activities
outside China or to make dividends or other payments in U.S. dollars. Although
the Chinese government introduced regulations in 1996 to allow greater
convertibility of the Renminbi for current account transactions, significant
restrictions still remain. For instance, foreign enterprises may only buy, sell
or remit foreign currencies after providing valid commercial documents at banks
in China authorized to conduct foreign exchange business. In addition,
conversion of Renminbi for capital account items, including direct investment
and loans, is subject to governmental approval in China, and companies are
required to open and maintain separate foreign exchange accounts for capital
account items. The Chinese regulatory authorities may impose more stringent
restrictions on the convertibility of the Renminbi in the future.
Failure to comply with PRC regulations relating to the
establishment of offshore special purpose companies by PRC residents may have
negative effects on our company.
In October 2005, the PRC State Administration of Foreign
Exchange, or SAFE, issued the Notice on Relevant Issues in the Foreign Exchange
Control over Financing and Return Investment Through Special Purpose Companies
by Residents Inside China, generally referred to as Circular 75, which required
PRC residents to register with the local SAFE branch before establishing or
acquiring control over an offshore special purpose vehicle, or SPV, for the
purpose of engaging in an equity financing outside of China on the strength of
domestic PRC assets originally held by those residents. Internal implementing
guidelines issued by SAFE, which became public in June 2007 (known as Notice
106), further expanded the reach of Circular 75.
ILH acquired certain interests in the Lorain Group Companies
controlled by Si Chen, our Chairman and Chief Executive Officer. Pursuant to
Circular 75 and Notice 106, if a PRC resident has completed a round-trip
investment through its established SPV but has not yet completed the required
procedures of SAFE registration for offshore investment of the SPV, he must
retroactively register the SPV with SAFE.
In order to avoid such SAFE registration requirements, a
Japanese individual, Hisashi Akazawa, was designated as a nominee holder of ILH
when ILH was established. Mr. Akazawa granted an option to our Chairman and
Chief Executive Officer, Mr. Chen, allowing Mr. Chen to buy 90% of Mr. Akazawas
interest in the Company at a fixed price at a future time in accordance with the
terms of an option agreement between the two parties. On December 22, 2008,
20
Mr. Chen exercised this option. In addition, on that date, Mr.
Chen acquired all of the remaining shares of our company held by Mr. Akazawa. As
a result, Mr. Chen is the beneficiary of ILH and may be required to register
with and obtain approvals from SAFE or its agency with respect to the direct
offshore investment activities related to the acquisition of the Lorain Group
Companies.
If the failure to identify and characterize Mr. Chen as a
beneficial owner of ILH is determined by the PRC authorities to be a serious
violation of the requirements of the PRC Company Law and the PRC Regulation of
Registration of Companies, the Lorain Group Companies may be ordered by the
company registration authority in the PRC to make corrections on its filed
registration, to be fined an amount no less than RMB 5,000 and no more than RMB
50,000 or, in the worse scenario, to have its company registration certificate
revoked or its business licenses canceled.
On July 14, 2014, the SAFE issued the Circular Relating to
Foreign Exchange Administration of Offshore Investment, Financing and Roundtrip
Investment by Domestic Residents Through Special Purpose Vehicles, or Circular
37. Circular 37 repeals and replaces the Notice Concerning Foreign Exchange
Controls on Domestic Residents Financing and Roundtrip Investment Through
Offshore Special Purpose Vehicles, or Circular 75. Under Circular 37, PRC
residents are required to register with the SAFE or its local branches prior to
establishing, or acquiring control of, an offshore company for the purpose of
investment or financing that offshore company with equity interests in, or
assets of, a PRC enterprise or with offshore equity interest or assets legally
held by such PRC resident. In addition, PRC residents are required to amend
their registrations with the SAFE and its local branches to reflect any material
changes with respect to such PRC residents investment in such offshore company,
including changes to basic information of such PRC resident, increase or
decrease in capital, share transfer or share swap, merger or division. In the
event that a PRC shareholder fails to make the required registration or update
the previously filed registration, the PRC subsidiaries of that offshore special
purpose vehicle may be prohibited from distributing their profits and the
proceeds from any reduction in capital, share transfer or liquidation to their
offshore parent company, and the offshore parent company may also be prohibited
from contributing additional capital into its PRC subsidiaries. Furthermore,
failure to comply with the various foreign exchange registration requirements
described above could result in liability under the PRC laws for evasion of
applicable foreign exchange restrictions.
We have requested our relevant shareholders who are subject to the SAFE
regulations to make the necessary registrations under the SAFE regulations.
However, we may not be fully informed of the identities of the beneficial owners
of our company. We do not have control over our beneficial owners and cannot
assure you that all of our PRC resident beneficial owners will comply with SAFE
regulations. The failure of our beneficial owners who are PRC residents to
comply with these SAFE registrations may subject such beneficial owners or our
PRC subsidiaries to fines and legal sanctions. Furthermore, since Circular 37
was recently promulgated and it is unclear how this regulation, and any future
regulation concerning offshore or cross-border transactions, will be
interpreted, amended and implemented by the relevant PRC government authorities,
we cannot predict how these regulations will affect our business operations or
future strategy. Failure to register or comply with relevant requirements may
also limit our ability to contribute additional capital to our PRC subsidiaries
and limit our PRC subsidiaries ability to distribute dividends to our company.
These risks may have a material adverse effect on our business, financial
condition and results of operations.
If the failure to identify, characterize and register Mr. Chen as a beneficial
owner of ILH is determined by the PRC authorities to be a violation of the
requirements of registration and disclosure under new Circular 37, the Lorain
Group Companies may be ordered by the authority in the PRC to make corrections
on its filed registration, to be fined an amount up to RMB 50,000 for Mr. Chen
and up to RMB 300,000 for the Lorain Group Companies.
Furthermore, since Circular 37 was recently promulgated and it is unclear how
this regulation, and any future regulation concerning offshore or cross-border
transactions, will be interpreted, amended and implemented by the relevant PRC
government authorities, we cannot predict how these regulations will affect our
business operations or future strategy. Failure to register or comply with
relevant requirements may also limit our ability to contribute additional
capital to our PRC subsidiaries and limit our PRC subsidiaries ability to
distribute dividends to our company. These risks may have a material adverse
effect on our business, financial condition and results of operations.
Our financial condition is affected by the foreign
exchange rate between the U.S. dollar and the Renminbi.
Our financial condition is affected by the foreign exchange
rates, primarily the rate between the U.S. dollar and the Renminbi, as well as
Euro and Renminbi. In the event that the Renminbi appreciates against the U.S.
dollar and Euro, our costs will increase.
Risks Related To the Market For Our Stock
Certain of our stockholders have the ability to delay or
prevent adoption of important business decisions based on their ownership of a
significant percentage of our outstanding voting securities.
Mr. Chen is the record owner of approximately 42.2% of our
outstanding voting securities. As a result, he possesses significant influence
over our business. For instance, Mr. Chen may have significant power in the
election of our board of directors,
authorize significant corporate transactions or prevent a future change in
control of our company.
Certain provisions of our Articles of Incorporation may
make it more difficult for a third party to effect a change-incontrol.
Our Articles of Incorporation authorize our board of directors
to issue up to 5,000,000 shares of preferred stock without stockholder approval.
The preferred stock may be issued in one or more series, the terms of which may
be determined at the time of issuance by the board of directors without further
action by the stockholders. These terms may contain voting rights, including the
right to vote as a series on particular matters, preferences as to dividends and
liquidation, conversion rights and redemption rights provisions. The issuance of
any preferred stock could diminish the rights of holders of our common stock,
and therefore could reduce the value of such common stock. In addition, specific
rights granted to future holders of preferred stock could be used to restrict
our ability to merge with, or sell assets to, a third party. The ability of our
board of directors to issue preferred stock could make it more difficult to
acquire our company and could negatively affect the market price of our common
stock.
The exercise of outstanding warrants issuable for shares
of our common stock may cause dilution to existing shareholders.
There are currently warrants outstanding to purchase up to an
aggregate of 1,753,909 shares of our common stock at an exercise price of $3.70,
subject to adjustments. These warrants expire in April 2015. If holders of these
warrants exercise the warrants in exchange for shares of our common stock, such
issuances may have a dilutive effect on the stock ownership of existing
shareholders and may harm the market price of our stock.
We do not expect to pay dividends in the future, and any
return on your investment may be limited to the value of the shares you acquire.
21
Other than a special cash dividend which we paid to holders of
our common stock as of April 16, 2007, we have never declared or paid cash
dividends. We do not anticipate paying any cash dividends on our common stock in
the foreseeable future and any return on your investment may be limited to the
value of the shares of our common stock that you acquire. We currently intend to
retain and use any future earnings for the development and expansion of our
business.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our primary facilities, which are owned except where otherwise
indicated, are as follows:
Facility |
Location |
Approximate Size |
Owned or Leased |
|
|
(Square Meters) |
|
Junan Hongrun |
Junan County, |
197,637 |
Owned |
|
Shandong |
|
|
|
Province, PRC |
|
|
Shandong Lorain |
Junan County, |
31,459 |
Owned |
|
Shandong |
|
|
|
Province, PRC |
|
|
Beijing Lorain |
Miyun County, |
22,677 |
Owned |
|
Beijing |
|
|
|
Province, PRC |
|
|
Luotian Lorain |
Luotian County, |
54,251 |
Owned |
|
Hubei |
|
|
|
Province, PRC |
|
|
Dongguan Lorain |
Dongguan County, |
5,472 |
Leased |
|
Guangdong |
|
|
|
Province, PRC |
|
|
Shandong Greenpia |
Junan County, |
33,332 |
Owned |
|
Shandong |
|
|
|
Province, PRC |
|
|
Conserverie Minerve* |
France and Portugal |
35,645 |
Owned |
* a wholly-owned subsidiary of Athena, a company controlled by
Junan Hongrun
We may also own or lease space for additional facilities,
including refrigerated storage facilities, and smaller offices, including sales
offices, located in China.
In the aggregate, we currently have land use rights to, or
lease, 79 properties with approximately 380,473 square meters, consisting of
manufacturing facilities, office buildings and land reserved for future
expansion. We believe our current facilities provide adequate capacity for our
current and projected needs.
All land in China is owned by the State. Individuals and
companies are permitted to acquire land use rights for specific purposes. In the
case of land used for industrial purposes, the land use rights are granted for a
period of up to 50 years. This period may be renewed at the expiration of the
initial and any subsequent terms. Granted land use rights are transferable and
may be used as security for borrowings and other obligations.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may have disputes that arise in the
ordinary course of our business. Currently, there is a lawsuit currently pending
in Linyi City Intermediate People's Court of Shandong Province, which was filed
by Shandong Lorain, a subsidiary of the Company, against Junan Hengji Real
Estate Development Co., Ltd. ("Junan Hengji") in November 2013. Subsequently,
Shandong Lorain added Jiangsu Heng An Industrial Investment Group Co., Ltd. ("Heng
An Investment") as a co-defendant.
In September 2010, Shandong Lorain and Junan Hengji entered
into a cooperative development agreement (the "Agreement"), and in March 2011,
Heng An Investment, an affiliated company of Junan Hengji also entered into the
Agreement with Shandong Lorain to jointly develop the project with Junan Hengji.
Pursuant to the Agreement, Junan Henji and Heng An Investment are required to
pay Shandong Lorain a total RMB 20 million (approximately $3,225,806) fixed
return according to the development status of the project developed by Junan
Hengji and Heng An Investment. The payment was due and unpaid to Shandong
Lorain. Shandong Lorain and the Company evaluated the potential claims against
Junan Hengji and Heng An Investment, disputes between the parties with respect
to out of pocket expenses paid by Junan Hengji as well as the litigation fee
that is required to be paid to the court based upon the amount claimed.
Eventually, Shandong Lorain decided to file the lawsuit with Linyi City
Intermediate People's Court to claim a fixed return of RMB 10 million
(approximately $1,612,903) first.
In January 2014, the court had its first trial session. During
the trial, Heng An Investment filed a counterclaim against Shandong Lorain for
repayment of out of pocket expenses which would off-set the entire fixed return
plus additional unpaid expense of RMB 4,746,927 (approximately $765,633).
Shandong Lorain responded that Heng An Investment does not have standing to file
the counter-claim because the out of pocket payments were made by Junan Hengji.
In November 2014, the court had a second trial session and completed its
discovery process and the Company is waiting for the judgment of the court.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
22
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market for our Common Stock
Our common stock is quoted on the NYSE MKT under the symbol
ALN. As of March 27, 2014 the closing price for our common stock was $1.25 per
share.
The following table sets forth, for the periods indicated, the
high and low sales prices of our common stock. These prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions.
|
|
Common Stock
|
|
|
|
Market Prices
|
|
|
|
High |
|
|
Low |
|
Fiscal Year Ended December 31, 2014 |
|
|
|
|
|
|
First Quarter |
$ |
1.37 |
|
$ |
0.72 |
|
Second Quarter |
$ |
1.20 |
|
$ |
1.01 |
|
Third Quarter |
$ |
1.27 |
|
$ |
1.08 |
|
Fourth Quarter |
$ |
1.34 |
|
$ |
0.89 |
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31, 2013 |
|
|
|
|
|
|
First Quarter |
$ |
1.40 |
|
$ |
1.20 |
|
Second Quarter |
$ |
1.29 |
|
$ |
1.02 |
|
Third Quarter |
$ |
1.11 |
|
$ |
0.61 |
|
Fourth Quarter |
$ |
0.97 |
|
$ |
0.68 |
|
Approximate Number of Holders of Our Common
Stock
As of March 30, 2015, there were 288 stockholders of record of
our common stock. This does not include the holders whose shares are held in a
depository trust in street name.
Dividend Policy
We have not declared or paid cash dividends other than the
payment of a dividend in April 2007 in connection with our reverse merger. Any
future decisions regarding dividends will be made by our board of directors. We
currently intend to retain and use any future earnings for the development and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
Issuances of Unregistered Securities
We issued $3.5 million Convertible Promissory Note to Jade Lane
Group Limited in March 2014. 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.
Securities Authorized for Issuance under Equity
Compensation Plans
The information in Item 12 of this report is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
23
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 in China. Our products are
sold in the Chinese domestic markets as well as exported to foreign countries
and regions such as Japan, South Korea and Europe. We believe that we are the
largest chestnut processor and manufacturer in China. We have developed brand
equity for our chestnut products in China, Japan and South Korea over the past
16 years. We produced 59 high value-added chestnut products in 2014. We derive
most of our revenues from sales in China, France and Japan. In 2015, 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. We also plan to launch a
mass-consumed food product series whose market is highly fragmented in China.
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 2014, the cost of our raw materials
increased from $141,159,775 to $146,601,039 for an increase of approximately
39%. 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.
