UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

  

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterquarterly period ended September 30, 20172019

OR

¨TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________________________ to ___________________________

 

Commission file number: 000-54191

 

SINO AGRO FOOD, INC.

 (Exact(Exact Name of Registrant as Specified in Its Charter)

 

Nevada 33-1219070

(State of Other Jurisdiction of Incorporation or


Organization)

 (I.R.S. Employer Identification Number)
   

Room 3801, Block A, China Shine Plaza


No. 9 Lin He Xi Road


Tianhe District, Guangzhou City, P.R.C.

 510610
(Address of Principal Executive Offices) (Zip Code)

 

(860) 20 22057860

(Registrant’s Telephone Number, Including Area Code)

 

Copies to:


Sichenzia Ross Ference Kesner LLP


1185 Avenue of the Americas, 37th Floor


New York, NY 10036


Attn: Marc J. Ross, Esq.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes¨Nox

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer¨Accelerated filerx¨
Non-accelerated filer¨xSmaller reporting company¨x
Emerging growth companyx

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox

 

Securities registered pursuant to Section 12(b) of the Act: None

Title of each classTrading Symbol(s)Name of each exchange on which registered
N/AN/AN/A

As of September 30 2017th 2019 there were 27,811,57349,976,085 shares of our common stock issued and outstanding.

 

 

 

 

TABLE OF CONTENTS

 

  Page
PART I – FINANCIAL INFORMATION 
Item 1.Financial StatementsF-1
Item 2.Management’s Discussion and Analysis of Financial Condition and Plan of Operations31
Item 3.Quantitative and Qualitative Disclosures About Market Risk3430
Item 4.Controls and Procedures3431
   
PART II – OTHER INFORMATION 
Item 1.Legal Proceedings3532
Item 1A.Risk Factors3532
Item 2.Unregistered Sale of Equity Securities and Use of Proceeds3532
Item 3.Defaults Upon Senior Securities3532
Item 4.Mine Safety Disclosures3533
Item 5.Other Information3533
Item 6.Exhibits3533
SIGNATURES 3634

 

- 2 -

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

 

QUARTERLY FINANCIAL REPORTSTATEMENTS

 

FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 20172019

 

(Unaudited)

SINO AGRO FOOD, INC. AND SUBSIDIARIES

INDEX TO QUARTERLY FINANCIAL REPORTSTATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019

(Unaudited)

 

 PAGE
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMF-2
CONSOLIDATED BALANCE SHEETS (Unaudited)F-3F-1
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (Unaudited)F-4F-2
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)F-5F-3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-6 TO F-48F-4 to F-46

 

F-1

 

14/F., San Toi Building, 137-139 Connaught Road Central, Hong Kong.

Tel : (852) 2581 7500

Fax : (852) 2581 7588

INDEPENDENT ACCOUNTANT’S REPORT

To the Board of Directors and Stockholders of

Sino Agro Food, Inc.

(Incorporated in the State of Nevada, United States of America)

We have reviewed the consolidated balance sheets of Sino Agro Food, Inc. and subsidiaries as of September 30, 2017 and December 31, 2016, the related consolidated statements of income and other comprehensive income for the three-months periods ended September 30, 2017 and 2016, and the nine-month periods ended September 30, 2017 and 2016, and cash flows for the nine-month periods ended September 30, 2017 and 2016. This interim financial information is the responsibility of the company’s management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial information taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

/s/ ECOVIS  David Yeung Hong Kong
Hong Kong
November 11, 2017

F-2

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED BALANCE SHEETS

 

 Note September 30, 2017 December  31, 2016  Note September 30,
2019
 December  31,
2018
 
           (Unaudited) (Audited) 
ASSETS                   
Current assets                   
Cash and cash equivalents 7 $1,865,684 $2,576,058   5  $671,544  $4,950,799 
Inventories 8 80,345,197 62,592,272   6   51,539,209   54,582,241 
Costs and estimated earnings in excess of billings on uncompleted contracts 22 1,249,187 740,984   18   250,828   250,828 
Deposits and prepayments 9 93,935,479 84,845,966   7   40,301,277   52,241,190 
Accounts receivable, net of allowance for doubtful accounts 10 105,155,243 122,912,086   8   109,996,856   101,652,131 
Other receivables 11  58,789,381 ��47,120,800   9   23,583,908   28,307,526 
Total current assets    341,340,171  320,788,166       226,343,622   241,984,715 
Plant and equipment       
Non-current assets            
Plant and equipment, net of accumulated depreciation 12 207,621,360 189,727,227   10   237,870,893   230,645,659 
Construction in progress 14 41,509,210 35,157,213   11   10,427,213   12,515,527 
Land use rights, net of accumulated amortization 15  54,504,006  53,673,690   12   51,202,746   53,814,281 
Total plant and equipment    303,634,576  278,558,130 
Total non-current assets      299,500,852   296,975,467 
Other assets                   
Goodwill 16 724,940 724,940   13   724,940   724,940 
Proprietary technologies, net of accumulated amortization 17 9,719,678 10,090,697   14   8,461,545   8,937,071 
Interests in unconsolidated equity investees 18 144,519,533 139,133,443 
Long term investments 19 753,352 720,773 
Interest in unconsolidated investees  15   221,730,404   207,074,626 
Temporary deposits paid to entities for investments in Sino joint venture companies 20  15,644,998  15,644,998   16   34,900,349   34,905,960 
Total other assets    171,362,501  166,314,851       265,817,238   251,642,597 
                   
Total assets   $816,337,248 $765,661,147      $791,661,712  $790,602,779 
                   
LIABILITIES AND STOCKHOLDERS’ EQUITY                   
                   
Current liabilities                   
Accounts payable and accrued expenses   $12,552,569 $8,789,324      $9,103,501  $8,280,358 
Billings in excess of costs and estimated earnings on uncompleted contracts 22 5,602,681 2,630,752   18   5,386,711   5,348,293 
Due to a director   850,274 2,070,390       861,182   2,046,499 
Other payables 23 5,095,113 5,962,092   19   46,214,186   42,523,811 
Borrowings - Short term bank loan 24 1,506,705 2,883,090   20   4,524,246   4,589,828 
Negotiable promissory notes 25 368,462 1,113,140 
Income tax payable    1,227  1,130 
Derivative liability  21   -   2,100 
Convertible note payable  21   -   3,894,978 
    25,977,031  23,449,918       66,089,826   66,685,867 
                   
Non-current liabilities                   
Other payables 23 22,184,443 11,192,117   19   7,765,801   7,792,774 
Borrowings - Long term bank loan 24 6,026,819 5,766,182 
Notes payable   20,058,798  21,314,877 
Borrowings - Long term debts and bank loan  20   5,231,162   5,536,938 
    48,270,060  38,273,176       12,996,963   13,329,712 
                   
Commitments and contingencies    -  -       -   - 
                   
Stockholders’ equity                   
Preferred stock: $0.001 par value (10,000,000 shares authorized, 100 shares issued and outstanding as of September 30, 2017 and December 31 , 2016, respectively)       
Series A preferred stock: $0.001 par value (100 shares designated, 100 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) 26 - - 
Series B convertible preferred stock: $0.001 par value (10,000,000 shares designated, 0 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) 26 - - 
Series F Non-convertible preferred stock: $0.001 par value (1,000,000 shares designated, 0 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) 26 - - 
Common stock: $0.001 par value (50,000,000 shares authorized, 27,811,573 and 22,726,859 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively) 26 27,811 22,727 
Common stock: $0.001 par value (50,000,000 shares authorized, 49,976,085 and 49,866,174 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively)  22   49,977   49,866 
Additional paid - in capital   168,193,890 155,741,280       181,533,918   181,501,056 
Retained earnings   467,117,365 454,592,652       474,114,485   458,811,844 
Accumulated other comprehensive income   2,209,103 (4,335,355)      (23,088,296)  (10,415,786)
Treasury stock 26  (1,250,000)  (1,250,000)      (1,250,000)  (1,250,000)
Total Sino Agro Food, Inc. and subsidiaries stockholders’ equity    636,298,169  604,771,304       631,360,084   628,696,980 
Non - controlling interest    105,791,988  99,166,749       81,214,839   81,890,220 
Total stockholders’ equity    742,090,157  703,938,053       712,574,923   710,587,200 
Total liabilities and stockholders’ equity   $816,337,248 $765,661,147      $791,661,712  $790,602,779 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3F-1 

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

  

    Three months ended  Three months ended  Nine months ended  Nine months ended 
  Note September 30, 2017  September 30, 2016  September 30, 2017  September 30, 2016 
Continuing operations                  
Revenue                  
- Sale of goods   $45,414,562  $88,280,225  $150,564,890  $207,057,021 
- Consulting and service income from development contracts    2,978,371   23,062,838   16,167,636   54,727,215 
- Commission and management fee    -   314,517   -   1,049,199 
  3  48,392,933   111,657,580   166,732,526   262,833,435 
Cost of goods sold 3  (39,612,509)  (69,021,740)  (128,230,874)  (158,360,354)
Cost of services 3  (2,234,070)  (12,450,460)  (11,016,962)  (35,377,800)
                   
Gross profit    6,546,354   30,185,380   27,484,690   69,095,281 
General and administrative expenses    (3,254,065)  (4,741,193)  (15,133,146)  (12,368,561)
Net income from operations    3,292,289   25,444,187   12,351,544   56,726,720 
Other income (expenses)                  
                   
Government grant    -   -   457,288   1,617,615 
                   
Other income    4,468   1,305,147   4,468   210,929 
                   
Interest expense    (331,596)  (1,013,094)  (1,561,908)  (3,155,277)
Net income (expenses)    (327,128)  292,053   (1,100,152)  (1,326,733)
                   
Net income  before income taxes    2,965,161   25,736,240   11,251,392   55,399,987 
Provision for income taxes 4  -   -   -   - 
                   
Net income    2,965,161   25,736,240   11,251,392   55,399,987 
Share of income from unconsolidated equity investee    1,379,672   -   5,452,523   - 
                   
Net income from continuing operations    4,344,833   25,736,240   16,703,915   55,399,987 
Less: Net (income) loss attributable to  non - controlling interest    (893,985)  (7,211,538)  (4,179,202)  (18,171,791)
Net income from continuing operations attributable to the Sino Agro Food, Inc. and subsidiaries    3,450,848   18,524,702   12,524,713   37,228,196 
Discontinued operations                  
Net income from discontinued operations    -   2,900,128   -   12,288,230 
Less: Net income attributable to non - controlling interest    -   (132,353)  -   (820,973)
Net income from discontinued operations attributable   to the Sino Agro Food, Inc. and subsidiaries    -   2,767,775   -   11,467,257 
Net income attributable to Sino Agro Food and subsidiaries    3,450,848   21,292,477   12,524,713   48,695,453 
Other comprehensive income (loss)
- Foreign currency translation gain (loss)
    569,938   (1,793,042)  8,555,686   (4,975,721)
Comprehensive income    4,020,786   19,499,435   21,080,399   43,719,732 
Less: Other comprehensive (income) loss attributable to  non - controlling interest    (983,217)  226,668   (2,011,228)  963,215 
Comprehensive income attributable to the Sino Agro Food, Inc. and subsidiaries   $3,037,569  $19,726,103  $19,069,171  $44,682,947 
                   
Earnings per share attributable to the Sino Agro Food, Inc. and subsidiaries common stockholders:                  
From continuing and discontinued operations                  
Basic 28 $0.14  $1.04  $0.62  $2.45 
Diluted 28 $0.15  $0.95  $0.63  $2.24 
From continuing operations                  
Basic 28 $0.14  $0.91  $0.62  $1.81 
Diluted 28 $0.15  $0.81  $0.63  $1.72 
                   
Weighted average number of shares outstanding:                  
                   
Basic    24,231,617   20,376,225   20,309,014   19,900,082 
Diluted    26,357,758   22,754,892   22,496,396   22,434,847 

The accompanying notes are an integral part of these consolidated financial statements.

F-4

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

  

Nine months ended

September 30, 2017

  

Nine months ended

September 30, 2016

 
       
Cash flows from operating activities        
Net income for the period        
-     Continuing operations $16,703,915  $55,399,987 
-     Discontinued operations  -   12,288,230 
Adjustments to reconcile net income for the period to net cash from operations:        
Share of income from unconsolidated equity investee  (5,452,523)  - 
Depreciation  6,997,754   3,406,801 
Amortization  2,020,253   1,483,625 
Common stock issued for services  4,083,724   2,354,153 
Other amortized cost arising from convertible notes and others  2,074,106   2,509,296 
Changes in operating assets and liabilities:        
Increase in inventories  (17,752,925)  (2,207,149)
Increase in cost and estimated earnings in excess of billings on uncompleted contacts  (508,203)  (250,828)
Increase  in deposits and prepaid expenses  (2,395,890)  (9,202,525)
(Decrease) increase in due to a director  (1,220,116)  299,243 
Increase  in accounts payable and accrued expenses  3,763,245   5,749,473 
Increase in other payables  10,125,347   14,573,279 
Decrease/(increase) in accounts receivable  17,756,843   (84,654)
Increase (decrease) in billings in excess of costs and estimated earnings on uncompleted contracts  2,971,929   (7,053,426)
Increase in other receivables  (11,668,581)  (17,205,037)
Net cash provided by operating activities  27,498,878   62,060,468 
Cash flows from investing activities        
Purchases of property and equipment and non-current assets held for sale  (14,552,588)  (9,773,377)
Interests in unconsolidated equity investees  -   (150,806)
Payment for construction in progress  (7,073,340)  (47,834,113)
Net cash used in investing activities  (21,625,928)  (57,758,296)
Cash flows from financing activities        
Convertible note payable repaid through director’s account  (1,500,000)  (7,676,760)
Negotiable promissory notes repaid through director’s account  (900,000)  - 
Long term debts repaid  --   (823,526)
Short term bank loan repaid  (1,448,462)  (3,849,707)
Short term bank loan raised  -   6,738,544 
Capital contribution from non-controlling interest  434,809   - 
Net cash used in  financing activities  (3,413,653)  (5,611,449)
Effects on exchange rate changes on cash  (3,169,671)  3,132,646 
         
(Decrease) increase in cash and cash equivalents  (710,374)  1,823,369 
Cash and cash equivalents, beginning of period  2,576,058   7,229,197 
Cash and cash equivalents, end of period $1,865,684  $9,052,566 
         
Supplementary disclosures of cash flow information:        
Cash paid for interest $280,532  $224,059 
Cash paid for income taxes $-  $- 
Non - cash transactions        
Common stock issued for services and employee compensation $403,650  $7,963,889 
Common stock issue for debts issue and trade facilities $12,054,044  $5,764,207 
Common stock purchased back for cancellation  -   (5,820,000)
Transfer to plant and equipment from construction in progress $1,506,705  $1,443,313 
Transfer to plant and equipment from deposits and prepayments $5,484  $1,350,000 

     Three months
ended
  Three months
ended
  Nine months
ended
  Nine months
ended
 
  Note  September 30,
2019
  September 30,
2018
  September 30,
2019
  September 30,
2018
 
Revenue                    
- Sale of goods     $37,431,314  $32,247,645  $103,571,897  $96,439,242 
- Consulting and service income from development contracts      -   6,502,372   1,719,247   10,036,762 
   3   37,431,314   38,750,017   105,291,144   106,476,004 
Cost of goods sold  3   (31,138,118)  (27,086,184)  (85,532,551)  (80,620,463)
Cost of services  3   -   (5,469,059)  (1,590,017)  (8,133,799)
                     
Gross profit      6,293,196   6,194,774   18,168,576   17,721,742 
General and administrative expenses      (3,445,170)  (3,991,962)  (10,397,047)  (11,787,745)
Net income from operations      2,848,026   2,202,812   7,771,529   5,933,997 
Other income (expenses)                    
                     
Government grant      449,094   43,796   741,516   176,643 
Share of income from unconsolidated equity investee      5,566,236   1,793,661   11,526,026   7,125,632 
Other income      -   57,580   -   117,318 
Loss on restructuring      -   -   (2,404,402)  - 
Non-operating expenses      (12,403)  -   (231,045)  (3,161,333)
Interest expense      (125,871)  (407,728)  (736,904)  (1,278,685)
Net income (expenses)      5,877,056   1,487,309   8,895,191   2,979,575 
                     
Net income  before income taxes      8,725,082   3,690,121   16,660,720   8,913,572 
Provision for income taxes  4   (2,613)  -   (6,518)  - 
                     
Net income      8,722,469   3,690,121   16,660,202   8,913,572 
Less: Net (income) loss attributable to  non - controlling interest      (605,923)  (224,559)  (1,357,561)  522,377 
Net income attributable to Sino Agro Food Inc. and subsidiaries      8,116,546   3,465,562   15,302,641   9,435,949 
Other comprehensive income (loss) - Foreign currency translation gain (loss)      (10,362,693)  (13,737,567)  (14,705,450)  (12,298,881)
Comprehensive income      (2,246,147)  (10,272,005)  597,191   (2,862,932)
Less: Other comprehensive (income) loss attributable to  non - controlling interest      2,002,068   2,837,539   2,032,940   1,987,133 
Comprehensive income attributable to the Sino Agro Food, Inc. and subsidiaries     $(244,079) $(7,434,466) $2,630,131  $(875,799)
                     
Earnings per share attributable to the Sino Agro Food, Inc. and subsidiaries common stockholders:                    
Basic  27  $0.16  $0.09  $0.31  $0.27 
Diluted  27  $0.16  $0.09  $0.31  $0.27 
                     
Weighted average number of shares outstanding:                    
                     
Basic  27   49,968,758   36,650,450   49,900,369   35,381,345 
Diluted  27   49,968,758   36,650,450   49,900,369   35,381,345 

  

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5F-2 

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

  Nine months
ended September
30, 2019
  Nine months
ended September
30, 2018
 
Cash flows from operating activities        
Net income for the period $16,660,202  $8,913,572 
Adjustments to reconcile net income for the period to net cash from operations:        
Share of income from unconsolidated equity investee  (11,526,026)  (7,125,632)
Depreciation  7,676,784   7,877,928 
Amortization  1,676,902   1,605,125 
Inventory written off  -   3,071,068 
Share based compensation cost  643,457   1,896,986 
Loss on restructuring  2,404,402     
Changes in operating assets and liabilities:        
(Decrease)/Increase in inventories  3,043,032   (6,852,017)
Decrease in cost and estimated earnings in excess of billings on uncompleted contacts  -   998,359 
Decrease in deposits and prepaid expenses  11,335,040   11,213,396 
(decrease) in due to a director  (1,185,317)  (107,074)
Increase in accounts payable and accrued expenses  823,143   5,504,887 
Increase in other payables  (2,638,078)  5,105,528 
Increase in accounts receivable  (8,344,725)  (11,912,622)
(Decrease) increase in billings in excess of costs and estimated earnings on uncompleted contracts  38,418   (389,900)
Increase in other receivables  4,723,618   (5,561,268)
Decrease in amount due from  unconsolidated  investee  (3,129,752)  (2,600,812)
Net cash (used in) provided by operating activities  22,201,100   11,637,524 
Cash flows from investing activities        
Purchases of property and equipment  (9,051,137)  (3,500)
Investment in unconsolidated equity investee  -   (52,258)
Payment for construction in progress  (9,642,084)  (6,832,839)
Net cash used in investing activities  (18,693,221)  (6,888,597)
Cash flows from financing activities        
Repayment of long term bank loan  (73,741)  - 
Net cash used in financing activities  (73,741)  - 
Effects on exchange rate changes on cash  (7,713,393)  (4,891,597)
         
Increase  in cash and cash equivalents  (4,279,255)  (142,670)
Cash and cash equivalents, beginning of period  4,950,799   560,043 
Cash and cash equivalents, end of period $671,544  $417,373 
         
Supplementary disclosures of cash flow information:        
Cash paid for interest $260,715  $437,200 
Non - cash transactions        
Common stock issued for services and  compensation $-  $10,301,367 
Common stock issued for debts issue and trade facilities $32,973  $739,796 
Transfer to plant and equipment from construction in progress $12,756,424  $- 

The accompanying notes are an integral part of these consolidated financial statements.

F-3

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.CORPORATE INFORMATION

 

Sino Agro Food, Inc. (the “Company” or “SIAF”) (formerly known as Volcanic Gold, Inc. and A Power Agro Agriculture Development, Inc.) was incorporated on October 1, 1974 in the State of Nevada, United States of America.

 

The Company was engaged in the mining and exploration business but ceased its mining and exploring business on October 14, 2005. On August 24, 2007, the Company entered into a Merger and Acquisition Agreement with Capital Award Inc., a Belize corporation (“CA”) and its subsidiaries Capital Stage Inc. (“CS”) and Capital Hero Inc. (“CH”). Effective the same date, CA completed a reverse merger transaction with SIAF. SIAF acquired all the outstanding common stock of CA from Capital Adventure, a shareholder of CA, for 3,232,323 shares of the Company’s common stock.

 

On August 24, 2007 the Company changed its name from Volcanic Gold, Inc. to A Power Agro Agriculture Development, Inc. On December 8, 2007, the Company changed its name to Sino Agro Food, Inc.

 

On September 5, 2007, the Company acquired three existing businesses in the People’s Republic of China (the“P.R.C.”):

 

 (a)Hang Yu Tai Investment Limited (“HYT”), a company incorporated in Macau, the owner of 78% equity interest in ZhongXingNongMu Ltd (“ZX”), a company incorporated in the P.R.C.;

 

 (b)Tri-way Industries Limited (“TRW”), a company incorporated in Hong Kong; and

 

 (c)Macau Eiji Company Limited (“MEIJI”), a company incorporated in Macau, the owner of 75% equity interest in Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd. (“HST”), a P.R.C. corporate Sino-Foreign joint venture. HST was dissolved in 2010.

 

On November 27, 2007, MEIJI and HST established a corporate Sino - Foreign joint venture, Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd. (“JHST”), a company incorporated in the P.R.C. with MEIJI owning a 75% interest and HST owning a 25% interest.

 

On November 26, 2008, SIAF established Pretty Mountain Holdings Limited (“PMH”), a company incorporated in Hong Kong with an 80% equity interest. On May 25, 2009, PMH formed a corporate Sino-Foreign joint venture, Qinghai Sanjiang A Power Agriculture Co. Ltd. (“SJAP”), incorporated in the P.R.C., of which PMH owns a 45% equity interest. At the time, the remaining 55% equity interest in SJAP was owned by the following entities:

 

 ·Qinghai Province Sanjiang Group Company Limited (English translation) (“Qinghai Sanjiang”), a company incorporated in the P.R.C with major business activities in the agriculture industry; and

 

 ·Guangzhou City Garwor Company Limited (English translation) (“Garwor”), a company incorporated in the P.R.C., specializing in sales and marketing.

 

SJAP is engaged in the business of manufacturing bio-organic fertilizer, livestock feed and development of other agriculture projects in the County of Huangyuan, in the vicinity of the Xining City, Qinghai Province, P.R.C.

 

In September 2009, the Company carried out an internal reorganization of its corporate structure and business, and formed a 100% owned subsidiary, A Power Agro Agriculture Development (Macau) Limited (“APWAM”), which was formed in Macau. APWAM then acquired PMH’s 45% equity interest in SJAP. By virtue of the acquisition, APWAM assumed all obligations and liabilities of PMH under the Sino Foreign Joint Venture Agreement. On May 7, 2010, Qinghai Sanjiang sold and transferred its equity interest in SJAP to Garwor. The State Administration for Industry and Commerce of Xining City Government of the PRC approved the sale and transfer. As a result, APWAM owned 45% of SJAP and Garwor owned the remaining 55%.

 

On September 9, 2010, an application was submitted by the Company to the Companies Registry of Hong Kong for deregistration of PMH under Section 291AA of the Hong Kong Companies Ordinance. On January 28, 2011, PMH was dissolved.

 

On March 23, 2017, new investor, Qinghai Quanwang Investment Management Co.,Company Limited (English translation) (“QuanwangQuanwang”) a company incorporatedacquired 8.3% equity interest in the P.R.C., introduced additional capitalSJAP for total cash consideration of $435,414 into SJAP.$459,137. As a result,of June 30, 2019, APWAM owned 41.25% of SJAP, , Garwor owned the remaining 50.45%., and Quanwang owned the remaining 8.30%. This remains the case as of the date of this report (the “Report”)8.3%.

 

F-6F-4 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.CORPORATE INFORMATION (CONTINUED)

 

On February 15, 2011 and March 29, 2011, the Company entered into an agreement and a memorandum of understanding (an “MOU”), respectively, to sell 100% equity interest in HYT group (including HYT and ZX) to Mr. Xin Ming Sun, a director of ZhongXingNong Nu Co., Ltd for $45,000,000, with effective date of January 1, 2011.

 

On February 28, 2011, the Company applied to form Enping City Bi Tao A Power Prawn Culture Development Co Limited (“EBAPCD”), and the Company would indirectly own a 25% equity interest in future Sino Joint Venture Company (pending approval).

 

On February 28, 2011, TRW applied to form a corporate joint venture, Enping City Bi Tao A Power Fishery Development Co., Limited (“EBAPFD”), incorporated in the PRC. TRW owned a 25% equity interest in EBAPFD. On November 17, 2011, TRW formed Jiang Men City A Power Fishery Development Co., Limited (“JFD”) in which it acquired a 25% equity interest, while withdrawing its 25% equity interest in EBAPFD. As of December 31, 2011, the Company had invested for total cash consideration of $1,258,607 in JFD. JFD operates an indoor fish farm. On January 1, 2012, the Company acquired an additional 25% equity interest in JFD for total cash consideration of $1,662,365. As of January 1, 2012, the Company had consolidated the assets and operations of JFD. On April 1, 2012, the Company acquired an additional 25% equity interest in JFD for the total cash consideration of $1,702,580. These acquisitions were at our option according the terms of the original development agreement. The Company owned a 75% equity interest in JFD, representing majority of voting rights and controls its board of directors. On August 15, 2016, the acquisition agreement was executed by TRW for acquiring the other 25% equity in JFD which was a Sino Foreign Joint Venture Co. that TRW had 100% equity interest with effect on October 5, 2016. Upon the acquisitions of 3 additional prawn farms assets at fair value of $238.32 million from respective third parties and the master technology license at fair value of $30 million from Capital Award, Inc. by JFD, and the consideration of the above acquisitions were planned to be settled by the new issue shares of 99,990,000 TRW shares at $3.41 amounting to $340.53 million on or before March 31,June 30, 2017. As a result, SIAF’s equity interest in TRW was diluted from 100% to 23.89% with effective on October 5, 2016. The above transactions leaded the Company loss of control over TRW group, the Company’s investments in TRW and JFD were reclassified from a subsidiary to investments in unconsolidated equity investees as of October 5, 2016. The dilution of the Company’s investments in TRW group constituted a deemed disposal of the subsidiaries. The deemed gain on disposal of $56,947,005 was recorded in net income from discontinued operations of the consolidated statements of income and other comprehensive income of the Company for the year ended 31 December 2016. On October 1, 2016, SIAF took up all assets and liabilities of TRW and JFD except fish farm. The deemed gain on disposal of $56,947,005 was recorded in net income from discontinued operations of the consolidated statements of income and other comprehensive income of the Company for the year ended 31 December 2016. The Company intends to convertconverted the amount due from andunconsolidated equity investee into equity interest in its unconsolidated equity investee ($40,788,236) during the fourth quarter of 2017, which would resultresulted in an equity interest in TRW increasing from its current 23.89% to 36.60%.

 

On April 15, 2011, MEIJI applied to form Enping City A Power Cattle Farm Co., Limited (“ECF”), all of which the Company would indirectly own a 25% equity interest on November 17, 2011. On January 1, 2012, the Company had invested $1,076,489 in ECF and the amount was settled in contra against accounts receivable due from ECF. On September 17, 2012 MEIJI formed Jiang Men City Hang Mei Cattle Farm Development Co., Limited (“JHMC”) and acquired additional 50% equity interest for the total cash consideration of $2,944,176 on September 30, 2012 while withdrawing its 25% equity interest in ECF. This acquisition was at our option according to the terms of the original development agreement. The Company presently owns 75% equity interest in JHMC, representing majority of voting right and controls its board of directors. As of September 30, 2012, the Company had consolidated the assets and operations of JHMC. Up to September 30, 2017, MEIJI further invested $400,000 in JHMC.This remains the case as of the date of this report.

 

On July 18, 2011, the Company formed Hunan Shenghua A Power Agriculture Co., Limited (“HSA”), in which the Company owns a 26% equity interest, and SJAP owns a 50% equity interest with the Chinese partner owning the remaining 24%. AsOn April 5, 2017, SJAP transferred all of September 30, 2017, MEIJI and SJAP total investment in HSA were $857,808 and 629,344, respectively.its equity interest to MEIJI. This remains the case of the date of this report.

 

On November 12, 2013, the Company acquired a shell company, Goldcup9203 AB, incorporated in Sweden, in which the Company owns a 100% equity interest. Goldcup 9203 AB changed its name to Sino Agro Food Sweden AB (publ) (“SAFS”). As of June 30, 2017, the Company invested $77,664 in SAFS. During the year ended December 31, 2016, SAFS changed from a public to a private company.

 

SJAP formed Qinghai Zhong He Meat Products Co., Limited (“QZH”) , with SJAP would owning 100% equity interest. On October 25, 2015, both QZH and new stockholder, Qinghai Quanwang Investment Management Co., Ltd (“QQI”) contributed additional capital of $4,157,682 and $769,941, respectively. As a result, SJAP decreased its equity interest from 100% to 85% and QQI owned a 14% equity interest. In addition, according to investment agreement between QZH and QQI, (i) QQI only enjoy interest 6% annually on its capital contribution and did not enjoy profit distribution; (ii) investment period was 3 years only, and (iii) SJAP shared 100% on profit or loss after deduction 6% interest to QQI and enjoyed 100% voting rights of March 31, 2017, the SJAP’s total investmentQZH’s board and stockholders meetings. SJAP disposed its 85% equity interest in QZH for RMB2 (equivalent to $0) for cash and completed on December 30, 2017. As a result, QZH was $4,645,489.derecognized as variable interest entity of the company.

 

The Company’s principal executive office is located at Room 3801, Block A, China Shine Plaza, No. 9 Lin He Xi Road, Tianhe District, Guangzhou City, Guangdong Province, P.R.C., 510610.

 

The nature of the operations and principal activities of the Company and its subsidiaries are described in Note 2.2.

 

F-7F-5 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

 2.1FISCAL YEAR

 

The Company has adopted December 31 as its fiscal year end.

  

 2.2REPORTING ENTITIES

 

Name of subsidiaries Place of incorporation Percentage of interest Principal activities
       
Capital Award Inc. (“CA”) Belize 100% (12.31.2016:(12.31.2018: 100%) directly Fishery development and holder of A-Power Technology master license.
       
Capital Stage Inc. (“CS”) Belize 100% (12.31.2016:(12.31.2018: 100%) indirectly Dormant
       
Capital Hero Inc. (“CH”) Belize 100% (12.31.2016:(12.31.2018: 100%) indirectly Dormant
       
Sino Agro Food Sweden AB (“SAFS”) Sweden 100% (12.31.2016:(12.31.2018: 100%) directly Dormant
       
Macau Eiji Company Limited (“MEIJI”) Macau, P.R.C. 100% (12.31.2016:(12.31.2018: 100%) directly Investment holding, cattle farm development, beef cattle and beef trading
       
A Power Agro Agriculture Development (Macau) Limited (“APWAM”) Macau, P.R.C. 100% (12.31.2016:(12.31.2018: 100%) directly Investment holding
       
Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd (“JHST”) P.R.C. 75% (12.31.2016:(12.31.2018: 75%) indirectly HylocereusUndatus Plantation (“HU Plantation”).
       
Jiang Men City Hang Mei Cattle Farm Development Co., Limited (“JHMC”) P.R.C. 75% (12.31.2016:(12.31.2018:75%) indirectly Beef cattle cultivation
       
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”) P.R.C. 76% (12.31.2016:(12.31.2018:76%) indirectly Manufacturing of organic fertilizer, livestock feed, and beef cattle and sheep cultivation, and plantation of crops and pastures
       
Name of variable interest entity Place of incorporation Percentage of interest Principal activities
       
Qinghai Sanjiang A Power Agriculture Co., Ltd (“SJAP”) P.R.C. 41.25% (12.31.2016: 45%(12.31.2018: 41.25%) indirectly Manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures

 
Qinghai Zhong He Meat Products Co., Ltd (“QZH”)P.R.C.100% (12.31.2016: 100%)indirectlyCattle slaughter
Name of unconsolidated equity investeesPlace of incorporationPercentage of interestPrincipal activities
Tri-way Industries Limited (“TRW”)Hong Kong, P.R.C.23.89% (12.31.2016: 23.89%) directlyInvestment holding, holder of enzyme technology master license for manufacturing of livestock feed and bio-organic fertilizer and has not commenced its planned business of fish farm operations.
Jiang Men City A Power Fishery Development Co., Limited (“JFD”)P.R.C100% (12.31.2016: 100%) indirectlyFish cultivation

This represents stockholding percentage of total equity.

In addition, according to investment agreement between QZH and QQI, (i) QQI only enjoyed interest 6% annually on its capital contribution and did not enjoy any profit distribution; (ii) investment period was 3 years only, and (iii) SJAP shared 100% (12.31.2016: 100%) on profit or loss after deduction 6% interest to QQI and enjoyed 100% (12.31.2016: 100%) voting rights of QZH’s board and stockholders meetings.

F-8F-6 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 2.3BASIS OF PRESENTATION

 

The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP ”)”).

Reverse stock split and new conversion rate of Series B preferred stock to share of common stock on December 16, 2014, the Company implemented a 9.9-for-1 reverse stock split. On December 17, 2014, the Company implemented new conversion rate of 9.9 for 1 share of common stock. All share information contained within this report, including consolidated balance sheets, consolidated statements of income and other comprehensive income, and footnotes have been retroactively adjusted for the effects of reverse stock split and new conversion rate of Series B preferred stock to share of common stock.

 

 2.4BASIS OF CONSOLIDATION

 

The consolidated financial statements include the financial statements of the Company, its subsidiaries CA, CS, CH, MEIJI, JHST, JHMC, HSA, APWAM, SAFS and its variable interest entity, SJAP and QZH.SJAP. All material inter-company transactions and balances have been eliminated in consolidation.

 

SIAF, CA, CS, CH, MEIJI, JHST, JHMC, HSA, APWAM, SAFS SJAP and QZHSJAP are hereafter referred to as (the “Company”).

 

 2.5BUSINESS COMBINATION

 

The Company adopted the accounting pronouncements relating to business combination (primarily contained in ASC Topic 805 “Business Combinations”), including assets acquired and liabilities assumed on arising from contingencies. These pronouncements established principles and requirement for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquisition as well as provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In addition, these pronouncements eliminate the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and require an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. The Company’s adoption of these pronouncements will have an impact on the manner in which it accounts for any future acquisitions.

 

 2.6NON - CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS

 

The Company adopted the accounting pronouncement on non-controlling interests in consolidated financial statements, which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance is primarily contained in ASC Topic “Consolidation.” It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated financial statements. The adoption of this standard has not had material impact on the Company’s consolidated financial statements.

