UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2015
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 001-34449
AMERICAN LORAIN
CORPORATION
(Exact name of registrant as specified in its
charter)
Nevada |
87-0430320 |
(State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization) |
Identification No.) |
BeihuanZhong Road
Junan County
Shandong,
Peoples Republic of China, 276600
(Address, including zip code,
of principal executive offices)
(86) 539-7317959
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
Yes [_] No [X]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definitions of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one)
Large accelerated filer [_] |
Accelerated
filer
[_] |
Non-accelerated filer [_] |
Smaller reporting company [X] |
(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 numbers of shares outstanding of the issuers class of
common stock as of May 11, 2015 was 37,271,990
1
FORM 10-Q
For the Quarterly Period Ended March 31,
2015
TABLE OF CONTENTS
|
PAGE |
PART
I - FINANCIAL INFORMATION |
|
ITEM
1 FINANCIAL STATEMENTS |
4 |
ITEM
2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS |
39 |
ITEM
3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
46 |
ITEM
4 CONTROLS AND PROCEDURES |
46 |
|
|
PART
II - OTHER INFORMATION |
|
ITEM
1 LEGAL PROCEEDINGS |
48 |
ITEM
1A RISK FACTORS |
48 |
ITEM
2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
48 |
ITEM
3 DEFAULTS UPON SENIOR SECURITIES |
48 |
ITEM
4 MINE SAFETY DISCLOSURES |
48 |
ITEM
5 OTHER INFORMATION |
48 |
ITEM
6 EXHIBITS |
49 |
SIGNATURES |
50 |
Caution Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking
statements. These statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements to
be materially different from any future results, performances or achievements
expressed or implied by the forward-looking statements. These risks and
uncertainties include, but are not limited to the factors described in the
section captioned Risk Factors in our Annual Report on Form 10-K for the year
ended December 31, 2014 filed with the Securities and Exchange Commission.
In some cases, you can identify forward-looking statements by
terms such as anticipates, believes, could, estimates, expects,
intends, may, plans, potential, predicts, projects, should,
would or the negative of such terms or other similar expressions intended to
identify forward-looking statements. Forward-looking statements reflect our
current views with respect to future events and are based on assumptions and are
subject to risks and uncertainties. Given these uncertainties, you should not
place undue reliance on these forward-looking statements. Also, forward-looking
statements represent our estimates and assumptions only as of the date of this
report. You should read this report completely and with the understanding that
our actual future results may be materially different from what we expect.
Except as required by law, we assume no obligation to update
any forward-looking statements publicly, or to update the reasons actual results
could differ materially from those anticipated in any forward-looking
statements, even if new information becomes available in the future.
2
Use of Certain Defined Terms
Except where the context otherwise requires and for the
purposes of this report only:
1. 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.
2. ALN refers to American Lorain
Corporation, a Nevada corporation (formerly known as Millennium Quest, Inc.).
3. Athena refers to Athena, a limited
liability company organized under the laws of France that is majority- owned by
JunanHongrun.
4. ILH refers to International Lorain
Holding, Inc., a Cayman Islands company that is wholly - owned by ALN.
5. Junan Hongrun refers to Junan Hongrun
Foodstuff Co., Ltd.
6. Luotian Lorain refers to Luotian Green
Foodstuff Co., Ltd.
7. Beijing Lorain refers to Beijing Green
Foodstuff Co., Ltd.
8. Shandong Lorain refers to Shandong Green
Foodstuff Co., Ltd.
9. Dongguan Lorain refers to Dongguan Green
Foodstuff Co., Ltd.
10. Shandong Greenpia refers to Shandong Greenpia
Foodstuff Co., Ltd.
11. RMB refers to Renminbi, the legal currency of
China.
12. U.S. dollar, $ and US$ refer to the legal
currency of the United States.
13. China and PRC refer to the Peoples Republic of
China (excluding Hong Kong and Macau).
3
ITEM 1. Financial Statements
AMERICAN LORAIN CORPORATION
CONTENTS |
PAGES |
|
|
CONSOLIDATED
BALANCE SHEETS |
5-6 |
|
|
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME |
7 |
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS |
8 |
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY |
9 |
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS |
10 |
4
AMERICAN LORAIN CORPORATION
UNAUDITED CONSOLIDATED
BALANCE SHEETS
AT MARCH 31, 2015 AND DECEMBER 31, 2014
(Stated in US Dollars)
|
|
|
|
|
(Audited) |
|
|
|
At March 31, |
|
|
At December 31, |
|
ASSETS |
|
2015 |
|
|
2014 |
|
Current assets |
|
|
|
|
|
|
Cash and cash
equivalents |
$ |
36,746,627 |
|
$ |
30,279,988 |
|
Restricted cash |
|
7,860,992 |
|
|
4,195,114 |
|
Trade accounts
receivable |
|
36,069,804 |
|
|
58,806,466 |
|
Other receivables |
|
6,284,804 |
|
|
8,183,485 |
|
Inventory |
|
64,627,138 |
|
|
51,648,160 |
|
Advance to suppliers |
|
36,716,401 |
|
|
42,479,437 |
|
Prepaid expenses
and taxes |
|
3,885,910 |
|
|
2,758,334 |
|
Security deposits and other assets |
|
3,926,851 |
|
|
3,578,514 |
|
Total
current assets |
$ |
196,118,527 |
|
$ |
201,929,498 |
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
Investment |
|
3,273,805 |
|
|
3,258,125 |
|
Property, plant and
equipment, net |
|
88,360,596 |
|
|
89,148,530 |
|
Construction in Progress, net |
|
14,418,978 |
|
|
14,340,145 |
|
Intangible assets,
net |
|
17,408,819 |
|
|
17,537,868 |
|
Goodwill |
|
9,516,252 |
|
|
10,327,553 |
|
TOTAL ASSETS |
$ |
329,096,977 |
|
$ |
336,541,719 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Short-term bank
loans |
$ |
36,789,382 |
|
$ |
41,645,100 |
|
Notes payable |
|
3,479,233 |
|
|
6,005,430 |
|
Convertible
promissory note |
|
3,500,000 |
|
|
3,500,000 |
|
Long-term debt current portion
|
|
37,862,939 |
|
|
19,226,094 |
|
Accounts payable
|
|
12,286,760 |
|
|
10,071,009 |
|
Taxes payable |
|
2,559,484 |
|
|
4,320,470 |
|
Accrued
liabilities and other payables |
|
5,361,090 |
|
|
4,153,054 |
|
Related party payable |
|
1,746,264 |
|
|
2,433,300 |
|
Deferred tax
liabilities |
|
30,686 |
|
|
70,545 |
|
Customers deposits |
|
188,693 |
|
|
61,428 |
|
Total current liabilities |
$ |
103,804,531 |
|
$ |
91,486,430 |
|
See Accompanying Notes to the Financial Statements and
Accountants Report
5
AMERICAN LORAIN CORPORATION
UNAUDITED CONSOLIDATED
BALANCE SHEETS
AT MARCH 31, 2015 AND DECEMBER 31, 2014
(Stated in US Dollars)
|
|
|
|
|
(Audited) |
|
|
|
At March 31, |
|
|
At December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
Long-term bank loans |
|
728,487 |
|
|
2,707,587 |
|
Notes
payable and debenture |
|
16,369,023 |
|
|
32,581,249 |
|
TOTAL LIABILITIES |
$ |
120,902,041 |
|
$ |
126,775,266 |
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
Preferred Stock,
$0.001 par value, 5,000,000 shares
authorized; 0 shares issued
and outstanding at March 31, 2015 and
December 31, 2014, respectively
|
|
- |
|
|
- |
|
Common Stock, $0.001 par value,
200,000,000 shares
authorized; 34,916,714
shares and 34,916,714 shares issued and
outstanding as of March 31,
2015 and December 31, 2014, respectively |
|
34,917 |
|
|
34,917 |
|
Additional paid-in
capital |
|
53,853,089 |
|
|
53,853,089 |
|
Statutory reserves |
|
23,038,917 |
|
|
23,038,917 |
|
Retained earnings |
|
98,524,449 |
|
|
99,021,555 |
|
Accumulated other comprehensive income
|
|
20,295,625 |
|
|
20,796,420 |
|
Non-controlling
interests |
|
12,447,939 |
|
|
13,021,555 |
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS
EQUITY |
$ |
208,194,936 |
|
$ |
209,766,453 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY |
$ |
329,096,977 |
|
$ |
336,541,719 |
|
See Accompanying Notes to the Financial Statements and
Accountants Report
6
AMERICAN LORAIN CORPORATION
UNAUDITED CONSOLIDATED
STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
FOR THE THREE
MONTHS PERIOD ENDED MARCH 31, 2015 AND 2014
(Stated in US
Dollars)
|
|
For the three months period |
|
|
|
ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Net revenues |
$ |
37,557,311 |
|
$ |
31,689,458 |
|
Cost of revenues |
|
31,939,605 |
|
|
25,584,237 |
|
Gross profit |
$ |
5,617,706 |
|
$ |
6,105,221 |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
Selling and marketing expenses |
|
2,119,464 |
|
|
1,074,791 |
|
General and administrative
expenses |
|
2,616,204 |
|
|
2,089,541 |
|
|
|
4,735,668 |
|
|
3,164,332 |
|
|
|
|
|
|
|
|
Operating income |
$ |
882,038 |
|
$ |
2,940,889 |
|
|
|
|
|
|
|
|
Government subsidy income |
|
256,997 |
|
|
1,508,250 |
|
Interest income |
|
72,823 |
|
|
16,056 |
|
Other income |
|
293,654 |
|
|
88,940 |
|
Other expenses |
|
(381,089 |
) |
|
(134,140 |
) |
Interest expense |
|
(1,715,479 |
) |
|
(1,924,973 |
) |
|
|
|
|
|
|
|
Earnings/(loss) before tax |
$ |
(591,056 |
) |
$ |
2,495,022 |
|
|
|
|
|
|
|
|
Income tax |
|
479,666 |
|
|
