ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial
Statements (Unaudited)
|
|
NOTE 7.
|
Related Party Transactions (Continued)
|
Transactions with Systematic Information
Limited
Mr. Yang, the Companys Chief Executive Officer, majority shareholder
and a director, is a director and shareholder of Systematic Information Ltd.
(Systematic Information) with a total of 100% interest. On September 1, 2008,
we entered into a lease agreement with Systematic Information pursuant to which
we lease one facility. The lease agreement for this facility expires on August
31, 2010. The monthly lease payment for this lease totals $641. We incurred and
paid an aggregate rent expense of $1,923 to Systematic Information during the
three months ended June 30, 2010 and 2009, respectively, and $3,846 for the six
months ended June 30, 2010.
During the three months ended June 30, 2010 and 2009, and the six
months ended June 30, 2010 and 2009, we received a management fee of $2,038,
$1,359, $4,076 and $1,359 respectively from Systematic Information. The
management fee was charged for back office support for Systematic Information.
During the three months ended June 30, 2010 and 2009, and the six
months ended June 30, 2010 and 2009, we sold products for $0, $121,263, 767,981
and $121,263 respectively, to Systematic Information. As of June 30, 2010 and
December 31, 2009, there were no outstanding accounts receivables from
Systematic Information.
During the three months ended June 30, 2010 and 2009, and the six
months ended June 30, 2010 and 2009, we purchased inventories of $0, $74,688,
$0, and $74,688 respectively from Systematic Information. As of June 30, 2010
and December 31, 2009, there were no outstanding accounts payable to Systematic
Information.
A workshop located in Hong Kong owned by Systematic Information was
used by the Company as collateral for loans from BEA Bank.
Transactions with Global Mega Development
Limited
Mr. Yang is the sole beneficial owner of the equity interests of Global
Mega Development Ltd. (Global). During the three months ended June 30, 2010
and 2009, and the six months ended June 30, 2010 and 2009, we sold products for
$1,839, $0, $5,419 and $0 respectively, to Global. As of June 30, 2010 and
December 31, 2009, there were no outstanding accounts receivables from Global.
Transactions with Systematic Semiconductor
Limited
Mr. Yang is a director and sole beneficial owner of the equity
interests of Systematic Semiconductor Ltd. (Systematic). During the three
months ended June 30, 2010 and 2009, and the six months ended June 30, June
2010 and 2009, we received a management fee of $1923, $1,923, $3,846 and $5,769
respectively from Systematic. The management fee was charged for back office
support for Systematic.
During the three months ended June 30, 2010 and 2009, and the six
months ended June 30, 2010 and 2009, we sold products for $0, $1,770, $0 and
$19,914 respectively, to Systematic. As of June 30, 2010 and December 31, 2009,
there were no outstanding accounts receivables from Systematic.
Transactions with Atlantic Storage Devices
Limited
Mr. Yang is a director and 40% shareholder of Atlantic Storage Devices
Ltd. (Atlantic Storage). During the three months ended June 30, 2010 and
2009, and the six months ended June 30, 2010 and 2009, we sold products for
$4,780, $128,227, $5,220 and $283,012 respectively, to Atlantic Storage. As of
June 30, 2010 and December 31, 2009, there were no outstanding accounts
receivables from Atlantic Storage.
19
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial
Statements (Unaudited)
|
|
NOTE 7.
|
Related Party Transactions (Continued)
|
Transactions with Aristo Components Limited
Mr. Ben Wong resigned from his director position with the Company
effective on June 1, 2010. He is a 90% shareholder of Aristo Components Ltd.
(Aristo Comp). During the three months ended June 30, 2010 and 2009, and the
six months ended June 30, 2010 and 2009, we received a management fee of
$3,077, $3,077, $6,154 and $5,769 respectively from Aristo Comp. The management
fee was charged for back office support for Aristo Comp.
During the three months ended June 30, 2010 and 2009, and the six
months ended June 30, 2010 and 2009, we sold products for $0, $0, $0 and
$12,060 respectively, to Aristo Comp. As of June 30, 2010 and December 31,
2009, there were no outstanding accounts receivables from Aristo Comp.
During the three months ended June 30, 2010 and 2009, and the six
months ended June 30, 2010 and 2009, we purchased inventories of $0, $0, $0 and
$241,325 respectively from Aristo Comp. As of June 30, 2010 and December 31,
2009, there were no outstanding accounts payable to Aristo Comp.
