UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterquarterly period ended September 30, 2017March 31, 2019
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 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 10036NY10036
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). Yesx No ¨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”“smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ||
Non-accelerated filer | Smaller reporting company | |||
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 class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
As of September 30, 2017May 17, 2019, there were 27,811,57349,996,085 shares of our common stock issued and outstanding.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
SINO AGRO FOOD, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL REPORT
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2019
INDEX TO QUARTERLY FINANCIAL REPORT
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.
Note | September 30, 2017 | December 31, 2016 | Note | March 31, 2019 | December 31, 2018 | |||||||||||||||
(Unaudited) | (Audited) | |||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | 7 | $ | 1,865,684 | $ | 2,576,058 | 5 | $ | 305,721 | $ | 4,950,799 | ||||||||||
Inventories | 8 | 80,345,197 | 62,592,272 | 6 | 56,402,108 | 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 | 53,290,057 | 52,241,190 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts | 10 | 105,155,243 | 122,912,086 | 8 | 100,938,113 | 101,652,131 | ||||||||||||||
Other receivables | 11 | 58,789,381 | �� | 47,120,800 | 9 | 31,103,922 | 28,307,526 | |||||||||||||
Total current assets | 341,340,171 | 320,788,166 | 242,290,749 | 241,984,715 | ||||||||||||||||
Plant and equipment | ||||||||||||||||||||
Plant and equipment, net of accumulated depreciation | 12 | 207,621,360 | 189,727,227 | 10 | 235,473,231 | 230,645,659 | ||||||||||||||
Construction in progress | 14 | 41,509,210 | 35,157,213 | 11 | 13,166,423 | 12,515,527 | ||||||||||||||
Land use rights, net of accumulated amortization | 15 | 54,504,006 | 53,673,690 | 12 | 54,289,629 | 53,814,281 | ||||||||||||||
Total plant and equipment | 303,634,576 | 278,558,130 | 302,929,283 | 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 | 8,816,670 | 8,937,071 | ||||||||||||||
Interests in unconsolidated equity investees | 18 | 144,519,533 | 139,133,443 | 15 | 209,435,455 | 207,074,626 | ||||||||||||||
Long term investments | 19 | 753,352 | 720,773 | |||||||||||||||||
Temporary deposits paid to entities for investments in Sino joint venture companies | 20 | 15,644,998 | 15,644,998 | 16 | 34,894,047 | 34,905,960 | ||||||||||||||
Total other assets | 171,362,501 | 166,314,851 | 253,871,112 | 251,642,597 | ||||||||||||||||
Total assets | $ | 816,337,248 | $ | 765,661,147 | $ | 799,091,144 | $ | 790,602,779 | ||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Accounts payable and accrued expenses | $ | 12,552,569 | $ | 8,789,324 | $ | 10,425,270 | $ | 8,280,358 | ||||||||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 22 | 5,602,681 | 2,630,752 | 18 | 5,407,136 | 5,348,293 | ||||||||||||||
Due to a director | 850,274 | 2,070,390 | 259,193 | 2,046,499 | ||||||||||||||||
Other payables | 23 | 5,095,113 | 5,962,092 | 19 | 47,016,748 | 42,523,811 | ||||||||||||||
Borrowings - Short term bank loan | 24 | 1,506,705 | 2,883,090 | 20 | 4,677,755 | 4,589,828 | ||||||||||||||
Negotiable promissory notes | 25 | 368,462 | 1,113,140 | |||||||||||||||||
Derivative liability | 21 | - | 2,100 | |||||||||||||||||
Convertible note payable | 21 | - | 3,894,978 | |||||||||||||||||
Income tax payable | 1,227 | 1,130 | - | - | ||||||||||||||||
25,977,031 | 23,449,918 | 67,786,102 | 66,685,867 | |||||||||||||||||
Non-current liabilities | ||||||||||||||||||||
Other payables | 23 | 22,184,443 | 11,192,117 | 19 | 7,759,801 | 7,792,774 | ||||||||||||||
Borrowings - Long term bank loan | 24 | 6,026,819 | 5,766,182 | 20 | 5,643,006 | 5,536,938 | ||||||||||||||
Notes payable | 20,058,798 | 21,314,877 | ||||||||||||||||||
48,270,060 | 38,273,176 | 13,402,807 | 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 March 31, 2019 and December 31, 2018, respectively) | 22 | 49,976 | 49,866 | |||||||||||||||||
Additional paid - in capital | 168,193,890 | 155,741,280 | 181,533,919 | 181,501,056 | ||||||||||||||||
Retained earnings | 467,117,365 | 454,592,652 | 459,424,518 | 458,811,844 | ||||||||||||||||
Accumulated other comprehensive income | 2,209,103 | (4,335,355 | ) | (5,316,005 | ) | (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 | 634,442,408 | 628,696,980 | ||||||||||||||||
Non - controlling interest | 105,791,988 | 99,166,749 | 83,459,827 | 81,890,220 | ||||||||||||||||
Total stockholders’ equity | 742,090,157 | 703,938,053 | 717,902,235 | 710,587,200 | ||||||||||||||||
Total liabilities and stockholders’ equity | $ | 816,337,248 | $ | 765,661,147 | $ | 799,091,144 | $ | 790,602,779 |
The accompanying notes are an integral part of these consolidated financial statements.
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.
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 |
Note | Three months ended March 31, 2019 | Three months ended March 31, 2018 | ||||||||
(Unaudited) | (Unaudited) | |||||||||
Revenue | ||||||||||
- Sale of goods | $ | 28,267,649 | $ | 31,258,860 | ||||||
- Consulting and service income from development contracts | 991,002 | 2,472,404 | ||||||||
29,258,651 | 33,731,264 | |||||||||
Cost of goods sold | (23,310,212 | ) | (25,863,020 | ) | ||||||
Cost of services | (939,684 | ) | (1,784,322 | ) | ||||||
Gross profit | 5,008,755 | 6,083,922 | ||||||||
General and administrative expenses | (3,757,288 | ) | (3,662,729 | ) | ||||||
Net income from operations | 1,251,467 | 2,421,193 | ||||||||
Other income (expenses) | ||||||||||
Government grant | 293,870 | - | ||||||||
Share of income from unconsolidated equity investee | 2,390,454 | 3,782,011 | ||||||||
Other income | - | 878 | ||||||||
Loss on restructuring | (2,404,402 | ) | - | |||||||
Non-operating expenses | (219,727 | ) | (22,004 | ) | ||||||
Interest expense | (477,806 | ) | (453,651 | ) | ||||||
Net income (expenses) | (417,611 | ) | 3,307,234 | |||||||
Net income before income taxes | 833,856 | 5,728,427 | ||||||||
Provision for income taxes | 4 | - | - | |||||||
Net income | 833,856 | 5,728,427 | ||||||||
Less: Net (income) loss attributable to non - controlling interest | (221,182 | ) | (655,708 | ) | ||||||
Net income attributable to Sino Agro Food, Inc. and subsidiaries | 612,674 | 5,072,719 | ||||||||
Other comprehensive income (loss) - Foreign currency translation (loss) income | 6,448,205 | 21,880,850 | ||||||||
Comprehensive income | 7,060,879 | 26,953,569 | ||||||||
Less: other comprehensive (income) loss attributable to non - controlling interest | (1,348,424 | ) | (11,253,610 | ) | ||||||
Comprehensive income attributable to Sino Agro Food, Inc. and subsidiaries | $ | 5,712,455 | $ | 15,699,959 | ||||||
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders: | ||||||||||
Basic | 27 | $ | 0.01 | $ | 0.17 | |||||
Diluted | 27 | $ | 0.01 | $ | 0.17 | |||||
Weighted average number of shares outstanding: | ||||||||||
Basic | 27 | 49,873,502 | 30,653,770 | |||||||
Diluted | 27 | 49,873,502 | 30,653,770 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2019 | Three months ended March 31, 2018 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash flows from operating activities | ||||||||
Net income for the period | 833,856 | 5,728,427 | ||||||
Adjustments to reconcile net income for the period to net cash from operations: | ||||||||
Share of income from unconsolidated equity investee | (2,390,454 | ) | (3,782,011 | ) | ||||
Depreciation | 2,542,874 | 2,658,508 | ||||||
Amortization | 564,051 | 569,361 | ||||||
Share based compensation costs | 411,883 | 226,113 | ||||||
Government grant | (293,870 | ) | - | |||||
Loss on restructuring | 2,404,402 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Increase in inventories | (1,819,867 | ) | (5,725,242 | ) | ||||
Decrease in cost and estimated earnings in excess of billings on uncompleted contacts | - | 998,359 | ||||||
(Increase) decrease in deposits and prepaid expenses | (1,427,777 | ) | 511,765 | |||||
(Decrease) increase in due to a director | (1,787,306 | ) | 330,332 | |||||
Increase in accounts payable and accrued expenses | 2,144,912 | 1,163,834 | ||||||
(Decrease) increase in other payables | (1,841,516 | ) | 1,045,261 | |||||
Decrease (increase) in accounts receivable | 714,018 | (3,595,709 | ) | |||||
Increase in tax payable | - | 739 | ||||||
Increase (Decrease) in billings in excess of costs and estimated earnings on uncompleted contracts | 58,843 | (57,622 | ) | |||||
Increase in other receivables | (2,796,396 | ) | (6,629,169 | ) | ||||
Decrease in amount due from unconsolidated investees | 29,625 | 986,454 | ||||||
Net cash used in operating activities | (2,652,722 | ) | (5,570,600 | ) | ||||
Cash flows from investing activities | ||||||||
Purchases of property and equipment | (3,202,715 | ) | (2,422,169 | ) | ||||
Payment for construction in progress | - | (3,053,435 | ) | |||||
Receipt from government grant | 293,870 | - | ||||||
Net cash used in investing activities | (2,908,845 | ) | (5,475,604 | ) | ||||
Effects on exchange rate changes on cash | 916,489 | 11,108,045 | ||||||
(Decrease) increase in cash and cash equivalents | (4,645,078 | ) | 61,841 | |||||
Cash and cash equivalents, beginning of period | 4,950,799 | 560,043 | ||||||
Cash and cash equivalents, end of period | $ | 305,721 | $ | 621,884 | ||||
Supplementary disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 149,000 | $ | 148,738 | ||||
Non - cash transactions | ||||||||
Common stock issued for service and compensation | $ | - | $ | 3,082,384 | ||||
Common stock issued for settling debits | $ | 32,973 | $ | - |
The accompanying notes are an integral part of these consolidated financial statements.
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) (“(” Quanwang”) a company incorporated “) acquired 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 March 31, 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%.
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, 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,March 31, 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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2.1 | FISCAL YEAR |
The Company has adopted December 31 as its fiscal year end.
2.2 | REPORTING ENTITIES |
Name of subsidiaries | Place of incorporation | Percentage of interest | Principal activities | |||
Capital Award Inc. (“CA”) | Belize | 100% | Fishery development and holder of A-Power Technology master license. | |||
Capital Stage Inc. (“CS”) | Belize | 100% | Dormant | |||
Capital Hero Inc. (“CH”) | Belize | 100% | Dormant | |||
Sino Agro Food Sweden AB (“SAFS”) | Sweden | 100% | Dormant | |||
Macau Eiji Company Limited (“MEIJI”) | Macau, P.R.C. | 100% | Investment holding, cattle farm development, beef cattle and beef trading | |||
A Power Agro Agriculture Development (Macau) Limited (“APWAM”) | Macau, P.R.C. | 100% | Investment holding | |||
Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd (“JHST”) | P.R.C. | 75% | HylocereusUndatus Plantation (“HU Plantation”). | |||
Jiang Men City Hang Mei Cattle Farm Development Co., Limited (“JHMC”) | P.R.C. | 75% | Beef cattle cultivation | |||
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”) | P.R.C. | 76% | 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% | Manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures | |||
* 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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
2.3 | BASIS 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.
2.4 | BASIS 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”).
2.5 | BUSINESS 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.
2.6 | 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 the Company’s consolidated financial statements.
2.7 | USE 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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
2.8 | REVENUE 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:
l | identification of the contract, or contracts, with a customer; |
l | identification of the performance obligations in the contract; |
l | determination of the transaction price; |
l | allocation of the transaction price to the performance obligations in the contract; and |
l | recognition of revenue when, or as, we satisfy a performance obligation. |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
2.8 | REVENUE 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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
2.9 | COST 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.
2.10 | SHIPPING 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$0 and 17,272$786 for the three months ended March 31, 2019 and the nine months ended September 30, 2017 and 2016,2018, respectively.
2.11 | ADVERTISING |
Advertising costs are included in general and administrative expenses, which totaled $382,424, $382,596, $1,386,186$377,946 and $1,163,547$400,754 for the three months ended March 31, 2019 and the nine months ended September 30, 2017 and 2016,2018, respectively.
2.12 | RESEARCH AND DEVELOPMENT EXPENSES |
Research and development expenses are included in general and administrative expenses, which totaled $449,910, $0, $449,910$426,115, and $0 for the three months ended March 31, 2019 and the nine months ended September 30, 2017 and 2016,2018, respectively.
2.13 | FOREIGN 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 $2,643,911$(5,316,005) as of September 30, 2017March 31, 2019 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, 2017March 31, 2019 and December 31, 20162018 were translated using an exchange rate of RMB 6.646.73 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 ninethree months ended September 30, 2017,March 31, 2019, and 20162018 were RMB 6.806.75 to $1.00 and RMB 6.586.36 to $1.00, respectively.
2.14 | 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 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.
2.15 | 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. 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, 2017March 31, 2019 and December 31, 20162018 are $0.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
2.16 | 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:
(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.
2.17 | PLANT 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 machinery | 5 - 10 years | |
Structure and leasehold improvements | 10 - | |
Mature seeds and herbage cultivation | 20 years | |
Furniture and equipment | 2.5 - 10 years | |
Motor vehicles |
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.
2.18 | GOODWILL |
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.
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
PROPRIETARY 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.
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 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.
EQUITY 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.
CORPORATE 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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
VARIABLE 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.
TREASURY 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.
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:
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
INCOME 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.
2.29 | POLITICAL 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.
2.30 | CONCENTRATION 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, 2017March 31, 2019 and December 31, 20162018 amounted to $1,775,634$164,333 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 March 31, 2019 | Three months ended March 31, 2018 | |||||||||||||||||||
Customer A | 24.59 | % | 19.82 | % | 24.83 | % | 19.56 | % | 30.79 | % | 31.66 | % | ||||||||||||
Customer B | 21.89 | % | - | % | 22.03 | % | - | % | 12.94 | % | 17.08 | % | ||||||||||||
Customer C | 16.34 | % | 11.95 | % | 14.42 | % | 9.52 | % | 27.93 | % | 14.82 | % | ||||||||||||
Customer D | 10.32 | % | 6.68 | % | 9.22 | % | 7.56 | % | 5.63 | % | 8.91 | % | ||||||||||||
Customer E | 6.15 | % | - | % | 9.70 | % | - | % | 4.81 | % | - | % | ||||||||||||
Customer F | - | % | 16.59 | % | - | % | 14.17 | % | - | % | 7.33 | % | ||||||||||||
Customer G | - | % | 4.74 | % | - | % | 9.58 | % | ||||||||||||||||
79.29 | % | 59.78 | % | 80.20 | % | 60.39 | % | 82.10 | % | 79.80 | % |
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 |
F-14
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
2.30 | CONCENTRATION OF CREDIT RISK (CONTINUED) |
Percentage of revenue | Amount | |||||||||
Customer A | Corporate and others Division | 30.79 | % | $ | 9,010,021 | |||||
Customer B | Corporate and others Division | 12.94 | % | $ | 3,787,039 | |||||
Customer C | Cattle Farm Development Division | 27.93 | % | $ | 8,171,443 |
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 | March 31, 2019 | December 31, 2018 | |||||||||||||
Customer A | 21.02 | % | 19.61 | % | 11.89 | % | 12.76 | % | ||||||||
Customer B | 20.70 | % | 12.83 | % | 8.40 | % | 9.67 | % | ||||||||
Customer C | 18.82 | % | 18.11 | % | 10.53 | % | 10.05 | % | ||||||||
Customer D | 7.34 | % | - | % | 61.27 | % | 59.81 | % | ||||||||
Customer E | 6.37 | % | 5.96 | % | - | % | 1.8 | % | ||||||||
Customer F | - | % | 7.52 | % | 1.63 | % | - | % | ||||||||
74.25 | % | 64.03 | % | 93.72 | % | 94.09 | % |
As of September 30, 2017,March 31, 2019, amounts due from customers A, BC and CD are $22,106,909, $21,767,182$11,997,693, $10,632,798 and $19,793,205,$61,849,210, 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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IMPAIRMENT 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 June 30, 2017March 31, 2019 and December 31, 2016,2018, the Company determined no impairment losses were necessary.