749,865 |
|
|
|
|
|
|
|
|
Net income/(loss) |
$ |
(1,070,722 |
) |
$ |
1,745,157 |
|
|
|
|
|
|
|
|
Other comprehensive income/(loss): |
|
|
|
|
|
|
Foreign currency translation
gain/(loss) |
|
(500,795 |
) |
|
(2,322,208 |
) |
Comprehensive Income/(Loss) |
|
(1,571,517 |
) |
|
(577,051 |
) |
|
|
|
|
|
|
|
Net income/(loss) attributable to: |
|
|
|
|
|
|
- Common stockholders |
$ |
(497,106 |
) |
$ |
1,590,488 |
|
-
Non-controlling interest |
|
(573,616 |
) |
|
154,669 |
|
|
$ |
(1,070,722 |
) |
$ |
1,745,157 |
|
|
|
|
|
|
|
|
Earnings/(loss) per share |
|
|
|
|
|
|
- Basic |
$ |
(0.03 |
) |
$ |
0.05 |
|
- Diluted |
$ |
(0.03 |
) |
$ |
0.05 |
|
|
|
|
|
|
|
|
Weighted average shares
outstanding |
|
|
|
|
|
|
- Basic |
|
34,916,714 |
|
|
34,616,714 |
|
- Diluted |
|
34,916,714 |
|
|
34,616,714 |
|
See Accompanying Notes to the Financial Statements and
Accountants Report
7
AMERICAN LORAIN CORPORATION
UNAUDITED CONSOLIDATED
STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS PERIOD ENDED MARCH 31,
2015 AND 2014
(Stated in US Dollars)
|
|
For the three months period |
|
|
|
ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
Cash flows from operating activities |
|
|
|
|
|
|
Net income/(Loss) |
$ |
(1,070,722 |
) |
$ |
1,745,157 |
|
Depreciation of fixed
assets |
|
962,163 |
|
|
799,679 |
|
Amortization of intangible assets |
|
91,500 |
|
|
91,027 |
|
Decrease
in accounts and other receivables |
|
23,046,341 |
|
|
17,095,217 |
|
(Increase) in
inventories |
|
(6,800,908 |
) |
|
(11,169,411 |
) |
(Increase)
in prepayment |
|
(1,149,165 |
) |
|
(1,425,371 |
) |
Decrease/(increase) in deferred tax asset |
|
(12,590 |
) |
|
1,510 |
|
Increase/(decrease)
in accounts and other payables |
|
1,672,677 |
|
|
(118,439 |
) |
(Decrease) in related party payable |
|
(456,739 |
) |
|
- |
|
Net cash provided by operating activities |
|
16,282,557 |
|
|
7,019,369 |
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
Payment for
acquisition of Athena Group |
|
- |
|
|
(2,100,000 |
) |
Purchase of plant and equipment |
|
(253,581 |
) |
|
(44,031 |
) |
Payment for the
purchase of land use rights |
|
(57,042 |
) |
|
148,041 |
|
(Increase) in
restricted cash |
|
(3,629,825 |
) |
|
(1,739,537 |
) |
(Increase)/decrease in deposit |
|
(385,201 |
) |
|
27,098 |
|
Net cash used in
investing activities |
|
(4,325,649 |
) |
|
(3,708,429 |
) |
Cash flows from financing
activities |
|
|
|
|
|
|
Repayment of bank borrowings |
|
(13,290,247 |
) |
|
(14,050,278 |
) |
Proceeds from
bank borrowings and debentures |
|
7,660,798 |
|
|
18,423,090 |
|
Repayment of long-term
borrowings and notes payable |
|
- |
|
|
3,500,000 |
|
Net cash
provided by/(used in) financing activities |
$ |
(5,629,449 |
) |
$ |
7,872,812 |
|
|
|
|
|
|
|
|
Net Increase/(decrease) of
Cash and Cash Equivalents |
|
6,327,459 |
|
|
11,183,752 |
|
|
|
|
|
|
|
|
Effect of foreign currency
translation on cash and cash equivalents |
|
139,180 |
|
|
(2,322,208 |
) |
|
|
|
|
|
|
|
Cash and cash
equivalentsbeginning of period |
|
30,279,988 |
|
|
33,857,193 |
|
Cash and cash equivalentsend of period |
$ |
36,746,627 |
|
$ |
42,718,737 |
|
|
|
|
|
|
|
|
Supplementary cash flow
information: |
|
|
|
|
|
|
Interest received |
$ |
72,823 |
|
$ |
16,056 |
|
Interest
paid |
$ |
606,630 |
|
$ |
3,233,145 |
|
Income taxes paid |
$ |
787,789 |
|
$ |
3,053,632 |
|
See Accompanying Notes to the Financial Statements and
Accountants Report
8
AMERICAN LORAIN
CORPORATION
UNAUDITED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE THREE MONTH PERIOD
ENDED MARCH 31, 2015 AND YEAR ENDED
DECEMBER 31, 2014
(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, 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 |
|
|
|
|
|
|
|
|
|
Balance, January 1, 2015 |
34,916,714 |
34,917 |
53,853,089 |
23,038,917 |
99,021,555 |
20,796,420 |
13,021,555 |
209,766,453 |
Net income |
- |
- |
- |
- |
(1,070,722) |
- |
- |
(1,070,722) |
Allocation to non-controlling interests |
- |
- |
- |
- |
573,616 |
- |
(573,616) |
- |
Foreign currency translation adjustment |
- |
- |
- |
- |
- |
(500,795) |
- |
(500,795) |
Balance, March 31, 2015 |
34,916,714 |
34,917 |
53,853,089 |
23,038,917 |
98,524,449 |
20,295,625 |
12,447,939 |
208,194,936 |
See Accompanying Notes to the Financial Statements and
Accountants Report
9
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. |
|
|
|
|
(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. |
10
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES |
|
|
|
|
(a) |
Method of Accounting |
|
|
|
|
|
The Company maintains its general ledger and journals
with the accrual method accounting for financial reporting purposes. The
financial statements and notes are representations of management.
Accounting policies adopted by the Company conform to generally accepted
accounting principles in the United States of America and have been
consistently applied in the presentation of financial statements, which
are compiled on the accrual basis of accounting. |
|
|
|
|
|
The Company regrouped certain accounts in its
presentation of changes in assets and liabilities in the statement of cash
flows for the three month period ended March 31, 2015 in order to be
consistent with the presentation provided for the year ended December 31,
2014. 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 March 31, 2015, the detailed identities of the
consolidating subsidiaries are as follows: |
|
|
Attributable |
|
|
Place of |
equity |
Registered |
Name of Company |
incorporation |
interest % |
capital |
International Lorain Holding
Inc. |
Cayman Islands |
100 |
$ 50,938,355 |
Junan Hongrun Foodstuff Co., Ltd. |
PRC |
100 |
48,976,118 |
Shandong Lorain Co., Ltd. |
PRC |
80.2 |
13,235,992 |
Beijing Lorain Co., Ltd. |
PRC |
100 |
1,636,902 |
Luotian Lorain Co., Ltd. |
PRC |
100 |
4,146,077 |
Shandong Greenpia Foodstuff Co., Ltd. |
PRC |
100 |
2,502,240 |
Dongguan Lorain Co., Ltd. |
PRC |
100 |
163,690 |
Athena |
France |
51 |
13,836 |
Conserverie Minerve |
France |
51 |
470,429 |
Sojafrais |
France |
51 |
5,534 |
SCI Siam |
France |
51 |
844 |
SCI Giu Long |
France |
51 |
5,534 |
Cacovin |
Portugal |
51 |
304,395
|
|
(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. |
11
|
(d) |
Cash and cash equivalents |
|
|
|
|
|
The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents. |
|
|
|
|
(e) |
Investment securities |
|
|
|
|
|
The Company classifies securities it holds for investment
purposes into trading or available- for-sale. Trading securities are
bought and held principally for the purpose of selling them in the near
term. All securities not included in trading securities are classified as
available-for- sale. |
|
|
|
|
|
Trading and available-for-sale securities are recorded at
fair value. Unrealized holding gains and losses on trading securities are
included in the net income. Unrealized holding gains and losses, net of
the related tax effect, on available for sale securities are excluded from
net income and are reported as a separate component of other comprehensive
income until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific-identification
basis. |
|
|
|
|
|
A decline in the market value of any available-for-sale
security below cost that is deemed to be other-than-temporary results in a
reduction in carrying amount to fair value. The impairment is charged as
an expense to the statement of income and comprehensive income and a new
cost basis for the security is established. To determine whether
impairment is other-than-temporary, the Company considers whether it has
the ability and intent to hold the investment until a market price
recovery and considers whether evidence indicating the cost of the
investment is recoverable outweighs evidence to the contrary. Evidence
considered in this assessment includes the reasons for the impairment, the
severity and duration of the impairment, changes in value subsequent to
year end, and forecasted performance of the investee. |
|
|
|
|
|
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. |
12
|
(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. 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 2015. |
13
|
(m) |
Advertising |
|
|
|
|
|
All advertising costs are expensed as incurred. |
|
|
|
|
(n) |
Shipping and handling |
|
|
|
|
|
All shipping and handling are expensed as
incurred. |
|
|
|
|
(o) |
Research and development |
|
|
|
|
|
All research and development costs are expensed as
incurred. |
|
|
|
|
(p) |
Retirement benefits |
|
|
|
|
|
Retirement benefits in the form of contributions under
defined contribution retirement plans to the relevant authorities are
charged to the consolidated statement of income as incurred. |
|
|
|
|
(q) |
Income taxes |
The Company accounts for income tax
using an asset and liability approach and allows for recognition of deferred tax
benefits in future years. Under the asset and liability approach, deferred taxes
are provided for the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. A valuation allowance is provided for
deferred tax assets if it is more likely than not these items will either expire
before the Company is able to realize their benefits, or that future realization
is uncertain.