Transactions with Rambo Technologies Limited
Mr. Ben Wong resigned from his director position with the Company
effective on June 1, 2010. He is a director and 60% shareholder of Rambo
Technologies Ltd. (Rambo). During the three months ended June 30, 2010 and
2009, and the six months ended June 30, 2010 and 2009, we sold products for $0,
$29,580, $9,878 and $39,750 respectively, to Rambo. As of June 30, 2010 and
December 31, 2009, there were no outstanding accounts receivables from Rambo.
After the date of his resignation, all companies under his personal control
will no longer be a related party and will not enjoy privileged treatment and
will be subject to the same trading terms as other ordinary outside parties.
During the three months ended June 30, 2010 and 2009, and the six
months ended June 30, 2010 and 2009, we purchased inventories of $0, $0, $0 and
$54,930 respectively, from Rambo. As of June 30, 2010 and December 31, 2009,
there were no outstanding accounts payable to Rambo. After the date of his
resignation, all companies under his personal control will no longer be a
related party and will not enjoy privileged treatment and will be subject to
the same trading terms as other ordinary outside parties.
20
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial
Statements (Unaudited)
|
|
NOTE 7.
|
Related Party Transactions (Continued)
|
Transactions with Usmart Electronic Products
Limited
Mr. Ben Wong, resigned from his director position with the Company
effective on June 1, 2010. He is a director and sole beneficial owner of the
equity interests of Usmart Electronic Products Ltd. (Usmart). After the date
of his resignation, all companies under his personal control will no longer be
a related party and will not enjoy privileged treatment and will be subject to
the same trading terms as other ordinary outside parties. Prior to April 1,
2010, Mr. Yang, our Chief Executive Officer, was the sole beneficial owner of
equity interests in Usmart before transferring these ownership interests to Mr.
Ben Wong.
On October 7, 2009, we entered into a leasing payment agreement with
Usmart pursuant to which we lease one lot machinery facility to Usmart. The
leasing payment agreement for this facility expires on September 16, 2011. The
monthly lease income for this lease totals $3,846. We received aggregate lease
income of $11,538, $0, $23,076 and $0 from Usmart during the three months ended
June 30, 2010 and 2009, and the six months ended June 30, 2010 and 2009,
respectively.
During the three months ended June 30, 2010 and 2009, and the six
months ended June 30, 2010 and 2009, we sold products for $115, $0, $132 and $0
respectively, to Usmart. As of June 30, 2010 and December 31, 2009, there were
no outstanding accounts receivables from Usmart.
During the three months ended June 30 and 2009, and the six months
ended June 30, 2010 and 2009, we purchased inventories of $38, $19,013, $1,743
and $19,143 respectively, from Usmart. As of June 30, 2010 and December 31,
2009, there were no outstanding accounts payable to Usmart.
Transactions with Kasontech Electronics
Limited
Mr. Kenneth Lap-Yin Chan, the Companys Director and Chief Operating
Officer, is a 33% shareholder of Kasontech Electronics Limited (Kasontech).
During the three months ended June 30, 2010 and 2009, and the six months ended
June 30, 2010 and 2009, we received a management fee of $3,846, $0, $5,128 and
$0 respectively from Kasontech. The management fee was charged for back office
support for Kasontech. As of June 30, 2010 and December 31, 2009, there were no
outstanding accounts receivables from Kasontech.
Transactions with Ibcom Electronics (HK)
Limited
Mr. Ben Wong resigned from his director position with the Company
effective on June 1, 2010. He is a director and 50% shareholder of Ibcom
Electronics (HK) Limited (Ibcom). During the three months ended June 30, 2010
and 2009, and the six months ended June 30, 2010 and 2009, we sold products for
$2,112,781, $0, $2,772,320 and $0 respectively, to Ibcom. As of June 30, 2010
and December 31, 2009, there were no outstanding accounts receivables from
Ibcom. After the date of his resignation, all companies under his personal
control will no longer be a related party and will not enjoy privileged
treatment and will be subject to the same trading terms as other ordinary
outside parties.
Transactions with City Royal Limited
Mr. Yang is a 50% shareholder of City Royal Limited (City). The
remaining 50% of City is owned by the wife of Mr. Yang. A residential property
located in Hong Kong owned by City was used by the Company as collateral for
loans from DBS Bank.
