Planet Green Holdings Corp. - Quarter Report: 2015 June (Form 10-Q)

PART I - FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS

ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4 CONTROLS AND PROCEDURES

PART II - OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

ITEM 1A RISK FACTORS

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

ITEM 4 MINE SAFETY DISCLOSURES

ITEM 5 OTHER INFORMATION

ITEM 6 EXHIBITS

SIGNATURES

CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASSETS

   Current assets

       Cash and cash equivalents

       Restricted cash

       Trade accounts receivable

       Other receivables

       Inventory

       Advance to suppliers

       Prepaid expenses and taxes

       Security deposits and other assets

                       Total current assets

   Non-current assets

       Investment

       Property, plant and equipment, net

       Construction in Progress, net

       Intangible assets, net

       Goodwill

TOTAL ASSETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

       Short-term bank loans

       Notes payable

       Convertible promissory note

       Long-term debt – current portion

       Accounts payable

       Taxes payable

       Accrued liabilities and other payables

       Related party payable

       Deferred tax liabilities

       Customers deposits

                       Total current liabilities

   Long-term liabilities

   Long-term bank loans

       Notes payable and debenture

TOTAL LIABILITIES

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY

   Preferred Stock, $0.001 par value, 5,000,000 shares authorized; 
           0 shares issued and outstanding at June 30, 2015 and 
           December 31, 2014, respectively

   Common Stock, $0.001 par value, 200,000,000 shares authorized; 
           38,259,490 shares and 34,916,714 shares issued and outstanding 
           as of June 30, 2015 and December 31, 2014, respectively

   Additional paid-in capital

   Statutory reserves

   Retained earnings

   Accumulated other comprehensive income

   Non-controlling interests

TOTAL STOCKHOLDER’S EQUITY

TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY

Net revenues

Cost of revenues

Gross profit

Operating expenses

Selling and marketing expenses

General and administrative expenses

Operating income

Government subsidy income

Interest income

Other income

Other expenses

Interest expense

Earnings/(loss) before tax

Income tax

Net income/(loss)

Other comprehensive income/(loss):

Foreign currency translation gain/(loss)

Comprehensive Income/(Loss)

Net income/(loss) attributable to:

-Common stockholders

-Non-controlling interest

Earnings/(loss) per share

- Basic

- Diluted

Weighted average shares outstanding

- Basic

- Diluted

Cash flows from operating activities

Net income

   Stock compensation expense

   Depreciation of fixed assets

   Amortization of intangible assets

   Decrease in accounts and other receivables

   (Increase) in inventories

   Decrease/(increase) in prepayment

   Decrease/(increase) in deferred tax asset

   Increase in accounts and other payables

   Increase/(decrease) in related party payable

     Net cash (used in)/provided by operating activities

Cash flows from investing activities

   Payment for acquisition of Athena Group

   Purchase of plant and equipment

   Purchase of intangible assets

   (Increase) in restricted cash

   (Increase)/decrease in deposit

   Sales of investments

   Net cash (used in) investing activities

Cash flows from financing activities

   Repayment of bank borrowings

   Proceeds from bank borrowings and debentures

   (Repayment)/proceeds of long-term borrowings and notes payable

   Net cash provided by/(used in) financing activities

Net Increase/(decrease) of cash and cash equivalents

Effect of foreign currency translation on cash and cash

equivalents

Cash and cash equivalents–beginning of period

Cash and cash equivalents–end of period

Supplementary cash flow information:

         Interest received

         Interest paid

         Income taxes paid

ORGANIZATION, BASIS OF PRESENTATION, AND PRINCIPAL ACTIVITIES

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 Company’s jurisdiction from Delaware to Nevada.

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.

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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 June 30, 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.

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 June 30, 2015, the detailed identities of the consolidating subsidiaries are as follows:

Name of Company

International Lorain Holding Inc.

Junan Hongrun Foodstuff Co., Ltd.

Shandong Lorain Co., Ltd.

Beijing Lorain Co., Ltd.

Luotian Lorain Co., Ltd.

Shandong Greenpia Foodstuff Co., Ltd.

Dongguan Lorain Co., Ltd.

Athena

Conserverie Minerve

Sojafrais

SCI Siam

SCI Giu Long

Cacovin

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.

Cash and cash equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

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.

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.

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.