EARNINGS 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, 2017March 31, 2019 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$0.01 and $1.04,$0.17, respectively. For the three months ended September 30, 2017March 31, 2019 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$0.01 and $0.95,$0.17, respectively.
For the three 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 $0.14 and $0.91, respectively. For the three 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 $0.15 and $0.81, respectively.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 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.
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) |
ACCUMULATED 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.
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 made by the employer.
STOCK-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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 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. 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, 2017March 31, 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 fiscal period ended September 30, 2017March 31, 2019 or 2016.2018.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
NEW 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.
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,disclosures and dodoes not expect the standardthere to havebe a material impact on our consolidated financial statements.impact.
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.
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.
Three months ended March 31, 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 | $ | 991,002 | $ | 906,803 | $ | 6,403,084 | $ | 8,160,703 | $ | 12,797,059 | $ | 29,258,651 | ||||||||||||
Net income (loss) | $ | (75,822 | ) | $ | (821,204 | ) | $ | 470,344 | $ | 980,976 | $ | 58,380 | $ | 612,674 | ||||||||||
Total assets | $ | 90,004,486 | $ | 43,221,005 | $ | 332,091,472 | $ | 43,664,450 | $ | 290,109,731 | $ | 799,091,144 |
For the three months ended September 30, 2017 | ||||||||||||||||||||||||||||
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 | $ | 2,978,371 | $ | 1,486,465 | $ | 21,057,805 | $ | 7,281,156 | $ | 15,589,136 | $ | - | $ | 48,392,933 | ||||||||||||||
Net income (loss) | $ | 696,266 | $ | 10,010 | $ | 575,316 | $ | 684,685 | $ | 1,484,571 | $ | - | $ | 3,450,948 | ||||||||||||||
Total assets | $ | 74,754,393 | $ | 48,728,564 | $ | 379,508,585 | $ | 36,656,931 | $ | 276,688,775 | $ | - | $ | 816,337,248 |
Three months ended March 31, 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 | $ | 2,472,404 | $ | 1,050,228 | $ | 8,770,592 | $ | 4,998,083 | $ | 16,439,957 | $ | 33,731,264 | ||||||||||||
Net income (loss) | $ | 560,943 | $ | (340,166 | ) | $ | 1,344,459 | $ | 350,674 | $ | 3,812,517 | $ | 5,728,427 | |||||||||||
Total assets | $ | 81,042,358 | $ | 49,552,231 | $ | 357,336,786 | $ | 34,311,911 | $ | 286,272,364 | $ | 808,515,650 |
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 |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. | SEGMENT INFORMATION (CONTINUED) |
(1) | Operated by Capital Award, Inc. (“CA”) |
(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” |
(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 |
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 | ||||||||||||||||||||||||||||
Fishery Development | HU Plantation | 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”) | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”) | - | 1,486,465 | - | - | - | - | 1,486,465 | |||||||||||||||||||||
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”) | - | - | 1,669,684 | - | - | - | 1,669,684 | |||||||||||||||||||||
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”) | - | - | 6,282,189 | - | - | - | 6,282,189 | |||||||||||||||||||||
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 | |||||||||||||||||||||
Sino Agro Food, Inc. (“SIAF”) | - | - | - | - | 15,589,136 | - | 15,589,136 | |||||||||||||||||||||
Consulting and service income for development contracts Capital Award, Inc. (“CA”) | 2,978,371 | - | - | - | - | - | 2,978,371 | |||||||||||||||||||||
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 |
Three ended March 31, 2019 | ||||||||||||||||||||||||
Organic | ||||||||||||||||||||||||
Fishery | Fertilizer and | Cattle Farm | ||||||||||||||||||||||
Development | HU Plantation | Bread Grass | Development | Corporate and | ||||||||||||||||||||
Division (1) | Division (2) | Division (3) | Division (4) | others (6) | Total | |||||||||||||||||||
Name of entity | ||||||||||||||||||||||||
Sale of goods | ||||||||||||||||||||||||
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”) | $ | - | $ | 906,803 | $ | - | $ | - | $ | - | $ | 906,803 | ||||||||||||
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”) | - | - | 2,527,273 | - | - | 2,527,273 | ||||||||||||||||||
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”) | - | - | 3,875,811 | - | - | 3,875,811 | ||||||||||||||||||
Macau Eiji Company Limited (“MEIJI”) | - | - | - | 8,160,703 | - | 8,160,703 | ||||||||||||||||||
Sino Agro Food, Inc. (“SIAF”) | - | - | - | - | 12,797,059 | 12,797,059 | ||||||||||||||||||
Consulting and service income for development contracts Capital Award, Inc. (“CA”) | 991,002 | - | - | - | - | 991,002 | ||||||||||||||||||
$ | 991,002 | $ | 906,803 | $ | 6,403,084 | $ | 8,160,703 | $ | 12,797,059 | $ | 29,258,651 |
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 |
Three months ended March 31, 2018 | ||||||||||||||||||||||||
Organic | ||||||||||||||||||||||||
Fishery | Fertilizer and | Cattle Farm | ||||||||||||||||||||||
Development | HU Plantation | Bread Grass | Development | Corporate and | ||||||||||||||||||||
Division (1) | Division (2) | Division (3) | Division (4) | others (6) | Total | |||||||||||||||||||
Name of entity | ||||||||||||||||||||||||
Sale of goods | ||||||||||||||||||||||||
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”) | $ | - | $ | 1,050,228 | $ | - | $ | - | $ | - | $ | 1,050,228 | ||||||||||||
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”) | - | - | 6,405,025 | - | - | 6,405,025 | ||||||||||||||||||
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”) | - | - | 2,365,567 | - | - | 2,365,567 | ||||||||||||||||||
Qinghai Zhong He Meat Products Co., Limited (“QZH”) | - | - | - | - | - | - | ||||||||||||||||||
Macau Eiji Company Limited (“MEIJI”) | - | - | - | 4,998,083 | - | 4,998,083 | ||||||||||||||||||
Sino Agro Food, Inc. (“SIAF”) | - | - | - | - | 16,439,957 | 16,439,957 | ||||||||||||||||||
Consulting and service income for development contracts Capital Award, Inc. (“CA”) | 2,472,404 | - | - | - | - | 2,472,404 | ||||||||||||||||||
$ | 2,472,404 | $ | 1,050,228 | $ | 8,770,592 | $ | 4,998,083 | $ | 16,439,957 | $ | 33,731,264 |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Further analysis of revenue:-
For the nine 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 Sale of goods Capital Award, Inc. (“CA”) | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”) | - | 3,565,220 | - | - | - | - | 3,565,220 | |||||||||||||||||||||
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”) | - | - | 5,393,285 | - | - | - | 5,393,285 | |||||||||||||||||||||
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”) | - | - | 21,695,718 | - | - | - | 21,695,718 | |||||||||||||||||||||
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 | |||||||||||||||||||||
Sino Agro Food, Inc. (“SIAF”) | - | - | - | - | 56,769,967 | - | 56,769,967 | |||||||||||||||||||||
Consulting and service income for development contracts Capital Award, Inc. (“CA”) | 16,167,636 | - | - | - | - | - | 16,167,636 | |||||||||||||||||||||
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 |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Further analysis of revenue:-
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 |
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 |
Three months ended March 31, 2019 | ||||||||||||||||||||||||
Organic | ||||||||||||||||||||||||
Fishery | HU | Fertilizer and | Cattle Farm | Corporate | ||||||||||||||||||||
Development | Plantation | Bread Grass | Development | and others | ||||||||||||||||||||
Division (1) | Division (2) | Division (3) | Division (4) | (5) | Total | |||||||||||||||||||
Name of entity | ||||||||||||||||||||||||
Sale of goods | ||||||||||||||||||||||||
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”) | $ | - | $ | 712,968 | $ | - | $ | - | $ | - | $ | 712,968 | ||||||||||||
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”) | - | - | 1,629,216 | - | - | 1,629,216 | ||||||||||||||||||
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”) | - | - | 2,772,354 | - | - | 2,772,354 | ||||||||||||||||||
Macau Eiji Company Limited (“MEIJI”) | - | - | - | 6,820,510 | - | 6,820,510 | ||||||||||||||||||
Sino Agro Food, Inc. (“SIAF”) | - | - | - | - | 11,375,164 | 11,375,164 | ||||||||||||||||||
$ | - | $ | 712,968 | $ | 4,401,570 | $ | 6,820,510 | $ | 11,375,164 | $ | 23,310,212 |
COST OF SERVICES
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 |
Three months ended March 31, 2019 | ||||||||||||||||||||||||
Organic | ||||||||||||||||||||||||
Fishery | Fertilizer and | Cattle Farm | Corporate | |||||||||||||||||||||
Development | HU Plantation | 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”) | $ | 939,684 | $ | - | $ | - | $ | - | $ | - | $ | 939,684 |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Further analysis of cost of goods sold and cost of services:-
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 |
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 |
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 |
Three months ended March 31, 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 | ||||||||||||||||||||||||
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”) | $ | - | $ | 894,722 | $ | - | $ | - | $ | - | $ | 894,722 | ||||||||||||
Hunan Shenghua A Power Agriculture Co., Limited (“HSA “) | - | - | 1,613,685 | - | - | 1,613,685 | ||||||||||||||||||
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP “) | - | - | 4,136,324 | - | - | 4,136,324 | ||||||||||||||||||
Qinghai Zhong He Meat Products Co., Limited (“QZH “) | - | - | - | - | - | - | ||||||||||||||||||
Macau Eiji Company Limited (“MEIJI”) | - | - | - | 4,528,498 | - | 4,528,498 | ||||||||||||||||||
Sino Agro Food, Inc. (“SIAF”) | - | - | - | - | 14,689,791 | 14,689,791 | ||||||||||||||||||
$ | - | $ | 894,722 | $ | 5,750,009 | $ | 4,528,498 | $ | 14,689,791 | $ | 25,863,020 |
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 | ||||||||||||||||||||||
Name of entity Consulting and service income for development contracts | ||||||||||||||||||||||||||||
Capital Award, Inc. (“CA”) | 11,016,962 | - | - | - | - | - | 11,016,962 | |||||||||||||||||||||
$ | 11,016,962 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 11,016,962 |
Three months ended March 31, 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”) | $ | 1,784,322 | $ | - | $ | - | $ | - | $ | - | $ | 1,784,322 |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 ninethree months ended September 30, 2017March 31, 2019 and 20162018 as they are within the agriculture, and cattle sectors.
No EIT has been provided in the financial statements of JFD since they are exempt from EIT for the nine months ended September 30, 2016.
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, 2017March 31, 2019 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, 2017March 31, 2019 and 2016.2018.
No deferred tax assets and liabilities are of September 30, 2017March 31, 2019 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 | Three months ended | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
SIAF | $ | - | $ | - | ||||||||||||
SAFS | ||||||||||||||||
- | - | |||||||||||||||
MEIJI and APWAM | - | - | ||||||||||||||
JHST, | - | - | ||||||||||||||
$ | - | $ | - |
The Company did not recognize any interest or penalties related to unrecognized tax benefits in the ninethree months ended September 30, 2017March 31, 2019 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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH AND CASH EQUIVALENTS |
September 30, 2017 | December 31, 2016 | |||||||
Cash and bank balances | $ | 1,865,684 | $ | 2,576,058 |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019 | December 31, 2018 | |||||||
(Unaudited) | (Audited) | |||||||
Cash and bank balances | $ | 305,721 | $ | 4,950,799 |
INVENTORIES |
As of September 30, 2017,March 31, 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 |
March 31, 2019 | December 31, 2018 | |||||||
(Unaudited) | (Audited) | |||||||
Bread grass | 666,989 | 744,378 | ||||||
Beef cattle | 14,186,719 | 11,561,117 | ||||||
Organic fertilizer | 14,616,370 | 14,266,923 | ||||||
Forage for cattle and consumable | 7,605,777 | 7,252,280 | ||||||
Raw materials for bread grass and organic fertilizer | 17,951,320 | 18,885,258 | ||||||
Immature seeds | 1,374,933 | 1,872,285 | ||||||
$ | 56,402,108 | $ | 54,582,241 |
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 |
March 31, 2019 | December 31, 2018 | |||||||
(Unaudited) | (Audited) | |||||||
Deposits for | ||||||||
- purchases of equipment | $ | 2,196,214 | $ | 2,158,867 | ||||
- acquisition of land use rights | 178,200 | 174,851 | ||||||
- inventories purchases | 17,181,605 | 16,921,188 | ||||||
- construction in progress | 5,354,959 | 4,789,035 | ||||||
- issue of shares as collateral | 25,528,325 | 24,928,324 | ||||||
Shares issued for employee compensation and overseas professional and bond interest | 231,574 | 643,457 | ||||||
Others | 2,619,180 | 2,625,468 | ||||||
$ | 53,290,057 | $ | 52,241,190 |
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, 2017March 31, 2019 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 | March 31, 2019 | December 31, 2018 | |||||||||||||
(Unaudited) | (Audited) | |||||||||||||||
0 - 30 days | $ | 16,093,379 | $ | 28,550,628 | $ | 8,749,198 | $ | 7,447,269 | ||||||||
31 - 90 days | 23,944,325 | 29,905,888 | 19,554,466 | 22,684,605 | ||||||||||||
91 - 120 days | 11,707,115 | 39,219,847 | 11,893,827 | 16,456,895 | ||||||||||||
over 120 days and less than 1 year | 53,410,424 | 25,235,723 | 17,451,077 | 11,773,454 | ||||||||||||
over 1 year | - | - | 43,289,545 | 43,289,908 | ||||||||||||
$ | 105,155,243 | $ | 122,912,086 | $ | 100,938,113 | $ | 101,652,131 |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTHER RECEIVABLES |
September 30, 2017 | December 31, 2016 | March 31, 2019 | December 31, 2018 | |||||||||||||
(Unaudited) | (Audited) | |||||||||||||||
Advanced to employees | $ | 326,587 | $ | 260,007 | $ | 567,653 | $ | 561,330 | ||||||||
Advanced to suppliers | 14,655,824 | 9,428,841 | 3,905,832 | 3,831,926 | ||||||||||||
Advanced to customers | 18,635,244 | 19,469,256 | 14,114,204 | 14,114,249 | ||||||||||||
Advanced to developers | 16,032,772 | 7,500,000 | 461,835 | 453,155 | ||||||||||||
Others | 9,138,954 | 10,462,696 | 12,054,398 | 9,346,866 | ||||||||||||
$ | 58,789,381 | $ | 47,120,800 | $ | 31,103,922 | $ | 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.
PLANT AND EQUIPMENT |
March 31, 2019 | December 31, 2018 | |||||||||||||||
September 30, 2017 | December 31, 2016 | (Unaudited) | (Audited) | |||||||||||||
Plant and machinery | $ | 7,203,563 | $ | 6,022,686 | $ | 5,394,528 | $ | 5,299,631 | ||||||||
Structure and leasehold improvements | 171,577,557 | 163,414,025 | 204,314,391 | 200,734,812 | ||||||||||||
Mature seeds and herbage cultivation | 44,206,623 | 28,781,286 | 58,898,928 | 54,643,255 | ||||||||||||
Furniture and equipment | 912,754 | 827,356 | 697,403 | 695,461 | ||||||||||||
Motor vehicles | 963,254 | 926,511 | 599,689 | 590,416 | ||||||||||||
224,863,751 | 199,971,864 | 269,904,939 | 261,963,575 | |||||||||||||
Less: Accumulated depreciation | (17,242,391 | ) | (10,244,637 | ) | (34,431,708 | ) | (31,317,916 | ) | ||||||||
Net carrying amount | $ | 207,621,360 | $ | 189,727,227 | $ | 235,473,231 | $ | 230,645,659 |
Depreciation expense was $2,491,515, $1,142,872, $6,997,754expenses were $2,542,874 and $3,406,801$2,658,508 for the three months ended March 31, 2019 and the nine months ended September 30, 2017 and 2016, respectively.2018, respectively
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 |
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.