The Company has implemented ASC Topic
740, Accounting for Income Taxes. Income tax liabilities computed according to
the United States, 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.
14
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 |
- |
- |
|
(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
$0 and $4,642,404 from retained earnings to statutory reserves for the
three months ended March 31, 2015 and year ended December 31, 2014. PRC
laws prescribe that an enterprise operating at a profit, must appropriate,
on an annual basis, an amount equal to 10% of its profit. Such an
appropriation is necessary until the reserve reaches a maximum that is
equal to 50% of the enterprises PRC registered capital. |
|
|
|
|
(s) |
Foreign currency translation |
|
|
|
|
|
The accompanying financial statements are presented in
United States dollars. The functional currencies of the Company are the
Renminbi (RMB) and the Euro (EUR). The financial statements are translated
into United States dollars from RMB and EUR at year-end exchange rates as
to assets and liabilities and average exchange rates as to revenues and
expenses. Capital accounts are translated at their historical exchange
rates when the capital transactions occurred. |
|
3/31/2015 |
12/31/2014 |
3/31/2014 |
Year end RMB: US$ exchange
rate |
6.1091 |
6.1385 |
6.1619 |
Annual/period average RMB: US$ exchange rate
|
6.1358 |
6.1432 |
6.1156 |
Year-end EUR: US$ exchange
rate |
0.9215 |
0.8826 |
0.7271 |
Annual/period average EUR: US$ exchange rate
|
0.8871 |
0.7773 |
0.7297 |
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.
15
|
(t) |
Revenue recognition |
|
|
|
|
|
The Company's revenue recognition policies are in
compliance with Staff accounting bulletin (SAB) 104. Sales revenue is
recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no
other significant obligations of the Company exist and collectibility is
reasonably assured. Payments received before all of the relevant criteria
for revenue recognition are satisfied are recorded as unearned revenue.
|
|
|
|
|
|
The Company's revenue consists of invoiced value of
goods, net of a value-added tax (VAT). The Company allows its customers to
return products if they are defective. However, this rarely happens and
amounts returned have been de minimis. |
|
|
|
|
(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 March 31, 2015, 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 March 31, 2015,
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 ASC Topic 260, Earnings per share 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:
|
16
|
|
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 March 31, 2015 and December 31, 2014, 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 March 31, 2015
and 2014 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. |
|
|
|
|
(z) |
Recent accounting pronouncements |
|
|
|
|
|
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: |
17
|
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 adopted ASU No. 2015-01 prospectively and has
applied it to the presentation of the financial statements. |
|
|
|
As of March 31, 2015, 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 underlie notes payable, the cash is deposited in six month time
deposits that pay interest at the national time deposit rate. |
|
|
4. |
TRADE ACCOUNTS RECEIVABLE
|
|
|
|
3/31/2015 |
|
|
12/31/2014 |
|
|
Trade accounts receivable |
$ |
41,359,598 |
|
$ |
64,726,091 |
|
|
Less: Allowance for
doubtful accounts |
|
(5,289,794 |
) |
|
(5,919,625 |
) |
|
|
$ |
36,069,804 |
|
$ |
58,806,466 |
|
18
|
Allowance for bad debt: |
|
3/31/2015 |
|
|
12/31/2014 |
|
|
Beginning balance
|
$ |
(5,919,625 |
) |
$ |
(439,875 |
) |
|
Additions to allowance |
|
- |
|
|
(5,479,750 |
) |
|
Bad debt
written-off |
|
629,831 |
|
|
- |
|
|
Ending balance |
$ |
(5,289,794 |
) |
$ |
(5,919,625 |
) |
|
The Company offers credit terms of between 30 to 60 days
to most of their domestic customers, including supermarkets and
wholesalers, around 90 days to most of their international customers, and
between 0 to 15 days for most of the third-party distributors the Company
works with. |
|
|
5. |
OTHER RECEIVABLES |
|
|
|
Other receivables consisted of the following as of March
31, 2015 and December 31, 2014: |
|
|
|
3/31/2015 |
|
|
12/31/2014 |
|
|
Advances to employees for
job/travel disbursements |
|
1,675,493 |
|
|
2,623,067 |
|
|
Amount due by a non-related enterprise |
|
190,156 |
|
|
162,907 |
|
|
Other non-related receivables
|
|
15,367 |
|
|
580,634 |
|
|
Other related party receivables |
|
1,280,120 |
|
|
1,420,548 |
|
|
Short-term investment sale
receivable |
|
1,636,902 |
|
|
1,629,062 |
|
|
Vendor rebate receivable |
|
1,486,766 |
|
|
1,767,267 |
|
|
|
$ |
6,284,804 |
|
$ |
8,183,485 |
|
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 March 31, 2015.
Related party receivables represented
advances issued by management for job or travel disbursement in the normal
course of business. The receivables 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.
19
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 March 31, 2015, 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 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, disputes between the parties with respect to out
of pocket expenses paid by Junan Hengji, and the litigation fee that is required
to be paid to the court by Shandong Lorain 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 $1,636,902). On March 21, 2015, Shandong Lorain received
the Linyi City Intermediate People's Court decision that rejected Shandong
Lorain's claim for RMB 10,000,000 against Junan Hengji. On April 3rd, 2015,
Shandong Lorain appealed the decision to the Supreme Court of Shandong Province
and the case is still in the process. The balance of the claim was
deemed to be uncollectable and was written off as a loss. As of March 31, 2015,
RMB 10,000,000 (USD 1,636,902) is due and payable to the Company since the
decision from the lower court doesn't become effective until the appeal
procedure is completed or expired.
20
6. |
INVENTORIES |
|
|
|
Inventories consisted of the following as of March 31,
2015 and December 31, 2014: |
|
|
|
3/31/2015 |
|
|
12/31/2014 |
|
|
Raw materials |
$ |
36,229,526 |
|
$ |
28,557,607 |
|
|
Finished goods |
|
28,397,612 |
|
|
23,090,553 |
|
|
|
$ |
64,627,138 |
|
$ |
51,648,160 |
|
7. |
PROPERTY, PLANT AND EQUIPMENT |
|
|
|
Property, plant, and equipment consisted of the following
as of March 31, 2015 and December 31, 2014: |
|
|
|
3/31/2015 |
|
|
12/31/2014 |
|
|
At Cost: |
|
|
|
|
|
|
|
Buildings |
$ |
87,489,762 |
|
$ |
87,751,232 |
|
|
Land |
|
207,945 |
|
|
232,946 |
|
|
Landscaping, plant and tree |
|
10,976,339 |
|
|
10,923,768 |
|
|
Machinery and
equipment |
|
21,256,981 |
|
|
21,853,334 |
|
|
Office equipment |
|
1,071,973 |
|
|
1,095,590 |
|
|
Motor vehicles
|
|
638,275 |
|
|
654,324 |
|
|
|
$ |
121,641,275 |
|
$ |
122,511,194 |
|
|
Less: Accumulated
depreciation |
|
|
|
|
|
|
|
Buildings |
|
(14,543,414 |
) |
|
(14,479,949 |
) |
|
Landscaping,
plant and tree |
|
(4,280,125 |
) |
|
(4,021,153 |
) |
|
Machinery and equipment |
|
(12,831,838 |
) |
|
(13,181,519 |
) |
|
Office equipment
|
|
(1,191,608 |
) |
|
(1,252,846 |
) |
|
Motor vehicles |
|
(433,694 |
) |
|
(427,197 |
) |
|
|
|
(33,280,679 |
) |
|
(33,362,664 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
88,360,596 |
|
$ |
89,148,530 |
|
Landscaping, plants, and trees account
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 three month periods ended March 31, 2015 and 2014
was $962,163 and $799,679, respectively.
21
8. |
INTANGIBLE ASSETS, NET |
|
|
|
Intangible assets consisted of the following as of March
31, 2015 and December 31, 2014: |
|
|
|
12/31/2014 |
|
|
12/31/2014 |
|
|
Land use rights, at cost |
$ |
17,604,690 |
|
$ |
17,520,374 |
|
|
Utilities rights, at cost |
|
50,920 |
|
|
50,676 |
|
|
Software, at cost |
|
468,311 |
|
|
451,863 |
|
|
Patent, at cost |
|
1,412,287 |
|
|
1,581,891 |
|
|
|
|
19,536,208 |
|
|
19,604,804 |
|
|
|
|
|
|
|
|
|
|
Less: Accumulated
amortization |
|
(2,127,389 |
) |
|
(2,066,936 |
) |
|
|
$ |
17,408,819 |
|
$ |
17,537,868 |
|
|
All land 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 periods ended March 31, 2015 and 2014 was $91,500 and
$91,027, respectively. |
|
|
9. |
BANK LOANS |
|
|
|
Bank loans include bank overdrafts, short-term bank
loans, and the current portion of long-term loans, which consisted of the
following as of March 31, 2015 and December 31,
2014: |
|
Bank Overdrafts |
|
3/31/2015 |
|
|
12/31/2014 |
|
|
|
|
|
|
|
|
|
|
CIC Lorient Enterprises, |
|
|
|
|
|
|
|
Interest rate of EURIBOR+1.70% due within 3 months
Credit Agricole, |
$ |
75,405 |
|
$ |
380,106 |
|
|
Interest rate of EURIBOR+1.70% due
within 3 months BNP Paribas, |
|
189,661 |
|
|
214,146 |
|
|
Interest rate of EURIBOR+1.70% due within 3 months
LCL Banque et Assurance, |
|
214,302 |
|
|
- |
|
|
Interest rate of EURIBOR+1.70% due
within 3 months Société Générale, |
|
- |
|
|
105,508 |
|
|
Interest rate of EURIBOR+1.70% due within 3 months
Banque Tarneud, |
|
94,593 |
|
|
285,621 |
|
|
Interest rate of EURIBOR+1.70% due
within 3 months BPI France, |
|
680,818 |
|
|
548,537 |
|
|
Interest rate of EURIBOR+1.70% due within 3 months
HSBC, |
|
865,293 |
|
|
1,151,975 |
|
|
Interest rate of EURIBOR+1.70% due
within 3 months GE, |
|
544 |
|
|
22,963 |
|
|
Interest rate of EURIBOR+1.70% due within 3 months
BES, |
|
- |
|
|
2,043 |
|
|
Interest rate of EURIBOR+1.70% due
within 3 months |
|
- |
|
|
263 |
|
|
|
|
|
|
|
|
|
|
Banco Portugues de Negocios |
|
1,664 |
|
|
1,864 |
|
|
|
|
|
|
|
|
|
|
Banco Espirito Santo |
|
3,762 |
|
|
3,951 |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,126,042 |
|
$ |
2,716,977 |
|
Bank overdrafts are collateralized by
inventory.