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 Company’s purchase order for raw materials, supplies, equipment, building materials, and other items necessary for our operations. Pursuant to the Company’s 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 Company’s 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.

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:

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.

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.

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.

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.

Advertising

All advertising costs are expensed as incurred.

Shipping and handling

All shipping and handling are expensed as incurred.

Research and development

All research and development costs are expensed as incurred.

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.

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, People’s 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.

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 June 30, 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 enterprise’s PRC registered capital.

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.

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.

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.

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 June 30, 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 Company’s equity incentive plan; 2,255,024 warrants were issued to investors in connection with a PIPE financing. As of June 30, 2015, 1,753,909 shares of Series A warrants have expired 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 Company’s 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.

Financial Instruments

The Company’s 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:

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 June 30, 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.

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.

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 Company’s 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 June 30, 2015 and 2014 included net income and foreign currency translation adjustments.

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.

Recent accounting pronouncements

In January 2015, The FASB issued ASU No. 2015-01, “Income Statement— Extraordinary and Unusual Items (Subtopic 225-20)”.This Update eliminates from GAAP the concept of extraordinary items. Subtopic 225-20, Income Statement—Extraordinary 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:

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.

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.

The Company adopted ASU No. 2015-01 prospectively and has applied it to the presentation of the financial statements.

As of June 30, 2015, there are no other recently issued accounting standards not yet adopted that would or could have a material effect on the Company’s consolidated financial statements.

RESTRICTED CASH

Restricted Cash represents interest bearing deposits placed with banks to secure banking facilities in the form of loans and notes payable. The restriction of funds is based on time. The funds that collateralize loans are held for 60 days in a savings account that pays interest at the prescribed national daily savings account rate. For funds that under lie notes payable, the cash is deposited in six month time deposits that pay interest at the national time deposit rate.

TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable

Less: Allowance for doubtful accounts

Allowance for bad debt:

Beginning balance

Additions to allowance

Bad debt written-off

Ending balance

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.

OTHER RECEIVABLES

Other receivables consisted of the following as of June 30, 2015 and December 31, 2014:

Advances to employees for job/travel disbursements

Amount due by a non-related enterprise

Other non-related receivables

Other related party receivables

Short-term investment sale receivable

Vendor rebate receivable

INVENTORIES

Inventories consisted of the following as of June 30, 2015 and December 31, 2014:

Raw materials

Finished goods

PROPERTY, PLANT AND EQUIPMENT

Property, plant, and equipment consisted of the following as of June 30, 2015 and December 31, 2014:

At Cost:

       Buildings

       Land

       Landscaping, plant and tree

       Machinery and equipment

       Office equipment

       Motor vehicles

Less: Accumulated depreciation

       Buildings

       Landscaping, plant and tree

       Machinery and equipment

       Office equipment

       Motor vehicles

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 leased three greenhouses to grow seasonal crops in order to lower cost. Depreciation expense for the six month periods ended June 30, 2015 and 2014 was $2,014,035 and $1,832,928, respectively.

INTANGIBLE ASSETS, NET

Intangible assets consisted of the following as of June 30, 2015 and December 31, 2014:

Land use rights, at cost

Utilities rights, at cost

Software, at cost

Patent, at cost

Less: Accumulated amortization

All land is owned by the government in China. Land use rights represent the Company’s purchase of usage rights for a parcel of land for a specified duration of time, typically 50 years. Amortization expense for the six month periods ended June 30, 2015 and 2014 was $191,770 and $186,455, respectively.

BANK LOANS

Bank loans include bank overdrafts, short-term bank loans, and current portion of long- term loans, which consisted of the following as of June 30, 2015 and December 31, 2014:

