10-Q 1 v377058_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 March 31, 2014

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 Friedman Ference LLP

61 Broadway, 32nd Floor

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 x

 

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 May 9, 2014, there were 157,028,043 shares of our common stock issued and outstanding.

 

 
 

 

TABLE OF CONTENTS

 

    Page
PART I – FINANCIAL INFORMATION  
Item 1. Financial Statements F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Plan of Operations 1
Item 3.  Quantitative and Qualitative Disclosures About Market Risk  38
Item 4. Controls and Procedures 38
     
PART II – OTHER INFORMATION  
Item 1. Legal Proceedings 38
Item 1A. Risk Factors 38
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 38
Item 3. Defaults Upon Senior Securities 38
Item 4. Mine Safety Disclosures 39
Item 5. Other Information 39
Item 6. Exhibits 39
SIGNATURES   40

 

 
 

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

 

QUARTERLY FINANCIAL STATEMENTS

 

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Unaudited)

 

 
 

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

INDEX TO QUARTERLY FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Unaudited)

 

  PAGE
   
CONSOLIDATED BALANCE SHEETS (Unaudited) F - 1
   
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (Unaudited) F - 2
   
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) F - 3
   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F – 4 – F – 33

 

 
 

 

SINO AGRO FOOD, INC.

CONSOLIDATED BALANCE SHEETS

 

   March 31, 2014   December 31, 2013 
ASSETS          
Current assets          
Cash and cash equivalents  $18,766,877   $1,327,274 
Inventories   19,741,726    8,148,203 
Cost and estimated earnings in excess of billings on uncompleted contracts   667,824    663,296 
Deposits and prepaid expenses   85,717,775    92,401,416 
Accounts receivable, net of allowance for doubtful accounts   92,757,959    82,057,942 
Other receivables   6,524,344    3,782,771 
Total current assets   224,176,505    188,380,902 
Property and equipment          
Property and equipment, net of accumulated depreciation   48,644,599    46,487,058 
Construction in progress   62,068,608    59,134,732 
Land use rights, net of accumulated amortization   59,739,064    60,705,829 
Total property and equipment   170,452,271    166,327,619 
Other assets          
Goodwill   724,940    724,940 
Proprietary technologies, net of accumulated amortization   11,891,060    12,081,470 
Licenses   -    - 
Total other assets   12,616,000    12,806,410 
Total assets  $407,244,776   $367,514,931 
LIABILITIES  AND STOCKHOLDERS' EQUITY          
Current liabilities          
Accounts payable and accrued expenses  $18,643,043   $11,055,194 
Billings in excess of costs and estimated earnings on uncompleted contracts   3,623,009    3,146,956 
Due to a director   901,353    1,793,768 
Dividends payable   3,146,987    3,146,987 
Other payables   9,716,967    10,768,786 
Short term bank loan   4,063,653    4,100,377 
    40,095,012    34,012,068 
Non-current liabilities          
Bonds payable   1,725,000    1,725,000 
Long term debts   2,616,992    180,417 
    4,341,992    1,905,417 
Commitments and contingencies   -    - 
Stockholders' equity          
Preferred stock: $0.001 par value (10,000,000 shares authorized, 7,000,100 shares issued and outstanding as of  March 31, 2014 and December 31, 2013, respectively)          
Series A preferred stock:  $0.001 par value   -    - 
(100 shares designated, 100 shares issued and outstanding as of  March 31, 2014 and December 31, 2013, respectively)          
Series B convertible preferred stock:  $0.001 par value   7,000    7,000 
(10,000,000 shares designated, 7,000,000 shares issued  and outstanding as of  March 31, 2014 and December 31, 2013, respectively)          
Series F Non-convertible preferred stock:  $0.001 par value          
(1,000,000 shares designated, 0 shares issued  and outstanding as of  March 31, 2014 and December 31, 2013, respectively)   -    - 
Common stock:  $0.001 par value   149,512    137,602 
(170,000,000 shares authorized, 149,512,042 and 137,602,043 shares issued and oustanding as of  March 31, 2014 and December 31, 2013, respectively)          
Additional paid - in capital   114,002,608    108,038,413 
Retained earnings   198,858,756    178,070,837 
Accumulated other comprehensive income   5,666,016    6,260,131 
Treasury stock   (1,250,000)   (1,250,000)
Total Sino Agro Food, Inc. and subsidiaries stockholders' equity   317,433,892    291,263,983 
Non - controlling interest   45,373,880    40,333,463 
Total stockholders' equity   362,807,772    331,597,446 
Total liabilities and stockholders' equity  $407,244,776   $367,514,931 

 

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

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013 (Unaudited)

 