21
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial
Statements (Unaudited)
With respect to all of the debt and credit arrangements referred to in
this Note 8 and Note 9, the Company pledged its assets to a bank group in Hong
Kong comprised of DBS Bank, BEA and Standard Chartered Bank, as collateral for
all current and future borrowings from the bank group by the Company. In
addition to the above pledged collateral, the debt is also secured by:
|
|
|
|
1.
|
a fixed cash
deposit of $705,641 (HK$5,504,000), a security interest on two residential
properties and a workshop located in Hong Kong owned by Atlantic, a wholly
owned subsidiary of ACL, a security interest on a residential property
located in Hong Kong owned by City, a related party, a workshop located in
Hong Kong owned by Solution, a related party, plus a personal guarantee by
Mr. Yang as collateral for loans from DBS Bank;
|
|
|
|
|
2.
|
a fixed cash
deposit of $1,382,733 (HK$10,785,318), a workshop located in Hong Kong owned
by Systematic Information, a related party, a workshop located in Hong Kong
owned by Solution, a related party, plus an unlimited personal guarantee by
Mr. Yang as collateral for loans from BEA;
|
|
|
|
|
3.
|
an unlimited
personal guarantee by Mr. Yang as collateral for loans from Standard
Chartered Bank;
|
|
|
|
|
4.
|
a security
interest on residential properties located in Hong Kong owned by Aristo, a
wholly owned company by Mr. Yang plus a personal guarantee by Mr. Yang as
collateral for loans from Fubon.
|
The summary of
banking facilities at June 30, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not Utilized
|
|
|
|
Granted facilities
|
|
Utilized facilities
|
|
Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lines of
credit and loan facilities
|
|
|
|
|
|
|
|
|
|
|
Factoring Loan
|
|
$
|
8,846,154
|
|
$
|
4,948,821
|
|
|
3,897,333
|
|
Import/Export Loan
|
|
|
8,205,128
|
|
|
7,696,723
|
|
|
508,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,051,282
|
|
|
12,645,544
|
|
|
4,405,738
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan -
short term
|
|
|
69,979
|
(a)
|
|
69,979
|
|
|
|
|
Instalment/Term
Loan - long term
|
|
|
2,908,795
|
(b)
|
|
2,908,795
|
|
|
|
|
Overdraft
|
|
|
602,564
|
(c)
|
|
571,408
|
|
|
31,156
|
|
Letter of
Guarantee
|
|
|
384,615
|
(d)
|
|
384,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,017,236
|
|
$
|
16,580,341
|
|
$
|
4,436,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Loan
repayment within one year, including on other current liabilities
|
(b)
|
Per summary
of Note (9)
|
(c)
|
Including on
cash and cash equivalents
|
(d)
|
Guarantee
granted to supplier
|
With the exception of the $384,615 letter of guarantee issued by DBS
Bank, which will expire on 31 October, 2010, amounts borrowed by the Company
under the revolving lines of credit described above are repayable within a
period of three (3) months of drawdown. Other loan facilities repayable are
referred to in Note 9 Long Term Debt.
22
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial
Statements (Unaudited)
Long Term Debt
consisted of the following at June 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Installment
loan having a maturity date in July 2026 and carrying an interest rate of
2.4% below the Hong Kong dollar Prime Rate (5.25% at June 30, 2010 and
December 31, 2009) to DBS Bank. The monthly installments are approximately
$9,925 including interest through 2010 without any balloon payment
Requirements
|
|
$
|
1,534,891
|
|
$
|
1,572,720
|
|
|
|
|
|
|
|
|
|
Installment
loan having a maturity date in July 2011 and carrying an interest rate of 2%
below the Hong Kong dollar Prime Rate (5.25% at June 30, 2010 and December
31, 2009) to DBS Bank payable in monthly installments of $3,782 including
interest through 2010 without any balloon payment requirements
|
|
|
48,244
|
|
|
69,949
|
|
|
|
|
|
|
|
|
|
Installment
loan having a maturity date in July 2023 and carrying an interest rate of
2.5% below the Hong Kong dollar Prime Rate (5.25% at June 30, 2010 and
December 31, 2009) to DBS Bank payable in monthly installments of $5,240
including interest through 2010 without any balloon payment requirements
|
|
|
697,455
|
|
|
719,156
|
|
|
|
|
|
|
|
|
|
Term loan
having a maturity date in July 2014 and carrying an interest rate of 0.25%
plus the Hong Kong dollar Prime Rate (5.25% at June 30, 2010 and December 31,
2009) to BEA Bank payable in monthly installments of $15,758 including
interest through 2010 without any balloon payment requirements
|
|
|
628,205
|
|
|
705,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,908,795
|
|
|
3,066,953
|
|
|
|
|
|
|
|
|
|
Less:
current maturities
|
|
|
(319,530
|
)
|
|
(318,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,589,265
|
|
$
|
2,747,981
|
|
An analysis of
long-term debt as of June 30, 2010 and December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Current
portion
|
|
$
|
319,530
|
|
$
|
318,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1
year, but within 2 years
|
|
|
564,085
|
|
|
586,013
|
|
After 2
years, but within 5 years
|
|
|
433,708
|
|
|
508,050
|
|
After 5
years
|
|
|
1,591,472
|
|
|
1,653,918
|
|
|
|
|
|
|
|
|
|
|
|
|
2,589,265
|
|
|
2,747,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,908,795
|
|
$
|
3,066,953
|
|
|
|
|
|
|
|
|
|
23
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial
Statements (Unaudited)
|
|
NOTE 10.