March 31, 2019 | December 31, 2018 | |||||||
(Unaudited) | (Audited) | |||||||
Construction in progress | ||||||||
- Office, warehouse and organic fertilizer plant in HSA | 7,425 | 7,285 | ||||||
- Oven room, road for production of dried flowers | - | - | ||||||
- Organic fertilizer and bread grass production plant and office building | 6,989,159 | 6,484,045 | ||||||
- Rangeland for beef cattle and office building | 6,169,839 | 6,024,197 | ||||||
- Fish pond and breeding factory | - | - | ||||||
13,166,423 | 12,515,527 |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LAND USE RIGHTS |
September 30, 2017 | December 31, 2016 | March 31, 2019 | December 31, 2018 | |||||||||||||
(Unaudited) | (Audited) | |||||||||||||||
Cost | $ | 64,703,394 | $ | 62,300,409 | $ | 66,851,156 | $ | 65,779,178 | ||||||||
Less: Accumulated amortization | (10,199,388 | ) | (8,626,719 | ) | (12,561,527 | ) | (11,964,897 | ) | ||||||||
Net carrying amount | $ | 54,504,006 | $ | 53,673,690 | $ | 54,289,629 | $ | 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 | 1,071,978 | |||
Balance @3.31.2019 | $ | 66,851,156 |
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, $1,572,669were $418,757 and $1,053,668$422,580 for the three months ended March 31, 2019 and the nine months ended September 30, 2017 and 20162018, respectively.
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.
March 31, 2019 | December 31, 2018 | |||||||||||||||
September 30, 2017 | December 31, 2016 | (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 |
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPRIETARY TECHNOLOGIES (CONTINUED) |
March 31, 2019 | December 31, 2018 | |||||||||||||||
September 30, 2017 | December 31, 2016 | (Unaudited) | (Audited) | |||||||||||||
Cost | $ | 11,184,696 | $ | 11,108,131 | $ | 11,146,113 | $ | 11,113,267 | ||||||||
Less: Accumulated amortization | (1,465,018 | ) | (1,017,434 | ) | (2,329,443 | ) | (2,176,196 | ) | ||||||||
Net carrying amount | $ | 9,719,678 | $ | 10,090,697 | $ | 8,816,670 | $ | 8,937,071 |
Amortization of proprietary technologies was $152,440, $145,055, $447,584$145,294 and $429,937$146,781 for the three months ended March 31, 2019 and the nine months ended September 30, 2017 and 2016,2018, respectively. No impairments of proprietary technologies have been identified for the three months ended March 31, 2019 and the nine months ended September 30, 2017 and 2016.2018.
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”)(” 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, 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%.
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 | March 31, 2019 | December 31, 2018 | |||||||||||||
(Unaudited) | (Audited) | |||||||||||||||
Investments at cost | ||||||||||||||||
- TRW | $ | 124,657,542 | $ | 83,869,286 | $ | 153,309,311 | $ | 150,918,857 | ||||||||
- HITT | 160,670 | 144,154 | ||||||||||||||
Amount due from a consolidated equity investee - TRW | 14,438,797 | 55,120,003 | 56,126,144 | 56,155,769 | ||||||||||||
Share of post-acquisition profits | 5,262,524 | - | ||||||||||||||
$ | 144,519,533 | $ | 139,133,443 | $ | 209,435,455 | $ | 207,074,626 |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 |
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 | March 31, 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 | * | 5,490,088 | 5,502,001 | ||||||||||||||||
$ | 15,644,998 | $ | 15,644,998 | $ | 34,894,047 | $ | 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 Semptember 30, 2017,March 31, 2018, 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. |
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,March 31, 2019 , the Company has invested $2,251,359 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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,March 31, 2018, 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.
The Company also quantitatively and qualitatively examined if QZH 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 QZH 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 QZH’s expected losses or residual returns and that QZH qualifies as a VIE of the Company. As result, the Company has consolidated QZH as a VIE.
SJAP is sole stockholder of QZH and SJAP appointed sole director of QZH. Consequently, the Company indirectly control directorship of QZH, such that the Company now had a majority interest in the directorship of QZH. Also, and in accordance with the Company’s Sino Joint Venture Agreement, the Company’s management appointed the chief financial officer of QZH. As a result, the financial statements of QZH were included in the consolidated financial statements of the Company.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSTRUCTION CONTRACT |
(i) | Costs and estimated earnings in excess of billings on uncompleted contracts |
September 30, 2017 | December 31, 2016 | March 31, 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 | March 31, 2019 | December 31, 2018 | |||||||||||||
(Unaudited) | (Audited) | |||||||||||||||
Billings | $ | 40,590,477 | $ | 24,115,354 | $ | 48,467,593 | $ | 47,929,092 | ||||||||
Less: Costs | (23,404,302 | ) | (13,907,143 | ) | (29,493,284 | ) | (29,094,568 | ) | ||||||||
Estimated earnings | (11,583,494 | ) | (7,577,459 | ) | (13,567,173 | ) | (13,486,231 | ) | ||||||||
Billing in excess of costs and estimated earnings on uncompleted contracts | $ | 5,602,681 | $ | 2,630,752 | $ | 5,407,136 | $ | 5,348,293 |
(iii) | Overall |
September 30, 2017 | December 31, 2016 | March 31, 2019 | December 31, 2018 | |||||||||||||
(Unaudited) | (Audited) | |||||||||||||||
Billings | $ | 54,290,491 | $ | 36,509,620 | $ | 59,180,326 | $ | 58,641,825 | ||||||||
Less: Costs | (31,613,215 | ) | (21,195,503 | ) | (35,679,545 | ) | (35,280,829 | ) | ||||||||
Estimated earnings | (18,323,782 | ) | (13,424,349 | ) | (18,344,473 | ) | (18,263,531 | ) | ||||||||
Billing in excess of costs and estimated earnings on uncompleted contracts | $ | 4,353,494 | $ | 1,889,768 | $ | 5,156,308 | $ | 5,097,465 |
OTHER PAYABLES |
September 30, 2017 | December 31, 2016 | March 31, 2019 | December 31, 2018 | |||||||||||||
(Unaudited) | (Audited) | |||||||||||||||
Due to third parties | $ | 3,806,880 | $ | 451,195 | $ | 11,347,269 | $ | 13,068,387 | ||||||||
Due to debts loan | 7,692,222 | 4,797,332 | ||||||||||||||
Straight note payable | 35,669,479 | 29,367,999 | ||||||||||||||
Promissory notes issued to third parties | 14,492,221 | 11,192,117 | 7,759,801 | 7,792,774 | ||||||||||||
Due to local government | 1,288,233 | 713,565 | - | 87,425 | ||||||||||||
$ | 27,279,556 | $ | 17,154,209 | $ | 54,776,549 | $ | 50,316,585 | |||||||||
Less: Amount classified as non-current liabilities | ||||||||||||||||
Promissory notes issued to third parties | (14,492,221 | ) | (11,192,117 | ) | (7,759,801 | ) | (7,792,774 | ) | ||||||||
Due to debts loan | (7,692,222 | ) | - | |||||||||||||
Amount classified as current liabilities | $ | 5,095,113 | $ | 5,962,092 | $ | 47,016,748 | $ | 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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 | March 31, 2019 | December 31, 2018 | ||||||||||
(Unaudited) | (Audited) | |||||||||||||
China Development Bank Qinghai City, the P.R.C | 4.7306 | % | December 27, 2018 - December 27, 2019 | $ | 4,455,005 | $ | 4,371,265 | |||||||
Add: current portion of long term bank loan | $ | 222,750 | $ | 218,563 | ||||||||||
4,677,755 | 4,589,828 |
Long term bank loan
Name of lender | Interest rate | Term | September 30, 2017 | December 31, 2016 | Interest rate | Term | March 31, 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 | ||||||||||||||||||||||||||||
Qinghai City, the P.R,C. | 5.39 | % | December 16, 2016 - December 15, 2026 | $ | 5,865,756 | $ | 5,755,501 | |||||||||||||||||||||
Less: current portion of long term bank loan | $ | (222,750 | ) | $ | (218,563 | ) | ||||||||||||||||||||||
5,643,006 | 5,536,938 |
On December 16, 2016, the Company obtained a 10-year long term loan of RMB40million (approximately $5.94million) 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% (12.31.2017: 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 $397,269 as of December 31, 2018 (12.31.2018: 397,269) and a batch of plant, machinery and equipment with net carrying amount of $5,326,385 (12.31.2018: 5,326,385). According to the loan agreement, RMB1,500,000 (approximately $218,563) was scheduled to be repaid by December 20, 2019.
On December 27, 2018, the Company obtained a 1-year short term loan of RMB30 million (approximately $4.37 million) 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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 shares 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.March 31, 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 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.
March 31, 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 | $ | - | $ | - |
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 |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHAREHOLDERS’ EQUITY |
The Group’s share capital as of September 30, 2017March 31, 2019 and December 31, 20162018 shown on the consolidated balance sheet represents the aggregate nominal value of the share capital of the Companycompany 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:
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
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.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 year 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 three months ended September 30, 2017,March 31, 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, 2017March 31, 2019 and December 31, 2016,2018 respectively.
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OBLIGATION UNDER OPERATING LEASES |
The Company leases (i) 2,178 square feet of agriculture space used for offices for a monthly rent of $634$856 in Enping City, Guangdong Province, P.R.C., its lease expiring on March 31, 2019;2022; and (ii) 5,0812,695 square feet of office space in Guangzhou City, Guangdong Province, P.R.C. for a monthly rent of $12,733,$6,570, its lease expiring on July 8, 2018; and (iii) 1,555 square feet of staff quarters in Linli District, Hunan Province, P.R.C. for a monthly rent of $226, its lease expiring on May 1, 2018.2020.
Lease expenses were $42,790, $42,790, $126,569$22,277 and $226,524$40,758 for the three months ended March 31, 2019 and the nine months ended September 30, 2017 and 2016,2018, respectively.
The future minimum lease payments as of September 30, 2017,March 31, 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 | $ | 89,202 | ||
2 to 5 years | 42,018 | |||
Over 5 years | - | |||
$ | 131,220 |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $3,785,008 and recognized $4,345,993$411,883 and $226,113 for the yearthree months ended DecemberMarch 31, 2016.2019 and 2018. As of DecemberMarch 31, 2016,2019, the deferred compensation balance for staff, professional and contractors was $3,982,813$231,574 and the deferred compensation balance of $3,982,813$231,574 was to be amortized over 63 months beginning on JanuaryApril 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 for the three months and the nine months ended September 30, 2017 and 2016, respectively.2019. As of September 30, 2017,March 31, 2018, the deferred compensation balance for staff, professional and contractors was $302,738$3,558,895 and the deferred compensation balancebalances of $302,738 was$100,912, $375,600, and $3,082,383 were to be amortized over 3 months, 9 months and 1 year beginning on OctoberApril 1, 2017.2018, respectively
CONTINGENCIES |
As of September 30, 2017March 31, 2019 and December 31, 2016,2018, the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect on its consolidated balance sheets, consolidated statements of income and other comprehensive income or consolidated statements of cash flows.
TheOn September 19, 2015, the Company entered into loan and pledgea trade facility agreement with two independent third parties. Pursuant to the agreement, the Company provides collateral in the form of Company's common shares to a Shanghai, P.R.C.PRC based lender (the “lender”"Lender") and the Lender agrees to provide a revolving trade facility loan up to $20,000,000 to a PRC based borrower. The lender has various trading facilitiesarrangement was commenced on February 15, 2016 and has agreed to allowwill be expired on February 15, 2019.
As of March 31, 2019, the Company has issued aggregate 4,809,979 (12.31.2018: 5,708,312) common shares as collateral.
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’s Motion to Dismiss the Complaint is currently due on or before June 28, 2019.
The 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 nomineeobligations 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 use partspay debts that, in the view of trading facilities upthe plaintiffs, has diluted shareholder ownership and oppressed shareholders of the Company. The Company believes that these claims are without merit and intend to vigorously defend the action. 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 amountunfavorable outcome may have a material adverse effect on our business, financial condition and results 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.operations.
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, 2017March 31, 2019 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 | |
Included in interest in unconsolidated equity investee, due from Tri-way Industries Limited is | ||
Included in accounts receivable, due from Tri-way Industries Limited is | ||
The Company has consulting and service income from development contracts of |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 March 31, 2019 | Three months ended March 31, 2018 | |||||||
(Unaudited) | (Unaudited) | |||||||
BASIC | ||||||||
Numerator for basic earnings per share attributable to the Company’s common stockholders: | ||||||||
Net income used in computing basic earnings per share | $ | 612,674 | $ | 5,072,719 | ||||
Basic earnings per share - continuing and discontinued operations | $ | 0.01 | $ | 0.17 | ||||
Basic weighted average shares outstanding | 49,873,502 | 30,653,770 |
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 March 31, 2019 | Three months ended March 31, 2018 | |||||||
(Unaudited) | (Unaudited) | |||||||
DILUTED | ||||||||
Numerator for basic earnings per share attributable to the Company’s common stockholders: | ||||||||
Net income used in computing basic earnings per share | $ | 612,674 | $ | 5,072,719 | ||||
Convertible note interest | - | - | ||||||
Net income used in computing diluted earnings per share | $ | 612,674 | $ | 5,072,719 | ||||
Diluted earnings per share | $ | 0.01 | $ | 0.17 | ||||
Basic weighted average shares outstanding | - | 30,653,770 | ||||||
Add: | ||||||||
weight average of common stock convertible from convertible note payables | - | - | ||||||
Diluted weighted average shares outstanding | 49,873,502 | 30,653,770 |
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, 2017 | Three 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 | $ | 3,450,848 | $ | 18,524,702 | ||||
Convertible mote interest | 526,543 | 404,877 | ||||||
Net income used in computing diluted earnings per share | $ | 3,997,391 | $ | 18,929,579 | ||||
Diluted earnings per share - continuing operations | $ | 0.15 | $ | 0.83 | ||||
Basic weighted average shares outstanding | 24,231,617 | 20,376,225 | ||||||
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 |
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 |
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 |
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”“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”“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 20172019 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 | (Marked 1. | (i) SJAP & QZH (Derecognized as variable interest entity on December 30, 2018) and (ii) HSA) |
Plantation Division | JHST) | |
Fishery Division | (Marked 3. | A. CA Engineer & Technology and 3.B. Seafood sales — (Discontinued operation from October 5, 2016) |
Cattle Farm Division | (Marked 4. | MEIJI and JHMC) |
Corporate & Others Division | ||
A summary of each business division is described below:
1. Beef and Organic Fertilizer Divisionrefers to: |
(i) | The operation of |
(ii) | The operation of Hunan Shenghua A Power Agriculture Co. Ltd. (“HSA”) in manufacturing and sales of organic |
2. Plantation 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), crops of vegetables and immortal vegetables (dried) 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 |
3. Fishery 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 nowfarms; became a dis-continued operation.
CONSOLIDATED RESULTS OF OPERATIONS
Part A. Unaudited Income Statementsdiscontinued segment of Consolidated Results of Operations for three months ended September 30, 2017 comparedoperations from October 5, 2016 when Tri-way was disposed to the three months ended September 30, 2016.