   Three months ended   Three months ended 
   March 31, 2014   March 31, 2013 
Revenue          
- Sale of goods  $78,272,309   $36,549,354 
- Counsulting and service income from development contracts   12,243,202    18,461,623 
- Commission income   412,278    96,774 
    90,927,789    55,107,751 
Cost of goods sold   (55,864,529)   (25,764,646)
Cost of services   (6,503,412)   (7,820,288)
Gross profit   28,559,848    21,522,817 
General and administrative expenses   (2,668,394)   (2,205,388)
Net income from operations   25,891,454    19,317,429 
Other income (expenses)          
Government grant   113,232    79,759 
Other income   3,258    18,189 
Gain of extinguishment of debts   43,020    552,988 
Interest epense   (109,107)   (57,052)
Net income  (expenses)   50,403    593,884 
Net income  before income taxes   25,941,857    19,911,313 
Provision for income taxes   -    - 
Net income   25,941,857    19,911,313 
Less: Net (income) loss attributable to the non - controlling interest   (5,153,938)   (3,532,541)
Net income from continuing operations attributable to the Sino Agro Food, Inc. and subsidiaries   20,787,919    16,378,772 
Other comprehensive  (loss) income          
Foreign currency translation (loss)   (707,636)   (291,868)
Comprehensive income   20,080,283    16,086,904 
Less: other comprehensive loss (income) attributable to          
the non - controlling interest   113,521    51,782 
Comprehensive income attributable to the Sino Agro Food, Inc. and subsidiaries  $20,193,804   $16,138,686 
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:          
Basic  $0.15   $0.16 
Diluted  $0.14   $0.14 
Weighted average number of shares outstanding:          
Basic   142,658,210    105,385,902 
Diluted   149,658,210    115,252,569 

 

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

 

F - 2
 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

   Three months ended   Three months ended 
   March 31, 2014   March 31, 2013 
Cash flows from operating activities          
Net income for the period  $25,941,857   $19,911,313 
Adjustments to reconcile net income for the period to net cash from operations:          
Depreciation   534,803    307,075 
Amortization   509,080    337,867 
Common stock issued for services   33,436    90,600 
Gain on extinguishment of debts   (43,020)   (552,988)
Other amortized cost   50,000    - 
Changes in operating assets and liabilities:          
(Increase)/decrease in inventories   (11,593,523)   61,990 
Increase in cost and estimated earnings in excess of billings on uncompleted contacts   (4,528)   (562,558)
Decrease (increase) in deposits and prepaid expenses   6,600,205    (4,617,840)
Decrease  in due to a director   (892,415)   (1,341,525)
Increase in  accounts payable and accrued expenses   7,587,849    1,562,679 
Increase in  other payables   4,967,306    8,531,754 
Increase in accounts receivable   (10,700,017)   (18,511,975)
Increase (decrease) in billings in excess of costs and estimated earnings on uncompleted contracts   476,053    (691,058)
Increase in other receivables   (2,741,573)   (267,960)
Net cash provided by operating activities   20,725,513    4,257,374 
Cash flows from investing activities          
Purchases of property and equipment   (907,666)   (126,182)
Payment for construction in progress   (5,248,183)   (512,010)
Net cash used in investing activities   (6,155,849)   (638,192)
Cash flows from financing activities          
Proceeds from long term debts   2,438,192    - 
Dividends paid   -    (951,308)
Net cash provided by (used in) financing activities   2,438,192    (951,308)
Effects on exchange rate changes on cash   431,747    (274,217)
Increase in cash and cash equivalents   17,439,603    2,393,657 
Cash and cash equivalents, beginning of period   1,327,274    8,424,265 
Cash and cash equivalents, end of period   18,766,877    10,817,922 
Supplementary disclosures of cash flow information:          
Cash paid for interest  $109,107   $57,052 
Cash paid for income taxes   -    - 
Non - cash transactions          
Common stock issued for settlement of debts  $5,964,195   $5,115,041 
Series  B convertible preferred stock cancelled   -   $(3,000)
Transfer construction in progress to property and equipment  $1,784,678    - 

 

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

 

F - 3
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

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 “P.R.C.):

  

(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 P.R.C. corporate Sino-Foreign joint venture.

 

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 and MEIJI withdrew its 25% equity interest in HST.

 

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 P.R.C. with major business activities in the agriculture industry; and

 

  Guangzhou City Garwor Company Limited (English translation) (“Garwor”), a private limited 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 P.R.C. 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 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.

 

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.

 

F - 4
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

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 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 presently owns a 75% equity interest in JFD, representing majority of voting rights and controls its board of directors.

   

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 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 March 31, 2014, MEIJI further invested in JHMC of $400,000 in JHMC.

 

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%. Up to March 31, 2014, MEIJI and SJAP total investment in HSA were  $857,808 and 629,344, respectively.

 

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”). Up to March 31, 2014, the Company’s total investment in SAFS was $77,664.

 

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.

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

2.1FISCAL YEAR

 

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

 

F - 5
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.2REPORTING ENTITIES

 

Name of subsidiaries   Place of incorporation   Percentage of interest   Principal activities
             
Capital Award Inc. ("CA")   Belize    100% (12.31.2013: 100%) directly   Fishery development and holder of A-Power Technology master license.
             