|
Cash Flow Information
|
Cash paid
during the six months ended June 30, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
June 30,
2010
|
|
June 30,
2009
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
205,869
|
|
$
|
282,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax paid
|
|
$
|
28,337
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Activities:
|
|
|
|
|
|
|
|
Capital lease obligations incurred when
capital leases were entered for new automobiles
|
|
$
|
122,213
|
|
$
|
32,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
384,271
|
|
$
|
397,436
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 11.
|
Fair Value of Financial Instruments
|
Fair value measurements are determined under a three-level hierarchy
for fair value measurements that prioritizes the inputs to valuation techniques
used to measure fair value, distinguishing between market participant
assumptions developed based on market data obtained from sources independent of
the reporting entity (observable inputs) and the reporting entitys own
assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs).
Fair value is the price that would be received to sell an asset or
would be paid to transfer a liability (i.e., the exit price) in an orderly
transaction between market participants at the measurement date. In determining
fair value, we primarily use prices and other relevant information generated by
market transactions involving identical or comparable assets (market approach).
We also consider the impact of a significant decrease in volume and level of
activity for an asset or liability when compared with normal activity to
identify transactions that are not orderly.
The highest priority is given to unadjusted quoted prices in active
markets for identical assets (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). Securities are classified in their
entirety based on the lowest level of input that is significant to the fair
value measurement.
The three hierarchy levels are defined as follows:
|
|
Level 1 -
|
Quoted prices in active markets those are unadjusted and accessible
at the measurement date for identical, unrestricted assets or liabilities;
|
|
|
Level 2 -
|
Quoted prices for identical assets and liabilities in markets that
are not active, quoted prices for similar assets and liabilities in active
markets or financial instruments for which significant inputs are observable,
either directly or indirectly;
|
|
|
Level 3 -
|
Prices or valuations that require inputs that are both significant to
the fair value measurement and unobservable.
|
24
ACL SEMICONDUCTORS INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial
Statements (Unaudited)
Credit risk adjustments are applied to reflect the companys own credit
risk when valuing all liabilities measured at fair value. The methodology is
consistent with that applied in developing counterparty credit risk
adjustments, but incorporates the companys own credit risk as observed in the
credit default swap market.
The following table presents the Companys assets and liabilities that
are measured at fair value on a recurring basis at June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
2,986,215
|
|
|
|
|
|
|
|
|
2,986,215
|
|
Restricted cash
|
|
|
2,088,374
|
|
|
|
|
|
|
|
|
2,088,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,074,589
|
|
$
|
|
|
$
|
|
|
$
|
5,074,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 12.
|
Derivative instruments
|
As of June 30, 2010, the Company does not have any outstanding foreign
currency exchange agreements. All foreign currency exchange agreements have
been matured before April 1, 2010.
|
|
NOTE 13.
|
Subsequent Events
|
In preparing these financial statements, the Company evaluated the
events and transactions that occurred from July 1, 2010 through august 15,
2010, the date these financial statements were issued. The Company has made the
required additional disclosures in reporting periods in which subsequent events
occur.
None
25
|
|
I
TEM 2.
|
Managements 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,
2009, as amended, (the Form 10-K), filed with the Securities and Exchange
Commission, and presumes that readers have access to, and will have read, the
Managements 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 Companys plans for sales growth
and expectations of gross margin, expenses, new product introduction, and the
Companys 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 Components Limited, a
Hong Kong corporation (Atlantic), 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
(Alpha), which previously engaged in this business, ceased activities as of
January 1, 2004, and all its operations were consolidated with those of
Atlantic.
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. In
addition to Samsung-branded products, Aristo sells Hynix, Micron, Elpida,
Qimonda, Lexar, Dane-Elec, Elixir, SanDisk and Winbond branded products.
As of June
30, 2010, ACL had more than 150 active customers in Hong Kong and Southern
China.
ACL is in
the mature stage of operations. As a result, the relationships between sales,
cost of sales, and operating expenses reflected in the financial information
included in this document to a large extent represent future expected financial
relationships. Much of the cost of sales and operating expenses reflected in
our financial statements are recurring in nature.
26
Overview
Net sales
Sales from
Samsung HK are recognized upon the transfer of legal title of the electronic
components to the customers. The quantities of memory products the Company
sells fluctuate with changes in demand from its customers. The suggested prices
set by Samsung HK that we charged our customers are subject to change by us
based on prevailing economic conditions and their impact on the market.