 

 2.7USE OF ESTIMATES

 

The preparation of consolidated financial statements in conformity with US GAAP requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods covered thereby. Actual results could differ from these estimates. Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in certain areas. The following are some of the areas requiring significant judgments and estimates: determinations of the useful lives of assets, estimates of allowances for doubtful accounts, cash flow and valuation assumptions in performing asset impairment tests of long-lived assets, estimates of the realization of deferred tax assets and inventory reserves.

 

F-9F-7 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 2.8REVENUE RECOGNITION

 

The Company’s revenue recognition policiesOn January 1, 2018, the Company adopted Topic 606, using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in complianceaccordance with ASCour historic accounting under Topic 605. SalesThere was no adjustment to beginning retained earnings on January 1, 2018.

Under Topic 606, revenue is recognized when allcontrol of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurredpromised goods or services have been rendered, (iii)is transferred to the pricecustomers, in an amount that reflects the consideration the Company expect to be entitled to in exchange for those goods or services.

ASU 2014-09, “Revenue from Contracts with Customers” outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 outlines a five-step process for revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards, and also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Major provisions include determining which goods and services are distinct and represent separate performance obligations, how variable consideration (which may include change orders and claims) is fixedrecognized, whether revenue should be recognized at a point in time or determinable,over time and (iv)ensuring the abilitytime value of money is considered in the transaction price.

ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” clarifies the principal versus agent guidance in ASU 2014-09. ASU 2016-08 clarifies how an entity determines whether to collectreport revenue gross or net based on whether it controls a specific good or service before it is reasonably assured. These criteria are generally satisfiedtransferred to a customer. ASU 2016-08 also reframes the indicators to focus on evidence that an entity is acting as a principal rather than as an agent.

ASU 2016-10, “Identifying Performance Obligations and Licensing” amends certain aspects of ASU 2014-09. ASU 2016-10 amends how an entity should identify performance obligations for immaterial promised goods or services, shipping and handling activities and promises that may represent performance obligations. ASU 2016-10 also provides implementation guidance for determining the nature of licensing and royalties arrangements.

ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients” also clarifies certain aspects of ASU 2014-09 including the assessment of collectability, presentation of sales taxes, treatment of noncash consideration, and accounting for completed contracts and contract modifications at transition.

ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” allows an entity to determine the provision for loss contracts at either the contract level or the performance obligation level as an accounting policy election. The company determines its provision for loss contracts at the contract level.

ASU 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” clarifies that the scope and application of ASC 610-20 on accounting for the sale or transfer of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales, applies only when the asset (or asset group) does not meet the definition of a business.

ASU 2017-13, “Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments” provides guidance related to the effective dates of the ASUs noted above.

We determine revenue recognition through the following steps:

lidentification of the contract, or contracts, with a customer;
lidentification of the performance obligations in the contract;
ldetermination of the transaction price;
lallocation of the transaction price to the performance obligations in the contract; and
lrecognition of revenue when, or as, we satisfy a performance obligation.

F-8

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.8REVENUE RECOGNITION (CONTINUED)

Consulting and service income from development contracts

The company recognizes consulting and service income from development contracts revenue over time, as performance obligations are satisfied, due to the continuous transfer of shipment when risk of loss and title passescontrol to the customer.Consulting and service income from development contractsare generally accounted for as a single unit of account (a single performance obligation) and are not segmented between types of services. The company recognizes revenue using the percentage-of-completion method, based primarily on contract cost incurred to date compared to total estimated contract cost. The percentage-of-completion method (an input method) is the most faithful depiction of the company’s performance because it directly measures the value of the services transferred to the customer. Cost of revenue includes an allocation of depreciation and amortization. Customer-furnished materials, labor and equipment and, in certain cases, subcontractor materials, labor and equipment, are included in revenue and cost of revenue when management believes that the company is acting as a principal rather than as an agent (i.e., the company integrates the materials, labor and equipment into the deliverables promised to the customer). Customer-furnished materials are only included in revenue and cost when the contract includes construction activity and the company has visibility into the amount the customer is paying for the materials or there is a reasonable basis for estimating the amount. The company recognizes revenue, but not profit, on certain uninstalled materials that are not specifically produced, fabricated, or constructed for a project. Revenue on these uninstalled materials is recognized when the cost is incurred (when control is transferred). Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined as assessed at the contract level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the performance obligation being transferred to the client. Customer payments on consulting and service income from development contracts are typically due within 360 days of billing, depending on the contract.

Variable Consideration

The nature of the company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders; awards and incentive fees; and liquidated damages and penalties. The company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The company estimates the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above for claims accounting have been satisfied.

The company generally provides limited warranties for work performed under its engineering and construction contracts. The warranty periods typically extend for a limited duration following substantial completion of the company’s work on a project. Historically, warranty claims have not resulted in material costs incurred.

Revenue excludes sales and usage-based taxes where it has been determined that the Company is acting as a pass-through agent.

 

Government grants are recognized when (i) the Company has substantially accomplished what must be done pursuant to the terms of the grant that are established by the local government; and (ii) the Company receives notification from the local government that the Company has satisfied all of the requirements to receive the government grants; and (iii) the amounts are received.

 

Multiple-Element Arrangements

To qualify as a separate unit of accounting under ASC 605-25 “Multiple Element Arrangements”, the delivered item must have value to the customer on a standalone basis. The significant deliverables under the Company’s multiple-element arrangements are consulting and service under development contract, commission and management service.

Revenues from the Company’s consulting and services under development contracts are performed under fixed-price contracts. Revenues under long-term contracts are accounted for under the percentage-of-completion method of accounting in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605,Revenue Recognition(“ASC 605”). Under the percentage-of-completion method, the Company estimates profit as the difference between total estimated revenue and total estimated cost of a contract and recognize that profit over the contract term. The percentage of costs incurred determines the amount of revenue to be recognized. Payment terms are generally defined by the installation contract and as a result may not match the timing of the costs incurred by the Company and the related recognition of revenue. Such differences are recorded as either costs or estimated earnings in excess of billings on uncompleted contracts or billings in excess of costs and estimated earnings on uncompleted contracts. The Company determines a customer’s credit worthiness at the time an order is accepted. Sudden and unexpected changes in a customer’s financial condition could put recoverability at risk.

The percentage of completion method requires the ability to estimate several factors, including the ability of the customer to meet its obligations under the contract, including the payment of amounts when due. If the Company determines that collectability is not assured, the Company will defer revenue recognition and use methods of accounting for the contract such as the completed contract method until such time as the Company determines that collectability is reasonably assured or through the completion of the project.

For fixed-price contracts, the Company uses the ratio of costs incurred to date on the contract to management’s estimate of the contract’s total costs, to determine the percentage of completion on each contract. This method is used as management considers expended costs to be the best available measure of progression of these contracts. Contract costs include all direct material, subcontract and labor costs and those indirect costs related to contract performance, such as supplies, tool repairs and depreciation. The Company accounts for maintenance and repair services under the guidance of ASC 605 as the services provided relate to construction work. Contract costs incurred to date and expected total contract costs are continuously monitored during the term of the contract. Changes in job performance, job conditions, and estimated profitability arising from contract penalty, change orders and final contract settlements may result in revisions to the estimated profit ability during the contract. These changes, which include contracts with estimated costs in excess of estimated revenues, are recognized as contract costs in the period in which the revisions are determined. Profit incentives are included in revenues when their realization is reasonably assured. At the point the Company anticipates a loss on a contract, the Company estimates the ultimate loss through completion and recognizes that loss in the period in which the loss was identified.

The Company does not provide warranties to customers on a basis customary to the industry, however, customers can claim warranty directly from product manufacturers for defects in equipment or products. Historically, the Company has experienced no warranty claims.

The Company provides various management services to its customers in the P.R.C. based on a negotiated fixed-price contract. The clients usually pay the fees when the services contract is signed and services are rendered. The Company recognizes these services-based revenues from contracts when (i) management services are rendered; (ii) clients recognize the completion of services; and (iii) collectability is reasonably assured. Fees received in advance are recorded as deferred revenue under current liabilities.

F-10F-9 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 2.9COST OF GOODS SOLD AND COST OF SERVICES

 

Cost of goods sold consists primarily of direct purchase cost of merchandise goods, and related levies. Cost of services consist primarily direct cost and indirect cost incurred to date for development contracts and provision for anticipated losses for development contracts.

 

 2.10SHIPPING AND HANDLING

 

Shipping and handling costs related to cost of goods sold are included in general and administrative expenses, which totaled $1,716, $2,988, $17,862$11,367 and 17,272$0, $156,103 and $2,745 for the three months and the nine months ended September 30, 20172019 and 2016,2018, respectively.

 

 2.11ADVERTISING

 

Advertising costs are included in general and administrative expenses, which totaled $382,424, $382,596, $1,386,186$364,964 and $1,163,547$375,221, $956,056 and $1,175,724 for the three months ended and the nine months ended September 30, 20172019 and 2016,2018, respectively.

 

 2.12RESEARCH AND DEVELOPMENT EXPENSES

 

Research and development expenses are included in general and administrative expenses, which totaled $449,910, $0 $449,910and $0, $426,115 and $0 for the three months ended and the nine months ended September 30, 20172019 and 2016,2018, respectively.

 

 2.13FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME

 

The reporting currency of the Company is the U.S. dollars. The functional currency of the Company is the Chinese Renminbi (RMB).

 

For those entities whose functional currency is other than the U.S. dollars, all assets and liabilities are translated into U.S. dollars at the exchange rate on the balance sheet date; shareholders’ equity is translated at historical rates and items in the statements of income and of cash flows are translated at the average rate for the period. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported in the statements of cash flows will not necessarily agree with changes in the corresponding balances in the balance sheets. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statements of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of income and comprehensive income, as incurred.

 

Accumulated other comprehensive income in the consolidated statement of shareholders’ equity amounted to $2,643,911($23,088,296) as of September 30, 20172019 and $(4,335,355)($10,415,786) as of December 31, 2016.2018. The balance sheet amounts with the exception of equity as of September 30, 20172019 and December 31, 20162018 were translated using an exchange rate of RMB 6.647.07 to $1.00 and RMB 6.946.86 to $1.00, respectively. The average translation rates applied to the statements of income and other comprehensive income and of cash flows for the nine months ended September 30, 2017,2019, and 20162018 were RMB 6.806.85 to $1.00 and RMB 6.586.51 to $1.00, respectively.

 

 2.14CASH AND CASH EQUIVALENTS

 

The Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents. Cash and cash equivalents kept with financial institutions in the P.R.C. are not insured or otherwise protected. Should any of those institutions holding the Company’s cash become insolvent, or should the Company become unable to withdraw funds for any reason, the Company could lose the cash on deposit with that institution.

 

 2.15ACCOUNTS RECEIVABLE

 

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.

 

The standard credit period for most of the Company’s clients is three months. The collection period over 1 year is classified as long-term accounts receivable. Management evaluates the collectability of the receivables at least quarterly. Provision for doubtful accounts as of September 30, 20172019 and December 31, 20162018 are $0.

 

F-11F-10 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 2.16INVENTORIES

 

Inventories are valued at the lower of cost (determined on a weighted average basis) and net realizable value. Costs incurred in bringing each product to its location and conditions are accounted for as follows:

 

 (a)raw materials - purchase cost on a weighted average basis;

 

 (b)manufactured finished goods and work-in-progress - cost of direct materials and labor and a proportion of manufacturing overhead based on normal operation capacity but excluding borrowing costs; and

 

 (c)retail and wholesale merchandise finished goods - purchase cost on a weighted average basis.

 

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs for completion and the estimated costs necessary to make the sale.

 

 2.17PLANT AND EQUIPMENT

 

Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Such costs include the cost of replacing parts that are eligible for capitalization when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalization. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end.

 

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets.

 

Plant and machinery5 - 10 years
Structure and leasehold improvements10 - 2030 years
Mature seeds and herbage cultivation20 years
Furniture and equipment2.5 - 10 years
Motor vehicles54 - 10 years

 

An item of plant and equipment is removed from the accounts upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated statements of income in the period the item is disposed.

 

 2.18GOODWILL

 

Goodwill is an asset representing the fair economic benefits arising from other assets acquired in a business combination that are not individually identified or separately recognized. Goodwill is tested for impairment on an annual basis at the end of the Company’s fiscal year, or when impairment indicators arise. The Company uses a fair-value-based approach to test for impairment at the level of each reporting unit. The Company directly acquired MEIJI, which is the holding company of JHST that operates the Hu Plantation. As a result of this acquisition, the Company recorded goodwill in the amount of $724,940. This goodwill represents the fair value of the assets acquired in these acquisitions over the cost of the assets acquired.

 

 2.19LONG TERM INVESTMENT

On October 29, 2014, the Company invested in Huangyuan County Rural Credit Union (“RCU”), Huangyuan County, Xining City, Qinghai Province, the P.R.C. RCU is engaged in the financing and crediting business to agricultural projects for local farmers. The Company has a 5% stake in RCU. The Company has no representative on the board of directors to oversee corporate operations. The Company accounts for its long term investment at cost.

F-12F-11 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 2.202.19PROPRIETARY TECHNOLOGIES

 

A master license of stock feed manufacturing technology was acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility has been established. Cost of acquisition of stock feed manufacturing technology master license is amortized using the straight-line method over its estimated life of 20 years.

 

An aromatic cattle-feeding formula was acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility has been established. Cost of acquisition on aromatic cattle-feeding formula is amortized using the straight-line method over its estimated life of 2520 years.

 

The cost of sleepy cods breeding technology license is capitalized as proprietary technologies when technological feasibility has been established. Cost of granting sleepy cods breeding technology license is amortized using the straight-line method over its estimated life of 25 years.

 

Bacterial cellulose technology license and related trade mark are capitalized as proprietary technologies when technological feasibility has been established. Cost of license and related trade mark is amortized using the straight-line method over its estimated life of 20 years.

 

The Company has determined that technological feasibility is established at the time a working model of products is completed. Proprietary technologies are intangible assets of finite lives. Management evaluates the recoverability of proprietary technologies on an annual basis at the end of the Company’s fiscal year, or when impairment indicators arise. As required by ASC Topic 350 “Intangible - Goodwill and Other”, the Company uses a fair-value-based approach to test for impairment.

 

 2.212.20CONSTRUCTION IN PROGRESS

 

Construction in progress represents direct costs of construction as well as acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to property and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until construction is completed and the asset is ready for its intended use.

 

 2.222.21LAND USE RIGHTS

 

Land use rights represent acquisition of rights to agricultural land from farmers and are amortized on the straight-line basis over their respective lease periods. The lease period of agricultural land is in the range from 10 to 60 years. Land use rights purchase prices were determined in accordance with the P.R.C. Government’s minimum lease payments on agricultural land and mutually agreed to terms between the Company and the vendors.

 

 2.232.22EQUITY METHOD INVESTMENTS

 

Investee entities, in which the company can exercise significant influence, but not control, are accounted for under the equity method of accounting. Under the equity method of accounting, the company’s share of the earnings or losses of these companies is included in net income. A loss in value of an investment that is other than a temporary decline is recognized as a charge to operations. Evidence of a loss in value might include, but would not necessarily be limited to absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.

 

 2.242.23CORPORATE JOINT VENTURE

 

A corporation formed, owned, and operated by two or more businesses as a separate and discrete business or project (venture) for their mutual benefit is considered to be a corporate joint venture. Investee entities, in which the Company can exercise significant influence, but not control, are accounted for under the equity method of accounting. Under the equity method of accounting, the Company’s share of the earnings or losses of these companies is included in net income.

 

A loss in value of an investment that is other than a temporary decline is recognized as a charge to operations. Evidence of a loss in value might include, but would not necessarily be limited to, the absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.

 

F-13F-12 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 2.252.24VARIABLE INTEREST ENTITY

 

A variable interest entity (“VIE”) is an entity (investee) in which the investor has obtained less than a majority interest, according to the Financial Accounting Standards Board (FASB). A VIE is subject to consolidation if a VIE meets one of the following three criteria as elaborated in ASC Topic 810-10, Consolidation:

 

 (a)equity-at-risk is not sufficient to support the entity’s activities;

 

 (b)as a group, the equity-at-risk holders cannot control the entity; or

 

 (c)the economics do not coincide with the voting interest.

 

If a firm is the primary beneficiary of a VIE, the holdings must be disclosed on the balance sheet. The primary beneficiary is defined as the person or company with the majority of variable interests. A corporation formed, owned, and operated by two or more businesses (ventures) as a separate and discrete business or project (venture) for their mutual benefit is defined as a joint venture.

 

 2.262.25TREASURY STOCK

 

Treasury stock means shares of a corporation’s own stock that have been issued and subsequently reacquired by the corporation. Converting outstanding shares to treasury shares does not reduce the number of shares issued but does reduce the number of shares outstanding. These shares are not eligible to receive dividends. Accounting for excesses and deficiencies on treasury stock transactions is governed by ASC 505-30-30.

 

State laws and federal agencies closely regulate transactions involving a company’s own capital stock, so the purchase of outstanding shares must have a legitimate purpose. Some of the most common reasons for purchasing outstanding shares are as follows:

 

 (a)to meet additional stock needs for various reasons, including newly implemented stock option plans, stock for convertible bonds or convertible preferred stock, or a stock dividend.

 

 (b)to make more shares available for acquisitions of other entities.

 

The cost method of accounting for treasury shares has been adopted by the Company. The purchase of outstanding shares and thus converting them into treasury shares is treated as a temporary reduction in shareholders’ equity in view of the expectation to reissue the shares instead of retiring them. When the Company reissues the treasury shares, the temporary account is eliminated. The cost of acquiring outstanding shares for converting into treasury shares is charged to a contra account, in this case a contra equity account that reduces the stockholder equity balance.

 

 2.27NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED

The Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale rather than through continuing use. Such non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Property and equipment are not depreciated once classified as held for distribution. Assets and liabilities classified as held for sale are presented separately as current items in the consolidated balance sheets. A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:

·represents a separate major line of business or geographical area of operations

·is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or

·is a subsidiary acquired exclusively with a view to resale

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated statement of income and other comprehensive income.

F-14F-13 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 2.282.26INCOME TAXES

 

The Company accounts for income taxes under the provisions of ASC Topic 740 “Accounting for Income Taxes.” Under ASC Topic 740, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

 

The provision for income tax is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized.

 

Deferred income taxes are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

 

ASC Topic 740 also prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or for one expected to be taken, in a tax return. ASC Topic 740 also provides guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. Any interest and penalties accrued related to unrecognized tax benefits will be recorded as tax expense.

 

 2.292.27POLITICAL AND BUSINESS RISK

 

The Company’s operations are carried out in the P.R.C. Accordingly, the political, economic and legal environment in the P.R.C. may influence the Company’s business, financial condition and results of operations by the general state of the P.R.C.’s economy. The Company’s operations in the P.R.C. are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

 2.302.28CONCENTRATION OF CREDIT RISK

 

Cash includes cash at banks and demand deposits in accounts maintained with banks within the P.R.C. Total cash in these banks as of September 30, 20172019 and December 31, 20162018 amounted to $1,775,634$923,875 and $2,395,355,$4,720,793, respectively, none of which is covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks to its cash in bank accounts.

 

The Company had 5 major customers (A, B, C, D and E) whose business individually represented the following percentages of the Company’s total revenue for the period indicated:

 

 Three months ended
September 30,
2017
  Three months ended
September 30,
2016
  Nine months ended
September 30,
2017
  Nine months ended
September 30,
2016
  Three months ended
September 30, 2019
 Three months ended
September 30, 2018
 Nine months ended
September 30, 2019
 Nine months ended
September 30, 2018
 
                  
Customer A  24.59%  19.82%  24.83%  19.56%  31.05%  29.44%  30.64%  33.40%
Customer B  21.89%  -%  22.03%  -%  16.09%  15.09%  15.03%  17.73%
Customer C  16.34%  11.95%  14.42%  9.52%  35.65%  20.94%  33.11%  16.63%
Customer D  10.32%  6.68%  9.22%  7.56%  -%  16.74%  -%  5.22%
Customer E  6.15%  -%  9.70%  -%  4.67%  4.27%  4.66%  7.64%
Customer F  -%  16.59%  -%  14.17%  3.36%  -%  2.76%  -%
Customer G  -%  4.74%  -%  9.58%
  79.29%  59.78%  80.20%  60.39%  90.82%  86.48%  86.20%  80.62%

F-14

 

SINO AGRO FOOD, INC.

    Percentage
of revenue
  Amount 
Customer A Corporate and others Division  24.83% $41,405,509 
Customer B Organic fertilizer and Bread Grass Division  22.03% $36,729,604 
Customer C Cattle farm development and Hu plantation division  14.42% $24,034,972 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.29CONCENTRATION OF CREDIT RISK (CONTINUED)

    Percentage
of revenue
  Amount 
Customer A Corporate and others Division  31.05% $11,623,334 
Customer B Cattle Farm Development Division  16.09% $6,021,726 
Customer C Corporate and others Division  35.65% $13,345,198 

 

Accounts receivable are derived from revenue earned from customers located primarily in the P.R.C. The Company performs ongoing credit evaluations of customers and has not experienced any material losses to date.

 

The Company had 5 major customers whose accounts receivable balance individually represented the following percentages of the Company’s total accounts receivable:

 

  September 30, 2017  December 31, 2016 
       
Customer A  21.02%  19.61%
Customer B  20.70%  12.83%
Customer C  18.82%  18.11%
Customer D  7.34%  -%
Customer E  6.37%  5.96%
Customer F  -%  7.52%
   74.25%  64.03%

  September 30, 2019  December 31, 2018 
Customer A  13.22%  12.76%
Customer B  13.11%  9.67%
Customer C  9.72%  10.05%
Customer D  -%  1.8%
Customer E  1.74%  -%
Customer F  56.87%  59.81%
   94.66%  94.09%

 

As of September 30, 2017,2019, amounts due from customers A and B are $14,542,938 and C are $22,106,909, $21,767,182 and $19,793,205,$14,419,721, respectively. The Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any financial difficulties of its major customers.

F-15

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 2.30IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

 

In accordance with ASC Topic 360, “Property, Plant and Equipment,” long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, during each reporting period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of JuneSeptember 30, 20172019 and December 31, 2016,2018, the Company determined no impairment losses were necessary.

 

 2.31EARNINGS PER SHARE

 

As prescribed in ASC Topic 260 “Earnings per Share,” Basic Earnings per Share (“EPS”) is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common stock shares outstanding during the year plus potential dilutive instruments such as stock options and warrants. The effect of stock options on diluted EPS is determined through the application of the treasury stock method, whereby proceeds received by the Company based on assumed exercises are hypothetically used to repurchase the Company’s common stock at the average market price during the period.

 

ASC 260-10-55 requires that stock dividends or stock splits be accounted for retroactively if the stock dividends or stock splits occur during the year, or retroactively if the stock dividends or stock splits occur after the end of the period but before the release of the financial statements, by considering it outstanding of the entirety of each period presented. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the year.

 

For the three months ended September 30, 20172019 and 2016,2018, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders for continuing and discontinued operations amounted to $0.14$0.16 and $1.04,$0.09, respectively. For the three months ended September 30, 20172019 and 2016,2018, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing and discontinued operations amounted to $0.15$0.16 and $0.95,$0.09, respectively.

 

For the threenine months ended September 30, 20172019 and 2016,2018, basic earnings per share attributable to Sino Agro Food Inc. and subsidiaries common stockholders for continuing operations amounted to $0.14$0.31 and $0.91,$0.27, respectively. For the threenine months ended September 30, 20172019 and 2016,2018, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing operations amounted to $0.15$0.31 and $0.81,$0.27, respectively.

 

For the nine months ended September 30, 2017 and 2016, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders for continuing and discontinued operations amounted to $0.62 and $2.45, respectively. For the nine months ended September 30, 2017 and 2016, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing and discontinued operations amounted to $0.63 and $2.24, respectively.

F-15

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

For the nine months ended September 30, 2017 and 2016, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders for continuing operations amounted to $0.62 and $1.81, respectively. For the nine months ended September 30, 2017 and 2016, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing operations amounted to $0.63 and $1.72, respectively.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

  

 2.32ACCUMULATED OTHER COMPREHENSIVE INCOME

 

ASC Topic 220 “Comprehensive IncomeIncome” establishes standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income is defined as the change in stockholders’ equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The comprehensive income for all periods presented includes both the reported net income and net change in cumulative translation adjustments.

 

 2.33RETIREMENT BENEFIT COSTS

 

P.R.C. state managed retirement benefit programs are defined contribution plans and the payments to the plans are charged as expenses when employees have rendered service entitling them to the contribution made by the employer.

 

 2.34STOCK-BASED COMPENSATION

 

The Company has adopted both ASC Topic 718, “Compensation - Stock Compensation” and ASC Topic 505-50, “Equity-Based Payments to Non-Employees”Non - Employees” using the fair value method in which an entity issues its equity instruments to acquire goods and services from employees and non-employees. Stock compensation for stock granted to non-employees has been determined in accordance with this accounting standard and the accounting standard regarding accounting for equity instruments that are issued to other than employees for acquiring, or in conjunction with selling goods or services, as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured. This accounting standard allows the “simplified” method to determine the term of employee options when other information is not available. Under ASC Topic 718 and ASC Topic 505-50, stock compensation expenses is measured at the grant date on the value of the option or restricted stock and is recognized as expenses, less expected forfeitures, over the requisite service period, which is generally the vesting period.

F-16

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 2.35FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

 Level 1Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

 Level 2Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

 Level 3Pricing inputs that are generally observable inputs and not corroborated by market data.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value as of September 30, 20172019 or December 31, 2016,2018, nor gains or losses are reported in the statements of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the fiscal period ended September 30, 20172019 or 2016.2018.

 

F-17F-16 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

 2.36NEW ACCOUNTING PRONOUNCEMENTS

 

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02,Leases (Topic 842) (ASU 2016-02), which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. This guidance will be effective for us in the first quarter of 2019 on a modified retrospective basis and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

In March 2016,August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2016-08,2018-13, Revenue from Contracts with Customers (Topic 606)Fair Value Measurement (ASC Topic 820): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)(ASU 2016-08) which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferredDisclosure Framework – Changes to the customers.Disclosure Requirements for Fair Value Measurement. This guidance will beASU eliminates, modifies and adds disclosure requirements for fair value measurements. The amendments in this ASU are effective for us in the first quarter of 2018,fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with the option to adopt it in the first quarter of 2017. We are stillearly adoption permitted. The Company is currently evaluating the effect thateffects of this guidance will haveASU on our consolidatedits financial statements and related disclosures.disclosures and does not expect there to be a material impact.

 

In MarchJune 2016, the FASB issued Accounting Standards UpdateASU No. 2016-09,Compensation-Stock Compensation (Topic 718)2016-13, Financial Instruments – Credit Losses (ASC Topic 326): Improvement to Employee Share-based Payment Accounting(ASU 2016-09) to simplify the accounting for share-based payment transactions, including the income tax consequences, an option to recognize gross share-based compensation expense with actual forfeitures recognized as they occur, as well as certain classificationsMeasurement of Credit Losses on the statement of cash flows.Financial Instruments. This guidance will berequire Companies to recognize an allowance for credit losses on available-for-sale debt securities rather than the current approach of recording a reduction to the carrying value of the asset. The ASU is effective for us in the first quarter of 2017,fiscal years beginning after December 15, 2019 and earlyinterim periods therein. Early adoption is permitted. We are stillpermitted for annual periods beginning after December 15, 2018 and interim periods therein. The Company is currently evaluating the effect thateffects of this guidance will haveASU on our consolidatedits financial statements and related disclosures.disclosures and does not expect there to be a material impact.

 

In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers Other than Inventory (ASU 2016-16), which requires companies to recognize the income-tax consequences of an intra-entity transfer of an asset other than inventory. This guidance will be effective for us in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. We currently anticipate adopting the new standard effective January 1, 2018, and do not expect the standard to have a material impact on our consolidated financial statements.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will be effective for us in the first quarter of 2018 and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosure

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. This guidance will be effective for us in the first quarter of 2018 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04), which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. This guidance will be effective for us in the first quarter of 2020 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

F-18F-17 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION

 

The Company establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as business segments and major customers in consolidated financial statements. The Company operates in five principal reportable segments: Fishery Development Division, HU Plantation Division, Organic Fertilizer and Bread Grass Division, Cattle Farm Development Division and Corporate and Others Division. On October 5, 2016, (i) Jiang Men City A Power Fishery Development Co., Limited (“JFD”) and Tri- Way Industries Limited (“TRW’), part of Fishery Division, were disposed from the Company; and (ii). Capital Award Inc. (“CA”), part of Fishery Development Division, ceased its income from sale of goods - fishery since October 5, 2016. As a result, Fishery Development Division – sale of goods was treated as Discontinued operations. No geographic information is required as all revenue and assets are located in the P.R.C.

 

 For the three months ended September 30, 2017 
 Continuing
operation
 Discontinued
operation
   
 Fishery   Organic Fertilizer Cattle Farm   Fishery    For the three months ended September 30, 2019 
 Development HU Plantation and Bread Grass Development Corporate and Development    Fishery     Organic Fertilizer Cattle Farm      
 Division(1) Division (2) Division (3) Division (4) others (5) Division(1) Total  Development HU Plantation and Bread Grass Development Corporate and    
                Division (1)  Division (2)  Division (3)  Division (4)  others (5)  Total 
Revenue $2,978,371 $1,486,465 $21,057,805 $7,281,156 $15,589,136 $- $48,392,933  $-   803,352   5,588,247   13,394,653   17,645,062   37,431,314 
                                       
Net income (loss) $696,266 $10,010 $575,316 $684,685 $1,484,571 $- $3,450,948  $(127,139)  (609,383)  400,620   1,839,611   6,612,837   8,116,546 
                                       
Total assets $74,754,393 $48,728,564 $379,508,585 $36,656,931 $276,688,775 $- $816,337,248  $90,458,027   40,296,438   308,526,376   47,736,673   304,644,198   791,661,712 

  For the three months ended September 30, 2018 
  Fishery     Organic Fertilizer  Cattle Farm       
  Development  HU Plantation  and Bread Grass  Development  Corporate and    
  Division (1)  Division (2)  Division (3)  Division (4)  others (5)  Total 
Revenue $6,502,373  $988,030  $5,933,042  $8,028,334  $17,298,238  $38,750,017 
                         
Net income (loss) $906,175   (599,743)  399,756   992,139   1,766,595   3,465,562 
                         
Total assets $87,021,604   45,899,308   326,860,510   39,856,112   283,736,237   783,373,768 

  For the nine months ended September 30, 2019 
  Fishery     Organic Fertilizer  Cattle Farm       
  Development  HU Plantation  and Bread Grass  Development  Corporate and    
  Division (1)  Division (2)  Division (3)  Division (4)  others (5)  Total 
                   
Revenue $1,719,247   2,813,800   18,743,832   34,105,641   47,908,624   105,291,144 
                         
Net income (loss) $(252,187)  (1,622,380)  470,344   4,644,679   11,275,072   15,302,641 
                         
Total assets $90,458,027   40,296,438   308,526,376   47,736,673   304,644,198   791,661,712 

 

  For the three months ended September 30, 2016 
  Continuing
operation
  Discontinued
operation
    
  Fishery     Organic Fertilizer  Cattle Farm     Fishery    
  Development  HU Plantation  and Bread Grass  Development  Corporate and  Development    
  Division(1)  Division (2)  Division (3)  Division (4)  others (5)  Division(1)  Total 
                      
Revenue $23,377,355  $6,692,140  $48,697,145  $9,658,454  $23,232,486  $12,460,878  $124,118,458 
                             
Net income (loss) $10,191,548  $2,479,488  $5,833,910  $1,060,267  $(1,040,511) $2,767,775  $21,292,477 
                             
Total assets $164,123,917  $49,180,420  $350,422,450  $36,538,577  $107,268,695  $8,381,108  $715,915,167 

  For the nine months ended September 30, 2017 
  Continuing  Discontinued    
  Operation  operation    
  Fishery     Organic Fertilizer  Cattle Farm     Fishery    
  Development  HU Plantation  and Bread Grass  Development  Corporate and  Development    
  Division(1)  Division (2)  Division (3)  Division (4)  others (5)  Division(1)  Total 
                      
Revenue $16,167,636  $3,565,220  $67,135,311  $23,094,392  $56,769,967  $-  $166,732,526 
                             
Net income (loss) $5,006,568  $(488,030) $3,086,832  $2,574,705  $1,840,866  $-  $12,020,941 
                             
Total assets $74,754,393  $48,728,564  $379,508,585  $36,656,931  $276,688,775  $-  $816,337,248 

  For the nine months ended September 30, 2016 
  Continuing  Discontinued    
  Operation  operation    
  Fishery     Organic Fertilizer  Cattle Farm     Fishery    
  Development  HU Plantation  and Bread Grass  Development  Corporate and  Development    
  Division(1)  Division (2)  Division (3)  Division (4)  others (5)  Division(1)  Total 
                      
Revenue $55,776,414  $12,194,399  $124,003,741  $21,555,101  $49,303,780  $57,480,332  $320,313,767 
                             
Net income (loss) $19,838,145  $3,611,696  $15,989,599  $2,121,686  $(4,332,930) $11,467,257  $48,695,453 
                             
Total assets $164,123,917  $49,180,420  $350,422,450  $36,538,577  $107,268,695  $8,381,108  $715,915,167 

  For the nine months ended September 30, 2018 
  Fishery     Organic Fertilizer  Cattle Farm       
  Development  HU Plantation  and Bread Grass  Development  Corporate and    
  Division (1)  Division (2)  Division (3)  Division (4)  others (5)  Total 
                   
Revenue $10,036,762  $3,082,503  $22,327,936  $19,100,254  $51,928,550  $106,476,004 
                         
Net income (loss) $1,521,546  $(1,123,369) $379,533  $1,687,951  $6,970,288  $9,435,949 
                         
Total assets $81,997,442  $46,569,574  $341,912,724  $41,143,209  $283,736,237  $783,373,768 

 

F-19F-18 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

  

 (1)Operated by Capital Award, Inc. (“CA”) and Jiang Men City A Power Fishery Development Co., Limited (“JFD”). On September 30, 2016, part of JFD was disposed from the Company.

 

 (2)Operated by Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”).

 

 (3)Operated by Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”), Qinghai Zhong He Meat Products Co., Limited (“QZH”), A Power Agro Agriculture Development (Macau) Limited (“APWAM”), and Hunan Shenghua A Power Agriculture Co., Limited (“HSA”).

 

 (4)Operated by Jiang Men City Hang Mei Cattle Farm Development Co. Limited (“JHMC”) and Macau Eiji Company Limited (“MEIJI”).

 

 (5)Operated by Sino Agro Food, Inc. (“SIAF”) and Sino Agro Food Sweden AB (publ) (“SAFS”).