A (1) Income Statements (Unaudited)
Three months ended | Three months ended | |||||||||||||
In $ | September 30, 2017 | September 30, 2016 | Difference | Note | ||||||||||
Continuing operations | ||||||||||||||
Revenue | 48,392,933 | 111,657,580 | (63,264,647 | ) | 1 | |||||||||
Consulting, services, commission and management fee | 2,978,371 | 23,377,355 | (20,398,984 | ) | ||||||||||
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 | |||||||||
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 | ) | ||||||||||
Gross Profit | 6,546,354 | 30,185,380 | (23,639,026 | ) | 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 | ) | |||||||||
General and administrative expenses | (3,254,065 | ) | (4,741,686 | ) | 1,487,621 | 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 attributable to SIAF Inc. and subsidiaries | 3,450,848 | 21,292,477 | (17,841,629 | ) | ||||||||||
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 | |||||||||||
- Diluted | 26,357,758 | 22,754,892 | 3,602,866 | |||||||||||
From continuing and discontinued operations | 6 | |||||||||||||
Basic | 0.14 | 1.04 | (0.90 | ) | ||||||||||
Diluted | 0.15 | 0.95 | (0.80 | ) | 6.a. | |||||||||
From continuing operations | ||||||||||||||
Basic | 0.14 | 0.91 | (0.77 | ) | ||||||||||
Diluted | 0.15 | 0.81 | (0.66 | ) |
Note (1, 2 & 3) Sales, cost of sales and gross profit information and analysis:other third parties in term Tri-way was reclassified as an unconsolidated equity investee on same date.
The table below shows the segmental sales, gross profit and corresponding cost of sales for the three months ended September 30, 2017 (Q3 2017) compared to the three months ended September 30, 2016 (Q3 2016).
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 | % |
Overall comparison of Q3 2017 to Q3 2016
The Company’s revenues generated from the sale of goods was $45,414,562 for the quarter period ending September 30, 2017 compared to $88,280,225 for the same period ended September 30, 2016, reflecting a decrease of 49%, or $42,865,663.
The Company’s cost of goods sold $39,612,509 for the quarter period ending September 30, 2017 compared to $69,021,740 for the same period ended September 30, 2016, reflecting a decrease of 43%, or $29,409,231.
Gross profits of the Company generated from goods sold $5,802,053 for the quarter period ending September 30, 2017 compared to $19,258,485 for the same period ended September 30, 2016 representing a decrease of 70%, or $13,456,431.
The overall lower performance is primarily due to (i) sales of goods in the “Fishery Sector (or CA’s sales of goods)” is now discontinued and recorded as investment income, (ii) the continuously unstable, depressed local cattle and beef industry led to poorer performance in concentrated live-stock feed and deboning of the imported beef.
Details of each segment are being described below:
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 Table above, when comparing Q3 2017 against the same period in 2016, the losses in revenue (negative variance of $24 million, or -55%) and gross profit (negative variance of 7.75 million, or -76%) was primarily due to the continuously depressed cattle market, in which, 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 of concentrated livestock feed, which had decreased by $1.76 million (a decrease of -39%) and $0.8 million (a decrease of 41%), respectively.
Sales revenue and gross profit of deboning and packaging imported beef meats decreased by $12.7 million (a decrease of -52%) and 4.2 million (a decrease of -93%), respectively primarily due to the increase of outside competition coming into the market, thus reducing the Company’s market share and profits, accordingly.
In view of the situation referenced above, which has been ongoing for more than 12 months, and, in addition, has seen the Central Government’s request for upgrades to the facilities due to more stringent environmental policies, requiring additional expended capital, SJAP’s management has decided to temporarily cease QZH’s operation beginning in October 2017, until such time as an effective solution is found.
The table below shows the itemized sales of goods and related cost of sales in quantity and unit price for the quarterly period ended September 30, 2017 compared to the same period ended September 30, 2016 of the beef and organic fertilizer divisions.
Description of items | ||||||||||||||||||
SJAP | Cattle Operation | 2017Q3 | 2016Q3 | Difference | ||||||||||||||
Production and Sales of live cattle | Heads | 853 | 3,230 | -2,377 | A.4.1 | |||||||||||||
Average Unit sales price | US$/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 |
The decrease in the sales of bulk and concentrated stock feed was 3,386 MT in bulk feed from 9,013 MT in Q3 2016 to 5,627 MT in Q3 2017, and 3,637 MT in concentrated feed from 9,967 MT in Q3 2016 to 6,330 MT in Q3 2017, again for the same reasons as mentioned above.
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.
1. (ii). The operations of HSA in manufacturing and sales of organic fertilizer itemizing unit sales, costs and quantity of sales:
In US$ | Sales of goods | Cost of good sold | Gross Profit | |||||||||||||||||||||||
2017Q3 | 2016Q3 | 2017Q3 | 2016Q3 | 2017Q3 | 2016Q3 | |||||||||||||||||||||
HS.A | 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 | ||||||||||||||||||||
HS.A Total | 1,669,684 | 5,248,212 | 1,228,851 | 3,063,392 | 440,833 | 2,184,820 | ||||||||||||||||||||
% of increase or decrease (-) | -68 | % | -60 | % | -80 | % |
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 $0.48 million.
In US$ | 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 | % |
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 (or 78%), from $6.7 million for Q3 2016 to $1.5 million for Q3 2017. The decrease was primarily due to lower prices both in fresh flowers by $0.05/piece and dried flowers by $6,574/MT, primarily due to the poorer quality of flowers, which in turn resulted from root diseases caused by excessive rain during the past few years.
JHST is experimenting with many different crops and other biological plant products aiming at the development of more stable crops and/or products that will eventually help the Company to develop the plantation into much larger economical scale of operation free from effects caused by the vagaries of weather in Guangdong Province. To date, our experimental crop of Passion Fruits harvested during 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 improving 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.
4. Cattle 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 sell them mainly to Guangzhou and Beijing livestock wholesale markets. The financial statements of JHMC are |
5. Corporate & Others Division refers to the trading segment of business operations of the Group named internally under Corporate division of 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. |
MD & A OF CONSOLIDATED RESULTS OF OPERATIONS
Part A. Unaudited Income Statements of Consolidated Results of Operations for the three months ended March 31, 2019 compared to the three months ended March 31, 2018.
A (1) Income Statements (Unaudited)
In $ | Three months ended | Three months ended | ||||||||||||||
March 31,2019 | March 31,2018 | Difference | Note | |||||||||||||
Continuing operations | ||||||||||||||||
Revenue | 29,258,651 | 33,731,264 | (4,472,613 | ) | 1 | |||||||||||
Sale of goods | 28,267,649 | 31,258,860 | (2,991,211 | ) | ||||||||||||
Consulting, services, commission and management fee | 991,002 | 2,472,404 | (1,481,402 | ) | ||||||||||||
Cost of goods sold and services | 24,249,896 | 27,647,342 | (3,397,446 | ) | 2 | |||||||||||
Cost of goods sold | 23,310,212 | 25,863,020 | (2,552,808 | ) | ||||||||||||
Cost of services | 939,684 | 1,784,322 | (844,638 | ) | ||||||||||||
Gross Profit | 5,008,755 | 6,083,922 | (1,075,167 | ) | 3 | |||||||||||
Other income (expenses) | (417,611 | ) | 3,307,234 | (3,724,845 | ) | |||||||||||
General and administrative expenses | (3,757,288 | ) | (3,662,729 | ) | (94,559 | ) | 4 | |||||||||
Net income before income taxes | 833,856 | 5,728,427 | (4,894,571 | ) | ||||||||||||
EBITDA | 4,418,587 | 9,409,947 | (4,991,360 | ) | ||||||||||||
Depreciation and amortization (D&A) | 3,106,925 | 3,227,869 | (120,944 | ) | 5 | |||||||||||
EBIT | 1,311,662 | 6,182,078 | (4,870,416 | ) | ||||||||||||
Net Interest | 477,806 | 453,651 | 24,155 | |||||||||||||
Tax | - | - | - | |||||||||||||
Net Income | 833,856 | 5,728,427 | (4,894,571 | ) | ||||||||||||
Less:Net( income) loss attributable to Non - controlling interest | (221,182 | ) | (655,708 | ) | 434,526 | 7 | ||||||||||
Net income attributable to SIAF Inc. and subsidiaries | 612,674 | 5,072,719 | (4,460,045 | ) | ||||||||||||
Weighted average number of shares outstanding | ||||||||||||||||
- Basic | 49,873,502 | 30,653,770 | 19,219,732 | |||||||||||||
- Diluted | 49,873,502 | 30,653,770 | 19,219,732 | |||||||||||||
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders: | 8 | |||||||||||||||
Basic | 0.01 | 0.17 | (0.16 | ) | ||||||||||||
Diluted | 0.01 | 0.17 | (0.16 | ) |
Note (1, 2 & 3) Sales, cost of sales and gross profit information and analysis:
· | The 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, managements and technology etc. |
The table below shows the segmental sales, gross profit and corresponding cost of sales for the three months ended March 31, 2018 (Q1 2018) compared to the three months ended March 31, 2019 (Q1 2019).
3
Sales of goods | Cost of Goods sold | Sales of Goods’ Gross profit | |||||||||||||||||||||||||
In US$ | 2019Q1 | 2018Q1 | 2019Q1 | 2018Q1 | 2019Q1 | 2018Q1 | |||||||||||||||||||||
SJAP | Sales of live cattle | 1,776,009 | 2,064,737 | 1,569,934 | 1,705,466 | 206,075 | 359,271 | ||||||||||||||||||||
Sales of feedstock | - | - | - | - | - | - | |||||||||||||||||||||
Bulk Livestock feed | 202,490 | 686,912 | 90,379 | 317,127 | 112,111 | 369,785 | |||||||||||||||||||||
Concentrate livestock feed | 1,407,989 | 3,006,939 | 790,734 | 1,688,390 | 617,255 | 1,318,549 | |||||||||||||||||||||
Sales of fertilizer | 489,323 | 646,437 | 321,307 | 425,341 | 168,015 | 221,096 | |||||||||||||||||||||
SJAP Total | 3,875,811 | 6,405,025 | 2,772,354 | 4,136,324 | 1,103,457 | 2,268,701 | |||||||||||||||||||||
HSA | Sales of Organic fertilizer | 879,805 | 1,016,046 | 687,804 | 844,159 | 192,001 | 171,887 | ||||||||||||||||||||
Sales of Organic Mixed Fertilizer | 1,647,468 | 1,349,521 | 941,412 | 769,526 | 706,056 | 579,994 | |||||||||||||||||||||
HSA Total | 2,527,273 | 2,365,567 | 1,629,216 | 1,613,686 | 898,057 | 751,881 | |||||||||||||||||||||
SJAP’s & HS.A./Organic fertilizer total | 6,403,084 | 8,770,592 | 4,401,570 | 5,750,009 | 2,001,514 | 3,020,582 | |||||||||||||||||||||
JHST | Sales of Fresh HU Flowers | - | - | - | - | - | - | ||||||||||||||||||||
Sales of Dried HU Flowers | - | - | - | - | - | - | |||||||||||||||||||||
Sales of Dried Immortal vegetables | - | - | - | - | - | - | |||||||||||||||||||||
Sales of Vegetable products | 906,803 | 1,050,229 | 712,968 | 894,722 | 193,835 | 155,507 | |||||||||||||||||||||
JHST/Plantation Total | 906,803 | 1,050,229 | 712,968 | 894,722 | 193,835 | 155,507 | |||||||||||||||||||||
MEIJI | - | - | - | - | - | - | |||||||||||||||||||||
Sale of Live cattle (Aromatic) | 8,160,703 | 4,998,083 | 6,820,510 | 4,528,498 | 1,340,193 | 469,584 | |||||||||||||||||||||
MEIJI / Cattle farm Total | 8,160,703 | 4,998,083 | 6,820,510 | 4,528,498 | 1,340,193 | 469,584 | |||||||||||||||||||||
SIAF | |||||||||||||||||||||||||||
Sales of goods through trading/import/export activities | |||||||||||||||||||||||||||
on seafood | 3,787,038 | 8,818,702 | 3,366,257 | 7,915,342 | 420,781 | 903,360 | |||||||||||||||||||||
on imported beef and mutton | 9,010,021 | 7,621,255 | 8,008,907 | 6,774,449 | 1,001,114 | 846,806 | |||||||||||||||||||||
SIAF/ Others & Corporate total | 12,797,059 | 16,439,957 | 11,375,164 | 14,689,791 | 1,421,895 | 1,750,166 | |||||||||||||||||||||
Group Total | 28,267,649 | 31,258,860 | 23,310,212 | 25,863,020 | 4,957,437 | 5,395,839 | |||||||||||||||||||||
Increases of Q1 2019 to Q1 2018 in $ | -2,991,211 | -438,402 | |||||||||||||||||||||||||
Increases of Q1 2019 to Q1 2018 in % | -10 | % | -8 | % |
4
Overall comparison of the Income Statement of Q1 2018 to Q1 2019
The decrease of net income before income tax of $4.89 million (or -85.5%) from Q1 2018’s $5.72 million to Q1 2019’s $0.833 million was primarily due to following reasons:
The Company’s revenues from the sale of goods decreased by $2,991,211 or -10%, from $31,258,860 for the quarterly period ended March 31, 2018 compared to $28,267,649 for the same period ended March 31, 2019. The decrease was primarily due to decrease in revenue from the following sectors:
(i) | SJAP’s combined sales in live cattle, feed stocks and fertilizer dropped $2.52 million (or -27%) from Q1 20186’s $6.4m to Q1 2018’s $3.88m. |
(ii) | The Corporate (SIAF trading) sector fell by $3.6m (-22%) from $16.4 million in Q1 2018 to $12.80 million in 2019 Q1. |
The decrease was also caused by the Lunar Chinese New Year starting later than usual in 2018, disrupting logistics and transportation services, causing slowdowns in our seafood sales.
Revenues of the consulting and services (C&S) decreased by $1.48 million from Q1 2018’s $2.47 million to Q1 2019’s $0.99 million primarily due to Tri-way’s further tightening of its capital expenditure reducing the C&S work of CA.
The overall operating gross profit decreased by $2.87 million compared to Q1 2018’s $6.08 million to Q1 2019’s $0.94 million due primarily to the decrease in sales revenue leading to lower sales prices that in turn increased the margins for cost of goods sold reflecting cost of goods sold at 76.66% and 82.45% in Q1 2018 and Q1 2019 respectively.
Other income decreased by $3.72 million (or -112%) from Q1 2018’s $3.31 million to Q1 2019’s -$0.42 million) primarily due to two factors:
(i) | The restructure of a loan debt incurred in October 12th2017 of $6 million to include an additional loan debt of $0.30 million and accrued interests to be repaid from August 31st2019 for total amount of $7.35 million that was detailed under other payable of the MD&A section in our 10K 2018 report and is recapped in the MD&A section of this Q1 2019 report. |
(ii) | Tri-way’s sales were also affected as described elsewhere in this report. |
The Company’s cost of goods sold decreased by $2.55m (-10%), from $25.86m for the quarterly period ended March 31, 2018 compared to $23.31m for the same period ended March 31, 2019. The decrease was primarily due to the decrease in goods sold from divisions mentioned above, collectively.
Gross profits of the Company generated from goods sold decreased by $0.44m (-8%), from $5.4m for the quarterly period ended March 31, 2018 compared to $4.96m for the same period ended March 31, 2019. The decrease was primarily due to a drop in sales of goods in the above-mentioned divisions.
The Company’s cost of goods sold decreased by $2.55m (-10%), from $25.86m for the quarterly period ended March 31, 2018 compared to $23.31m for the same period ended March 31, 2019. The decrease was primarily due to the decrease in goods sold from divisions mentioned above, collectively.
Gross profits of the Company generated from goods sold decreased by $0.44m (-8%), from $5.4m for the quarterly period ended March 31, 2018 compared to $4.96m for the same period ended March 31, 2019. The decrease was primarily due to a drop in sales of goods in the above-mentioned divisions.