The average price that we paid for chestnuts in the China
domestic market in 2014 and 2013 was approximately $1,536 metric ton and $1,507
per metric ton, respectively, excluding value added taxes. In the past few
years, increasing inflation pressures weighed on the Chinese economy which
reflected on agricultural product prices. We do not have effective means and do
not currently hedge against changes in our raw material prices. Consequently, if
the costs of our raw materials increase further and we are unable to offset
these increases by raising the prices of our products, our profit margins and
financial condition could be adversely affected.
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 pay for their supplies in cash 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 also funded approximately 37.7% and 21.1% of our working
capital requirements in 2014 and 2013, respectively, from the proceeds of
short-term loans from Chinese and foreign banks. We expect to continue to do so
in the future. Such loans are generally secured by our fixed assets, receivables
and/or guarantees by third parties. Our average loan balance from short-term
bank loans in 2014 and 2013 were approximately $39.9 million and $32.8 million,
respectively. The term of almost all such loans is one year or less.
Historically, we have rolled over such loans on an annual basis. However, in
recent years, the Chinese government has implemented 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. We
secured a $15 million loan from Deutsche Investitions- und
Entwicklungsgesellshaft (DEG) in May 2010, which we have fully drawn down in
2011.In addition, we completed three private placement financings in 2012 and
2013 with net proceeds of $13.0 million, $16.3 million and $16.3 million,
respectively, the proceeds of which were primarily used as working capital. In
2014, we also issued $3.5 million convertible promissory note to an investor. 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.
24
We anticipate that our existing capital resources, including cash flows
from operations, current and expected short-term bank loans and debentures will be adequate
to satisfy our liquidity requirements through 2015. However, if available
liquidity is not sufficient to meet our operating and loan obligations as they
come due, our plans include considering pursuing alternative financing
arrangements or further reducing expenditures as necessary to meet our cash
requirements. However, there is no assurance that, if required, we will be able
to raise additional capital or reduce discretionary spending to provide the
required liquidity. Currently, the capital markets for small capitalization
companies are 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.
In 2008 and 2009, some of our customers, including some of our
large supermarket customers, delayed their payments for up to 60 to 90 days
beyond their term. Our cash flow suffered while waiting for such payments.
Consequently, at times we had to delay payments to our suppliers and to postpone
business expansion as a result of these delayed payments. Starting in 2008 and
through 2013 we gradually shortened credit terms for many of our international
and domestic customers from between 30 and 180 days to between 30 and 60 days.
Our large customers may fail to meet these shortened credit terms, in which case
we may not have sufficient cash flow to fund our operating costs and our
business could be adversely affected.
Results of Operations
The following tables set forth key components of our results of
operations for the periods indicated, and the differences between the two
periods expressed in dollars and percentages.
|
|
Year Ended December 31, |
|
|
Increase/Decrease |
|
|
Increase/Decrease |
|
(in thousands of
U.S. dollars) |
|
2014
($) |
|
|
2013
($) |
|
|
($) |
|
|
(%) |
|
Revenue |
|
217,554 |
|
|
215,280 |
|
|
2,274 |
|
|
1.1% |
|
Cost of Revenue |
|
(179,591 |
) |
|
(172,108 |
) |
|
(7,483 |
) |
|
4.3% |
|
Gross profit |
|
37,963 |
|
|
43,172 |
|
|
(5,209 |
)
|
|
-12.1% |
|
Operating |
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing |
|
(11,642 |
) |
|
(10,508 |
) |
|
(1,134 |
) |
|
10.8% |
|
General and administrative
|
|
(10,655 |
)
|
|
(7,231 |
)
|
|
(3,424 |
)
|
|
47.4% |
|
Income from continuing
operations |
|
15,666 |
|
|
25,433 |
|
|
(9,767 |
) |
|
-38.4% |
|
Non-operating
Income |
|
|
|
|
|
|
|
|
|
|
|
|
(Expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
Government grant |
|
2,378 |
|
|
1,607 |
|
|
771 |
|
|
48.0% |
|
Interest income |
|
230 |
|
|
80 |
|
|
150 |
|
|
187.5% |
|
Other income |
|
899 |
|
|
1,485 |
|
|
(586 |
)
|
|
-39.5% |
|
Other expense |
|
(567 |
) |
|
(189 |
) |
|
(378 |
) |
|
200.0% |
|
Interest Expense |
|
(8,347 |
)
|
|
(5,153 |
)
|
|
(3,194 |
)
|
|
62.0% |
|
Loss from write down of other receivable |
|
(2,762 |
) |
|
- |
|
|
(2,762 |
) |
|
- |
|
Income before
taxes |
|
7,497 |
|
|
23,263 |
|
|
(15,766 |
)
|
|
-67.8% |
|
Income Taxes |
|
(3,090 |
) |
|
(5,574 |
) |
|
2,484 |
|
|
-44.6% |
|
Income before Non- Controlling Interest |
|
4,407 |
|
|
17,689 |
|
|
(13,282 |
)
|
|
-75.1% |
|
Non-Controlling Interest |
|
(654 |
) |
|
(1,055 |
) |
|
401 |
|
|
38.0% |
|
Net Income |
|
3,753 |
|
|
16,634 |
|
|
(12,881 |
) |
|
-77.4% |
|
25
Year Ended December 31, 2014 Compared to Year Ended December
31, 2013
Revenue
Net Revenues. Net revenues increased by $2.3 million, or
approximately 1.1%, to $217.6 million in 2014 from $215.3 million in 2013. This
increase was attributable to the increased revenues from sales of our chestnut
food products in the European market, which partially offset by decreased
revenues from China domestic sales of three product segments as reflected in the
following table:
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
Increase / |
|
|
Increase / |
|
|
|
Revenues |
|
|
Revenues |
|
|
Decrease |
|
|
Decrease |
|
(in thousands of U.S.
dollars) |
|
($) |
|
|
($) |
|
|
($) |
|
|
(%) |
|
Chestnut |
|
123,037,895 |
|
|
114,709,005 |
|
|
8,328,890 |
|
|
7.3% |
|
Convenience food |
|
58,874,609 |
|
|
62,213,432 |
|
|
(3,338,823 |
) |
|
-5.4% |
|
Frozen food |
|
35,641,156 |
|
|
38,357,348 |
|
|
(2,716,192 |
) |
|
-7.1% |
|
Total |
|
217,553,660 |
|
|
215,279,785 |
|
|
2,273,875 |
|
|
1.1%
|
|
Revenues from sales in the China domestic market decreased by
approximately $19.4 million, or approximately 12.2%, in 2014. As a percentage of
total revenues, revenues from the domestic PRC market decreased to approximately
64.2% from approximately 73.8% in 2013. Revenue from sales in international
markets increased by approximately $21.6 million, or approximately 38.5% as we
consolidated the Athena Group in the second half of 2014.
We implemented an overseas market development strategy,
particularly in the European market in the past two years. In 2014, revenues
from Europe market increased from $14.2 million to $38.0 million. See Note 15 to
the financial statements contained in this report for more information on the
breakdown of our sales pursuant to geographic region.
Cost of Revenues. Our cost of revenues increased $7.5
million, or approximately 4.3%, to $179.6 million in 2014 from $172.1 million in
2013. This increase was attributable to the following factors, by percentage:
|
|
Increase |
|
|
|
(Decrease) in |
|
|
|
Cost |
|
|
|
of Revenues |
|
Category |
|
(%) |
|
Raw Materials and external
purchase |
|
3.9% |
|
Other Allocated Overhead (depreciation,
utilities, freight, equipment consumables) |
|
4.1% |
|
Wages |
|
25.6% |
|
Raw material costs increased by approximately 3.9% in 2014
which was attributed to the increase of the average price of raw materials and
consolidation of the Athena Group for second half of 2014. Wage expenses
increased primarily due to an increase in the number of production personnel and
the salary level.
The following table reflects the changes in our cost of
revenues in 2014 as compared to 2013 among our different segments:
(million |
|
2014 Cost of |
|
|
2013 Cost of |
|
|
Increase/ |
|
U.S. dollars) |
|
Revenues ($) |
|
|
Revenues ($) |
|
|
(Decrease) |
|
|
|
|
|
|
|
|
|
(%) |
|
Chestnut Products |
|
101.7 |
|
|
89.9 |
|
|
13.1% |
|
Convenience Products |
|
48.3 |
|
|
50.1 |
|
|
-3.6% |
|
Frozen Products |
|
29.6 |
|
|
32.1 |
|
|
-7.8% |
|
Total |
|
179.6 |
|
|
172.1 |
|
|
4.3% |
|
26
Gross Profit. Our gross profit decreased $5.2 million,
or 12.1%, to $38.0 million in 2014 from $43.2 million in 2013. The cost of
revenues increased by $7.5 million which offset the increase of revenue of $2.3
million. The decrease in gross profit was principally attributable to the fact
that the Athena Group is under operational restructuring after our acquisition,
and we believe its further sales potential will be realized in 2015. In
addition, the sales of externally purchased finished products increased, whose
gross profit margin is lower than that of our self-produced finished products.
Operating Expenses
Selling and Marketing Expenses. Our selling and
marketing expenses increased approximately $1.1 million, or 10.8%, to $11.6 in
2014 from $10.5 million in 2013. The increase is attributable to increases of
wages and benefits in 2014. In order to further penetrate to those new markets
and areas in 2015, we recruited additional sales personnel to develop our direct
client base and management of distributors in 2014. In addition, we also
implemented an incentive salary structure for sales and marketing employees
which led to the increase of personnel costs. The Selling and Marketing Expense
to Revenue ratio was 5.4% in 2014 compared to 4.9% in 2013, management believes
the expense incurred is reasonable.
General and Administrative Expenses. Our general and
administrative expenses increased approximately $3.4 million, or 47.4%, to $10.6
million in 2014 from $7.2 million in 2013. The increase is mainly due to the
fact that we consolidated the Athena Group for the second half of 2014, whose
general and administrative expense for the period was $2.8 million.
Government Subsidy Income
Government subsidy income increased from approximately $1.6
million in 2013 to $2.4 million in 2014, representing grants received mostly
from the Junan County, Beijing and Luotian government to assist us in our
research and business development.
Income Before Taxation and Non-Controlling
Interest
Income before taxation and non-controlling interest decreased
$15.8 million, or 67.8%, to $7.5 million in 2014 from $23.3 million in 2013 as a
result of the increase of cost of sales and operating expenses, for the reasons
indicated above.
Income Taxes
Income taxes decreased approximately $2.5 million, or 44.6%, to
$3.1 million in 2014, as compared to $5.6 million in 2013. This decrease was
attributable to the lower income earned in 2014 as compared to 2013.
Non-Controlling Interest
Shandong Economic Development Investment holds 19.8% of the
equity of our subsidiary Shandong Lorain, and Biobranco II, Alcides Branco, and
Nuno Branco hold 49% of the equity of the Athena Group, which is reflected in
the non-controlling interest of $0.7 million in 2014 and $1.1 million in 2013.
Net Income
Net income decreased $12.8 million, or 77.4%, to $3.8 million
in 2014 from $16.6 million in 2013. As indicated above, although revenue
achieved in the European market led to an increase in our total revenue by $2.3
million, while cost of revenue increased $7.5 million due to reasons indicated
above. Particularly, the Athena group that we consolidated for second half year
of 2014 had not reached full production capacity and its fixed costs and
expenses lowered the overall profitability.
27
Liquidity and Capital Resources General
Our primary capital needs have been to fund the working capital
requirements necessitated by our sales growth, adding new products and expanding
our facilities. In the past, our primary sources of financing have been cash
generated from operations and short-term loans from banks in China. In addition,
we secured a $15 million loan from Deutsche Investitions- und
Entwicklungsgesellshaft (DEG) in May 2010 which we had fully drawn down in
2011. We completed three private placement financings in 2012 and 2013 with net
proceeds of $13.0 million, $16.3 million and $16.3 million, respectively. In
2014, we issued $3.5 million convertible promissory note to an investor.
Proceeds from cash drawn down from the DEG loan, the private placement
transactions and convertible promissory note, together with cash generated from
operations and short-term bank loans, have been primarily used to fund our
working capital needs, as well as addition to our construction in progress and
purchase of fixed assets.
At December 31, 2014 and 2013, cash and cash equivalents
(including restricted cash) were $34.5 million and $35.7 million, respectively.
The debt to assets ratio was 37.7% and 33.0% as of December 31, 2014 and 2013,
respectively. We expect to continue to finance our operations and working
capital needs in 2015 from cash generated from operations and short-term bank
loans. We expect that anticipated cash flows from operations and financial
institutions will be sufficient to fund our operations through at least the next
twelve months.
Based upon our present plans, we believe that cash on hand,
cash flows from operations and funds available under our bank facilities will be
sufficient to fund our capital needs for the next twelve (12) months. However,
if available liquidity is not sufficient to meet our operating and loan
obligations as they come due, our plans include pursuing alternative financing
arrangements or reducing expenditures as necessary to meet our cash
requirements. However, there is no assurance that we will be able to raise
additional capital or reduce discretionary spending to provide liquidity, if
needed. Currently, the capital markets for small capitalization companies are
difficult. Accordingly, we cannot be sure of the availability or terms of any
alternative financing arrangements.
The following table provides detailed information about our net
cash flow for all financial statement periods presented in this report.
Cash Flows Data: |
|
For year ended
December 31, |
|
(in thousands of U.S. dollars) |
|
2014 |
|
|
2013 |
|
Net cash flows provided by (used in)
operating activities |
|
11,386 |
|
|
(8,446 |
) |
Net cash flows provided by (used in) investing activities
|
|
(11,162 |
) |
|
(20,969 |
) |
Net cash flows provided by (used in)
financing activities |
|
(3,652 |
) |
|
28,988 |
|
Operating Activities
Net cash provided by operating activities for 2014 was $11.4
million and net cash used in operating activities for 2013 was $8.4 million. The
increase of approximately $19.8 million in net cash flows provided by operating
activities resulted primarily from the decrease of accounts and other
receivables by $7.8 million in 2014, compared to an increase of $26.1 million in
2013.
Investing Activities
During 2014, our uses of cash for investment activities are
primarily to purchase equipment and land use rights, as well as long term
investment. Net cash used in investing activities for 2014 and 2013 were $11.2
million and $21.0 million, respectively, with the decrease of approximately $9.8
million cash used in investing activities primarily from $11.4 million payment
for the purchase of land use rights in 2013.
Financing Activities
Net cash used in and provided by financing activities for 2014
and 2013 were $3.7 million and $29.0 million, respectively. The decrease of
approximately $32.7 million in net cash flow in financing activities resulted
primarily from the fact that two debenture notes issued in 2013 aggregated to
$32.6, while there was a $12.2 million increase in short term bank loans and the
issuance of a $3.5 million convertible promissory note in 2014.
28
Loan Facilities
As of December 31, 2014 and 2013, we carried $41.6 million and
$29.4 million short term bank loans from foreign and Chinese domestic banks.
Please refer to Note 9 of the consolidated financial statements for details.
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
the 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 the more 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. The financial statements and notes are representations of management.
Accounting policies adopted by us 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.
