10-Q 1 v352510_10q.htm 10-Q
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 quarterly period ended June 30, 2013
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
 
(I.R.S. Employer Identification Number)
Organization)
 
 
 
 
 
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 Friedman Ference LLP
61 Broadway, 32ndFloor
New York, NY10006
Attn: Marc 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. Yes x No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” "non-accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
 
As of August 13, 2013, there were 124,521,036 shares of our common stock issued and outstanding.
 
 
 
TABLE OF CONTENTS
 
 
 
Page
PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements
3
Item 2.
Management’s Discussion and Analysis of Financial Condition and Plan of Operations
4
Item 3. 
Quantitative and Qualitative Disclosures About Market Risk 
55
Item 4.
Controls and Procedures
55
 
 
 
PART II – OTHER INFORMATION
 
Item 1.
Legal Proceedings
55
Item 1A.
Risk Factors
55
Item 2.
Unregistered Sale of Equity Securities and Use of Proceeds
55
Item 3.
Defaults Upon Senior Securities
56
Item 4.
Mine Safety Disclosures
56
Item 5.
Other Information
56
Item 6.
Exhibits
56
SIGNATURES
 
57
 
  
2

PART I - FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
SINO AGRO FOOD, INC. AND SUBSIDIARIES
 
QUARTERLY FINANCIAL REPORT
 
FOR THE SIX MONTHS ENDED JUNE 30, 2013
 
INDEX TO QUARTERLY FINANCIAL REPORT 
 
   
   
PAGE
   
 
 
CONSOLIDATED BALANCE SHEETS
 
F - 1
   
 
 
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 
F - 2
   
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
F - 3
   
 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
F - 4 - F - 38
 
 
3

SINO AGRO FOOD, INC.
CONSOLIDATED BALANCE SHEETS
 
 
 
June 30, 2013
 
December 31, 2012
 
 
 
(Unaudited)
 
(Audited)
 
ASSETS
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
9,391,449
 
$
8,424,265
 
Inventories
 
 
18,887,433
 
 
17,114,755
 
Cost and estimated earnings in excess of billings on uncompleted contracts
 
 
1,286,775
 
 
2,336,880
 
Deposits and prepaid expenses
 
 
52,091,997
 
 
47,308,857
 
Accounts receivable, net of allowance for doubtful accounts
 
 
82,373,870
 
 
52,948,350
 
Other receivables
 
 
6,374,272
 
 
5,954,248
 
Total current assets
 
 
170,405,796
 
 
134,087,355
 
Property and equipment
 
 
 
 
 
 
 
Property and equipment, net of accumulated depreciation
 
 
21,019,253
 
 
19,946,302
 
Construction in progress
 
 
38,089,142
 
 
24,492,510
 
Land use rights, net of accumulated amortization
 
 
56,379,855
 
 
55,733,246
 
Total property and equipment
 
 
115,488,250
 
 
100,172,058
 
Other assets
 
 
 
 
 
 
 
Goodwill
 
 
724,940
 
 
724,940
 
Proprietary technologies, net of accumulated amortization
 
 
7,906,667
 
 
8,114,624
 
License rights
 
 
1
 
 
1
 
Total other assets
 
 
8,631,608
 
 
8,839,565
 
 
 
 
 
 
 
 
 
Total assets
 
$
294,525,654
 
$
243,098,978
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
Accounts payable and accrued expenses
 
$
8,368,834
 
$
5,762,643
 
Billings in excess of costs and estimated earnings on uncompleted contracts
 
 
922,375
 
 
2,790,084
 
Due to a director
 
 
3,257,085
 
 
3,345,803
 
Dividends payable
 
 
-
 
 
951,308
 
Other payables
 
 
10,259,178
 
 
6,654,478
 
Short term bank loan
 
 
2,265,849
 
 
3,181,927
 
 
 
 
25,073,321
 
 
22,686,243
 
Non-current liabilities
 
 
 
 
 
 
 
Deferred dividends payable
 
 
3,146,987
 
 
3,146,987
 
Long term debts
 
 
178,031
 
 
175,006
 
 
 
 
3,325,018
 
 
3,321,993
 
Commitments and contingencies
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
Stockholders' equity
 
 
 
 
 
 
 
Preferred stock: $0.001 par value
 
 
 
 
 
 
 
(10,000,000 shares authorized, 0 share issued and outstanding as of
    June 30, 2013 and December 31, 2012, respectively)
 
 
 
 
 
 
 