 

F-19

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.SEGMENT INFORMATION (CONTINUED)

Further analysis of revenue:-

  For the three ended September 30, 2019 
  Fishery     Organic Fertilizer  Cattle Farm       
  Development  HU Plantation  and Bread Grass  Development  Corporate and    
  Division (1)  Division (2)  Division (3)  Division (4)  others (6)  Total 
Name of entity Sale of goods Capital Award, Inc. (“CA”) $                      
                         
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)      803,352               803,352 
                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)          2,121,458           2,121,458 
                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)          3,466,789           3,466,789 
                         
Qinghai Zhong He Meat Products Co., Limited (“QZH”)                        
                         
Macau Eiji Company Limited (“MEIJI”)              13,394,653       13,394,653 
                         
Sino Agro Food, Inc. (“SIAF”)                  17,645,062   17,645,062 
                         
Consulting and service income for development contracts Capital Award, Inc. (“CA”)  -                   - 
                         
Commission and management fee Capital Award, Inc. (“CA”)                        
  $         -   803,352   5,588,247   13,394,653   17,645,062   37,431,314 

F-20 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

 For the three ended September 30, 2017 
 Continuing Discontinued   
 operations operations   
     Organic Fertilizer           For the three months ended September 30, 2018 
 Fishery Development HU Plantation and Bread Grass Cattle Farm Development Corporate
and
 Fishery
Development
    Fishery   Organic Fertilizer Cattle Farm     
 Division (1) Division (2) Division (3) Division (4) others (5) Division (6) Total  Development HU Plantation and Bread Grass Development Corporate and   
                Division (1) Division (2) Division (3) Division (4) others (6) Total 
Name of entity Sale of goods Capital Award, Inc. (“CA”) $- $- $- $- $- $- $-  $- $- $- $- $- $- 
                            
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”) - 1,486,465 - - - - 1,486,465  - 988,029 - - - 988,029 
                            
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”) - - 1,669,684 - - - 1,669,684  - - 2,390,188 - - 2,390,188 
                            
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”) - - 6,282,189 - - - 6,282,189  - - 3,542,853 - - 3,542,853 
                            
Qinghai Zhong He Meat Products Co., Limited (“QZH”) - - 13,105,932 - - - 13,105,932  - - - - - - 
                            
Macau Eiji Company Limited (“MEIJI”) - - - 7,281,156 - - 7,281,156  - - - 8,028,333 - 8,028,333 
                            
Sino Agro Food, Inc. (“SIAF”) - - - - 15,589,136 - 15,589,136  - - - - 17,298,242 17,298,242 
                            
Consulting and service income for development contracts Capital Award, Inc. (“CA”) 2,978,371 - - - - - 2,978,371  6,502,372 - - - - 6,502,372 
                            
Commission and management fee Capital Award, Inc. (“CA”)  -  -  -  -  -  -  -   -  -  -  -  -  - 
 $2,978,371 $1,486,465 $21,057,805 $7,281,156 $15,589,136 $- $48,392,933  $6,502,372 $988,029 $5,933,041 $8,028,333 $17,298,242 $38,750,017 

F-21 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

  For the three months ended September 30, 2016 
  Continuing  Discontinued    
  operations  operations    
  Fishery     Organic Fertilizer  Cattle Farm     Fishery    
  Development  HU Plantation  and Bread Grass  Development  Corporate and  Development    
  Division (1)  Division (2)  Division (3)  Division (4)  others (5)  Division (6)  Total 
                      
Name of entity Sale of goods Capital Award, Inc. (“CA”) $-  $-  $-  $-  $-  $12,460,878  $12,460,878 
                             
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)  -   6,692,140   -   -   -   -   6,692,140 
                             
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)  -   -   5,248,212   -   -   -   5,248,212 
                             
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)  -   -   14,054,405   -   -   -   14,054,405 
                             
Qinghai Zhong He Meat Products Co., Limited (“QZH”)  -   -   29,394,528   -   -   -   29,394,528 
                             
Macau Eiji Company Limited (“MEIJI”)  -   -   -   9,658,454   -   -   9,658,454 
                             
Sino Agro Food, Inc. (“SIAF”)  -   -   -   -   23,232,486   -   23,232,486 
                             
Consulting and service income for development contracts Capital Award, Inc. (“CA”)  23,062,838   -   -   -   -   -   23,062,838 
                             
Commission and management fee Capital Award, Inc. (“CA”)  314,517   -   -   -   -   -   314,517 
  $23,377,355  $6,692,140  $48,697,145  $9,658,454  $23,232,486  $12,460,878  $124,118,458 

  For the nine months ended September 30, 2019 
  Fishery     Organic Fertilizer  Cattle Farm       
  Development  HU Plantation  and Bread Grass  Development  Corporate and    
  Division (1)  Division (2)  Division (3)  Division (4)  others (6)  Total 
Name of entity Sale of goods Capital Award, Inc. (“CA”) $                      
                         
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)      2,813,800               2,813,800 
                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)          7,171,786           7,171,786 
                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)          11,572,046           11,572,046 
                         
Qinghai Zhong He Meat Products Co., Limited (“QZH”)                        
                         
Macau Eiji Company Limited (“MEIJI”)              34,105,641       34,105,641 
                         
Sino Agro Food, Inc. (“SIAF”)                  47,908,624   47,908,624 
                         
Consulting and service income for development contracts Capital Award, Inc. (“CA”)  1,719,247                   1,719,247 
                         
Commission and management fee Capital Award, Inc. (“CA”)                        
  $1,719,247   2,813,800   18,743,832   34,105,641   47,908,624   105,291,144 

 

F-22 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

 For the nine months ended September 30, 2017  For the nine months ended September 30, 2018 
 Continuing Discontinued     Fishery   Organic Fertilizer Cattle Farm     
 Operations  operations     Development HU Plantation and Bread Grass Development Corporate and   
 Fishery     Organic Fertilizer Cattle Farm     Fishery     Division (1) Division (2) Division (3) Division (4) others (6) Total 
 Development HU Plantation and Bread Grass Development Corporate and Development    
 Division (1)  Division (2)  Division (3)  Division (4)  others (5)  Division (6)  Total 
               
Name of entity Sale of goods Capital Award, Inc. (“CA”) $-  $-  $-  $-  $-  $-  $- 
Name of entity Sale of goods Capital Award, Inc. (��CA”) $- $- $- $- $- $- 
                                         
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)  -   3,565,220   -   -   -   -   3,565,220  - 3,082,502 - - - 3,082,502 
                                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)  -   -   5,393,285   -   -   -   5,393,285  - - 7,255,245 - - 7,255,245 
                                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)  -   -   21,695,718   -   -   -   21,695,718  - - 15,072,691 - - 15,072,691 
                                         
Qinghai Zhong He Meat Products Co., Limited (“QZH”)  -   -   40,046,308   -   -   -   40,046,308  - - - - - - 
                                         
Macau Eiji Company Limited (“MEIJI”)  -   -   -   23,094,392   -   -   23,094,392  - - - 19,100,254 - 19,100,254 
                                         
Sino Agro Food, Inc. (“SIAF”)  -   -   -   -   56,769,967   -   56,769,967  - - - - 51,928,550 51,928,550 
                                         
Consulting and service income for development contracts Capital Award, Inc. (“CA”)  16,167,636   -   -   -   -   -   16,167,636  10,036,762 - - - - 10,036,762 
                                         
Commission and management fee Capital Award, Inc. (“CA”)  -   -   -   -   -   -   -   -  -  -  -  -  - 
 $16,167,636  $3,565,220  $67,135,311  $23,094,392  $56,769,967  $-  $166,732,526  $10,036,762 $3,082,502 $22,327,936 $19,100,254 $51,928,550 $106,476,004 

 

F-23 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:cost of goods sold and cost of services:-

 

  For the nine months ended September 30, 2016 
  Continuing  Discontinued    
  Operations  operations    
  Fishery
Development
  HU Plantation  Organic Fertilizer
and Bread Grass
  Cattle Farm
Development
  Corporate and  Fishery
Development
    
  Division (1)  Division (2)  Division (3)  Division (4)  others (5)  Division (6)  Total 
                      
Name of entity Sale of goods Capital Award, Inc. (“CA”) $-  $-  $-  $-  $-  $57,480,332  $57,480,332 
                             
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)  -   12,194,399   -   -   -   -   12,194,399 
                             
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)  -   -   15,561,982   -   -   -   15,561,982 
                             
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)  -   -   35,484,854   -   -   -   35,484,854 
                             
Qinghai Zhong He Meat Products Co., Limited (“QZH”)  -   -   72,956,905   -   -   -   72,956,905 
                             
Macau Eiji Company Limited (“MEIJI”)  -   -   -   21,555,101   -   -   21,555,101 
                             
Sino Agro Food, Inc. (“SIAF”)  -   -   -   -   49,303,780   -   49,303,780 
                             
Consulting and service income for development contracts Capital Award, Inc. (“CA”)  54,727,215   -   -   -   -   -   54,727,215 
                             
Commission and management fee Capital Award, Inc. (“CA”)  1,049,199   -   -   -   -   -   1,049,199 
  $55,776,414  $12,194,399  $124,003,741  $21,555,101  $49,303,780  $57,480,332  $320,313,767 

COST OF GOODS SOLD

 

  For the three months ended September 30, 2019 
  Fishery     Organic Fertilizer  Cattle Farm  Corporate    
  Development  HU Plantation  and Bread Grass  Development  and others    
  Division (1)  Division (2)  Division (3)  Division (4)  (5)  Total 
Name of entity Sale of goods Capital Award, Inc. (“CA”) $                      
                         
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)      623,169               623,169 
                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)          1,405,780           1,405,780 
                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)          2,498,199           2,498,199 
                         
Qinghai Zhong He Meat Products Co., Limited (“QZH”)                        
                         
Macau Eiji Company Limited (“MEIJI”)              10,926,470       10,926,470 
                         
Sino Agro Food, Inc. (“SIAF”)                  15,684,500   15,684,500 
  $      -   623,169   3,903,979   10,926,470   15,684,500   31,138,118 

COST OF SERVICES

For the three months ended September 30, 2019
FisheryOrganic FertilizerCattle FarmCorporate
DevelopmentHU  Plantationand Bread GrassDevelopmentand others
Division (1)Division (2)Division (3)Division (4)(5)Total
Name of entity
Consulting and service income for development contracts
Capital Award, Inc. (“CA”)             -              -               -         -        --
$-$-$-$-$-$-

F-24 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of cost of goods sold and cost of services:-

 

COST OF GOODS SOLD

 

  For the three months ended September 30, 2017 
  Continuing   Discontinued      
  operations   operations     
  Fishery  HU  Organic Fertilizer  Cattle Farm      Fishery      
  Development  Plantation  and Bread Grass  Development  Corporate and   Development      
  Division (1)  Division (2)  Division (3)  Division (4)  others (5)   Division (6)    Total 
                      
Name of entity Sale of goods Capital Award, Inc. (“CA”) $-  $-  $-  $-  $-  $-  $- 
                             
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)  -   1,248,695   -   -   -   -   1,248,695 
                             
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)  -   -   1,228,851   -   -   -   1,228,851 
                             
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)  -   -   4,289,390   -   -   -   4,289,390 
                             
Qinghai Zhong He Meat Products Co., Limited (“QZH”)  -   -   12,654,496   -   -   -   12,654,496 
                             
Macau Eiji Company Limited (“MEIJI”)  -   -   -   6,319,872   -   -   6,319,872 
                             
Sino Agro Food, Inc. (“SIAF”)  -   -   -   -   13,871,205   -   13,871,205 
  $-  $1,248,695  $18,172,737  $6,319,872  $13,871,205  $-  $39,612,509 

  For the three months ended September 30, 2018 
  Fishery     Organic Fertilizer  Cattle Farm  Corporate    
  Development  HU Plantation  and Bread Grass  Development  and others    
  Division (1)  Division (2)  Division (3)  Division (4)  (5)  Total 
Name of entity Sale of goods Capital Award, Inc. (“CA”) $-  $-  $-  $-  $-  $- 
                         
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)  -   815,981   -   -   -   815,981 
                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)  -   -   1,530,851   -   -   1,530,851 
                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)  -   -   2,355,398   -   -   2,355,398 
                         
Qinghai Zhong He Meat Products Co., Limited (“QZH”)  -   -   -   -   -   - 
                         
Macau Eiji Company Limited (“MEIJI”)  -   -   -   6,674,769   -   6,674,769 
                         
Sino Agro Food, Inc. (“SIAF”)  -   -   -   -   15,709,185   15,709,185 
  $     -  $815,981  $3,886,249  $6,674,769  $15,709,185  $27,086,184 

 

COST OF SERVICES

 

  For the three months ended September 30, 2018 
  Fishery     Organic Fertilizer  Cattle Farm  Corporate    
  Development  HU Plantation  and Bread Grass  Development  and others    
  Division (1)  Division (2)  Division (3)  Division (4)  (5)  Total 
Name of entity                        
                         
Consulting and service income for development contracts                        
                         
Capital Award, Inc. (“CA”)  5,469,059         -              -         -       -   5,469,059 
  $5,469,059  $-  $-  $-  $-  $5,469,059 

  For the three months ended September 30, 2017 
  Continuing  Discontinued    
  operations  operations    
  Fishery     Organic Fertilizer  Cattle Farm     Fishery    
  Development  HU Plantation  and Bread Grass  Development  Corporate and  Development    
  Division (1)  Division (2)  Division (3)  Division (4)  others (5)  Division (6)  Total 
                      
Name of entity                            
                             
Consulting and service income for development contracts                            
                             
Capital Award, Inc. (“CA”)  2,234,070   -   -   -   -   -   2,234,070 
  $2,234,070  $-  $-  $-  $-  $-  $2,234,070 

F-25 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of cost of goods sold and cost of services:services (Continued):-

 

COST OF GOODS SOLD

 

  For the three months ended September 30, 2016 
  Continuing  Discontinued    
  operations  operations    
  Fishery  HU  Organic Fertilizer  Cattle Farm     Fishery    
  Development  Plantation  and Bread Grass  Development  Corporate and  Development    
  Division (1)  Division (2)  Division (3)  Division (4)  others (5)  Division (6)  Total 
                      
Name of entity Sale of goods Capital Award, Inc. (“CA”) $-  $-  $-  $-  $-  $9,291,339  $9,291,339 
                             
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)  -   3,009,881   -   -   -   -   3,009,881 
                             
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)  -   -   3,063,392   -   -   -   3,063,392 
                             
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)  -   -   9,710,033   -   -   -   9,710,033 
                             
Qinghai Zhong He Meat Products Co., Limited (“QZH”)  -   -   23,542,313   -   -   -   23,542,313 
                             
Macau Eiji Company Limited (“MEIJI”)  -   -   -   9,119,428   -   -   9,119,428 
                             
Sino Agro Food, Inc. (“SIAF”)  -   -   -   -   20,576,693   -   20,576,693 
  $-  $3,009,881  $36,315,738  $9,119,428  $20,576,693  $9,291,339  $78,313,079 

  For the nine months ended September 30, 2019 
  Fishery
Development
Division (1)
  HU Plantation
Division (2)
  Organic Fertilizer
and Bread Grass
Division (3)
  Cattle Farm
Development
Division (4)
  Corporate
and others
(5)
  Total 
Name of entity Sale of goods Capital Award, Inc. (“CA”) $                    - 
                                      
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)      2,120,374               2,120,374 
                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)          4,656,829           4,656,829 
                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)          8,287,736           8,287,736 
                         
Qinghai Zhong He Meat Products Co., Limited (“QZH “)                      - 
                         
Macau Eiji Company Limited (“MEIJI”)              27,890,578       27,890,578 
                         
Sino Agro Food, Inc. (“SIAF”)                  42,577,034   42,577,034 
  $      -   2,120,374   12,944,565   27,890,578   42,577,034   85,532,551 

 

COST OF SERVICES

 

  For the three months ended September 30, 2016 
  Continuing  Discontinued    
  operations  operations    
  Fishery     Organic Fertilizer  Cattle Farm  Corporate  Fishery    
  Development  HU Plantation  and Bread Grass  Development  and others  Development    
  Division (1)  Division (2)  Division (3)  Division (4)  (5)  Division (6)  Total 
                      
Name of entity                            
                             
Consulting and service income for development contracts                            
                             
Capital Award, Inc. (“CA”)  12,450,460  $-  $-  $-  $-  $-  $12,450,460 
  $12,450,460  $-  $-  $-  $-  $-  $12,450,460 
  For the nine months ended September 30, 2019 
  Fishery
Development
Division (1)
  HU Plantation
Division (2)
  Organic Fertilizer
and Bread Grass
Division (3)
  Cattle Farm
Development
Division (4)
  Corporate
and others
(5)
  Total 
Name of entity Consulting and service income for development contracts                                                                                            
                         
Capital Award, Inc. (“CA”)  1,590,017                   1,590,017 
                         
  $1,590,017                   1,590,017 

F-26 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of cost of goods sold and cost of services (Continued):-

 

COST OF GOODS SOLD

 

  For the nine months ended September 30, 2017 
  Continuing
operations
  Discontinued
operations
    
  Fishery
Development
Division (1)
  HU
Plantation
Division (2)
  Organic Fertilizer
and Bread Grass
Division (3)
  Cattle Farm
Development
Division (4)
  Corporate
and others
(5)
  Fishery
Development
Division (6)
  Total 
                      
Name of entity Sale of goods Capital Award, Inc. (“CA”) $-  $-  $-  $-  $-  $-  $- 
                             
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)  -   2,334,052   -   -   -   -   2,334,052 
                             
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)  -   -   3,765,816   -   -   -   3,765,816 
                             
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)  -   -   14,517,323   -   -   -   14,517,323 
                             
Qinghai Zhong He Meat Products Co., Limited (“QZH”)  -   -   37,555,254   -   -   -   37,555,254 
                             
Macau Eiji Company Limited (“MEIJI”)  -   -   -   19,582,042   -   -   19,582,042 
                             
Sino Agro Food, Inc. (“SIAF”)  -   -   -   -   50,476,389   -   50,476,389 
  $-  $2,334,052  $55,838,391  $19,582,042  $50,476,389  $-  $128,230,874 

  For the nine months ended September 30, 2018 
  Fishery
Development
Division (1)
  HU
Plantation
Division (2)
  Organic Fertilizer
and Bread Grass
Division (3)
  Cattle Farm
Development
Division (4)
  Corporate
and others
(5)
  Total 
Name of entity Sale of goods Capital Award, Inc. (“CA”) $-  $-  $-  $-  $-  $- 
                         
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)  -   2,569,886   -   -   -   2,569,886 
                         
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)  -   -   4,790,131   -   -   4,790,131 
                         
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)  -   -   9,981,074   -   -   9,981,074 
                         
Qinghai Zhong He Meat Products Co., Limited (“QZH”)  -   -   -   -   -   - 
                         
Macau Eiji Company Limited (“MEIJI”)  -   -   -   16,711,195   -   16,711,195 
                         
Sino Agro Food, Inc. (“SIAF”)          -   -   -   -   46,568,177   46,568,177 
  $-  $2,569,886  $14,771,205  $16,711,195  $46,568,177  $80,620,463 

 

COST OF SERVICES

 

 For the nine months ended September 30, 2017 
 Continuing
operations
  Discontinued
operations
    
 Fishery
Development
Division (1)
  HU
Plantation
Division (2)
  Organic Fertilizer
and Bread Grass
Division (3)
  Cattle Farm
Development
Division (4)
  Corporate
and others
(5)
  Fishery
Development
Division (6)
  Total  For the nine months ended September 30, 2018 
                Fishery
Development
Division (1)
 HU
Plantation
Division (2)
 Organic Fertilizer
and Bread Grass
Division (3)
 Cattle Farm
Development
Division (4)
 Corporate
and others
(5)
 Total 
Name of entity Consulting and service income for development contracts                                         
                                         
Capital Award, Inc. (“CA”)  11,016,962   -   -   -   -   -   11,016,962   8,133,799      -          -             -            -  8,133,799 
 $11,016,962  $-  $-  $-  $-  $-  $11,016,962              
 $8,133,799 $- $- $- $- $8,133,799 

 

F-27 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

Further analysis of cost of goods sold and cost of services (Continued):-

COST OF GOODS SOLD

  For the nine months ended September 30, 2016 
  Continuing
operations
  Discontinued
operations
    
  Fishery
Development
Division (1)
  HU
Plantation
Division (2)
  Organic Fertilizer
and Bread Grass
Division (3)
  Cattle Farm
Development
Division (4)
  Corporate
and others
(5)
  Fishery
Development
Division (6)
  Total 
                      
Name of entity Sale of goods Capital Award, Inc. (“CA”) $-  $-  $-  $-  $-  $44,401,078  $44,401,078 
                             
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)  -   5,664,598   -   -   -   -   5,664,598 
                             
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)  -   -   9,373,214   -   -   -   9,373,214 
                             
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)  -   -   23,879,210   -   -   -   23,879,210 
                             
Qinghai Zhong He Meat Products Co., Limited (“QZH”)  -   -   55,598,165   -   -   -   55,598,165 
                             
Macau Eiji Company Limited (“MEIJI”)  -   -   -   20,392,263   -   -   20,392,263 
                             
Sino Agro Food, Inc. (“SIAF”)  -   -   -   -   43,452,904   -   43,452,904 
  $-  $5,664,598  $88,850,589  $20,392,263  $43,452,904  $44,401,078  $202,761,432 

COST OF SERVICES

  For the nine months ended September 30, 2016 
  Continuing
operations
  Discontinued
operations
    
  Fishery
Development
Division (1)
  HU
Plantation
Division (2)
  Organic Fertilizer
and Bread Grass
Division (3)
  Cattle Farm
Development
Division (4)
  Corporate
and others
(5)
  Fishery
Development
Division (6)
  Total 
                      
Name of entity Consulting and service income for development contracts                            
                             
Capital Award, Inc. (“CA”)  35,377,800   -   -   -   -   -   35,377,800 
  $35,377,800  $-  $-  $-  $-  $-  $35,377,800 

F-28

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.4.INCOME TAXES

 

United States of America

 

The Company was incorporated in the State of Nevada, in the United States of America. The Company has no trading operations in United States of America and no U.S. corporate tax has been provided for in the consolidated financial statements of the Company. However, see the discussion, below, under “Undistributed Earnings of Foreign Subsidiaries”.

 

Undistributed Earnings of Foreign Subsidiaries

 

The Company intends to use the remaining accumulated and future earnings of foreign subsidiaries to expand operations outside the United States but some of these profits may have to be used to satisfy U.S. income tax liabilities based on the operations of its controlled foreign subsidiaries. Prior to 2017, depending on how and accordingly, undistributedwhere their controlled foreign corporations were operated, U.S. companies did not always have to pay tax on the earnings of their controlled foreign subsidiaries are consideredcorporations, and the Company believes that prior to be indefinitely reinvested outside2017 the earnings of its controlled foreign corporations were not taxable in the United States anduntil distributed to the Company. Accordingly, the Company made no provision for U.S. Federal and State income tax or applicable dividend distribution tax has been provided thereon.

tax. The Company appointed US tax professionals to assist in filingfiled yearly U.S. federal income tax returns forfrom 2007 to 2017 on which it has reported that there was no no tax due to the years ended December 31, 2016 in compliance with US Treasury Internal Revenue Code and we filed our 2015 Tax returns with the Internal Revenue Service (“IRS”) in 2016.United States.

 

AsHowever, the Tax Cuts and Jobs Act of September 30, 2017 (the “2017 Act”) now requires some U.S. companies (starting in 2018) to pay tax on the earnings of their controlled foreign corporations based on complex formulas. The Company reviewed its tax position withhas not yet analyzed the assistance US tax professionals and believed that there would be no taxes and no penalties assessed byimpact of these changes on the IRStaxability in the United States of America.the earnings of its foreign subsidiaries and so does not know whether it has for 2018, or will have for 2019 and future years, any earnings subject to U.S. federal income tax. In addition, the 2017 Act required U.S. companies to repatriate, as of the end of 2017, their accumulated earnings to date. The Company has not yet determined whether it incurred a U.S. tax liability as of the end of 2017 under this repatriation provision of the 2017 Act. The Company is seeking professional advice from U.S. tax accountants as to the impact on the Company of the 2017 Act for 2017 and later years. In fiscal year 2017 the Company had an operating loss of $30,102,943 based on the consolidated financials of its controlled foreign corporations, but it has had operating profits in previous years.

 

F-29F-28 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

5.4.INCOME TAXES (CONTINUED)

 

China

 

Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the existing laws for Domestic Enterprises (“DE’s”) and Foreign Invested Enterprises (“FIE’s”). The new standard EIT rate of 25% replaced the 33% rate currently applicable to both DE’s and FIE’s. The Company is currently evaluating the impact that the new EIT will have on its financial condition. Beginning January 1, 2008, China unified the corporate income tax rule on foreign invested enterprises and domestic enterprises. The unified corporate income tax rate is 25%.

 

Under new tax legislation in China beginning in January 2008, the agriculture, dairy and fishery sectors are exempt from enterprise income taxes.

 

No EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, HSA SJAP and QZHSJAP since they are exempt from EIT for the nine months ended September 30, 20172019 and 20162018 as they are within the agriculture, and cattle sectors.

 

NoHowever, EIT has been providedprovide in the financial statements of JFDSJAP since they are exemptit has generated income from EITtrading of agricultural products for the nine months ended September 30, 2016.2019.

 

Belize

 

CA, CS and CH are international business companies incorporated in Belize, and are exempt from corporate tax in Belize.

Hong Kong

No Hong Kong profits tax has been provided in the consolidated financial statements of TRW, since these entities did not earn any assessable profits arising in Hong Kong for the nine months ended September 30, 2016.

 

Macau

 

No Macau Corporate income tax has been provided in the consolidated financial statements of APWAM and MEIJI since these entities did not earn any assessable profits for the ninethree months ended September 30, 20172019 and 2016.2018.

 

Sweden

 

No Sweden Corporate income tax has been provided in the consolidated financial statements of SAFS since SAFS incurred a tax loss for the ninethree months ended September 30, 20172019 and 2016.2018.

 

No deferred tax assets and liabilities are of September 30, 20172019 and December 31, 20162018 since there was no difference between the financial statements carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the period in which the differences are expected to reverse.

 

Provision for income taxes is as follows:

 

Three months ended
September 30, 2017
Three months ended
September 30, 2016
Nine months ended
September 30, 2017
Nine months ended
September 30, 2016
SIAF$-$-$-$-
SAFS----
TRW----
MEIJI and APWAM----
JHST, JFD, JHMC, SJAP, QZH and HSA----
$-$-$-$-

  Nine months ended
September 30, 2019
  Nine months ended
September 30, 2018
 
  (Unaudited)  (Unaudited) 
SIAF $-  $- 
SAFS  -   - 
MEIJI and APWAM  -   - 
JHST, JHMC, SJAP, HSA  6,518   - 
  $6,518  $       - 

 

The Company did not recognize any interest or penalties related to unrecognized tax benefits in the nine months ended September 30, 20172019 and 2016.2018. The Company had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by the respective tax authorities.

 

F-30F-29 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

6.NET INCOME FROM DISCONTINUED OPERATIONS

On August 15, 2016, the acquisition agreement was executed by TRW for acquiring the other 25% equity in JFD which was a Sino Foreign Joint Venture Co. that TRW had 100% equity interest with effect on October 5, 2016. Upon the acquisitions of 3 additional prawn farms assets at fair value of US$238.32 million from respective third parties and the master technology license at fair value of US$30 million from Capital Award, Inc. by JFD, and the consideration of the above acquisitions were planned to be settled by the new issue shares of 99,990,000 TRW shares at $3.41 amounting to $340.53 million on or before March 31, 2017. As a result, SIAF’s equity interest in TRW was diluted from 100% to 23.89% with effective on October 5, 2016. The above transactions leaded the Company loss of control over TRW group, the Company’s investments in TRW and JFD were reclassified from a subsidiary to investments in unconsolidated equity investees as of October 5, 2016. The dilution of the Company’s investments in TRW group constituted a deemed disposal of the subsidiaries. The deemed gain on disposal of $56,947,005 was recorded in the consolidated statement of profit and loss account of the Company for the year ended December 31, 2016. On October 1, 2016, SIAF took all assets and liabilities of TRW and JFD except plant and equipment - fish farm. The Company intends to convert the amount due from and into equity interest in its unconsolidated equity investee ($40,788,236) during the fourth quarter 2017, which would result in an equity interest in TRW increasing from its current 23.89% to 36.60%. 

Prior to loss of control over TRW group, the Fishery Development Division represented a separate business segment. On October 5, 2016, (i) Jiang Men City A Power Fishery Development Co., Limited (“JFD”) and Tri- Way Industries Limited (“TRW”), part of Fishery Division, were disposed from the Company; and (ii) Capital Award Inc. (“CA”), part of Fishery Development Division, ceased its income from sale of goods - fishery since October 5, 2016. As a result, Fishery Development Division - sale of goods was treated as Discontinued operations. The post-tax result of the Fishery Development Division has been disclosed as a discontinued operation in the consolidated statements of income and comprehensive income. Loss of control over TRW and JFD were not subject to business tax of PRC and income tax of PRC and Hong Kong.

The Company did not retain any significant continuing involvements with discontinued operations - Fishery Development Division, and retained its investment in the discontinued operations as unconsolidated equity investee upon closing the transaction pursuant to ASC 205-20-50-24A and B. There was no option to repurchase a discontinued operation.

Net income from discontinued operations

  Three months ended
September 30, 2017
  Three months ended
September 30, 2016
  Nine months ended
September 30, 2017
  Nine months ended
September 30, 2016
 
             
Revenue                
-Sale of goods $-  $12,460,878  $-  $57,480,332 
Cost of sales  -   (9,291,339)  -   (44,401,078)
Gross profit  -   3,169,539   -   13,079,254 
                 
General and administrative expenses  -   (270,028)  -   (791,347)
                 
Income from operations  -   2,899,511   -   12,287,907 
Interest income/(expenses)  -   617   -   323 
Net income from discontinued business  -   2,900,128   -   12,288,230 
Provision for income taxes  -   -   -   - 
Net income from discontinued operations  -   2,900,128   -   12,288,230 
Less: Net income attributable to the non-controlling interest  -   (132,3532)  -   (820,973)
                 
Net income from discontinued operations attributable to Sino Agro Food, Inc. and subsidiaries $-  $2,767,775  $-  $11,467,257 

F-31

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.5.CASH AND CASH EQUIVALENTS

 

  September 30, 2017  December 31, 2016 
         
Cash and bank balances $1,865,684  $2,576,058 

F-32

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  September 30, 2019  December 31, 2018 
  (Unaudited)  (Audited) 
Cash and bank balances $671,544  $4,950,799 

  

8.6.INVENTORIES

 

As of September 30, 2017,2019, inventories are as follows:

 

  September 30, 2017  December 31, 2016 
       
Sleepy cods, prawns, eels and marble goby  -   481,509 
Beef and mutton  23,435,619   13,217,456 
Bread grass  1,423,165   2,115,815 
Beef cattle  6,638,851   6,814,132 
Organic fertilizer  19,451,282   15,901,153 
Forage for cattle and consumable  8,787,059   6,536,517 
Raw materials for bread grass and organic fertilizer  18,534,940   15,829,424 
Immature seeds  2,074,281   1,696,266 
  $80,345,197  $62,592,272 

  September 30, 2019  December 31, 2018 
  (Unaudited)  (Audited) 
Bread grass  397,525   744,378 
Beef cattle  14,985,211   11,561,117 
Organic fertilizer  12,554,853   14,266,923 
Forage for cattle and consumable  5,849,951   7,252,280 
Raw materials for bread grass and organic fertilizer  15,993,746   18,885,258 
Immature seeds  1,757,923   1,872,285 
  $51,539,209  $54,582,241 

  

9.7.DEPOSITS AND PREPAYMENTS

 

  September 30, 2017  December 31, 2016 
       
Deposits for        
-  purchases of equipment $6,733,546  $5,555,471 
-  acquisition of land use rights  3,373,110   3,373,110 
- inventories purchases  15,685,124   13,729,305 
- aquaculture contracts  2,261,538   2,261,538 
- consulting service providers and others  6,317,702   8,150,000 
- construction in progress  13,871,440   13,719,339 
- issue of shares as collateral  35,250,553   26,493,841 
Prepayments - debts discounts and others  3,812,152   5,007,015 
Shares issued for employee compensation and overseas professional and bond interest  302,738   3,982,812 
Others  6,327,576   2,573,535 
  $93,935,479  $84,845,966 

  September 30, 2019  December 31, 2018 
  (Unaudited)  (Audited) 
Deposits for        
- purchases of equipment $1,198,969  $2,158,867 
- acquisition of land use rights  169,659   174,851 
- inventories purchases  6,676,335   16,921,188 
- construction in progress  3,862,859   4,789,035 
- issue of shares as collateral  25,761,658   24,928,324 
Shares issued for employee compensation and overseas professional and bond interest  -   643,457 
Others  2,631,797   2,625,468 
  $40,301,277  $52,241,190 

 

10.8.ACCOUNTS RECEIVABLE

 

The Company has performed an analysis on all of its accounts receivable and determined that all amounts are collectible by the Company. As such, all accounts receivable are reflected as a current asset and no allowance for bad debt has been recorded as of September 30, 20172019 and December 31, 2016. Bad debts written off for the three months ended and the nine months ended September 30, 2017, and 2016 are $0.2018.

 

Aging analysis of accounts receivable is as follows:

 

  September 30, 2017  December 31, 2016 
       
0 - 30 days $16,093,379  $28,550,628 
31 - 90 days  23,944,325   29,905,888 
91 - 120 days  11,707,115   39,219,847 
over 120 days and less than 1 year  53,410,424   25,235,723 
over 1 year  -   - 
  $105,155,243  $122,912,086 

  September 30, 2019  December 31, 2018 
  (Unaudited)  (Audited) 
0 - 30 days $1,856,007  $7,447,269 
31 - 90 days  33,952,877   22,684,605 
91 - 120 days  10,686,718   16,456,895 
over 120 days and less than 1 year  4,659,565   11,773,454 
over 1 year  58,841,689   43,289,908 
  $109,996,856  $101,652,131 

 

F-33F-30 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

11.9.OTHER RECEIVABLES

 

  September 30, 2017  December 31, 2016 
       
Advanced to employees $326,587  $260,007 
Advanced to suppliers  14,655,824   9,428,841 
Advanced to customers  18,635,244   19,469,256 
Advanced to developers  16,032,772   7,500,000 
Others  9,138,954   10,462,696 
  $58,789,381  $47,120,800 

  September 30, 2019  December 31, 2018 
  (Unaudited)  (Audited) 
Advanced to employees $583,556  $561,330 
Advanced to suppliers  4,312,819   3,831,926 
Advanced to customers  14,136,055   14,114,249 
Advanced to developers  439,700   453,155 
Others  4,111,778   9,346,866 
  $23,583,908  $28,307,526 

 

Advanced to employees, suppliers, customers and developers are unsecured, interest free and with no fixed terms of repayment.

 

The Company entered loan agreements with suppliers, customers and developers to assist them to procure project loans.

