On August 8, 2011, the company issued 145,500 shares of common stock for a cash payment of $56,745.
In preparing these financial statements, the Company evaluated the events and transactions that occurred from April 1, 2012 through May 14, 2012, the date these financial statements were issued. The Company has made the required additional disclosures in reporting periods in which subsequent events occur.
On April 24, 2012, the Company has approved a 20% stock dividend. The dividend will be payable on May 28, 2012 to shareholders of record at the close of business on May 14, 2012. Fractional shares will be paid in cash, which amount will be calculated by multiplying the fractional share interest by the average closing prices for the 10 trading days ending on (and including) May 23, 2012, the third trading day prior to the Payment Date.
PART I – FINANCIAL INFORMATION
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described.
The information contained in this Form 10-Q is intended to update the information contained in our annual report on Form 10-K for the year ended December 31, 2011, (the “Form 10-K”), filed with the Securities and Exchange Commission, and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” our consolidated financial statements and the notes thereto, and other information contained in the Form 10-K. The following discussion and analysis also should be read together with our condensed consolidated financial statements and the notes to the condensed consolidated financial statements and the notes thereto included elsewhere in this Form 10-Q.
Forward-Looking Statements
Information included in this Form 10-Q may contain forward-looking statements. Except for the historical information contained in this discussion of the business and the discussion and analysis of financial condition and results of operations, the matters discussed herein are forward looking statements. These forward looking statements include but are not limited to the Company’s plans for sales growth and expectations of gross margin, expenses, new product introduction, and the Company’s liquidity and capital needs. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. In addition to the risks and uncertainties described in “Risk Factors” contained in the Form 10-K, these risks and uncertainties may include consumer trends, business cycles, scientific developments, changes in governmental policy and regulation, currency fluctuations, economic trends in the United States and inflation. Forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Company Overview and Background
The Company, through its wholly-owned subsidiary Atlantic, a Hong Kong corporation, is engaged primarily in the business of distribution of memory products under “Samsung” brand name which principally comprise DRAM, Graphic RAM and Flash for the Hong Kong and Southern China markets. Our wholly-owned subsidiary, Alpha Perform Technology Limited, which previously engaged in this business, ceased activities as of January 1, 2004, and all its operations were consolidated with those of Atlantic.
On March 23, 2010, the Company concluded that Aristo is a variable interest entity under FASB ASC 810-10-25 and is therefore subject to consolidation with the Company beginning fiscal year 2007 under the guidance applicable to variable interest entities.
Aristo is engaged in the marketing, selling and servicing of computer products and accessories including semiconductors, LCD products, mass storage devices, consumer electronics, computer peripherals and electronic components for different generations of computer related products. In addition to Samsung-branded products, Aristo sells Hynix, Micron, Elpida, Qimonda, Lexar, Dane-Elec, Elixir, SanDisk and Winbond branded products. Aristo will provide value-added services to its products and resell it to its customers.
On December 14, 2010, the Company set up a wholly-owned subsidiary, ACL International Holdings Limited in Hong Kong. On December 17, 2010 the Company restructured the group; the Company’s wholly owned subsidiary, Atlantic, was transferred to become a wholly owned subsidiary of ACL Holdings, therefore Atlantic become an indirect wholly-owned subsidiary of the Company. The restructuring has no effect on the Company’s financial statements.
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PART I – FINANCIAL INFORMATION
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
On March 9, 2012, ACL Holdings entered into an agreement with Tomen Devices Corporation to create a joint venture, ATMD (Hong Kong) Limited, which became effective as of April 1 2012. As of the date of this quarterly report, ATMD issued USD10,000,000 in share capital, with ACL Holdings owning 30% and Tomen owning 70%, respectively of ATMD. ATMD will enter into a distribution agreement with Samsung Electronics Hong Kong Co., Ltd. in the second quarter of this year and start to sell and distribute Samsung’s products to the Greater China market, as consented to and approved by Samsung. Atlantic is expected to discontinue its contractual relationship with Samsung under its distribution agreement. Mr. Yang was appointed the Chief Executive Officer of ATMD.
As of March 31, 2012, ACL had more than 100 customers in Hong Kong and Southern China.
Subsequent to the start of the operation of ATMD, the relationships between sales, cost of sales, and operating expenses reflected in the financial information included in this document regarding the Company are expected to change in accordance with the transition of the Company’s business as described above.