22
|
Short-term Bank Loans |
|
3/31/2015 |
|
|
12/31/2014 |
|
|
|
|
|
|
|
|
|
|
Loan from Industrial and
Commercial Bank of China, |
|
|
|
|
|
|
|
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 |
|
389,518 |
|
|
387,652 |
|
|
Interest rate at 1.74% per annum; due 4/24/2015 |
|
900,195 |
|
|
895,884 |
|
|
Interest rate at
1.49% per annum; due 5/8/2015 |
|
599,722 |
|
|
- |
|
|
Interest rate at 7.28% per annum; due 6/5/2015 |
|
1,014,879 |
|
|
1,010,019 |
|
|
Interest rate at
7.28% per annum; due 7/1/2015 |
|
1,309,522 |
|
|
- |
|
|
Interest rate at 6.50% per annum; due 10/14/2015 |
|
982,141 |
|
|
977,437 |
|
|
Interest rate at 7.20% per annum; due 11/2/2015 |
|
1,636,902 |
|
|
1,629,062 |
|
|
Interest rate at
6.72% per annum; due 12/1/2015 |
|
1,636,902 |
|
|
1,629,062 |
|
|
|
|
|
|
|
|
|
|
Loan from China Minsheng
Bank Corporation, Linyi Branch |
|
|
|
|
|
|
|
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 |
|
1,636,902 |
|
|
1,629,062 |
|
|
Interest rate at
7.28% per annum due 1/22/2016 |
|
2,340,770 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Loan from Agricultural
Bank of China, Luotian Branch |
|
|
|
|
|
|
|
Interest rate at 7.8% per annum due 8/25/2015 |
|
2,127,973 |
|
|
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 1/7/2015 |
|
- |
|
|
733,078 |
|
|
Interest rate at
6.0% per annum due 9/1/2015 |
|
818,451 |
|
|
814,531 |
|
|
Interest rate at 5.6% per annum due 1/6/2016 |
|
818,451 |
|
|
- |
|
23
|
Luotian Sanliqiao Credit
Union, |
|
|
|
|
|
|
|
Interest rate at 9.36% per annum due 1/21/2015 |
|
- |
|
|
162,906 |
|
|
Interest rate at
9.72% per annum due 2/13/2016 |
|
491,070 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Bank of Ningbo , |
|
|
|
|
|
|
|
Interest rate at 7.80% per annum due 10/26/2015 |
|
1,636,902 |
|
|
1,629,062 |
|
|
|
|
|
|
|
|
|
|
Hankou Bank, Guanggu Branch, |
|
|
|
|
|
|
|
Interest rate at
6.95% per annum due 8/24/2015 |
|
1,636,902 |
|
|
1,629,062 |
|
|
|
|
|
|
|
|
|
|
Bank of Rizhao, |
|
|
|
|
|
|
|
Interest rate at 7.80% per annum due 1/17/2015 |
|
- |
|
|
1,629,062 |
|
|
Interest rate at
7.28% per annum due 1/19/2016 |
|
1,636,902 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
China Construction
Bank, |
|
|
|
|
|
|
|
Interest rate at 6.16% per annum due 2/25/2015 |
|
- |
|
|
814,531 |
|
|
Interest rate at
6.60% per annum due 4/15/2015 |
|
802,082 |
|
|
798,241 |
|
|
Interest rate at 6.60% per annum due 5/11/2015 |
|
523,809 |
|
|
521,300 |
|
|
Interest rate at
6.60% per annum due 11/27/2015 |
|
818,451 |
|
|
814,531 |
|
|
|
|
|
|
|
|
|
|
Huaxia Bank, |
|
|
|
|
|
|
|
Interest rate at 7.8% per annum due 5/19/2015 |
|
1,636,902 |
|
|
1,629,062 |
|
|
|
|
|
|
|
|
|
|
City of Linyi Commercial Bank, Junan
Branch, |
|
|
|
|
|
|
|
Interest rate at 9%
per annum due 4/30/2015 |
|
608,839 |
|
|
- |
|
|
Interest rate at 8.4% per annum due 2/16/2016 |
|
1,636,907 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Bank of China, Paris Branch |
|
|
|
|
|
|
|
Interest rate at
2.50% per annum due 10/26/2015 |
|
2,712,968 |
|
|
3,622,666 |
|
|
Interest rate at 2.50% per annum due 10/26/2015 |
|
4,309,278 |
|
|
2,954,048 |
|
|
|
$ |
34,663,340 |
|
$ |
37,639,506 |
|
|
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. |
|
|
10. |
CURRENT PORTION LONG TERM
DEBT |
24
|
Current portions of long-term debt consisted
of the following as of March 31, 2015 and December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
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 |
|
42,313 |
|
|
73,082 |
|
|
|
|
|
|
|
|
|
|
CIC Lorient Enterprises, |
|
|
|
|
|
|
|
Interest rate at 2.98% per
annum due 12/20/2015 |
|
18,675 |
|
|
27,791 |
|
|
Interest rate at 4.20% per annum due
12/20/2016 |
|
81,265 |
|
|
108,864 |
|
|
|
|
|
|
|
|
|
|
Credit Agricole, |
|
|
|
|
|
|
|
Interest rate at 4.20% per
annum due 12/20/2016 |
|
73,266 |
|
|
108,864 |
|
|
Interest rate at 1.85% per annum due
1/25/2017 |
|
29,559 |
|
|
42,947 |
|
|
|
|
|
|
|
|
|
|
LCL Banque et Assurance, |
|
|
|
|
|
|
|
Interest rate at 4.20% per
annum due 12/20/2016 |
|
73,266 |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
$ |
318,344 |
|
$ |
1,288,617 |
|
Current portions of notes payable and
debentures consisted of the following as of March 31, 2015 and December 31,
2014:
|
|
|
3/31/2015 |
|
|
12/31/2014 |
|
|
|
|
|
|
|
|
|
|
Note payable issued by
Shanghai Pudong Development Bank |
|
|
|
|
|
|
|
Interest
rate at 5.9% per annum due 12/28/2015 |
$ |
13,095,219 |
|
$ |
13,032,500 |
|
|
|
$ |
13,095,219 |
|
$ |
13,032,500 |
|
25
|
|
|
3/31/2015 |
|
|
12/31/2014 |
|
|
|
|
|
|
|
|
|
|
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 |
$ |
16,369,023 |
|
$ |
13,032,500 |
|
|
|
$ |
16,369,023 |
|
$ |
13,032,500 |
|
|
|
|
|
|
|
|
|
|
Current portions of long-term debt
consisted of the following as of March 31, 2015 and December 31, 2014: |
|
|
|
|
|
|
|
|
|
3/31/2015 |
|
|
12/31/2014 |
|
|
|
|
|
|
|
|
|
|
Loans from China Development Bank
|
|
|
|
|
|
|
|
Interest
rate at 7.07% per annum due 5/20/2015 |
$ |
1,145,831
|
|
$ |
1,140,344
|
|
|
Interest
rate at 7.07% per annum due 9/24/2015 |
|
1,309,522 |
|
|
1,303,250 |
|
|
|
|
|
|
|
|
|
|
Loans from Deutsche Investitions-und
|
|
|
|
|
|
|
|
Entwicklungsgesellschaft mbH (DEG)
|
|
|
|
|
|
|
|
Interest
rate at 5.510% per annum due 3/15/2015 |
|
1,875,000 |
|
|
1,875,000 |
|
|
Interest
rate at 5.510% per annum due 9/15/2015 |
|
1,875,000 |
|
|
1,875,000 |
|
|
Interest
rate at 5.510% per annum due 3/15/2016 |
|
1,875,000 |
|
|
- |
|
|
|
$ |
8,080,353 |
|
$ |
6,193,594 |
|
|
|
|
|
|
|
|
|
|
Total |
$ |
37,862,939 |
|
$ |
19,226,094 |
|
11. |
NOTES PAYABLE AND CONVERTIBLE PROMISSORY
NOTE |
|
|
|
Notes Payable consisted of the following as of March 31,
2015 and December 31, 2014: |
|
|
|
3/31/2015 |
|
|
12/31/2014 |
|
|
|
|
|
|
|
|
|
|
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 |
|
723,460 |
|
|
972,527 |
|
|
|
|
|
|
|
|
|
|
Notes payable issued by CIC Lorient
Enterprises, |
|
|
|
|
|
|
|
Interest rate at EURIBOR +
1.7% per annum due within 3 months |
|
1,102,670 |
|
|
1,434,476 |
|
|
|
|
|
|
|
|
|
|
Notes payable issued by Credit Agricole, |
|
|
|
|
|
|
|
Interest
rate at EURIBOR + 1.7% per annum due within 3 months |
|
524,508 |
|
|
705,081 |
|
|
|
|
|
|
|
|
|
|
Notes payable issued by LCL Banque et
Assurance, |
|
|
|
|
|
|
|
Interest rate at EURIBOR +
1.7% per annum due within 1 months |
|
629,409 |
|
|
705,081 |
|
|
|
|
|
|
|
|
|
|
Notes payable issued by Société Générale, |
|
|
|
|
|
|
|
Interest
rate at EURIBOR + 1.7% per annum due within 1 months |
|
499,186 |
|
|
559,203 |
|
|
|
|
|
|
|
|
|
|
|
$ |
3,479,233 |
|
$ |
6,005,430 |
|
26
The Notes Payable are guaranteed by
third party guarantors.