Net sales
for the three months ended June 30, 2010 (second quarter of 2010) were
$89,532,290, 18.1% greater than net sales for the three months ended June 30,
2009. This increase in net sales was mainly due to increase of sales volume to
the PRC market.
The gross
profit for the second quarter of 2010 was $1,931,270, decreased by 24.6% over
the gross profit for the comparable period of the prior fiscal year. The gross
profit margin for the second quarter of 2010 was 2.2%, compared to 3.4% for the
corresponding quarter in 2009. The decrease in gross profit and gross profit margin
were mainly due to decrease in average selling prices. As the memory production
volume increases, and the economy status of United States and Europe have not
yet recovered, most excess supplies were pushed to the China market causing the
selling price to decrease. During the second quarter of 2010, we experienced
decreased gross profit as a consequence of higher cost of sales as the market
saturated. As supply continued to increase throughout 2010 to the point of
market saturation, marginal costs increased resulting in increased cost of
sales and corresponding reduction in gross profit margin.
The Company
has enhanced and optimized its internal controls to minimize unnecessary costs.
The Company recorded a decrease in operating expenses of 9.3% and a decrease of
4.5% of interest expense compare to the corresponding quarter in 2009.
We expect
that the global market demand and average selling price will slowly pick up in
the third quarter of 2010 as a result of market recovery. However, we cannot
give assurance that this will occur.
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 97.8% for the three months ended
June 30, 2010 and approximately 96.6% for the three months ended June 30, 2009.
Operating expenses
Our
operating expenses for the three months ended June 30, 2010 and 2009 were
comprised of sales and marketing and general and administrative expenses only.
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
increased 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 Companys
short-term and long-term bank borrowings.
27
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
2010
|
|
June 30,
2009
(Restated)
|
|
June 30,
2010
|
|
June 30,
2009
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
89,532,290
|
|
$
|
75,827,062
|
|
$
|
188,543,352
|
|
$
|
138,327,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
|
|
87,601,020
|
|
|
73,273,593
|
|
|
183,785,478
|
|
|
132,915,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,931,270
|
|
|
2,553,469
|
|
|
4,757,874
|
|
|
5,411,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
28,586
|
|
|
36,256
|
|
|
53,388
|
|
|
58,434
|
|
General and administrative
|
|
|
1,122,719
|
|
|
1,232,737
|
|
|
2,180,589
|
|
|
2,522,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
operations
|
|
|
779,965
|
|
|
1,284,476
|
|
|
2,523,897
|
|
|
2,830,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expenses)
|
|
|
(57,865
|
)
|
|
(20,926
|
)
|
|
(104,755
|
)
|
|
(114,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes provision
|
|
|
722,100
|
|
|
1,263,550
|
|
|
2,419,142
|
|
|
2,716,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
provision
|
|
|
128,205
|
|
|
179,487
|
|
|
384,271
|
|
|
397,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
593,895
|
|
$
|
1,084,063
|
|
$
|
2,034,871
|
|
$
|
2,319,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share - basic and diluted
|
|
$
|
0.02
|
|
$
|
0.04
|
|
$
|
0.07
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Unaudited Comparisons for Three and Six
Months ended June 30, 2010 to the Three and Six Months Ended June 30, 2009
Net Sales
The
following table presents our net sales for the three and six months ended June
30, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
|
2010
|
|
2009
|
|
%
Change
|
|
2010
|
|
2009
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
89,532,290
|
|
$
|
75,827,062
|
|
|
18.1%
|
|
$
|
188,543,352
|
|
$
|
138,327,201
|
|
|
36.3%
|
|
Net sales
increased by $13,705,228 or 18.1%, from $75,827,062 for the three months ended
June 30, 2009 to $89,532,290 in the three months ended June 30, 2010. For the
six months ended June 30, 2010 net sales increased by $50,216,151 or 36.3%,
from $138,327,201in the six months ended June 30, 2009 to $188,543,352. This
increase in net sales was mainly due to increase of sales volume to the PRC
market.
Cost of sales
The
following table presents our cost of sales for the three and six months ended
June 30, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
2010
|
|
2009
|
|
%
Change
|
|
2010
|
|
2009
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
87,601,020
|
|
$
|
73,273,593
|
|
|
19.6%
|
|
$
|
183,785,478
|
|
$
|
132,915,773
|
|
|
38.3%
|
|
Cost of
sales increased by $14,327,609, or 19.6%, from $73,273,593 for the three months
ended June 30, 2009 to $87,601,020 for the three months ended June 30, 2010.