1. (i) Primary Producing and Processing Sectors refer to SJAP and HSA operations
In US$ | |||||||||||||||||||||||||||
Sales of goods | Cost of Goods sold | Gross profit | |||||||||||||||||||||||||
2019Q1 | 2018Q1 | 2019Q1 | 2018Q1 | 2019Q1 | 2018Q1 | ||||||||||||||||||||||
SJAP | Sales of live cattle | 1,776,009 | 2,064,737 | 1,569,934 | 1,705,466 | 206,075 | 359,271 | ||||||||||||||||||||
Sales of feedstock | - | ||||||||||||||||||||||||||
Bulk Livestock feed | 202,490 | 686,912 | 90,379 | 317,127 | 112,111 | 369,785 | |||||||||||||||||||||
Concentrate livestock feed | 1,407,989 | 3,006,939 | 790,734 | 1,688,390 | 617,255 | 1,318,549 | |||||||||||||||||||||
Sales of fertilizer | 489,323 | 646,437 | 321,307 | 425,341 | 168,015 | 221,096 | |||||||||||||||||||||
SJAP Total | 3,875,811 | 6,405,025 | 2,772,354 | 4,136,324 | 1,103,457 | 2,268,701 | |||||||||||||||||||||
% of increase (+) or decrease (-) | -39 | % | -33 | % | -51 | % | |||||||||||||||||||||
HSA | Sales of Organic fertilizer | 879,805 | 1,016,046 | 687,804 | 844,159 | 192,001 | 171,887 | ||||||||||||||||||||
Sales of Organic Mixed Fertilizer | 1,647,468 | 1,349,521 | 941,412 | 769,526 | 706,056 | 579,994 | |||||||||||||||||||||
HSA Total | 2,527,273 | 2,365,567 | 1,629,216 | 1,613,686 | 898,057 | 751,881 | |||||||||||||||||||||
SJAP's & HS.A./Organic fertilizer total | 6,403,084 | 8,770,592 | 4,401,570 | 5,750,009 | 2,001,514 | 3,020,582 | |||||||||||||||||||||
% of increase (+) or decrease (-) | -27 | % | -23 | % | -34 | % |
The table below shows the itemized sale of goods and related cost of sales in quantity and unit price for the quarterly period ended March 31, 2018 compared to the same period ended March 31, 2019 for the beef and organic fertilizer divisions.
2019Q1 | 2018Q1 | Difference | |||||||||||||||||
SJAP | Production and Sales of live cattle | Heads | 1,092 | 829 | 263 | ||||||||||||||
Average Unit sales price | US$/head | 1,626 | 2,491 | (864 | ) | ||||||||||||||
Unit cost prices | US$/head | 1,438 | 2,057 | (620 | ) | ||||||||||||||
Production and sales of feedstock | |||||||||||||||||||
Bulk Livestock feed | MT | 1,150 | 3,775 | (2,625 | ) | ||||||||||||||
Average Unit sales price | US$/MT | 176 | 182 | (6 | ) | ||||||||||||||
Unit cost prices | US$/MT | 79 | 84 | (5 | ) | ||||||||||||||
Concentrated livestock feed | MT | 3,155 | 6,594 | (3,439 | ) | ||||||||||||||
Average Unit sales price | US$/MT | 446 | 456 | (10 | ) | ||||||||||||||
Unit cost prices | US$/MT | 251 | 256 | (5 | ) | ||||||||||||||
Production and sales of fertilizer | MT | 2,571 | 3,300 | (729 | ) | ||||||||||||||
Average Unit sales price | US$/MT | 190 | 196 | (6 | ) | ||||||||||||||
Unit cost prices | US$/MT | 125 | 129 | (4 | ) |
6
Combined revenue performance of SJAP & HSA was $6,403,084 and $8,770,592 for the quarterly periods ended March 31, 2018 and 2019 respectively, representing a decrease of 27% (or $2,367,508). The decrease is primarily due to:
A.1. All sectional activities of SJAP decreased in sales revenues and gross profits, which was primarily to the discontinuing operation of QZH and its cattle fattening activities leading to the reduced sales in bulk and concentrated livestock feed.
* Concentrated live-stock feed decreased by 1.6million, or -53%, from Q1 2018’s $3.01 million to Q1 2019’s $1.41 million, whereas the bulk stock feed decreased by $0.48 million (or -70%) from Q1 2018’s $0.68 million to Q1 2019’s $0.20 million.
Although the fertilizer also decreased by $0.16 million from Q1 2018’s $0.65 million to Q2 2019’s $0.49 million, it was mainly due to heavy sales during Q4 2018 and the prolonged period of the Lunar Chinese New Year which slowed down sales during the period.
The primary reason for the decreases of unit sales and cost price in the livestock feed and fertilizer segments is mainly due to depreciation of RMB during the quarter that translated into higher equivalent of US$.
1. (ii). The operations of HSA in manufacturing and sales of organic fertilizer itemizing unit sales, costs and quantity of sales:
In US$ | |||||||||||||||||||||||||||
Sales of goods | Cost of Goods sold | Gross profit | |||||||||||||||||||||||||
2019Q1 | 2018Q1 | 2019Q1 | 2018Q1 | 2019Q1 | 2018Q1 | ||||||||||||||||||||||
HSA | Sales of Organic fertilizer | 879,805 | 1,016,046 | 687,804 | 844,159 | 192,001 | 171,887 | ||||||||||||||||||||
Sales of Organic Mixed Fertilizer | 1,647,468 | 1,349,521 | 941,412 | 769,526 | 706,056 | 579,994 | |||||||||||||||||||||
HSA Total | 2,527,273 | 2,365,567 | 1,629,216 | 1,613,686 | 898,057 | 751,881 | |||||||||||||||||||||
% of increase (+) or decrease (-) | 7 | % | 1 | % | 19 | % |
2019Q1 | 2018Q1 | Difference | |||||||||||||||||
HSA | Fertilizer operation | ||||||||||||||||||
Organic Fertilizer | MT | 3,518 | 4,162 | (644 | ) | ||||||||||||||
Average Unit sales price | $/MT | 250 | 244 | 6 | |||||||||||||||
Unit cost price | $/MT | 196 | 203 | (7 | ) | ||||||||||||||
Organic Mixed Fertilizer | MT | 4,056 | 3,100 | 956 | |||||||||||||||
Average Unit sales price | $/MT | 406 | 435 | (29 | ) | ||||||||||||||
Unit cost price | $/MT | 232 | 248 | (16 | ) |
Overall sales volume of Organic mixed fertilizer (OMF) has increased by 956 MT (30.8 %) from 3100 MT in Q1 2018 to 4056 MT in Q1 2019 with revenue and gross profit having increased to 22% and 22%, respectively for the same period; whereas sales of organic fertilizer (OF) decreased both in revenues and gross profit primarily due to that although OMF is a dearer product compares to OF yet OMF has the property to help to grow plants faster and stronger enhancing stronger demands this season.
During the first quarter, HSA reached an agreement to establish a joint venture (“JV”) with an organic chicken and egg farmer. HSA will provide its acreage and production facilities while the partner will provide capital funding and manage its chicken and egg operations. HSA will receive 40% of net profits. The JV partners are currently preparing relevant paperwork, including environmental reports, to obtain necessary permits. The Company cannot guarantee that the relevant permits will be issued in a timely manner or at all.
Plantation Division refers to the operations of JHST. JHST is engaged in the HU Plantation business where dragon fruit flowers (dried and fresh), cash vegetable crops and immortal vegetables are sold to wholesale and retail markets. No harvest or sales of HU flowers occurred during Q1 2019, which is a normal situation as harvest of HU flowers begins in late June each year, thus revenue in Q1 2019 derived from the sales of cash crops.
In US$ | |||||||||||||||||||||||||||
Sales of goods | Cost of Goods sold | Gross profit | |||||||||||||||||||||||||
2019Q1 | 2018Q1 | 2019Q1 | 2018Q1 | 2019Q1 | 2018Q1 | ||||||||||||||||||||||
JHST | Sales of Fresh HU Flowers | ||||||||||||||||||||||||||
Sales of Dried HU Flowers | |||||||||||||||||||||||||||
% of increases (+) or decreases (-) | |||||||||||||||||||||||||||
Sales of Dried Immortal vegetables | - | - | |||||||||||||||||||||||||
% of increases (+) or decreases (-) | |||||||||||||||||||||||||||
Sales of Vegetable products | 906,803 | 1,050,229 | 712,968 | 894,722 | 193,835 | 155,507 | |||||||||||||||||||||
% of increases (+) or decreases (-) | -14 | % | -20 | % | 25 | % | |||||||||||||||||||||
JHST/Plantation Total | 906,803 | 1,050,229 | 712,968 | 894,722 | 193,835 | 155,507 | |||||||||||||||||||||
% of increases (+) or decreases (-) | -14 | % | -20 | % | 25 | % |
2019Q1 | 2018Q1 | Difference | |||||||||||||||||
JHST | |||||||||||||||||||
Vegetable products | MT | 880 | 998 | (118 | ) | ||||||||||||||
Average Unit sales price | US$/MT | 1,030 | 1,052 | (22 | ) | ||||||||||||||
Unit cost prices | US$/MT | 810 | 896 | (86 | ) |
The plantation is slowly recovering from the damages caused by the typhoon during the third quarter of 2018. During the quarterly period ended March 31, 2019, JHST started to replant the herbal plants, namely Pogestemon Patchouli” (“PP”) and the passion fruit plants, and sell primarily cash crop vegetables. JHST has also been evaluating and considering potential next best steps to be taken with respect to the plantation.
· | 3. Cattle Farm Divisionrefers to the operations of Cattle Farm 1 under JHMC where cattle are sold live to third party livestock wholesalers who resell 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$ | Sale of Goods | Cost of Goods sold | Gross Profit (Sales) | |||||||||||||||||||||||||||||||||||||||
2019Q1 | 2018Q1 | 2019Q1 | 2018Q1 | 2019Q1 | 2018Q1 | ||||||||||||||||||||||||||||||||||||||
MEIJI | Production and sale of Live cattle (Aromatic) | Heads | 4,731 | 4,417 | 314 | ||||||||||||||||||||||||||||||||||||||
CF1 | Average Unit sales price | US$/head | 1,539 | 2,187 | -648 | ||||||||||||||||||||||||||||||||||||||
Unit cost prices | US$/head | 1,336 | 2,065 | -729 | Sale of Live cattle (Aromatic) | 8,160,703 | 4,998,083 | 6,820,510 | 4,528,498 | 1,340,193 | 469,584 | ||||||||||||||||||||||||||||||||
MEIJI / Cattle farm Total | 8,160,703 | 4,998,083 | 6,820,510 | 4,528,498 | 1,340,193 | 469,584 | |||||||||||||||||||||||||||||||||||||
% of increase or decrease (-) | 63 | % | 51 | % | 185 | % |
Description of items | 2019Q1 | 2018Q1 | Difference | ||||||||||||
MEIJI | Production and sale of Live cattle (Aromatic) | 2,235 | 1,587 | 648 | |||||||||||
Average Unit sale price | 3,651 | 3,149 | 502 | ||||||||||||
Unit cost price | 3,052 | 2,853 | 198 |
Cattle Farm 1 revenue decreasedRevenue from the cattle farm sales increased by $2,377,298 (or 25%$3,162,6204 (63%) from Q3 2016’s $9,658,454$4,998,083 for the quarterly period ended March 31, 2018 compared to Q3 2017’s $7,281,156 while gross profit$8,160,703 for the same period ended March 31, 2019.
Cost of goods sold from cattle farm increased by $422,258 (or 78%$2,292,012 (51%) from $539,026$4,528,498 for the quarterly period ending March 31, 2018 compared to $6,820,510 for the same period ended March 31, 2019. The increase was primarily due to the corresponding decrease of sales.
Gross profit from cattle increased by $870,609 from $469,585 for the quarterly period ended March 31, 2018 to $1,340,193 for the same period ended March 31, 2019. The increase was primarily due to the corresponding decrease in Q3 2016revenue.
The reason for the increase in revenues and gross profits is primarily due to Q3 2017’s $961,284, reflecting price-pointsthe increase of herbs grown on the farm and the steady increase in the unit sale price of the local “Yellow Cattle” breed.locally bred Asian Yellow Cattle.
· | 4 Corporate & Others Divisionrefers to the business operations of Sino Agro Food, Inc., including import/export business and consulting and service operations provided to projects not included in the above categories, and not limited to corporate affairs. |
In US$ | Sales of goods | Cost of Goods sold | Sales of Goods’ Gross profit | |||||||||||||||||||||||
2017Q3 | 2016Q3 | 2017Q3 | 2016Q3 | 2017Q3 | 2016Q3 | |||||||||||||||||||||
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 | ||||||||||||||||||||
Increases / (decrease) in $ | -2,659,747 | -384,129 | ||||||||||||||||||||||||
% of increases / (decrease) | -26 | % | -32 | % | ||||||||||||||||||||||
on imported beef and mutton | 8,121,994 | 13,105,597 | 7,219,550 | 11,649,420 | 902,444 | 1,456,177 | ||||||||||||||||||||
Increases / (decrease) in $ | (4,983,603 | ) | (553,733 | ) | ||||||||||||||||||||||
% 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 | % |
In US$ | Sales of goods | Cost of Goods sold | Gross profit | |||||||||||||||||||||
2019Q1 | 2018Q1 | 2019Q1 | 2018Q1 | 2019Q1 | 2018Q1 | |||||||||||||||||||
SIAF | Sales of goods through trading/import/export activities | |||||||||||||||||||||||
on seafood (via imports) | 3,787,038 | 8,818,702 | 3,366,257 | 7,915,342 | 420,781 | 903,360 | ||||||||||||||||||
% of increases (+) and decreases (-) | -57% | -57 | % | -53 | % | |||||||||||||||||||
on imported beef mainly | 9,010,021 | 7,621,255 | 8,008,907 | 6,774,449 | 1,001,114 | 846,806 | ||||||||||||||||||
% of increases (+) and decreases (-) | 18% | 18 | % | 18 | % | |||||||||||||||||||
SIAF/ Others & Corporate total | 12,797,059 | 16,439,957 | 11,375,164 | 14,689,791 | 1,421,895 | 1,750,166 | ||||||||||||||||||
% of increases (+) and decreases (-) | -22% | -23 | % | -19 | % |
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 | 2019Q1 | 2018Q1 | Difference | ||||||||||||||||
SIAF | Seafood trading from imports | ||||||||||||||||||
Mixed seafood | MT | 131 | 503 | (372 | ) | ||||||||||||||
Average of sales price | $/MT | 28,909 | 17,532 | 11,376 | |||||||||||||||
Average of cost prices | $/MT | 25,697 | 15,736 | 9,960 | |||||||||||||||
Beef & Lamb trading from imports | MT | 489 | 313 | 176 | |||||||||||||||
Average of sales price | $/MT | 18,425 | 24,349 | (5,924 | ) | ||||||||||||||
Average of cost price | $/MT | 16,378 | 21,644 | (5,265 | ) |
RevenueRevenues from the corporate division decreased by $7.6 million$3,642,898 ( or (33%-22%) from Q3 2016’s $23.2$16,439,957 for Q1 2018 to $12,797,059 for Q1 2019. The decrease was caused primarily by the Lunar Chinese New Year starting later than usual in 2018, disrupting logistics and transportation services, causing slowdowns in our seafood sales. . However, our sales of our frozen beef were unaffected, with sales increasing by $1.39 million (or 18.24%) from Q1 2018’s $7.62 million to Q3 2017’s $15.6 million. The decreaseQ1 2019’s $9 million at lower unit sale price. This increase was primarily due to our decisionabundance of regional cold storages to trade in selective products that could maintain certain profit margins developed with selected clients.store the frozen beef and the increase of frozen beef sold from Q1 2018’s 313 MT to Q1 2019’s 489 MT, representing an increase of 176 MT (or 56.2%).
GrossCorrespondingly, the cost of goods sold from corporate decreased by $3.314627 (-23%) from $20,542,738 for Q1 2018 to $11,375,164 for Q1 2019, and gross profit from the corporate sectordivision decreased by $0.94 million or (35%$328,271 (-19%) from $2.66 million$1,750,166 for Q3 2016the three months ended March 31, 2018 to $1.72 million$1,421,895 for Q3 2017. The decrease was marginal and will improve as we increase the importing of higher quality products sourced from an increasing number of reputable suppliers.
In this respect, the Company is confident that this segment will continue to improve as the disposable income of China’s middle class continues to grow.
three months ended March 31, 2019.
· | 5.A. Engineering technology consulting and services:(The Continuing Operation of CA) |
Notes to Table A (1) Note (1.1, 2.1 and 3.1)
Table A.5(A.5) below shows the revenue, cost of services and gross profit generated from consulting,Consulting, services, commission and management feefees for three monthsthe same period ended September 30, 2016 (Q3 2017).March 31, 2019 and 2018.