Convertible Promissory Note consisted
of the following as of March 31, 2015 and December 31, 2014:
|
|
|
3/31/2015 |
|
|
12/31/2014 |
|
|
|
|
|
|
|
|
|
|
Note issued by Jade Lane
Group Limited |
|
|
|
|
|
|
|
Interest rate at 4.50% per annum due 3/13/2015 |
$ |
3,500,000 |
|
$ |
3,500,000 |
|
|
|
$ |
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. 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 and shares have been issued to Jade Lane on April 20,
2015. |
|
|
12. |
TAXES PAYABLES |
|
|
|
Taxes payable consisted of the
following as of March 31, 2015 and December 31, 2014:
|
|
|
|
3/31/2015 |
|
|
12/31/2014 |
|
|
Value added tax payable |
$ |
579,005 |
|
$ |
1,664,596 |
|
|
Corporate income tax payable |
|
666,940 |
|
|
996,629 |
|
|
Employee payroll tax
withholding |
|
34,457 |
|
|
442,382 |
|
|
Property tax payable |
|
68,777 |
|
|
55,872 |
|
|
Stamp tax payable |
|
1,486 |
|
|
1,478 |
|
|
Business tax payable |
|
158,955 |
|
|
158,194 |
|
|
Land use tax payable |
|
97,383 |
|
|
53,400 |
|
|
|
|
|
|
|
|
|
|
Capital gain tax payable |
|
952,481 |
|
|
947,919 |
|
|
|
$ |
2,559,484 |
|
$ |
4,320,470 |
|
13. |
ACCRUED EXPENSES AND OTHER PAYABLE |
|
|
|
Accrued expenses and other payables consisted of the
following as of March 31, 2015 and December 31,
2014: |
27
|
|
3/31/2015 |
|
|
12/31/2014 |
|
Accrued salaries and wages
|
$ |
4,554 |
|
$ |
303,751 |
|
Accrued utility expenses |
|
31,909 |
|
|
25,631 |
|
Accrued interest expenses |
|
2,340,773 |
|
|
1,359,472 |
|
Accrued transportation expenses |
|
432,514 |
|
|
653,935 |
|
Other accruals |
|
1,550,922 |
|
|
819,775 |
|
Business and other taxes |
|
472,819 |
|
|
505,584 |
|
Disbursement payable |
|
113,645 |
|
|
108,528 |
|
Accrued staff welfare |
|
413,954 |
|
|
376,378 |
|
|
$ |
5,361,090 |
|
$ |
4,153,054 |
|
14. |
LONG-TERM DEBT |
|
|
|
Non-current portions of long-term debt consisted of the
following as of March 31, 2015 and December 31,
2014: |
|
|
|
3/31/2015 |
|
|
12/31/2014 |
|
|
Loans from Deutsche
Investitions-und Entwicklungsgesellschaft mbH (DEG) |
|
|
|
|
|
|
|
Interest rate at 5.510% per
annum due 3/15/2016 |
$ |
- |
|
$ |
1,875,000 |
|
|
|
|
|
|
|
|
|
|
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 12/20/2015 |
|
94,172 |
|
|
104,394 |
|
|
Interest rate
at 4.20% per annum due 12/20/2016 |
|
86,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Agricole, |
|
|
|
|
|
|
|
Interest rate
at 4.20% per annum due 12/20/2016 |
|
94,172 |
|
|
104,394 |
|
|
Interest rate at 1.85% per
annum due 1/25/2017 |
|
34,874 |
|
|
38,887 |
|
|
|
|
|
|
|
|
|
|
LCL Banque et Assurance, |
|
|
|
|
|
|
|
Interest rate at 4.20% per
annum due 12/20/2016 |
|
94,172 |
|
|
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 |
|
300,889 |
|
|
337,064 |
|
|
|
|
|
|
|
|
|
|
Banco Espirito Santo
|
|
|
|
|
|
|
|
Interest rate at EURIBOR
3M+spread 2% per annum due 06/2024 |
|
24,036 |
|
|
26,926 |
|
|
|
$ |
728,487 |
|
$ |
2,707,587 |
|
28
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 its 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 the Shareholder in
form and substance satisfactory to DEG. |
Non-current portions of notes payable
and debentures consisted of the following as of March 31, 2015 and December 31,
2014:
|
|
|
3/31/2015 |
|
|
12/31/2014 |
|
|
Debenture issued by 5
private placement holders underwritten by Guoyuan Securities Co.,
Ltd. |
|
|
|
|
|
|
|
Interest rate at 10% per annum due 8/28/2016 |
|
16,369,023 |
|
|
16,290,625 |
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
$ |
16,369,023 |
|
$ |
32,581,249 |
|
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 warrants. The Company also made an adjustment to
its outstanding share count for rounding errors as a 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. |
29
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, 501,115 shares of Series B warrants and
all stock options to employees from the 2009 stock incentive program have
expired. As of March 31, 2015, 1,753,909 shares of Series A warrants are
outstanding
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, 81,155 warrant shares issued to various service providers
had expired.
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 March 31, 2015 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 3/31/2015 |
|
|
34,916,714 |
30
Warrants and options |
Number of
warrants
or options |
Inssuance date |
Expitation date |
Warrants issued to investors in 2009 PIPE - Series A |
1,753,909 |
10/28/2009 |
4/28/2015 |
Total warrants and options |
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 March 31, 2015 and 2014: |
Category |
|
3/31/2015 |
|
|
3/31/2014 |
|
Chestnut |
$ |
16,062,304 |
|
$ |
17,354,271 |
|
Convenience food |
|
14,181,755 |
|
|
7,430,682 |
|
Frozen food |
|
7,313,252 |
|
|
6,904,505 |
|
Total |
$ |
37,557,311 |
|
$ |
31,689,458 |
|
Revenue by geography consisted of the
following as of March 31, 2015 and 2014:
|
Country |
|
3/31/2015 |
|
|
3/31/2014 |
|
|
Australia |
$ |
11,985 |
|
$ |
- |
|
|
Belgium |
|
470,336 |
|
|
539,242 |
|
|
Canada |
|
- |
|
|
- |
|
|
China |
|
28,318,425 |
|
|
21,485,129 |
|
|
France |
|
3,935,083 |
|
|
156,315 |
|
|
Germany |
|
148,594 |
|
|
- |
|
|
Hong Kong |
|
62,888 |
|
|
48,644 |
|
|
Israel |
|
- |
|
|
52,938 |
|
|
Italy |
|
130,722 |
|
|
- |
|
|
Japan |
|
2,354,750 |
|
|
2,091,541 |
|
|
Malaysia |
|
174,152 |
|
|
330,060 |
|
|
Netherlands |
|
2,709 |
|
|
- |
|
|
Philippines |
|
- |
|
|
247,730 |
|
|
Portugal |
|
125,951 |
|
|
2,768,464 |
|
|
Reunion |
|
14,647 |
|
|
- |
|
|
Saudi Arabia |
|
- |
|
|
111,381 |
|
|
Singapore |
|
313,547 |
|
|
309,962 |
|
|
South Korea |
|
524,425 |
|
|
2,581,086 |
|
|
Spain |
|
109,585 |
|
|
- |
|
|
Taiwan |
|
91,898 |
|
|
80,496 |
|
|
Thailand |
|
406,470 |
|
|
397,506 |
|
|
United Kingdom |
|
278,626 |
|
|
447,493 |
|
|
United States |
|
79,290 |
|
|
41,471 |
|
|
Others |
|
3,228
|
|
|
- |
|
|
Total |
$ |
37,557,311 |
|
$ |
31,689,458 |
|
31
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 March 31, 2015 and 2014:
|
|
|
3/31/2015 |
|
|
3/31/2014 |
|
|
Income attributed to PRC
& Europe |
$ |
(453,372 |
) |
$ |
2,548,148 |
|
|
Loss attributed to US |
|
(137,684 |
) |
|
(53,125 |
) |
|
Income before tax |
|
(591,056 |
) |
|
2,495,023 |
|
|
|
|
|
|
|
|
|
|
PRC Statutory Tax at 25% Rate
Effect of tax exemption granted |
|
479,666 |
|
|
749,865 - |
|
|
|
|
|
|
|
|
|
|
Income tax |
$ |
479,666 |
|
$ |
749,865 |
|
Per Share Effect of Tax
Exemption
|
|
|
3/31/2015 |
|
|
3/31/2014 |
|
|
|
|
|
|
|
|
|
|
Effect of tax exemption
granted |
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Weighted-Average Shares
Outstanding Basic |
|
34,916,714 |
|
|
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 March 31, 2015 and 2014:
|
|
|
3/31/2015 |
|
|
3/31/2014 |
|
|
U.S. federal statutory income
tax rate |
|
35% |
|
|
35% |
|
|
Lower rates in PRC, net |
|
-10% |
|
|
-10% |
|
|
Tax holiday for foreign
investments |
|
-25.00% |
|
|
5.05% |
|
|
The Companys effective tax rate |
|
0.00% |
|
|
30.05% |
|
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, the 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 have been fully utilized.