12.10.PLANT AND EQUIPMENT

 

  September 30, 2017  December 31, 2016 
       
Plant and machinery $7,203,563  $6,022,686 
Structure and leasehold improvements  171,577,557   163,414,025 
Mature seeds and herbage cultivation  44,206,623   28,781,286 
Furniture and equipment  912,754   827,356 
Motor vehicles  963,254   926,511 
   224,863,751   199,971,864 
         
Less: Accumulated depreciation  (17,242,391)  (10,244,637)
Net carrying amount $207,621,360  $189,727,227 

  September 30, 2019  December 31, 2018 
  (Unaudited)  (Audited) 
Plant and machinery $17,559,162  $5,299,631 
Structure and leasehold improvements  195,526,199   200,734,812 
Mature seeds and herbage cultivation  61,408,570   54,643,255 
Furniture and equipment  692,452   695,461 
Motor vehicles  576,042   590,416 
   275,762,425   261,963,575 
         
Less: Accumulated depreciation  (37,891,532)  (31,317,916)
Net carrying amount $237,870,893  $230,645,659 

 

Depreciation expense was $2,491,515, $1,142,872, $6,997,754$2,614,634 and $3,406,801$2,552,397, $7,676,784 and $7,877,928 for the three months ended and the nine months ended September 30, 20172019 and 2016,2018, respectively.

 

14.11.CONSTRUCTION IN PROGRESS

 

  September 30, 2017  December 31, 2016 
       
Construction in progress        
- Office, warehouse and organic  fertilizer plant in HSA $4,670,785  $4,474,428 
- Oven room, road for production of dried flowers  5,155,478   3,603,863 
- Organic fertilizer and bread grass production plant and office building  3,341,861   622,036 
- Rangeland for beef cattle and office building  10,558,715   8,674,515 
- Fish pond  17,782,371   17,782,371 
  $41,509,210  $35,157,213 

15.LAND USE RIGHTS
  September 30, 2019  December 31, 2018 
  (Unaudited)  (Audited) 
Construction in progress        
- Office, warehouse and organic  fertilizer plant in HSA      7,285 
- Organic fertilizer and bread grass production plant and office building      6,484,045 
- Rangeland for beef cattle and office building  10,427,213   6,024,197 
  $10,427,213  $12,515,527 

 

Private ownership of agricultural land is not permitted in the P.R.C. Instead, the Company has leased seven lots of land. The cost of the first lot of land use rights acquired in 2007 in Guangdong Province, the P.R.C. was $6,408,289 and consists of 180.26 acres with the lease expiring in 2067. The cost of the second lot of land use rights acquired in 2008 in Guangdong Province, the P.R.C. was $764,128, which consists of 31.84 acres with the lease expiring in 2068. The cost of the third lot of land use rights acquired in 2011 was $12,040,571, which consists of 84.5 acres in Guangdong Province, the P.R.C. with the lease expires in 2037. The cost of the fourth lot of land use rights acquired in 2011 was $35,405,750 which consisted of 287.27 acres in the Hunan Province, the P.R.C. and the leases expire in 2051, 2054 and 2071. The cost of the fifth lot of land use rights acquired in 2012 was $528,240 which consisted of 21.09 acres in Qinghai Province, the P.R.C. and the lease expires in 2051. The cost of the sixth lot of land use rights acquired in 2013 was $489,904 which consisted of 6.26 acres in Guangdong Province, the P.R.C. and the lease expires in 2023. The cost of the seventh lot of land use rights acquired in 2014 was $4,453,665 which consisted of 33.28 acres in Guangdong Province, the P.R.C. and the lease expires in 2044.

F-34F-31 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

15.12.LAND USE RIGHTS (CONTINUED)

 

  September 30, 2017  December 31, 2016 
       
Cost $64,703,394  $62,300,409 
Less: Accumulated amortization  (10,199,388)  (8,626,719)
Net carrying amount $54,504,006  $53,673,690 

  September 30, 2019  December 31, 2018 
  (Unaudited)  (Audited) 
Cost $64,096,634  $65,779,178 
Less: Accumulated amortization  (12,893,888)  (11,964,897)
Net carrying amount $51,202,746  $53,814,281 

 

  Amount 
    
Balance @1.1.2016 $65,961,071 
Exchange difference  (3,660,662)
Balance @12.31.2016 $62,300,409 
Exchange difference  2,402,985 
Balance @9.30.2017 $64,703,394 

  Amount 
Balance @1.1.2018 $65,573,223 
Exchange difference  205,955 
Balance @12.31.2018 $65,779,178 
Exchange difference  (1,682,544)
Balance @6.30.2019 $64,096,634 

 

Land use rights are amortized on the straight-line basis over their respective lease periods. The lease period of agriculture land is 3010 to 60 years. Amortization of land use rights was $567,309, $361,634, $1,572,669$541,401, $325,169, $1,242,039 and $1,053,668$1,166,622 for the three months and the nine months ended September 30, 20172019 and 20162018 respectively.

 

16.13.GOODWILL

 

Goodwill represents the fair value of the assets acquired the acquisitions over the cost of the assets acquired. It is stated at cost less accumulated impairment losses. Management tests goodwill for impairment on an annual basis or when impairment indicators arise. In these instances, the Company recognizes an impairment loss when it is probable that the estimated cash flows are less than the carrying value of the assets. To date, no such impairment loss has been recorded.

 

 September 30, 2017  December 31, 2016  September 30, 2019 December 31, 2018 
      (Unaudited) (Audited) 
Goodwill from acquisition $724,940  $724,940  $724,940 $724,940 
Less: Accumulated impairment losses  -   -   -  - 
Net carrying amount $724,940  $724,940  $724,940 $724,940 

 

17.14.PROPRIETARY TECHNOLOGIES

 

By an agreement dated November 12, 2008, TRW acquired an enzyme technology master license, registered under a Chinese patent, for the manufacturing of livestock feed and bioorganic fertilizer and its related labels for $8,000,000. On October 1, 2015, the Company took up such assets at $5,473,720 from TRW. On October 5, 2016, TRW and JFD were derecognized as subsidiaries.$5,473,720.

 

On March 6, 2012, MEIJI acquired an aromatic-feed formula technology for the production of aromatic cattle for $1,500,000. On October 1, 2013, SIAF was granted a license to exploit sleepy cods breeding technology to grow out of sleepy cods for $2,270,000 for 50 years. SJAP booked bacterial cellulose technology license and related trademark for $2,119,075 and amortized expenditures for 20 years starting from January 1, 2014.

 

F-35F-32 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

17.14.PROPRIETARY TECHNOLOGIES (CONTINUED)

 

 September 30, 2019 December 31, 2018 
 September 30, 2017  December 31, 2016  (Unaudited) (Audited) 
          
Cost $11,184,696  $11,108,131  $11,055,857 $11,113,267 
Less: Accumulated amortization  (1,465,018)  (1,017,434)  (2,594,312)  (2,176,196)
Net carrying amount $9,719,678  $10,090,697  $8,461,545 $8,937,071 

  

Amortization of proprietary technologies was $152,440, $145,055, $447,584$144,497 and $429,937$145,062, $434,863 and $438,503 for the three months and the nine months ended September 30, 20172019 and 2016,2018, respectively.  No impairments of proprietary technologies have been identified for the three months and the nine months ended September 30, 20172019 and 2016.2018.

 

18.15.INTERESTS IN UNCONSOLIDATED EQUITY INVESTEES

 

On February 28, 2011, TRW applied to form a corporate joint venture, Enping City Bi Tao A Power Fishery Development Co., Limited (“EBAPFD”), incorporated in the PRC. TRW owned a 25% equity interest in EBAPFD. On November 17, 2011, TRW formed Jiang Men City A Power Fishery Development Co., Limited (“JFD”) in which it acquired a 25% equity interest, while withdrawing its 25% equity interest in EBAPFD. As of December 31, 2011, the Company had invested for total cash consideration of $1,258,607 in JFD. JFD operates an indoor fish farm. On January 1, 2012, the Company acquired an additional 25% equity interest in JFD for total cash consideration of $1,662,365. As of January 1, 2012, the Company had consolidated the assets and operations of JFD. On April 1, 2012, the Company acquired an additional 25% equity interest in JFD for the total cash consideration of $1,702,580. These acquisitions were at our option according the terms of the original development agreement. The Company owned a 75% equity interest in JFD, representing majority of voting rights and controls its board of directors.

 

On August 15, 2016, the acquisition agreement was executed by TRW for acquiring the other 25% equity in JFD which was a Sino Foreign Joint Venture Co. that TRW had 100% equity interest with effect on October 5, 2016. Upon the acquisitions of 3 additional prawn farms assets at fair value of $238.32 million from respective third parties and the master technology license at fair value of $30 million from Capital Award, Inc. by JFD, and the consideration of the above acquisitions were planned to be settled by the new issue shares of 99,990,000 TRW shares at $3.41 amounting to $340.53 million on or before March 31,June 30, 2017. As a result, SIAF’s equity interest in TRW was diluted from 100% to 23.89% with effective on October 5, 2016. The above transactions leaded the Company loss of control over TRW group, the Company’s investments in TRW and JFD were reclassified from a subsidiary to investments in unconsolidated equity investees as of October 5, 2016. The dilution of the Company’s investments in TRW group constituted a deemed disposal of the subsidiaries. The deemed gain on disposal of $56,947,005 was recorded in net income from discontinued operations of the consolidated statements of income and other comprehensive income of the Company for the year ended December 31, 2016. On October 1, 2016, SIAF took up all assets and liabilities of TRW and JFD except plant and equipment - fish farm. The Company intends to convertconverted the amount due from andunconsolidated equity investee into equity interest in its unconsolidated equity investee ($40,788,236) during the fourth quarter of 2017, which would resultresulted in an equity interest in TRW increasing from its current 23.89% to 36.60%.

  September 30, 2019  December 31, 2018 
  (Unaudited)  (Audited) 
Investments at cost        
-   TRW $162,444,883  $149,720,418 
Amount due from a consolidated equity investee - TRW  59,285,521   57,354,208 
  $221,730,404  $207,074,626 

 

On May 6, 2016, SJAP invested in 30% equity interest in Guangzhou Horan Taita Information Technology Co., Limited (“HTIT”), a company incorporated in P.R.C. for $150,806.

  September 30, 2017  December 31, 2016 
       
Investments at cost        
-   TRW $124,657,542  $83,869,286 
-   HITT  160,670   144,154 
Amount due from a consolidated equity investee - TRW  14,438,797   55,120,003 
Share of post-acquisition profits  5,262,524   - 
  $144,519,533  $139,133,443 

F-36F-33 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

19.LONG TERM INVESTMENT

  September 30, 2017  December 31, 2016 
       
Investment in Huangyuan County Rural Credit Union $753,352  $720,773 
Less: Accumulated impairment losses  -   - 
  $753,352  $720,773 

20.16.TEMPORARY DEPOSITS PAID TO ENTITIES FOR EQUITY INVESTMENTS IN FUTURE SINO JOINT VENTURE COMPANIES

 

Intended                  
unincorporated Projects        Projects       
Investee Engaged   September 30, 2017  December 31, 2016  Engaged   September 30, 2019 December 31, 2018 
     (Unaudited) (Audited) 
A Trade center * $4,086,941  $4,086,941  Trade center * $12,000,000 $12,000,000 
B Fish Farm 2 GaoQiqiang Aquaculture *  6,000,000   6,000,000  Fish Farm 2 GaoQiqiang Aquaculture * 17,403,959 17,403,959 
C Cattle farm 2 *  5,558,057   5,558,057  Cattle farm 2 *  5,496,389  5,502,001 
     $15,644,998  $15,644,998    $34,900,349 $34,905,960 

 

The Company made temporary deposits paid to entities for equity investments in future Sino Joint Venture companies (“SJVCs”) engaged in projects development of trade and seafood centers, fish, prawns and cattle farms. Such temporary deposits represented as deposits of the respective consideration required for the purchase of equity stakes of respective future SJVCs. The amounts were classified as temporary because legal procedures of formation of SJVCs have not yet been completed. As of SemptemberSeptember 30, 2017,2019, the percentages of equity stakes of A (trade center)and seafood centers), B (fish farm 2 GaoQiqiang Aquaculture Farm) and C (cattle farm 2) are 31%, 23% and 35% respectively.

 

 *The above amounts were subject to conversion to an additional equity investment in the investees upon the completion of legal procedures of formation of SJVCs.

 

21.17.VARIABLE INTEREST ENTITY

 

On September 28, 2009, APWAM acquired the PMH’s 45% equity interest in the Sino-Foreign joint venture company, Qinghai Sanjiang A Power Agriculture Co. Limited (“SJAP”), which was incorporated in the P.R.C. As of September 30, 2017,2019, the Company has invested $2,251,359$4,054,421 in this joint venture. SJAP is engaged in its business of the manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures.

 

Continuous assessment of the VIE relationship with SJAP

The Company may also have a controlling financial interest in an entity through an arrangement that does not involve voting interests, such as a VIE. The Company evaluates entities deemed to be VIE’s using a risk and reward model to determine whether to consolidate. A VIE is an entity (1) that has total equity at risk that is not sufficient to finance its activities without additional subordinated financial support from other entities, (2) where the group of equity holders does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s expected losses or the right to receive the entity’s expected residual returns, or both, or (3) where the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately fewer voting rights.

F-37

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21.VARIABLE INTEREST ENTITY (CONTINUED)

The Company also quantitatively and qualitatively examined if SJAP is considered a VIE. Qualitative analyses considered the extent to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine if SJAP was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant managerial judgment because of the inherent limitations that relate to the use of historical data for the projection of future events. On September 30, 2017, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of SJAP’s expected losses or residual returns and that SJAP qualifies as a VIE of the Company. As result, the Company has consolidated SJAP as a VIE.

The reasons for the changes are as follows:

·Originally, the board of directors of SJAP consisted of 7 members; 3 appointees from Qinghai Sanjiang (one stockholder), 1 from Garwor (one stockholder), and 3 from the Company, such that the Company did not have majority interest represented on the board of directors of SJAP.

·On May 7, 2010, Qinghai Sanjiang sold and transferred its equity interest in SJAP to Garwor. The State Administration for Industry and Commerce of Xining City Government of the P.R.C. approved the sale and transfer.

Consequently Garwor, Quanwang and the Company agreed that the new board of directors of SJAP would consist of 3 members; 1 appointee from Garwor and 2 appointees from the Company, such that the Company now had a majority interest in the board of directors of SJAP. Also, and in accordance with the Company’s Sino Joint Venture Agreement, the Company’s management appointed the chief financial officer of SJAP. As a result, the financial statements of SJAP were included in the consolidated financial statements of the Company.

Continuous assessment of the VIE relationship with QZH

The Company may also have a controlling financial interest in an entity through an arrangement that does not involve voting interests, such as a VIE. The Company evaluates entities deemed to be VIE’s using a risk and reward model to determine whether to consolidate. A VIE is an entity (1) that has total equity at risk that is not sufficient to finance its activities without additional subordinated financial support from other entities, (2) where the group of equity holders does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s expected losses or the right to receive the entity’s expected residual returns, or both, or (3) where the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately fewer voting rights.

 

F-34

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.VARIABLE INTEREST ENTITY (CONTINUED)

The Company also quantitatively and qualitatively examined if QZHSJAP is considered a VIE. Qualitative analyses considered the extent to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine if QZHSJAP was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant managerial judgment because of the inherent limitations that relate to the use of historical data for the projection of future events. On SeptemberJune 30, 2017,2018, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of QZH’sSJAP’s expected losses or residual returns and that QZHSJAP qualifies as a VIE of the Company. As result, the Company has consolidated QZHSJAP as a VIE.

 

SJAP is sole stockholder of QZHThe reasons for the changes are as follows:

·Originally, the board of directors of SJAP consisted of 7 members; 3 appointees from Qinghai Sanjiang (one stockholder), 1 from Garwor (one stockholder), and 3 from the Company, such that the Company did not have majority interest represented on the board of directors of SJAP.

·On May 7, 2010, Qinghai Sanjiang sold and transferred its equity interest in SJAP to Garwor. The State Administration for Industry and Commerce of Xining City Government of the P.R.C. approved the sale and transfer.

Consequently Garwor and SJAP appointed sole director of QZH. Consequently, the Company indirectly control directorshipagreed that the new board of QZH,directors of SJAP would consist of 3 members; 1 appointee from Garwor and 2 appointees from the Company, such that the Company now had a majority interest in the directorshipboard of QZH.directors of SJAP. Also, and in accordance with the Company’s Sino Joint Venture Agreement, the Company’s management appointed the chief financial officer of QZH.SJAP. As a result, the financial statements of QZHSJAP were included in the consolidated financial statements of the Company.

 

F-38F-35 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2218..CONSTRUCTION CONTRACT

 

 (i)Costs and estimated earnings in excess of billings on uncompleted contracts

 

 September 30, 2017  December 31, 2016  September 30,
2019
 December 31,
2018
 
      (Unaudited) (Audited) 
Costs $8,208,913  $7,288,360  $6,186,261  $6,186,261 
Estimated earnings  6,740,288   5,846,890   4,777,300   4,777,300 
Less: Billings  (13,700,014)  (12,394,266)  (10,712,733)  (10,712,733)
Costs and estimated earnings in excess of billings on uncompleted contracts $1,249,187  $740,984  $250,828  $250,828 

  

 (ii)Billings in excess of costs and estimated earnings on uncompleted contracts

 

 September 30, 2017  December 31, 2016  September 30,
2019
 December 31,
2018
 
      (Unaudited) (Audited) 
Billings $40,590,477  $24,115,354  $49,175,412  $47,929,092 
Less: Costs  (23,404,302)  (13,907,143)  (30,098,638)  (29,094,568)
Estimated earnings  (11,583,494)  (7,577,459)  (13,690,063)  (13,486,231)
Billing in excess of costs and estimated earnings on uncompleted contracts $5,602,681  $2,630,752  $5,386,711  $5,348,293 

  

 (iii)Overall

 

 September 30, 2017  December 31, 2016  September 30,
2019
 December 31,
2018
 
      (Unaudited) (Audited) 
Billings $54,290,491  $36,509,620  $59,888,145  $58,641,825 
Less: Costs  (31,613,215)  (21,195,503)  (36,284,899)  (35,280,829)
Estimated earnings  (18,323,782)  (13,424,349)  (18,467,363)  (18,263,531)
Billing in excess of costs and estimated earnings on uncompleted contracts $4,353,494  $1,889,768  $5,135,883  $5,097,465 

  

23.19.OTHER PAYABLES

 

 September 30, 2017  December 31, 2016  September 30,
2019
 December 31,
2018
 
      (Unaudited) (Audited) 
Due to third parties $3,806,880  $451,195  $16,846,187  $13,068,387 
Due to debts loan  7,692,222   4,797,332 
Straight note payable (note 23(i))  29,367,999   29,367,999 
Promissory notes issued to third parties  14,492,221   11,192,117   7,765,801   7,792,774 
Due to local government  1,288,233   713,565   -   87,425 
 $27,279,556  $17,154,209  $53,979,987  $50,316,585 
                
Less: Amount classified as non-current liabilities                
Promissory notes issued to third parties  (14,492,221)  (11,192,117)  (7,765,801)  (7,792,774)
Due to debts loan  (7,692,222)  - 
Amount classified as current liabilities $5,095,113  $5,962,092  $46,214,186  $42,523,811 

 

Due to third parties are unsecured, interest free and have no fixed terms of repayment.

 

As of September 30, 2017, the Company issued 1,344,098 shares of common stock as collateral to secure debts loan of $7,692,222.

F-39F-36 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

24.20.BORROWINGS

 

There are no provisions in the Company’s bank borrowings and long term debts that would accelerate repayment of debt as a result of a change in credit ratings or a material adverse change in the Company’s business. Under certain agreements, the Company has the option to retire debt prior to maturity, either at par or at a premium over par.

 

Short term bank loan

Name of lender Interest rate  Term September 30, 2017  December 31, 2016 
            
Da Tong National Development Rural Bank Limited              
Da Tong County, Xining City, Qinghai Province, the P.R.C.  10% July 14 ,2016 - May 28, 2017 $-  $2,883,090 
Da Da Tong National Development Rural Bank Limited              
Da Tong County, Xining City, Qinghai Province, the P.R.C.  10% June 7, 2017 - June 6, 2018  1,506,705^+@  - 
        $1,506,705  $2,883,090 
Name of lender Interest rate  Term September 30,
2019
  December 31,
2018
 
       (Unaudited)  (Audited) 
China Development Bank
Qinghai Province, the P.R.C
  4.7306% December 27, 2018 -
December 27, 2019
 $4,241,482  $4,371,265 
               
               
Add: current portion of long term bank loan       $282,764  $218,563 
         4,524,246   4,589,828 

 

Long term bank loan

 

Name of lender Interest rate  Term September 30, 2017  December 31, 2016  Interest rate Term September 30,
2019
 December 31,
2018
 
                  (Unaudited) (Audited) 
China Development Bank
Beijing City, the P.R,C.
  5.39% December 9, 2016 - December 15, 2026 $6,026,819^*# $5,766,182 
China Development Bank   December 16, 2016 -     
Beijing City, the P.R,C.  5.39% December 15, 2026 $5,513,926  $5,755,501 
Less: current portion of long term bank loan       $(282,764) $(218,563)
        5,231,162   5,536,938 

On December 16, 2016, the Company obtained a 10-year long term loan of RMB40million (approximately $5.66million) from China Development Bank for the period from December 16, 2016 to December 15, 2026, bearing an annual interest rate at 110% of the benchmark rate of PBOC on the date of the loan agreement and will be adjusted in line with any adjustment of the benchmark rate which is 5.39% (12.31.2018: 5.39%). The loan was guaranteed by Mr. Zhao Yilin and Ms. Song Haixian, Mr. Zhao Yilin’s wife. The loan was also secured by land use right with net carrying amount of $376,669 as of September 30, 2019 (12.31.2018: 397,269) and a batch of plant, machinery and equipment with net carrying amount of $5,071,190 (12.31.2018: 5,326,385). On May 20, 2019, RMB500,000 (approximately $73K) was repaid. According to the loan agreement, 2 partial payments of RMB1,000,000 each, totaling of RMB2,000,000 (approximately $282,764) were scheduled to be repaid by November 20, 2019 and May 20, 2020 respectively.

On December 27, 2018, the Company obtained a 1-year short term loan of RMB30 million (approximately $4.24million) from China Development Bank for the period from the December 27, 2018 to December 27, 2019, bearing fixed interest at 4.7306% per annum. This loan was guaranteed by Xining City SME Guarantee Corporation.

 

The above note agreements contained regular provisions requiring timely repayment of principals and accrued interests, payment of default interest in the event of default, and without specific financial covenants. Management of the Company believes the Company is in material compliance with the terms of the loan agreements.

 

 ^personal and corporate guaranteed by third parties.

*secured by land use rights with net carrying amount of $309,257 (12.31.2016: $416,973).

+secured by property and equipment with net carrying amount of $870,736 (12.31.2016: $ 1,036,889).

@secured by land use rights with net carrying amounts of $330,507 (12.31.2016: $363,092).

#repayable $72,078, $216,232, $288,308, $432,464, $432,464, $720,773, $720,773, $1,441,545 and $1,702,182 in  2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025 and 2026, respectively (31.12.2016: repayable $72,078, $216,232, $288,308, $432,464, $432,464, $720,773, $720,773, $1,441,545 and $ 1,441,545 in  2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025 and 2026, respectively).

F-40F-37 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

25.21.NEGOTIABLE PROMISSORY NOTESCONVERTIBLE NOTE PAYABLES

 

On August 29, 2014, the Company completed the closing of a private placement financing transaction with an accredited investor, which purchased a 10.5% Convertible Note (the “Note 1”) in the aggregate principal amount of up to $33,300,000. The Company received the total advance of $11,632,450. The Company shall offer investor a discount equal to 25% of the amount of the principal advanced by the investor.

Interest on the note shall accrue on the outstanding principal balance of this Note from August 29, 2014. Interest shall be payable quarterly on the last day of each of March, June, September and December commencing September 30, 2014 provided, however, that note holder may elect to require the Company to issue to the note holder a promissory note in lieu of cash in satisfaction of any interest due and payable at such time. Any interest payment note shall be subject to the same terms as the note. The note has a maturity date of February 28, 2020.

The note is convertible, at the discretion of the note holder, into shares of the Company’s common stock (i) at any time following an Event of Default, or (ii) for a period of thirty (30) calendar days following October 31, 2015 TRW issued negotiable promissory notesand each anniversary thereof, at an initial conversion price per share of $1.00, (price prior to three fund companiesreversed split) subject to adjustment for stock splits, reverse stock splits, stock dividends and one individualother similar transactions and subject to the terms of the note. As long as the note is outstanding, the investor shall have a right of first refusal, exercisable for $3,450,000thirty (30) calendar days after notice to the note holder, to purchase securities proposed to be offered and sold by the Company.

The Company and the company actednote holder entered into a restructuring agreement regarding the settlement of the Note 1. Both parties have agreed to restructure the indebtedness represented by Note 1 as guarantorfollows: (a) SIAF issues 5,196,333 shares of its common stock and transfer 400,000 shares of TRW to the note holder; and (b) SIAF executes a new promissory note in the principal amount of $15,589,000 to the note holder to be paid in installments over a period of time. However, both parties remain open to negotiate an all-cash settlement of the Note 1.

As a result, the amount outstanding under Note 1 was reclassified as other payables – straight note payable of $29,367,999 (see Note 19).

On October 20, 2017, the Company issued another Convertible Note (the"Note 2") with a principal amount of $4,000,000 due on February 28, 2018. The note holder had the option to convert all or any part of the outstanding note into the common stock of the Company (the "Primary Optional Conversion") or TRW (the "Secondary Optional Conversion") at any time for repayment.a period of eight months from the note's maturity date. The conversion price for Primary Optional Conversion is lesser of $1.5 per share or at 65% of the market share price of the Company. While the conversion price for Secondary Optional Conversion is $3.41 per share subject to equitable adjustment for stock split, stock dividend or right offerings.

Under the agreement, the Company shall pay the note holder 120,000 common shares of SIAF or 32,000 common shres of TRW as an origination fee. The note bears a flat interest payment which shall be settled by 200,000 common shares of SIAF or 55,000 common shares of TRW. As of October 1, 2016, the Company entered assignment agreement with TRW to take up liabilities of negotiable promissory notes.September 30, 2019, no settlement for both origination fee and interest payment.

 

  September 30, 2017  December 31, 2016 
         
Negotiable promissory notes $368,462  $1,113,140 

The Company and the note holder entered into a restructuring agreement regarding the settlement of the Note 2. Both parties have agreed to restructure the indebtedness represented by Note 2 where SIAF executes a new promissory note in the principal amount of $6,301,480 to the note holder to be paid in 3 installments by August 31, 2019, October 30, 2019 and December 31, 2019, respectively. As of September 30, 2018, no payment was made.

 

Principal amount:$135,479  (12.31.2016: $1,035,479)
Interest payable:$232,983 (12.31.2016: $77,661)
Interest rate:2.5% (12.31.2016: 2.50% %) per month on principal amount. Interest shall be calculated on the basis of a 30/360 day count convention
Default interest rate15% per month on principal amount. Interest shall be calculated on the basis of a 30/360 day count convention
Interest paymentAccrued interest on the principal amount shall be paid by cash  in arrears on each interest payment date
Issue date:August 29, 2015  and  October 12, 2015
Repayment date:Repaid in full within  283 calendar days from the issue of notes
Conversion option:Notes holders can exercise at any time from and including the day falling 60 calendar days from the date of the notes, upon the note holders giving not less than 5 business day prior written notices to TRW and the Company, the principal amount shall be converted to shares of the Company. The TRW may at their own discretion choose to settle such conversion option with newly issue shares or existing shares, at their sole discretion. In the event a dividend, share split or consolidation or spin-off (each a Corporate Event”) from the Company, the conversion price shall be adjusted to provide the same economic value to the notes holders as if such Corporate Event did not occur.
Security:Corporate guarantee by the Company

As a result, the amount outstanding under Note 2 was reclassified as other payables – straight note payable of $6,301,480 (see Note 19) and a loss on restructuring of $2,404,402 which representing the default interest incurred during the period.

  

  September 30,
2019
  December 31,
2018
 
  (Unaudited)  (Audited) 
       
Convertible note due December 31, 2018 $-  $3,894,978 
Less: classified as current liabilities  -   (3,894,978)
Non-current liabilities $-  $- 

F-41F-38 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company estimated the fair value of the derivative liabilities using the Binomial Option Pricing Model and the following key assumptions for the year ended December 31, 2018

December 31,
2018
Expected dividends-
Expected term (years)0.34
Volatility52.09% - 54.32%
Risk-free rate1.65% - 1.9%

The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value as of December 31, 2018.

  Level 1  Level 2  Level 3  Total 
  $  $  $  $ 
LIABILITIES:                
                 
Derivative liabilities as of December 31, 2018  -   -   2,100   2,100 

F-39

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

26.22.SHAREHOLDERS’ EQUITY

 

The Group’s share capital as of September 30, 20172019 and December 31, 20162018 shown on the consolidated balance sheet represents the aggregate nominal value of the share capital of the Company as of that date.

  

On March 22, 2010, the Company designated 100 shares of Series A preferred stock at a par value per share of $0.001. As of the same date, 100 shares of Series A preferred stock were issued at $1 per share for cash in the amount of $100.

The Series A preferred stock:

(i)does not pay a dividend;

(ii)votes together with the shares of Common Stock of the Corporation as a single class and, regardless of the number of shares of Series A Preferred Stock outstanding and as long as at least one of such shares of Series A Preferred Stock is outstanding, shall represent eighty percent (80%) of all votes entitled to be voted at any annual or special meeting of shareholders of the Corporation or action by written consent of shareholders. Each outstanding share of the Series A Preferred Stock shall represent its proportionate share of the 80%, which is allocated to the outstanding shares of Series A Preferred Stock; and

(ii)ranks senior to common stockholders, holders of Series B convertible preferred stockholders and any other stockholders on liquidation.

The Company has designated 100 shares of Series A preferred stock with 100 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively.

F-42

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

26.SHAREHOLDERS’ EQUITY (CONTINUED)

The Series B convertible preferred stock:Common Stock:

 

On March 22, 2010, the Company designated 7,000,000 shares of Series B convertible preferred stock at a par value per share of $0.001. The Series B convertible preferred stock is redeemable, the stockholders are not entitled to receive any dividend and voting rights but rank senior over common stockholders on liquidation, and can convert to common stock on a one for one basis at any time. On June 26, 2010, 7,000,000 shares of common stock were surrendered for cancellation and the Company issued 7,000,000 shares of Series B convertible preferred stock at $9.90 per share. Pursuant to share exchange agreement made as of December 22, 2012, between the Company and a stockholder, Capital Adventure Inc., a holder of 3,000,000 shares of common shares, with the consent of Board of Directors, to exchange for 3,000,000 shares of Series B convertible preferred stock on a one-for-one basis. As of December 23, 2012, 3,000,000 shares of Series B convertible preferred stock were issued to Capital Adventure Inc., for the exchange of its holding of 3,000,000 shares of common stocks. As of December 31, 2012, 3,000,000 shares of common stocks were still not returned to the Company. On March 27, 2013, 3,000,000 Series B convertible preferred stock were cancelled. On December 17,November 10, 2014, the Company approved an amendment to certificate designation in respectthe Corporation’s Articles of Series B preferred stock. PursuantIncorporation to effectuate a reverse stock split (the “Reverse Split”) of the above new amendment, each holder of Series B preferred stock shall have the rights, at any time or from time to time, to convert each 9.9 shares of Series B preferred to one fully paid and non-assessable share ofCorporation’s common stock, of par value $0.001 per share. On June 15, 2015, Series B preferred stockholder exercised atshare (the “Common Stock”) affecting both the above conversion ratio to convert 7,000,000 shares of Series B preferred stock to 707,070 shares of common stock.

There were 0 shares of Series B convertible preferred stockauthorized and issued and outstanding asnumber of September 30, 2017 andsuch shares by a ratio of 9.9 for 1. The Reverse Split became effective in the State of Nevada on December 16, 2014. Subsequent to the December 31, 2016, respectively.

The Series F Non-Convertible Preferred Stock:

(i)is not redeemable subject to (iv);

(ii)except for (iv), with respect to dividend rights, rights on liquidation, winding up and dissolution, rank junior and subordinate to (a) all classes of Common Stock,(b) all other classes of Preferred Stock and (c) any class or series of capital securities of the Company.

(iii)shall not entitled to receive any further dividend; and

(iv)on May 30, 2014, the holders of shares of Series F Non-Convertible Preferred Stock with coupon shall be entitled to a coupon payment directly from the Company at the redemption rate of $3.40 per share. Upon redemption, the Holder shall no longer own any shares of Series F with coupon that have been redeemed, and all such redeemed shares shall disappear and no longer exist on the books and records of the Company; redeemed shares of Series F which no longer exist upon redemption shall thereafter be counted toward the authorized but unissued “blank check” preferred stock of the Company.

On August 22, 2012, the Company’s Board of Directors declared thatdirectors and the Company’sholders of a majority of the voting power of our stockholders were entitledof the company have approved an amendment to receive one sharearticles of restricted Series F Non-convertible Preferred Stock for every 100incorporation to increase its authorized shares of Common Stock owned by the stockholders as of September 28, 2012, with lesser or greater amounts being rounded upfrom 17,171,716 to the nearest 100 shares of Common Stock for purpose of the computing the dividend. The holders of record of shares of Series F Non-Convertible Preferred Stock shall be entitled to a coupon payment directly from the Company at the redemption rate of $3.40 per share and be payable on May 30, 2014. However, the Company was unable to issue the Series F Non-convertible Preferred Stock as originally contemplated. Consequently, The Company’s transfer agent was instructed to note in its record date rather than actual issue the Preferred F shares. On June 14, 2014, the Company announced the delay in payment of the coupon until May 30, 2015. The company reserved the excess over the nominal amount of the Series F Non-convertible Preferred Stock of $3,124,737 as Series F Non-convertible Preferred Stock redemption payable. As of May 30, 2015, payment on the F series shares has been made, and respective shares cancelled, accordingly.

As a result, total issued and outstanding of Series F Non-Convertible Preferred Stock as of September 30, 2017 and December 31, 2016 are 0 shares and grand total issued and outstanding preferred stock as of September 30, 2017 and December 31, 2016 are 100 shares.

F-43

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

26.SHAREHOLDERS’ EQUITY (CONTINUED)

Common Stock:

During the year ended December 31, 2016, the Company (i) issued 1,199,068 shares of common stock to employees and directors valued at fair value of $5.98 per share for $7,169,823 for employee compensation; (ii) issued 132,787 shares of common stock valued to professionals at fair value of $5.98 per share for $794,066 for service compensation; (iii) issued 2,461,247 shares of common stock ranging from $6.96 to $8.91 amounting to $5,765,476 as collateral to secure debts loan of $4,797,332, and the shares issued by the Company were valued at the trading price of the stock on the date the shares were issued; and purchased 1,200,000 shares of common stock of $4.85 amounting to $5,820,000 for cancellation.22,727,272.

 

The Board of directors and the holders of a majority of the voting power of our stockholders of the company have approved an amendment to articles of incorporation to increase its authorized shares of Common Stock from 22,727,27322,727,272 to 27,000,000 and the amendment was filed on December 28, 2016.

 

The Board of directors and the holders of a majority of the voting power of our stockholders of the company have approved an amendment to articles of incorporation to increase its authorized shares of Common Stock from 27,000,000 to 50,000,000 and the amendment was filed on on August 24, 2017 with an effective date of August 25, 2017.

