Filing Summary
Entity and period: The supplied filing is American Lorain Corporation’s Form 10-Q for the quarter ended September 30, 2013, not a filing identified as Planet Green Holdings Corp. The financial statements are unaudited interim statements; the independent accountant performed a review, not an audit.
Business context and reporting period
American Lorain manufactures and sells chestnut products, convenience foods, and frozen foods through subsidiaries operating in China. It sells mainly in China, Japan, and South Korea, with exports to other markets. The company describes chestnut sales as seasonal, with the strongest period typically in the fourth quarter.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $53.1 million | $58.0 million | $122.0 million | $135.9 million |
| Gross profit | $10.3 million | $12.4 million | $24.7 million | $28.3 million |
| Operating income | $6.7 million | $8.5 million | $14.9 million | $18.9 million |
| Net income attributable to common stockholders | $4.3 million | $5.3 million | $9.3 million | $12.2 million |
| Basic and diluted EPS | $0.12 | $0.15 | $0.27 | $0.35 |
| Net cash used in operating activities | Not presented clearly for the quarter | Not presented clearly for the quarter | $11.8 million | $13.1 million |
Gross margin was 19.4% in Q3 2013 versus 21.4% a year earlier, and 20.3% for the first nine months versus 20.9%. The filing attributes the margin pressure to inflation in China’s domestic market. Q3 and nine-month interest expense increased to $2.4 million and $4.6 million, respectively, from $1.1 million and $2.7 million.
Liquidity, assets, and debt
- At September 30, 2013, cash and cash equivalents were $33.2 million; restricted cash was an additional $1.5 million.
- Current assets were $175.7 million and current liabilities $46.3 million. Inventory was $53.9 million, up from $38.1 million at December 31, 2012; advances to suppliers were $29.1 million, up from $22.3 million.
- Short-term bank loans were $33.0 million, compared with $28.7 million at year-end 2012. Long-term bank debt, including its current portion, totaled about $14.1 million. Notes payable and a debenture totaled $29.3 million. Total reported borrowings were therefore approximately $76.5 million.
- For the first nine months, operating cash outflow of $11.8 million and investing cash outflow of $5.8 million were largely funded by $16.4 million of financing cash inflow. Cash increased by approximately $0.8 million from year-end, with foreign-currency translation also affecting the cash-flow reconciliation.
- Investing outflows included $11.3 million for land-use rights. The company reported $3.9 million of future lease commitments for three greenhouse plots, with terms extending to 2033.
Changes, outlook, risks, and unusual items
- Revenue fell 8.4% in Q3 and 10.3% year to date. For the first nine months, convenience-food sales declined 20.1% and chestnut sales declined 7.7%; frozen-food sales increased 5.2%.
- Management said Q4 is traditionally strong for chestnuts and expected higher demand for chestnut and selected convenience-food products. It provided no quantified earnings or revenue guidance.
- Management stated that available working capital, operating cash flow, and current and expected short-term bank loans should support operations for at least 12 months. It also warned that loan renewals are not assured and that alternative financing may be difficult to obtain.
- Q3 other income was $1.1 million, compared with $44,000 a year earlier; the filing does not clearly explain the quarter’s increase. Nine-month other income was $1.3 million. Government subsidies were $1.4 million for the first nine months.
- Sales remain concentrated in China, Japan, and South Korea, which accounted for 89.1% of nine-month sales. The company cited raw-material supply, agricultural and labor inflation, customer payment delays, refinancing and interest-rate exposure, PRC regulatory and currency risks, and global economic conditions as risks.
- Disclosure controls and procedures were deemed ineffective because of a material weakness related to insufficient personnel with U.S. GAAP technical accounting expertise. Management described planned training and engagement of a U.S. accounting consultant; it reported no material control changes during the quarter.
- The company reported no material legal proceedings, no defaults upon senior securities, and no off-balance-sheet arrangements. Management reported no long-lived asset impairment during the period.
Important facts for investors to verify
- Confirm the issuer: the supplied 10-Q names American Lorain Corporation, while the request identifies Planet Green Holdings Corp.
- Assess the collectability and timing of receivables, including the $4.4 million short-term-investment sale receivable, and the recoverability of the larger inventory and supplier advances.
- Review debt maturities, collateral and guarantees, refinancing availability, and the terms and servicing of the $16.3 million debenture issued in 2013.
- Clarify the source and sustainability of the substantial increase in Q3 other income and reconcile operating cash use with reported profits.
- Track remediation of the disclosed material weakness and evaluate the effect of foreign-currency translation and China-related operating risks.