32
The Company has accrued a deferred tax
asset as a result of its net operating losses 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 2015 and 2014 in the following table are:
|
China Income Tax |
|
Rate |
Subsidiary |
2015 |
2014 |
Junan Hongran |
25% |
25% |
Luotian Lorain |
25% |
25% |
Beijing Lorain |
25% |
25% |
Shandong Lorain |
25% |
25% |
Shandong Greenpia |
25% |
25% |
Dongguan Lorain |
25% |
25% |
19. |
EARNINGS PER SHARE |
|
|
|
Components of basic and diluted
earnings per share were as follows: |
|
|
|
For the three month |
|
|
|
|
period ended March 31, |
|
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share Numerator |
|
|
|
|
|
|
|
Net
Income |
$ |
(497,106 |
) |
$ |
1,590,488 |
|
|
|
|
|
|
|
|
|
|
Income
Available to Common |
|
|
|
|
|
|
|
Stockholders |
$ |
(497,106 |
) |
$ |
1,590,488 |
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share Numerator |
|
|
|
|
|
|
|
Income
Available to Common |
|
|
|
|
|
|
|
Stockholders |
$ |
(497,106 |
) |
$ |
1,590,488 |
|
|
|
|
|
|
|
|
|
|
Income Available to Common |
|
|
|
|
|
|
|
Stockholders on Converted Basis |
$ |
(497,106 |
) |
$ |
1,590,488 |
|
|
|
|
|
|
|
|
|
|
Original Shares: |
|
34,916,714 |
|
|
34,616,714 |
|
|
Additions from Actual Events |
|
|
|
|
|
|
|
-Issuance of Common Stock |
|
- |
|
|
- |
|
|
Basic Weighted Average Shares Outstanding |
|
34,916,714 |
|
|
34,616,714 |
|
|
|
|
|
|
|
|
|
|
Dilutive Shares: |
|
|
|
|
|
|
|
Additions from Potential Events |
|
|
|
|
|
|
|
-Exercise of Investor Warrants & |
|
|
|
|
|
|
|
Placement Agent Warrants |
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
- Exercise of Employee & Director Stock
Options |
|
- |
|
|
- |
|
|
Diluted Weighted Average Shares Outstanding: |
|
34,916,714 |
|
|
34,616,714 |
|
|
|
|
|
|
|
|
|
|
Earnings Per Share |
|
|
|
|
|
|
|
- Basic |
$ |
(0.03 |
) |
$ |
0.05 |
|
|
- Diluted |
$ |
(0.03 |
) |
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding |
|
|
|
|
|
|
|
- Basic |
|
34,916,714 |
|
|
34,616,714 |
|
|
- Diluted |
|
34,916,714 |
|
|
34,616,714 |
|
33
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 share-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. |
|
|
|
On February 19, 2014 the Companys board of directors
approved the 2014 Equity Incentive Plan (2014 Plan), which was approved
at the annual stockholders meeting on June 9, 2014. 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. As of March 31, 2015, there are no shares or
options granted under the 2014 Plan. 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 the
period and year ended March 31, 2015 and December 31, 2014, 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 period and year ended March 31, 2015 and December
31, 2014, the Company did not grant any stock options. |
|
|
21. |
LEASE COMMITMENTS |
34
|
(a.) |
The Company entered into an operating lease agreement
leasing a factory building located in Dongguan, China. The lease was
signed by Shandong Lorain on behalf of Dongguan Lorain and expires on
August 9, 2018. |
|
|
|
|
|
The minimum future lease payments for this property at
March 31, 2015 are shown in the following table:
|
From |
To |
|
Lease payment |
|
4/1/2015 |
12/31/2015 |
|
69,514 |
|
1/1/2016 |
12/31/2016 |
|
92,685 |
|
1/1/2017 |
12/31/2017 |
|
92,685 |
|
1/1/2018 |
8/9/2018 |
|
56,641 |
|
|
|
$ |
311,525 |
|
The outstanding lease
commitment as of March 31, 2015 was $311,525.
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. |
|
|
|
|
(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 expire on April 25, 2033,
May 19, 2033, and June 19, 2033, respectively. |
|
|
|
|
|
The minimum future lease payments for these properties at
March 31, 2015 are shown in the following tables:
|
35
From |
|
To |
|
|
Greenhouse 1 |
|
|
From |
|
|
To |
|
|
Greenhouse 2 |
|
|
From |
|
|
To |
|
|
Greenhouse 3 |
|
4/1/2015 |
|
12/31/2015 |
|
$ |
58,596 |
|
|
4/1/2015 |
|
|
12/31/2015 |
|
$ |
71,336 |
|
|
4/1/2015 |
|
|
12/31/2015 |
|
$ |
8,504 |
|
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 |
|
|
|
|
|
$ |
1,537,127 |
|
|
|
|
|
|
|
$ |
1,841,130 |
|
|
|
|
|
|
|
$ |
220,317 |
|
The outstanding lease commitments for the three greenhouses as
of March 31, 2015 aggregated to $3,598,574.
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 |
|
36
|
The outstanding lease commitments for the three
greenhouses as of December 31, 2014 was $3,644,719. |
|
|
22. |
Subsequent Events |
|
|
|
None. |
|
|
23. |
CONTINGENCIES AND LITIGATIONS |
|
|
|
There is a lawsuit currently pending in the Supreme Court of Shandong
Province, which was initially filed by Shandong Lorain, a subsidiary of
the Company, against Junan Hengji Real Estate Development Co., Ltd. ("Junan
Hengji") in November 2013 at Linyi City Intermediate People's Court of
Shandong Province (the "Linyi Court"). Shandong Lorain added Jiangsu
Hengan Industrial Investment Group Co., Ltd. ("Hengan Investment") as a
co-defendant after the case was first filed at Linyi Court. |
|
|
|
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 Court
to claim a fixed return of RMB 10 million (approximately $1,636,902)
first. |
|
|
|
In January 2014, the Linyi 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. On March 21, 2015, Shandong
Lorain received Linyi Court's decision that rejected Shandong Lorain's
claim for RMB 10,000,000 against Junan Hengji. On April 3rd, 2015,
Shandong Lorain appealed the decision to the Supreme Court of Shandong
Province and the case is still in the appeal process. The Company is
confident that Shandong Lorain will prevail during the appeal process. |
|
|
24. |
RISKS
|
|
A. |
Credit risk |
|
|
|
|
|
Since the Companys inception, the age of account
receivables have been less than one year indicating that the Company is
subject to minimal risk borne from credit extended to customers. |
|
|
|
|
B. |
Interest risk |
|
|
|
|
|
The company is subject to interest rate risk when short
term loans become due and require refinancing. |
|
|
|
|
C. |
Economic and political risks |
|
|
|
|
|
The Companys operations are conducted in the PRC.
Accordingly, the Companys business, financial condition, and results of
operations may be influenced by changes in the political, economic, and
legal environments in the PRC. |
37
|
|
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 price 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 to the Companys customers could adversely impact
the Companys results of operations. |
38
ITEM 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
Overview
We are an integrated food manufacturing company headquartered
in Shandong Province, China. We develop, manufacture and sell the following
types of food products:
-
Chestnut products;
-
Convenience foods (including ready-to-cook, or RTC, foods, ready-to-eat, or
RTE, foods and meals ready- to-eat, or MRE); and
-
Frozen food products.
We conduct our production activities in China and through our
majority-owned subsidiaries 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 Pacific, 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.
Domestic sales in the first quarter of 2015 accounted for 75.8%
of our sales as compared to 68.2% over the same period of last year. The increase of the
revenue was mainly attributable to the fact that the sales of convenience food in
domestic market during the period increased.
Outside China, sales in Europe increased rapidly and its
revenue exceeded that achieved in the Asia-Pacific Region. In the first quarter
of 2015 and 2014, respectively, approximately 41.7% and 60.2% of our
international sales were in the Asia-Pacific Region and approximately 57.4% and
39.3% were in Europe. We have 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.
In the coming quarters, American Lorain anticipates higher
demand for its traditional chestnut product line along with its fast growing
convenience business line, including the bean products, lunch boxes, and pickle
vegetables, etc..
Frozen foods sold primarily to selected export markets in
Europe and supermarkets and wholesale customers in China. It contributed
approximately 19.5% in revenues for the quarter compared to 21.8% in the first
quarter of 2014.
Production Factors that Affect our Financial and
Operational Condition
Our business depends on obtaining a reliable supply of various
agricultural products, including chestnuts, vegetables, fruits, red meat, fish,
eggs, rice, flour and packaging products. During the first quarter of 2015, the
cost of our raw materials and purchased finished goods increased from $21.5 million to $25.2 million, as compared to the first quarter of 2014, for an increase of approximately 17.2%. 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.
39
Seasonality
Chestnut season in China lasts from September to January. We purchase and produce raw chestnuts during these months and store them in our refrigerated storage facilities throughout the year. Once we obtain a purchase order during the rest of the
year, we remove the chestnuts from storage, process them and ship them within one day of production. Since most chestnuts are produced and sold in the fourth quarter, the Company generally performs best in the fourth quarter.
Uncertainties that Affect our Financial Condition
We spend a significant amount of cash on our operations, principally to procure raw materials for our products. Many of our suppliers, including chestnut, vegetable and fruit farmers, and suppliers of packaging materials, require us to prepay for
their supplies in cash or pay on the same day that such supplies are delivered to us. However, some of the suppliers with whom we have a long-standing business relationship allow us to pay on credit. We fund the majority of our working capital
requirements out of cash flow generated from operations. If we fail to generate sufficient sales, or if our suppliers stop offering us credit terms, we may not have sufficient liquidity to fund our operating costs and our business could be adversely
affected.