Bank Overdrafts

Short-term Bank Loans

Loan from Industrial and Commercial Bank of China,

            • Interest rate at 7.28% per annum; due 3/4/2015

            • Interest rate at 7.125% per annum; due 3/27/2015

            • Interest rate at 1.74% per annum; due 4/10/2015

            • Interest rate at 1.74% per annum; due 4/24/2015

            • Interest rate at 7.28% per annum; due 6/5/2015

            • Interest rate at 7.28% per annum; due 7/1/2015

            • Interest rate at 6.50% per annum; due 10/14/2015

            • Interest rate at 6.50% per annum; due 10/14/2015

            • Interest rate at 7.20% per annum; due 11/2/2015

            • Interest rate at 6.63% per annum; due 11/16/2015

            • Interest rate at 6.72% per annum; due 12/1/2015

Loan from China Minsheng Bank Corporation, Linyi Branch

            • Interest rate at 7.8% per annum due 1/17/2015

            • Interest rate at 7.8% per annum due 2/26/2015

Loan from Agricultural Bank of China, Junan Branch

            • Interest rate at 7.8% per annum due 8/14/2015

            • Interest rate at 7.28% per annum due 1/22/2016

Loan from Agricultural Bank of China, Luotian Branch

            • Interest rate at 7.28% per annum due 3/24/2015

            • Interest rate at 7.8% per annum due 8/25/2015

China Agricultural Development Bank

            •Interest rate at 6.0% per annum due 1/7/2015

            •Interest rate at 6.0% per annum due 9/1/2015

            •Interest rate at 5.6% per annum due 1/6/2016

Luotian Sanliqiao Credit Union,

            • Interest rate at 9.36% per annum due 1/21/2015

            • Interest rate at 9.72% per annum due 2/13/2016

Bank of Ningbo ,

            • Interest rate at 7.80% per annum due 10/26/2015

Hankou Bank, Guanggu Branch,

            • Interest rate at 6.95% per annum due 8/24/2015

Bank of Rizhao,

            • Interest rate at 7.80% per annum due 1/17/2015

            • Interest rate at 7.28% per annum due 1/19/2016

China Construction Bank,

            • Interest rate at 6.16% per annum due 2/25/2015

            • Interest rate at 6.60% per annum due 4/15/2015

            • Interest rate at 6.60% per annum due 5/11/2015

            • Interest rate at 6.60% per annum due 11/27/2015

Huaxia Bank,

            • Interest rate at 7.8% per annum due 5/19/2015

City of Linyi Commercial Bank, Junan Branch,

            • Interest rate at 9% per annum due 4/30/2015

            • Interest rate at 8.4% per annum due 2/16/2016

Ministry of Finance,

            • Interest free due 10/2015

Bank of China, Paris Branch

            • Interest rate at 2.80% per annum due 11/18/2015

            • Interest rate at 2.80% per annum due 2/11/2016

The short-term loans, which are denominated in the functional currencies Renminbi (RMB) and Euros, were primarily obtained for general working capital. If not otherwise indicated in the below remarks, short-term loans are guaranteed by either companies within the group or personnel who hold a management role within the group.

CURRENT PORTION – LONG TERM DEBT

Current portions of long-term debt consisted of the following as of June 30, 2015 and December 31, 2014:

            • Interest rate at 2.90% per annum due 12/2016

BPI France,

            • Interest rate at 3.42% per annum due 12/20/2016

Société Générale,

            • Interest rate at 2.90% per annum due 5/15/2016

Note payable issued by Shanghai Pudong Development Bank

            •      Interest rate at 5.9% per annum due 12/28/2015

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

BNP Paribas,

Banque Tarneud,

Credit Agricole,

LCL Banque et Assurance,

Loans from China Development Bank

            •      Interest rate at 7.07% per annum due 5/20/2015

            •      Interest rate at 7.07% per annum due 9/24/2015

Loans from Deutsche Investitions-und

Entwicklungsgesellschaft mbH (“DEG”)

            •      Interest rate at 5.510% per annum due 3/15/2015*

            •      Interest rate at 5.510% per annum due 9/15/2015

            •     Interest rate at 5.510% per annum due 3/15/2016

Total

We are in the process of negotiation with DEG to reschedule the all three installment repayments.

NOTES PAYABLE AND CONVERTIBLE PROMISSORY NOTE

Notes Payable consisted of the following as of June 30, 2015 and December 31, 2014:

Notes payable issued by Hankou Bank,

            •     Interest rate at 5.55% per annum due 3/24/2015

Notes payable issued by BNP Paribas,

            •     Interest rate at EURIBOR + 1.7% per annum due within 3 months

Notes payable issued by CIC Lorient Enterprises,

            •      Interest rate at EURIBOR + 1.7% per annum due within 3 months

Notes payable issued by Credit Agricole,

            •      Interest rate at EURIBOR + 1.7% per annum due within 3 months

Notes payable issued by LCL Banque et Assurance,

            •      Interest rate at EURIBOR + 1.7% per annum due within 1 months

Notes payable issued by Société Générale,

            •      Interest rate at EURIBOR + 1.7% per annum due within 1 months

Note issued by Jade Lane Group Limited

            •      Interest rate at 4.50% per annum due 3/13/2015

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. On April 20, 2015, the Company repaid 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.