Overview
Net sales
As the weak and volatile global economic conditions continue, manufacturers have decreased their demand for electronic products and substantially lowered their purchasing volume. With the early Chinese New Year holiday in 2012, most of the factories’ production lines were closed from January 2012 to February 2012. We also experienced strong reluctance on part of the customers, due to economic concerns, to maintain inventory during the Chinese New Year holiday. These major factors contributed to the significant reduction in the general demand for both DRAM and NAND Flash. Hence, the Company recorded a substantial drop for the net sales from $120,991,594 for the three months ended March 31, 2011 (“first quarter of 2011”) to $42,413,020 for the three months ended March 31, 2012 (“first quarter of 2012”), down 64.9%.
The Company’s gross profit for the first quarter of 2012 was $364,771, representing a decrease of $2,575,360 or 87.6% over $2,940,131 in the same period of 2011. First quarter gross profit margin for 2012 decreased to 0.86% from 2.43% in the same period of 2011. These results are due to the reduction in sales volume as well as tight profit margin due to the weakened market condition.
Operating expenses for the first quarter of 2012 was $1,195,002, a decrease of $135,867 or 10.2% from $1,330,869 in the first quarter of 2011. The decrease was directly attributable to the decrease of sales volume during the first quarter 2012.
Compared with the small reduction in operating expenses, the large reduction in net sales and gross profit have caused the Company to record a net loss of $865,668 in the first quarter of 2012, down $2,238,474 from the net income of $1,372,806 in the first quarter of 2011.
Although the market condition is still volatile, the Company believes the increasing demand of Ultrabooks, smartphones and tablets will drive the revenue growth for the sales of NAND Flash in 2012. However, revenues generated from the sales of DRAM are expected to remain to be influenced by global economic conditions.
Cost of sales
Cost of sales consists of costs of goods purchased from Samsung, and purchases from other Samsung authorized distributors. Many factors affect our gross margin, including, but not limited to, the volume of production orders placed on behalf of its customers, the competitiveness of the memory products industry and the availability of cheaper Samsung memory products from overseas Samsung distributors due to regional demand and supply situations. Nevertheless, our procurement operations are supported by Samsung pursuant to a distributorship agreement between the Company and Samsung. Our cost of goods, as a percentage of total revenues, amounted to approximately 99.1% for the three months ended March 31, 2012 and approximately 97.6% for the three months ended March 31, 2011.
Operating expenses
Our operating expenses for the three months ended March 31, 2012 and 2011 consisted of sales and marketing and general and administrative expenses only.
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PART I – FINANCIAL INFORMATION
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
Sales and marketing expenses consisted primarily of costs associated with advertising and marketing activities.
General and administrative expenses include all corporate and administrative functions that serve to support our current and future operations and provide an infrastructure to support future growth. Major items in this category include management and staff salaries, rent/leases, professional services, and travel and entertainment. We expect these expenses to increase as a result of increasing legal and accounting fees anticipated in connection with our compliance with ongoing reporting and accounting requirements of the Securities and Exchange Commission and as a result of anticipated expansion by the Company of its business operations. Sales and marketing expenses are expected to fluctuate as a percentage of sales due to the addition of sales personnel and various marketing activities planned throughout the year.
Interest expense, including finance charges, relates primarily to the Company’s short-term and long-term bank borrowings.
Results of Operations
| | | | | | | |
| | Three Months Ended | |
| | March 31, 2012 | | March 31, 2011 | |
| | | | | | | |
Net sales | | $ | 42,413,020 | | $ | 120,991,594 | |
| | | | | | | |
Cost of sales | | | 42,048,249 | | | 118,051,463 | |
| |
|
| |
|
| |
| | | | | | | |
Gross profit | | | 364,771 | | | 2,940,131 | |
| | | | | | | |
Operating expenses | | | | | | | |
Selling | | | 12,883 | | | 22,330 | |
General and administrative | | | 1,182,119 | | | 1,308,539 | |
| |
|
| |
|
| |
| | | | | | | |
(Loss) Income from operations | | | (830,231 | ) | | 1,609,262 | |
| | | | | | | |
Other income (expenses) | | | (35,437 | ) | | (44,148 | ) |
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|
| |
|
| |
| | | | | | | |
(Loss) Income before income taxes provision | | | (865,668 | ) | | 1,565,114 | |
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Income taxes provision | | | — | | | (192,308 | ) |
| |
|
| |
|
| |
| | | | | | | |
Net (loss) income | | | (865,668 | ) | $ | 1,372,806 | |
| |
|
| |
|
| |
| | | | | | | |
(Loss) Earnings per share – basic and diluted | | | (0.03 | ) | $ | 0.05 | |
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|
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|
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PART I – FINANCIAL INFORMATION
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
Unaudited Comparisons for Three Months ended March 31, 2012, to the Three Months Ended March 31, 2011
Net Sales
The following table presents our net sales for the three months ended March 31, 2012 and 2011, respectively:
| | | | | | | | | |
| | Three Months Ended March 2012, | | | |
| | 2012 | | 2011 | | % Change | |
| |
| |
| |
| |
| | $ | 42,413,020 | | $ | 120,991,594 | | -64.9% | |
Net sales decreased by $78,578,574 or 64.9%, from $120,991,594 for the three months ended March 31, 2011 to $42,413,020 in the three months ended March 31, 2012. This decrease in net sales was due to the reduced demand caused by the weak and volatile market conditions, and the temporary closure of production lines during the Chinese New Year holiday.