 

During the threeyear ended December 31, 2018, the Company (i) issued 535,598 shares of common stock valued to employees and directors at ranging from $1 to $1.56 per share for $576,170 for employee compensation; (ii) issued 16,032,262 shares of common stock valued to professionals and contractors ranging from $ 0.55 to $1.00 per share for $9,723,720 for service compensation; and (iii) issued 3,935,439 shares of common stock valued at $ 0.30 to $ 0.50 per share for 1,478,029 for settlement of debts. 

During the nine months ended September 30, 2017,2019, the Company (i) issued 2,382,246109,911 shares of common stock valued at fair value of $1.40 amounting to $3,335,144 as additional collateral to secure loan and trade facility$0.3 per share for $32,973 for settling of debts; the shares issued by the Company were valued at the trading price of the stock on the date the shares were issued.

 

During the nine months ended September 30, 2017, the Company issued (i) 425,103 shares of common stock to employees and directors valued at fair value of $3.45 per share for $403,650 for employee compensation; (ii) 4,074,979 shares of common stock valued at fair value ranging from $1.4 to $5.15 amounting to $12,054,044 as additional collateral to secure loan and trade facility and the shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. 

The Company has 27,811,57349,976,085 and 22,726,85949,866,174 shares of common stock issued and outstanding as of September 30, 20172019 and December 31, 2016,2018 respectively.

 

F-44F-40 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

27.23.OBLIGATION UNDER OPERATING LEASES

 

The Company leases (i) 2,178 square feet of agriculture space used for offices for a monthly rent of $634$851 in Enping City, Guangdong Province, P.R.C., its lease expiring on March 31, 2019;2019. The lease was renewed on March 28, 2019 for a monthly rent of $844 expired on March 31, 2022, and (ii) 5,081 square feet of office space in Guangzhou City, Guangdong Province, P.R.C. for a monthly rent of $12,733,$12,197, its lease expiring on July 8, 2018; and (iii) 1,5552018. The lease was renewed on July 9, 2018 for a 2,695 square feet of staff quarters in Linli District, Hunan Province, P.R.C.office space for a monthly rent of $226, its lease expiring$6,537 expired on May 1, 2018.July 8, 2020.

 

Lease expenses were $42,790, $42,790, $126,569$21,592 and $226,524$21,304, $65,879 and $102,851 for the three months ended and the nine months ended September 30, 20172019 and 2016,2018, respectively.

 

The future minimum lease payments as of September 30, 2017,2019, are as follows:

 

Year ending December 31, 2017 $45,790 
Year ending December 31, 2018 and thereafter  123,680 
  $169,470 

Within 1 year $68,710 
2 to 5 years  19,295 
Over 5 years  - 
  $88,005 

 

F-45F-41 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

28.24.STOCK BASED COMPENSATION

 

On May 10, 2016, the Company issued directors and employees a total of 1,199,068 shares of common stock valued at fair value of $5.98 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $5.98 per share. On the same date, the Company issued professionals a total of 132,787 shares of common stock valued at fair value of $5.98 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $5.98 per share.

The Company calculated stock basedstock-based compensation of $7,965,624$643,457 and $2,952,327 and recognized $4,345,993 for the year ended December 31, 2016. As of December 31, 2016, the deferred compensation balance for staff was $3,982,813$115,787, $546,496, $643,457 and the deferred compensation balance of $3,982,813 was to be amortized over 6 months beginning on January 1, 2017.

On June 30, 2017, the Company issued professionals a total of 117,000 shares of common stock valued at fair value of $3.45 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $3.45 per share.

The Company calculated stock based compensation of $4,386,463 and recognized $100,912, $1,990,972, $4,083,725 and $2,354,153$1,896,986 for the three months and the nine months ended September 30, 20172019 and 2016,2018, respectively. As of September 30, 2017,2019, the deferred compensation balance for staff was $302,738 andnil. As of June 30, 2018, the deferred compensation balance of $302,738for staff was $1,055,341 and were to be amortized over 96 months beginning on October 1, 2017.2018.

  

29.25.CONTINGENCIES

 

AsOn March 26, 2019, a shareholder derivative complaint was filed in the United States District Court for the Southern District of September 30, 2017 and December 31, 2016,New York against the Company, didas well as four of its current directors, styled Heng Ren Silk Road Investments LLC, Heng Ren Investments LP, derivatively on behalf of Sino Agro Food Inc. v. Sino Agro Food Inc., Lee Yip Kun Solomon, Tan Poay Teik, Chen Bor Hann, Lim Chang Soh, and Sino Agro Food Inc. , as the nominal defendant (Case No.: 1:19-cv-02680) (the “ Complaint ”). The Company filed its Motion to Dismiss the Complaint on June 24, 2019. After the Company filed its Motion to Dismiss, the Court, sue sponte, issued an Order requiring plaintiffs to either file an Amended Complaint by July 16, 2019 or serve their Opposition to the Motion to Dismiss by that date. The Court stated that if plaintiffs do not amend their Complaint, they then will not be given any further opportunity to amend the Complaint to address the issues raised in the Motion to Dismiss. Subsequently, Plaintiffs filed an Amended Complaint. The Amended Complaint alleges violations of the federal securities laws and breaches of fiduciary duties (including gross mismanagement of the Company) by the individual defendants, based on allegations concerning, inter alia, a material default of its obligations under a commercial loan agreement, misleading and false statements (including material omissions) by the individual defendants, and unauthorized issuance of new shares of Common Stock to pay debts that, in the view of the plaintiffs, has diluted shareholder ownership and oppressed shareholders of the Company.

On September 20, 2019, the Company filed a Motion to Dismiss the Amended Complaint. After the Company filed its Motion to Dismiss, the parties have any pendinghad settlement discussions. As a result, the Court granted a request to adjourn the present motion briefing schedule. Plaintiffs’ Opposition is now due on or before January 3 2020, and the Company’s Reply Brief is due on January 24, 2020. Based on the Company’s assessment of the facts underlying the claims, charges,the uncertainty of litigation, and the preliminary stage of the case, the Company cannot estimate the reasonably possible loss or litigationrange of loss that it expects wouldmay result from this action. However, an unfavorable outcome may have a material adverse effect on its consolidated balance sheets, consolidated statementsour business, financial condition and results of income and other comprehensive income or consolidated statements of cash flows.

operations. The Company entered into loanbelieves that these claims are without merit and pledge agreement with a Shanghai, P.R.C. based lender (the “lender”) The lender has various trading facilities and has agreedintend to allowvigorously defend the Company or its nominee to use parts of trading facilities up to an amount of $20 million (31.12.2016: $20 million) to be used in tranches and revolved up to a period of three years, of which $16,626,325 (31.12.2016: $13,982,640) was utilized.action.

 

30.26.RELATED PARTY TRANSACTIONS

 

In addition to the transactions and balances as disclosed elsewhere in these consolidated financial statements, during the ninethree months ended September 30, 20172019 and 2016,2018, the Company had the following significant related party transactions:-

 

Name of related party Nature of transactions
   

Mr. Solomon Yip
Kun Lee,
Chairman

Tri-way Industries

Limited, (“TRW’)

Unconsolidated

equity investee

 

Included in due to a director, due to Mr. Solomon Yip Kun Lee is $850,274$861,182 and $2,070,390$2,046,499 as of September 30, 20172019 and December 31, 2016,2018, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.

Tri-way Industries Limited, (“TRW’) Unconsolidated equity investee

Included in interest in unconsolidated equity investee, due from Tri-way Industries Limited is $14,438,797$59,285,521 and $55,120,003$57,354,208 as of September 30, 20172019 and December 31, 2016,2018, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.

Included in accounts receivable, due from Tri-way Industries Limited is $21,767,182$62,557,029 and $15,771,795$60,799,365 as of September 30, 20172019 and December 31, 2016,2018, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.

The Company has consulting and service income from development contracts of $2,978,371, $0 $16,167,636 and $0$6,502,372, $1,719,247 and $10,036,762 from Tri-way Industries Limited for the three months and the nine months ended September 30, 20172019 and 2016,2018, respectively.

F-46F-42 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

31.27.EARNINGS PER SHARE

 

Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share reflects the potential dilution of securities by including other potential common stock, including convertible preferred stock, stock options and warrants, in the weighted average number of common shares outstanding for the year, if dilutive. The numerators and denominators used in the computations of basic and dilutive earnings per share are presented in the following table:

 

  Three months ended
September 30, 2017
  Three months ended
September 30, 2016
 
     (Restated) 
BASIC        
         
Numerator for basic earnings per share attributable to the Company’s common stockholders:        
         
Net income used in computing basic earnings per share - continuing and discontinued operations $3,450,848  $21,292,477 
Net income used in computing basic earnings per share - continuing operations $3,450,848  $18,524,702 
Basic earnings per share - continuing and discontinued operations $0.14  $1.04 
Basic earnings per share - continuing operations $0.14  $0.91 
Basic weighted average shares outstanding  24,231,617   20,376,225 

  Three months ended
September 30, 2019
  Three months ended
September 30, 2018
 
BASIC        
         
Numerator for basic earnings per share attributable to the Company’s common stockholders:        
         
Net income used in computing basic earnings per share -continuing and discontinued operations $8,116,546  $3,465,562 
Net income used in computing basic earnings per share -continuing operations $8,116,546  $3,465,562 
Basic earnings per share - continuing and discontinued operations $0.16  $0.09 
Basic earnings per share - continuing operations $0.16  $0.09 
Basic weighted average shares outstanding  49,968,758   36,650,450 

 

  Three months ended
September 30, 2017
  Three months ended
September 30, 2016
 
     (Restated) 
DILUTED        
Numerator for basic earnings per share attributable to the Company’s common stockholders:        
Net income used in computing basic earnings per share - continuing and discontinued operations $3,450,848  $21,292,477 
Convertible note interest  526,543   404,877 
Net income used in computing diluted earnings per share $3,977,391  $21,697,354 
         
Diluted earnings per share - continuing and discontinued operations $0.15  $0.95 

  Three months ended
September 30, 2019
  Three months ended
September 30, 2018
 
DILUTED        
Numerator for basic earnings per share attributable to the Company’s common stockholders:        
Net income used in computing basic earnings per share - continuing and discontinued operations $8,116,546  $3,465,562 
Convertible note interest  -   - 
Net income used in computing diluted earnings per share $8,116,546  $3,465,562 
         
Diluted earnings per share - continuing and discontinued operations $0.16  $0.09 

 

 Three months ended
September 30, 2017
 Three months ended
September 30, 2016
  Three months ended
September 30, 2019
 Three months ended
September 30, 2018
 
          
Numerator for basic earnings per share attributable to the Company’s common stockholders:          
Net income used in computing basic earnings per share - continuing operations $3,450,848 $18,524,702  $8,116,546 $3,465,562 
Convertible mote interest  526,543  404,877   -  - 
Net income used in computing diluted earnings per share $3,997,391 $18,929,579  $8,116,546 $3,465,562 
          
Diluted earnings per share - continuing operations $0.15 $0.83  $0.16 $0.09 
          
Basic weighted average shares outstanding 24,231,617 20,376,225  49,968,758 36,650,450 
          
Add:          
weight average of common stock convertible from convertible note payables  2,126,141  2,378,667   -  - 
          
Diluted weighted average shares outstanding  26,357,758  22,754,892   49,968,758  36,650,450 

F-47F-43 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

31.27.EARNINGS PER SHARE (CONTINUED)

 

  Nine months ended
September 30, 2017
  Nine months ended
September 30, 2016
 
     (Restated) 
BASIC        
         
Numerator for basic earnings per share attributable to the Company’s common stockholders:        
         
Net income used in computing basic earnings per share - continuing and discontinued operations $12,524,713  $48,695,453 
Net income used in computing basic earnings per share - continuing operations $12,524,713  $37,228,196 
Basic earnings per share - continuing and discontinued operations $0.62  $2.45 
Basic earnings per share - continuing operations $0.62  $1.87 
Basic weighted average shares outstanding  20,309,014   19,900,082 

Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share reflects the potential dilution of securities by including other potential common stock, including convertible preferred stock, stock options and warrants, in the weighted average number of common shares outstanding for the year, if dilutive. The numerators and denominators used in the computations of basic and dilutive earnings per share are presented in the following table:

 

  Nine months ended
September 30, 2017
  Nine months ended
September 30, 2016
 
     (Restated) 
DILUTED        
Numerator for basic earnings per share attributable to the Company’s common stockholders:        
Net income used in computing basic earnings per share - continuing and discontinued operations $12,524,713  $48,695,453 
Convertible note interest  1,579,630   1,466,044 
Net income used in computing diluted earnings per share $14,104,343  $50,161,497 
         
Diluted earnings per share - continuing and discontinued operations $0.63  $2.24 

��

  Nine months ended
September 30, 2017
  Nine months ended
September 30, 2016
 
       
Numerator for basic earnings per share attributable to the Company’s common stockholders:        
Net income used in computing basic earnings per share - continuing operations $12,524,713  $37,228,196 
Convertible mote interest  1,579,630   1,466,044 
Net income used in computing diluted earnings per share $14,104,343  $38,694,240 
         
Diluted earnings per share -  continuing operations $0.63  $1.72 
         
Basic weighted average shares outstanding  20,309,014   19,900,082 
         
Add:        
weight average of common stock convertible from convertible note payables  2,187,382   2,534,765 
         
Diluted weighted average shares outstanding  22,496,396   22,434,847 
  Nine months ended
September 30, 2019
  Nine months ended
September 30, 2018
 
BASIC        
         
Numerator for basic earnings per share attributable to the Company’s common stockholders:        
         
Net income used in computing basic earnings per share -continuing and discontinued operations $15,302,641  $9,435,949 
Net income used in computing basic earnings per share -continuing operations $15,302,641  $9,435,949 
Basic earnings per share - continuing and discontinued operations $0.31  $0.27 
Basic earnings per share - continuing operations $0.31  $0.27 
Basic weighted average shares outstanding  49,900,369   35,381,345 

 

  Nine months ended
September 30, 2019
  Nine months ended
September 30, 2018
 
DILUTED        
Numerator for basic earnings per share attributable to the Company’s common stockholders:        
Net income used in computing basic earnings per share - continuing and discontinued operations $15,302,641  $9,435,949 
Convertible note interest  -   - 
Net income used in computing diluted earnings per share $15,302,641  $9,435,949 
         
Diluted earnings per share - continuing and discontinued operations $0.31  $0.27 

  Nine months ended
September 30, 2019
  Nine months ended
September 30, 2018
 
Numerator for basic earnings per share attributable to the Company’s common stockholders:        
Net income used in computing basic earnings per share - continuing operations $15,302,641  $9,435,949 
Convertible mote interest  -   - 
Net income used in computing diluted earnings per share $15,302,641  $9,435,949 
         
Diluted earnings per share -  continuing operations $0.31  $0.27 
         
Basic weighted average shares outstanding  49,900,369   35,381,345 
         
Add:        
weight average of common stock convertible from convertible note payables  -   - 
         
Diluted weighted average shares outstanding  49,900,369   35,381,345 

F-48F-44 

 

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

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

 

This Quarterly Report on Form 10-Q (the “Form 10-Q”) contains “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Forward-looking statements can be identified by the use of forward-looking terminology, such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause the Company’s actual results, performance, or achievements in 20172018 and beyond to differ materially from those expressed in, or implied by, such statements. Such statements, include, but are not limited to, statements contained in this Form 10-Q relating to the Company’s business, financial performance, business strategy, recently announced transactions, and capital outlook. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: a continued decline in general economic conditions nationally and internationally; decreased demand for our products and services; market acceptance of our products; the impact of any litigation or infringement actions brought against us; competition from other providers and products; the inability to raise capital to fund continuing operations; changes in government regulation; the ability to complete customer transactions, and other factors relating to our industry, our operations and results of operations and any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned. Readers of this Form 10-Q should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, the Company undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

 

You should read the following discussion and analysis of the financial condition and results of operations of the Company together with the financial statements and the related notes presented in Item 1 of Part I of this Form 10-Q.

 

Description and interpretation and clarification of business category on the consolidated results of the operations

 

The Company’s strategy is to manage and operate its businesses under five (5) business divisions or units on a standalone basis, namely:

 

Beef & Organic Fertilizer Division(SJAP QZH and HSA)
Plantation Division(JHST)
Cattle Farm Division(MEIJI and JHMC)
Corporate & Others Division(SIAF)
Fishery Division(CA)

 

A summary of each business division is described below:

 

·lBeef and Organic Fertilizer Divisionrefers to:

 

(i)The operation of SJAP in manufacturing and sales of organic fertilizer, bulk livestock feed, concentrated livestock feed, and the sales of live cattle inclusive of: (a) cattle that are not being slaughtered in our own slaughter house operated by Qinghai Zhong He Meat Products Co., Limited (“QZH”) are sold live to third party livestock wholesalers and, (b) cattle that are sold to QZH and slaughtered and deboned and packed by QZH. The sales of meats deboned and packed by QZH that are sold to various meat distributors, wholesalers and super market chains and our own retail butcher stores. QZH is a fully owned subsidiary of our partially owned subsidiary Qinghai Sanjiang A Power Agriculture Co., Ltd. (“SJAP”); ascattle. As such, the financial statements of these twothree companies (SJAP and QZH), as well as those of HAS (described immediately below)HSA) are consolidated into our wholly owned subsidiary, A Power Agro Agriculture Development (Macau) Limited (“APWAM”), as one entity. SJAP and QZH are bothis a variable interest entitiesentity over which we exercise significant control.

 

(ii)The operation of Hunan Shenghua A Power Agriculture Co. Ltd. (“HSA”) in manufacturing and sales of organic fertilizer.

 

·lPlantation Divisionrefers to the operations of Jiangmen City Heng Sheng Tai Agriculture Development Co. Ltd. (“JHST”) in the HU Plantation business, where dragon fruit flowers (dried and fresh) and immortal vegetables are sold to wholesale and retail markets. JHST’s financial statements are consolidated into the financial statements of Macau EIJI Company Ltd. (“MEIJI”) as one entity.

 

·lCattle Farm Divisionrefers to the operations of Cattle Farm 1 underat Jiangmen City Hang Mei Cattle Farm Development Co. Ltd (“JHMC”), where cattle are sold live to third partythird-party livestock wholesalers who sell them mainly to Guangzhou and Beijing livestock wholesale markets. The financial statements of JHMC are consolidated into MEIJI as one entity, along with MEIJI’s operation in the consulting and service for development of other cattle farms (e.g., Cattle Farm 2) or related projects.

 

- 3 -

·lCorporate & Others Divisionrefers to the business operations of Capital Award Inc. and Sino Agro Food, Inc., including import/export business and consulting and service operations provided to projects that are not included in the above categories, and not limited to corporate affairs.

 

1

·lFishery Divisionrefers to the operations of Capital Award Inc. (“Capital Award” or “CA”) covering its engineering, technology, and consulting service management of fishery farms and seafood sales operations and marketing, where;

 

Capital Award generates revenues from providing engineering consulting services as turnkey contractors to owners and developers of fishery projects that are being designed and engineered into turnkey contracts by Capital Award in China using its A Power Module Technology Systems (“APM”) as follows:

 

A.(A). Engineering and Technology Services; via Consulting and Service Contracts (“CSC’s”) for the development, construction, and supply of plant and equipment, and management of fishery (and prawn or shrimp) farms and related business operations.

 

B.(B). Seafood Sales from CA’s projected farms: which is now a dis-continued operation.this operation has been discontinued.

 

 - 4 -2 

 

 

CONSOLIDATED RESULTS OF OPERATIONS

 

Part A. Unaudited Income Statements of Consolidated Results of Operations for three months ended September 30, 20172019 compared to the three months ended September 30, 2016.2018.

 

A (1) Income Statements (Unaudited)

 Three months ended Three months ended   Three months
ended
 Three months
ended
      
In $ September 30, 2017 September 30, 2016  Difference Note September 30, 2019 September 30, 2018 Difference Note 
Continuing operations                              
Revenue  48,392,933   111,657,580   (63,264,647) 1  37,431,314   38,750,017   (1,318,703)  1 
Sale of goods  37,431,314   32,247,645   5,183,669     
Consulting, services, commission and management fee  2,978,371   23,377,355   (20,398,984)    -   6,502,372   (6,502,372)    
Sale of goods  45,414,562   88,280,225   (42,865,663)  
Cost of goods sold and services  41,846,579   81,472,200   (39,625,621) 2  31,138,118   32,555,243   (1,417,125)  2 
Consulting, services, commission and management fee  2,234,070   12,450,460   (10,216,390)  
Sale of goods  39,612,509   69,021,740   (29,409,231)  
Cost of goods sold  31,138,118   27,086,184   4,051,934     
Cost of services      5,469,059   (5,469,059)    
Gross Profit  6,546,354   30,185,380   (23,639,026) 3  6,293,196   6,194,774   98,422   3 
Consulting, services, commission and management fee  744,301   10,926,895   (10,182,594)  
Sale of goods  5,802,053   19,258,485   (13,456,432)  
Other income (expenses)  (327,128)  292,670   (619,798)    5,877,056   1,487,309   4,389,747     
General and administrative expenses  (3,254,065)  (4,741,686)  1,487,621  4  (3,445,170)  (3,991,962)  546,792   4 
Net income (expenses) before income tax  2,965,161   25,736,364   (22,771,203)  
Net Income from continuing operations  2,965,161   25,736,364   (22,771,203)  
Income on investment  1,379,672   -   1,379,672  4.a.
Less: Net( income) loss attributable to Non - controlling interest  (893,985)  (7,211,439)  6,317,454  5
Net income from continuing operations attributable to SIAF Inc. and subsidiaries  3,450,848   18,524,925   (15,074,077)  
Discontinued operations              
Net income from discontinued operations  -   2,900,004   (2,900,004)  
Less: Net ( income) loss attributable to Non - controlling interest  -   (132,452)  132,452   
Net income from discontinuing operations attributable to SIAF Inc. and subsidiaries      2,767,552   (2,767,552)  
Net income before income taxes  8,725,082   3,690,121   5,034,961     
EBITDA  12,148,872   7,120,467   5,028,405     
Depreciation and amortization (D&A)  3,300,532   3,022,618   277,914   5 
EBIT  8,848,340   4,097,849   4,750,491     
Net Interest  125,871   407,728   (281,857)    
Tax  -   -   -     
Net Income  8,722,469   3,690,121   5,032,348     
Less:Net( income) loss attributable to Non - controlling interest  (605,923)  (224,559)  (381,364)  7 
Net income attributable to SIAF Inc. and subsidiaries  3,450,848   21,292,477   (17,841,629)    8,116,546   3,465,562   4,650,984     
Other comprehensive income (loss) Foreign currency translation gain (loss)  569,938   (1,793,042)  2,362,980   
Comprehensive income  4,020,786   19,499,435   (15,478,649)  
Less: other comprehensive (income) loss attributed to the non-controling interest  (983,217)  226,668   (1,209,885)  
Comprehensive income attributed to Sino Agro Food, Inc and subsidiaries  3,037,569   19,726,103   (16,688,534)  
              
Weighted average number of shares outstanding                              
- Basic  24,231,617   20,376,225   3,855,392     49,968,758   36,650,450   13,318,308     
- Diluted  26,357,758   22,754,892   3,602,866     49,968,758   36,650,450   13,318,308     
From continuing and discontinued operations             6
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:              8 
Basic  0.14   1.04   (0.90)    0.16   0.09   0.07     
Diluted  0.15   0.95   (0.80) 6.a.  0.16   0.09   0.07     
              
From continuing operations              
Basic  0.14   0.91   (0.77)  
Diluted  0.15   0.81   (0.66)  

 

 - 5 -3 

 

 

Note (1, 2 & 3) Sales, cost of sales and gross profit information and analysis:

 

·lThe Company’s revenues were generated from (1) Sale of Goods and (2) Consulting and Services provided in project and business developments, covering engineering, construction, supervision, training, management and technology etc.

 

The table below shows the segmentalsegmented sales, gross profit, and corresponding cost of sales for the three months ended September 30, 2017 (Q3 2017)2019(Q3 2019) compared to the three months ended September 30, 20162018 (Q3 2016)2018).

    Sales of goods  Cost of Goods sold  Sales of Goods’ Gross profit 
  In US$  2019Q3  2018Q3   2019Q3  2018Q3  2019Q3   2018Q3
SJAP Sales of live cattle  1,040,590   1,510,411   1,043,537   1,219,239   -2,947   291,172 
  Sales of feedstock  -   -   -   -   -   - 
  Bulk Livestock feed  239,201   207,979   106,852   95,742   132,349   112,237 
  Concentrate livestock feed  1,747,193   1,570,407   977,599   871,424   769,594   698,983 
  Sales of fertilizer  439,805   254,056   370,211   168,994   69,594   85,062 
  SJAP Total  3,466,789   3,542,853   2,498,199   2,355,398   968,590   1,187,455 
HSA Sales of Organic fertilizer  863,811   798,630   687,309   766,897   176,502   31,733 
  Sales of Organic Mixed Fertilizer  1,257,647   1,591,558   718,471   763,954   539,176   827,604 
  HSA Total  2,121,458   2,390,188   1,405,780   1,530,851   715,678   859,337 
  SJAP’s & HS.A./Organic fertilizer total  5,588,247   5,933,041   3,903,979   3,886,249   1,684,268   2,046,792 
JHST Sales of Fresh HU Flowers  -   -   -   -   -   - 
  Sales of Dried HU Flowers  -   106,698.06   -   93,795   -   12,903 
  Sales of Dried Immortal vegetables  -   -   -   -   -   - 
  Sales of Vegetable products  803,352   881,331   623,169   722,187   180,183   159,144 
  JHST/Plantation Total  803,352   988,029   623,169   815,982   180,183   172,047 
MEIJI    -   -   -   -   -   - 
  Sale of Live cattle (Aromatic)  13,394,653   8,028,333   10,926,470   6,674,769   2,468,183   1,353,564 
  MEIJI / Cattle farm Total  13,394,653   8,028,333   10,926,470   6,674,769   2,468,183   1,353,564 
SIAF                          
  Sales of goods through trading/import/export activities                        
  on seafood  8,367,712   9,286,201   7,437,967   8,188,572   929,745   1,097,629 
  on imported beef and mutton  9,277,350   8,012,041   8,246,533   7,520,612   1,030,817   491,429 
  SIAF/ Others & Corporate total  17,645,062   17,298,242   15,684,500   15,709,184   1,960,562   1,589,058 
                           
Group Total  37,431,314   32,247,645   31,138,118   27,086,184   6,293,196   5,161,461 

 

In US$ Sales of goods  Cost of Goods sold  Sales of Goods’  Gross profit 
    2017Q3  2016Q3  2017Q3  2016Q3  2017Q3  2016Q3 
                     
 SJAP Sales of live cattle  1,988,257   7,119,057   1,898,480   5,937,538   89,777   1,181,519 
  Sales of feedstock          -       -     
  Bulk Livestock feed  991,871   1,622,283   456,382   730,130   535,489   892,154 
  Concentrate livestock feed  2,715,027   4,471,123   1,537,340   2,480,922   1,177,687   1,990,201 
  Sales of fertilizer  587,034   841,942   397,188   561,443   189,846   280,499 
  SJAP Total  6,282,189   14,054,405   4,289,390   9,710,033   1,992,799   4,344,372 
  * QZH’s (Slaughter & Deboning operation)  -   330,754       143,320       187,434 
  ** QZH’s (Deboning operation)          -       -   - 
  on cattle & Lamb locally supplied  1,204,236   4,460,323   1,081,470   3,406,372   122,766   1,053,951 
  on imported beef and mutton  11,901,696   24,603,451   11,573,026   19,992,621   328,670   4,610,830 
  Sales of  live  cattle      -   -   -   -     
  QZH Total  13,105,932   29,394,528   12,654,496   23,542,313   451,436   5,852,215 
 HSA Sales of Organic fertilizer  928,982   908,272   803,411   701,757   125,571   206,515 
  Sales of Organic Mixed Fertilizer  740,702   4,339,940   425,440   2,361,635   315,262   1,978,305 
  HSA Total  1,669,684   5,248,212   1,228,851   3,063,392   440,833   2,184,820 
  SJAP’s & HS.A./Organic fertilizer total  21,057,805   48,697,145   18,172,737   36,315,738   2,885,068   12,381,407 
 JHST Sales of Fresh HU Flowers  22,399   475,340   20,420   196,554.86   1,979   278,785 
  Sales of Dried HU Flowers  628,063   5,173,014   604,913   2,122,825   23,150   3,050,189 
  Sales of Dried Immortal vegetables      -   -   -   -   - 
  Sales of Vegetable products  836,003   1,043,786   623,362   690,501   212,641   353,285 
  JHST/Plantation Total  1,486,465   6,692,140   1,248,695   3,009,881   237,770   3,682,259 
 MEIJI            -       -     
  Sale of Live cattle (Aromatic)  7,281,156   9,658,454   6,319,872   9,119,428   961,284   539,026 
  MEIJI / Cattle farm Total  7,281,156   9,658,454   6,319,872   9,119,428   961,284   539,026 
SIAF            -       -     
  Sales of goods through trading/import/export activities                      
  on seafood  7,467,142   10,126,889   6,651,655   8,927,273   815,487   1,199,616 
  on imported beef and mutton  8,121,994   13,105,597   7,219,550   11,649,420   902,444   1,456,177 
  SIAF/ Others & Corporate total  15,589,136   23,232,486   13,871,205   20,576,693   1,717,931   2,655,793 
             -             
Group Total  45,414,562   88,280,225   39,612,509   69,021,740   5,802,054   19,258,485 
                           
Increases/(decrease) of Q3 2017 to Q3 2016 in $  -42,865,663               -13,456,431     
Increases / (increase) of Q3 2017 to Q3 2016 in %  -49%              -70%    

 - 6 -4 

 

Overall comparison of Q3 20172019 to Q3 20162018

 

The Company’s revenues generated from the sale of goods was $45,414,562$32,247,645 for the quarterquarterly period endingended September 30, 20172018, compared to $88,280,225$37,431,314 for the same period ended September 30, 2016,2019, reflecting a decreasean increase of 49%16%, or $42,865,663.$5,183,669.

 

The Company’s cost of goods sold $39,612,509was $31,138,118 for the quarterquarterly period endingended September 30, 20172019, compared to $69,021,740$27,086,184 for the same period ended September 30, 2016,2018, reflecting a decreasean increase of 43%15%, or $29,409,231.$4,051,934.

 

Gross profits of the Company generated from goods sold $5,802,053was $6,293,196 for the quarterquarterly period endingended September 30, 20172019, compared to $19,258,485$5,161,464 for the same period ended September 30, 2016 representing a decrease2018, reflecting an increase of 70%22%, or $13,456,431.$1,131,735.

 

The overall lowerhigher performance for the corresponding period of 2019 to 2018 is primarily due to (i) the increase in SJAP’s sales of goods in the “Fishery Sector (or CA’s sales of goods)” is now discontinuedconcentrated livestock feed (up by $0.49 million), and recorded as investment income, (ii) the continuously unstable, depressed localincrease of MEIJI’s cattle and beef industry ledsales (up by $5.36 million), resulting in an overall increase in gross profits of $1.32 million for the corresponding period of 2019 to poorer performance2018, as shown in concentrated live-stock feed and deboning of the imported beef.table above.

 

Details of each segment are being described below:

 

·l1. (i) Beef and Organic Fertilizer Division refers to operation of SJAP and QZH

 

In US$           
    Sales of goods  Cost of Goods sold  Gross profit 
    2019Q3  2018Q3  2019Q3  2018Q3  2019Q3  2018Q3 
SJAP Sales of live  cattle  1,040,590   1,510,411   1,043,537   1,219,239   -2,947   291,172 
  Sales of feedstock      0           -     
  Bulk Livestock feed  239,201   207,979   106,852   95,742   132,349   112,237 
  Concentrate livestock feed  1,747,193   1,570,407   977,599   871,424   769,594   698,983 
  Sales of   fertilizer  439,805   254,056   370,211   168,994   69,594   85,062 
  SJAP Total  3,466,789   3,542,853   2,498,199   2,355,398   968,590   1,187,455 
  % of increase (+) or decrease (-)  -2%      6%      -18%    

    2017Q3  2016Q3  2017Q3  2016Q3  2017Q3  2016Q3 
                     
SJAP Sales of live cattle  1,988,257   7,119,057   1,898,480   5,937,538   89,777   1,181,519 
 % of increase / decrease  -72%              -92%    
 Decrease in $  (5,130,800)              (1,091,742)    
  Sales of feedstock                        
  Bulk Livestock feed  991,871   1,622,283   456,382   730,130   535,489   892,154 
  Concentrate livestock feed  2,715,027   4,471,123   1,537,340   2,480,922   1,177,687   1,990,201 
  % of increase / decrease  -39%              -41%    
  Decrease in $  (1,756,096)              (812,514)    
  Sales of fertilizer  587,034   841,942   397,188   561,443   189,846   280,499 
  SJAP Total  6,282,189   14,054,405   4,289,390   9,710,033   1,992,799   4,344,372 
  * QZH’s (Slaughter & Deboning operation)  -   330,754       143,320       187,434 
  ** QZH’s (Deboning operation)          -       -     
  on cattle & Lamb locally supplied  1,204,236   4,460,323   1,081,470   3,406,372   122,766   1,053,951 
  on imported beef and mutton  11,901,696   24,603,451   11,573,026   19,992,621   328,670   4,610,830 
  % of increase / decrease  -52%              -93%    
  decreases in $  (12,701,755)              (4,282,160)    
  Sales of live cattle  -       -           - 
  QZH Total  13,105,932   29,394,528   12,654,496   23,542,313   451,436   5,852,215 
                           
  SJAP and QZH total  19,388,121   43,448,933   16,943,886   33,252,346   2,444,235   10,196,587 
  % of increase / decrease  -55%              -76%    
  decreases in $  (24,060,812)              (7,752,352)    

As illustrated in the Tabletable above, when comparing Q3 20172019 against the same period in 2016,2018, the losses in revenue (negative variance of $24 million,$0.08million, or -55%-2%) and gross profit (negative variance of 7.750.22 million, or -76%-18%) was primarily due to, can be viewed as normal under the continuouslycurrent depressed cattle market in which, duringconditions. During the Q3 2017, SJAP only sold cattle grown in its own farm without any sales from its cooperative farmers, also reflecting poor results in the sales revenue and gross profit ofquarter, SJAP’s concentrated livestock feed which had decreased by $1.76performed well with a steady increase in sales of $0.49 million, (a decreaseas the quality of -39%) and $0.8 million (a decrease of 41%), respectively.the products is slowly attracting demand from new livestock.

 

Sales revenue and gross profit of deboning and packaging imported beef meats decreased by $12.7 million (a decrease of -52%) and 4.2 million (a decrease of -93%), respectively primarily due to the increase of outside competition coming into the market, thus reducing the Company’s market share and profits, accordingly.

 - 7 -5 

 

In view of the situation referenced above, which has been ongoing for more than 12 months, and, in addition, has seen the Central Government’s request for upgrades to the facilities due to more stringent environmental policies, requiring additional expended capital, SJAP’s management has decided to temporarily cease QZH’s operation beginning in October 2017, until such time as an effective solution is found.

 

The table below shows the itemized sales of goods and related cost of sales in quantity and unit price for the quarterly period ended September 30, 20172019 compared to the same period ended September 30, 20162018 of the beef and organic fertilizer divisions.