For the six months ended June 30, 2010, cost of sales increased by $50,869,705
or 38.3% as compared to the six months ended June 30, 2009. The increase was
mainly due to increase of sales volume and higher cost of sales.
Gross Profit
The following table presents our gross profit for the three and six
months ended June 30, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
2010
|
|
2009
|
|
%
Change
|
|
2010
|
|
2009
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,931,270
|
|
$
|
2,553,469
|
|
|
-24.4%
|
|
$
|
4,757,874
|
|
$
|
5,411,428
|
|
|
-12.1%
|
|
Gross
profit decreased by $622,199, or 24.4%, from $2,553,469 for the
three months ended June 30, 2009 to $1,931,270 for the three months ended June
30, 2010. For the six months ended June 30, 2010, gross profit decreased by
$653,554 or 12.1% from $5,411,428 for the six months ended June 30, 2009 to
$4,757,874. The decrease in gross profit was mainly due to decrease in average
selling prices as the market is saturating.
29
Sales and Marketing
The following
table presents the sales and marketing expenses for the three and six months
ended June 30, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
2010
|
|
2009
|
|
%
Change
|
|
2010
|
|
2009
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,586
|
|
$
|
36,256
|
|
|
-21.2%
|
|
$
|
53,388
|
|
$
|
58,434
|
|
|
-8.6%
|
|
For the three months ended June 30, 2010, sales and marketing expenses
decreased $7,670, or 21.2%, as compared to the three months ended June 30,
2009. For the six months ended June 30, 2010, sales and marketing expenses
decreased by $5,046 or 8.6%, from $58,434 for the six months ended June 30,
2009 to $53,388. Such decrease was directly attributable to the decrease of
transportation and insurance charges. Since the profit margin is relatively
low, in order to maximize the Companys profit, the Company encouraged the
customers to self pick up the goods to lower the sales and marketing expenses.
General and Administrative
The
following table presents the general and administrative expenses for the three
and six months ended June 30, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
2010
|
|
2009
|
|
%
Change
|
|
2010
|
|
2009
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,122,719
|
|
$
|
1,232,737
|
|
|
-8.9%
|
|
$
|
2,180,589
|
|
$
|
2,522,190
|
|
|
-13.5%
|
|
For the
three months ended June 30, 2010, general and administrative expenses decreased
$110,018, or 8.9%, as compared to the three months ended June 30, 2009. For the
six months ended June 30, 2010, general and administrative expenses decreased
$341,601 or 13.5%, from $2,522,190 in the six months ended June 30, 2009 to
$2,180,589. The decrease was principally attributable to a decrease in
directors remuneration, staff salaries and bank charges.
Income from Operations
The
following table presents the income from operations for the three and six
months ended June 30, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2010
|
|
2009
|
|
%
Change
|
|
2010
|
|
2009
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
779,965
|
|
$
|
1,284,476
|
|
|
-39.3%
|
|
$
|
2,523,897
|
|
$
|
2,830,804
|
|
|
-10.8%
|
|
Income from
operations for the three months ended June 30, 2010 decreased by $504,511, or
39.3%, from $1,284,476 for the three months ended June 30, 2009 to $779,965 in
the three months ended June 30, 2010. For the six months ended June 30, 2010
decreased by $306,907 or 10.8%, income from operations was $2,523,897 for the
six month ended June 30, 2010 compare to $2,830,804 for the six months ended
June 30, 2009. Such decrease was mainly due to an increase in cost of sales
offset by a decrease of general and administrative expenses.
30
Interest Income
The
following table presents the interest income for the three and six months ended
June 30, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
|
2010
|
|
2009
|
|
%
Change
|
|
2010
|
|
2009
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
192
|
|
$
|
2,312
|
|
|
-91.7%
|
|
$
|
285
|
|
$
|
31,022
|
|
|
-99.1%
|
|
For
the three months ended June 30, 2010, interest income decreased $2,120, or
91.7%, as compared to the three months ended June 30, 2009. For the six months
ended June, 2010, increase income decrease $30,737, or 99.1%, as compared to
the six months ended June 30, 2009. The decrease was due to bank interest
refunded by customers during the period in 2009.
Interest Expense
The
following table presents the interest expense for the three and six months
ended June 30, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
|
2010
|
|
2009
|
|
%
Change
|
|
2010
|
|
2009
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
110,705
|
|
$
|
115,918
|
|
|
-4.5%
|
|
$
|
205,869
|
|
$
|
282,810
|
|
|
-27.2%
|
|
For the three
months ended June 30, 2010, interest expense decreased by $5,213 or 4.5%, from
$115,918 in the three months ended June 30, 2009 to $110,705 in the three
months ended June 30, 2010. For the six months ended June 30, 2010, interest
expense decreased by $76,941 or 27.2%, from 282,810 in the six months ended
June 30, 2009 to $205,869 in the six months ended June 30, 2010. These
decreases were mainly due to a decrease in the use of letters of credit by the
Company to obtain goods from suppliers.