Cost of sales
The following table presents our cost of sales for the three months ended March 31, 2012 and 2011, respectively:
| | | | | | | | | |
| | Three Months Ended March 2012, | | | |
| | 2012 | | 2011 | | % Change | |
| |
| |
| |
| |
| | $ | 42,048,249 | | $ | 118,051,463 | | -64.4% | |
Cost of sales decreased by $76,003,214, or 64.4%, from $118,051,463 for the three months ended March 31, 2011 to $42,048,249 for the three months ended March 31, 2012. The decrease was mainly due to the decrease in the sales volume.
Gross Profit
The following table presents our gross profit for the three months ended March 31, 2012 and 2011, respectively:
| | | | | | | | | |
| | Three Months Ended March 2012, | | | |
| | 2012 | | 2011 | | % Change | |
| |
| |
| |
| |
| | $ | 364,771 | | $ | 2,940,131 | | -87.6% | |
Gross profit decreased by $2,575,360, or 87.6%, from $2,940,131 for the three months ended March 31, 2011 to $364,771 for the three months ended March 31, 2012. The decrease was mainly due to the decrease in the sales volume as well as tight profit margin.
Sales and MarketingExpenses
The following table presents the sales and marketing expenses for the three months ended March 31, 2012 and 2011, respectively:
| | | | | | | | | |
| | Three Months Ended March 2012, | | | |
| | 2012 | | 2011 | | % Change | |
| |
| |
| |
| |
| | $ | 12,883 | | $ | 22,330 | | -42.3% | |
For the three months ended March 31, 2012, sales and marketing expenses decreased by $9,447, or 42.3%, as compared to the three months ended March 31, 2011. The decrease was directly attributable to the decrease in sales volume during the first quarter 2012.
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PART I – FINANCIAL INFORMATION
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
General and AdministrativeExpenses
The following table presents the general and administrative expenses for the three months ended March 31, 2012 and 2011, respectively:
| | | | | | | | | |
| | Three Months Ended March 2012, | | | |
| | 2012 | | 2011 | | % Change | |
| |
| |
| |
| |
| | $ | 1,182,119 | | $ | 1,308,539 | | -9.7% | |
For the three months ended March 31, 2012, general and administrative expenses decreased by $126,420, or 9.7%, as compared to the three months ended March 31, 2011. This decrease was principally attributable to the decrease of directors’ remuneration.
(Loss) Income from Operations
The following table presents the income from operations for the three months ended March 31, 2012 and 2011, respectively:
| | | | | | | | | |
| | Three Months Ended March 2012, | | | |
| | 2012 | | 2011 | | % Change | |
| |
| |
| |
| |
| | $ | (830,231) | | $ | 1,609,262 | | -151.6% | |
(Loss) income from operations for the three months ended March 31, 2012 decreased by $2,439,493, or 151.6%, from income $1,609,262 for the three months ended March 31, 2011 to loss $830,231 in the three months ended March 31, 2012. Such decrease was mainly due to the decreased in our gross margin.
Interest Income
The following table presents the interest income for the three months ended March 31, 2012 and 2011, respectively:
| | | | | | | | | |
| | Three Months Ended March 2012, | | | |
| | 2012 | | 2011 | | % Change | |
| |
| |
| |
| |
| | $ | 827 | | $ | 451 | | 83.4% | |
For the three months ended March 31, 2012, interest income increased $376 or 83.4%, as compared to the three months ended March 31, 2011. This increase was due to increase of average bank balance when compared to the same period in 2011.