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.
The use of estimates is critical to the carrying value of asset
accounts such as accounts receivable, inventory, fixed assets, and intangible
assets. We use estimates to account for the related bad debt allowance,
inventory impairment charges, depreciation and amortization of our assets. In
the food processing industry these accounts have a significant impact on the
valuation of our balance sheet and the results of our operations.
Principles of consolidation -- The consolidated
financial statements are presented in US Dollars and include the accounts of the
Company and its commonly controlled entity. All significant inter-company
balances and transactions are eliminated in combination.
As of December 31, 2014, the particulars of the commonly
controlled entities are as follows:
|
|
Place of |
|
|
Attributable equity |
|
|
Registered |
|
Name of Company |
|
incorporation |
|
|
interest |
|
|
capital |
|
|
|
|
|
|
% |
|
|
$ |
|
Shandong Lorain Co., Ltd. |
|
PRC |
|
|
80.2 |
|
|
13,238,040 |
|
Luotian Lorain Co., Ltd. |
|
PRC |
|
|
100 |
|
|
4,145,195 |
|
Junan Hongrun Foodstuff Co., Ltd. |
|
PRC |
|
|
100 |
|
|
48,965,698 |
|
Beijing Lorain Co., Ltd. |
|
PRC |
|
|
100 |
|
|
1,636,554 |
|
Shandong Greenpia Foodstuff Co., Ltd. |
|
PRC |
|
|
100 |
|
|
2,513,747 |
|
Dongguan Lorain Co., Ltd. |
|
PRC |
|
|
100 |
|
|
163,655 |
|
International Lorain Holding Inc. |
|
Cayman Islands |
|
|
100 |
|
|
50,927,518 |
|
Athena |
|
France |
|
|
51 |
|
|
14,456 |
|
Conserverie Minerve |
|
France |
|
|
51 |
|
|
491,497 |
|
Sojafrais |
|
France |
|
|
51 |
|
|
5,782 |
|
SCI Siam |
|
France |
|
|
51 |
|
|
882 |
|
SCI Giu Long |
|
France |
|
|
51 |
|
|
5,782 |
|
Cacovin |
|
Portugal |
|
|
51 |
|
|
318,027 |
|
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.
29
If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
During the reporting years, there was no impairment loss.
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, we have no other significant obligations and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
We believe that when custody and title of goods has been passed to our customers, or third party transporters, revenue is recognized. Our industry does not call for revenue recognition under multiple deliverable arrangements.
Financial Instruments
Our financial instruments are cash and cash equivalents, accounts receivable, other receivables, advances to suppliers, advances to employees, bank loans and notes, accounts payable, other payables, accrued liabilities, and long-term liabilities.
The recorded values of cash and cash equivalents, accounts receivable, other receivables, advances to suppliers, advances to employees, bank loans and notes, accounts payable, other payables, and accrued liabilities approximate their fair values
based on their short-term nature. The recorded values of long-term liabilities approximate their fair values, as interest approximates market rates.
We have maintained this accounting policy regarding financial instruments for our financial statements in 2014 and 2013. We consider it critical because our business is becoming more global in nature and the use of fair value for financial
instruments has been widely adopted by accounting bodies around the globe. With financial statements that are widely accepted and comparable in many jurisdictions we will have greater access to capital locally.
Recent accounting pronouncements
In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements Topic 205) and Property, Plant, and Equipment (Topic 360) - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.”
Some stakeholders told FASB that too many disposals of small groups of assets that are recurring in nature qualify for discontinued operations presentation under Subtopic 205-20, Presentation of Financial Statements—Discontinued Operations.
That results in financial statements that are less useful for users. Other stakeholders noted that some of the guidance on reporting discontinued operations results in higher costs for preparers because it can be complex and difficult to apply. The
amendments in this Update address those issues by changing the criteria for reporting discontinued operations and enhancing convergence of the FASB’s and the International Accounting Standard Board’s (IASB) reporting requirements for
discontinued operations. The amendment should apply to all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years.
In June 2014, the FASB issued ASU No. 2014-12, “Compensation—Stock Compensation (Topic 718) - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service
Period.” Entities commonly issue share-based payment awards that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards. Examples of performance targets include an entity attaining
a specified profitability metric or selling shares in an initial public offering. Generally, an award with a performance target also requires an employee to render service until the performance target is achieved. In some cases, however, the terms
of an award may provide that the performance target could be achieved after an employee completes the requisite service period. That is, the employee would be eligible to vest in the award regardless of whether the employee is rendering service on
the date the performance target is achieved.
Current U.S. generally accepted accounting principles do not contain explicit
guidance on how to account for those share-based payments. Many reporting
entities account for performance targets that could be achieved after the
requisite service period as performance conditions that affect the
vesting of the award and, therefore, do not reflect the performance target in
the estimate of the grant-date fair value of the award. Other reporting entities
treat those performance targets as nonvesting conditions that affect the
grant-date fair value of the award. This Update is intended to resolve the
diverse accounting treatment of those awards in practice.
30
For all entities, the amendments in this Update are effective
for annual periods and interim periods within those annual periods beginning
after December 15, 2015. Earlier adoption is permitted.
In August 2014, The FASB issued ASU No. 2014-15, Presentation
of Financial StatementsGoing Concern (Subtopic 205-40): Disclosure of
Uncertainties about an Entitys Ability to Continue as a Going Concern (ASU
2014-15). The Update provides U.S. GAAP guidance on managements responsibility
in evaluating whether there is substantial doubt about a companys ability to
continue as a going concern and about related footnote disclosures. For each
reporting period, management will be required to evaluate whether there are
conditions or events that raise substantial doubt about a companys ability to
continue as a going concern within one year from the date the financial
statements are issued and to provide related footnote disclosures.
The amendments are effective for annual periods ending after
December 15, 2016, and interim periods within annual periods beginning after
December 15, 2016. Early application is permitted for annual or interim
reporting periods for which the financial statements have not previously been
issued. Management does not expect the adoption of this standard will have a
significant effect on the Companys consolidated financial position or results
of operations.
In January 2015, The FASB issued ASU No. 2015-01, Income
StatementExtraordinary and Unusual Items (Subtopic 225-20).This Update
eliminates from GAAP the concept of extraordinary items. Subtopic 225-20, Income
StatementExtraordinary and Unusual Items, required that an entity separately
classify, present, and disclose extraordinary events and transactions.
Presently, an event or transaction is presumed to be an ordinary and usual
activity of the reporting entity unless evidence clearly supports its
classification as an extraordinary item. Paragraph 225-20-45-2 contains the
following criteria that must both be met for extraordinary classification:
1. |
Unusual nature. The underlying event or transaction
should possess a high degree of abnormality and be of a type clearly
unrelated to, or only incidentally related to, the ordinary and typical
activities of the entity,taking into account the environment in which the
entity operates. |
|
|
2. |
Infrequency of occurrence. The underlying event or
transaction should be of a type that would not reasonably be expected to
recur in the foreseeable future, taking into account the environment in
which the entity operates. |
If an event or transaction meets the criteria for extraordinary
classification, an entity is required to segregate the extraordinary item from
the results of ordinary operations and show the item separately in the income
statement, net of tax,after income from continuing operations. The entity also
is required to disclose applicable income taxes and either present or disclose
earnings-per-share data applicable to the extraordinary item.
The amendments in this Update are effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15,
2015. A reporting entity may apply the amendments prospectively. A reporting
entity also may apply the amendments retrospectively to all prior periods
presented in the financial statements. Early adoption is permitted provided that
the guidance is applied from the beginning of the fiscal year of adoption. The
effective date is the same for both public business entities and all other
entities.
The Company has adopted ASU No. 2015-01 prospectively and has
applied it to the presentation of the financial statements.
As of December 31, 2014, there are no other recently issued
accounting standards not yet adopted that would or could have a material effect
on the Companys consolidated financial statements
Off-Balance Sheet Arrangements
We do not have any off-balance arrangements.
31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL
DATA
The full text of our audited consolidated financial statements
as of December 31, 2014 begins on page F-1 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls
and Procedures
We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities and Exchange Act of 1934 (Exchange Act))
that are designed to ensure that information required to be disclosed in
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms, and that such information
is accumulated and communicated to our management, including to our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
As required by Rule 13a-15 under the Exchange Act, our
management, including our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures as of
December 31, 2014. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that as of December 31, 2014, our disclosure
controls and procedures were not effective due to the material weakness in our
internal control over financial reporting described below.
Internal Controls Over Financial Reporting
Managements Annual Report on Internal Control over
Financial Reporting.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Rule 13a-15(f) of the Exchange Act. Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based upon the framework in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on that evaluation, our management
concluded that, as of December 31, 2014, our internal controls over financial
reporting are not effective.
The material weakness and significant deficiency identified by
our management as of December 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 experience in the application of U.S. 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 will require 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.
32
Remediation Initiative
We plan to provide U.S. GAAP training sessions to our
accounting team. The training sessions will be organized to help our corporate
accounting team gain experience in U.S. GAAP reporting and to enhance their
awareness of new and emerging pronouncements with potential impact over our
financial reporting. In January 2014, we attended the training session
featuring a COSO update from Mr. Robert B. Hirth, Chairman of COSO. In 2014, we
employed Mr. Johnny Zhou as our interim Chief Financial Officer. Mr. Zhou holds
an accounting degree from University of Macquarie in Australia and is a
Certified Practicing Accountant (CPA) of CPA Australia and is a Certified Public
Accountant of Hong Kong Institute of Certified Public Accountants. We also hired
other accounting staff members who obtained overseas qualifications and
accumulated solid working experience to properly manage and monitor daily
accounting functions and financial reporting procedures. We plan to continue to
recruit experienced and professional accounting and financial personnel and
participate in educational seminars, tutorials, and
conferences and employ more qualified accounting staff in future.
Changes in Internal Controls over Financial Reporting.
Other than as described above, during the fiscal year ended December 31,
2014, there were no
material changes in our internal control over financial reporting identified in
connection with the evaluation performed during the fiscal year covered by this
Annual 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 U.S. 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 U.S. GAAP, and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors; and
(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 misstatements. 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 such 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
misstatements, if any, have been detected or prevented. Also, projections of 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
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
ITEM 9B. OTHER INFORMATION.
None.
33
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be contained in our
Proxy Statement related to our 2015 Annual Stockholders' Meeting and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in our
Proxy Statement related to our 2015 Annual Stockholders' Meeting and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item will be contained in our
Proxy Statement related to our 2015 Annual Stockholders' Meeting and is
incorporated herein by reference.
38
Equity Compensation Plan Information
Information for our equity compensation plans in effect as of
the end of fiscal year 2014 is as follows:
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
|
Number of |
|
|
Weighted- |
|
|
Number of |
|
|
|
securities to |
|
|
average |
|
|
securities |
|
|
|
be issued |
|
|
exercise price of |
|
|
remaining |
|
|
|
upon |
|
|
outstanding |
|
|
available for |
|
|
|
exercise of |
|
|
options, |
|
|
future |
|
|
|
outstanding |
|
|
warrants |
|
|
issuance |
|
|
|
options, |
|
|
and rights |
|
|
under equity |
|
|
|
warrants |
|
|
|
|
|
compensation |
|
|
|
and rights |
|
|
|
|
|
plans |
|
|
|
|
|
|
|
|
|
(excluding |
|
|
|
|
|
|
|
|
|
securities |
|
|
|
|
|
|
|
|
|
reflected in |
|
Plan category |
|
|
|
|
|
|
|
column (a)) |
|
Equity compensation plans approved by
security holders |
|
N/A |
|
|
N/A |
|
|
0 |
|
Equity compensation plans not approved by security holders
|
|
N/A * |
|
$ |
N/A |
|
|
0 |
|
Total |
|
N/A * |
|
$ |
N/A |
|
|
0 |
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.
The information required by this item will be contained in our
Proxy Statement related to our 2015 Annual Stockholders' Meeting and is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES.
The information required by this item will be contained in our
Proxy Statement related to our 2015 Annual Stockholders' Meeting and is
incorporated herein by reference.
34
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) (1 and 2) Financial Statement and Schedules
The financial statements contained in the Audited Financial
Statements beginning on page F-1 of this Annual Report on Form 10-K.
(b) Exhibits
Exhibit |
Description |
No. |
|
3.1 |
Articles of Incorporation of the registrant, as filed
with the Nevada Secretary of State on June 15, 2009, Incorporated by
reference to Exhibit 3.1 to the registrants registration statement on
Form S-3 filed on January 29, 2010. |
3.2 |
Bylaws of the registrant, Incorporated by reference to
Exhibit 3.2 to the registrants registration statement on Form S-3 filed
on January 29, 2010. |
4.1 |
Certificate of Designation of Series A Voting Convertible
Preferred Stock of the registrant as filed with the Secretary of State of
Delaware on April 9, 2007. Incorporated by reference to Exhibit 4.1 to the
registrants current report on Form 8- K filed on May 9, 2007 in
commission file number 0- 31619. |
4.2 |
Certificate of Designation of Series B Voting Convertible
Preferred Stock of registrant as filed with the Secretary of State of
Delaware on April 30, 2007. Incorporated by reference to Exhibit 4.2 to
the registrants current report on Form 8-K filed on May 9, 2007.
|
4.3 |
Form of Series A Warrant. Incorporated by reference to
Exhibit 4.1 to the registrants current report on Form 8-K filed on
October 29, 2009. |
4.4 |
Form of Series B Warrant. Incorporated by reference to
Exhibit 4.2 to the registrants current report on Form 8-K filed on
October 29, 2009. |
4.5 |
Registration Rights Agreement, dated as of October 28,
2009. Incorporated by reference to Exhibit 4.3 to the registrants current
report on Form 8-K filed on October 29, 2009. |
4.6 |
Registration Rights Agreement, dated as of September 9,
2010, by and among American Lorain Corporation and the purchasers named
therein. Incorporated by reference to Exhibit 99.3 to the registrants
current report on Form 8-K filed on September 13, 2010. |
4.7 |
Stockholder Agreement, dated as of September 9, 2010, by
and among American Lorain Corporation, the purchasers named therein and Si
Chen. Incorporated by reference to Exhibit 99.4 to the registrants
current report on Form 8-K filed on September 13, 2010. |
10.1 |
Securities Purchase Agreement dated as of October 28,
2009, by and between American Loan Corporation and the purchasers named
therein. Incorporated by reference to Exhibit 10.1 to the registrants
current report on Form 8-K filed on October 29, 2009. |
10.2 |
Securities Purchase Agreement dated as of September 9,
2010, by and among American Loan Corporation, Si Chen and the purchasers
named therein. Incorporated by reference to Exhibit 99.1 to the
registrants current report on Form 8-K filed on September 13, 2010.
|
10.3 |
Make Good and Escrow Agreement, dated as of September 9,
2010, by and among American Lorain Corporation, the purchasers named
therein, Si Chen and the collateral agent named therein. Incorporated by
reference to Exhibit 99.2 to the registrants current report on Form 8-K
filed on September 13, 2010. |
10.4 |
Loan Agreement, dated May 31, 2010, between Junan Hongrun
Foodstuff Co. Ltd. and DEG-Deutsche Investitions- Und
Entwicklungsgesellschaft MBH. Incorporated by reference to Exhibit 10.12
to the registrants quarterly report on Form 10-Q filed on August 11,
2010. |
10.5 |
Share Purchase Agreement dated February 7, 2014 by and
between Junan Hongrun Foodstuff Co., Ltd. and Intiraimi. Incorporated by
reference to Exhibit 10.5 to the registrants current report on Form 8-K
filed on February 13, 2014. |
10.6 |
Reiterative Share Purchase Agreement dated February 7,
2014 by and between Junan Hongrun Foodstuff Co., Ltd. and Biobranco II.