Net Income on Cash Flow Hedge
The
following table presents the net income on cash flow hedge for the three and
six months ended June 30, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
|
2010
|
|
2009
|
|
%
Change
|
|
2010
|
|
2009
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
28,372
|
|
|
-100.0%
|
|
$
|
15,410
|
|
$
|
48,721
|
|
|
-68.4%
|
|
For the three
months ended June 30, 2010, income on cash flow hedge decreased by $28,372, or
100%, as compared to the three months ended June 30, 2009. For the six months
ended June 30, 2010, net income on cash flow hedge decreased by $33,311 or
68.4%, as compared to the six months ended June 30, 2009. The decreases were
due to the expiration or termination of several currency hedging contracts in
the first quarter of 2010 and all foreign currency exchange agreements have
been matured before April 1, 2010.
31
Income Tax Provision
The
following table presents the income tax provision for the three and six months
ended June 30, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
|
2010
|
|
2009
|
|
%
Change
|
|
2010
|
|
2009
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
128,205
|
|
$
|
179,487
|
|
|
-28.6%
|
|
$
|
384,271
|
|
$
|
397,436
|
|
|
-3.3%
|
|
Income
tax provision decreased by $51,282 or 28.6% from $179,487 for the three months
ended June 30, 2009 to $128,205 for the three months ended June 30, 2010. For
the six months ended June 30, 2010, income tax provision decreased by $13,165
or 3.3%, as compared to the six months ended June 30, 2009. The decreases were
due to a decrease in the estimated Hong Kong taxes payable by Atlantic.
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 June 30, 2010, we had revolving lines of credit and loan facilities in the
aggregate amount of $21,017,236, of which $4,436,895 was available
(representing an approximately 24.4% increase in our borrowing lines of credit
from December 31, 2009), which was attributable to the increase of factoring
loan. In connection therewith, $996,613 of restricted bank deposits were
released to the Company. Other detailed disclosures on credit facilities are
made in Note 8 and Note 9 of the Condensed Consolidated Financial Statements
for the quarter ended June 30, 2010, 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. Accordingly, on a case by case basis, we may elect to terminate or
not renew several of our credit facilities if significant reduction in our
available short term borrowings that we do not deem it is commercially
reasonable. The Company has obtained a $20 million purchase credit from
Samsung. The Company plans to obtain an additional $30 million line of credit
from various lenders.
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 managements 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 HK must be made a day in
advance of the release of goods from Samsung HKs 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 Samsungs 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 our expectations of future growth are reasonable, we cannot
guarantee future results, levels of activity, performance or achievements. We
are under no duty to update our expectations to conform them to actual results
or to reflect changes in expectations.
32
Net Cash Used for Operating Activities
In
the six months ended June 30, 2010, net cash used for operating activities was
$2,154,110 while in the six months ended June 30, 2009, net cash provided by
operating activities was $8,307,445, an increase in cash used of $10,461,555.
This increase was primarily due to an increase of accounts receivable and
decrease of accounts payable as of June 30, 2010.
Net Cash Used for Investing Activities
For
the six months ended June 30, 2010, net cash used for investing activities was
$120,886 while in the six months ended June 30, 2009, net cash provided by investing
activities was $77,035, an increase in cash used of $197,921. This increase was
primarily due to the decrease of amounts due from Aristo / Mr. Yang net of
decrease of restricted cash as of June 30, 2010.
Net Cash Provided by Financing Activities
In
the six months ended June 30, 2010, net cash provided by financing activities
was $3,259,407 while in the six months ended June 30, 2009, net cash used for financing
activities was $8,581,310 an increase of $11,840,717. This increase was due to
an increase in the balance of bank lines of credit and notes payable as of June
30, 2010.
Principles of Consolidation
The
consolidated financial statements of ACL Semiconductors Inc. include the
accounts of Atlantic Components Ltd., a Hong Kong subsidiary and Alpha Perform
Technology Limited, a BVI subsidiary, and Aristo Technologies Ltd., a Hong Kong
company, a variable interest entity deemed to be a subsidiary after
consideration of ASC 810-10-05 and 810-10-25 on the fact that the Company is
primary beneficiary of Aristo while Aristo relied on the Company to finance its
operation; was consider to have de-facto principal and agent relationship; was
controlled by the Company through the participation of Mr. Yang, a related
party of both the Company and Aristo. All significant inter-company
transactions and balances are eliminated in consolidation.