Series A preferred stock: $0.001 par value
 
 
-
 
 
-
 
(100 shares designated, 100 shares issued and outstanding as of June 30,
    2013 and December 31, 2012, respectively)
 
 
 
 
 
 
 
Series B convertible preferred stock: $0.001 par value)
 
 
7,000
 
 
10,000
 
(10,000,000 shares designated, 7,000,000 and 10,000,000 shares issued and
    outstanding) as of June 30, 2013 and December 31, 2012, respectively)
 
 
 
 
 
 
 
Series F Non-convertible preferred stock: $0.001 par value)
 
 
 
 
 
 
 
(1,000,000 shares designated, 0 shares issued and outstanding) as of June
    30, 2013 and December 31, 2012, respectively)
 
 
 
 
 
 
 
Common stock: $0.001 par value
 
 
120,174
 
 
100,005
 
(130,000,000 shares authorized, 120,173,827 and 100,004,850
    shares issued and oustanding as of June 30, 2013 and
    December 31, 2012, respectively)
 
 
 
 
 
 
 
Additional paid - in capital
 
 
100,615,051
 
 
91,216,428
 
Retained earnings
 
 
134,574,019
 
 
103,864,308
 
Accumulated other comprehensive income
 
 
5,139,044
 
 
3,868,274
 
Treasury stock
 
 
(1,250,000)
 
 
(1,250,000)
 
Total Sino Agro Food, Inc. and subsidiaries stockholders' equity
 
 
239,205,288
 
 
197,809,015
 
Non - controlling interest
 
 
26,922,027
 
 
19,281,727
 
Total stockholders' equity
 
 
266,127,315
 
 
217,090,742
 
Total liabilities and stockholders' equity
 
$
294,525,654
 
$
243,098,978
 
   
The accompanying notes are an integral part of these consolidated financial statements.
 
F - 1

SINO AGRO FOOD, INC.
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 
 
 
Three
 
Three
 
Six
 
Six
 
 
 
months ended
 
months ended
 
months ended
 
months ended
 
 
 
June 30, 2013
 
June 30, 2012
 
June 30, 2013
 
June 30, 2012
 
 
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
54,400,329
 
$
25,348,287
 
$
109,508,080
 
$
41,328,303
 
Cost of goods sold
 
 
35,009,882
 
 
11,790,039
 
 
68,594,816
 
 
19,756,463
 
Gross profit
 
 
19,390,447
 
 
13,558,248
 
 
40,913,264
 
 
21,571,840
 
General and administrative expenses
 
 
(1,608,304)
 
 
(2,735,677)
 
 
(3,813,692)
 
 
(4,957,999)
 
Net income from operations
 
 
17,782,143
 
 
10,822,571
 
 
37,099,572
 
 
16,613,841
 
Other income
 
 
 
 
 
 
 
 
 
 
 
 
 
Government grant
 
 
-
 
 
-
 
 
79,759
 
 
79,401
 
Other income
 
 
47,718
 
 
20,797
 
 
65,907
 
 
436,649
 
Gain on extinguishment of debts
 
 
498,025
 
 
562,361
 
 
1,051,013
 
 
817,513
 
Interest expense
 
 
(54,958)
 
 
-
 
 
(112,010)
 
 
-
 
Net income
 
 
490,785
 
 
583,158
 
 
1,084,669
 
 
1,333,563
 
Net income before income taxes
 
 
18,272,928
 
 
11,405,729
 
 
38,184,241
 
 
17,947,404
 
Provision for income taxes
 
 
-
 
 
-
 
 
-
 
 
-
 
Net income
 
 
18,272,928
 
 
11,405,729
 
 
38,184,241
 
 
17,947,404
 
Less: Net (income) loss attributable
    to the non - controlling interest
 
 
(3,941,988)
 
 
(1,115,707)
 
 
(7,474,529)
 
 
(1,985,920)
 
Net income from continuing operations attributable
    to Sino Agro Food, Inc. and subsidiaries
 
 
14,330,940
 
 
10,290,022
 
 
30,709,712
 
 
15,961,484
 
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation gain
 
 
1,728,409
 
 
(73,645)
 
 
1,436,541
 
 
546,712
 
Comprehensive income
 
 
16,059,349
 
 
10,216,377
 
 
32,146,253
 
 
16,508,196
 
Less: other comprehensive (income) loss attributable
    to the non - controlling interest
 
 
(217,553)
 
 
23,878
 
 
(165,771)
 
 
(131,211)
 
Comprehensive income attributable to
 
 
 
 
 
 
 
 
 
 
 
 
 