Incorporated by reference to Exhibit 10.6 to the registrants current
report on Form 8-K filed on February 13, 2014. |
10.7 |
Shareholders Agreement dated February 7, 2014 by and
among Junan Hongrun Foodstuff Co., Ltd., Athena, and the other
shareholders of Athena. Incorporated by reference to Exhibit 10.7 to the
registrants current report on Form 8-K filed on February 13, 2014.
|
10.8 |
Small and Medium Size Enterprise Private
Placement Notes Subscription Agreement of 2013 between Beijing Lorain Co.,
Ltd. and Haitong Securities, Inc. dated August 28, 2013 Incorporated by
reference to Exhibit 10.8 to the registrants Form 10-K/A filed on
February 23, 2015 |
10.9 |
Small and Medium Size Enterprise Private Placement Notes Subscription
Agreement of 2013 between Beijing Lorain Co., Ltd. and Everbright
Securities Assets Management Co., Ltd. dated August 28, 2013 Incorporated
by reference to Exhibit 10.9 to the registrants Form 10-K/A filed on
February 23, 2015 |
10.10 |
Small and Medium Size Enterprise Private
Placement Notes Subscription Agreement of 2013 between Beijing Lorain Co.,
Ltd. and SWS MU Fund Management Co., Ltd. dated August 28, 2013
Incorporated by reference to Exhibit 10.10 to the registrants Form 10-K/A
filed on February 23, 2015 |
10.11 |
Small and Medium Size Enterprise Private Placement Notes Subscription
Agreement of 2013 between Beijing Lorain Co., Ltd. and Essence Securities,
Inc. dated August 28, 2013 Incorporated by reference to Exhibit 10.11 to
the registrants Form 10-K/A filed on February 23, 2015 |
10.12 |
Small and Medium Size Enterprise Private Placement Notes Subscription
Agreement of 2013 between Beijing Lorain Co., Ltd. and Guoyuan Securities,
Inc. dated August 28, 2013 Incorporated by reference to Exhibit 10.12 to
the registrants Form 10-K/A filed on February 23, 2015 |
10.13 |
Small and Medium Size Enterprise Private Placement Notes Subscription
Agreement of 2013 between Junan Hongrun Foodstuff Co., Ltd. and Harfor
Fund Management Co., Ltd. dated October 18, 2013 Incorporated by reference
to Exhibit 10.13 to the registrants Form 10-K/A filed on February 23,
2015 |
10.14 |
Small and Medium Size Enterprise Private Placement Notes Subscription
Agreement of 2013 between Junan Hongrun Foodstuff Co., Ltd. and Opple
Lighting Corporation. dated November 6, 2013 Incorporated by reference to
Exhibit 10.14 to the registrants Form 10-K/A filed on February 23, 2015 |
14 |
Business Ethics Policy and Code of Conduct, adopted on
April 30, 2007. Incorporated by reference to Exhibit 14 to the
registrants current report on Form 8-K filed on May 9, 2007. |
21.1 |
List of subsidiaries of the registrant * |
23.1 |
Consent of Independent Registered Public Accounting Firm
* |
35
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN LORAIN CORPORATION
Date: April 15, 2015 |
By:/s/ Si
Chen
|
|
Si Chen, Chief
Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of
1934, this annual report has been signed by the following persons in the
capacities and on the dates indicated.
Signature
|
Title |
Date |
|
|
|
|
President , Director and Chief |
April 15, 2015 |
|
Executive Officer |
|
/s/ Si Chen |
(Principal Executive Officer) |
|
Si Chen |
|
|
|
|
|
|
Interim Chief Financial Officer |
|
|
(Principal Financial Officer and |
|
|
Principal |
|
/s/ Xiang Zhou |
Accounting Officer) |
April 15, 2015 |
Xiang Zhou |
|
|
|
|
|
/s/ Yundong Lu |
Chief Operating Officer and Director |
April 15, 2015 |
Yundong Lu |
|
|
|
|
|
/s/ Dekai Yin |
Director |
April 15, 2015 |
Dekai Yin |
|
|
|
|
|
/s/ Maoquan Wei
|
Director |
April 15, 2015 |
Maoquan Wei |
|
|
|
|
|
/s/ Jianxiao Wu
|
Director |
April 15, 2015 |
Jianxiao Wu |
|
|
36
37
AMERICAN LORAIN CORPORATION
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
(Stated in US Dollars)
AMERICAN LORAIN CORPORATION
CONTENTS |
PAGES |
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM |
1 |
CONSOLIDATED BALANCE SHEETS |
2 3 |
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME |
4 |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
5 |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY |
6 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
7 33 |
REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
To: |
The Board of Directors and Stockholders of
|
|
American Lorain Corporation
|
We have audited the accompanying consolidated balance sheets of
American Lorain Corporation as of December 31, 2014 and 2013 and the related
consolidated statements of income and comprehensive income, stockholders' equity
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
American Lorain Corporation as of December 31, 2014 and 2013 and the results of
its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
|
/s/ WWC, P.C. |
San Mateo, California |
WWC, P.C. |
April 15, 2015 |
Certified Public Accountants |
AMERICAN LORAIN CORPORATION |
AUDITED CONSOLIDATED BALANCE SHEETS |
AT DECEMBER 31, 2014 AND 2013 |
(Stated in US Dollars) |
|
|
At December 31,
|
|
|
At December 31,
|
|
|
|
2014 |
|
|
2013 |
|
ASSETS |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
30,279,988
|
|
$ |
33,857,193
|
|
Restricted cash
|
|
4,195,114 |
|
|
1,842,989 |
|
Trade accounts receivable |
|
58,806,466 |
|
|
54,071,475 |
|
Other receivables
|
|
8,183,485 |
|
|
5,698,020 |
|
Inventory |
|
51,648,160 |
|
|
41,950,253 |
|
Advance to
suppliers |
|
42,479,437 |
|
|
42,400,517 |
|
Prepaid expenses and taxes |
|
2,758,334 |
|
|
2,168,573 |
|
Deferred tax asset |
|
- |
|
|
180,679 |
|
Security
deposits and other assets |
|
3,578,514 |
|
|
3,242,259 |
|
Total
current assets |
$ |
201,929,498 |
|
$ |
185,411,958 |
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
Investment |
|
3,258,125 |
|
|
- |
|
Property, plant and
equipment, net |
|
89,148,530 |
|
|
87,561,341 |
|
Construction in Progress, net |
|
14,340,145 |
|
|
13,665,470 |
|
Land use rights,
net |
|
17,537,868 |
|
|
16,407,543 |
|
Goodwill
|
|
10,327,553 |
|
|
- |
|
TOTAL ASSETS |
$ |
336,541,719 |
|
$ |
303,046,312 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Short-term bank
loans |
$ |
41,645,100 |
|
$ |
29,400,694 |
|
Notes payable |
|
6,005,430 |
|
|
- |
|
Convertible
promissory note |
|
3,500,000 |
|
|
- |
|
Long-term debt current portion |
|
19,226,094 |
|
|
5,713,865 |
|
Accounts payable
|
|
10,071,009 |
|
|
4,015,502 |
|
Taxes payable |
|
4,320,470 |
|
|
4,422,133 |
|
Accrued
liabilities and other payables |
|
4,153,054 |
|
|
2,315,815 |
|
Related party payable |
|
2,433,300 |
|
|
- |
|
Deferred tax
liabilities |
|
70,545 |
|
|
- |
|
Customers deposits |
|
61,428 |
|
|
166,450 |
|
Total current liabilities |
$ |
91,486,430 |
|
$ |
46,034,459 |
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
Long-term
bank loans |
|
2,707,587 |
|
|
8,079,831 |
|
Notes payable and
debenture |
|
32,581,249 |
|
|
45,823,514 |
|
TOTAL LIABILITIES |
$ |
126,775,266 |
|
$ |
99,937,804
|
|
See Accompanying Notes to the Financial Statements and
Accountants Report
2
AMERICAN LORAIN CORPORATION |
AUDITED CONSOLIDATED BALANCE SHEETS |
AT DECEMBER 31, 2014 AND 2013 |
(Stated in US Dollars) |
|
|
At December 31,
|
|
|
At December 31,
|
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
Preferred Stock, $0.001 par
value, 5,000,000
shares authorized; 0 shares issued and outstanding
at December
31, 2014 and 2013, respectively |
|
- |
|
|
- |
|
Common Stock,
$0.001 par value, 200,000,000 shares
authorized; 34,916,714 shares and
34,616,714 shares issued and
outstanding as of December 31, 2014
and 2013,
respectively |
|
34,917 |
|
|
34,617 |
|
Additional paid-in capital |
|
53,853,089 |
|
|
53,487,389 |
|
Statutory reserves |
|
23,038,917 |
|
|
18,396,513 |
|
Retained earnings |
|
99,021,555 |
|
|
99,257,837 |
|
Accumulated other
comprehensive income |
|
20,796,420 |
|
|
20,928,244 |
|
Non-controlling interests |
|
13,021,555 |
|
|
11,003,908 |
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS EQUITY |
$ |
209,766,453 |
|
$ |
203,108,508 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY |
$ |
336,541,719 |
|
$ |
303,046,312 |
|
See Accompanying Notes to the Financial Statements and
Accountants Report
3
AMERICAN LORAIN CORPORATION |
AUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME |
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
|
(Stated in US Dollars) |
|
|
For the
years ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Net revenues |
$ |
217,553,660 |
|
$ |
215,279,785 |
|
Cost of revenues |
|
179,591,460 |
|
|
172,107,742 |
|
Gross profit |
$ |
37,962,200 |
|
$ |
43,172,043
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
Selling and marketing expenses |
|
11,642,381 |
|
|
10,507,616 |
|
General and administrative
expenses |
|
10,654,514 |
|
|
7,231,171 |
|
|
|
22,296,895 |
|
|
17,738,787 |
|
|
|
|
|
|
|
|
Operating income |
$ |
15,665,305 |
|
$ |
25,433,256 |
|
|
|
|
|
|
|
|
Government subsidy income |
|
2,378,323 |
|
|
1,606,558 |
|
Interest income |
|
229,580 |
|
|
79,615 |
|
Other income |
|
899,240 |
|
|
1,484,702 |
|
Other expenses |
|
(567,117 |
)
|
|
(188,876 |
)
|
Interest expense |
|
(8,347,086 |
) |
|
(5,152,923 |
) |
Loss from write down of other receivable |
|
(2,762,411 |
) |
|
- |
|
|
|
|
|
|
|
|
Earnings before tax |
$ |
7,495,834 |
|
$ |
23,262,332
|
|
|
|
|
|
|
|
|
Income tax |
|
3,089,712 |
|
|
5,573,757 |
|
|
|
|
|
|
|
|
Net income |
$ |
4,406,122 |
|
$ |
17,688,575 |
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
Foreign currency
translation gain |
|
(131,824 |
) |
|
4,717,583 |
|
Comprehensive Income |
|
4,274,298 |
|
|
22,406,158 |
|
Net income attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
-Common stockholders |
$ |
3,752,524 |
|
$ |
16,633,895 |
|
-Non-controlling interest |
|
653,598 |
|
|
1,054,680 |
|
|
$ |
4,406,122 |
|
$ |
17,688,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
- Basic |
$ |
0.11 |
|
$ |
0.48 |
|
-
Diluted |
$ |
0.11 |
|
$ |
0.48 |
|
|
|
|
|
|
|
|
Weighted average shares
outstanding |
|
|
|
|
|
|
- Basic |
|
34,808,221 |
|
|
34,616,714 |
|
-
Diluted |
|
34,808,221 |
|
|
34,616,714 |
|
See Accompanying Notes to the Financial Statements and
Accountants Report
4
AMERICAN LORAIN CORPORATION |
AUDITED CONSOLIDATED STATEMENTS OF CASH FLOW |
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
|
(Stated in US Dollars) |
|
|
For the
years ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
Cash flows from operating
activities |
|
|
|
|
|
|
Net income |
$ |
4,406,122 |
|
$ |
17,688,575 |
|
Stock based
compensation |
|
366,000 |
|
|
|
|
Depreciation of
fixed assets |
|
4,907,651 |
|
|
4,226,873 |
|
Amortization of intangible
assets |
|
603,682 |
|
|
301,079 |
|
(Increase)/decrease in accounts and other receivables |
|
7,843,901 |
|
|
(26,114,165 |
)
|
(Increase)/decrease in
inventories |
|
(2,559,509 |
) |
|
(3,877,549 |
) |
Decrease/(increase) in prepayment |
|
(269,736 |
)
|
|
(1,786,668 |
)
|
Decrease/(increase) in deferred
tax asset |
|
(66,674 |
) |
|
(5,468 |
) |
Increase/(decrease) in accounts and other payables |
|
6,420,371 |
|
|
1,121,747 |
|
Increase/(decrease) in related
party payable |
|
2,574,388 |
|
|
- |
|
Net cash
(used in)/provided by operating activities |
|
11,385,454 |
|
|
(8,445,576 |
)
|
|
|
|
|
|
|
|
Cash flows from investing
activities |
|
|
|
|
|
|
Payment for
acquisition of Athena Group |
|
(2,100,000 |
) |
|
- |
|
(Purchase)/of long-term investment |
|
(3,258,312 |
)
|
|
- |
|
Sale of
investment |
|
- |
|
|
270,019 |
|
Purchase of plant and equipment
|
|
(3,009,450 |
) |
|
(18,034,288 |
) |
Payment for the
purchase of land use rights |
|
- |
|
|
(11,411,953 |
)
|
(Increase)/decrease in
restricted cash |
|
(2,358,756 |
) |
|
2,155,968 |
|
(Increase)/decrease in deposit |
|
(435,900 |
)
|
|
6,051,356 |
|
Net cash used in investing
activities |
|
(11,162,418 |
) |
|
(20,968,898 |
) |
Cash flows from financing
activities |
|
|
|
|
|
|
Repayment of
bank borrowings |
|
(13,671,142 |
)
|
|
(8,180,860 |
)
|
Proceeds from
bank borrowings and debentures |
|
23,041,946 |
|
|
45,823,514 |
|
Repayment of long-term borrowings
and notes payable |
|
(13,022,529 |
) |
|
(8,654,503 |
) |
Net cash provided by/(used in)
financing activities |
$ |
(3,651,725 |
) |
$ |
28,988,151 |
|
|
|
|
|
|
|
|
Net Increase/(decrease) of Cash and Cash
Equivalents |
|
(3,428,689 |
) |
|
(426,323 |
) |
|
|
|
|
|
|
|
Effect of foreign currency translation on
cash and cash equivalents |
|
(148,516 |
) |
|
1,937,913 |
|
|
|
|
|
|
|
|
Cash and cash equivalentsbeginning of year
|
|
33,857,193 |
|
|
32,345,603 |
|
Cash and cash equivalentsend
of year |
$ |
30,279,988 |
|
$ |
33,857,193 |
|
|
|
|
|
|
|
|
Supplementary cash flow
information: |
|
|
|
|
|
|
Interest
received |
$ |
228,748 |
|
$ |
79,615 |
|
Interest paid |
$ |
7,318,618
|
|
$ |
4,386,788
|
|
Income
taxes paid |
$ |
4,672,630 |
|
$ |
6,364,077 |
|
5
AMERICAN LORAIN CORPORATION |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
|
(STATED IN US DOLLARS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
Other |
|
|
Non- |
|
|
|
|
|
|
Of |
|
|
Common |
|
|
Paid-in |
|
|
Statutory |
|
|
Retained |
|
|
Comprehensive |
|
|
Controlling |
|
|
|
|
|
|
Shares |
|
|
Stock |
|
|
Capital |
|
|
Reserves |
|
|
Earnings |
|
|
Income |
|
|
Interests |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 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 |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
3,752,524 |
|
|
- |
|
|
- |
|
|
3,752,524 |
|
Increase in non-controlling interests from
acquisition of Athena Group |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
2,671,245 |
|
|
2,671,245 |
|
Issuance of share based |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation |
|
300,000 |
|
|
300 |
|
|
365,700 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
366,000 |
|
Appropriations to statutory
reserve |
|
- |
|
|
- |
|
|
- |
|
|
4,642,404 |
|
|
(4,642,404 |
) |
|
- |
|
|
- |
|
|
- |
|
Allocation to non-controlling interests |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
653,598 |
|
|
- |
|
|
(653,598 |
) |
|
- |
|
Foreign currency translation
adjustment |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(131,824 |
) |
|
|
|
|
(131,824 |
)
|
Balance, December 31, 2014 |
|
34,916,714 |
|
|
34,917 |
|
|
53,853,089 |
|
|
23,038,917 |
|
|
99,021,555 |
|
|
20,796,420 |
|
|
13,021,555 |
|
|
209,766,453 |
|
See Accompanying Notes to the Financial Statements and
Accountants Report
6
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. |
|
|
|
|
|
On February 7, 2014, American Lorain Corporation, through
its indirect wholly owned subsidiary, Junan Hongrun entered into two Share
Purchase Agreements with Intiraimi, a limited liability company organized
under the laws of France and Biobranco II, a company organized under
Portuguese law, respectively, to acquire 51% of the share capital of
Athena Group. On June 30, 2014, Junan Hongrun officially completed the
acquisition and controlled total 51% shares of Athena
Group. |
7
|
(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 and European 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 year ended December 31, 2014 in order to be consistent with
the presentation provided for the year ended December 31, 2013. There was
no impact on earnings for the regrouping. |
|
|
|
|
(b) |
Principles of consolidation |
|
|
|
|
|
The consolidated financial statements which include the
Company and its subsidiaries are compiled in accordance with generally
accepted accounting principles in the United States of America. All
significant inter-company accounts and transactions have been eliminated.