  Description of items             
SJAP Cattle Operation  2017Q3  2016Q3  Difference  
  Production and Sales of live cattle Heads  853   3,230   -2,377  A.4.1
  Average Unit sales price US$/head  2,331   2,204   127   
  Unit cost prices US$/head  2,226   1,838   387   
  Production and sales of feedstock                
  Bulk Livestock feed MT  5,627   9,013   -3,386  A.4.2
  Average Unit sales price US$/MT  176   180   -4   
  Unit cost prices US$/MT  81   81   0   
  Concentrated livestock feed MT  6,330   9,967   -3,637  A.4.3
  Average Unit sales price US$/MT  429   449   -20   
  Unit cost prices US$/MT  243   249   -6   
  Production and sales of fertilizer MT  3,420   6,341   -2,921  A.4.4
  Average Unit sales price US$/MT  172   133   39   
  Unit cost prices US$/MT  116   89   28   
* QZH (Slaughter & De-boning operation)                
  Slaughter operation                
  Slaughter of cattle Heads      850   -850  A.4.5
  Service fee US$/Head      10   -10   
  Sales of associated products Pieces      850   -850   
  Average Unit sales price US$/Piece      379   -379   
  Unit cost prices US$/Piece      169   -169   
  De-boning & Packaging activities               A. 4.6.
  From Cattle supplied locally                
  De-boned Meats MT  361   478   -117   
  Average Unit sales price US$/MT  3,336   9,329   -5,993   
  Unit cost prices US$/MT  2,996   7,125   -4,129   
  From imported beef MT  1,653   2,707   -1,054   
  Average Unit sales price US$/MT  7,200   9,089   -1,889   
  Unit cost prices US$/MT  7,001   7,386   -384   
       2019Q3  2018Q3  Difference 
SJAP Production and Sales of  live  cattle Heads  546   610   (64)
  Average Unit sales price US$/head  1,906   2,476   (570)
  Unit cost prices US$/head  1,911   1,999   (88)
  Production and sales of feedstock    -   -   0 
  Bulk Livestock feed MT  1,408   1,228   180 
  Average Unit sales price US$/MT  170   169   1 
  Unit cost prices US$/MT  76   78   (2)
  Concentrated livestock feed MT  4,053   4,626   (573)
  Average Unit sales price US$/MT  431   339   92 
  Unit cost prices US$/MT  237   188   49 
  Production and sales of fertilizer MT  3,282   2,019   1,263 
  Average Unit sales price US$/MT  134   126   8 
  Unit cost prices US$/MT  113   84   29 

 

Live cattle prices have not changed much during the quarter. Thus, the lower unit price / head was primarily due to smaller sized cattle being sold and the overall situation of the local live cattle industry remaining depressed.

The decreaseincrease in the sales of bulk and concentrated stocklivestock feed was 3,386180 MT in bulk feed, from 9,0131,228 MT in Q3 20162018 to 5,6271,408 MT in Q3 2017,2019, and 3,637the decrease of 573 MT in concentrated livestock feed, from 9,9674,626MT in Q3 2018 to 4,053 MT in Q3 20162019, which was compensated by the increase of unit sale price of $92 / MT, primarily due to 6,330 MT in Q3 2017, againthe higher unit sale prices for the same reasons as mentioned above.types of livestock other than cattle feed. All other sectors have been steady.

 

The big difference in unit prices of the de-boned local meat is mainly due to this quarter’s meat sales were derived from the clearance of old stock, at reduced prices.

- 8 -

1. (ii). The operations of HSA in manufacturing and sales of organic fertilizer itemizing unit sales, costs and quantity of sales:

 

In US$In US$ Sales of goods Cost of good sold Gross Profit        
  2017Q3 2016Q3 2017Q3 2016Q3 2017Q3 2016Q3   Sales of goods Cost of Goods sold Gross profit 
HS.A Sales of  Organic fertilizer  928,982   908,272   803,411   701,757   125,571   206,515 
  2019Q3 2018Q3 2019Q3 2018Q3 2019Q3 2018Q3 
HSA Sales of  Organic fertilizer  863,811   798,630   687,309   766,897   176,502   31,733 
 Sales of Organic Mixed Fertilizer  740,702   4,339,940   425,440   2,361,635   315,262   1,978,305  Sales of Organic Mixed Fertilizer  1,257,647   1,591,558   718,471   763,954   539,176   827,604 
 HS.A Total  1,669,684   5,248,212   1,228,851   3,063,392   440,833   2,184,820  HSA Total  2,121,458   2,390,188   1,405,780   1,530,851   715,678   859,337 
 % of increase or decrease (-)  -68%      -60%      -80%     % of increase (+) or decrease (-)  -11%      0%      -17%    

 

     2017Q3  2016Q3  difference 
HSA Fertilizer and Cattle operation            - 
 Organic Fertilizer MT  6,082   3,593   2,489 
  % of increase or decrease (-)    69.27%        
  Average Unit sales price US$/MT  153   245   -92 
  Unit cost prices US$/MT  132   192   -60 
  Organic Mixed Fertilizer MT  1,796   10,040   -8,244 
  % of increase or decrease (-)    -82%        
  Average Unit sales price US$/MT  412   432   -20 
  Unit cost prices US$/MT  237   235   2 
  Retailing packed fertilizer (For super marlet sales) MT      37   -37 
  % of increase or decrease (-)              
  Average Unit sales price US$/MT      725   -725 
  Unit cost prices US$/MT      365   -365 

During Q3 2017, HSA improved its production and sales of organic fertilizer by 2,489 MT from Q3 2016’s 3,593 MT to Q3 2017’s 6,082 MT primarily due to the drop of unit sale prices from Q3 2016’s $245 MT to Q3 2017’s $153 MT which was mainly due to increasing competition in the Fertilizer Trade; the sales on Organic Mixed Fertilizer has dropped by 8,244 MT compared between Q3 2016 and Q3 2017 mainly due to the late start-up of this section’s remodeled/retrofitted production plant operating only one month, during the quarter.

Without incurring further capital expenditure at this juncture until such time as self-generated results allow, HAS’s sales improved by $0.7 million from Q2 2017’s $0.9 million to Q3 2017’s $1.6 million with improved gross profit by $0.3 million from Q2 2017’s $0.17 million to Q3 2017’s $0.48 million.

 

 - 9 -6 

 

 

Revenue from our HSA business segment decreased by $268,730, or -11%, from $2,390,188 for Q3 2018 to $2,121,458 for Q3 2019.Gross profit from HSA decreased by $143,659, or-17% from $859,337 for Q3 2018 to $715,678 for Q3 2019, primarily due to seasonal variation having more sales in organic fertilizer but at lower unit sale prices (of $206 / MT) and lesser sales in organic mixed fertilizer at higher unit sale prices of ($392 / MT) as shown in table below.

       2019Q3  2018Q3  Difference 
HSA Fertilizer operation              
  Organic Fertilizer MT  4,195   3,457   738 
  Average Unit sales price $/MT  206   231   (25)
  Unit cost price $/MT  164   222   (58)
  Organic Mixed Fertilizer MT  3,207   3,985   (778)
  Average Unit sales price $/MT  392   399   (7)
  Unit cost price $/MT  224   192   32 
  Retailing packed fertilizer (for super market sales) MT  -   -   - 
  Average Unit sales price $/MT  -   -   - 
  Unit cost price $/MT            

During Q3 2019, we were hoping that HSA’s general manager Mr. Jack Chan would have recovered from his illness and would be back at work to take care of HSA’s business affairs. However, Mr. Chan is still under medical care and is predicted to be so for the rest of the year.

Therefore HSA’s business is currently being managed by its assistant manager, until such time when Mr. Chan recovers.

·lPlantation Division refers to the operations of Jiangmen City Heng Sheng Tai Agriculture Development Co. Ltd. (“JHST”). JHST is engaged in the HU Plantation business where dragon fruit flowers (dried and fresh), cash vegetable crops, and immortal vegetables are sold to wholesale and retail markets. JHST’s financial statements are consolidated into the financial statements of MEIJI as one entity.

In US$ Sales of goods  Cost of Goods sold  Sales of Goods’  Gross profit 
    2017Q3  2016Q3  2017Q3  2016Q3  2017Q3  2016Q3 
JHST Sales of Fresh HU Flowers  22,399   475,340   20,420   196,555   1,979   278,785 
  Sales of Dried HU Flowers  628,063   5,173,014   604,913   2,122,825   23,150   3,050,189 
  Sales of Dried Immortal vegetables                   
  Sales of Other Value added products  836,003   1,043,786   623,362   690,501   212,641   353,285 
  JHST/Plantation Total  1,486,465   6,692,140   1,248,695   3,009,881   237,770   3,682,259 
  Increases / (decrease) in $  (5,205,675)              (3,444,488)    
  % of increases / (decrease)  -78%              -94%    
  In US$         
    Sales of goods  Cost of Goods sold  Gross profit 
    2019Q3  2018Q3  2019Q3  2018Q3  2019Q3  2018Q3 
JHST Sales of Fresh HU Flowers                      - 
  Sales of Dried HU Flowers      106,698       93,795   -   12,903 
  % of increases (+) or decreases (-)                        
  Sales of Dried Immortal vegetables  -   -   -   -   -   - 
  % of increases (+) or decreases (-)                        
  Sales of Vegetable products  803,352   881,331   623,169   722,187   180,183   159,144 
  % of increases (+) or decreases (-)  -9%      -14%      13%    
  JHST/Plantation Total  803,352   988,029   623,169   815,982   180,183   172,047 
  % of increases (+) or decreases (-)  -19%      -24%      5%    

       2019Q3  2018Q3  Difference 
JHST Fresh HU Flowers  Pieces  -   -   - 
  Average Unit sales price US$/Pieces  -   -   - 
  Unit cost prices US$/Pieces  -   -   - 
  Dried HU Flowers MT  -   23   (23)
  Average Unit sales price US$/MT  -   4,639   (4,639)
  Unit cost prices US$/MT  -   4,078   (4,078)
  Dried Immortal vegetables MT  -   -   - 
  Average Unit sales price US$/MT  -   -   - 
  Unit cost prices US$/MT  -   -   - 
  Vegetable products MT  785   870   (85)
  Average Unit sales price US$/MT  1,023   1,013   10 
  Unit cost prices US$/MT  794   830   (36)

7

 

 Description of items   2017Q3  2016Q3  Differences 
 Fresh HU Flowers Pieces  248,808   3,285,600   -3,036,792 
  Average Unit sales price US$/piece  0.09   0.14   -0.05 
  Unit cost prices US$/piece  0.08   0.06   0.02 
  Dried HU Flowers MT  125.0   446   -321 
  Average Unit sales price US$/MT  5,025   11,599   -6,574 
  Unit cost prices US$/MT  4,839   4,760   80 
  Dried Immortal vegetables MT            
  Average Unit sales price US$/MT            
  Unit cost prices US$/MT            
  Vegetable products MT  776   1,381   -605 
  Average Unit sales price US$/MT  1,077   756   321 
  Unit cost prices US$/MT  803   500   303 

Revenue from our plantation division decreased by $5.2 million$184,677 (or 78%-19%), from $6.7 million$988,029 for Q32018 to $803,352 for Q3 2016 to $1.5 million for Q3 2017.2019. The decrease was primarily due to lower prices bothharvest in fresh flowers by $0.05/piece and dried flowers by $6,574/vegetables from 870 MT primarily duein Q3 2018 to the poorer quality785 MT of flowers, which in turn resulted from root diseases caused by excessive rain during the past few years.Q3 2019.

 

JHST is experimenting with many different crops and other biological plant products aiming atBecause of the development of more stable crops and/or products that will eventually help the Companyneed for heavy capital funding to developredevelop the plantation into much larger economical scalea more commercially viable proposition -- and because of operation free from effects caused byits high maintenance cost in general, -- JHST’s management decided to lease out the vagaries of weather in Guangdong Province. To date, our experimental crop of Passion Fruits harvested duringwhole plantation to a third party until such time when the quarter had good reception with reasonable and stable prices averaging over RMB20/kg (or approximately US$3/kg)m which is encouraging; consequently, we are working on improvingcompany will have enough capital to redevelop the yield per acre targeting to start commercial production in spring 2018 with about 100 acres; at the same time we have successfully attracted the interest of a health-products purveyor to market our Immortal vegetable plants (“IVP”) under their brand label via their e-commerce platform with shipments covering all corners of China. In this respect, we are redesigning and repackaging our IVPs with the aim to have this sale program launched with commercial harvests beginning from spring of 2018.plantation.

 

A lease agreement was executed on September 15th 2019 bearing the following terms and conditions:

Tenure3 years from Sept. 15th 2019 to August 15th 2022
Lease feesRMB3000 / Mu / year for a total of 1,200 Mu = RMB3,600,000 / year payable monthly evenly.
Pre-payment or deposit2 months in advance = RMB600,000 payable upon execution of lease agreement.
Other terms & conditionsThe land will be used for purpose of cultivation of agriculture and producing fresh produces only.
 - 10 -JHST has the option to terminate the lease after 3 years however if JHST will decide to continue to lease out the plantation, the lessee is given the first option to lease the plantation.
 Leasing fee is subjected to annual increase of 5%
Rentals are paid one month in advance, and failure to pay on time, the leaser retains the right to terminate the lease.
Upon termination or expiry of the lease, the lessee must return the property on good condition for cultivation.
If the leaser will decide to take back the plantation before its expiry, the parties agree to settle the compensation amicably and in friendly manner.  

 

·lCattle Farm Divisionrefers to the operations of Cattle Farm 1 under Jiangmen City Hang Mei Cattle Farm Development Co. Ltd (“JHMC”), where cattle are sold live to third party livestock wholesalers who are sellingmainly sell them mainly in Guangzhou and Beijing livestock wholesale markets. The financial statements of JHMC are consolidated into MEIJI as one entity along with MEIJI’s operation in the consulting and service for development of other cattle farms, such as Cattle Farm 2, or related projects.

 

In US$ Sales of goods  Cost of Goods sold  Sales of Goods’  Gross profit 
    2017Q3  2016Q3  2017Q3  2016Q3  2017Q3  2016Q3 
                     
MEIJI                          
(CF1) Sale of Live cattle (Aromatic)  7,281,156   9,658,454   6,319,872   9,119,428   961,284   539,026 
  MEIJI / Cattle farm Total  7,281,156   9,658,454   6,319,872   9,119,428   961,284   539,026 
  Increases / (decrease)  in $  -2,377,298               422,258     
  % of increase or (decrease)  -25%              78%    

In US$In US$ Sales of goods Cost of Goods sold Gross profit 
  2019Q3 2018Q3 2019Q3 2018Q3 2019Q3 2018Q3 
MEIJI Production and sale of Live cattle (Aromatic) Heads  4,731   4,417   314  Sale of Live cattle (Aromatic) from own farm & from trading  13,394,653   8,028,333   10,926,470   6,674,769   2,468,183   1,353,564 
CF1 Average Unit sales price US$/head  1,539   2,187   -648 
 Unit cost prices US$/head  1,336   2,065   -729                           
  MEIJI / Cattle farm Total  13,394,653   8,028,333   10,926,470   6,674,769   2,468,183   1,353,564 
 % of increases (+) & decreases (-)  67%      64%      82%    

 

Cattle Farm 1 revenue decreased sales by $2,377,298 (or 25%) from Q3 2016’s $9,658,454 to Q3 2017’s $7,281,156 while gross profit increased by $422,258 (or 78%) from $539,026 in Q3 2016 to Q3 2017’s $961,284, reflecting price-points of the local “Yellow Cattle” breed.

       2019Q3  2018Q3  Difference 
MEIJI Production and trading on sale of Live cattle Head  3,569   2,082   1,487 
  Average Unit sales price $/head  3,753   3,856   (103)
  Unit cost prices $/head  3,061   3,206   (144)

 - 11 -8 

 

 

Cattle Farm 1’s revenue increased sales by $5,366,320 (or 67%) from Q3 2018’s $8,028,333 to Q3 2019’s $13,394,653, while gross profits increased by $1,114,619 (or 82%) from $1,353,565 in Q3 2018 to Q3 2019’s $2,468,183, reflecting a rising local demand for “Yellow Cattle”. Stable market prices are encouraging and the increased number of heads being sold in this quarter included 357 head of cattle kept in quarantine during Q2 2019.

·lCorporate & Others Divisionrefers to the business operations of Sino Agro Food, Inc., including import/export business and consulting and service operations provided to projects not included in the above categories, and not limited to corporate affairs.

 

In US$In US$ Sales of goods Cost of Goods sold Sales of Goods’  Gross profit In US$ Sales of goods Cost of Goods sold Gross profit 
  2017Q3 2016Q3 2017Q3 2016Q3 2017Q3 2016Q3 
               2019Q3 2018Q3 2019Q3 2018Q3 2019Q3 2018Q3 
SIAF                    Sales of goods through trading/import/export activities                        
 Sales of goods through trading/import/export activities                         on seafood (via imports)  8,367,712   9,286,201   7,437,967   8,188,572   929,745   1,097,629 
 on seafood  7,467,142   10,126,889   6,651,655   8,927,273   815,487   1,199,616  % of increases (+) and decreases (-)  -10%      -9%      -15%    
 Increases / (decrease) in $  -2,659,747               -384,129      on imported beef mainly  9,277,350   8,012,041   8,246,533   7,520,612   1,030,817   491,429 
 % of increases / (decrease)  -26%              -32%     % of increases (+) and decreases (-)  16%      10%      110%    
 on imported beef and mutton  8,121,994   13,105,597   7,219,550   11,649,420   902,444   1,456,177   SIAF/ Others & Corporate total  17,645,062   17,298,242   15,684,500   15,709,184   1,960,562   1,589,058 
 Increases / (decrease) in $  (4,983,603)              (553,733)     % of increases (+) and decreases (-)  2%      0%      23%    
 % of increases / (decrease)  -38%              -38%    
 SIAF/ Others & Corporate total  15,589,136   23,232,486   13,871,205   20,576,693   1,717,931   2,655,793 
 Increases / (decrease) in $  (7,643,350)              (937,862)    
 % of increases / (decrease)  -33%              -35%    

 

  Description of items           
      2017Q3  2016Q3  Difference 
SIAF Seafood trading from imports        
  Mixed seafoods MT  400   542   -142 
  Average of sales price US$/MT  18,668   18,702   (34)
  Average of cost prices US$/MT  16,629   16,486   143 
  Beef & Lambs trading from imports MT  417   1,239   -822 
  Average of sales price US$/MT  19,501   10,578   8,923 
  Average of cost prices US$/MT  17,334   9,402   7,932 
Description of items    2019Q3  2018Q3  Difference 
SIAF Seafood trading from imports              
  Mixed seafood MT  440   524   (84)
  Average of sales price $/MT  19,018   17,722   1,296 
  Average of cost prices $/MT  16,904   15,627   1,277 
  Beef & Lamb trading from imports MT  542   460   82 
  Average of sales price $/MT  17,117   17,417   (301)
  Average of cost price $/MT  15,215   16,349   (1,134)

Revenue from the corporate division decreasedincreased by $7.6 million$346,820 or (33%(2%) from Q3 2016’s $23.2 million2018’s $17,298,242 to Q3 2017’s $15.6 million. The decrease was primarily due to our decision to trade in selective products that could maintain certain profit margins developed with selected clients.

2019’s $17,645,062.

Gross profitprofits from the corporate sector decreasedincreased by $0.94 million$371,504 or (35%(23%) from $2.66 million$1,589,058 for Q3 20162018 to $1.72 million$1,960,562 for Q3 2017. The decrease was marginal and will improve as we increase2019, representing consistent performance of the importing of higher quality products sourced from an increasing number of reputable suppliers.

trading business within the Corporate sector. In this respect,aspect, the Company is confident that this segment will continueworking on increasing the volume of imported frozen food products to improve as the disposable income of China’s middle class continues to grow.increase targeting progressive revenue and profit improvement starting in Q4 2019.

 

 - 12 -9 

 

 

·l5.A. Engineering technology consulting and services:

 

Notes to Table A (1) Note (1.1, 2.1 and 3.1)

 

Table A.5 below shows the revenue,revenues, cost of services, and gross profitprofits generated from consulting, services, commission, and management feefees for three months ended September 30, 20162018 (Q3 2017)2019).

 

Revenues (consulting, service, commission and management fee):

 

      2017Q3  2016Q3  Difference  Description of work
                
Sales Revenues (Consulting and Services)          
                   
    CA  2,978,371   23,377,355   -20,398,984  Working in progress of PF(2), NPF
  Group Total Revenues    2,978,371   23,377,355   -20,398,984   
Cost of sales              -   
    CA  2,234,070   12,450,460   -10,216,390   
  Group Total Cost of sales    2,234,070   12,450,460   -10,216,390   
Gross Profit              -   
    CA  744,301   10,926,895   -10,182,594   
  Group Total Gross Profit    744,301   10,926,895   -10,182,594   
                   
  % of increase or (decrease)                
  Group revenues    -87%          
  Group gross profits    -93%          

   2019Q3  2018Q3  Difference  Description of work
Service  revenues (Consulting and Services)              
CA  -   6,502,372   (6,502,372) Working in progress of PF(2), NPF
Group Total Revenues  -   6,502,372   (6,502,372)  
Cost of service              
CA  -   5,469,059   (5,469,059)  
Group Total Cost of Consulting and Services  -   5,469,059   (5,469,059)  
Gross Profit              
CA  -   1,033,313   (1,033,313)  
Group Total Gross Profit  -   1,033,313   (1,033,313)  

 

Revenues decreased by $20.40 million (or 87%)$6,502,372 from $23.38 million$6,502,372 for Q3 20162018 to $2.98 million$0 for Q3 2017.2019. Cost of services for consulting, service, commission, and management fees decreased by $10.22 million (or 82%)$5,469,059 from $12.45 million$5,469,059 for Q3 20162018 to $2.23 million$0 for Q3 2017.2019. Gross profitprofits decreased by $10.19 million (or 93%)$1,033,313 from $10.93 million$1,033,313 for Q3 20162018 to $0.74 million$0 for Q3 2017.2019. There was no capital expenditure by Tri-way on its farm development work during the quarter. However, CA has been working on cooperative plans for an Indian fishery development project with a number of third party potential joint venture partners. The development would initially aim at the “value added processing” of frozen raw Mexican White shrimps to be supplied from India to China. The project negotiation was progressing well until our director (Mr. Ravidrans) caught dengue fever in October 2019. Presently he is recovering, and we are hoping to continue the development project progress as soon as possible when Mr. Ravidrans recovers.

 

The decrease in revenue/cost of sales was primarily due to the current policy of Tri-way (the developer of the Fishery properties) to restrict its development capital expenditures (CapEx) until they have successfully sourced its funding.

The issuance of shares for Q3 2017

·Total issued and outstanding shares as at 30.09.2017 is at 27,811,573 shares reflecting an increase of 2,382,246 shares for the quarter from Q2 2017’s total issued and outstanding count of 25,429,327 shares. The primarily reason is due to the decrease in the market price of our shares of common stock, from an average of $12 per share in Q3 2015 to $1.40 per share end of Q3 2017, which reduced the overall value of the security (collateral shares), thus requiring the Company to increase its securitized collateral for loans and facilities totaling $36.8 million, consisting of Trade Facility Loans totaling $26.7 m and loans from third parties collectively amounting to $12.6 million, less $2.5 million having been repaid (net $10.1 million), resulting in a total of 8.45 million shares issued as collateral security averaged at $4.35/share, which remains at a favorable margin when compared to the market price of $1.40/share as at 30.09.2017.

Collateral shares do not hold voting or dividend rights and thus do not carry the same ownership rights as the shares of our common stock held by common shareholders of the Company.

 - 13 -10 

 

 

The Table below shows the actual increase of shares from year end 2014 to 30.09.2017:

    # of  Total issued and  % of
increase
Inclusive of
the
  Effective  Real %
of
increase
 
As at   

Collateral

Shares

  outstanding
(“I&O”) shares
  collateral
shares
  share  count,
net of  C/S
  Net of
C/S
 
31.12.2014 The fully diluted total I&O shares inclusive the B series shares     17,869,786          
31.12.2015 The fully diluted total I&O shares inclusive the B series shares      20,133,757   13%  17,917,573   0%
  The Collateralized shares  2,216,184                 
31.12.2016 The fully diluted total I&O shares inclusive the B series shares      22,726,569   13%  19,249,138   7%
  The Collateralized shares  3,477,431                 
30.09.2017 The fully diluted total I&O shares inclusive the B series shares      27,811,573   22%  19,366,138   1%
  The Collateralized shares  8,445,435                 

The Gain/Loss on extinguishment of debts historical previously stated:

During the last three years, we have issued unregistered securities to Chinese persons none of them residents of the United States. None of these transactions involved any underwriters, underwriting discounts or commissions, or any public offering. The sales of these securities were, except as set forth below, deemed to be exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(a)(2) thereof, and/or Rule 506 of Regulation D promulgated there under, as transactions by an issuer not involving a public offering. The recipients of securities in each transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the certificates issued in such transactions. All purchasers of our securities were accredited or sophisticated persons and had adequate access, through employment, business or other relationships, to information about us.

We relied upon Regulation S of the Securities Act of 1933, as amended, for these issuances, none of which was made to US citizens or residents. We believe that Regulation S was available because:

·None of these issuances involved underwriters, underwriting discounts or commissions;

·We placed Regulation S required restrictive legends on all certificates issued;

·No offers or sales of stock under the Regulation S offering were made to persons in the United States; and

·No direct selling efforts of the Regulation S offering were made in the United States.

The other income for the three months ended September 30, 2017 amounted to $(327,128) and derived from the combination of (1) Gain on extinguishment of debt $0 (Note 4), Government Grant $0 and other income $4,468 less interest expense of $331,596. The other income for the three months ended September 30, 2016 amounted to $292,670 derived from the combination of (1) Gain on extinguishment of debt $0 (Note 4), Government Grant $1,305,147 and other income $0 less interest expense of $1,012,477.

Gain (loss) of extinguishment of debts

Any deficit (excess) of the fair value of the shares over the carrying cost of the debt has been reported as a gain (loss) on the extinguishment of debt of $ 0 and $0 has been credited (charged) to operations for the three months ended September 30, 2016 and 2015, respectively.

Note (4) to Table A 1 General and Administrative Expenses and Interest Expenses

General and administrative and interest expenses (including depreciation and amortization) decreased by $2,168,502$828,650 or 38%,19% from $5,754,163$4,399,691 for Q3 20162018 to $3,585,661$3,571,041 for Q3 2017.Q32019. The decrease was primarily due to decrease in Wages and salaries of $1,685,158 from $2,225,651 for Q3 2016 to $540,493 for Q3 2017, and decreasean increase in office and corporate expenses of $508,985$607,217, from $1,481,203$1,579,435 for Q3 20162018 to $972,218$1,230,150 for Q3 2017 since part of these costs in the past were associated with discontinued operations, Tri-way, and are now charged to that entity, instead. This change-over also reflected in the decrease in interest expense of $680,881 from $1,012,477 for Q3 2016 to $331,596 for Q3 2017.2019.

 

- 14 -

Category  2019Q3  2018Q3  Difference 
Office and corporate expenses  1,230,150   1,579,435   (349,285)
Wages and salaries  496,945   380,383   116,562 
Traveling and related lodging  213,650   5,602   (3,296)
Motor vehicles expenses and local transportation  9,453   5,731   3,722 
Entertainments and meals  2,306   7,309   206,341 
Others and miscellaneous  156,960   521,708   (364,748)
Depreciation and amortization  1,335,707   1,491,795   (156,088)
Sub-total  3,445,170   3,991,963   (546,793)
Interest expenses  125,871   407,728   (281,857)
             
Total  3,571,041   4,399,691   (828,650)

 

Note to Table A 1 Depreciation and Amortization

Depreciation and amortization increased by $1,561,703 or 95% to $3,211,264 for Q3 2017 from $1,649,561 for Q3 2016.The increase was primarily due to the increase of depreciation by $1,348,643 to $2,491,515 for Q3 2017 from depreciation of $1,142,872 for Q3 2016 whereas the increase of amortization by $213,060 to $719,749 for Q3 2017 from amortization of $506,689 for Q3 2016.

In this respect, total depreciation and amortization amounted to $3,211,264 for Q3 2017, out of which amount $1,096,271 was reported under general and administration expenses and $2,114,993 was reported under cost of goods sold; whereas total depreciation and amortization was at $1,649,561 for Q3 2016 and out of which amount $852,427 was reported under General and Administration expenses and $797,134 was reported under cost of goods sold.

Note (5) to Table A 1 Non-controlling interests

Table (F) below shows the derivation of non-controlling interest

Names of intermediate holdco.
subsidiaries
 Capital
Award Inc.
(Belize)
 Macau EIJI Company Ltd. (Macau)  A Power Agro
Agriculture
Development
(Macau) Ltd.
     Total 
Abbreviated names CA (MEIJI)  (APWAM)       
                     
% of equity holding on below subsidiaries (in China) n.a.  75%  75%  26%  45%      
Name of China subsidiaries None  Jiangmen City Heng Sheng Tai Agriculture Development Co. Ltd.(China)   Jiangmen City Hang Mei Cattle Farm Development Co. Ltd.(China)       Quinghai Sangjiang A Power Agrivulture Co. Ltd. (China)   Qing Hai Zhonghe Meat product Co.Ltd (China)     
Abbreviated names    (JHST)   (JHMC)   (HSA)   (SJAP)   (QZH)     
             Hunan Shanghua A Power Agriculture Co. Ltd (China            
Net income of the P.R.C. subsidiaries for the period ended 30. June 2017 in $   $13,347  $576,549  $86,510  $907,590  $327,727     
                           
Equity % of non-controlling interest    25%  25%  24.0%  58.75%  58.75%    
                           
Non-controlling interest’s shares of Net incomes in $   $3,337  $144,137  $20,762  $533,209  $192,540  $893,985 
   Jiangmen City
Heng
  Jiangmen City
Hang Mei
Cattle
  Hunan
Shenghua
A Power
  Qinghai    
 Sheng Tai
Agriculture
 Farm
Development
  Agriculture
Co.,
  Sanjiang
A Power
    
Name of China subsidiaries Development Co.
Ltd.(China)
  Co.
Ltd.(China)
  Limited
(China)
  Agriculture Co
Ltd (China)
  Total 
Effective shareholding  75%  75%  76%  41.25%    
Abbreviated names  (JHST)   (JHMC)   (HSA)   (SJAP)     
                     
Net income (loss) of the P.R.C. subsidiaries for the year in $  (2,154,482)  4,926,503   1,337,061   584,952     
                     
% of profit sharing of non-controlling  interest  25%  25%  24%  58.75%    
                     
Non-controlling interest's shares of Net incomes in $  (538,621)  1,231,626   320,895   343,661   1,357,561 

The net income attributed to non-controlling interest is $893,985$1,357,561 shared by (JHST, JHMC, HSA, SJAP QZH and JFD collectively) forQ3 2017 Q1-3 2019 as shown in Table (F) above.

 

Note (6) to Table A 1 Earnings per share (EPS)

 

Earnings per share decreasedincreased by $0.90 (basic)$0.07(basic) and $0.80$0.07 (diluted) per share from EPS of $1.04$0.09 (basic) and$0.950.09 (diluted) for Q3 20162018 to EPS of $0.14$0.16 (basic) and $0.15$0.16 (diluted) for Q3 2017.2019. The reason for the decreaseincrease is primarily due to the decreaseincrease of net income attributable to Sino Agro Food, Inc. and subsidiaries by $17.8 million$4,650,984 from $21.3$3,465,562 for Q3 2018 to $8,116,546 million for Q3 2016 to $3.5 million for Q3 2017.2019.

 

 - 15 -11 

 

 

Part B: Unaudited Consolidated Balance Sheets as of September 30, 20172019 and December 31, 2016 (audited)2018(audited)

 

Consolidated Balance sheets September 30,2017 December 31,2016  Changes +-  Note September 30, 2019 December 31, 2018 Changes Note 
 $ $ $  
ASSETS                              
Current assets                              
Cash and cash equivalents  1,865,684   2,576,058   (710,374) B  671,544   4,950,799   (4,279,255)  8 
Inventories  80,345,197   62,592,272   17,752,925  9  51,539,209   54,582,241   (3,043,032)  9 
Costs and estimated earnings in excess of billings on uncompleted contracts  1,249,187   740,984   508,203     250,828   250,828   -     
Deposits and prepaid expenses  93,935,479   84,845,966   9,089,513  10  40,281,740   52,241,190   (11,959,450)  10.1 
Accounts receivable  105,155,243   122,912,086   (17,756,843) 11  109,996,856   101,652,131   8,344,725   11 
Other receivables  58,789,381   47,120,800   11,668,581     23,583,908   28,307,526   (4,723,618)  15 
Total current assets  341,340,171   320,788,166   20,552,005     226,324,085   241,984,715   (15,660,630)    
Property and equipment                              
Property and equipment, net of accumulated depreciation  207,621,360   189,727,227   17,894,133  12  237,870,893   230,645,659   7,225,234   12 
Construction in progress  41,509,210   35,157,213   6,351,997  13  10,427,213   12,515,527   (2,088,314)  13 
Land use rights, net of accumulated amortization  54,504,006   53,673,690   830,316  14  51,202,746   53,814,281   (2,611,535)  14 
Total property and equipment  303,634,576   278,558,130   25,076,446     299,500,852   296,975,467   2,525,385     
Other assets                              
Goodwill  724,940   724,940   -     724,940   724,940   -     
Proprietary technologies, net of accumulated amortization  9,719,678   10,090,697   (371,019)    8,461,545   8,937,071   (475,526)    
Investment in unconsolidated equity investee  144,519,533   139,133,443   5,386,090  15  221,805,006   207,074,626   14,730,380     
Long term investment  753,352   720,773   32,579   
Temporary deposits paid to entities for investments in future Sino Joint Venture companies  15,644,998   15,644,998   -   
Temporary deposit paid to entities for investments in future Sino Joint Venture companies  34,919,884   34,905,960   13,924   10.2 
Total other assets  171,362,501   166,314,851   5,047,650     265,911,375   251,642,597   14,268,778     
Total assets  816,337,248   765,661,147   50,676,101     791,736,312   790,602,779   1,133,533     
Current liabilities             16                
Accounts payable and accruals  12,552,569   8,789,324   3,763,245   
Billings in excess of cost and estimated earnings on uncompleted contracts  5,602,681   2,630,752   2,971,929   
Accounts payable and accrued expenses  9,103,498   8,280,358   823,140     
Billings in excess of costs and estimated earnings on uncompleted contracts  5,386,711   5,348,293   38,418     
Due to a director  850,274   2,070,390   (1,220,116)    861,182   2,046,499   (1,185,317)    
Other payables  9,892,445   5,962,092   3,930,353     46,214,186   42,523,811   3,690,375   16A
Borrowings-Short term bank loan  1,506,705   2,883,090   (1,376,385)    4,524,246   4,589,828   (65,582)    
Negotiable promissory notes  368,462   1,113,140   (744,678)  
Derivative liability  -   2,100   (2,100)    
Convertible note payable  -   3,894,978   (3,894,978)    
Income tax payable  1,227   1,130   97     -   -         
Total current liabilities  30,774,363   23,449,918   7,324,445     66,089,823   66,685,867   (596,044)  16 
Non-current liabilities                              
Other payables  17,387,111   11,192,117   6,194,994     7,765,801   7,792,774   (26,973)    
Long term debts  6,026,819   5,766,182   260,637   
Notes payable  20,058,798   21,314,877   (1,256,079) 16D
Borrowing-Long term debt  5,231,162   5,536,938   (305,776)    
Total non-current liabilities  43,472,728   38,273,176   5,199,552     12,996,963   13,329,712   (332,749)    
Stockholders’ equity                              
Common stock  27,811   22,727   5,084     49,977   49,866   111     
Additional paid-in capital  168,193,890   155,741,280   12,452,610     181,533,918   181,501,056   32,862     
Retained earnings  467,117,365   454,592,652   12,524,713     474,189,087   458,811,844   15,377,243     
Accumulated other comprehensive income  2,209,103   -4,335,355   6,544,458     (23,088,295)  (8,443,123)  (14,645,172)    
Treasury stock  -1,250,000   -1,250,000   -     (1,250,000)  (1,250,000)  -     
Total SIAF Inc. and subsidiaries’ equity  636,298,169   604,771,304   31,526,865   
Total SIAF Inc. and subsidiaries' equity  631,434,687   630,669,643   765,044     
Non-controlling interest  105,791,988   99,166,749   6,625,239     81,214,839   81,890,220   (675,381)    
Total stockholders’ equity  742,090,157   703,938,053   38,152,104   
Total liabilities and stockholders’ equity  816,337,248   765,661,147   50,676,101   
Total stockholders' equity  712,649,526   712,559,863   89,663     
Total liabilities and stockholders' equity  791,736,312   793,552,597   (1,816,285)    

 

 - 16 -12 

 

 

Note B. Cash and Cash Equivalents

 

The change in cash and cash equivalents of $(710,374)$(4,279,255) was derived from cash and cash equivalents of $1,865,684$671,544 and $2,576,058$4,950,799 as of September 30, 20172019 and December 31, 2016,2018, respectively.