Sino Agro Food, Inc. and subsidiaries
 
$
15,841,796
 
$
10,240,255
 
$
31,980,482
 
$
16,376,985
 
Earnings per share attributable to Sino Agro Food, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
and subsidiaries common stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.13
 
$
0.14
 
$
0.28
 
$
0.22
 
Diluted
 
$
0.12
 
$
0.13
 
$
0.27
 
$
0.20
 
Weighted average number of shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
115,366,595
 
 
73,836,392
 
 
110,403,819
 
 
71,312,129
 
Diluted
 
 
122,366,595
 
 
80,836,392
 
 
117,403,819
 
 
78,312,129
 
   
 
F - 2
 

SINO AGRO FOOD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
Six months ended
 
Six months ended
 
 
 
June 30, 2013
 
June 30, 2012
 
 
 
(Unaudited)
 
(Unaudited)
 
 
 
 
 
 
(Restated)
 
Cash flows from operating activities
 
 
 
 
 
 
 
Net income
 
$
38,184,241
 
$
17,947,404
 
Adjustments to reconcile net income to net cash from operations:
 
 
 
 
 
 
 
Depreciation
 
 
638,671
 
 
183,154
 
Amortization
 
 
976,294
 
 
1,138,176
 
Common stock issued for services
 
 
181,200
 
 
2,139,057
 
Gain on extinguishment of debts
 
 
(1,051,013)
 
 
(817,513)
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Increase in inventories
 
 
(1,842,406)
 
 
(4,618,431)
 
(Increase) decrease in cost and estimated earnings in excess of
    billings on uncompleted contacts
 
 
1,050,105
 
 
(1,966,711)
 
Increase in deposits and prepaid expenses
 
 
(4,783,140)
 
 
(10,893,566)
 
Increase in due to a director
 
 
8,264,907
 
 
346,076
 
Increase (decrease) in accounts payable and accrued expenses
 
 
2,606,191
 
 
(509,997)
 
(Decrease) increase in other payables
 
 
3,608,856
 
 
9,426,533
 
(Increase) decrease in accounts receivable
 
 
(29,425,520)
 
 
(5,173,526)
 
(Decrease) increase in billings in excess of costs and estimated earnings
    on uncompleted contracts
 
 
(1,867,709)
 
 
578,889
 
Decrease in amount due to related parties
 
 
-
 
 
(52,321)
 
Increase in other receivables
 
 
(420,024)
 
 
(839,683)
 
Net cash provided by operating activities
 
 
16,120,653
 
 
9,887,541
 
Cash flows from investing activities
 
 
 
 
 
 
 
Purchases of property and equipment
 
 
(490,323)
 
 
(20,423)
 
Acquisition of proprietary technologies
 
 
-
 
 
(1,500,000)
 
Acquisition of land use rights
 
 
(490,323)
 
 
-
 
Investment in unconsolidated equity investee
 
 
-
 
 
(1,076,489)
 
Business combination of a subsidiary
 
 
 
 
 
(2,499,184)
 
Payment for construction in progress
 
 
(13,596,632)
 
 
(6,626,688)
 
Net cash used in investing activities
 
 
(14,086,955)
 
 
(11,722,784)
 
Cash flows from financing activities
 
 
 
 
 
 
 
Non - controlling interest contribution
 
 
-
 
 
1,806,664
 
Dividends paid
 
 
(951,308)
 
 
(134,631)
 
Net cash (used in) provided by financing activities
 
 
(951,308)
 
 
1,672,033
 
Effects on exchange rate changes on cash
 
 
(115,206)
 
 
1,467,667
 
Increase in cash and cash equivalents
 
 
967,184
 
 
1,304,457
 
Cash and cash equivalents, beginning of period
 
 
8,424,265
 
 
1,387,908
 
Cash and cash equivalents, end of period
 
$
9,391,449
 
$
2,692,365
 
Supplementary disclosures of cash flow information:
 
 
 
 
 
 
 
Cash paid for interest
 
$
112,010
 
 
-
 
Cash paid for income taxes
 
 
-
 
 
-
 
Non - cash transactions
 
 
 
 
 
 
 
Common stock issued for settlement of debts
 
$
9,404,638
 
$
2,373,992
 
Series B Convertible preferred shares cancelled
 
$
(3,000)
 
$
-
 
 
 
F - 3

SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.
CORPORATE INFORMATION
 
 
 
Sino Agro Food, Inc. (the “Company” or “SIAF”) (formerly known as Volcanic Gold, Inc. and A Power Agro Agriculture Development, Inc.) was incorporated on October 1, 1974 in the State of Nevada.
 