Critical Accounting Polices
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
companys 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.
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.
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 customers credit
worthiness deteriorates, or our customers actual defaults exceed our
historical experience, ACLs estimates could change and impact our reported
results.
33
New Accounting Pronouncements
ASC
105, Generally Accepted Accounting Principles (ASC 105) (formerly Statement
of Financial Accounting Standards No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162) reorganized by topic existing accounting
and reporting guidance issued by the Financial Accounting Standards Board
(FASB) into a single source of authoritative generally accepted accounting
principles (GAAP) to be applied by nongovernmental entities. All guidance
contained in the Accounting Standards Codification (ASC) carries an equal
level of authority. Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. Accordingly, all other
accounting literature will be deemed non-authoritative. ASC 105 is effective
on a prospective basis for financial statements issued for interim and annual
periods ending after September 15, 2009. We have implemented the guidance
included in ASC 105 as of July 1, 2009. The implementation of this guidance
changed our references to GAAP authoritative guidance but did not impact our
financial position or results of operations.
ASC
805, Business Combinations (ASC 805) (formerly included under Statement of
Financial Accounting Standards No. 141 (revised 2007), Business Combinations)
contains guidance that was issued by the FASB in December 2007. It requires the
acquiring entity in a business combination to recognize all assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value, with
certain exceptions. Additionally, the guidance requires changes to the
accounting treatment of acquisition related items, including, among other
items, transaction costs, contingent consideration, restructuring costs,
indemnification assets and tax benefits. ASC 805 also provides for a
substantial number of new disclosure requirements. ASC 805 also contains
guidance that was formerly issued as FSP FAS 141(R)-1, Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies which was intended to provide additional guidance clarifying
application issues regarding initial recognition and measurement, subsequent measurement
and accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination. ASC 805 was effective for business
combinations initiated on or after the first annual reporting period beginning
after December 15, 2008. We implemented this guidance effective January 1,
2009. Implementing this guidance did not have an effect on our financial
position or results of operations; however it will likely have an impact on our
accounting for future business combinations, but the effect is dependent upon
acquisitions, if any, that are made in the future.
ASC
810, Consolidation (ASC 810) includes new guidance issued by the FASB in
December 2007 governing the accounting for and reporting of noncontrolling
interests (previously referred to as minority interests). This guidance
established reporting requirements which include, among other things, that
noncontrolling interests be reflected as a separate component of equity, not as
a liability. It also requires that the interests of the parent and the
noncontrolling interest be clearly identifiable. Additionally, increases and
decreases in a parents ownership interest that leave control intact shall be
reflected as equity transactions, rather than step acquisitions or dilution
gains or losses. This guidance also requires changes to the presentation of
information in the financial statements and provides for additional disclosure
requirements. ASC 810 was effective for fiscal years beginning on or after
December 15, 2008. We implemented this guidance as of January 1, 2010 and made
all necessary changes accordingly including but not limited to file amendment
for the prior relevant periods to comply with all applicable requirements.
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I
TEM 3.
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Quantitative and Qualitative Disclosures about Market Risk
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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
34
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I
TEM 4T.
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Controls and Procedures
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(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 Companys 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 Companys CEO and CFO have
evaluated the effectiveness of the design and operation of the Companys
disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e) as of June 30, 2010, and based on this evaluation, the Companys
principal executive and financial officers have concluded that the Companys
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 Companys disclosure
obligations under the Exchange Act and the rules and regulations promulgated
thereunder. The Companys principal executive and financial officers conclusion
regarding the Companys disclosure controls and procedures is based on
managements conclusion that the Companys internal control over financial
reporting are ineffective based on their evaluation as described in the
Companys annual report on Form 10-K for the fiscal year ended December 31,
2009.
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 June 30, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
35
P
ART II OTHER
INFORMATION
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I
TEM 1.
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Legal Proceedings
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None
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I
TEM 1A.
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Risk Factors
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There
are no material changes from the risk factors set forth in Part I, Item 1A,
in our Annual Report on Form 10K for the year ended December 31, 2009.
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I
TEM 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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None
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I
TEM 3.
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Defaults Upon Senior Securities
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None
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I
TEM 4.
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(Removed and Reserved)
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I
TEM 5.
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Other Information
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None
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36
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Exhibits:
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31.1
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Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
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31.2
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Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
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32.1
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Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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32.2
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Certification
by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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37
S
IGNATURES
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: August
19, 2010
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By:
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/s/Chung-Lun Yang
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Chung-Lun Yang
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Chief Executive Officer
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Date: August
19, 2010
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By:
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/s/ Kun Lin Lee
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Kun Lin Lee
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Chief Financial Officer
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38