The consolidated financial statements include 100% of assets, liabilities,
and net income or loss of those wholly-owned subsidiaries; ownership
interests of non- controlling investors are recorded as non-controlling
interests. |
|
|
|
|
|
As of December 31, 2014, the detailed identities of the
consolidating subsidiaries are as follows: |
|
|
|
|
|
|
Attributable |
|
|
|
|
|
|
|
Place of
|
|
|
equity
interest |
|
|
Registered
|
|
|
Name of Company |
|
incorporation |
|
|
% |
|
|
capital
|
|
|
International Lorain Holding
Inc. |
|
Cayman Islands
|
|
|
100 |
|
$ |
50,694,389
|
|
|
Junan Hongrun Foodstuff Co., Ltd. |
|
PRC |
|
|
100 |
|
|
48,741,549 |
|
|
Shandong Lorain Co., Ltd. |
|
PRC |
|
|
80.2 |
|
|
13,177,441 |
|
|
Beijing Lorain Co., Ltd. |
|
PRC |
|
|
100 |
|
|
1,629,062 |
|
|
Luotian Lorain Co., Ltd. |
|
PRC |
|
|
100 |
|
|
4,126,220 |
|
|
Shandong Greenpia Foodstuff Co., Ltd. |
|
PRC |
|
|
100 |
|
|
2,502,240 |
|
|
Dongguan Lorain Co., Ltd. |
|
PRC |
|
|
100 |
|
|
162,906 |
|
|
Athena |
|
France |
|
|
51 |
|
|
14,456 |
|
|
Conserverie Minerve |
|
France |
|
|
51 |
|
|
491,497 |
|
|
Sojafrais |
|
France |
|
|
51 |
|
|
5,782 |
|
|
SCI Siam |
|
France |
|
|
51 |
|
|
882 |
|
|
SCI Giu Long |
|
France |
|
|
51 |
|
|
5,782 |
|
|
Cacovin |
|
Portugal |
|
|
51 |
|
|
318,027 |
|
8
|
(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 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. |
9
|
|
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, and other items necessary for our
operations. 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 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 |
20 - 40 years
|
|
Landscaping, plant and tree |
30 years |
|
Machinery and equipment |
1 - 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.
10
|
|
The cost of maintenance and repairs is charged to income
as incurred, whereas significant renewals and betterments are
capitalized. |
|
|
|
|
(j) |
Construction in progress |
|
|
|
|
|
Construction in progress represents direct and indirect
construction or acquisition costs. The construction in progress is
transferred to plant and equipment when substantially all the activities
necessary to prepare the assets for their intended use are completed. No
depreciation is provided until the asset is completed and ready for
intended use. |
|
|
|
|
(k) |
Land Use Rights |
|
|
|
|
|
Land use rights are carried at cost and amortized on a
straight-line basis over a specified period. 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. |
11
|
(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, Peoples Republic of China (PRC), and France tax laws are provided
for the tax effects of transactions reported in the financial statements
and consist of taxes currently due plus deferred taxes related primarily
to differences between the basis of fixed assets and intangible assets for
financial and tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which
will be either taxable or deductible when the assets and liabilities are
recovered or settled. Deferred taxes also are recognized for operating
losses that are available to offset future income taxes. A valuation
allowance is created to evaluate deferred tax assets if it is more likely
than not that these items will either expire before the Company is able to
realize that tax benefit, or that future realization is
uncertain. |
|
|
|
|
|
Effective January 1, 2008, PRC government implemented a
new 25% tax rate across the board for all enterprises regardless of
whether domestic or foreign enterprise without any tax holiday which is
defined as "two-year exemption followed by three-year half exemption"
hitherto enjoyed by tax payers. As a result of the new tax law of a
standard 25% tax rate, tax holidays terminated as of December 31, 2007.
However, PRC government has established a set of transition rules to allow
enterprises that were already participating in tax holidays before January
1, 2008, to continue enjoying the tax holidays until they had been fully
utilized. |
|
|
|
|
|
The standard corporate income tax in France is 33.33%
except for a small or new business, which may benefit from lower rates. In
addition, a 3.3% of social surcharge is charged to the Companys French
subsidiaries if the standard corporate income tax liability exceeds EUR
763,000. Furthermore, a 10.7% temporary surtax applies when a companys
turnover exceeds EUR 250 million. |
|
|
|
|
|
The Company is subject to United States Tax according to
Internal Revenue Code Sections 951 and 957. Corporate income tax is
imposed at 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 |
|
|
- |
|
|
- |
|
12
|
(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
$4,642,404 and $1,474,019 from retained earnings to statutory reserves for
the years ended December 31, 2014 and 2013. PRC laws prescribe that an
enterprise operating at a profit, must appropriate, on an annual basis, an
amount equal to 10% of its profit. Such an appropriation is necessary
until the reserve reaches a maximum that is equal to 50% of the
enterprises PRC registered capital. |
|
|
|
|
(s) |
Foreign currency translation |
|
|
|
|
|
The accompanying financial statements are presented in
United States dollars. The functional currencies of the Company are the
Renminbi (RMB) and the Euro (EUR). The financial statements are translated
into United States dollars from RMB and EUR at year- end exchange rates as
to assets and liabilities and average exchange rates as to revenues and
expenses. Capital accounts are translated at their historical exchange
rates when the capital transactions occurred. |
|
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
Year end RMB: US$ exchange
rate |
|
6.1385 |
|
|
6.1104 |
|
|
Annual average RMB: US$ exchange rate |
|
6.1432 |
|
|
6.1905 |
|
|
Year-end EUR: US$ exchange
rate |
|
0.8826 |
|
|
0.7263 |
|
|
Annual average EUR: US$ exchange rate |
|
0.7773 |
|
|
0.7532 |
|
|
|
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 collectability
is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue. |
13
|
|
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. |
|
|
|
|
(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, 2014, no warrants were issued nor
were options 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. As of December
31, 2014, 1,753,909 shares of Series A warrants are outstanding and all
stock options to employees from the 2009 stock incentive program have
expired. 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, have carrying amounts that
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: |
14
|
|
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.
|
|
|
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 December 31, 2014 and 2013, the Company did not
identify any assets and liabilities whose carrying amounts were required
to be adjusted in order to present them at fair value. |
|
|
|
|
(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. |
|
|
|
|
|
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 December 31, 2014
and 2013 included net income and foreign currency translation
adjustments. |
|
|
|
|
(y) |
Goodwill |
|
|
|
|
|
Goodwill represents the excess of the purchase price over
the fair value of the net tangible and identifiable assets acquired in a
business combination. In accordance with FASB ASC Topic 350, "Goodwill and
Other Intangible Assets", goodwill is no longer subject to amortization.
Rather, goodwill is subject to at least an annual assessment for
impairment, applying a fair-value based test. Fair value is generally
determined using a discounted cash flow analysis. |
15
|
(z) |
Recent accounting pronouncements |
|
|
|
|
|
In April 2014, the FASB issued ASU No. 2014-08,
Presentation of Financial Statements Topic 205) and Property, Plant, and
Equipment (Topic 360) - Reporting Discontinued Operations and Disclosures
of Disposals of Components of an Entity. Some stakeholders told FASB that
too many disposals of small groups of assets that are recurring in nature
qualify for discontinued operations presentation under Subtopic 205- 20,
Presentation of Financial StatementsDiscontinued Operations. That results
in financial statements that are less useful for users. Other stakeholders
noted that some of the guidance on reporting discontinued operations
results in higher costs for preparers because it can be complex and
difficult to apply. The amendments in this Update address those issues by
changing the criteria for reporting discontinued operations and enhancing
convergence of the FASBs and the International Accounting Standard
Boards (IASB) reporting requirements for discontinued operations. The
amendment should apply to all disposals (or classifications as held for
sale) of components of an entity that occur within annual periods
beginning on or after December 15, 2014, and interim periods within those
years. |
|
|
|
|
|
In June 2014, the FASB issued ASU No. 2014-12,
CompensationStock Compensation (Topic 718) - Accounting for Share-Based
Payments When the Terms of an Award Provide That a Performance Target
Could Be Achieved after the Requisite Service Period. Entities commonly
issue share-based payment awards that require a specific performance
target to be achieved in order for employees to become eligible to vest in
the awards. Examples of performance targets include an entity attaining a
specified profitability metric or selling shares in an initial public
offering. Generally, an award with a performance target also requires an
employee to render service until the performance target is achieved. In
some cases, however, the terms of an award may provide that the
performance target could be achieved after an employee completes the
requisite service period. That is, the employee would be eligible to vest
in the award regardless of whether the employee is rendering service on
the date the performance target is achieved. |
|
|
|
|
|
Current U.S. generally accepted accounting principles do
not contain explicit guidance on how to account for those share-based
payments. Many reporting entities account for performance targets that
could be achieved after the requisite service period as performance
conditions that affect the vesting of the award and, therefore, do not
reflect the performance target in the estimate of the grant-date fair
value of the award. Other reporting entities treat those performance
targets as nonvesting conditions that affect the grant-date fair value of
the award. This Update is intended to resolve the diverse accounting
treatment of those awards in practice. |
|
|
|
|
|
For all entities, the amendments in this Update are
effective for annual periods and interim periods within those annual
periods beginning after December 15, 2015. Earlier adoption is
permitted. |
16
In August 2014, The FASB issued ASU No.
2014-15, Presentation of Financial StatementsGoing Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entitys Ability to Continue as a Going
Concern (ASU 2014-15). The Update provides U.S. GAAP guidance on managements
responsibility in evaluating whether there is substantial doubt about a
companys ability to continue as a going concern and about related footnote
disclosures. For each reporting period, management will be required to evaluate
whether there are conditions or events that raise substantial doubt about a
companys ability to continue as a going concern within one year from the date
the financial statements are issued and to provide related footnote disclosures.
The amendments are effective for annual
periods ending after December 15, 2016, and interim periods within annual
periods beginning after December 15, 2016. Early application is permitted for
annual or interim reporting periods for which the financial statements have not
previously been issued. Management does not expect the adoption of this standard
will have a significant effect on the Companys consolidated financial position
or results of operations.
In January 2015, The FASB issued ASU
No. 2015-01, Income StatementExtraordinary and Unusual Items (Subtopic
225-20).This Update eliminates from GAAP the concept of extraordinary items.
Subtopic 225-20, Income StatementExtraordinary and Unusual Items, required that
an entity separately classify, present, and disclose extraordinary events and
transactions. Presently, an event or transaction is presumed to be an ordinary
and usual activity of the reporting entity unless evidence clearly supports its
classification as an extraordinary item. Paragraph 225-20-45-2 contains the
following criteria that must both be met for extraordinary classification:
3. Unusual nature. The underlying event or transaction should possess a high
degree of abnormality and be of a type clearly unrelated to, or only
incidentally related to, the ordinary and typical activities of the entity,
taking into account the environment in which the entity operates.
4. Infrequency of occurrence. The underlying event or transaction should be of a
type that would not reasonably be expected to recur in the foreseeable future,
taking into account the environment in which the entity operates.
If an event or transaction meets the criteria for extraordinary classification,
an entity is required to segregate the extraordinary item from the results of
ordinary operations and show the item separately in the income statement, net of
tax,after income from continuing operations. The entity also is required to
disclose applicable income taxes and either present or disclose
earnings-per-share data applicable to the extraordinary item.