Interest Expense
The following table presents the interest expense for the three months ended March 31, 2012 and 2011, respectively:
| | | | | | | | | |
| | Three Months Ended March 2012, | | | |
| | 2012 | | 2011 | | % Change | |
| |
| |
| |
| |
| | $ | 133,226 | | $ | 108,781 | | 22.5% | |
For the three months ended March 31, 2012, interest expense increased by $24,445 or 22.5%, from $108,781 in the three months ended March 31, 2011 to $133,226 in the three months ended March 31, 2012. These increases were mainly due to an increase in the amount of interest payment in connection with the use of letters of credit and mortgage loan interest.
27
PART I – FINANCIAL INFORMATION
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
(Loss) Income Tax Provision
The following table presents the income tax provision for the three months ended March 31, 2012 and 2011, respectively:
| | | | | | | | | |
| | Three Months Ended March 2012, | | | |
| | 2012 | | 2011 | | % Change | |
| |
| |
| |
| |
| | $ | — | | $ | 192,308 | | -100.0% | |
Income tax provision decreased by $192,308 or 100% from $192,308 for the three months ended March 31, 2011 to $0 for the three months ended March 31, 2012. The decrease was due to no Hong Kong income taxes provided by Atlantic as there was no income generated during the first quarter 2012.
Liquidity and Capital Resources
Our principal sources of liquidity have been cash from operations, bank lines of credit and credit terms from suppliers. Our principal uses of cash have been for operations and working capital. We anticipate these uses will continue to be our principal uses of cash in the future.
As of March 31, 2012, we had revolving lines of credit and loan facilities in the aggregate amount of $17,919,824 of which $2,826,617 was available for drawdown as short-term loans repayable within 90 days. Detailed disclosures on credit facilities are made in Note 8 and Note 9 of Notes to the Condensed Consolidated Financial Statements (Unaudited) for the quarter ended March 31, 2012, including the amounts of facilities, outstanding balances, maturity date, and pledges of assets.
Our ability to draw down under our various credit and loan facilities is, in each case, subject to the prior consent of the relevant lending institution to make advances at the time of the requested advance and each facility (other than with respect to certain long term mortgage loans) is payable within 90 days of drawdown. As a result of the general tightening of credit markets in Hong Kong and Asia, many lenders have revised the terms of their revolving credit lines to levels we did not deem commercially reasonable. Accordingly, on a case by case basis, we may elect to terminate or not renew several of our credit facilities resulting in significant reduction in our available short term borrowings.
To address the reduction in available credit facilities, we are relying on our own cash reserves and cash flows from operations to fund our ongoing operations and have tightened the credit terms we extend to our customers. As a result, the Company does not expect that the reduction in available credit facilities is going to have a materially adverse impact upon our operations for the foreseeable future.
We will continue to seek additional sources of available financing on acceptable terms; however, there can be no assurance that we will be able to obtain the necessary additional capital on a timely basis or on acceptable terms, if at all. In addition, if the results are negatively impacted and delayed as a result of political and economic factors beyond management’s control, our capital requirements may increase.
The short-term borrowings from banks to finance the cash flow required to finance the purchase of Samsung memory products from Samsung must be made a day in advance of the release of goods from Samsung’s warehouse before receiving payments from customers upon physical delivery of such goods in Hong Kong which, in most instances, take approximately two days from the date of such delivery.
The following factors, among others, could have negative impacts on our results of operations and financial position: the termination or change in terms of the Distributorship Agreement; pricing pressures in the industry; a continued downturn in the economy in general or in the memory products sector; an unexpected decrease in demand for Samsung’s memory products; our ability to attract new customers; an increase in competition in the memory products market; and the ability of some of our customers to obtain financing.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this report to conform them to actual results or to make changes in our expectations.
28
PART I – FINANCIAL INFORMATION
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
Net Cash Provided by Operating Activities
In the three months ended March 31, 2012, net cash provided by operating activities was $2,611,015 as compared to $3,134,805 for the three months ended March 31, 2011, a decrease of $523,790. This decrease was primarily due to decrease in operating income and accounts payable net of increase in accounts receivable as of March 31, 2012.
Net Cash Provided by (Used for) Investing Activities
For the three months ended March 31, 2012, net cash provided by investing activities was $127,426 while in the three months ended March 31, 2011, net cash used for investing activities was $881,481, an increase of the amount of $1,008,907. This increase was primarily due to the decrease in the amounts due from Aristo / Mr. Yang as of March 31, 2012.