 
 
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 32,000,000 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 “PRC”):
 
 
(a)
Hang Yu Tai Investment Limited (“HYT”), a company incorporated in Macau, the owner of a 78% equity interest in ZhongXingNongMu Ltd (“ZX”), a company incorporated in the PRC;
 
 
 
 
(b)
Tri-way Industries Limited (“TRW”), a company incorporated in Hong Kong;
 
 
 
 
(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 PRC 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 PRC 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 PRC, 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 owned by the PRC with major business activities in the agriculture industry; and
 
 
 
 
Guangzhou City Garwor Company Limited (English translation) (“Garwor”), a private limited company incorporated in the PRC, 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, PRC.
 
 
 
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%. This remains the case as of the date of this quarterly report (the “Report”).
 
 
 
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.
 
 
F - 4
 
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.
CORPORATE INFORMATION (CONTINUED)
 
 
 
The Company applied to form Enping City Bi Tao A Power Prawn Culture Development Co. Limited (“EBAPCD”), in which the Company would indirectly own a 25% equity interest on February 28, 2011.
 
 
 
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 $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. On April 1, 2012, the Company acquired an additional 25% equity interest in JFD for the amount of $1,702,580. The Company presently owns a 75% equity interest in JFD, representing majority of voting rights and controls its board of directors. As of January 1, 2012, the Company had consolidated the assets and operations of JFD.
 
 
 
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 in on November 17, 2011. On January 1, 2012, the Company had invested $1,076,489 in 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 $2,944,176 on September 30, 2012 while withdrawing its 25% equity interest in ECF. 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. During the quarter ended June 30, 2013, MEIJI further invested $400,000 in JHMC, respectively.
 
 
 
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%. During the quarter ended June 30, 2013, MEIJI and SJAP further invested $280,000 and $719,100 in HSA, respectively.
 
 
 
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, PRC, 510610.
 
 
 
The nature of the operations and principal activities of the Company and its subsidiaries are described in Note 2.2.

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 
2.1
FISCAL YEAR
 
 
 
 
 
The Company has adopted December 31 as its fiscal year end.
 
 
F - 5
 
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 
2.2
REPORTING ENTITY
 
 
 
 
 
The accompanying consolidated financial statements include the following entities:
   
 
Name of subsidiaries
 
Place of incorporation
 
Percentage of interest
 
Principal activities
 
 
 
 
 
 
 
 
 
 
 
Capital Award Inc. ("CA")
 
Belize
 
100% (12.31.2012: 100%) directly
 
Fishery development and holder of A-Power Technology master license.
 
 
 
 
 
 
 
 
 
 
 
Capital Stage Inc. ("CS")
 
Belize
 
100% (12.31.2012:100%) indirectly
 
Dormant
 
 
 
 
 
 
 
 
 
 
 
Capital Hero Inc. ("CH")
 
Belize
 
100% (12.31.2012:100%) indirectly
 
Dormant
 
 
 
 
 
 
 
 
 
 
 
Tri-way Industries Limited ("TRW")
 
Hong Kong, PRC
 
100% (12.31.2012: 100%) directly
 
Investment holding, holder of enzyme technology master license for manufacturing of livestock feed and bio-organic fertilizer and has not commenced its planned business of fish farm operations.
 
 
 
 
 
 
 
 
 
 
 
Macau Meiji Limited ("MEIJI")
 
Macau, PRC
 
100% (12.31.2012: 100%) directly
 
Investment holding, cattle farm development, beef cattle and beef trading
 
     
 
A Power Agro Agriculture Development (Macau) Limited ("APWAM")
 
Macau, PRC
 
100% (12.31.2012: 100%) directly
 
Investment holding
 
 
 
Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd ("JHST")
 
PRC
 
75% (12.31.2012: 75%) directly
 
Hylocereus Undatus Plantation ("HU Plantation").
 