The amendments in this Update are effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2015. A
reporting entity may apply the amendments prospectively. A reporting entity also
may apply the amendments retrospectively to all prior periods presented in the
financial statements. Early adoption is permitted provided that the guidance is
applied from the beginning of the fiscal year of adoption. The effective date is
the same for both public business entities and all other entities.
The Company has adopted ASU No. 2015-01 prospectively and has applied it to the
presentation of the financial statements.
As of December 31, 2014, there are no
other recently issued accounting standards not yet adopted that would or could
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 a savings account that pays
interest at the prescribed national daily savings account rate. For funds
that under lie notes payable, the cash is deposited in six month time
deposits that pay interest at the national time deposit
rate. |
17
4. |
TRADE ACCOUNTS
RECEIVABLE |
|
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
Trade accounts receivable |
$ |
64,726,091
|
|
$ |
54,511,350
|
|
|
Less: Allowance for
doubtful accounts |
|
(5,919,625 |
) |
|
(439,875 |
) |
|
|
$ |
58,806,466 |
|
$ |
54,071,475 |
|
|
Allowance for bad debt: |
|
12/31/2014
|
|
|
12/31/2013
|
|
|
Beginning balance |
$ |
(439,875 |
) |
$ |
(443,898 |
) |
|
|
|
|
|
|
|
|
|
Additions to allowance |
|
(5,479,750 |
) |
|
- |
|
|
Bad debt written-off |
|
- |
|
|
4,023 |
|
|
Ending balance |
$ |
(5,919,625 |
) |
$ |
(439,875 |
) |
The Company offers credit terms of
between 30 to 60 days to most of its domestic customers, including
supermarkets and wholesalers, around 90 days to most of its international
customers, and between 0 to 15 days for most of the third-party distributors the
Company works with.
Other receivables consisted of the
following as of December 31, 2014 and 2013:
|
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
Advances to employees for
job/travel disbursements |
|
2,623,067 |
|
|
637,808 |
|
|
Amount due by a non-related enterprise |
|
162,907 |
|
|
163,656 |
|
|
Other non-related receivables
|
|
580,634 |
|
|
333,411 |
|
|
Other related party receivables |
|
1,420,548 |
|
|
149,350 |
|
|
Short-term investment sale
receivable |
|
1,629,062 |
|
|
4,413,795 |
|
|
Vendor rebate receivable |
|
1,767,267 |
|
|
- |
|
|
|
$ |
8,183,485 |
|
$ |
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 available employees
of the purchasing department 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, 2014.
18
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. 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 party receivables in other receivables.
In September 2010, Shandong Lorain and
Junan Hengji Real Estate Development Co., Ltd. ("Junan Hengji") entered into a
cooperative development agreement (the "Agreement"), and in March 2011, Jiangsu
Heng An Industrial Investment Group Co., Ltd. ("Heng An Investment"), an
affiliated company of Junan Hengji also entered into the Agreement with Shandong
Lorain to jointly develop the project with Junan Hengji. Pursuant to the
Agreement, Shandong Lorain agreed to sell the Companys interest in the amount
of $7,764,577 (RMB 49,604,000) in a parcel of land located in Junan Town,
Shandong Province, to construct residential buildings by Junan Hengji and Heng
An Investment. The land was sold to Junan Hengji and Heng An Investment for a
total sales price of RMB 69,604,000 and a guaranteed gross profit of RMB
20,000,000 without consideration of the profit or loss of the residential
building project.
As of December 31, 2014, a total of RMB 42,029,955 has been received and there
was an unpaid balance of RMB 27,574,045. The Company filed litigation against
Junan Hengji in 2013 and Heng An Investment in 2014 for a claim of RMB 10,000,000, which
is half of the original guaranteed profit of RMB 20,000,000. The Company
evaluated the potential claims against Junan Hengji and Heng An Investment.
Junan Hengji is obligated to pay out of pocket expenses as well as the
litigation fee that is required to be paid to the court based upon the amount
claimed for disputes between the parties. Shandong Lorain decided to file the
lawsuit with the Linyi City Intermediate People's Court to claim a fixed return
of RMB 10 million (approximately $1,612,903). The balance of the claim was
deemed to be uncollectable and was written off as a loss. As of December 31,
2014, RMB 10,000,000 (USD 1,629,062) is due and payable to the Company.
6. |
INVENTORIES |
|
|
|
Inventories consisted of the following as of December 31,
2014 and 2013: |
|
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
Raw materials |
$ |
28,557,607
|
|
$ |
26,262,278
|
|
|
Finished goods |
|
23,090,553 |
|
|
15,687,975 |
|
|
|
$ |
51,648,160 |
|
$ |
41,950,253 |
|
7. |
PROPERTY, PLANT AND EQUIPMENT |
|
|
|
Property, plant, and equipment consisted of the following
as of December 31, 2014 and 2013: |
|
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
At Cost: |
|
|
|
|
|
|
|
Buildings |
$ |
87,751,232 |
|
$ |
81,325,426 |
|
|
Land |
|
232,946 |
|
|
- |
|
|
Landscaping, plant
and tree |
|
10,923,768 |
|
|
10,974,003 |
|
|
Machinery and equipment |
|
21,853,334 |
|
|
12,837,463 |
|
|
Office equipment
|
|
1,095,590 |
|
|
681,060 |
|
|
Motor vehicles |
|
654,324 |
|
|
582,128 |
|
|
|
$ |
122,511,194 |
|
$ |
106,400,080 |
|
|
Less:
Accumulated depreciation |
|
|
|
|
|
|
|
Buildings |
|
(14,479,949 |
) |
|
(7,975,238 |
) |
|
Landscaping, plant and tree |
|
(402,153 |
) |
|
(3,081,369 |
) |
|
Machinery and
equipment |
|
(13,181,519 |
) |
|
(6,916,526 |
) |
|
Office equipment |
|
(1,252,846 |
) |
|
(524,931 |
) |
|
Motor vehicles |
|
(427,197 |
) |
|
(340,675 |
) |
|
|
|
(33,362,664 |
) |
|
(18,838,739 |
) |
|
|
$ |
89,148,530 |
|
$ |
87,561,341 |
|
19
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. In 2013, the
Company began leasing three greenhouses to grow seasonal crops in order to lower cost.
Depreciation expense for the years ended December 31, 2014 and 2013 was
$4,907,651 and $4,226,873, respectively.
8. |
INTANGIBLE ASSETS, NET |
|
|
|
Intangible assets consisted of the following as of
December 31, 2014 and 2013: |
|
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
Land use rights, at cost
|
$ |
17,520,374
|
|
$ |
17,600,945
|
|
|
Utilities rights, at cost |
|
50,676 |
|
|
50,909 |
|
|
Software, at cost |
|
451,863 |
|
|
59,496 |
|
|
Patent, at cost |
|
1,581,891 |
|
|
1,543 |
|
|
|
|
19,604,804 |
|
|
17,712,893 |
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated amortization |
|
(2,066,936 |
) |
|
(1,305,350 |
) |
|
|
$ |
17,537,868 |
|
$ |
16,407,543 |
|
All land is 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.
Amortization expense for the years ended December 31, 2014 and 2013 was $603,682
and $301,079, respectively.
20
9. |
BANK LOANS |
|
|
|
Bank loans include bank overdrafts, short-term bank
loans, and current portion of long- term loan, which consisted of the
following as of December 31, 2014 and 2013: |
|
Bank Overdrafts |
|
12/31/2014
|
|
|
12/31/2013
|
|
|
|
|
|
|
|
|
|
|
CIC Lorient
Enterprises, Interest rate of EURIBOR+1.70% due
within 3 months |
$ |
380,106
|
|
$ |
- |
|
|
Credit Agricole, Interest rate
of EURIBOR+1.70% due within 3 months |
|
214,146 |
|
|
- |
|
|
LCL Banque et
Assurance, Interest rate of EURIBOR+1.70% due
within 3 months |
|
105,508 |
|
|
- |
|
|
Société Générale, Interest rate
of EURIBOR+1.70% due within 3 months |
|
285,621 |
|
|
- |
|
|
Banque Tarneud,
Interest rate of EURIBOR+1.70% due within 3
months |
|
548,537 |
|
|
- |
|
|
BPI France, Interest rate of
EURIBOR+1.70% due within 3 months |
|
1,151,975 |
|
|
|
|
|
HSBC, Interest rate
of EURIBOR+1.70% due within 3 months |
|
22,963 |
|
|
|
|
|
GE, Interest rate of
EURIBOR+1.70% due within 3 months |
|
2,043 |
|
|
- |
|
|
BES,, Interest rate
of EURIBOR+1.70% due within 3 months |
|
263 |
|
|
|
|
|
Banco Portugues de Negocios |
|
1,864 |
|
|
- |
|
|
Banco Espirito Santo
|
|
3,951 |
|
|
- |
|
|
|
$ |
2,716,977 |
|
$ |
- |
|
Bank overdrafts are collateralized by
inventory.
21
|
Short-term Bank Loans
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
|
|
|
|
|
|
|
|
|
Loan from
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 |
|
- |
|
|
1,129,222 |
|
|
|
Interest rate at 5.88% per annum;
due 4/23/2014 |
|
- |
|
|
1,088,308 |
|
|
|
Interest rate at
7.28% per annum; due 3/4/2015 |
|
1,466,156 |
|
|
|
|
|
|
Interest rate at 7.125% per
annum; due 3/27/2015 |
|
4,072,656 |
|
|
- |
|
|
|
Interest rate at
1.74% per annum; due 4/10/2015 |
|
387,652 |
|
|
- |
|
|
|
Interest rate at 1.74% per annum;
due 4/24/2015 |
|
895,884 |
|
|
|
|
|
|
Interest rate at
7.28% per annum; due 6/5/2015 |
|
1,010,019 |
|
|
- |
|
|
|
Interest rate at 6.50% per annum;
due 10/14/2015 |
|
977,437 |
|
|
- |
|
|
|
Interest rate at
7.20% per annum; due 11/2/2015 |
|
1,629,062 |
|
|
- |
|
|
|
Interest rate at 6.72% per annum;
due 12/1/2015 |
|
1,629,062 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
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 |
|
1,629,062 |
|
|
- |
|
|
|
Interest rate at
7.8% per annum due 2/26/2015 |
|
814,531 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Loan from
Agricultural Bank of China, Junan Branch |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at
7.8% per annum due 8/14/2015 |
|
1,629,062 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Loan from
Agricultural Bank of China, Luotian Branch |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at
7.8% per annum due 8/20/2014 |
|
- |
|
|
1,636,554 |
|
|
|
Interest rate at 7.8% per annum
due 9/3/2014 |
|
- |
|
|
1,636,554 |
|
|
|
Interest rate at
7.8% per annum due 8/25/2015 |
|
2,117,781 |
|
|
- |
|
|
|
Interest rate at 7.28% per annum
due 3/24/2015 |
|
1,629,062 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
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 1/7/2015 |
|
733,078 |
|
|
818,277 |
|
|
|
Interest rate at 6.0% per annum
due 9/1/2015 |
|
814,531 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Bank of Beijing, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 7.2% per annum
due 6/19/2014 |
|
- |
|
|
1,309,243 |
|
|
|
|
|
|
|
|
|
|
|
Luotian Sanliqiao Credit
Union, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 9.360% per annum
due 1/21/2015 |
|
162,906 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Beijing International Trust Co.,
Ltd., |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 6.00% per annum
due 9/23/2014 |
|
- |
|
|
1,636,554 |
|
|
|
|
|
|
|
|
|
|
|
Bank of Ningbo , |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 7.20% per annum
due 9/25/2014 |
|
- |
|
|
1,636,554 |
|
|
|
Interest rate at
7.80% per annum due 10/26/2015 |
|
1,629,062 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Hankou Bank,
Guanggu Branch, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at
6.60% per annum due 9/12/2014 |
|
- |
|
|
1,636,554 |
|
|
|
Interest rate at 6.95% per annum
due 8/24/2015 |
|
1,629,062 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Agricultural Bank of China,
Shandong Branch |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at
7.2% per annum due 8/22/2014 |
|
- |
|
|
1,636,554 |
|
|
|
|
|
|
|
|
|
|
|
Ping An Bank,
Jinan Branch |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at
6.72% per annum due 1/3/2014 |
|
- |
|
|
1,145,588 |
|
|
|
Interest rate at
7.8% per annum due 8/25/2015 |
|
2,117,781 |
|
|
- |
|
|
|
Interest rate at 7.28% per annum
due 3/24/2015 |
|
1,629,062 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
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 1/7/2015 |
|
733,078 |
|
|
818,277 |
|
|
|
Interest rate at 6.0% per annum
due 9/1/2015 |
|
814,531 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Bank of Beijing, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 7.2% per annum
due 6/19/2014 |
|
- |
|
|
1,309,243 |
|
|
|
|
|
|
|
|
|
|
|
Luotian Sanliqiao Credit
Union, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 9.360% per annum
due 1/21/2015 |
|
162,906 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Beijing International Trust Co.,
Ltd., |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 6.00% per annum
due 9/23/2014 |
|
- |
|
|
1,636,554 |
|
|
|
|
|
|
|
|
|
|
|
Bank of Ningbo , |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 7.20% per annum
due 9/25/2014 |
|
- |
|
|
1,636,554 |
|
|
|
Interest rate at
7.80% per annum due 10/26/2015 |
|
1,629,062 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Hankou Bank,
Guanggu Branch, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at
6.60% per annum due 9/12/2014 |
|
- |
|
|
1,636,554 |
|
|
|
Interest rate at 6.95% per annum
due 8/24/2015 |
|
1,629,062 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Agricultural Bank of China,
Shandong Branch |
|
|
|
|
|
|
|
|
Interest rate at
7.2% per annum due 8/22/2014 |
|
- |
|
|
1,636,554 |
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
Luzhen Credit
Union, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at
10.40% per annum due 2/27/2014 |
|
- |
|
|
490,966 |
|
|
|
|
|
|
|
|
|
|
|
Bank of Rizhao,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at
7.80% per annum due 1/17/2015 |
|
1,629,062 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
China
Construction Bank, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Interest
rate, due 4/1/2014 |
|
- |
|
|
801,912 |
|
|
|
Variable Interest rate, due
4/30/2014 |
|
- |
|
|
523,697 |
|
|
|
Interest rate at
6.16% per annum due 2/25/2015 |
|
814,531 |
|
|
- |
|
|
|
Interest rate at 6.60% per annum
due 4/15/2015 |
|
798,241 |
|
|
- |
|
|
|
Interest rate at
6.60% per annum due 5/11/2015 |
|
521,300 |
|
|
- |
|
|
|
Interest rate at 6.60% per annum
due 11/27/2015 |
|
814,531 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Huaxia Bank, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 7.8% per annum
due 5/19/2015 |
|
1,629,062 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Bank of China, Paris Branch
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate at 2.50% per annum
due 3/5/2015 |
|
3,622,666 |
|
|
- |
|
|
|
Interest rate at
2.50% per annum due 3/5/2015 |
|
2,954,048 |
|
|
|
|
|
|
|
$ |
37,639,506 |
|
$ |
29,400,694 |
|
22
The short-term loans, which are
denominated in the functional currencies Renminbi (RMB) and Euros, 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.