2019Q1 | 2019Q1 | Difference | Description of work | |||||||||||||
Service revenues (Consulting and Services) | ||||||||||||||||
CA | 991,002 | 2,472,404 | (1,481,402 | ) | ||||||||||||
Group Total Revenues | 991,002 | 2,472,404 | (1,481,402 | ) | ||||||||||||
Cost of service | ||||||||||||||||
CA | 939,684 | 1,784,322 | (844,638 | ) | ||||||||||||
Group Total Cost of Consulting and Services | 939,684 | 1,784,322 | (844,638 | ) | ||||||||||||
Gross Profit | ||||||||||||||||
CA | 51,318 | 688,082 | (636,764 | ) | ||||||||||||
Group Total Gross Profit | 51,318 | 688,082 | (636,764 | ) |
RevenuesRevenue (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 | % |
Revenue decreased by $1,481,402 (-60%) from $2,472,404 for the quarterly period ended March 31, 2018 to $991,002 for the same period ended March 31, 2019. Since Tri-way is CA’s main client, currently, CA’s income is heavily dependent on Tri-way having sufficient cash-flow, which had not been available during Q1 to spend on farm development, thus reducing CA’s C&S income during the quarter.
Revenues decreased by $20.40 million (or 87%) from $23.38 million for Q3 2016 to $2.98 million for Q3 2017. CostCorrespondingly, the cost of services for consulting, service, commission and management fees decreased by $10.22 million (or 82%$844,638 (-47%) from $12.45 million$1,784,322 for Q3 2016the quarterly period ended March 31, 2018 to $2.23 million$939,684 for Q3 2017. Gross profit decreased by $10.19 million (or 93%) from $10.93 million for Q3 2016 to $0.74 million for Q3 2017.
the same period ended March 31, 2019. The decrease in revenue/cost of sales was primarily due to the current policy of Tri-way (the developerlower revenues of the Fishery properties)quarter.
Gross profit from consulting, service, commission and management fees decreased by $636,764 (-93%), from $688,082 for the quarter period ended March 31, 2018 to restrict its development capital expenditures (CapEx) until they have successfully sourced its funding.$51,318 for the same period ended March 31, 2019.
The issuance of shares for Q3 2017
Collateral shares do not hold voting or dividend rights and thus do not carry the same ownership rights as the shares of our common stock held by common shareholders of the Company.
The Table below shows the actual increase of shares from year end 2014 to 30.09.2017:
# of | Total issued and | % of increase Inclusive of the | Effective | Real % of increase | ||||||||||||||||||
As at | Collateral Shares | outstanding (“I&O”) shares | collateral shares | share count, net of C/S | Net of C/S | |||||||||||||||||
31.12.2014 | The fully diluted total I&O shares inclusive the B series shares | 17,869,786 | ||||||||||||||||||||
31.12.2015 | The fully diluted total I&O shares inclusive the B series shares | 20,133,757 | 13 | % | 17,917,573 | 0 | % | |||||||||||||||
The Collateralized shares | 2,216,184 | |||||||||||||||||||||
31.12.2016 | The fully diluted total I&O shares inclusive the B series shares | 22,726,569 | 13 | % | 19,249,138 | 7 | % | |||||||||||||||
The Collateralized shares | 3,477,431 | |||||||||||||||||||||
30.09.2017 | The fully diluted total I&O shares inclusive the B series shares | 27,811,573 | 22 | % | 19,366,138 | 1 | % | |||||||||||||||
The Collateralized shares | 8,445,435 |
The Gain/Loss on extinguishment of debts historical previously stated:Note (4) Other Income
DuringOther income for the last three years, we have issued unregistered securitiesmonths ended March 31, 2019 amounted to Chinese persons none of them residents$(417,611) and was derived from the combination of the United States. Nonefollowing:
(i). The share of these transactions involved any underwriters, underwriting discounts or commissions, or any public offering. The salesincome from unconsolidated equity investee (Tri-way) of these securities were, except as set forth below, deemed$2,390,454 that decreased by $0.67 million (or -22%) from Q1 2018’s $3.06 million) due to primarily the reason mentioned earlier that the Lunar Chinese New Year came later than usual (started from February 5th 2019 instead of January 19th 2018) creating interruptions to the logistics and transportation services affecting the deliveries and supplies of goods in turn the market that lasted over 6 weeks instead of 4 weeks that slowed down Tri-way’s live-seafood sales.
(ii). Loss on restructuring of $(2,404,402) that was reported in our 2018 10-K report referring to a loan that was granted by a friendly third party on October 12, 2017 for $6 million (based on principal sum of $4.2 million and accrued interest of $1.8 million calculated to February 12th 2019) that was recorded at later date by a loan agreement executed on February 18, 2019 for $6,301,480 (inclusive of an additional loan of $301,480 granted by the same third party on February 2, 2019). This loan is to be exempt from the registration requirementsre-paid in 3 tranches inclusive of the Securities Actaccrued interest calculated to time of 1933 by virtuerepayments comprising Tranche (1) for $2,300,000, Tranche (2) for $2,350,000 and Tranche (3) for $2,746,702 on August 31, 2019, October 30, 2019 and December 31, 2019, respectively, for total repayment amount 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.$7,346,702.
We relied upon Regulation S(iii). Non-operating expenses of the Securities Act$(219,727), a government grant of 1933, as amended, for these issuances, none$293,870, less interest expense of which was made to US citizens or residents. We believe that Regulation S was available because:$477,806.
The other income for the three months ended September 30, 2017March 31, 2018 amounted to $(327,128)$3,307,234 and derived from the combination of (1) Gain on extinguishmentshare of debt $0 (Note 4), Government Grant $0 andincome from unconsolidated equity investee of $3,782,011, other income $4,468of $878, non-operating expenses of $22,004, 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.$453,651.
Note (4) to Table A 1(5) General and Administrative Expenses and Interest ExpensesExpenses)
General and administrative and interest expenses (including depreciation and amortization) decreasedincreased by $2,168,502 or 38%$118,714 (3%), from $5,754,163$4,116,380 for Q3 2016Q1 2018 to $3,585,661$4,235,094 for Q3 2017.Q1 2019. The decreasechange was primarily due to decreaseincrease in Wagesdepreciation and salaries of $1,685,158amortization by $401,164 from $2,225,651 for Q3 2016$1,182,055 in Q1 2018 to $540,493 for Q3 2017,$1,583,219 in Q1 2019 and decrease in office and corporate expenses of $508,985 from $1,481,203 for Q3 2016 to $972,218 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 decreaseincrease in interest expense of $680,881by $24,155 from $1,012,477 for Q3 2016$453,651 in Q1 2018 to $331,596 for Q3 2017.$477,806 in Q1 2019.
The Company is taking extra steps to ensure that these expenses are reduced in conformity with cash flow allowance
Category | 2019Q1 | 2018Q1 | $ Difference | |||||||||
Office and corporate expenses | $ | 1,045,746 | $ | 1,304,145 | $ | (258,399 | ) | |||||
Wages and Salaries | $ | 430,623 | $ | 546,642 | $ | (116,019 | ) | |||||
Traveling and related lodging | $ | 7,789 | $ | 3,542 | $ | 4,247 | ||||||
Motor vehicles expenses and local transportation | $ | 12,364 | $ | 9,906 | $ | 2,458 | ||||||
Entertainment and meals | $ | 25,713 | $ | 17,576 | $ | 8,137 | ||||||
Others and miscellaneous | $ | 651,834 | $ | 598,863 | $ | 52,971 | ||||||
Depreciation and amortization | $ | 1,583,219 | $ | 1,182,055 | $ | 401,164 | ||||||
Sub-total | $ | 3,757,288 | $ | 3,662,729 | $ | 94,559 | ||||||
Interest expense | $ | 477,806 | $ | 453,651 | $ | 24,155 | ||||||
Total | $ | 4,235,094 | $ | 4,116,380 | $ | 118,714 | ||||||
% of increase or decrease (-) | 3 | % |
Note to Table A 1(6) Depreciation and Amortization
Depreciation and amortization increaseddecreased by $1,561,703 or 95%$120,994 (-4%), to $3,211,264$3,106,925 for Q3 2017Q1 2019 from $1,649,561$3,227,869 for Q3 2016.The increaseQ1 2018. The decrease was primarily due to the increasedecrease of depreciation by $1,348,643$514,698 to $2,491,515$2,542,874 for Q3 2017Q1 2019 from depreciation of $1,142,872$2,658,508 for Q3 2016 whereasQ1 2018 and the increasedecrease of amortization by $213,060$50,918 to $719,749$564,051 for Q3 2017Q1 2019 from amortization of $506,689$569,361 for Q3 2016.Q1 2018.
In this respect, total depreciation and amortization amounted to $3,211,264$3,106,925 for Q3 2017, outQ1 2019, of which amount $1,096,271$1,583,219 was reported under general and administration expenses and $2,114,993$1,523,706 was reported under cost of goods sold; whereassold compared to total depreciation and amortization was at $1,649,561of $3,227,869 for Q3 2016 and outQ1 2019, of which amount $852,427$1,182,055 was reported under Generalgeneral and Administrationadministration expenses and $797,134$2,045,814 was reported under cost of goods sold.
Note (5) to Table A 1(7). Non-controlling interests
Table (F) below shows the derivation of non-controlling interestinterest:
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 | ||||||||||||||||||||
Jiangmen City Heng | Hang Mei Cattle | Hunan Shenghua | Qinghai Sanjiang | |||||||||||||||||
Sheng Tai Agriculture | Farm | A Power | A Power | |||||||||||||||||
Development Co. | Development Co. | Agriculture Co., | Agriculture Co | |||||||||||||||||
Name of China subsidiaries | Ltd.(China) | Ltd.(China) | Limited (China) | 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 $ | (1,094,939 | ) | 982,845 | 499,365 | 220,183 | |||||||||||||||
% of profit sharing of non-controlling interest | 25 | % | 25 | % | 24 | % | 58.75 | % | ||||||||||||
Non-controlling interest's shares of Net incomes in $ | (273,735 | ) | 245,711 | 119,848 | 129,358 | 221,182 |
The net income attributed to non-controlling interest is $893,985$221,182 shared by (JHST, JHMC, HSA,HAS and SJAP, QZH and JFD collectively) forQ3 2017 Q1 2019 as shown in Table (F), above.
Note (6) to Table A 1(8) Earnings per share (EPS)
Earnings per share from continuing operations decreased by $0.90$0.16 (basic) and $0.80$0.16 (diluted) per share from EPS of $1.04$0.17 (basic) and$0.95and $0.17 (diluted) for Q3 2016Q1 2018 to EPS of $0.14$0.01 (basic) and $0.15$0.01 (diluted) for Q3 2017. The reasonQ1 2019.
12
Part B. MD & A on Unaudited Consolidated Balance Sheet of Continued Operations for the decrease is primarily duethree months ended March 31, 2019 (Q1 2019) compared to the decrease of net income attributable to Sino Agro Food, Inc. and subsidiaries by $17.8 million from $21.3 million for Q3 2016 to $3.5 million for Q3 2017.12 months ended December 31, 2018.
Consolidated Balance sheets | March 31, 2019 | December 31, 2018 | Changes | Note | ||||||||||||
ASSETS | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | 305,721 | 4,950,799 | (4,645,078 | ) | 8 | |||||||||||
Inventories | 56,402,108 | 54,582,241 | 1,819,867 | 9 | ||||||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 250,828 | 250,828 | - | |||||||||||||
Deposits and prepaid expenses | 53,290,057 | 52,241,190 | 1,048,867 | 10.1 | ||||||||||||
Accounts receivable | 100,938,113 | 101,652,131 | (714,018 | ) | 11 | |||||||||||
Other receivables | 31,103,922 | 28,307,526 | 2,796,396 | 15 | ||||||||||||
Total current assets | 242,290,749 | 241,984,715 | 306,034 | |||||||||||||
Property and equipment | ||||||||||||||||
Property and equipment, net of accumulated depreciation | 235,473,231 | 230,645,659 | 4,827,572 | 12 | ||||||||||||
Construction in progress | 13,166,423 | 12,515,527 | 650,896 | 13 | ||||||||||||
Land use rights, net of accumulated amortization | 54,289,629 | 53,814,281 | 475,348 | 14 | ||||||||||||
Total property and equipment | 302,929,283 | 296,975,467 | 5,953,816 | |||||||||||||
Other assets | ||||||||||||||||
Goodwill | 724,940 | 724,940 | - | |||||||||||||
Proprietary technologies, net of accumulated amortization | 8,816,670 | 8,937,071 | (120,401 | ) | ||||||||||||
Investment in unconsolidated equity investee | 209,435,455 | 207,074,626 | 2,360,829 | |||||||||||||
Temporary deposit paid to entities for investments in future Sino Joint Venture companies | 34,894,047 | 34,905,960 | (11,913 | ) | 10.2 | |||||||||||
Total other assets | 253,871,112 | 251,642,597 | 2,228,515 | |||||||||||||
Total assets | 799,091,144 | 790,602,779 | 8,488,365 | |||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable and accrued expenses | 10,425,270 | 8,280,358 | 2,144,912 | 16 | A | |||||||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 5,407,136 | 5,348,293 | 58,843 | |||||||||||||
Due to a director | 259,193 | 2,046,499 | (1,787,306 | ) | ||||||||||||
Other payables | 47,016,748 | 42,523,811 | 4,492,937 | 16 | B | |||||||||||
Borrowings-Short term bank loan | 4,677,755 | 4,589,828 | 87,927 | |||||||||||||
Derivative liability | - | 2,100 | (2,100 | ) | ||||||||||||
Convertible note payable | - | 3,894,978 | (3,894,978 | ) | ||||||||||||
Income tax payable | - | - | ||||||||||||||
Total current liabilities | 67,786,102 | 66,685,867 | 1,100,235 | 16 | ||||||||||||
Non-current liabilities | 17 | |||||||||||||||
Other payables | 7,759,801 | 7,792,774 | (32,973 | ) | ||||||||||||
Borrowing-Long term debt | 5,643,006 | 5,536,938 | 106,068 | |||||||||||||
Convertible note payable | ||||||||||||||||
Total non-current liabilities | 13,402,807 | 13,329,712 | 73,095 | |||||||||||||
Stockholders’ equity | ||||||||||||||||
Common stock | 49,976 | 49,866 | 110 | |||||||||||||
Additional paid-in capital | 181,533,919 | 181,501,056 | 32,863 | |||||||||||||
Retained earnings | 459,424,518 | 458,811,844 | 612,674 | |||||||||||||
Accumulated other comprehensive income | -5,316,005 | -8,443,123 | 3,127,118 | |||||||||||||
Treasury stock | -1,250,000 | -1,250,000 | - | |||||||||||||
Total SIAF Inc. and subsidiaries' equity | 634,442,408 | 630,669,643 | 3,772,765 | |||||||||||||
Non-controlling interest | 83,459,827 | 81,890,220 | 1,569,607 | |||||||||||||
Total stockholders' equity | 717,902,235 | 712,559,863 | 5,342,372 | |||||||||||||
Total liabilities and stockholders' equity | 799,091,144 | 793,552,597 | 5,538,547 |
13
This Part B: Unaudited Consolidated Balance Sheets asB discusses and analyzes certain items that we believe would assist stakeholders in obtaining a better understanding of September 30, 2017the Company’s results of operations and December 31, 2016 (audited)
Consolidated Balance sheets | September 30,2017 | December 31,2016 | Changes +- | Note | ||||||||||
$ | $ | $ | ||||||||||||
ASSETS | ||||||||||||||
Current assets | ||||||||||||||
Cash and cash equivalents | 1,865,684 | 2,576,058 | (710,374 | ) | B | |||||||||
Inventories | 80,345,197 | 62,592,272 | 17,752,925 | 9 | ||||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 1,249,187 | 740,984 | 508,203 | |||||||||||
Deposits and prepaid expenses | 93,935,479 | 84,845,966 | 9,089,513 | 10 | ||||||||||
Accounts receivable | 105,155,243 | 122,912,086 | (17,756,843 | ) | 11 | |||||||||
Other receivables | 58,789,381 | 47,120,800 | 11,668,581 | |||||||||||
Total current assets | 341,340,171 | 320,788,166 | 20,552,005 | |||||||||||
Property and equipment | ||||||||||||||
Property and equipment, net of accumulated depreciation | 207,621,360 | 189,727,227 | 17,894,133 | 12 | ||||||||||
Construction in progress | 41,509,210 | 35,157,213 | 6,351,997 | 13 | ||||||||||
Land use rights, net of accumulated amortization | 54,504,006 | 53,673,690 | 830,316 | 14 | ||||||||||
Total property and equipment | 303,634,576 | 278,558,130 | 25,076,446 | |||||||||||
Other assets | ||||||||||||||
Goodwill | 724,940 | 724,940 | - | |||||||||||
Proprietary technologies, net of accumulated amortization | 9,719,678 | 10,090,697 | (371,019 | ) | ||||||||||
Investment in unconsolidated equity investee | 144,519,533 | 139,133,443 | 5,386,090 | 15 | ||||||||||
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 | - | |||||||||||
Total other assets | 171,362,501 | 166,314,851 | 5,047,650 | |||||||||||
Total assets | 816,337,248 | 765,661,147 | 50,676,101 | |||||||||||
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 | |||||||||||
Due to a director | 850,274 | 2,070,390 | (1,220,116 | ) | ||||||||||
Other payables | 9,892,445 | 5,962,092 | 3,930,353 | |||||||||||
Borrowings-Short term bank loan | 1,506,705 | 2,883,090 | (1,376,385 | ) | ||||||||||
Negotiable promissory notes | 368,462 | 1,113,140 | (744,678 | ) | ||||||||||
Income tax payable | 1,227 | 1,130 | 97 | |||||||||||
Total current liabilities | 30,774,363 | 23,449,918 | 7,324,445 | |||||||||||
Non-current liabilities | ||||||||||||||
Other payables | 17,387,111 | 11,192,117 | 6,194,994 | |||||||||||
Long term debts | 6,026,819 | 5,766,182 | 260,637 | |||||||||||
Notes payable | 20,058,798 | 21,314,877 | (1,256,079 | ) | 16D | |||||||||
Total non-current liabilities | 43,472,728 | 38,273,176 | 5,199,552 | |||||||||||
Stockholders’ equity | ||||||||||||||
Common stock | 27,811 | 22,727 | 5,084 | |||||||||||
Additional paid-in capital | 168,193,890 | 155,741,280 | 12,452,610 | |||||||||||
Retained earnings | 467,117,365 | 454,592,652 | 12,524,713 | |||||||||||
Accumulated other comprehensive income | 2,209,103 | -4,335,355 | 6,544,458 | |||||||||||
Treasury stock | -1,250,000 | -1,250,000 | - | |||||||||||
Total SIAF Inc. and subsidiaries’ equity | 636,298,169 | 604,771,304 | 31,526,865 | |||||||||||
Non-controlling interest | 105,791,988 | 99,166,749 | 6,625,239 | |||||||||||
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 |
financial condition:
Note B.(B) Cash and Cash Equivalents
The change in cash and cash equivalents of $(710,374) wasamounted to $(4,645,078) derived from cash and cash equivalents of $1,865,684$305,721 and $2,576,058$4,950,799 as of September 30, 2017March 31, 2019 and December 31, 2016,2018, respectively.