Net Cash Provided by (Used for) Financing Activities
In the three months ended March 31, 2012, net cash used for financing activities was $2,730,355 while in the three months ended March 31, 2011, net cash provided by financing activities was $11,942, an increase of the amount of $2,742,297. This increase was due to the increase in the use of bank lines of credit and notes payable usage of March 31, 2012.
Principles of Consolidation
The consolidated financial statements of ACL Semiconductors Inc. include the accounts of Atlantic Components Ltd., a Hong Kong subsidiary, ACL Holdings International Ltd., a Hong Kong subsidiary, Alpha Perform Technology Limited, a BVI subsidiary, and Aristo Technologies Ltd., a Hong Kong company, a variable interest entity deemed to be a subsidiary. All significant inter-company transactions and balances are eliminated in consolidation.
Critical Accounting Policies
The U.S. Securities and Exchange Commission (“SEC”) recently issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”), suggesting companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include: inventory valuation, which affects cost of sales and gross margin; policies for revenue recognition, allowance for doubtful accounts, and stock-based compensation. The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our consolidated financial statements.
Revenue Recognition
The Company derives revenues from resale of computer memory products. The Company recognizes revenue in accordance with the ASC 605 “Revenue Recognition”. Under ASC 605, revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services are rendered, the sales price is determinable, and collectability is reasonably assured. Revenue typically is recognized at time of shipment. Sales are recorded net of discounts, rebates, and returns, which historically were not material.
Impairment of long-lived assets
We account for impairment of property, plant and equipment in accordance with FASB ASC 360. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose. During the reporting years, there was no impairment loss incurred. Competitive pricing pressure and changes in interest rates, could materially and adversely affect our estimates of future net cash flows to be generated by our long-lived assets.
29
PART I – FINANCIAL INFORMATION
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
Inventory Valuation
Our policy is to value inventories at the lower of cost or market on a part-by-part basis. In addition, we write down unproven, excess and obsolete inventories to net realizable value. This policy requires us to make a number of estimates and assumptions including market and economic conditions, product lifecycles and forecast demand for our product to value our inventory. To the extent actual results differ from these estimates and assumptions, the balances of reported inventory and cost of products sold will change accordingly. Since Aristo supplies different generations of computer related products, older generation products will sell more slowly owing to lower market demand. According to the management experience and estimation of the actual market situation, old generation products carrying on hand for ten years will have no re-sell value. Therefore, these inventories on hand over ten years will be written off by Aristo immediately.
Allowance for Doubtful Accounts.
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Our allowance for doubtful accounts is based on our assessment of the collectability of specific customer accounts, the aging of accounts receivable, our history of bad debts, and the general condition of the industry. If a major customer’s credit worthiness deteriorates, or our customers’ actual defaults exceed our historical experience, our estimates could change and impact our reported results.
New Accounting Pronouncements
In April 2011, the FASB issued ASU 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring”, which clarifies when creditors should classify loan modifications as troubled debt restructurings. The guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the year. The guidance on measuring the impairment of a receivable restructured in a troubled debt restructuring is effective on a prospective basis. A provision in ASU 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU 2010-20. The adoption of ASU 2011-02 is not expected to have a material impact on the Company’s financial condition or results of operations.
In April 2011, the FASB issued ASU 2011-03, Consideration of Effective Control on Repurchase Agreements, which deals with the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 changes the rules for determining when these transactions should be accounted for as financings, as opposed to sales. The guidance in ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of ASU 2011-03 is not expected to have a material impact on the Company’s financial condition or results of operation.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and IFRS, and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 will be effective for the Company beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-04 to have a material effect on its operating results or financial position.
In June 2011, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) 2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. ASU 2011-05 will be effective for the Company beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-05 to have a material effect on its operating results or financial position. However, it will impact the presentation of comprehensive income.
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PART I – FINANCIAL INFORMATION
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
In July 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-06, Other Expenses (Topic 720): Fees Paid to the Federal Government by Health Insurers. This ASU amends the FASB Accounting Standards CodificationTM (Codification) to provide guidance about how health insurers should recognize and classify in their income statements fees mandated by the “Patient Protection and Affordable Care Act,” as amended by the “Health Care and Education Reconciliation Act.” ASU 2011-06 represents a consensus of the EITF on Issue No. 10-H, “Fees Paid to the Federal Government by Health Insurers.” ASU 2011-06 requires that the liability for the fee be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable.
ASU 2011-06 is effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective.