 
 
 
 
 
 
 
 
 
 
Jiang Men City A Power Fishery Development Co., Limited ("JFD")
 
PRC
 
75% (12.31.2012: 75%) indirectly
 
Fish cultivation
 
 
   
    
 
 
 
Jiang Men City Hang Mei Cattle Farm Development Co., Limited ("JHMC")
 
PRC
 
75% (12.31.2012: 75%) indirectly
 
Beef cattle cultivation
 
 
 
 
 
 
 
 
 
 
 
Hunan Shenghua A Power Agriculture Co., Limited ("HSA")
 
PRC
 
26% directly and 50% indirectly (12.31.2012: 26% directly and 50% indirectly)
 
Manufacturing of organic fertilizer,livestock feed, and beef cattle and sheep cultivation, and plantation of crops and pastures
 
 
 
 
 
 
 
 
 
 
Name of variable interest entity
 
Place of incorporation
 
Percentage of interest
 
Principal activities
 
 
 
 
 
 
Qinghai Sanjiang A Power Agriculture Co., Ltd ("SJAP")
 
PRC
 
45% (12.31.2012: 45%) indirectly
 
Manufacturing of organic fertilizer,livestock feed, and beef cattle and plantation of crops and pastures
 
 
 
 
 
 
 
 
 
 
Name of unconsolidated equity
investee
 
Place of incorporation
 
Percentage of interest
 
Principal activities
 
 
 
 
 
 
 
 
 
 
 
Enping City Bi Tao A Power Prawn Culture Development Co., Limited ("EBAPCD") (pending approval)
 
PRC
 
25% (12.31.2012: 25% indirectly)
 
Prawn cultivation
 
 
 
F - 6
 
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”).
 
 
 
 
 
Interim results are not necessarily indicative of 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, 2012.
 
 
 
 
2.4
BASIS OF CONSOLIDATION
 
 
 
 
 
The consolidated financial statements include the financial statements of the Company, its subsidiaries CA, CS, CH, TRW, MEIJI, JHST, JFD, JHMC, HSA and APWAM and its variable interest entity SJAP. All material inter-company transactions and balances have been eliminated in consolidation.
 
 
 
 
SIAF, CA, CS, CH, TRW, MEIJI, JHST, JFD, JHMC, HSA, APWAM and SJAP 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 he 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.
 
 
F - 7
 
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 policies are in compliance with ASC 605. Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured. These criteria are generally satisfied at the time of shipment when risk of loss and title passes to the customer.
 
 
 
 
 
License fee income is recognized on the accrual basis in accordance with the agreements.
 
 
 
 
 
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.
 
 
 
 
 
Revenues from the Company's fishery development services 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 recognizes 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’s fishery development consultancy services revenues are recognized when the relevant services are rendered to a buyer.
 
 
 
 
 
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.
   
 
F - 8
   
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 
2.9
COST OF GOODS SOLD
 
 
 
 
 
Cost of goods sold consists primarily of direct purchase cost of merchandise goods, and related levies.
 
 
 
 
2.10
SHIPPING AND HANDLING
 
 
 
 
 
Shipping and handling costs related to cost of goods sold are included in general and administrative expenses, which totaled $6,429, $1,113, $2,151 and $0 for the three months and the six months ended June 30, 2013 and 2012, respectively.
 
 
 
 
2.11
ADVERTISING
 
 
 
 
 
Advertising costs are included in general and administrative expenses, which totaled $542, $2,849, $542 and $3,167 for the three months and the six months ended June 30, 2013 and 2012, respectively.
 
 
 
 
2.12
FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME
 
 
 
 
 
The reporting currency of the Company is the U.S. dollar. The functional currency of the Company is the Chinese Renminbi (RMB).
 
 
 
 
 
For those entities whose functional currency is other than the U.S. dollar, 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 $5,139,044 as of June 30, 2013 and $ 3,875,101 as of December 31, 2012. The balance sheet amounts with the exception of equity as of June 30, 2013 and December 31, 2012 were translated using an exchange rate of RMB 6.18 to $1.00 and RMB 6.29 to $1.00, respectively. The average translation rates applied to the statements of income and other comprehensive income and of cash flows for the three months ended June 30, 2013 and 2012 were RMB 6.24 to $1.00 and RMB 6.31 to $1.00, respectively.
 
 
 
 
2.13
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 PRC 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.
 
 
 
 
2.14
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 June 30, 2013 and December 31, 2012 is $0.
 
 
F - 9
   
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 
2.15
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.
 
 
 
 
2.16
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. Similarly, when each major inspection is performed, its cost is recognized in the carrying amount of the property 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 - 20 years
 
Mature seeds
20 years
 
Furniture and equipment
2.5 - 10 years
 
Motor vehicles
5 -10 years
 
 
 
An item of property and equipment is removed from the accounts upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated statements of income in the period the item is disposed.
 
 
 
 
2.17
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.
 
 
F - 10
   
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 
 
 
2.18
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. Stock feed manufacturing technology 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. Stock feed manufacturing technology is amortized using the straight-line method over its estimated life of 25 years.
 