The difference in cash and cash equivalents between these two dates is primarily due to the decrease of sales revenues and profits while recovering from the impact caused by the heavy financial losses in 2017., however, the other corresponding factor is funding said losses that weakened the cash and cash equivalents.
Note (9) BreakdownBreak down of inventoryinventories
March 31, 2019 | December 31, 2018 | Difference | ||||||||||
$ | $ | $ | ||||||||||
Bread grass | 666,989 | 744,378 | (77,389 | ) | ||||||||
Beef cattle | 14,186,719 | 11,561,117 | 2,625,602 | |||||||||
Organic fertilizer | 14,616,370 | 14,266,923 | 349,447 | |||||||||
Forage for cattle and consumables | 7,605,777 | 7,252,280 | 353,497 | |||||||||
Raw materials for bread grass and organic fertilizer | 17,951,320 | 18,885,258 | (933,938 | ) | ||||||||
Immature seeds | 1,374,933 | 1,872,285 | (497,352 | ) | ||||||||
56,402,108 | 54,582,241 | 1,819,867 |
The main increase in inventories came from changes in beef cattle (up $2.6m), which was primarily due to lower sales of cattle caused by low market prices in turn increased the inventory in cattle during the period.
Note (10) Breakdown of Deposits and Prepaid Expenses
Note (10.1)The actual deposit and prepaid expenses increased by $1,048,867 from Q4 2018’s $752,241,190 to Q1 2019’s 53,290,057
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:
March 31, 2019 | December 31, 2018 | Difference | Note | ||||||||||||
$ | $ | $ | |||||||||||||
Deposits for | |||||||||||||||
- purchases of equipment | 2,196,214 | 2,158,867 | 37,347 | ||||||||||||
- acquisition of land use rights | 178,200 | 174,851 | 3,349 | ||||||||||||
- inventories purchases | 17,181,605 | 16,921,188 | 260,417 | ||||||||||||
- construction in progress | 5,354,959 | 4,789,035 | 565,924 | ||||||||||||
- issue of shares as collateral | 25,528,325 | 24,928,324 | 600,001 | ||||||||||||
Shares issued for employee compensation and overseas professional and bond interest | 231,574 | 643,457 | (411,883 | ) | |||||||||||
Others | 2,619,380 | 2,625,468 | (6,088 | ) | |||||||||||
53,290,257 | 52,241,190 | 1,049,067 |
14
Note (11): Breakdown of Accounts receivable:
September 30,2017 | ||||||||||||||||||||||
Accounts receivable | 0-30 days | 31-90 days | 91-120 days | over 120 days and less than 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) | - | - | - | - | - | |||||||||||||||||
Sales of imported seafood (SIAF) | 13,643,100 | 5,747,626 | 4,995,831 | 2,899,644 | - | |||||||||||||||||
Sales of Cattle and Beef Meats (from Enping Farm) (MEIJI) | 5,868,206 | - | 4,834,166 | 1,034,039 | - | |||||||||||||||||
Sales of HU Flowers (Fresh & Dried) (JHST) | 3,663,388 | 467,096 | 1,026,312 | 486,385 | 1,683,595 | |||||||||||||||||
Sales Fertilizer, Bulk Stock feed and Cattle by (SJAP) | 9,382,408 | 2,001,184 | 3,885,134 | 2,238,028 | 1,258,062 | |||||||||||||||||
Sales Fertilizer from (HSA) | 4,778,889 | 555,311 | 1,085,381 | 317,326 | 2,820,871 | |||||||||||||||||
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 |
2019Q1 | ||||||||||||||||||||||||
Accounts | over 120 days and | |||||||||||||||||||||||
receivable | 0-30 days | 31-90 days | 91-120 days | less than 1 year | Over 1 year | |||||||||||||||||||
$ | ||||||||||||||||||||||||
Engineering consulting service (CA) | 61,849,210 | 1,049,845 | - | 1,088,759 | 16,421,061 | 43,289,545 | ||||||||||||||||||
Sales of imported seafood (SIAF) | 22,630,491 | 5,738,444 | 7,058,616 | 9,833,432 | - | - | ||||||||||||||||||
Sales of Cattle and Beef Meats (MEIJI) | 8,478,466 | - | 8,171,443 | 307,023 | - | - | ||||||||||||||||||
Sales of HU Flowers (Fresh & Dried) (JHST) | 852,098 | 330,383 | 517,751 | - | 3,964 | - | ||||||||||||||||||
Sales Fertilizer, Bulk Stock feed and Cattle by (SJAP) | 4,107,635 | 795,851 | 2,169,408 | 664,614 | 477,763 | - | ||||||||||||||||||
Sales Fertilizer from (HSA) | 3,020,213 | 834,675 | 1,637,249 | - | 548,289 | - | ||||||||||||||||||
Total | 100,938,113 | 8,749,198 | 19,554,466 | 11,893,827 | 17,451,077 | 43,289,545 |
Information on trading terms and provision for diminution in value of accounts receivable:
Our accountsThe account receivable of CA’s C&S services totals US$61,849,210, wherein $1,049,845 lies within an aging is less than 12 months old. Receivables from revenue derived from consulting and services billed for work completed areperiod of 31 - 90 days, $1,088,759 within our normal trading termsan aging period of 18090-120 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$16,421,061 within 120 days to WHXone year, and WC1 is primarily to allow them more time to accommodate their development$43,289,545 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.over one year.
· | The $43,289,545 in outstanding receivables was settled by Tri-way through the issuance of shares to CA representing 12.71% of the issued and outstanding shares of Tri-way. Further information of this exchange can be found in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2018. |
· | CA remains as the turnkey contractor appointed by Tri-way (that is the Master APM License Holder of China granted by CA for 50 years) to carryout development and construction work for APM and ODRAS fish farms (inclusive the Mega farm APM project and other ODRAS farm projects) being developed for Tri-way. |
· | The other account receivables are spread among 5 main subsidiaries and their respective subsidiaries within their own organization (i.e. SJAP has 5 and JHST has 2 subsidiaries, for example), each of them carrying a receivable aging period less than 12 months and within normal trading terms. Thus, no diminution in value is required, as the credit quality of the receivables are not in doubt. |
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.
Information on concentration of credit risk of account receivables:revenue:
We have 4 major long-term customers, (referringreferred to as referring to as Customer A, B, C and D mentioned in the Financial Statement of this report under Note),financial statements who have accounted for 55.04%77.29% of our consolidated revenues for Q3 2017Q1 2019 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 |
Three months ended March 31, 2019 | ||||||||||
% of total Revenue | $ | Customer’s Total Revenue | ||||||||
Customer A | 30.79 | % | 9,010,021 | |||||||
Customer B | 12.94 | % | 3,787,039 | |||||||
Customer C | 27.93 | % | 8,171,443 | |||||||
Customer D | 5.63 | % | 1,647,468 | |||||||
77.29 | % | 22,615,971 |
Customer A is Hunan City Bo Bo Go Supermarket chain (“BBG”)Shanghai Vigour Trading Co. Ltd., which is a publicly traded company in China with more than 5,000 chain storesone of our main distributors selling most of our imported goods (inclusive of Beef and 11,000 7/11 stores operating in various districts and cities of China.Seafood). During Q3 2017,Q1 2019, we sold $11.9$9.0 million of goods to BBGShanghai Vigour representing 24.59%30.79% of our total revenue of $48.4$29.26 million derived mainly from SJAP (QZH)’s segment of beef.Corporate and Others Division segment.
Customer B is ShangHai Virgo Trading co. Ltd, which is oneAPNW through our divestment when Tri-way became an Associate Investee. The amount of our major distributors of imported beef and seafood as well as our farmed seafood. We sold $10.6$3.79 million of goodsshown above will be fully paid when Tri-way issues shares to Virgo during Q3 2017 representing 21.89% of our total revenue of $48.4 million during the quarter.offset this amount.
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.cattle for rearing. During Q3 2017, transactions throughQ1 2019, we sold $5.0 million of goods to Mr. Zhen Runchi, generated 16.34 %representing 27.93% of our total consolidated revenue (equivalent to $7,909,219 out of ourthe Company’s total revenue of $48,392,933).$29.26 million
Customer D is WSC 1, which is owned and operated by Guangzhou City A Power NaWei TradingLinyi County Xingnong Agricultural Resources Co. Ltd (“APNW”). APNW distributes seafood to other wholesalers in various cities in China. WSC 1 is ideally situated at the center, Ltd. Wangcheng Branch. During Q1 2019, we sold $1.65 million 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%goods representing 5.63% of our total consolidated revenue (equivalent to $4,995,831 outsales of our totalgoods revenue of $48,392,933).$29.26million.
Information on concentration of credit risk of account receivable:
The Company had 4 major customers whose accounts receivable balance individually represented the following percentages of the Company’s total accounts receivable during Q3 2017:receivable:
March 31,2019 | Total accounts receivables | |||||||
Customer A | 11.89 | % | 11,997,693 | |||||
Customer B | 8.4 | % | 8,478,466 | |||||
Customer C | 10.53 | % | 10,632,798 | |||||
Customer D | 61.27 | % | 61,849,210 | |||||
92.09 | % | 92,958,167 |
16
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 |
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.
Note (12)
Property and equipment, net of accumulationaccumulated depreciation
March 31,2019 | ||||
Plant and machinery | $ | 5,394,528 | ||
Structure and leasehold improvements | 204,314,391 | |||
Mature seeds and herbage cultivation | 58,898,928 | |||
Furniture and equipment | 697,403 | |||
Motor vehicles | 599,689 | |||
269,904,939 | ||||
Less: Accumulated depreciation | (34,431,708 | ) | ||
Net carrying amount | $ | 235,473,231 |
Note (13) Construction in progress
Construction in progress | ||||
- Organic fertilizer and bread grass production plant and office building | ||||
- Rangeland for beef cattle and office building | ||||
Note (14) Land Use Rights, net of accumulated amortizationamortization::
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 $ | 2019.03.31 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 | 197,549 | 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 | 31,930,098 | 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 | 303,580 | Land Use Rights | Fertilizer production | |||||||||||||||||||||||
Hunan lot4 | HS.A | Ouchi Village, Fenghuo Town, Linli County | 24.71 | 6/1/2018 | 50 | 5/31/2068 | 3,021,148 | 5,035 | 2,970,796 | Lease | Pasture growing | |||||||||||||||||||||||
Guangdong lot 1 | JHST | Yane Village, Liangxi Town, Enping City | 8.23 | 8/10/2007 | 60 | 8/9/2067 | 1,064,501 | 1,478 | 857,515 | 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 | 828,378 | 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 | 1,810,741 | 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 | 1,647,740 | 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 | 775,003 | 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 | 667,424 | 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 | 3,902,791 | 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 | 1,069,365 | 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 | 3,049,282 | 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 | 429,476 | 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 | 191,879 | 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 | 3,785,615 | Management Right | Agriculture | |||||||||||||||||||||||
JHST | Land improvement cost incurred | 12/1/2013 | 3,914,275 | 6,155 | 3,520,386 | Management Right | HU Plantation | |||||||||||||||||||||||||||
Exchange difference | -3,400,645 | -3,647,987 | ||||||||||||||||||||||||||||||||
678 | 66,851,156 | 136,824 | 54,289,629 |
18
Note (15) Other Receivables
March 31,2019 | Note | |||||||
Advanced to employees | $ | 567,653 | ||||||
Advanced to suppliers | 3,905,832 | 15 | A | |||||
Advanced to customers | 14,114,204 | 15 | B | |||||
Advanced to developers | 461,835 | 15 | C | |||||
Others | 12,054,398 | 15 | D | |||||
$ | 31,103,922 |
Note 1515A. A & B: Breakdownportion of Advancesthis consists of molds, parts and components necessary to Suppliersmanufacture and fit-out various types of filters in the APM systems requiring suppliers (manufacturers) to carry additional inventory. This inventory is billed to the Company at SJAP’s operations:such times when the components are called to manufacture the APM filtration systems. Until then, the Company provides advances to the supplier to manufacture the components and hold in inventory on the Company’s behalf until the components are called and billed to the Company, i.e., offsetting the amount invoiced with the proceeds received in advance.
At SJAP it is a common practice15B. Advanced to make cash advancescustomers refers 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 saledistribution agents (i.e., the Shanghai distribution center, the Guangzhou distribution centers, etc.) that CA was their turnkey contractor built and developed said centers for and on behalf of their cattle. On average, it works out to less than $5,325 per member thatrespective owners with part of their respective capital expenditure in development costs are still outstanding as of the date of this report. These are similar arrangement as in the management’s opinion is a normal seasonFishery Farms developments that CA has the option to season process deemed fairacquire up to 75% of stakes on the assets and equitable. Inoperation of said distribution agents: however as of date of this respect,report CA has yet to exercise any of said options as the average increases it means that the typical cooperative farmer is increasing his productivity (whethersuch these sum are recorded as other receivables.
15C. The Developers, referring to ‘Advance to developers” in the growthtable, above are mostly owners and investors of crops or cattle),other development projects (i.e. Cattle farms, restaurants and trade centers etc.) that were developed by SIAF and MEIJI as their respective “turkey contractor” during the past several years. The Company has the option to convert/effectuate these advances in simple terms, it represents good progress indicating that SJAP’s revenue is also increasing.these Project companies as an SFJVC investee, similar to CA’s fishery development project.