Value added tax payable

Corporate income tax payable

Employee payroll tax withholding

Property tax payable

Stamp tax payable

Business tax payable

Land use tax payable

Capital gain tax payable

ACCRUED EXPENSES AND OTHER PAYABLE

Accrued expenses and other payables consisted of the following as of June 30, 2015 and December 31, 2014:

Accrued salaries and wages

Accrued utility expenses

Accrued interest expenses

Accrued transportation expenses

Other accruals

Business and other taxes

Disbursement payable

Accrued staff welfare

LONG-TERM DEBT

Non-current portions of long-term debt consisted of the following as of June 30, 2015 and December 31, 2014:

Loans from Deutsche Investitions-und Entwicklungsgesellschaft mbH (“DEG”)

•Interest rate at 5.510% per annum due 3/15/2016

BNP Paribas,

• Interest rate at 4.20% per annum due 12/20/2016

CIC Lorient Enterprises,

• Interest rate at 4.20% per annum due 12/20/2015

• Interest rate at 4.20% per annum due 12/20/2016

Credit Agricole,

• Interest rate at 4.20% per annum due 12/20/2016

• Interest rate at 1.85% per annum due 1/25/2017

LCL Banque et Assurance,

• Interest rate at 4.20% per annum due 12/20/2015

Société Générale,

• Interest rate at 2.90% per annum due 5/15/2016

Banco Portugue de Negocios,

• Interest rate at EURIBOR 3M+spread 2% per annum due 06/2024

Banco Espirito Santo

• Interest rate at EURIBOR 3M+spread 2% per annum due 06/2024

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.

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

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.

Undertake to provide a guarantee from the Shareholder in form and substance satisfactory to DEG.

Debenture issued by 5 private placement holders underwritten by Guoyuan Securities Co., Ltd.

            •      Interest rate at 10% per annum due 8/28/2016

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

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 result of the split and reverse splits made at the time of the reverse merger. The number of shares in the adjustment was an addition of seven shares. The Company believes the adjustment of seven shares is immaterial to both prior and current earnings per share calculation.

During the year 2009, the Company issued 56,393 shares of stock to its employees and vendors and 5,011,169 shares to investors. The Company issued 1,334,573 stock options to employees on July 28, 2009; 1,753,909 shares of Series A warrants and 501,115 shares of Series B warrants were issued to investors on October 28, 2009. As of December 31, 2014, 501,115 shares of Series B warrants and all stock options to employees from the 2009 stock incentive program have expired. As of June 30, 2015, 1,753,909 shares of Series A warrants expired.

During the year 2010, the Company issued 2,000 shares to a service provider on February 10, 2010 and 81,155 warrants to various service providers on January 5, 2010. The Company issued to investors 3,440,800 shares at an agreed price of $2.80 per share for a PIPE financing on September 10, 2010. This financing brought $8,955,730 net proceeds to the Company. The Company issued 5,000 shares to its employee on September 23, 2010. 731,707 shares of restricted stock were issued to the owner of Shandong Greenpia, Mr. Ji Zhenwei on September 24, 2010 as part of acquisition cost. As of December 31, 2014, 81,155 warrant shares issued to various service providers has expired.

NON-CONTROLLING INTERESTS

The non-controlling interest represents the following:

19.8% equity of Shandong Lorain held by the Shandong Economic Development Investment Corporation, which is a state-owned interest.

49% equity of the Athena Group held by Biobranco II, Alcides Branco, and Nuno Branco.

SALES BY PRODUCT TYPE

Sales by categories of product consisted of the following for the periods ended June 30, 2015 and 2014:

INCOME TAXES

All of the Company’s 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:

EARNINGS PER SHARE

Basic Earnings Per Share Numerator

         Net Income/(loss)

         Income Available to Common

         Stockholders

Diluted Earnings Per Share Numerator

         Income Available to Common

         Stockholders

Income Available to Common

Stockholders on Converted Basis

Original Shares:

Additions from Actual Events

-Issuance of Common Stock

Basic Weighted Average Shares Outstanding

Dilutive Shares:

Additions from Potential Events