In July 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-07, Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities. The ASU represents a consensus of the EITF on Issue No. 09-H, “Health Care Entities: Presentation and Disclosure of Net Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts.” The amendments in this ASU require certain health care entities to change the presentation in their statement of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue (net of contractual allowances and discounts). Additionally, those health care entities are required to provide enhanced disclosure about their policies for recognizing revenue and assessing bad debts. The amendments also require disclosures of patient service revenue (net of contractual allowances and discounts) as well as qualitative and quantitative information about changes in the allowance for doubtful accounts. For public entities, the amendments in this ASU are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2011, with early adoption permitted. For nonpublic entities, the amendments are effective for the first annual period ending after December 15, 2012, and interim and annual periods thereafter, with early adoption permitted. The amendments to the presentation of the provision for bad debts related to patient service revenue in the statement of operations should be applied retrospectively to all prior periods presented. The disclosures required by the amendments in this ASU should be provided for the period of adoption and subsequent reporting periods.
In September 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.
In September 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-09, Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan. ASU 2011-09 is intended to address concerns from various users of financial statements on the lack of transparency about an employer’s participation in a multiemployer pension plan. Users of financial statements have requested additional disclosure to increase awareness of the commitments and risks involved with participating in multiemployer pension plans. The amendments in this ASU will require additional disclosures about an employer’s participation in a multiemployer pension plan. Previously, disclosures were limited primarily to the historical contributions made to the plans. ASU 2011-09 applies to nongovernmental entities that participate in multiemployer plans. For public entities, ASU 2011-09 is effective for annual periods for fiscal years ending after December 15, 2011. For nonpublic entities, ASU 2011-09 is effective for annual periods for fiscal years ending after December 15, 2012. Early adoption is permissible for both public and nonpublic entities. ASU 2011-09 should be applied retrospectively for all prior periods presented.
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PART I – FINANCIAL INFORMATION
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
In December 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification. ASU No. 2011-10 is intended to resolve the diversity in practice about whether the guidance in Subtopic 360-20, Property, Plant, and Equipment—Real Estate Sales, applies to a parent that ceases to have a controlling financial interest (as described in Subtopic 810-10, Consolidation—Overall) in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. This Update does not address whether the guidance in Subtopic 360-20 would apply to other circumstances when a parent ceases to have a controlling financial interest in a subsidiary that is in substance real estate. ASU 2011-10 should be applied on a prospective basis to deconsolidation events occurring after the effective date; with prior periods not adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities. For public entities, ASU 2011-10 is effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. For nonpublic entities, ASU 2011-10 is effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter. Early adoption is permitted.
In December 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU No. 2011-11 is intended to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented.
In December 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU No. 2011-11 is intended to supersede certain pending paragraphs in Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the Board time to redeliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter.
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
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PART I – FINANCIAL INFORMATION
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
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Item 4. | Controls and Procedures |
(a) Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission (SEC) rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.
Limitations on the Effectiveness of Disclosure Controls. In designing and evaluating the Company’s disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, Company management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Evaluation of Disclosure Controls and Procedures. The Company’s CEO and CFO have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of March 31, 2012, and based on this evaluation, the Company’s principal executive and financial officers have concluded that the Company’s disclosure controls and procedures were not effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Exchange Act and the rules and regulations promulgated thereunder. The Company’s principal executive and financial officer’s conclusion regarding the Company’s disclosure controls and procedures is based on management’s conclusion that the Company’s internal control over financial reporting are ineffective, as described below.
(b) Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
33
PART II – OTHER INFORMATION
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
None
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None
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Item 3. | Defaults Upon Senior Securities |
None
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Item 4. | Mine Safety Disclosures |
Not applicable.
None
34
PART II – OTHER INFORMATION
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
Exhibits:
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10.1 | Shareholders Agreement, dated as of March 9, 2012 between Tomen Devices Corporation and ACL International Holdings Limited. |
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31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 | Certification by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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* 101.INS | XBRL Instance Document |
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* 101.SCH | XBRL Taxonomy Extension Schema Document |
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* 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
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* 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
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* 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
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* 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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* | Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections. |
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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.
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| ACL SEMICONDUCTORS INC. |
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Date: May 15, 2012 | By: | /s/Chung-Lun Yang | |
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| | Chung-Lun Yang | |
| | Chief Executive Officer | |
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Date: May 15, 2012 | By: | /s/ Kun Lin Lee | |
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| | Kun Lin Lee | |
| | Chief Financial Officer | |
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