 
 
 
 
The Company has determined that technological feasibility is established at the time a working model of products is completed. Proprietary technologies are intangible assets of finite lives. Management evaluates the recoverability of proprietary technologies on an annual basis at the end of the Company’s fiscal year, or when impairment indicators arise. As required by ASC Topic 350 “Intangible – Goodwill and Other”, the Company uses a fair-value-based approach to test for impairment.
 
 
 
 
2.19
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.
 
 
 
 
2.20
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 30 to 60 years. Land use rights purchase prices were determined in accordance with the 2007 PRC Government’s minimum lease payments on agricultural land and mutually agreed to terms between the Company and the vendors.
 
 
 
 
2.21
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.
 
 
F - 11
 
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 
 
 
2.22
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.
 
 
 
 
2.23
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.
 
 
 
 
2.24
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.
   
 
F - 12
 
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 
 
2.24
INCOME TAXES (CONTINUED)
 
 
 
 
 
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.
 
 
 
 
2.25
POLITICAL AND BUSINESS RISK
 
 
 
 
 
The Company's operations are carried out in the PRC. Accordingly, the political, economic and legal environment in the PRC may influence the Company’s business, financial condition and results of operations 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.
 
 
F - 13
 
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 
 
2.26
CONCENTRATION OF CREDIT RISK
 
 
 
 
 
Cash includes cash at banks and demand deposits in accounts maintained with banks within the PRC. Total cash in these banks as of June 30, 2013 and December 31, 2012 amounted to $9,274,048 and $8,403,458, 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. Accounts receivable are derived from revenue earned from customers located primarily in the PRC. The Company performs ongoing credit evaluations of customers and has not experienced any material losses to date.
 
 
 
 
 
The Company had 5 major customers whose revenue individually represented the following percentages of the Company’s total revenue:
 
 
 
Three months
 
 
Three months
 
 
Six months
 
 
Six months
 
 
 
 
ended
 
 
ended
 
 
ended
 
 
ended
 
 
 
 
June 30,
 
 
June 30,
 
 
June 30,
 
 
June 30,
 
 
 
 
2013
 
 
2012
 
 
2013
 
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer A
 
26.94
%
 
12.76
%
 
18.57
%
 
7.82
%
 
Customer B
 
-
 
 
25.65
%
 
16.71
%
 
21.85
%
 
Customer C
 
12.51
%
 
14.44
%
 
12.32
%
 
12.21
%
 
Customer D
 
8.90
%
 
-
 
 
10.09
%
 
11.87
%
 
Customer E
 
-
 
 
-
 
 
8.20
%
 
-
 
 
Customer F
 
-
 
 
18.99
%
 
-
 
 
20.63
%
 
Customer G
 
-
 
 
8.21
%
 
-
 
 
-
 
 
Customer H
 
7.98
%
 
 
 
 
 
 
 
 
 
 
Customer I
 
7.86
%
 
 
 
 
 
 
 
 
 
 
 
 
64.19
%
 
80.05
%
 
65.89
%
 
74.38
%
 
 
 
 
 
Segment
 
Amount
 
Customer A
 
 
Fishery Development Division
 
$
20,338,677
 
Customer B
 
 
Fishery Development Division
 
$
18,293,639
 
Customer C
 
 
Organic Fertilizer and Bread Grass Division
 
$
13,494,997
 
Customer D
 
 
Fishery Development Division
 
$
11,051,367
 
 
 
F - 14
 
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 
 
 
2.26
CONCENTRATION OF CREDIT RISK (CONTINUED)
 
 
 
 
 
The Company had 5 major customers whose accounts receivable balance individually represented the following percentages of the Company’s total accounts receivable:
 
 
 
June 30, 2013
 
 
December 31, 2012
 
 
 
 
 
 
 
 
Customer A
 
15.21
%
 
11.14
%
Customer B
 
15.01
%
 
14.32
%
Customer C
 
12.03
%
 
9.94
%
Customer D
 
11.69
%
 
18.18
%
Customer E
 
8.26
%
 
8.23
%
 
 
62.20
%
 
61.81
%
 
 
As of June 30, 2013, amounts due from customers A, B, C and D are $12,529258, $12,365,914, $9,908,296 and $9,628.321, 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.
 
 
2.27
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, 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, 2013 and December 31, 2012, the Company determined no impairment charges were necessary.
 
 
F - 15
 
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 
 
 
2.28
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.
 
 
 
 
 
For the three months ended June 30, 2013 and 2012, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amount to $0.13 and $0.14, respectively. For the three months ended June 30, 2013 and 2012, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.12 and $0.13, respectively
 
 
 
 
 
For the six months ended June 30, 2013 and 2012, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amount to $0.28 and $0.22, respectively. For the six months ended June 30, 2013 and 2012, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.27 and $0.20, respectively
 
 
 
 
2.29
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.
 