Current portions of long-term debt
consisted of the following as of December 31, 2014 and 2013:
|
BNP Paribas, |
|
|
|
|
|
|
|
|
|
Interest rate at
3.80% per annum due 3/14/2015 |
$ |
21,284 |
|
$ |
- |
|
|
|
Interest rate at 3.00% per annum
due 7/15/2015 |
|
16,355 |
|
|
- |
|
|
|
Interest rate at
4.20% per annum due 12/20/2016 |
|
73,082 |
|
|
- |
|
|
CIC Lorient Enterprises, |
|
|
|
|
|
|
|
|
Interest rate at
2.98% per annum due 12/20/2015 |
|
27,791 |
|
|
- |
|
|
|
Interest rate at 4.20% per annum
due 12/20/2016 |
|
108,864 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Credit Agricole, |
|
|
|
|
|
|
|
|
Interest rate at
4.20% per annum due 12/20/2016 |
|
108,864 |
|
|
- |
|
|
|
Interest rate at 1.85% per annum
due 1/25/2017 |
|
42,947 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
LCL Banque et Assurance, |
|
|
|
|
|
|
|
|
Interest rate at
4.20% per annum due 12/20/2016 |
|
108,864 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Banque Tarneud,
|
|
|
|
|
|
|
|
|
Interest rate at 3.28% per annum
due 10/30/2014* |
|
135,624 |
|
|
- |
|
|
|
Interest rate at
2.90% per annum due 4/30/2015 |
|
72,818 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
BPI France,
|
|
|
|
|
|
|
|
|
Interest rate at 3.42% per annum
due 12/20/2016 |
|
547,046 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Société Générale, |
|
|
|
|
|
|
|
|
Interest rate at
2.90% per annum due 5/15/2016 |
|
25,078 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,288,617 |
|
$ |
- |
|
23
*Note: The Company is currently
negotiating with Banque Tarneud to extend the repayment terms of the loan.
10. |
CURRENT PORTION LONG TERM DEBT |
|
|
|
Current portions of notes payable and debentures
consisted of the following as of December 31, 2014 and
2013: |
|
|
|
|
12/31/2014 |
|
|
12/31/2013 |
|
|
Note payable issued by
Shanghai Pudong Development Bank |
|
|
|
|
|
|
|
|
Interest rate at 5.9% per annum due 12/28/2015
|
$ |
13,032,500 |
|
$ |
- |
|
|
|
|
$ |
13,032,500 |
|
$ |
- |
|
Current portions of long-term debt
consisted of the following as of December 31, 2014 and 2013:
|
|
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
|
|
|
|
|
|
|
|
|
Loans from China
Development Bank |
|
|
|
|
|
|
|
|
Interest rate at 7.07% per annum
due 5/20/2014 |
$ |
- |
|
$ |
981,933 |
|
|
|
Interest rate at
7.07% per annum due 11/20/2014 |
|
- |
|
|
981,932 |
|
|
|
Interest rate at 7.07% per annum
due 5/20/2015 |
|
1,140,344 |
|
|
- |
|
|
|
Interest rate at
7.07% per annum due 9/24/2015 |
|
1,303,250 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
Interest rate at 5.510% per annum
due 3/15/2015 |
|
1,875,000 |
|
|
- |
|
|
|
Interest rate at
5.510% per annum due 9/15/2015 |
|
1,875,000 |
|
|
- |
|
|
|
|
$ |
6,193,594 |
|
$ |
5,713,865 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
19,226,094 |
|
$ |
5,713,865 |
|
24
11. |
NOTES PAYABLE AND CONVERTIBLE PROMISSORY
NOTE |
|
|
|
Notes Payable consisted of the following as of December
31, 2014 and 2013: |
|
|
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
issued by Hankou Bank, |
|
|
|
|
|
|
|
|
Interest rate at 5.55% per annum
due 3/24/2015 |
$ |
1,629,062 |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
Notes payable issued by BNP
Paribas, |
|
|
|
|
|
|
|
|
Interest rate at
EURIBOR + 1.7% per annum due within 3 months |
|
972,527 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Notes payable
issued by CIC Lorient Enterprises, |
|
|
|
|
|
|
|
|
Interest rate at EURIBOR + 1.7%
per annum due within 3 months |
|
1,434,476 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Notes payable issued by Credit
Agricole, |
|
|
|
|
|
|
|
|
Interest rate at
EURIBOR + 1.7% per annum due within 3 months |
|
705,081 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Notes payable
issued by LCL Banque et Assurance, |
|
|
|
|
|
|
|
|
Interest rate at EURIBOR + 1.7%
per annum due within 1 months |
|
705,081 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Notes payable issued by Société
Générale, |
|
|
|
|
|
|
|
|
Interest rate at
EURIBOR + 1.7% per annum due within 1 months |
|
559,203 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,005,430 |
|
$ |
- |
|
25
The Notes Payable are guaranteed by
third party guarantors.
Convertible Promissory Note consisted
of the following as of December 31, 2014 and 2013:
|
|
|
|
12/31/2014 |
|
|
12/31/2013 |
|
|
|
|
|
|
|
|
|
|
|
Note issued by Jade Lane Group
Limited |
|
|
|
|
|
|
|
|
Interest rate at 4.50% per annum due 3/13/2015
|
$ |
3,500,000 |
|
$ |
- |
|
|
|
|
$ |
3,500,000 |
|
$ |
- |
|
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 December 31, 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 is 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.
The Company did not receive the notification from the Holder to elect the
maturity date of December 31, 2014; therefore, the maturity date will be 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.
26
12. |
TAXES PAYABLES |
|
|
|
Taxes payable consisted of the following as of December
31, 2014 and 2013: |
|
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
Value added tax payable |
$ |
1,664,596
|
|
$ |
592,341
|
|
|
Corporate income tax payable |
|
996,629 |
|
|
2,572,663 |
|
|
Employee payroll tax
withholding |
|
442,382 |
|
|
6,344 |
|
|
Property tax payable |
|
55,872 |
|
|
73,768 |
|
|
Stamp tax payable |
|
1,478 |
|
|
1,485 |
|
|
Business tax payable |
|
158,194 |
|
|
158,921 |
|
|
Land use tax payable |
|
53,400 |
|
|
64,062 |
|
|
Import tariffs |
|
- |
|
|
271 |
|
|
Capital gain tax payable |
|
947,919 |
|
|
952,278 |
|
|
|
$ |
4,320,470 |
|
$ |
4,422,133 |
|
13. |
ACCRUED EXPENSES AND OTHER PAYABLE |
|
|
|
Accrued expenses and other payables consisted of the
following as of December 31, 2014 and 2013: |
|
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
Accrued salaries and wages
|
$ |
303,751
|
|
$ |
32,731 |
|
|
Accrued utility expenses |
|
25,631 |
|
|
39,765 |
|
|
Accrued interest expenses |
|
1,359,472 |
|
|
927,986 |
|
|
Accrued transportation expenses |
|
653,935 |
|
|
144,061 |
|
|
Other accruals |
|
819,775 |
|
|
- |
|
|
Business and other taxes |
|
505,584 |
|
|
885,972 |
|
|
Disbursement payable |
|
108,528 |
|
|
- |
|
|
Accrued staff welfare |
|
376,378 |
|
|
285,300 |
|
|
|
$ |
4,153,054 |
|
$ |
2,315,815 |
|
14. |
LONG-TERM DEBT |
|
|
|
Non-current portions of long-term debt consisted of the
following as of December 31, 2014 and 2013: |
|
|
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
Loans from
Deutsche Investitions-und Entwicklungsgesellschaft mbH (DEG)
|
|
|
|
|
|
|
|
|
Interest rate at 5.510% per annum
due 3/15/2016 |
$ |
1,875,000 |
|
$ |
5,625,000 |
|
|
|
|
|
|
|
|
|
|
|
Loans from China Development
Bank |
|
|
|
|
|
|
|
|
Interest rate at
7.07% per annum due 9/24/2015 |
|
- |
|
|
2,454,831 |
|
|
|
|
|
|
|
|
|
|
|
BNP Paribas,
|
|
|
|
|
|
|
|
|
Interest rate at 4.20% per annum
due 12/20/2016 |
|
105,863 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
CIC Lorient Enterprises, |
|
|
|
|
|
|
|
|
Interest rate at
4.20% per annum due 12/20/2016 |
|
104,394 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Credit
Agricole, |
|
|
|
|
|
|
|
|
Interest rate at 4.20% per annum
due 12/20/2016 |
|
104,394 |
|
|
- |
|
|
|
Interest rate at
1.85% per annum due 1/25/2017 |
|
38,887 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
LCL Banque et
Assurance, |
|
|
|
|
|
|
|
|
Interest rate at 4.20% per annum
due 12/20/2016 |
|
104,394 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Société Générale, |
|
|
|
|
|
|
|
|
Interest rate at
2.90% per annum due 5/15/2016 |
|
10,665 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Banco Portugue
de Negocios, |
|
|
|
|
|
|
|
|
Interest rate at EURIBOR
3M+spread 2% per annum due 06/2024 |
|
337,064 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Banco Espirito Santo |
|
|
|
|
|
|
|
|
Interest rate at
EURIBOR 3M+spread 2% per annum due 06/2024 |
|
26,926 |
|
|
- |
|
|
|
|
$ |
2,707,587 |
|
$ |
8,079,831 |
|
27
The Company began repaying its loan
with DEG in semi-annual installments on September 15, 2012. As of December 31,
2014 and 2013, the Company has repaid $9,375,000 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 the Company's land and building in favor of DEG.
|
|
(b.) |
Undertake to provide a share pledge of Mr. Si Chen, its
majority shareholder, or shares as the sponsor in the amount of about USD
12,000,000 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 a major
shareholder, Chairman and CEO of the Company in a
form and substance satisfactory to DEG. |
Non-current portions of notes payable
and debentures consisted of the following as of December 31, 2014 and
2013:
28
|
|
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
Note payable
issued by Shanghai Pudong Development Bank |
|
|
|
|
|
|
|
|
Interest rate at 5.9% per annum
due 12/28/2015 |
|
- |
|
|
13,092,432 |
|
|
|
|
|
|
|
|
|
|
|
Debenture issued by 5 private
placement holders underwritten by Guoyuan Securities Co., Ltd.
|
|
|
|
|
|
|
|
|
Interest rate at
10% per annum due 8/28/2016 |
|
16,290,625 |
|
|
16,365,541 |
|
|
|
|
|
|
|
|
|
|
|
Debenture issued
by 2 private placement holders underwritten by Daiwa SSC Securities
Co. Ltd. |
|
|
|
|
|
|
|
|
Interest rate at 9.5% per annum
due 11/8/2015 |
|
16,290,624 |
|
|
16,365,541 |
|
|
|
|
$ |
32,581,249 |
|
$ |
45,823,514 |
|
15. |
CAPITALIZATION |
|
|
|
Dating back to May 3, 2007, the Company underwent a
reverse-merger and a concurrent financing transaction that resulted in
24,923,178 shares of outstanding common stock that remained unchanged
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. |
|
|
|
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. As of December 31,
2014, 1,753,909 shares of Series A warrants are outstanding; concurrently,
501,115 shares of Series B warrants and all stock options to employees
from the 2009 stock incentive program have expired |
|
|
|
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. As of December 31, 2014, the 81,155 warrants
issued to various service providers have expired. |
29
For the years ended December 31, 2014
and 2013, the Company transferred $4,642,404 and $1,474,019 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 ended December 31, 2014, the Company issued 300,000 shares to a
consulting company as its financial advisor for management consulting and
advisory services.
As detailed in the table below, the total number of outstanding shares at
December 31, 2014 was 34,916,714.
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 |
New shares issued to
service provider during 2014 |
|
8/22/2014 |
300,000 |
Common stock at 12/31/2014 |
|
|
34,916,714
|
30
Warrants and
options |
Number of warrants |
Issuance date |
Expiration date |
Warrants issued to
investors in 2009 PIPE - Series A |
1,753,909 |
10/28/2009 |
4/28/2015 |
Total warrants |
1,753,909 |
|
|
16. |
NON-CONTROLLING INTERESTS |
|
|
|
The non-controlling interest represents the
following: |
|
(1) |
19.8% equity of Shandong Lorain held by the Shandong
Economic Development Investment Corporation, which is a state-owned
interest. |
|
|
|
|
(2) |
49% equity of the Athena Group held by Biobranco II,
Alcides Branco, and Nuno Branco. |
17. |
SALES BY PRODUCT TYPE |
|
|
|
Sales by categories of product consisted of the following
as of December 31, 2014 and 2013: |
|
Category |
|
12/31/2014
|
|
|
12/31/2013
|
|
|
|
|
|
|
|
114,709,00 |
|
|
Chestnut |
$ |
123,037,895 |
|
$ |
5 |
|
|
Convenience food |
|
58,874,609 |
|
|
62,213,432 |
|
|
Frozen food |
|
35,641,156 |
|
|
38,357,348 |
|
|
|
|
|
|
|
215,279,78 |
|
|
Total |
$ |
217,553,660 |
|
$ |
5 |
|
31
Revenue by geography consisted of the
following as of December 31, 2014 and 2013:
|
Country |
|
12/31/2014
|
|
|
12/31/2013
|
|
|
Australia |
$ |
206,241
|
|
$ |
59,317 |
|
|
Austria |
|
43,390 |
|
|
- |
|
|
Belgium |
|
1,624,771 |
|
|
4,296,553 |
|
|
Canada |
|
- |
|
|
142,620 |
|
|
China |
|
|
|
|
158,785,05 |
|
|
|
|
138,834,016 |
|
|
3 |
|
|
France |
|
25,665,791 |
|
|
2,282,220 |
|
|
Germany |
|
993,899 |
|
|
1,232,648 |
|
|
Hong Kong |
|
329,163 |
|
|
164,921 |
|
|
Israel |
|
88,845 |
|
|
566,651 |
|
|
Italy |
|
1,059,609 |
|
|
- |
|
|
Japan |
|
22,131,837 |
|
|
25,763,794 |
|
|
Malaysia |
|
2,797,391 |
|
|
1,663,077 |
|
|
Netherlands |
|
5,760 |
|
|
808,505 |
|
|
New Zealand |
|
62,321 |
|
|
- |
|
|
Philippines |
|
811,391 |
|
|
614,276 |
|
|
Poland |
|
- |
|
|
115,672 |
|
|
Portugal |
|
5,930,655 |
|
|
3,557,232 |
|
|
Reunion |
|
66,181 |
|
|
- |
|
|
Russia |
|
- |
|
|
118,795 |
|
|
Saudi Arabia |
|
2,470,578 |
|
|
- |
|
|
Singapore |
|
2,359,656 |
|
|
2,413,137 |
|
|
South Korea |
|
7,225,153 |
|
|
9,335,811 |
|
|
Spain |
|
318,661 |
|
|
- |
|
|
Taiwan |
|
545,191 |
|
|
108,946 |
|
|
Thailand |
|
948,165 |
|
|
604,268 |
|
|
United Kingdom |
|
2,182,436 |
|
|
1,269,986 |
|
|
|
|
|
|
|
|
|
|
United States |
|
835,231 |
|
|
1,361,680 |
|
|
Vietnam |
|
- |
|
|
14,623 |
|
|
Others |
|
17,328 |
|
|
- |
|
|
Total |
$ |
217,553,660 |
|
$ |
215,279,785 |
|
32
18. |
INCOME TAXES |
|
|
|
All of the Companys operations are in the PRC, France,
and Portugal, and in accordance with the relevant tax laws and
regulations. The corporate income tax rate for each country is as
follows: |
|
|
PRC tax rate is 25%. |
|
|
France tax rate is 33.3% |
|
|
Portugal tax rate is 23%. |
The following tables provide the
reconciliation of the differences between the statutory and effective tax
expenses for the periods ended December 31, 2014 and 2013:
|
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
Income attributed to PRC
& Europe |
$ |
8,397,757 |
|
$ |
23,547,394
|
|
|
Loss attributed to US |
|
(901,923 |
) |
|
(285,062 |
) |
|
Income before tax |
|
7,495,834 |
|
|
23,262,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC Statutory Tax at 25% Rate |
|
3,089,712 |
|
|
5,573,756 |
|
|
Effect of tax exemption
granted |
|
- |
|
|
- |
|
|
Income tax |
$ |
3,089,712 |
|
$ |
5,573,756 |
|
Per Share Effect of Tax Exemption
|
|
|
12/31/2014
|
|
|
12/31/2013
|
|
|
|
|
|
|
|
|
|
|
Effect of tax exemption
granted |
$ |
- |
|
$ |
- |
|
|
Weighted-Average Shares Outstanding Basic |
|
34,808,221 |
|
|
34,616,714 |
|
|
Per share effect |
$ |
- |
|
$ |
- |
|
The difference between the U.S. federal
statutory income tax rate and the Companys effective tax rate was as follows
for the periods ended December 31, 2014 and 2013:
33
|
|
|
12/31/2014 |
|
|
12/31/2013 |
|
|
U.S. federal statutory income
tax rate |
|
35% |
|
|
35% |
|
|
Lower rates in PRC, net |
|
-10% |
|
|
-10% |
|
|
Tax holiday for foreign
investments |
|
16.22% |
|
|
-1.04% |
|
|
The Companys effective tax rate |
|
41.22% |
|
|
23.96% |
|
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 that
were already participating in 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 as of and before December 31,
2014 because the Company planned to setup operations in the United States. The
company anticipates that the operations within the United States will generate
income in the future so that it will be able to take full advantage of the
accrued tax asset. Accordingly the Company has not provided a valuation
allowance for the accrued tax asset.
