Business context and reporting period
This Form 10-Q covers the quarter and six months ended June 30, 2017. The filing identifies the registrant as American Lorain Corporation, a China-focused food manufacturer selling chestnut, convenience and frozen foods. The request metadata names Planet Green Holdings Corp.; the supplied filing does not explain that difference.
The filing was signed December 11, 2017. Results include continuing operations and businesses classified as discontinued operations. Shandong Lorain and Dongguan Lorain were discontinued in 2017; French operations had been liquidated following an investigation concerning canned chestnut standards.
Financial performance and position
| Metric | Three months ended June 30, 2017 | Six months ended June 30, 2017 |
|---|---|---|
| Revenue | $1.28 million, down 94.5% year over year | $3.18 million, down 92.8% |
| Gross profit (loss) | $(0.29) million; gross margin approximately -22.6% | $(0.04) million; gross margin approximately -1.4% |
| Operating income (loss), continuing operations | $(0.55) million | $(8.45) million |
| Net income (loss) | $(2.03) million | $(17.80) million |
| Net loss attributable to common shareholders | $(1.76) million | $(16.36) million; diluted and basic loss per share of $0.43 |
For the six months, operating cash flow was positive $11.56 million, compared with cash used of $10.23 million in 2016. The company attributed the improvement principally to higher customer deposits and changes in working capital. Investing cash outflow was $11.98 million, including $9.31 million for construction in progress; financing cash inflow was $0.16 million. Cash and cash equivalents ended at approximately $0.20 million; restricted cash was $0.83 million.
At June 30, current assets were $54.22 million and current liabilities $93.53 million, a working capital deficit of approximately $39.31 million. Short-term bank loans were $23.24 million; current maturities of long-term debt were $29.90 million; current capital-lease obligations were $1.03 million. The filing describes defaults on bank loans, debentures and a DEG loan, with negotiations to renew or extend repayment terms. Total current debt and lease obligations were approximately $54.17 million.
Material changes versus the prior comparable period
- Revenue fell sharply across all product categories. Six-month chestnut, convenience-food and frozen-food sales decreased approximately 92%, 95% and 93%, respectively.
- Management cited reduced domestic demand and competition, discontinued ready-to-eat meal sales, closure or cessation of certain operations, and weaker export markets. It said the French operations’ closure sharply reduced European chestnut exports.
- Six-month general and administrative expense rose to $6.18 million from $1.22 million, while gross profit turned to a small loss and continuing-operations operating results deteriorated to an $8.45 million loss.
- The company reported a 2015 revenue-recognition correction: restated 2015 sales were reduced by $8.57 million and net income by $1.49 million.
Outlook, risks and unusual items
The filing provides no numerical revenue or earnings guidance. Management said it was pursuing new working capital through private placements of common stock or convertible debt and might reduce spending if needed. It cautioned that financing availability and terms were uncertain. Management and the independent accountant both noted substantial doubt about the company’s ability to continue as a going concern, citing the six-month loss and working capital deficit.
- Liquidity depends on converting inventory and other current assets to cash, renewing short-term bank loans, and maintaining supplier credit. Management said approximately 60% of working capital was funded by short-term Chinese bank loans in the second quarter.
- Several listed loans and debt instruments had past-due maturities; the company reported that the DEG loan was in default and that DEG had foreclosed on 10,794,066 shares pledged by the chairman and CEO. The filing also reports negotiations with debenture holders.
- Disclosure controls were deemed ineffective due to a continuing material weakness: insufficient accounting personnel experienced in U.S. GAAP. Management described plans for training and recruitment.
- A subsidiary’s lawsuit seeking RMB 10 million (approximately $1.50 million) remained pending after a retrial; the counterparty had filed a counterclaim. The company expressed confidence in its case.
- Management identified seasonality in chestnut sales, PRC operating and currency risks, refinancing and interest-rate risks, and possible raw-material and labor cost inflation.
Important facts for investors to verify
- Confirm the registrant’s identity and relationship, if any, to Planet Green Holdings Corp.; the supplied report names American Lorain Corporation.
- Reconcile material inconsistencies in the filing’s discontinued-operations disclosures: the income statement reports a six-month discontinued-operations loss of $6.72 million, while the note’s selected results table reports a $49.19 million net loss. The note’s discontinued-operations asset figures also do not match the balance sheet.
- Verify the status, maturity, collateral, and restructuring of overdue bank loans, debentures and the DEG loan, and the actual availability of refinancing or new capital.
- Verify the reported cash-flow and liquidity figures, including the working-capital deficit and the extent to which inventory and supplier advances can be realized promptly.
- Clarify share-count disclosures: the cover page cites 38,259,490 shares as of August 20, 2016, while the balance sheet reports 38,274,490 shares at June 30, 2017.