 
 
 
2.30
RETIREMENT BENEFIT COSTS
 
 
 
 
 
PRC state managed retirement benefit programs are defined contribution plans and the payments to the plans are charged as expenses when employees have rendered service entitling them to the contribution made by the employer.
 
 
 
 
2.31
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” using the fair value method in which an entity issues its equity instruments to acquire goods and services from employees and non-employees. Stock compensation for stock granted to non-employees has been determined in accordance with this accounting standard and the accounting standard regarding accounting for equity instruments that are issued to other than employees for acquiring, or in conjunction with selling goods or services, as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured. This accounting standard allows the “simplified” method to determine the term of employee options when other information is not available. Under ASC Topic 718 and ASC Topic 505-50, stock compensation expenses is measured at the grant date on the value of the option or restricted stock and is recognized as expenses, less expected forfeitures, over the requisite service period, which is generally the vesting period.
 
 
F - 16
 
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 
 
 
2.32
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 June 30, 2013 or December 31, 2012, 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 June 30, 2013 or June 31, 2012.
 
 
 
 
2.33
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 July 2012, the FASB issued Accounting Standards Update ASU 2012-02, the amendments to ASC 350, Intangibles—Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”). The amendments apply to all entities, both public and nonpublic, that have indefinite-lived intangible assets, other than goodwill, reported in their financial statements. In accordance with the amendments an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Subtopic 350-30. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, and early adoption is permitted. The Company will apply these amendments for reporting periods beginning after December 31, 2012. The Company does not expect the adoption of the amendments to have a material impact on the consolidated financial statements.
 
 
F - 17

SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
3.
SEGMENT INFORMATION
 
 
 
The Company establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as business segments and major customers in consolidated financial statements. The Company operates in four principal reportable segments: Fishery Development Division, and HU Plantation Division and Organic Fertilizer and Bread Grass Division, and Cattle Development Division. No geographic information is required as all revenue and assets are located in PRC.
 
For the three months ended June 30, 2013
 
 
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
17,904,106
 
$
3,554,986
 
$
16,946,378
 
$
6,421,161
 
 
9,573,698
 
$
54,400,329
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
2,898,600
 
$
2,452,706
 
$
5,679,317
 
$
929,277
 
$
2,371,040
 
$
14,330,940
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
67,526,143
 
$
38,726,053
 
$
120,479,483
 
$
41,542,654
 
$
26,251,321
 
$
294,525,654
 
 
For the three months ended June 30, 2012
 
 
 
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
15,799,765
 
$
2,081,863
 
$
3,684,693
 
$
1,781,966
 
$
-
 
$
25,348,287
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
8,321,886
 
$
1,117,450
 
$
469,629
 
$
461,438
 
$
(80,381)
 
$
10,290,022
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
59,793,491
 
$
27,151,644
 
$
71,872,466
 
$
9,791,026
 
$
14,721,073
 
$
183,329,700
 
 
 
F - 18
 
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
3.
SEGMENT INFORMATION
   
 
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
42,122,633
 
$
3,554,986
 
$
31,824,277
 
$
14,783,718
 
 
17,222,466
 
$
109,508,080
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
11,053,353
 
$
2,211,567
 
$
9,342,579
 
$
3,369,881
 
$
4,732,332
 
$
30,709,712
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
67,526,143
 
$
38,726,053
 
$
120,479,483
 
$
41,542,654
 
$
26,251,321
 
$
294,525,654
 
 
For the six months ended June 30, 2012
 
 
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
26,894,373
 
$
2,081,863
 
$
9,628,641
 
$
2,723,426
 
$
-
 
$
41,328,303
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
13,592,472
 
$
1,090,577
 
$
1,035,018
 
$
1,186,596
 
$
(943,177)
 
$
15,961,484
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
59,793,491
 
$
27,151,644
 
$
71,872,466
 
$
9,791,026
 
$
14,721,073
 
$
183,329,700
 
 
 
Note
 
(1)
Operated by Capital Award, Inc. and Jiangmen City A Power Fishery Development Co. Ltd.
 
(2)
Operated by Jiangmen City Heng Sheng Tai Agriculture Development Co. Ltd.
 
(3)
Operated by Qinghai Sanjiang A Power Agriculture Co. Ltd, A Power Agro Agriculture Development (Macau)Limited and Hunan Shenghua A Power Agriculture Co., Limited.
 