The Companys detailed tax rates for
its Chinese subsidiaries for 2014 and 2013 in the following table:
|
|
|
China Income
Tax |
|
|
|
|
Rate |
|
|
Subsidiary |
|
2014 |
|
|
2013 |
|
|
Junan Hongran |
|
25% |
|
|
25% |
|
|
Luotian Lorain |
|
25% |
|
|
25% |
|
|
Beijing Lorain |
|
25% |
|
|
25% |
|
|
Shandong Lorain |
|
25% |
|
|
25% |
|
|
Shandong Greenpia |
|
25% |
|
|
25% |
|
|
Dongguan Lorain |
|
25% |
|
|
25% |
|
Components of basic and diluted
earnings per share were as follows:
|
|
|
For the
year ended |
|
|
|
|
December
31, |
|
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
Numerator |
|
|
|
|
|
|
|
Net Income
|
$ |
3,752,524 |
|
$ |
16,633,895 |
|
|
Income
Available to Common Stockholders |
$ |
3,752,524 |
|
$ |
16,633,895 |
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
Numerator |
|
|
|
|
|
|
|
Income
Available to Common |
|
|
|
|
|
|
|
Stockholders |
$ |
3,752,524 |
|
$ |
16,633,895 |
|
|
|
|
|
|
|
|
|
|
Income Available to Common
Stockholders on Converted Basis |
$ |
3,752,524 |
|
$ |
16,633,895 |
|
|
|
|
|
|
|
|
|
|
Original Shares: |
|
34,616,714 |
|
|
34,616,714 |
|
|
Additions from Actual Events |
|
|
|
|
|
|
|
-Issuance of Common Stock |
|
300,000 |
|
|
- |
|
|
Basic Weighted Average Shares Outstanding |
|
34,808,221 |
|
|
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:
|
|
34,808,221 |
|
|
34,616,714 |
|
|
|
|
|
|
|
|
|
|
Earnings Per Share |
|
|
|
|
|
|
|
- Basic |
$ |
0.11 |
|
$ |
0.48 |
|
|
- Diluted |
$ |
0.11 |
|
$ |
0.48 |
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding |
|
|
|
|
|
|
|
- Basic |
|
34,808,221 |
|
|
34,616,714 |
|
|
- Diluted |
|
34,808,221 |
|
|
34,616,714 |
|
34
20. |
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; these 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. |
35
On February 19, 2014 the Companys
board of directors approved the 2014 Equity Incentive Plan (2014 Plan).
Subject to adjustment as provided in the 2014 Plan, the total number of shares
of Common Stock reserved and available for delivery in connection with awards
under the 2014 Plan is 3,000,000. Currently there are no shares or options
granted under the 2014 Plan. The Company will not grant any awards until the
2014 Plan has been approved by the stockholders in compliance with the NYSE Amex
Company Guide and favorable federal income tax treatment for grants of incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as
amended. On June 9, 2014, the 2014 Plan was approved at the annual stockholders'
meeting of the Company. This 2014 Plan replaces the Companys 2009 Incentive Stock Plan (the
Prior Plan) and no additional stock awards shall be granted under the Prior
Plan. All outstanding stock awards granted under the Prior Plan shall remain
subject to the terms of the Prior Plan with respect to which they were
originally granted.
No tax benefit has yet been accrued or
realized. For years ended December 31, 2014 and 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.
For the years ended December 31, 2014
and 2013, the Company did not grant any stock options.
|
(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 December 31, 2014 are shown in the following table:
|
|
From |
To |
|
Lease payment |
|
|
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 |
|
|
|
|
$ |
334,696 |
|
The outstanding lease commitment as of
December 31, 2014 was $334,696.
The minimum future lease payments for
this property at December 31, 2013 are shown in the following table:
36
|
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 agreements leasing three plots of land
where greenhouses are maintained to grow seasonal crops. The leases were
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 these
properties at December 31, 2014 are shown in the following tables:
|
From |
|
To |
|
|
Greenhouse 1 |
|
|
From |
|
|
To |
|
|
Greenhouse 2 |
|
|
From |
|
|
To |
|
|
Greenhouse 3 |
|
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 |
|
|
|
|
|
$ |
1,556,659 |
|
|
|
|
|
|
|
$ |
1,864,908 |
|
|
|
|
|
|
|
$ |
223,152 |
|
The outstanding lease commitments for
the three greenhouses as of December 31, 2014 was $3,644,719.
37
The minimum future lease payments for
these properties at December 31, 2013 are shown in the following tables:
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 commitments for the three greenhouses as of December 31, 2013
was $3,829,300.
22. |
SUBSEQUENT EVENTS |
|
|
|
On March 12, 2015, the Company and Jade Lane Group
Limited entered into an agreement to repayment terms of the promissory
note in the amount of $3,500,000 issued to the Company on March 13, 2014. The Company agreed to repay
the promissory note in form of both cash payment of $791,433 and
conversion of 2,355,276 shares of common stock at a conversion price of
$1.15 per share. |
23. |
CONTINGENCIES AND LITIGATION |
There is a lawsuit currently pending
in Linyi City Intermediate People's Court of Shandong Province, which was filed
by Shandong Lorain, a subsidiary of the Company, against Junan Hengji Real
Estate Development Co., Ltd. ("Junan Hengji") in November 2013. Subsequently,
Shandong Lorain added Jiangsu Hengan Industrial Investment Group Co., Ltd.
("Hengan Investment") as a co-defendant.
In September 2010, Shandong Lorain
and Junan Hengji entered into a cooperative development agreement (the
"Agreement") and in March 2011, Heng An Investment, an affiliated company of
Junan Hengji also entered into the Agreement with Shandong Lorain to jointly
develop the project with Junan Hengji. Pursuant to the Agreement. Junan Henji
and Heng An Investment are required to pay Shandong Lorain a total RMB 20
million (approximately $3,225,806) fixed return according to the development
status of the project developed by Junan Hengji and Heng An Investment. The
payment was due and unpaid to Shandong Lorain. Shandong Lorain and the Company
evaluated the potential claims against Junan Hengji and Heng An Investment,
disputes between the parties with respect to out of pocket expenses paid by
Junan Hengji as well as the litigation fee that is required to be paid to the
court based upon the amount claimed. Eventually, Shandong Lorain decided to file
the lawsuit with Linyi City Intermediate People's Court to claim a fixed return
of RMB 10 million (approximately $1,612,903) first.
In January 2014, the court had its
first trial session. During the trial, Heng An Investment filed a counterclaim
against Shandong Lorain for repayment of out of pocket expenses which would
off-set the entire fixed return plus additional unpaid expense of RMB 4,746,927
(approximately $765,633). Shandong Lorain responded that Heng An Investment does
not have standing to file the counter-claim because the out of pocket payments
were made by Junan Hengji. In November 2014, the court had a second trial
session and completed its discovery process and the Company is waiting for the
judgment of the court.
38
|
|
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 is subject to interest rate risk when short
term loans become due and require refinancing. |
|
|
|
|
C. |
Economic and political risks |
|
|
|
|
|
The Companys operations are mainly conducted in the PRC.
Accordingly, the Companys business, financial condition, and results of
operations may be influenced by changes in the political, economic, and
legal environments in the PRC. |
|
|
|
|
|
The Companys operations in the PRC are subject to
special considerations and significant risks not typically associated with
companies in North America and Western Europe. These include risks
associated with, among others, the political, economic and legal
environment and foreign currency exchange. The Companys results may be
adversely affected by changes in the political and social conditions in
the PRC, and by changes in governmental policies with respect to laws and
regulations, anti-inflationary measures, currency conversion, remittances
abroad, and rates and methods of taxation, among other things. |
|
|
|
|
D. |
Environmental risks |
|
|
|
|
|
The Company has procured environmental licenses required
by the PRC government. The Company has both a water treatment facility for
water used in its production process and secure transportation to remove
waste off site. In the event of an accident, the Company has purchased
insurance to cover potential damage to employees, equipment, and local
environment. |
|
|
|
|
E. |
Inflation Risk |
|
|
|
|
|
Management monitors changes in prices levels.
Historically inflation has not materially impacted the companys financial
statements; however, significant increases in the price of raw materials
and labor that cannot be passed on the Companys customers could adversely
impact the Companys results of operations. |
39
Exhibit 21.1
AMERICAN LORAIN CORPORATION
SCHEDULE OF SUBSIDIARIES
As of March 31, 2015
Subsidiaries of American Lorain Corporation
Name |
Place of Incorporation |
International Lorain Holdings, Inc. |
Cayman Islands |
Junan Hongrun |
Peoples Republic of China |
Shandong Lorain |
Peoples Republic of China
|
Dongguan Lorain |
Peoples Republic of China |
Shandong Greenpia |
Peoples Republic of China
|
Beijing Lorain |
Peoples Republic of China |
Luotian Lorain |
Peoples Republic of China
|
Athena (majority owned) |
France |
Conserverie Minerve |
France |
Sojafrais
|
France |
SCI SIAM |
France |
SCI GUI
LONG |
France |
CCACOVIN |
Portuguese
|
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the
Registration Statements on Form S-8 (No. 333-160822) and Form S-3 (No.
333-164605 and No. 333-169815) of American Lorain Corporation of our report
dated April 15, 2015 with respect to the consolidated financial statements of
American Lorain Corporation, which report appears in this Annual Report on Form
10-K of American Lorain Corporation of the year ended December 31, 2014.
|
/s/ WWC, Professional Corporation |
San Mateo, California |
WWC, Professional Corporation |
April 15, 2015 |
Certified Public Accountants
|
Exhibit 31.1
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
SECTION 302
I, Si Chen, certify that:
1. I have reviewed this Annual Report on Form 10-K of American
Lorain Corporation.
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this report;
4. The Registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Registrant and have:
a. Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this
report is being prepared;
b. Designed such internal control over
financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the
Registrants disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures as
of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change
in the Registrants internal control over financial reporting that occurred
during the Registrants most recent fiscal quarter (the Registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the Registrants internal control
over financial reporting; and
5. The Registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the Registrants auditors and the audit committee of the
Registrants board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and
material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the
Registrants ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material,
that involves management or other employees who have a significant role in the
Registrants internal control over financial reporting.
Date: April 15, 2015
By: /s/ Si
Chen |
Name: Si Chen |
Title: President and Chief Executive Officer |
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS OF CHIEF FINANCIAL OFFICER
PURSUANT TO
SECTION 302
I, Xiang Zhou, certify that:
1. I have reviewed this Annual Report on Form 10-K of American
Lorain Corporation.
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this report;
4. The Registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Registrant and have:
a. Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this
report is being prepared;
b. Designed such internal control over
financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the
Registrants disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures as
of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change
in the Registrants internal control over financial reporting that occurred
during the Registrants most recent fiscal quarter (the Registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the Registrants internal control
over financial reporting; and
5. The Registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the Registrants auditors and the audit committee of the
Registrants board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and
material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the
Registrants ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material,
that involves management or other employees who have a significant role in the
Registrants internal control over financial reporting.
Date: April 15, 2015
By: /s/ Xiang Zhou
Name: Xiang Zhou
Title: Chief
Financial Officer
(Principal Financial Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of American Lorain
Corporation (the Company) on Form 10-K for the period ended December 31, 2014
as filed with the Securities and Exchange Commission on the date hereof (the
Report), the undersigned, in the capacities and on the date indicated below,
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in
all material respects, the financial condition and results of operation of the
Company.
Date: April 15, 2015
By: /s/ Si
Chen
|
Name: Si Chen |
Title: President and Chief Executive Officer |
(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of American Lorain
Corporation (the Company) on Form 10-K for the period ended December 31, 2014
as filed with the Securities and Exchange Commission on the date hereof (the
Report), the undersigned, in the capacities and on the date indicated below,
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in
all material respects, the financial condition and results of operation of the
Company.
Date: April 15, 2015
By: /s/ Xiang Zhou
Name: Xiang Zhou
Title: Chief
Financial Officer
(Principal Financial Officer)
American Lorain Corp. (AMEX:ALN)
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