 

Note (9) Breakdown of inventory

  Sept.September 30, 20172019 
  $ 
Bread grass  1,423,165397,525 
Beef cattle  6,638,85114,985,211 
Organic fertilizer  19,451,28212,554,853 
Forage for cattle and consumableconsumables  8,787,0595,849,951 
Raw materials for bread grass and organic fertilizer  18,534,940
Beef and mutton23,435,61915,993,746 
Immature seeds  2,074,2811,757,923 
     
   80,345,19751,539,209 

  September 30, 2019  December 31, 2018  Difference 
  $  $  $ 
Bread grass  397,525   744,378   (346,853)
Beef cattle  14,985,211   11,561,117   3,424,094 
Organic fertilizer  12,554,853   14,266,923   (1,712,070)
Forage for cattle and consumables  5,849,951   7,252,280   (1,402,329)
Raw materials for bread grass and organic fertilizer  15,993,746   18,885,258   (2,891,512)
Immature seeds  1,757,923   1,872,285   (114,362)
             
   51,539,209   54,582,241   (3,043,032)

  

Note (10) Breakdown of Deposits and Prepaid Expenses

 

Note (10.1)

  Sept. 30. 2017  Note
  $  
Deposits for      
- purchases of equipment  6,733,547   
- acquisition of land use rights  3,373,110  10.1
- inventories purchases  15,685,124   
- aquaculture contracts  2,261,538   
- consulting service providers and others  6,317,702   
- construction in progress  13,871,440   
- Collaterals of shares  35,250,553   
Prepayments - debts discounts and others  3,812,152   
Shares issued for employee compensation and overseas professional and bond interest  302,738   
Others  6,327,576   
   93,935,479   

Note (10.1) Breakdown of Deposit for- acquisition of Land Use Right:

As of September 30, 2017, we have $3,373,110 for a deposit paid for the acquisition of a Land Use Right derived from the following transactions:

·September 30, 2019
$3,182,180 (or RMB20,000,000) was full payment made on June 6, 2012
Deposits for Land Use Right by HSA comprising a block
- purchases of equipment1,198,969
- acquisition of land measuring 150 Mu (or 25 acresuse rights169,659
- inventories purchases6,676,335
- construction in progress3,862,859
- issue of prime agriculture land) located at Linli District of Hunan Province within 10 Km of HSA’s complex. The process of application to register the said “Land Use Right,” sometimes referred toshares as a LUR, is in progress,collateral25,761,658
Shares issued for employee compensation and as such, this payment is recorded as Depositoverseas professional and Prepaid Expenses pending final approval. Due to the delay in approving the LUR, HSA has revised and supplemented the contract of this land by a lease agreement until official approval is granted, and, in the interim, the deposit and prepayment on the land is being treated as a rent-to-own lease arrangement providing a prepayment on the property until the LUR is granted.bond interest-
Others2,631,797
40,301,277

 

 - 17 -13 

 

·$190,930 (or RMB1, 200,000) was paid by SJAP as deposit for the acquisition of “Land Use Right” on a block of land measuring 15 Mu (or 2.475 acres) located at Huangyuan district next to SJAP’s complex on October 15, 2012. The process of rezoning this piece of land to residential (at present, agriculture) continues, and once completed will be transferred from the Local Government (Huangyuan County) to SJAP to build new staff quarters.

 

Note (11): Breakdown of Accounts receivable:

 

   September 30,2017  September 30,2019 
  Accounts receivable 0-30 days 31-90 days 91-120 days over 120 days
and less
than 1 year
  Accounts
receivable
 0-30 days 31-90 days 91-120 days over 120
days and
less than 1 year
 Over 1 year 
   $ $ $ $ $  $            
Consulting and Service totaling                      
 CA  43,874,092   2,957,651   -   -   40,916,441 
Sales of Live Fish, eels and prawns (from Farms) (CA)    -   -   -   -   - 
Engineering consulting service (CA)  62,557,029   -   -   707,819   3,007,521   58,841,689 
Sales of imported seafood (SIAF)    13,643,100   5,747,626   4,995,831   2,899,644   -   25,230,007   -   17,645,062   7,584,945   -   - 
Sales of Cattle and Beef Meats (from Enping Farm) (MEIJI)    5,868,206   -   4,834,166   1,034,039   - 
Sales of Cattle and Beef Meats (MEIJI)  14,349,030   -   13,324,774   1,024,256   -   - 
Sales of HU Flowers (Fresh & Dried) (JHST)    3,663,388   467,096   1,026,312   486,385   1,683,595   719,989   225,539   419,985   -   74,465   - 
Sales Fertilizer, Bulk Stock feed and Cattle by (SJAP)    9,382,408   2,001,184   3,885,134   2,238,028   1,258,062   3,653,510   961,063   1,224,247   576,594   891,607   - 
Sales Fertilizer from (HSA)    4,778,889   555,311   1,085,381   317,326   2,820,871   3,487,291   669,405   1,338,810   793,104   685,972   - 
Sales of Beef (QZH)    23,945,160   4,364,511   8,117,501   4,731,693   6,731,455 
                                             
Total    105,155,243   16,093,379   23,944,325   11,707,115   53,410,424   109,996,856   1,856,007   33,952,877   10,686,718   4,659,565   58,841,689 
% of total receivables  100%  2%  31%  10%  4%  53%

 

·The bulk of the over 120-days accounts receivable under CA’s consulting and service sector represents outstanding debt owed by Tri-way to the Company, expected to be settled within Q4 2017, either in cash or shares of the debtor.

The bulk of the over 120-days accounts receivable under CA’s consulting and service sector represents outstanding debt owed by Tri-way to the Company.

 

Information on trading terms and provision for diminution in value of accounts receivable:

 

Our accounts receivable aging is less than 12 months old. Receivables from revenue derived from consulting and services billed for work completed are within our normal trading terms of 180 days, and therefore no diminution in value is required, as the credit quality of the receivables is not in doubt. SIAF’s receivables in consulting and services are mainly provided to WHX, WC1, and Shanghai wholesale centers collectively, and the extended credit terms for this quarter for more than 120 days to WHX and WC1 is primarily to allow them more time to accommodate their development of import sales in beef that requires much more working capital; this also applies to the higher credit terms on CA’s sales of fish to WC1 and Shanghai WC.

 

Sales of fertilizer and bulk livestock feed: These comprise sales made to regional farmers contracted by us to grow crops and pastures using and purchasing our fertilizer. We in turn agree to buy their cattle that are fed with our bulk and concentrated cattle feed purchased from us. Under this arrangement, our accounts receivable are normally carried forward until such time they can be offset against our account payables due to these contracted farmers(that is, the amount owed for the amount of crops and pastures is ultimately offset against the amount of cattle that we have purchased from them, respectively). As these debtors are our contract farmers and operate a profitable and viable business with us and have a good track record we consider their credit quality is good and collection from them is not in doubt, thus no diminution in value is required.

 

14

Information on concentration of credit risk of account receivables:revenue:

 

We have 4 major long-term customers (referring to Customer A, B, C and D mentioned in the Financial Statement of this report under Note), who have accounted for 55.04%87.46% of our consolidated revenues for Q3 2017Q32019, as shown in the table below:

 

  three months ended Sept. 30, 2017 
  % of total Revenue  $ Customer’s Total Revenue 
Customer A  24.59%   11,901,694 
Customer B  21.89%    10,593,305 
Customer C  16.34%    7,909,219 
Customer D  10.32%    4,995,831 
           
   73.15%    35,400,049 

- 18 -

   2019Q3 
   % of total Revenue   Customer's Total Revenue 
Customer A  35.65%  13,345,198 
Customer B  31.05%  11,623,335 
Customer C  16.09%  6,021,727 
Customer D  4.67%  1,747,193 
   87.46%  32,737,453 

 

Customer A is Hunan City Bo Bo Go Supermarket chain (“BBG”), which is a publicly traded companyCattle Wholesale, represented by Mr. Zhen Runchi, who buys our fattened cattle to sell in Chinathe Guangdong and Beijing cattle markets while supplying us with more than 5,000 chain stores and 11,000 7/11 stores operating in various districts and cities of China.young cattle. During Q3 2017, we sold $11.9 million2019, transactions through Mr. Zhen Runchi generated 35.65% of goodsour total consolidated revenue (equivalent to BBG representing 24.59%$13,345,198 out of our total revenue of $48.4 million derived mainly from SJAP (QZH)’s segment of beef.$37,431,314).

 

Customer B is ShangHai Virgo Trading co. Ltd, which is one of our major distributors of imported beef and seafood as well as our farmed seafood. We sold $10.6 million$11,623,335 of goods to Virgo during Q3 20172018 representing 21.89%31.05% of our total revenue of $48.4 million$37,431,314 during the quarter.

 

Customer C is Cattle Wholesale represented by Mr. Zhen Runchi who buys our fattened cattle to sell them in the Guangdong and Beijing cattle markets and at the same time supplies us with young cattle. During Q3 2017, transactions through Mr. Zhen Runchi generated 16.34 % of our total consolidated revenue (equivalent to $7,909,219 out of our total revenue of $48,392,933).

Customer D is WSC 1, which is owned and operated by Guangzhou City A Power NaWei Trading Co. Ltd (“APNW”). APNW distributes seafood to other wholesalers in various cities in China. WSC 1 is ideally situated at the center of all interprovincial logistic services. At the same time, APNW has obtained all relevant Import Quotas and Permits as of September 30, 2014. As such, SIAF relies on APNW’s import permits for its import and export trades to be carried out in China. Sales affected through WSC 1 contribute 10.32%16.09% of our total consolidated revenue (equivalent to $4,995,831$6,021,727 out of our total revenue of $48,392,933)$37,431,314).

Customer D is Zhang Zhijie, and during Q3 2019 we sold $1,747,193 of goods, representing 4.67% of total revenue of $37,431,314.

 

The Company had 4 major customers whose accounts receivable balance individually represented the following percentages of the Company’s total accounts receivablereceivables during Q3 2017:2019:

 

  Sept. 30.2017  Total 
  % of total Accounts receivables  amount in $  Accounts receivables 
Customer A  21.02%     22,106,909 
Customer B  20.70%      21,767,182 
Customer C  18.82%      19,793,205 
Customer D  7.34%      7,721,316 
   67.88%      71,388,612 

  September 30, 2019 
  Total    
  % of total Accounts receivables  Accounts receivables 
Customer A  56.87%  62,557,029 
Customer B  13.22%  14,542,938 
Customer C  13.11%  14,349,030 
Customer D  9.72%  10,687,069 
   92.92%  102,136,066 

 

Note (12)

 

Property and equipment, net of accumulation depreciation

 

  September 30, 2019 
  (Unaudited) 
Plant and machinery $17,559,162 
Structure and leasehold improvements  195,526,199 
Mature seeds and herbage cultivation  61,408,570 
Furniture and equipment  692,452 
Motor vehicles  576,042 
   275,762,425 
     
Less: Accumulated depreciation  (37,891,532)
Net carrying amount $237,870,893 

 Sept. 30. 2017
$
Plant and machinery7,203,563
Structure and lease hold improvements171,577,557
Mature seeds and herbage cultivation44,206,623
Furniture and equipment912,754
Motor vehicles963,254
224,863,751
Less: Accumulated depreciation-17,242,391
Net carrying amount207,621,36015 

 

Note (13) Construction in progress

 

Sept. 30. 2017
$
Construction in progress
  - Oven roomroad for production of dried flowers4,670,785
  - Office, warehouse and organic fertilizer plant in HAS5,155,478
  - Organic fertilizer and bread grass production plant and office building3,341,861
  - Rangeland for beef cattle and office building10,558,715
  - Fish pond17,782,371
41,509,210
  September 30, 2019 
  (Unaudited) 
Construction in progress    
- Office, warehouse and organic  fertilizer plant in HSA    
- Organic fertilizer and bread grass production plant and office building    
-Rangeland for beef cattle and office building  10,427,213 
  $10,427,213 

 

- 19 -

Note (14) Land Use Rights, net of accumulated amortizationamortizatio:n:

 

Item Owner Location Acres  Date
Acquired
 Tenure  Expiry
dates
 Cost  $  Monthly
amortization  $
  2017.09.30
Balance  $
  Nature of
ownership
 Nature of
project
Hunan lot1 HS.A Ouchi Village, Fenghuo Town, Linli County  31.92  4/5/2011  43  4/4/2054  242,703   470   206,015  Lease Fertilizer production
Hunan lot2 HS.A Ouchi Village, Fenghuo Town, Linli County  247.05  7/1/2011  60  6/30/2071  36,666,141   50,925   32,846,751  Management Right Pasture growing
Hunan lot3 HS.A Ouchi Village, Fenghuo Town, Linli County  8.24  5/24/2011  40  5/23/2051  378,489   789   317,773  Land Use Rights Fertilizer production
Guangdong lot 1 JHST Yane Village, Liangxi Town, Enping City 
  8.23  8/10/2007  60  8/9/2067  1,064,501   1,478   884,127  Management Right HU Plantation
Guangdong lot 2 JHST Nandu Village of Yane Village, Liangxi Town, Enping City  27.78  3/14/2007  60  3/13/2067  1,037,273   1,441   854,310  Management Right HU Plantation
Guangdong lot 3 JHST Nandu Village of Yane Village, Liangxi Town, Enping City  60.72  3/14/2007  60  3/13/2067  2,267,363   3,149   1,867,426  Management Right HU Plantation
Guangdong lot 4 JHST Nandu Village of Yane Village, Liangxi Town, Enping City  54.68  9/12/2007  60  9/11/2067  2,041,949   2,836   1,698,788  Management Right HU Plantation
Guangdong lot 5 JHST Jishilu Village of Dawan Village,Juntang Town, Enping City  28.82  9/12/2007  60  9/11/2067  960,416   1,334   799,013  Management Right HU Plantation
Guangdong lot 6 JHST Liankai Village of Niujiang Town, Enping City  31.84  1/1/2008  60  12/31/2068  821,445   1,141   687,960  Management Right Fish Farm
Guangdong lot 7 JHST Nandu Village of Yane Village, Liangxi Town, Enping City  41.18  1/1/2011  26  12/31/2037  5,716,764   18,323   4,232,604  Management Right HU Plantation
Guangdong lot 8 JHST Shangchong Village of Yane Village, Liangxi Town, Enping City  11.28  1/1/2011  26  12/31/2037  1,566,393   5,020   1,159,734  Management Right HU Plantation
Guangdong lot 9 MEIJI Xiaoban Village of Yane Village, Liangxi Town, Enping City  41.18  4/1/2011  20  3/31/2031  5,082,136   21,176   3,430,442  Management Right Cattle Farm
Qinghai lot 1 SJAP No. 498, Bei Da Road, Chengguan Town of Huangyuan County,Xining City, Qinghai Province  21.09  11/1/2011  40  10/30/2051  527,234   1,098   449,248  Land Use Right & Building ownership Cattle farm, fertilizer and livestock feed production
Guangdong lot 10 JHST Niu Jiang Town, Liangxi Town, Enping City  6.27  3/4/2013  10  3/3/2023  489,904   4,083   265,365  Management Right Processing factory
Guangdong lot 11 CA Da San Dui Wei ,You Nan Village, Conghua District of Guangzhou City  33.28  10/28/2014  30  10/27/2044  4,453,665   12,371   4,008,299  Management  Right Agriculture
  JHST Land improvement cost incurred     12/1/2013        3,914,275   6,155   3,631,167     
Exchange difference                  -2,527,259       -2,835,015     
       654           64,703,394   131,789   54,504,006     
Item Owner Location Acres  Date Acquired Tenure  Expiry dates Cost  $  Monthly amortization  $  2019.09.30 Balance  $  Nature
of
ownership
 Nature
of
project
Hunan lot1 HS.A Ouchi Village, Fenghuo Town, Linli County  31.92  2011-4-5  43  2054-4-4  242,703   470   194,727  Lease Fertilizer production
Hunan lot2 HS.A Ouchi Village, Fenghuo Town, Linli County  247.05  2011-7-1  60  2071-6-30  36,666,141   50,925   31,624,547  Management Right Pasture growing
Hunan lot3 HS.A Ouchi Village, Fenghuo Town, Linli County  8.24  2011-5-24  40  2051-5-23  378,489   789   298,849  Land Use Rights Fertilizer production
Hunan lot4 HS.A Ouchi Village, Fenghuo Town, Linli County  24.71  2018-6-1  50  2068-5-31  3,021,148   5,035   2,940,584  Lease Pasture growing
Guangdong lot 1 JHST Yane Village, Liangxi Town, Enping City  8.23  2007-8-10  60  2067-8-9  1,064,501   1,478   848,644  Management Right HU Plantation
Guangdong lot 2 JHST Nandu Village of Yane Village, Liangxi Town, Enping City  27.78  2007-3-14  60  2067-3-13  1,037,273   1,441   819,734  Management Right HU Plantation
Guangdong lot 3 JHST Nandu Village of Yane Village, Liangxi Town, Enping City  60.72  2007-3-14  60  2067-3-13  2,267,363   3,149   1,791,847  Management Right HU Plantation

 - 20 -16 

 

 

Guangdong lot 4 JHST Nandu Village of Yane Village, Liangxi Town, Enping City  54.68  2007-9-12  60  2067-9-11  2,041,949   2,836   1,630,723  Management Right HU Plantation
Guangdong lot 5 JHST Jishilu Village of Dawan Village,Juntang Town, Enping City  28.82  2007-9-12  60  2067-9-11  960,416   1,334   766,999  Management Right HU Plantation
Guangdong lot 6 JHST Liankai Village of Niujiang Town, Enping City  31.84  2008-1-1  60  2068-12-31  821,445   1,141   660,578  Management Right Fish Farm
Guangdong lot 7 JHST Nandu Village of Yane Village, Liangxi Town, Enping City  41.18  2011-1-1  26  2037-12-31  5,716,764   18,323   3,792,853  Management Right HU Plantation
Guangdong lot 8 JHST Shangchong Village of Yane Village, Liangxi Town, Enping City  11.28  2011-1-1  26  2037-12-31  1,566,393   5,020   1,039,242  Management Right HU Plantation
Guangdong lot 9 MEIJI Xiaoban Village of Yane Village, Liangxi Town, Enping City  41.18  2011-4-1  20  2031-3-31  5,082,136   21,176   2,922,228  Management Right Cattle Farm
Qinghai lot 1 SJAP No. 498, Bei Da Road, Chengguan Town of Huangyuan County,Xining City, Qinghai Province  21.09  2011-11-1  40  2051-10-30  527,234   1,098   422,886  Land Use Right & Building ownership Cattle farm, fertilizer and livestock feed production
Guangdong lot 10 JHST Niu Jiang Town, Liangxi Town, Enping City  6.27  2013-3-4  10  2023-3-3  489,904   4,083   167,384  Management Right Processing factory
Guangdong lot 11 CA Da San Dui Wei ,You Nan Village, Conghua District of Guangzhou City  33.28  2014-10-28  30  2044-10-27  4,453,665   12,371   3,711,388  Management  Right Agriculture
  JHST Land improvement cost incurred     2013-12-1        3,914,275   6,155   3,483,459  Management Right HU Plantation
Exchange difference                  -6,155,167       -5,913,925     
                                 
       678           64,096,634   136,824   51,202,746     

Note (15) Other Receivables

17

 

Sept. 30, 2017Note
$
Advanced to employees326,58715.A
Advanced to suppliers14,655,82415.B
Advanced to customers18,635,244
Advanced to developers16,032,772
Others9,138,954
58,789,381

Note 15 A & B: Breakdown of Advances to Suppliers at SJAP’s operations:

At SJAP it is a common practice to make cash advances to our cooperative growers (presently standing at 22 corporatives with over 2,000 members) who are our suppliers, to carry them through respective growing periods (for cropping or pasturing or cattle growing purposes) before final harvests of produce or sale of their cattle. On average, it works out to less than $5,325 per member that in the management’s opinion is a normal season to season process deemed fair and equitable. In this respect, as the average increases it means that the typical cooperative farmer is increasing his productivity (whether in the growth of crops or cattle), and in simple terms, it represents good progress indicating that SJAP’s revenue is also increasing.

The sub-contractors and suppliers of the Zhongshan Projects are reputable entities that in management’s opinion are employing their funds in and are working on the Zhongshan Project, such that the project will progress smoothly.

Note (16) (15) Current Liabilities:

Sept. 30, 2017Note
Current liabilities      
Accounts payable and accrualsaccrued expenses  12,552,5699,103,501  16.A15.A
Billings in excess of costcosts and estimated earnings on uncompleted contracts  5,602,6815,386,711   
Due to a director  850,274861,182   
Other payables  9,892,44546,214,186   16 B15B
Borrowings-ShortBorrowings - Short term bank loan  1,506,705
Negotiable promissory notes368,462
Income tax payable1,2274,524,246   
   30,774,36366,089,826   

 

Note 16A:15A: Accounts payables and accrued expenses clarification:

 

Our current trading environment is limited to a number of suppliers who offer prolonged credit terms, which means that most purchases are paid for in cash or short credit terms (7 to 10 days); this. This grants us better bargaining ability to obtain cash discounts resulting in the low trade account payables balance of $12.55 million, about 25.9%$9,103,501, which is approximately 8.65% of total revenue of $48.4 million.$105,291,144.

 

Note (16B)(15B): Analysis of Other Payables:

 

As of September 30, 2017,2019, other payables totaling $27,279,556$46,214,186 was composed of the following:

 

Straight note payable of $29,867,999 representing a 10.5% Convertible Note in the aggregate principal amount of up to $33,300,000 issued on August 29, 2014. On July 18, 2017, the Company and the note holder entered into a restructuring agreement regarding the settlement of the Note as follows:

(i) 50% in cash settlement of $15,589,000 to be paid in monthly installments.

(ii) The other 50% balance of $15,589,000 to be settled by the issuance of 5,196,333 common shares of the Company and 400,000 shares of Tri-way Industries Limited.

As of the date of this report, the Company has paid $3.59 million with $11,999,000 remaining owed on the $15,589,000 settlements.

Over the past years, other advances and deferred payments have been provided by other unrelated third parties, contractors, services providers, and agent fees etc. to our subsidiaries. Some of these payments have been in the form of promissory notes or agreements at no fixed term of repayment and with no interest; some at an interest rate between 3% to 8%, between a term of 1/2 to 5 years; and the remainder covered by conditions settled through verbal arrangements with the Company. These sums amount to $16,346,187, which remains unpaid and outstanding as of September 30, 2019.

Note (16) Non-current liabilities

Other payables of $7,765,801: During Q3 20172019, the Company issued promissory notes amounting to $0 to unrelated third parties for advances granted by third parties collectively to the Company (and/or to its subsidiaries). During Q3 2019, we redeemed $0 of Promissory Notes for advances granted by third parties in past fiscal year 2017years to be settled by the issuance of shares and /or cash, leaving a balance of $14,492,221$7,765,801 of Promissory Notespromissory notes still due and outstanding as of September 30, 2017.2019.

 

A grant of $1,288,233 was received from the Chinese government to SJAP for the development of a certain project; however if SJAP will not be able to complete the project, it will have to repay the grant to the Government. As of September 30, 2017, as work is in progress on the said project but it is not yet completed, the grant is recorded as other payables.

 - 21 -18 

 

 

During the nine months ended September 30, 2017, other advances provided by other unrelated third parties collectively to our subsidiaries with no fixed term of repayment at interest free terms that do not have any promissory note or agreement but verbal understandings. These sums amount to $11,499,102 unpaid and outstanding as of September 30, 2017

Part C. Nine Months Ended September 30, 20172019 Compared to Nine Months Ended September 30, 2016 (presented2018(presented in summarized Charts below):

 

Revenue:

 

Revenues decreased by $153,581,241$1,184,860 or 48%-1% to $166,732,526$105,291,144 for the nine months ended September 30, 20172019 from $320,313,767$106,476,004 for the nine months ended September 30, 2016.2018. The decrease was primarily due to the decrease of revenue generated from our fishery, beef, organic fertilizer, and cattle farm, whereas corporate, and othersother operations, and the maturity of on-going divisional businesses improved their revenues.for reasons explained in earlier sections.

 

The following chart illustrates the changes by category from the nine months ended September 30, 20172019 to September 30, 20162018

 

Revenue              
         
  2017   2016     2019 2018    
Category Q1-Q3  Q1-Q3  Difference  Q1 - Q3 Q1 - Q3 Difference 
       $  $ $ $ 
Fishery  16,167,636   113,256,746   (97,089,110)  1,719,247   10,036,762   (8,317,515)
                        
Plantation  3,565,220   12,194,399   (8,629,179)  2,813,800   3,082,503   (268,703)
                        
Beef  47,241,793   88,813,154   (41,571,361)  1,040,589   5,011,148   (3,970,559)
                        
Organic fertilizer  19,893,518   35,190,587   (15,297,069)  17,703,243   17,316,788   386,455 
                        
Cattle farm  23,094,392   21,555,101   1,539,291   34,105,641   19,100,254   15,005,387 
                        
Corporate and others  56,769,967   49,303,780   7,466,187   47,908,624   51,928,549   (4,019,925)
                        
Total  166,732,526   320,313,767   (153,581,241)  105,291,144   106,476,004   (1,184,860)

 

Cost

Cost decreased by $98,891,396$1,631,694 or 42%-2% to $139,247,836$87,122,568 for the nine months ended September 30, 20172019 from $238,139,232$88,754,262 for the nine months ended September 30, 2016.2018. The decrease was primarily due to the reciprocal decrease in sales generated from the Company’s fishery, plantation, beef, organic fertilizer, cattle farm, and corporate, and other operations for the nine months ended September 30, 20172019 as compared to the nine months ended September 30, 2016.

The2018.The following chart illustrates the changes by category from the nine months ended September 30, 20172019 to September 30, 2016.2018.

 

Cost of goods sold and services         
  2019  2018    
Category Q1 - Q3  Q1 - Q3  Difference 
  $  $  $ 
Fishery  1,590,017   8,133,799   (6,543,782)
             
Plantation  2,120,374   2,569,886   (449,512)
             
Beef  1,043,537   4,121,113   (3,077,576)
             
Organic fertilizer  11,901,028   10,650,092   1,250,936 
             
Cattle farm  27,890,578   16,711,195   11,179,383 
             
Corporate and others  42,577,034   46,568,177   (3,991,143)
             
Total  87,122,568   88,754,262   (1,631,694)

 - 22 -19 

 

 

Cost         
  2017  2016    
Category Q1- Q3  Q1- Q3  Difference 
  $  $  $ 
Fishery  11,016,962   79,778,878   (68,761,916)
             
Plantation  2,334,052   5,664,598   (3,330,546)
             
Beef  44,148,494   68,857,559   (24,709,065)
             
Organic fertilizer  11,689,897   19,993,030   (8,303,133)
             
Cattle farm  19,582,042   20,392,263   (810,221)
             
Corporate and others  50,476,389   43,452,904   7,023,485 
             
Total  139,247,836   238,139,232   (98,891,396)

Gross Profit

 

Gross Profit

Gross profit decreasedincreased by $54,689,845$446,834 or 67%-13% to $27,484,690$18,168,576 for the nine months ended September 30, 20172019 from $82,174,535$17,721,742 for the nine months ended September 30, 2016. The decrease2018.The increase was primarily due to the corresponding decreasesincreases in operation revenues.

 

The following chart illustrates the changes by category from the nine months ended September 30, 20172019 to September 30, 2016.2018.

 

The gross profit by category is as follows:

 

Gross profit       
Gross Profit       
 2017 2016    2019 2018    
Category Q1-Q3 Q1-Q3 Difference  Q1 - Q3 Q1 - Q3 Difference 
     $  $ $ $ 
Fishery  5,150,674   33,477,868   (28,327,194)  129,230   1,902,963   (1,773,733)
                        
Plantation  1,231,168   6,529,801   (5,298,633)  693,426   512,617   180,809 
                        
Beef  3,093,299   19,955,595   (16,862,296)  -2,948   890,035   (892,983)
                        
Organic fertilizer  8,203,621   15,197,557   (6,993,936)  5,802,215   6,666,696   (864,481)
                        
Cattle farm  3,512,350   1,162,838   2,349,512   6,215,063   2,389,059   3,826,004 
                        
Corporate and others  6,293,578   5,850,876   442,702   5,331,590   5,360,372   (28,782)
                        
Total  27,484,690   82,174,535   (54,689,845)  18,168,576   17,721,742   446,834 

General and Administrative Expenses and Interest Expenses

 

General and administrative expenses and interest expenses (including depreciation and amortization) increaseddecreased by $380,192$1,932,480 or 2%-15% to $16,695,054$11,133,951 for the nine months ended September 30, 20172019 from $16,314,862$13,066,431 for the nine months ended September 30, 2016.2018.  The change was primarily due to (i) an increasea decrease in WagesOffice and salaries of $1,776,151corporate expenses to $3,280,542 for the nine months ended September 30, 20172019 from $3,264,942$4,703,280 for the nine months ended September 30 2016 and (ii) a decrease in Office and corporate expense of $533,568 for the nine months ended September 30, 2017 from $4,227,072 for the nine months ended September 30, 2016.

2018.

 

  2019  2018    
Category Q1 - Q3  Q1 - Q3  Difference 
  $  $  $ 
Office and corporate expenses  3,280,542   4,703,280   (1,422,738)
           0 
Wages and salaries  1,327,210   1,481,441   (154,231)
             
Traveling and related lodging  14,271   17,183   (2,912)
             
Motor vehicles expenses and local transportation  30,215   37,613   (7,398)
             
Entertainments and meals  244,767   35,092   209,675 
             
Others and miscellaneous  1,086,385   1,279,843   (193,458)
             
Depreciation and amortization  4,413,659   4,233,294   180,365 
             
Sub-total  10,397,047   11,787,746   (1,390,699)
             
Interest expenses  736,904   1,278,685   (541,781)
             
Total  11,133,951   13,066,431   (1,932,480)

 - 23 -20 

 

 

Category 2017
Q1-Q3
  2016
Q1-Q3
  Difference 
        $ 
Office and corporate expenses  3,693,504   4,227,072   (533,568)
             
Wages and salaries  5,041,093   3,264,942   1,776,151 
             
Traveling and related lodging  38,721   119,580   (80,859)
             
Motor vehicles expenses and local transportation  79,998   119,256   (39,258)
             
Entertainments and meals  185,549   634,507   (448,958)
             
Others and miscellaneous  2,258,306   2,156,311   101,995 
             

Depreciation and amortization

  3,835,975   2,638,240   1,197,736 
             
Sub-total  15,133,146   13,159,908   1,973,238 
             
Interest expenses  1,561,908   3,154,954   (1,593,046)
             
Total  16,695,054   16,314,862   380,192 

Depreciation and Amortization

Depreciation and amortization increased by $4,127,580 or 84% to $9,018,006 for the nine months ended September 30, 2017 from $4,890,426 for the nine months ended September 30, 2016. The increase was primarily due to the increase of depreciation by $3,590,593 to $6,997,754 for the nine months ended September 30, 2017 from depreciation of $3,406,801 for the nine months ended September 30, 2016, and the increase of amortization by $536,628 to $2,020,253 for nine months ended September 30, 2017 from amortization of $1,483,625 for nine months ended September 30, 2016.

In this respect, total depreciation and amortization amounted to $9,018,006 for the nine months ended September 30, 2017, out of which amount $3,835,975 was reported under General and administration expenses and $5,182,031 was reported under cost of goods sold; whereas total depreciation and amortization was at $4,890,426 for the nine months ended September 30, 2016, out of which amount $2,638,240 was reported under General and Administration expenses and $2,252,186 was reported under cost of goods sold.

Income Taxes

United States of America

 

The Company was incorporated in the State of Nevada, in the United States of America. The Company has no trading operations in United States of America and no USU.S. corporate tax has been provided for in the consolidated financial statements of the Company. However, see the discussion, below, under “Undistributed Earnings of Foreign Subsidiaries”.

 

Undistributed Earnings of Foreign Subsidiaries

 

The Company intends to use the remaining accumulated and future earnings of foreign subsidiaries to expand operations outside the United States but some of these profits may have to be used to satisfy U.S. income tax liabilities based on the operations of its controlled foreign subsidiaries. Prior to 2017, depending on how and where their controlled foreign corporations were operated, U.S. companies did not always have to pay tax on the earnings of their controlled foreign corporations, and the Company believes that prior to 2017 the earnings of its controlled foreign corporations were not taxable in the United States until distributed to the Company. Accordingly, the Company made no provision for U.S. Federal and State income tax. The Company filed yearly U.S. federal income tax returns from 2007 to 2017 on which it has reported that there was no tax due to the United States.

However, the Tax Cuts and Jobs Act of 2017 (the “2017 Act”) now requires some U.S. companies (starting in 2018) to pay tax on the earnings of their controlled foreign corporations based on complex formulas. The Company has not yet analyzed the impact of these changes on the taxability in the United States of the earnings of its foreign subsidiaries and so does not know whether it has for 2018, or will have for 2019 and future years, any earnings subject to U.S. federal income tax. In addition, the 2017 Act required U.S. companies to repatriate, as of the end of 2017, their accumulated earnings to date. The Company has not yet determined whether it incurred a U.S. tax liability as of the end of 2017 under this repatriation provision of the 2017 Act. The Company is seeking professional advice from U.S. tax accountants as to the impact on the Company of the 2017 Act for 2017 and later years. In fiscal year 2017 the Company had an operating loss of $30,102,943 based on the consolidated financials of its controlled foreign corporations, but it has had operating profits in previous years.