(4)
Operated by Jiangmen City Hang Mei Cattle Farm Development Co. Ltd and Macau Meiji Limited.
 
(5)
Operated by Sino Agro Food, Inc.
 
 
F - 19

SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
4.
INCOME TAXES
 
 
United States of America
 
 
 
The Company was incorporated in the State of Nevada, in the United States of America. The Company has no trading operations in United States of America and no US corporate tax has been provided for in the consolidated financial statements of the Company
 
 
 
Undistributed Earnings of Foreign Subsidiaries
 
 
 
The Company intends to use the remaining accumulated and future earnings of foreign subsidiaries to expand operations outside the United States and accordingly, undistributed earnings of foreign subsidiaries are considered to be indefinitely reinvested outside the United States and no provision for U.S. Federal and State income tax or applicable dividend distribution tax has been provided thereon. 
 
 
 
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 CA, ZX, JHST, JHMC, HSA and SJAP since they are exempt from EIT for the six months ended June 30, 2013 and 2012 as they are within the agriculture, dairy and fishery sectors.
 
 
 
On December 31, 2012, Tax authority agreed that HSA and JFD were exempt from EIT since January 1, 2011 as both companies are within the agriculture, dairy and fishery sectors.
 
 
 
Belize and Malaysia
 
 
 
CA, CS and CH are international business companies incorporated in Belize, and are exempt from corporate tax in Belize.
 
 
 
All sales invoices of CA were issued by its representative office in Malaysia and its trading and service activities are conducted in China. As the Malaysia tax law is imposed on a territorial basis and not on a worldwide basis, CA’s income is not subject to Malaysian corporate tax.
 
 
 
As a result, neither Belize nor Malaysia corporate tax is provided for in the consolidated financial statements of CA for the six months ended June 30, 2013 and 2012.
 
 
 
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 for the six months ended June 30, 2013 and 2012.
 
 
 
Macau
 
No Macau Corporation tax has been provided in the consolidated financial statements of HYT, APWAM and MEIJI since these entities did not earn any assessable profits for the six months ended June 30, 2013 and 2012.
 
 
 
No deferred tax assets and liabilities are of June 30, 2013 and December 31, 2012 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.
 
 
F - 20
 
SINO AGRO FOOD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
4.
INCOME TAXES (CONTINUED)
 
 
Provision for income taxes is as follows:
 
 
 
Three
 
Three
 
Six
 
Six
 
 
 
months ended
 
months ended
 
months ended
 
months ended
 
 
 
June 30, 2013
 
June 30, 2012
 
June 30, 2013
 
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax provision
 
 
 
 
 
 
 
 
 
 
 
 
 
- SIAF
 
$
-
 
$
-
 
$
-
 
$
-
 
- CA, CS and CH
 
 
-
 
 
-
 
 
-
 
 
-
 
- TRW
 
 
-
 
 
-
 
 
-
 
 
-
 
- MEIJI and APWAM
 
 
-
 
 
-
 
 
-
 
 
-
 
- JHST, JHMC, JFD, HSA and SJAP
 
 
-
 
 
-
 
 
-
 
 
-
 
Deferred tax provision
 
 
-
 
 
-
 
 
-
 
 
-
 
 
 
$
-
 
$
-
 
$
-
 
$
-
 
 
 
The Company did not recognize any interest or penalties related to unrecognized tax benefits in the six months ended June 30, 2013 and 2012.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.

 
5.
CASH AND CASH EQUIVALENTS
 
 
 
June 30, 2013
 
December 31, 2012
 
 
 
 
 
 
 
 
 
Cash and bank balances
 
$
9,391,449
 
$
8,424,265
 

6.
INVENTORIES
 
 
As of June 30, 2013, inventories are as follows:
 
 
 
June 30, 2013
 
December 31, 2012
 
 
 
 
 
 
 
 
 
Sleepy cods and eels
 
$
5,432,990
 
$
4,612,090
 
Bread grass
 
 
709,366
 
 
1,473,653
 
Beef cattle
 
 
2,985,965
 
 
2,569,659
 
Organic fertilizer
 
 
702,836
 
 
737,166
 
Forage for cattle and consumable
 
 
3,144,896
 
 
278,900
 
Raw materials for bread grass and organic fertilizer
 
 
5,237,102
 
 
6,765,536
 
Unharvested HU plantation
 
 
674,278
 
 
-
 
Immature seeds
 
 
-
 
 
677,751
 
 
 
$
18,887,433
 
$
17,114,755