We funded approximately 39.9% of our working capital from the proceeds of short-term loans from Chinese and overseas banks in the first quarter of 2015, as compared to 26.6% over the same period last year. We expect to continue to fund our working
capital requirements with such loans in the future. Such loans are generally secured by our fixed assets, receivables and/or guarantees by third parties. Our balance of short-term bank loans as of March 31, 2015 was approximately $36.8 million.
The term of almost all such loans is one year or less. Historically, we have rolled over such loans on an annual basis. However, commencing 2010, the Chinese government is implementing more stringent credit policies to curb inflation and soaring
property prices, which could negatively impact our ability to obtain or roll over these short term loans, and hence not having sufficient funds available to pay all of our borrowings upon maturity. Failure to roll over our short-term borrowings at
maturity or to service our debt could result in the imposition of penalties, including increases in rates of interest, legal actions against us by our creditors, or even insolvency. In addition, we obtained 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.
40
We anticipate that our existing capital resources and cash
flows from operations and current and expected short-term bank loans will be
adequate to satisfy our liquidity requirements for 2015. However, if available
liquidity is not sufficient to meet our operating and loan obligations as they
come due, our plans include obtaining alternative financing arrangements or
further reducing expenditures as necessary to meet our cash requirements.
However, there is no assurance that, if required, we will be able to raise
additional capital or reduce discretionary spending to provide the required
liquidity. Currently, the capital markets for small capitalization companies are
extremely difficult and banking institutions have become stringent in their
lending requirements. Accordingly, we cannot be sure of the availability or
terms of any third party financing.
Our business, operating results or financial
condition will be adversely affected in the event of unfavorable economic
conditions, including the ongoing global economy and capital markets
disruptions. For example, we may experience declines in revenues, profitability
and cash flows as a result of reduced orders, delays in receiving orders, delays
or defaults in payment or other factors caused by the economic problems of our
customers and prospective customers. We may experience supply chain delays,
disruptions or other problems associated with financial constraints faced by our
suppliers and subcontractors. In addition, changes and volatility in the equity,
credit and foreign exchange markets and in the competitive landscape make it
increasingly difficult for us to predict our revenues and earnings into the
future.
Results of Operations
Three Months Ended March 31, 2015 Compared to Three Months
Ended March 31, 2014
The following table summarizes the results of our operations
during the three-month periods ended March 31, 2015 and March 31, 2014,
respectively and provides information regarding the dollar and percentage
increase or (decrease) from the three-month period ended March 31, 2015 compared
to the three-month period ended March 31, 2014.
(All amounts, other than percentages, stated in thousands of
U.S. dollars)
|
|
Three months ended March 31, |
|
|
Increase / |
|
|
Increase
/ |
|
|
|
|
|
|
|
|
|
Decrease |
|
|
Decrease |
|
(In Thousands of USD) |
|
2015 |
|
|
2014 |
|
|
($) |
|
|
(%) |
|
Net revenues |
|
37,558 |
|
|
31,689 |
|
|
5,869 |
|
|
18.5% |
|
Cost of revenues |
|
-31,940 |
|
|
-25,584 |
|
|
6,356 |
|
|
24.8% |
|
Gross profit |
|
5,618 |
|
|
6,105 |
|
|
-487 |
|
|
-8.0% |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses |
|
-2,119 |
|
|
-1,075 |
|
|
1,044 |
|
|
97.1% |
|
General and administrative expenses |
|
-2,616 |
|
|
-2,089 |
|
|
527 |
|
|
25.2% |
|
Operating Income |
|
883 |
|
|
2,941 |
|
|
-2,058 |
|
|
-70.0% |
|
Government subsidy income |
|
257 |
|
|
1,508 |
|
|
-1,251 |
|
|
-83.0% |
|
Interest and other income |
|
366 |
|
|
105 |
|
|
261 |
|
|
248.6% |
|
Other expenses |
|
-381 |
|
|
-134 |
|
|
247 |
|
|
184.3% |
|
Interest expense |
|
-1,716 |
|
|
-1,925 |
|
|
-209 |
|
|
-10.9% |
|
Earnings before tax |
|
-591 |
|
|
2,495 |
|
|
-3,086 |
|
|
-123.7% |
|
Income tax |
|
-480 |
|
|
-750 |
|
|
-270 |
|
|
-36.0% |
|
Income before non-controlling interests |
|
-1,071 |
|
|
1,745 |
|
|
-2,816 |
|
|
-161.4% |
|
Non-controlling interests |
|
-574 |
|
|
155 |
|
|
-729 |
|
|
-470.3% |
|
Net income |
|
-497 |
|
|
1,590 |
|
|
-2,087 |
|
|
-131.3% |
|
Revenue
Net Revenues. Our net revenue for the three months ended
March 31, 2015 amounted to $37.6 million, which represents an increase of
approximately $5.9 million, or 18.5%, from the three-month period ended on March
31, 2014, in which our net revenue was $31.7 million. The overall increase was
attributable to the increase/decease in sales of each of our product
segments, as reflected in the following table:
41
|
|
Three |
|
|
|
|
|
|
|
|
|
|
|
|
months |
|
|
|
|
|
|
|
|
|
|
|
|
ended |
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars) |
|
3/31/2015 |
|
|
3/31/2014 |
|
|
|
|
|
|
|
Category |
|
($) |
|
|
($) |
|
|
($) |
|
|
(%) |
|
Chestnut |
|
16,062,304 |
|
|
17,354,271 |
|
|
- 1,291,967 |
|
|
-7.4% |
|
Convenience food |
|
14,181,755 |
|
|
7,430,682 |
|
|
6,751,073 |
|
|
90.9% |
|
Frozen food |
|
7,313,252 |
|
|
6,904,505 |
|
|
408,747 |
|
|
5.9% |
|
Total |
|
37,557,311 |
|
|
31,689,458 |
|
|
5,867,853 |
|
|
18.5% |
|
Cost of Revenues. During the three months ended March
31, 2015, we experienced an increase in cost of revenue of $6.3 million, in
comparison to the three months ended March 31, 2014, from approximately $25.6
million to $31.9 million, reflecting an increase of 24.8%. Approximately an
increase of $3.7 million was attributable to increasing costs of raw material and external
purchased finished products, which increased from $21.5 million during the three
months ended March 31, 2014 to $25.2 million, or approximately 17.2%, during the
three months ended March 31, 2015.
Gross Profit. Our gross profit decreased $0.5 million,
or 8.0%, to $5.6 million for the three months ended March 31, 2015 from $6.1
million for the same period in 2014 as a result of higher revenues, offset by
higher costs of revenues for the reasons indicated immediately above. Our gross
margins decreased from 19.3% to 15.0%. 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 and
profitability potential
will be realized in near future.
Operating Expenses
Selling and Marketing Expenses. Our selling and
marketing expenses increased $1.0 million during the first quarter of 2015, as
compared to the same period over last year. The following table reflects the
main factors that contributed to the increase as well as the dollar amount that
each factor contributed to this increase:
Increase in Selling and Marketing Expense in the
Three
Months Ended March 31, 2015 over
the Three Months
Ended March 31, 2014
(in U.S. dollars) |
|
|
|
Salaries and wages |
|
378,584 |
|
Transportation expense |
|
345,113 |
|
Shipping and port expense |
|
115,414 |
|
The selling and marketing expense to net revenue ratio for the
three months ended March 31, 2015 and 2014 was 5.6% and 3.4%, respectively.
Management believes that the expense was reasonably incurred.
General and Administrative Expenses. We experienced an
increase in general and administrative expense of $0.5 million from $2.1 million
to approximately $2.6 million for the three months ended March 31, 2015,
compared to the same period in 2014. It was noted that the general and
administrative expenses incurred by PRC subsidiaries decreased by $0.5 million
as compared to the same period of 2014, which was offset by consolidation of the
Athena Group whose general and administrative expense for the period was $1.0
million.
42
Government Subsidy Income
Government subsidy income decreased from approximately $1.5
million for the three months ended March 31, 2014 to $0.3 million for the three
months ended March 31, 2015. It represents grants received mostly from the Junan County 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
$3.1 million to -$0.6 million for the three months ended March 31, 2015
from $2.5 million for the same period of 2014. The decrease was mainly
attributable to the increase of our cost of revenue and operating expenses, as
well as decrease of subsidy income in the three months ended March 31, 2015 as
compared to the three months ended March 31, 2014.
Income Taxes
Income taxes decreased $0.3 million, or 36.0%, to $0.5 million
in the first quarter of 2015, as compared to $0.8 million in the first quarter
of 2014, primarily attributable to the lower earnings before tax.
Net Income
Net income decreased $2.8 million to -$1.1 million
for the three months ended March 31, 2015 from $1.7 million for the same period
of 2014. The decrease was attributable to the fact that increased sales revenue
was offset by increased cost of goods sold and operating expenses in the three
months ended March 31, 2015 as compared to the three months ended March 31,
2014.
Liquidity and Capital Resources
As of March 31, 2015, we had cash and cash equivalents
(including restricted cash) of $44.6 million. Our cash and cash equivalents
increased by approximately $10.1 million from December 31, 2014 primarily due to
cash provided by operating activities, partially offset by cash used in
investments activities and financing activities. The following table provides
detailed information about our net cash flow for all financial statements
periods presented in this report.