China

Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the existing laws for Domestic Enterprises (“DE’s”) and Foreign Invested Enterprises (“FIE’s”). The new standard EIT rate of 25% replaced the 33% rate currently applicable to both DE’s and FIE’s. The Company is currently evaluating the impact that the new EIT will have on its financial condition. Beginning January 1, 2008, China unified the corporate income tax rule on foreign invested enterprises and domestic enterprises. The unified corporate income tax rate is 25%.

Under new tax legislation in China beginning in January 2008, the agriculture, dairy and fishery sectors are exempt from enterprise income taxes.

No EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, HSA and SJAP since they are exempt from EIT for the nine months ended September 30, 2019 and 2018 as they are within the agriculture, and cattle sectors.

However, EIT has provide in the financial statements of SJAP since it has generated income from trading of agricultural products for the nine months ended September 30, 2019.

Belize

CA, CS and CH are international business companies incorporated in Belize, and are exempt from corporate tax in Belize.

Macau

No Macau Corporate income tax has been provided in the consolidated financial statements of APWAM and MEIJI since these entities did not earn any assessable profits for the three months ended September 30, 2019 and 2018.

Sweden

No Sweden Corporate income tax has been provided in the consolidated financial statements of SAFS since SAFS incurred a tax loss for the three months ended September 30, 2019 and 2018.

No deferred tax assets and liabilities are of September 30, 2019 and December 31, 2018 since there was no difference between the financial statements carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the period in which the differences are expected to reverse.

Provision for income taxes is as follows:

  Nine months ended
September 30, 2019
  Nine months ended
September 30, 2018
 
  (Unaudited)  (Unaudited) 
SIAF $-  $- 
SAFS  -   - 
MEIJI and APWAM  -   - 
JHST, JHMC, SJAP, HSA  6,518   - 
  $6,518  $- 

The Company did not recognize any interest or penalties related to unrecognized tax benefits in the nine months ended September 30, 2019 and 2018. The Company had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by the respective tax authorities.

Undistributed Earnings of Foreign Subsidiaries

The Company intends to use the remaining accumulated and future earnings of foreign subsidiaries to expand operations outside the United States and accordingly, undistributed earnings of foreign subsidiaries are considered to be indefinitely reinvested outside the United States and no provision for U.S. Federal and State income tax or applicable dividend distribution tax has been provided thereon.

 

The Company appointedfailed to file US tax professionals to assist in filing income tax returns for the years ended December 31, 20162007 through December 31, 2012 in compliance with US Treasury Internal Revenue CodeService Code. The Company has reviewed its tax position with the assistance of US tax professionals and believes that there will be no taxes and no penalties assessed by the Internal Revenue Service in the United States of America. The Company has appointed US tax professionals to assist in the filing of these income tax returns. In this respect, we filed our 2015 Taxtax returns with the Internal Revenue Service (“IRS”) in 2016.on July, 2014.

 

No EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, JFD, HAS, QZH, and SJAP since they are exempt from EIT for the nine months ended September 30, 20172018 and 20162017, as they are within the agriculture, dairy, and fishery sectors.

 

CA, CS, and CH are international business companies incorporated in Belize, and are exempt from corporate tax in Belize.

 

No Hong Kong profits tax has been provided in the consolidated financial statements, since TRW did not earn any assessable profits arising in Hong Kong for the nine months ended September 30, 20172019 and 2016.2018.

 

No Macau Corporate income tax has been provided in the consolidated financial statements, since APWAM and MEIJI did not earn any assessable profits for the nine months ended September 30, 20172019 and 2016.2018.

- 24 -

 

No SwedishSweden Corporate income tax has been provided in the consolidated financial statements, since SAFS incurred a tax loss for the nine months ended September 30, 20172019 and 2016.2018.

 

No deferred tax assets and liabilities areexist as of September 30, 20172019 and December 31, 20162018, since there was no difference between the financial statements carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the period in which the differences are expected to reverse.

 

21

Off Balance Sheet Arrangements

 

None.

 

Liquidity and Capital Resources

 

As of September 30 2017,2019, unrestricted cash and cash equivalents amounted to $1,865,684$417,373 (see notes to the consolidated financial statements), and our working capital as of September 30, 20172019 was $315,363,140.$173,130,680.

 

As of September 30, 2017,2019, our total long-term debts are as follows:

 

Contractual Obligations Less than 1 year  1-3 years  3-5 years  More than 5 years  Total 
Short Term Bank Loan  1,506,705               1,506,705 
Negotiable Promissory Notes  368,462               368,462 
Long Term Bank Loan      6,026,819           6,026,819 
Promissory Notes  14,492,221               14,492,221 
Notes Payable      20,058,798           20,058,798 

Contractual Obligations Less than 1 year  1-3years  3-5 years  More than 5 years  Total 
Short Term Bank Loan  4,506,468             4,506,468 
Negotiable promissory notes  977,155             977,155 
Long Term Debts      5,669,429         5,669,429 
Promissory Notes      10,826,560         10,826,560 
convertible note payables  3,894,978             3,894,978 

 

Cash provided by operating activities amounted to $27,498,878$11,637,524 for Q1-3 2017.2019. This compares with cash provided by operating activities totaling $62,060,468$27,498,878 for Q1-3 2016.2018. The decrease in cash flows provided by operating activities resulted primarily from the increasedecrease in inventoriesaccount receivable of $17,752,925$(11,912,622) for Q1-3 20172019 from $2,207,149$17,756,843 for Q1-3 2016.2018.

 

Cash used in investing activities totaled $21,625,928$(6,832,839) for Q1-3 2017.This2019. This compares with cash used in investing activities totaling $57,758,296$(21,625,928) for Q1-3 2016.2018. The increase in cash flows used in investing activities resulted primarily from paymentpurchases of property and equipment and non-current assets held for constructionsale of $7,073,340$(3,500) for Q1-3 20172019 compared to $47,834,113$(14,552,588) for Q1-3 2016.2018.

 

Cash used in financing activities totaled $3,413,653$0 for Q1-3 2017.2019. This compares with cash used in financing activities totaling $5,611,449$(3,413,653) for Q1-3 2016.2018. The decreaseincrease in cash used in financing activities was primarily due to convertible notes repaid of $1,500,000$0 during Q1-3 20172019 from $7,676,760$1,500,000 paid during Q1-3 2016.

Acquisition of SFJVC’s and further acquisition plan:

An SFJVC agreement typically contains an option clause for further investment. Initially, the China Developer of project companies invites us to invest in their venture. If management believes it advisable, it carries out an in-depth study of the target company including legal due diligence, business plan, budget and projected financial information. The final decision is made through the resolution of the Company’s Board of Directors. If the decision is made to proceed with an investment, there is first formed an SFJVC, within which in turn the Company acquires further equity interest. The acquisition price of such interest is determined in accordance to the book value of the SFJVC as of the acquisition date. Consideration generally consists in part of cash and in part of contract against trade debts owed by the China Developer due to Consulting & Services fees charged to the China Developer by the Company in accordance with the Consulting & Services agreement. Project companies’ record development cost as construction in progress and treat the amount due to us as partial investment in new SFJVC.

The Company’s expenditures as the consulting and service provider providing turnkey services to the China Developer for the development of the project include (i) administrative and operational expenses provided for and incurred in the project (charged and recorded under general and administrative operation expenses), billable to the China Developer, (ii) other development expenditures (inclusive of subcontractors’ and sub-suppliers’ cost plus mark-up) billable to the Developer, as well. Consulting & Services fees are exclusively billed to the 3rdparty China Developer, and not to the future SFJVC companies.

- 25 -

There is currently no concrete plan to establish any additional SFJVCs.2018.

 

CRITICAL ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

 

The unaudited consolidated financial statements for the nine months ended September 30, 20172019 are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

 

The unaudited quarterly financials for the nine months ended September 30, 20172019 results are for the months and do not necessarily indicate the results for a full year. The information included in this interim report should be read in conjunction with the information included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2016.2018.

 

BASIS OF CONSOLIDATION

 

The consolidated financial statements include the financial statements of SIAF, its subsidiaries Capital Award, CS, CH, TRW, MEIJI, JHST, JFD, JHMC, HSA, APWAM, SAFS and its variable interest entity SJAP and QZH. All material inter-company transactions and balances have been eliminated in consolidation. The results of companies acquired or disposed of during the year are included in the consolidated Financial Statements from the effective date of acquisition.

 

BUSINESS COMBINATIONS

 

The Company adopted the accounting pronouncements relating to business combinations (primarily contained in ASC Topic 805 “Business Combinations”), including assets acquired and liabilities assumed arising from contingencies. These pronouncements established principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquire as well as provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In addition, these pronouncements eliminate the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and require an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. Our adoption of these pronouncements will have an impact on the manner in which we account for any future acquisitions.

 

NON-CONTROLLING

22

NON - CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS

 

The Company adopted the accounting pronouncement on non-controlling interests in consolidated financial statements, which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance is primarily contained in ASC Topic “Consolidation”. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated financial statements. The adoption of this standard has not had material impact on our consolidated financial statements.

 

USE OF ESTIMATES

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods covered thereby. Actual results could differ from these estimates. Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in certain areas. The following are some of the areas requiring significant judgments and estimates: determinations of the useful lives of assets, estimates of allowances for doubtful accounts, cash flow and valuation assumptions in performing asset impairment tests of long-lived assets, estimates of the reliability of deferred tax assets and inventory reserves.

 

REVENUE RECOGNITION

 

The Company’s revenue recognition policies are in compliance with ASC 605. Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv), the ability to collect is reasonably assured. These criteria are generally satisfied at the time of shipment when risk of loss and title passes to the customer. Service revenue is recognized when services have been rendered to a buyer by reference to the stage of completion. License fee income is recognized on the accrual basis in accordance with the underlying agreements.

 

- 26 -

Government grants are recognized upon (i) the Company has substantially accomplishedCompany’s substantial accomplishment of what we must be done pursuant to the terms of the policies and terms of the grant that are established by the local government; and (ii) the Company receives notification from the local government that the Company has satisfied all of the requirements to receive the government grants; and and/or (iii) the amounts are received.

 

Multiple-Element Arrangements

   

To qualify as a separate unit of accounting under ASC 605-25 “605-25“Multiple Element Arrangements”, the delivered item must have value to the customer on a standalone basis. The significant deliverables under the Company’s multiple-element arrangements are consulting and service under development contract, commission and management service.

 

Revenues from the Company’sCompany's fishery development services contract are performed under fixed-price contracts. Revenues under long-term contracts are accounted for under the percentage-of-completion method of accounting in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605,Revenue Recognition (“ASC 605”). Under the percentage-of-completion method, the Company estimates profit as the difference between total estimated revenue and total estimated cost of a contract and recognized that profit over the contract term. The percentage of costs incurred determines the amount of revenue to be recognized. Payment terms are generally defined by the installation contract and as a result may not match the timing of the costs incurred by the Company and the related recognition of revenue. Such differences are recorded as either costs or estimated earnings in excess of billings on uncompleted contracts or billings in excess of costs and estimated earnings on uncompleted contracts.

 

The Company determines a customer’s credit worthiness at the time an order is accepted. Sudden and unexpected changes in a customer’s financial condition could put recoverability at risk.

 

The percentage of completion method requires the ability to estimate several factors, including the ability of the customer to meet its obligations under the contract, including the payment of amounts when due. If the Company determines that collectability is not assured, we will defer revenue recognition and use methods of accounting for the contract such as the completed contract method until such time as the Company determines that collectability is reasonably assured or through the completion of the project.

 

23

For fixed-price contracts, the Company uses the ratio of costs incurred to date on the contract (excluding uninstalled direct materials) to management’smanagement's estimate of the contract’scontract's total costs, to determine the percentage of completion on each contract. This method is used as management considers expended costs to be the best available measure of progression of these contracts. Contract costs included all direct material, subcontract and labor costs and those indirect costs related to contract performance, such as supplies, tool repairs and depreciation. The Company accounts for maintenance and repair services under the guidance of ASC 605 as the services provided relate to construction work. Contract costs incurred to date and expected total contract costs are continuously monitored during the term of the contract. Changes in job performance, job conditions, and estimated profitability arising from contract penalty, change orders and final contract settlements may result in revisions to the estimated profitability during the contract. These changes, which include contracts with estimated costs in excess of estimated revenues, are recognized as contract costs in the period in which the revisions are determined. Profit incentives are included in revenues when their realization is reasonably assured. At the point the Company anticipates a loss on a contract, the Company estimates the ultimate loss through completion and recognizes that loss in the period in which the possible loss was identified.

 

The Company does not provide warranties to customers on a basis customary to the industry; however, the customers can claim warranty directly from product manufacturers for defects in equipment or products. Historically, the Company has experienced no warranty claims.

 

The Company’s fishery development consultancy services revenues are recognized when the relevant services are rendered, and are subject to a Chinese business tax at a rate of 0% of the gross fishery development contract service income approved by the Chinese local government.

 

COST OF GOODS SOLD AND SERVICES

 

Cost of goods sold consists primarily of direct purchase cost of merchandise goods, and related levies. Cost of services consists primarily of direct cost and indirect cost incurred to date for development contracts and provision for anticipated losses on development contracts.

 

SHIPPING AND HANDLING

 

Shipping and handling costs related to cost of goods sold are included in general and administrative expenses, which totaled $0, $1,716, $2,988,$2,745 and $17,861 and $17,272 for the three months and the nine months ended September 30, 20172019 and 2016,2018, respectively.

- 27 -

 

ADVERTISING

 

Advertising costs are included in general and administrative expenses, which totaled $375,221, $382,424, $382,596,$1,175,724 and $1,386,186 and $1,163,547 for the three months ended and the nine months ended September 30, 20172019 and 2016,2018, respectively.

 

RESEARCH AND DEVELOPMENT EXPENSES

 

Research and development expenses are included in general and administrative expenses, which totaled $449,910, $449,910$0, 449, 910, $0 and $0$449,910 for the three months ended and the nine months ended September 30, 20172019 and 2016,2018, respectively.

 

CASH AND CASH EQUIVALENTS

 

The Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents. Cash and cash equivalents kept with financial institutions in People’s Republic of China(“P.R.C”) are not insured or otherwise protected. Should any of those institutions holding the Company’s cash become insolvent, or the Company is unable to withdraw funds for any reason, the Company could lose the cash on deposit at that institution.

 

ACCOUNTS RECEIVABLE

 

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Terms of the sales vary. Reserves are recorded primarily on a specific identification basis.

 

The standard credit period of most of the Company’s most of customers is three months. Any amount that has an extended settlement date of over one year is classified as a long term receivable. Management evaluates the collectability of the receivables at least quarterly. There were no bad debts written off for the nine months ended September 30, 20172019 or September 30, 2016.2018.

 

24

INVENTORIES

 

Inventories are valued at the lower of cost (determined on a weighted average basis) and net realizable value. Costs incurred in bringing each product to its location and conditions are accounted for as follows:

 

·raw materials - purchase cost on a weighted average basis;
·manufactured finished goods and work-in-progress - cost of direct materials and labor and a proportion of manufacturing overhead based on normal operation capacity but excluding borrowing costs; and
·retail and wholesale merchandise finished goods - purchase cost on a weighted average basis.

 

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

 

PROPERTY AND EQUIPMENT

 

Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Such costs include the cost of replacing parts that are eligible for capitalization when the cost of replacing the parts is incurred. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at the end of each year.

 

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets.

 

Milk cows 10 years
Plant and machinery 5 - 10 years
Structure and leasehold improvements 10 -20- 20 years
Mature seed andherbage cultivation 20 years
Furniture, fixtures and equipment 2.5 - 10 years
Motor vehicles 5 -10- 10  years

 

An item of property and equipment is removed from the accounts upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated statements of income in the period the item is disposed.

- 28 -

 

GOODWILL

 

Goodwill is an asset representing the fair economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is tested for impairment on an annual basis at the end of the company’s fiscal year, or when impairment indicators arise. The Company uses a fair-value-based approach to test for impairment at the level of each reporting unit. The Company directly acquired MEIJI, which is engaged in Hu Plantation. As a result of this acquisition, the Company recorded goodwill in the amount of $724,940. This goodwill represents the fair value of the assets acquired in these acquisitions over the cost of the assets acquired.

 

PROPRIETARY TECHNOLOGIES

 

The Company has determined that technological feasibility is established at the time a working model of products is completed. Master license of stock feed manufacturing technology was acquired and the costs of acquisition were capitalized as proprietary technologies when technological feasibility had been established. Proprietary technologies are intangible assets of finite lives. Proprietary technologies are amortized using the straight line method over their estimated lives of 25 years.

 

An aromatic cattle-feeding formula was acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility has been established. Cost of acquisition on aromatic cattle-feeding formula is amortized using the straight-line method over its estimated life of 25 years.

 

The cost of sleepsleepy cod breeding technology license is capitalized as proprietary technologies when technological feasibility has been established. Cost of granting sleepsleepy cod breeding technology license is amortized using the straight-line method over its entitled life of 25 years.

 

Bacterial cellulose technology license and related trademark are capitalized as proprietary technologies when technological feasibility has been established. Cost of license and related trademark is amortized using the straight-line method over its estimated life of 20 years.

 

Management evaluates the recoverability of proprietary technologies on an annual basis of the end of the company’s fiscal year, or when impairment indicators arise. As required by ASC Topic 350 “Intangible - Goodwill and Other”, the Company uses a fair-value-based approach to test for impairment.

25

 

CONSTRUCTION IN PROGRESS

 

Construction in progress represents direct costs of construction as well as acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to property and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until construction is completed and the asset is ready for its intended use.

 

LAND USE RIGHTS

 

Land use rights represent acquisition of land use right rights of agriculture land from farmers and are amortized on the straight line basis over the respective lease periods. The lease period of agriculture land is in the range from 10 years to 60 years. Land use rights purchase prices were determined in accordance with the P.R.C Government’s minimum lease payments of agriculture land and mutually agreed between the company and the vendors. No independent professional appraiser performed a valuation of land use rights at the balance sheet dates.

 

CORPORATE JOINT VENTURE

 

A corporation formed, owned, and operated by two or more businesses (ventures) as a separate and discrete business or project (venture) for their mutual benefit is considered to be a corporate joint venture. Investee entities, in which the company can exercise significant influence, but not control, are accounted for under the equity method of accounting. Under the equity method of accounting, the company’s share of the earnings or losses of these companies is included in net income.

 

A loss in value of an investment that is other than a temporary decline is recognized as a charge to operations. Evidence of a loss in value might include, but would not necessarily be limited to absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.

- 29 -

 

VARIABLE INTEREST ENTITY

 

An entity (investee) in which the investor has obtained less than a majority-owned interest, according to the Financial Accounting Standards Board (FASB). A variable interest entity (VIE) is subject to consolidation if a VIE is an entity meeting one of the following three criteria as elaborated in ASC Topic 810-10,Consolidation.

 

(a)(a)equity-at-risk is not sufficient to support the entity’sentity's activities
(b)as a group, the equity-at-risk holders cannot control the entity; or
(c)(c)the economics do not coincide with the voting interest.

If a firm is the primary beneficiary of a VIE, the holdings must be disclosed on the balance sheet. The primary beneficiary is defined as the person or company with the majority of variable interests

 

TREASURY STOCK

 

Treasury stock consists of a Company’s own stock which has been issued, but is subsequently reacquired by the Company. Treasury stock does not reduce the number of shares issued but does reduce the number of shares outstanding. These shares are not eligible to receive cash dividends. Accounting for excesses and deficiencies on treasury stock transactions is governed by ASC 505-30-30.

 

State laws and federal agencies closely regulate transactions involving a company’s own capital stock, so the purchase of outstanding shares and converting them into treasury shares must have a legitimate purpose. Some of the most common reasons for purchasing outstanding shares are as follows:

 

(i) to meet additional stock needs for various reasons, including newly implemented stock option plans, the issuance stock for convertible bonds or convertible preferred stock, or a stock dividend;

 

(ii) to eliminate the ownerships interests of a stockholder;

 

(iii) to increase the market price of the stock that returns capital to shareholders; and

 

(iv) to potentially increase earnings per share of the stock by decreasing the shares outstanding on the same earnings.

26

 

The cost method of accounting for treasury stock shares has been adopted by the Company. The purchase of outstanding shares is treated as a temporary reduction in shareholders’ equity in view of the expectation to reissue the shares instead of retiring them. When the Company reissues the treasury shares, the temporary account is eliminated. The cost of treasury stock shares reacquired is charged to a contra account, in this case a contra equity account that reduces the stockholder equity balance.

 

INCOME TAXES

 

The Company accounts for income taxes under the provisions of ASC 740 “Accounting for Income Taxes”. Under ASC 740, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

 

The provision for income tax is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred taxes area accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized.

 

Deferred income taxes are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also adjusted in the equity accounts. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. ASC 740 also prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. ASC 740 also provides guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. Any interest and penalties accrued related to unrecognized tax benefits will be recorded in tax expense.

 

- 30 -

POLITICAL AND BUSINESS RISK

 

The Company’sCompany's operations are carried out in the PRC. Accordingly, the Company’sCompany's business, financial condition, and results of operations may be influenced by the political, economic, and legal environment in the PRC, and by the general state of the PRC’sPRC's economy. The Company’sCompany's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. The Company’sCompany's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

 

In accordance with ASC 360, “Property, Plant and Equipment”, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, at the end of each fiscal year. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of September 30, 20162019 and December 31, 2015,2018, the Company determined no impairment losses were necessary.

 

EARNINGS PER SHARE

 

As prescribed in ASC Topic 260 “Earning per Share”, Basic Earnings per Share (“EPS”EPS) is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common stock shares outstanding during the year plus potential dilutive instruments such as stock options and warrants. The effect of stock options on diluted EPS is determined through the application of the treasury stock method, whereby proceeds received by the Company based on assumed exercises are hypothetically used to repurchase the Company’s common stock at the average market price during the period.

 

For the three months ended September 30, 20172019 and 2016,2018, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders for continuing and discontinued operations amounted to $0.14$0.16 and $1.04,$0.09, respectively. For the three months ended September 30, 20172019 and 2016,2018, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing and discontinued operations amounted to $0.15$0.16 and $0.95,$0.09, respectively.

 

For the threenine months ended September 30, 20172019 and 2016,2018, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries’subsidiaries common stockholders for continuing operations amounted to $0.14$0.31 and $0.91,$0.27, respectively. For the threenine months ended September 30, 20172019 and 2016,2018, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing operations amounted to $0.15$0.31 and $0.81,$0.27, respectively.

 

For the nine months ended September 30, 2017 and 2016, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders for continuing and discontinued operations amounted to $0.62 and $2.45, respectively. For the nine months ended September 30, 2017 and 2016, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing and discontinued operations amounted to $0.63 and $2.24, respectively.

27

 

For the nine months ended September 30, 2017 and 2016, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders for continuing operations amounted to $0.62 and $1.81, respectively. For the nine months ended September 30, 2017 and 2016, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing operations amounted to $0.63 and $1.72, respectively.

FOREIGN CURRENCY TRANSLATION

 

The reporting currency of the Company is the U.S. dollar. The functional currency of the Company is the Chinese Renminbi (RMB). For those entities whose functional currency is other than the U.S. dollars, all assets and liabilities are translated into U.S. dollars at the exchange rate on the balance sheet date; shareholder equity is translated at historical rates and items in the statements of income and of cash flows are translated at the average rate for the period.

 

Because cash flows are translated based on the weighted average translation rate, amounts related to assets and liabilities reported in the statements of cash flows will not necessarily agree with changes in the corresponding balances in the balance sheets. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statements of equity.

 

- 31 -

For the nine months ended September 30, 2016

Translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of income and comprehensive income as incurred. The balance sheet amounts with the exception of equity as of September 30, 20162019 and December 31, 20152018 were translated at RMB6.68RMB7.07 to $1.00 and RMB6.36RMB6.86 to $1.00, respectively. The average translation rates applied to the consolidated statements of income and comprehensive income and of cash flows for the nine months ended September 30, 20162019 and September 30, 20152018 were RMB6.58RMB6.85 to $1.00 and RMB6.17RMB6.51 to $1.00, respectively

For the nine months ended September 30, 2017respectively. 

 

Translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of income and comprehensive income as incurred. The balance sheet amounts with the exception of equity as of September 30, 2017 and December 31, 2016 were translated at RMB6.64 to $1.00 and RMB6.94 to $1.00, respectively. The average translation rates applied to the consolidated statements of income and comprehensive income and of cash flows for the nine monthsyears ended September 30, 2017December 31, 2014 through 2018 were RMB6.14, RMB6.23, RMB6.64, RMB 6.75 and September 30, 2016 were RMB6.80 to $1.00 and RMB6.58 to $1.00, respectively.RMB6.61, respectively

 

ACCUMULATED OTHER COMPREHENSIVE INCOME

 

ASC Topic 220 “Comprehensive Income” establishes standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income is defined as the change in stockholders’ equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The comprehensive income for all periods presented includes both the reported net income and net change in cumulative translation adjustments.

 

RETIREMENT BENEFIT COSTS

 

P.R.C. state managed retirement benefit programs are defined contribution plans and the payments to the plans are charged as expenses when employees have rendered service entitling them to the contribution.

 

STOCK-BASED COMPENSATION

 

The Company adopts both ASC Topic 718, “Compensation - Stock Compensation” and ASC Topic 505-50,Equity-Based Payments to Non-Employees” using the fair value method in which an entity issues its equity instruments to acquire goods and services from employees and non-employees. Stock compensation for stock granted to non-employees has been determined in accordance with this accounting standard and the accounting standard regarding accounting for equity instruments that are issued to other than employees for acquiring, or in conjunction with selling goods or services, as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured. This accounting standard allows the “simplified” method to determine the term of employee options when other information is not available. Under ASC Topic 718 and ASC Topic 505-50, stock compensation expenses is measured at the grant date on the value of the option or restricted stock and is recognized as expenses, less expected forfeitures, over the requisite service period, which is generally the vesting period.

28

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

Level 2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

Level 3 Pricing inputs that are generally observable inputs and not corroborated by market data.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments.

 

- 32 -

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value as of September 30, 2017September30, 2019 or December 31, 2016,2018, nor gains or losses are reported in the statements of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the nine months ended September 30, 20172019 or 2016.2018.

 

NEW ACCOUNTING PRONOUNCEMENTS

 

The Company does not expect any recent accounting pronouncements to have a material effect on the Company’s financial position, results of operations, or cash flows.

 

In February 2016,2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02,2017-02, Leases (Topic 842) (ASU 2016-02)(ASU 2017-02), which generally requires companies to recognize operating and financing lease liabilities and corresponding right-of-useright of-use assets on the balance sheet. This guidance will be effective for us in the first quarter of 2019 on a modified retrospective basis and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

 

In March 2016,2017, the FASB issued Accounting Standards Update No. 2016-08,2017-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)(ASU 2016-08)2017-08) which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. This guidance will be effective for us in the first quarter of 2018, with the option to adopt it in the first quarter of 2017.2018. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

 

In March 2016,2017, the FASB issued Accounting Standards Update No. 2016-09,2017-09, Compensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting(ASU 2016-09)2017-09) to simplify the accounting for share-based payment transactions, including the income tax consequences, an option to recognize gross share-based compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This guidance will be effective for us in the first quarter of 2017,2018, and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

 

In October 2016,2017, the FASB issued Accounting Standards Update No. 2016-16,2017-16, Income Taxes (Topic 740): Intra-Entity Transfers Other than Inventory (ASU 2016-16)(ASU 2017-16), which requires companies to recognize the income-tax consequences of an intra-entity transfer of an asset other than inventory. This guidance will be effective for us in the first quarter of 2018, with the option to adopt it in the first quarter of 2017.2018. We currently anticipate adopting the new standard effective January 1, 2018, and do not expect the standard to have a material impact on our consolidated financial statements.

 

In November 2016,2017, the FASB issued Accounting Standards Update No. 2016-18,2017-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18)(ASU 2017-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will be effective for us in the first quarter of 2018 and early adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosure.disclosure

 

In January 2017,2018, the FASB issued Accounting Standards Update No. 2017-01,2018-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01)2018-01), which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. This guidance will be effective for us in the first quarter of 2018 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

 

In January 2017,2018, the FASB issued Accounting Standards Update No. 2017-04,2018-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04)2018-04), which eliminates step two from the goodwill impairment test. Under ASU 2017-04,2018-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. This guidance will be effective for us in the first quarter of 2020 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

 

 - 33 -29 

 

 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Market risk is the risk of loss to future earnings, to fair values, or to future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes.

 

Foreign Currency Risk

Currency fluctuations and restrictions on currency exchange may adversely affect our business, including limiting our ability to convert Chinese Renminbi (RMB) into foreign currencies and, if the RMB were to decline in value, reducing our revenue in U.S. dollar terms.

 

The Chinese government currently manages the exchange rate of the RMB. The value of our common stock is indirectly affected by the foreign exchange rate between the U.S. dollar and the RMB. Appreciation or depreciation in the value of the RMB relative to the U.S. dollar does affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations.

 

Translation gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of income and comprehensive income as incurred. The average translation rates applied to the consolidated statements of income and comprehensive income and of cash flows for the years ended December 31, 20132014 through 20162018 were RMB6.19, RMB6.14, RMB6.23, RMB6.64 and RMB6.64,RMB6.58, respectively.

 

Depository Insurance Risk

Cash and cash equivalents are held for working capital purposes and consist primarily of bank deposits. We do not enter into investments for trading or speculative purposes.

 

Banks and other financial institutions in the PRC do not provide insurance for funds held on deposit. A portion of our assets are in the form of cash deposited with banks in the PRC, and in the event of bank failure, we may not have access to, or may lose entirely, our funds on deposit. This exposure could result in our inability to immediately access funds to pay our suppliers, employees and/or other creditors.

 

ITEM 4.     CONTROLS AND PROCEDURES

30

ITEM4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on this Evaluation, our CEO and CFO concluded that our Disclosure Controls were effective as of the end of the period covered by this report.

 

Changes in Internal Control over Financial Reporting

 

We have also evaluated our internal controls for financial reporting, and there has been no change in our internal control over financial reporting that occurred during the three months ended September 30, 20172018 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting

 

 - 34 -31 

 

 

Limitations on the Effectiveness of Controls

 

Our management, including our CEO and CFO, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.

 

The design of any system of controls 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; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

PART II - OTHER INFORMATION

 

ITEMITEM 1.LEGAL PROCEEDINGS

  

NoneIn the ordinary course of business, we may be involved in legal proceedings from time to time. As of the date hereof, except as set forth herein, there are no known or contemplated proceedings that require disclosure under Item 103 of Regulation S-K.

 

On March 26, 2019, a shareholder derivative complaint was filed in the United States District Court for the Southern District of New York against the Company, as well as four of its current directors, styled Heng Ren Silk Road Investments LLC, Heng Ren Investments LP, derivatively on behalf of Sino Agro Food Inc. v. Sino Agro Food Inc., Lee Yip Kun Solomon, Tan Poay Teik, Chen Bor Hann, Lim Chang Soh, and Sino Agro Food Inc. , as the nominal defendant (Case No.: 1:19-cv-02680) (the “ Complaint ”).  The Company filed its Motion to Dismiss the Complaint on June 24, 2019. After the Company filed its Motion to Dismiss, the Court,sue sponte, issued an Order requiring plaintiffs to either file an Amended Complaint by July 16, 2019 or serve their Opposition to the Motion to Dismiss by that date.  The Court stated that if plaintiffs do not amend their Complaint, they then will not be given any further opportunity to amend the Complaint to address the issues raised in the Motion to Dismiss.  Subsequently, Plaintiffs filed an Amended Complaint.  The Amended Complaint alleges violations of the federal securities laws and breaches of fiduciary duties (including gross mismanagement of the Company) by the individual defendants, based on allegations concerning, inter alia, a material default of its obligations under a commercial loan agreement, misleading and false statements (including material omissions) by the individual defendants, and unauthorized issuance of new shares of Common Stock to pay debts that, in the view of the plaintiffs, has diluted shareholder ownership and oppressed shareholders of the Company.

On September 20, 2019, the Company filed a Motion to Dismiss the Amended Complaint.  After the Company filed its Motion to Dismiss, the parties have had settlement discussions.  As a result, the Court granted a request to adjourn the present motion briefing schedule.  Plaintiffs’ Opposition is now due on or before January 3 2020, and the Company’s Reply Brief is due on January 24, 2020.

Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot estimate the reasonably possible loss or range of loss that may result from this action. However, an unfavorable outcome may have a material adverse effect on our business, financial condition and results of operations.  The Company believes that these claims are without merit and intend to vigorously defend the action.  

ITEM 1A.RISK FACTORS

 

Not applicableapplicable.

 

ITEMITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the 3 months period ended September 30, 2017, the Company issued 2,382,246 shares as additional security against working capital made available through a trade facility loan.None.

 

ITEMITEM 3.DEFAULTS UPON SENIOR SECURITIES

 

 NoneNone.

32

 

ITEMITEM 4.MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEMITEM 5.OTHER INFORMATION

 

NoneNone.

 

ITEMITEM 6.EXHIBITS

 

Exhibit No.No . Description of Exhibits
   
31.1 Section 302 Certification of Principal Executive Officer+
31.2 Section 302 Certification of Principal Financial Officer+
32.1 Section 906 Certification of Principal Executive Officer and Principal Financial Officer *
101.INS XBRL Instance Document +
101.SCH XBRL Taxonomy Extension Schema Document +
101.CAL XBRL Taxonomy Calculation Linkbase Document +
101.LAB XBRL Taxonomy Labels Linkbase Document +
101.PRE XBRL Taxonomy Presentation Linkbase Document +
101.DEF XBRL Definition Linkbase Document +

 

+filed herewith

* furnished herewith

 

 - 35 -33 

 

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

 

  SINO AGRO FOOD, INC.
   
November 14, 201719, 2019By:/s/ LEE YIP KUN SOLOMON
  Lee Yip Kun Solomon
  

Chief Executive Officer

(Principal Executive Officer)

and Interim Chief Financial Officer
  
 November 14, 2017By:/s/ DANIEL RITCHEY
Daniel Ritchey

Chief Financial(Principal Executive Officer

( and Principal Financial Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

November 14, 2017By:/s/ Lee Yip Kun Solomon
Lee Yip Kun Solomon
Chief Executive Officer, Director

November 14, 2017By:/s/ Daniel Ritchey
Daniel Ritchey
Chief Financial Officer and Director

November 14, 2017By:/s/ Tan Poay Teik
Tan Poay Teik
Chief Marketing Officer and Director
November 14, 2017By:/s/ Chen Bor Hann
Chen Bor Hann
Corporate Secretary and Director

November 14, 2017By:/s/ Yap Koi Ming
Yap Koi Ming
Director

November 14, 2017By:/s/ Nils Erik Sandberg
Nils Erik Sandberg
Director

November 14, 2017By:/s/ Soh Lim Chang
Soh Lim Chang
Director

 - 36 -34