The sub-contractors and suppliers15D. Others of $12,054,398 consist of the Zhongshan Projects are reputable entitiesfollowing:
(i) 56 third party clients and associates of SJAP collectively owe SJAP $6.42 million, and
(ii) QZH owes SJAP $5.63 million, whereas under the SJAP disposal (of QZH) agreement dated December 30, 2018 with the third party buyer, it stated that in management’s opinion are employing their funds in and are working on the Zhongshan Project, suchQZH is to repay SJAP said $5.63 million gradually from sale proceeds of its capital assets that the project will progress smoothly.QZH sells from time to time.
Note (16) Current Liabilities:
As at March 31, 2019 | Note | |||||||
$ | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | 10,425,270 | 16. | A | |||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 5,407,136 | |||||||
Due to a director | 259,193 | |||||||
Other payables | 47,016,748 | 16 | B | |||||
Borrowings - Short term bank loan | 4,677,755 | |||||||
67,786,102 |
Note 16A: Accounts payablespayable and accrued expenses clarification:
Our current trading environment is limited to a number of suppliers who offer prolonged credit terms which meansmeaning that most purchases are paid for in cash or shortshort-term credit terms (7 to 10 days); this grants, which in a way allows us better bargaining abilitycapacity to obtain cash discounts resulting in the low trade account payables and accruals balance of $12.55$10.43 million, about 25.9%36% of total revenuesales of $48.4 million.$29.26 million for the reasons stated below:
Our main Account Payables during Q1 2019 were generated from the following activities:
1. | We supply the following cost elements: our own staff, engineering and technology that enhanced our profit margins and reduced the overall cost of sales. Consulting and services (“C&S”) since inception is the major contributor of income to date and cost of revenue averaging 95% for CA. |
2. | Implementation, supervision, training and associated management work and most of the building sub-contractors worked at fixed costs; consequently, profit margins are contained providing ample opportunity for expanded credit terms. For contracts related to the construction of farms we use plants, equipment, parts and components that were specially manufactured and made as per our own design and engineering by local manufacturers and suppliers (who carry a high amount of initial development costs and inventories for us based on the understanding that we would pay for the deliveries of goods sold within shorter trading terms such that they could afford to carry such costs). We pay promptly in this respect and believe that, as time has passed, our track record has earned excellent credibility with all of our suppliers and sub-contractors. |
3. | In SJAP, the bulk of our fertilizers were sold to farmers who are growing pastures and crops for us such that their fertilizer sales were kept as book entries that would be offset with the pastures and crops that we would buy back from them. In the case of HSA, it is essential to provide longer credit terms (up to 360 days) to their customers (that are farmers) whereas respective payments for cost of sales (i.e., raw materials and processed materials etc.) and cost of production (i.e. wages and salaries, fuel and associated cost of production etc.) are at much shorter payment terms (i.e. 30 / 60 days). |
Note (16B): Analysis of Other Payables:(17) Non-current liabilities
AsOther payables of September 30 2017, other payables totaling $27,279,556 was composed of$7,759,801: During Q1 2019, the following:
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 2017Q1 2019 we redeemed $0$ 32,973 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$7,759,801 of Promissory Notespromissory notes still due and outstanding as of September 30, 2017.
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.
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, 2017 Compared to Nine Months Ended September 30, 2016 (presented in summarized Charts below):
Revenue:
Revenues decreased by $153,581,241 or 48% to $166,732,526 for the nine months ended September 30, 2017 from $320,313,767 for the nine months ended September 30, 2016. The decrease was primarily due to the decrease of revenue generated from our fishery, beef, organic fertilizer, and cattle farm whereas corporate and others operations and the maturity of on-going divisional businesses improved their revenues.
The following chart illustrates the changes by category from the nine months ended September 30, 2017 to September 30, 2016
Revenue | ||||||||||||
2017 | 2016 | |||||||||||
Category | Q1-Q3 | Q1-Q3 | Difference | |||||||||
$ | ||||||||||||
Fishery | 16,167,636 | 113,256,746 | (97,089,110 | ) | ||||||||
Plantation | 3,565,220 | 12,194,399 | (8,629,179 | ) | ||||||||
Beef | 47,241,793 | 88,813,154 | (41,571,361 | ) | ||||||||
Organic fertilizer | 19,893,518 | 35,190,587 | (15,297,069 | ) | ||||||||
Cattle farm | 23,094,392 | 21,555,101 | 1,539,291 | |||||||||
Corporate and others | 56,769,967 | 49,303,780 | 7,466,187 | |||||||||
Total | 166,732,526 | 320,313,767 | (153,581,241 | ) |
Cost
Cost decreased by $98,891,396 or 42% to $139,247,836 for the nine months ended September 30, 2017 from $238,139,232 for the nine months ended September 30, 2016. 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, 2017 as compared to the nine months ended September 30, 2016.
The following chart illustrates the changes by category from the nine months ended September 30, 2017 to September 30, 2016.
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 decreased by $54,689,845 or 67% to $27,484,690 for the nine months ended September 30, 2017 from $82,174,535 for the nine months ended September 30, 2016. The decrease was primarily due to the corresponding decreases in operation revenues.
The following chart illustrates the changes by category from the nine months ended September 30, 2017 to September 30, 2016.
The gross profit by category is as follows:
Gross profit | ||||||||||||
2017 | 2016 | |||||||||||
Category | Q1-Q3 | Q1-Q3 | Difference | |||||||||
$ | ||||||||||||
Fishery | 5,150,674 | 33,477,868 | (28,327,194 | ) | ||||||||
Plantation | 1,231,168 | 6,529,801 | (5,298,633 | ) | ||||||||
Beef | 3,093,299 | 19,955,595 | (16,862,296 | ) | ||||||||
Organic fertilizer | 8,203,621 | 15,197,557 | (6,993,936 | ) | ||||||||
Cattle farm | 3,512,350 | 1,162,838 | 2,349,512 | |||||||||
Corporate and others | 6,293,578 | 5,850,876 | 442,702 | |||||||||
Total | 27,484,690 | 82,174,535 | (54,689,845 | ) |
General and Administrative Expenses and Interest Expenses
General and administrative expenses and interest expenses (including depreciation and amortization) increased by $380,192 or 2% to $16,695,054 for the nine months ended September 30, 2017 from $16,314,862 for the nine months ended September 30, 2016. The change was primarily due to (i) an increase in Wages and salaries of $1,776,151 for the nine months ended September 30, 2017 from $3,264,942 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.
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.March 31, 2019.
Income Taxes
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 US 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 from 2007 to 2017 on which it has reported that there was no 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 years ended December 31, 20162017 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 compliance with US Treasury Internal Revenue Code and we filed our 2015 Tax returns with the Internal Revenue Service (“IRS”) in 2016.previous years.
No EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, JFD, HAS, QZHHSA and SJAP since they are exempt from EIT for the ninethree months ended September 30, 2017March 31, 2019 and 20162018 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 ninethree months ended September 30, 2017March 31, 2019 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 ninethree months ended September 30, 2017March 31, 2019 and 2016.2018.
No Swedish Corporate income tax has been provided in the consolidated financial statements, since SAFSSIAFS incurred a tax loss for the ninethree months ended September 30, 2017 and 2016.March 31, 2019.
No deferred tax assets and liabilities arehave been assessed as of September 30, 2017March 31, 2019 and December 31, 20162018 since there was no difference between the financial statements carrying amounts and the tax basesbasis of assets and liabilities usingutilizing the enacted tax rates in effect infor the period in which the differences are expected to reverse.occur.
Off Balance Sheet ArrangementsArrangements:
None.
Liquidity and Capital Resources
None.
Liquidity and Capital Resources
As of September 30 2017,March 31, 2019, unrestricted cash and cash equivalents amounted to $1,865,684$621,884 (see notes to the consolidated financial statements)account), and our working capital as of September 30, 2017March 31, 2019 was $315,363,140.$183,985,026.
As of September 30, 2017,March 31, 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 | 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 | 4,677,755 | 4,677,755 | ||||||||||||||||||||||||||||||||||||
Negotiable Promissory Notes | 368,462 | 368,462 | ||||||||||||||||||||||||||||||||||||||
Long Term Bank Loan | 6,026,819 | 6,026,819 | ||||||||||||||||||||||||||||||||||||||
Long Term Debts | 5,643,006 | 5,643,006 | ||||||||||||||||||||||||||||||||||||||
Promissory Notes | 14,492,221 | 14,492,221 | 7,759,801 | 7,759,801 | ||||||||||||||||||||||||||||||||||||
Notes Payable | 20,058,798 | 20,058,798 |
Cash provided by operating activities amounted to $27,498,878$(2,652,722) for Q1-3 2017.Q1 2019. This compares with cash provided by operating activities totaling $62,060,468$(5,570,600) for Q1-3 2016.Q1 2018. The decreaseincrease in cash flows provided by operating activitiesfrom operations primarily resulted primarily from the increase in inventories of $17,752,925to $(1,819,867) for Q1-3 2017Q1 2019 from $2,207,149$(5,725,242) for Q1-3 2016.Q1 2018.
Cash used in investing activities totaled $21,625,928$(2,908,845) for Q1-3 2017.ThisQ1 2019. This compares with cash used in investing activities totaling $57,758,296$(5,475,604) for Q1-3 2016.Q1 2018. The increase in cash flows used in investing activities primarily resulted primarily from payment for construction in progress of $7,073,340 for Q1-3 2017 compared to $47,834,113 for Q1-3 2016.$0 in Q1 2019 from $(3,053,4350 in Q1 2018.
Cash used in financing activities totaled $3,413,653$0 for Q1-3 2017.Q1 2019. This compares with cash used infrom financing activities totaling $5,611,449$0 for Q1-3 2016. The decrease in cash used in financing activities was primarily due to convertible notes repaid of $1,500,000 during Q1-3 2017 from $7,676,760 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.
There is currently no concrete plan to establish any additional SFJVCs.Q1 2018.
CRITICAL ACCOUNTING POLICIES
BASIS OF PRESENTATION
The unaudited consolidated financial statements for the ninethree months ended September 30, 2017March 31, 2019 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, 2017 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.
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 entityentities 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 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 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.
W determine revenue recognition through the following steps:
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. ServiceConsulting and service income from development contracts are 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 servicesthe 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 renderedincurred. Back charges to suppliers or subcontractors are recognized as a buyer by reference toreduction of cost when it is determined that recovery of such cost is probable and the stage of completion. License fee income isamounts can be reliably estimated. Disputed back charges are recognized onwhen the accrual basis in accordance with the underlying agreements.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 uponwhen (i) the Company has substantially accomplished 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 or (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 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.
For fixed-price contracts, the Company uses the ratio of costs incurred to date on the contract (excluding uninstalled direct materials) 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 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 $1,716, $2,988, $17,861$0 and $17,272$786 for the three months ended March 31, 2019 and the nine months ended September 30, 2017 and 2016,2018, respectively.
ADVERTISING
Advertising costs are included in general and administrative expenses, which totaled $382,424, $382,596, $1,386,186$377,946 and $1,163,547$400,754 for the three months ended March 31, 2019 and the nine months ended September 30, 2017 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$426,115 and $0 for the three months ended March 31, 2019 and the nine months ended September 30, 2017 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”PRC”) 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 aton 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 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 termlong-term receivable. Management evaluates the collectability of the receivables at least quarterly. There were nowas a written off on bad debts written offof $14,394,402 arising due to the dispose of QZH for the ninetwelve months ended September 30, 2017December 31, 2018 or September 30, 2016.(2016: Nil).
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 | |
Mature seed andherbage cultivation | 20 years | |
Furniture, fixtures and equipment | 2.5 - 10 years | |
Motor vehicles |
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.
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 linestraight-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 2520 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.
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.CPRC 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.
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) the 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 interests.
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 interestsinterests.
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.
The Company has adopted the cost method of accounting for treasury stock shares has been adopted by the Company.shares. 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”.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.
POLITICAL AND BUSINESS RISK
The Company’s operations are carried out in the PRC.PRC Accordingly, the Company’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’s economy. The Company’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’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, 2016 and December 31, 2015,2018, the Company determined noCompany’s impairment losses were necessary.on interests in an unconsolidated investee of $153,046 was recorded. (2016: Nil).
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 monthsquarters ended September 30, 2017March 31, 2018 and 2016,2019, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders for continuing and discontinued operations amounted to $0.14 and $1.04, respectively. For the three 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 $0.15 and $0.95, respectively.
For the three months ended September 30, 2017 and 2016, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries’subsidiaries common stockholders for continuing operations amounted to $0.14$0.17 and $0.91,$0.01, respectively. For the three monthsquarters ended September 30, 2017March 31, 2018 and 2016,2019, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders for continuing operations amounted to $0.15$0.17 and $0.81, 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.
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,$0.01, respectively.
FOREIGN CURRENCY TRANSLATION
The reporting currency of the Company is the U.S. dollar.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; 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.
For the ninethree months ended September 30, 2016March 31, 2019
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, 2016March 31, 2019 and December 31, 20152018 were translated at RMB6.68RMB6.73 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 ninethree months ended September 30, 2016March 31, 2019 and September 30, 2015March 31, 2018 were RMB6.58RMB6.75 to $1.00 and RMB6.17RMB6.36 to $1.00, respectivelyrespectively.
For the ninethree months ended September 30, 2017March 31, 2018
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, 2017March 31, 2018 and December 31, 2016 were2017were translated at RMB6.64RMB6.29 to $1.00 and RMB6.94RMB6.53 to $1.00, respectively. The average translation rates applied to the consolidated statements of income and comprehensive income and of cash flows for the ninethree months ended September 30,March 31, 2018 and March 31, 2017 and September 30, 2016 were RMB6.80RMB6.36 to $1.00 and RMB6.58RMB6.89 to $1.00, 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 “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.
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.
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, 2017 or December 31, 2016, 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, 2017 or 2016.
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, 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 usrelevant and / or subsequent information:
On March 26, 2019, a shareholder derivative complaint was filed in the first quarterUnited States District Court for the Southern District of 2018, withNew York against the optionCompany, 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’s Motion to adopt itDismiss the Complaint is currently due on or before June 28, 2019.
The 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 first quarterview of 2017. We currently anticipate adopting the new standard effective January 1, 2018,plaintiffs, has diluted shareholder ownership and do not expectoppressed shareholders of the standardCompany. The Company believes that these claims are without merit and intend to vigorously defend the action. 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 impactadverse effect on our consolidatedbusiness, financial statements.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statementcondition and results 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.
operations .
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.Not applicable.
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, 2013 through 2016 were RMB6.19, RMB6.14, RMB6.23, and RMB6.64, 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
ITEM 4. | 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”“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 Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the “Evaluation”“Evaluation”), under the supervision and with the participation of our Chief Executive Officer (“CEO”CEO”) and Interim Chief Financial Officer (“CFO”CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”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, 2017March 31, 2019 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting
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.
ITEM 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’s Motion to Dismiss the Complaint is currently due on or before June 28, 2019.
The 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. The Company believes that these claims are without merit and intend to vigorously defend the action. 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.
ITEM 1A. | RISK FACTORS |
Not applicable
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
DuringFor the 3three months period ended September 30, 2017,March 31, 2019, the Company issued 2,382,246109,911 shares as additional security against working capital made available through a trade facility loan.of common stock valued at $ 0.30 per share for settlement of 32,973.30 of debts
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
NoneNone.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
ITEM 5. | OTHER INFORMATION |
NoneNone.
ITEM 6. | EXHIBITS |
Exhibit No. | Description of Exhibits | |
31.1 | Section 302 Certification of Principal Executive | |
32.1 | Section 906 Certification of Principal Executive Officer and Principal Financial | |
101.INS | XBRL Instance | |
101.SCH | XBRL Taxonomy Extension Schema | |
101.CAL | XBRL Taxonomy Calculation Linkbase | |
101.LAB | XBRL Taxonomy Labels Linkbase | |
101.PRE | XBRL Taxonomy Presentation Linkbase | |
101.DEF | XBRL Definition Linkbase |
+filed herewith
* furnished herewith
filed herewith |
** | furnished herewith |
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. | ||
May 17, 2019 | By: | /s/ LEE YIP KUN SOLOMON |
Lee Yip Kun Solomon | ||
Chief Executive 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.