Cash Flow (in thousands)
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2015 |
|
|
2014 |
|
Net cash provided by operating activities |
|
16,283 |
|
|
7,019 |
|
Net cash (used in) investing activities |
|
(4,326 |
) |
|
(3,708 |
) |
Net cash provided by (used in) financing
activities |
|
(5,629 |
) |
|
7,873 |
|
Net cash flow |
|
6,328 |
|
|
11,184 |
|
Operating Activities
Net cash provided by operating activities was $16.3 million and
$7.0 million for the three month periods ended March 31, 2015 and 2014,
respectively. The increase of approximately $9.3 million in net cash flows
provided by operating activities in the first three months of 2015 was primarily
due to a decrease in accounts and other receivables during the period of $23.0
million, as well as an increase in inventory of approximately $6.8 million, as
compared to comparative figure of $17.1 million and $11.2 million for same period
in 2014.
43
Investing Activities
Net cash used in investing activities for the three months period ended March 31, 2015 was $4.3 million, representing an increase of $0.6 million in net cash used in investing activities from $3.7 million for the same period of 2014. The
difference was primarily a result of higher increase in restricted cash of $1.9 million.
Financing Activities
Net cash used in financing activities for the three months period ended March 31, 2015 was $5.6 million, representing a decrease of $13.5 million from $7.9 million net cash provided by financing activities during the same period in
2014. The decrease of the net cash provided by financing activities was primarily a result of higher net bank borrowings and issuance of convertible promissory note in the first quarter of 2014.
Loan Facilities
As of March 31, 2015, the amounts and maturity dates for our short-term bank loans are as set forth in the Notes to the Financial Statements. The total amounts outstanding were $36.8 million as of March 31, 2015, compared with $41.6 million
as of December 31, 2014. We also obtained $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.
We believe that our currently available working capital, after receiving the aggregate proceeds of the credit facilities referred to above, should be adequate to sustain our operations at our current levels for 2015.
Critical Accounting Policies
The preparation of financial statements in conformity with United States generally accepted accounting principles requires our management to make assumptions, estimates and judgments that affect the amounts reported in our financial statements,
including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require significant judgments and estimates in the preparation of financial statements,
including the following:
Method of Accounting -- We maintain our general ledger and journals with the accrual method accounting for financial reporting purposes. Accounting policies adopted by us conform to generally accepted accounting
principles in the United States and have been consistently applied in the presentation of our financial statements, which are compiled on the accrual basis of accounting.
Use of estimates -- The preparation of the financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information
available at the time the estimates are made; however, actual results could differ materially from those estimates.
44
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 -- Our consolidated
financial statements, which include information about our company and our
subsidiaries, are compiled in accordance with generally accepted accounting
principles in the United States. All significant inter-company accounts and
transactions have been eliminated. Our consolidated financial statements include
100% of assets, liabilities, and net income or loss of our wholly-owned
subsidiaries. Ownership interests of non-controlling investors are recorded as
non-controlling
interests.
As of March 31, 2015, the details pertaining to our
subsidiaries were as follows:
|
|
|
|
|
Attributable |
|
|
|
|
|
|
Place of |
|
|
equity |
|
|
Registered |
|
Name of Company |
|
incorporation |
|
|
interest % |
|
|
capital |
|
International Lorain Holding Inc.
|
|
Cayman Islands |
|
|
100 |
|
$ |
50,938,355 |
|
Junan Hongrun Foodstuff Co., Ltd. |
|
PRC |
|
|
100 |
|
|
48,976,118 |
|
Shandong Lorain Co., Ltd. |
|
PRC |
|
|
80.2 |
|
|
13,235,992 |
|
Beijing Lorain Co., Ltd. |
|
PRC |
|
|
100 |
|
|
1,636,902 |
|
Luotian Lorain Co., Ltd. |
|
PRC |
|
|
100 |
|
|
4,146,077 |
|
Shandong Greenpia Foodstuff Co., Ltd. |
|
PRC |
|
|
100 |
|
|
2,502,240 |
|
Dongguan Lorain Co., Ltd. |
|
PRC |
|
|
100 |
|
|
163,690 |
|
Athena |
|
France |
|
|
51 |
|
|
13,836 |
|
Conserverie Minerve |
|
France |
|
|
51 |
|
|
470,429 |
|
Sojafrais |
|
France |
|
|
51 |
|
|
5,534 |
|
SCI Siam |
|
France |
|
|
51 |
|
|
844 |
|
SCI Giu Long |
|
France |
|
|
51 |
|
|
5,534 |
|
Cacovin |
|
Portugal |
|
|
51 |
|
|
304,395 |
|
Accounting for the Impairment of Long-Lived Assets --
The long-lived assets held and used by us are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of assets
may not be recoverable. It is reasonably possible that these assets could become
impaired as a result of technology or other industry changes. Determination of
recoverability of assets to be held and used is by comparing the carrying amount
of an asset to future net undiscounted cash flows to be generated by the assets.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell.
45
During the reporting period, there was no impairment loss.
Revenue recognition -- Our revenue recognition policies
are in compliance with Staff Accounting Bulletin (SAB) 104. Sales revenue is
recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, 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.
Our revenue consists of invoiced value of goods, net of a
value-added tax. The Company allows its customers to return products if they are
defective. However, this rarely happens and amounts returned have been de
minimis.
Recent Accounting Pronouncements
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 adopted ASU No. 2015-01 prospectively and has
applied it to the presentation of the financial statements.
As of March 31, 2015, there are no other recently issued
accounting standards not yet adopted that would have a material effect on the
Companys consolidated financial statements.
Off-Balance Sheet Arrangements
We do not have any off-balance arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not required.
ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls
and Procedures
We maintain disclosure controls and procedures (as defined in
Rule 13a(15(e) under the Exchange Act) that are designed to ensure that
information required to be disclosed in Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is accumulated and communicated
to our management, including to our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
As required by Rule 13a-15 under the Exchange Act, our
management, including our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of March 31, 2015. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that as of March
31, 2015, and as of the date that the evaluation of the effectiveness of our
disclosure controls and procedures was completed, our disclosure controls and
procedures were not effective due to the continuing material weakness in our
internal control over financial reporting.
46
The material weakness and significant deficiency identified by
our management as of March 31, 2015 relates to the ability of the Company to
record transactions and provide disclosures in accordance with U.S. GAAP. The
management has recruited new interim Chief Financial Officer to instruct and
train accountants in our company. The aim of the management of the Company is to
make it possible that the disclosure of the information of the company is able
to keep transparent to our potential investors, and be in compliance with the
accounting principles required by FASB. We believe that we will further support
and encourage our accounting staffs to attend professional courses related to
U.S. GAAP and IFRS accounting principle. We would like to see more of our
accountants hold licenses, such as Certified Public Accountant or Certified
Management Accountant accreditations in the U.S.
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.
Changes in Internal Controls over Financial Reporting.
During the three months ended March 31, 2015, there were no
changes in our internal control over financial reporting identified in
connection with the evaluation performed during the period covered by this
report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Inherent Limitations Over Internal Controls.
Our internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with GAAP. Our internal control over financial reporting includes those policies
and procedures that:
(i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets;
(ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and
directors; and
(iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on the financial
statements.
Management, including our Chief Executive Officer and Chief
Financial Officer, does not expect that our internal controls will prevent or
detect all errors and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of internal controls
can provide absolute assurance that all control issues and
instances of fraud, if any, have been detected. Also, any evaluation of the
effectiveness of controls in future periods are subject to the risk that those
internal controls may become inadequate because of changes in business
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
47
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is a lawsuit currently pending in the Supreme Court of
Shandong Province, , which was initially filed by Shandong Lorain, a subsidiary
of the Company, against Junan Hengji Real Estate Development Co., Ltd. ("Junan
Hengji") in November 2013 at Linyi City Intermediate People's Court of Shandong
Province (the "Linyi Court"). Shandong Lorain added Jiangsu Hengan Industrial
Investment Group Co., Ltd. ("Hengan Investment") as a co-defendant after the
case was first filed at Linyi Court.
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 $1,636,902) first.
In January 2014, the Linyi 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. On
March 21, 2015, Shandong Lorain received Linyi Court's decision that rejected
Shandong Lorain's claim for RMB 10,000,000 against Junan Hengji. On April 3rd,
2015, Shandong Lorain appealed the decision to the Supreme Court of Shandong
Province and the case is still in the appeal process. The Company is confident
that Shandong Lorain will prevail during the appeal process.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
None
48
ITEM 6. EXHIBITS
The following exhibits are filed as part of this Report
* Filed herewith.
(1) XBRL (Extensible Business Reporting Language) information
is furnished and not filed or a part of a registration statement or prospectus
for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is
deemed not filed for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, and otherwise is not subject to liability under these
sections.
49
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: May 15, 2015
|
AMERICAN LORAIN CORPORATION |
|
|
|
/s/ Si Chen |
|
Si Chen |
|
Chief Executive Officer |
|
(Principal Executive Officer) |
|
|
|
/s/ Xiang Zhou |
|
Xiang Zhou |
|
Chief Financial Officer |
|
(Principal Financial Officer and Principal
|
|
Accounting Officer) |
50
Exhibit 31.1
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER
PURSUANT
TO SECTION 302
I, Si Chen, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q for
the period ended March 31, 2015 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 first fiscal
quarter) 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: May 15, 2015
By: /s/ Si Chen
Name: Si Chen
Title: 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 Quarterly Report on Form 10-Q for
the period ended March 31, 2015 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 first fiscal
quarter) 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: May 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 Quarterly Report of American
Lorain Corporation (the Company) on Form 10-Q for the period ended March 31,
2015 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: May 15, 2015
By: /s/ Si Chen
Name: Si Chen
Title: Chief
Executive Officer
(Principal Executive Officer)
This certification accompanies each Report pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent
required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section
906 has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon
request.
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 Quarterly Report of American Lorain
Corporation (the Company) on Form 10-Q for the period ended March 31, 2015 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: May 15, 2015
By: /s/ Xiang Zhou
Name: Xiang Zhou
Title: Chief
Financial Officer
(Principal Financial Officer)
This certification accompanies each Report pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent
required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section
906 has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon
request.
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