Capital Stage Inc. ("CS")   Belize    100% (12.31.2013: 100%) indirectly   Dormant
             
Capital Hero Inc. ("CH")   Belize    100% (12.31.2013: 100%) indirectly   Dormant
             
Sino Agro Food Sweden ("SAFS")   Sweden    100% (12.31.2013: 100%) directly   Dormant
             
Tri-way Industries Limited ("TRW")   Hong Kong, P.R.C.    100% (12.31.2013: 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, P.R.C.    100% (12.31.2013: 100%) directly   Investment holding, cattle farm development, beef cattle and beef trading
A Power Agro Agriculture Development (Macau) Limited ("APWAM")   Macau, P.R.C.    100% (12.31.2013: 100%) directly   Investment holding
             
Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd ("JHST")   P.R.C.   75% (12.31.2013: 75%) indirectly   Hylocereus Undatus  Plantation ("HU Plantation").
             
Jiang Men City A Power Fishery Development Co., Limited ("JFD")   P.R.C.   75% (12.31.2013: 75%) indirectly   Fish cultivation
Jiang Men City Hang Mei Cattle Farm Development Co., Limited ("JHMC")   P.R.C.   75% (12.31.2013: 75%) indirectly   Beef cattle cultivation
             
Hunan Shenghua A Power Agriculture Co., Limited ("HSA")   P.R.C.   26% directly and 50% indirectly (12.31.2013: 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% (12.31.2013: 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)   P.R.C.   25% (12.31.2013: 25% indirectly)   Prawn cultivation

  

F - 6
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.3BASIS OF PRESENTATION

 

The unaudited consolidated financial statements for the three months ended March 31, 2014 are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

 

The unaudited quarterly financials for the three months ended March 31, 2014 results are for the three 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, 2013.

  

2.4BASIS OF CONSOLIDATION

 

The consolidated financial statements include the financial statements of the Company, its subsidiaries CA, CS, CH, TRW, MEIJI, JHST, JFD, JHMC, HSA, APWAM, SAFS 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, SAFS and SJAP are hereafter referred to as (“the Company”).

 

2.5BUSINESS COMBINATION

 

The Company adopted the accounting pronouncements relating to business combination (primarily contained in ASC Topic 805 “Business Combinations”), including assets acquired and liabilities assumed on arising from contingencies. These pronouncements established principles and requirement for how the acquirer of a business recognizes and measures in its financial statements 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.

  

2.6NON - CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

2.7USE OF ESTIMATES

 

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

 

F - 7
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.8REVENUE 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.

 

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 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.

 

F - 8
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.8REVENUE RECOGNITION (CONTINUED)

 

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.

 

2.9COST OF GOODS SOLD AND COST OF SERVICES

 

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

 

2.10SHIPPING AND HANDLING

 

Shipping and handling costs related to cost of goods sold are included in general and administrative expenses, which totaled $12,254 and $3,765 for the three months ended March 31, 2014 and 2013, respectively.

  

2.11ADVERTISING

 

Advertising costs are included in general and administrative expenses, which totaled $262 and $542 for the three months ended March 31, 2014 and 2013, respectively.

 

2.12FOREIGN 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 $5,666,016 as of March 31, 2014 and $6,260,131as of December 31, 2013. The balance sheet amounts with the exception of equity as of March 31, 2014 and December 31, 2013 and 2012 were translated using an exchange rate of RMB 6.15 to $1.00 and RMB 6.10to $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 March 31, 2014 and 2013 were RMB 6.12 to $1.00 and RMB 6.28to $1.00, respectively.

 

2.13CASH 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.

 

F - 9
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

  

2.14ACCOUNTS 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 March 31, 2014 and December 31, 2013 are $0.

 

2.15INVENTORIES

 

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.

 

2.16PROPERTY 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 and herbage cultivation 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.

 

2.17GOODWILL

 

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

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.18PROPRIETARY 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 25 years.

 

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

 

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

 

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

 

2.19CONSTRUCTION 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.

 

2.20LAND USE RIGHTS

 

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

 

2.21CORPORATE 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

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.22VARIABLE 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.

 

2.23TREASURY 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.

 

2.24INCOME 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

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

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 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 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.

 

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 March 31, 2014 and December 31, 2013 amounted to $18,739,054 and $1,256,440 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 & E) whose business individually represented the following percentages of the Company’s total revenue for the periods indicated:

 

   Three months ended   Three months ended 
   March 31, 2014   March 31, 2013 
         
Customer A   29.54%   12.14%
Customer B   15.60%   10.31%
Customer C   10.31%   - 
Customer D   9.88%   26.39%
Customer E   5.12%   - 
Customer F   -    11.27%
Customer G   -    9.58%
    70.45%   69.69%

 

F - 13
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.26CONCENTRATION OF CREDIT RISK (CONTINUED)

 

      Percent of     
   Segment  revenue   Amount 
Customer A  Fishery Development and Corporate and others Divisions   29.54%  $26,861,820 
Customer B  Organic Fertilizer and Bread Grass Division   15.60%  $14,180,317 
Customer C  Fishery Development Division   10.31%  $9,375,678 

 

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:

 

   March 31, 2014   December 31, 2013 
         
Customer A   15.29%   8.27%
Customer B   14.03%   12.86%
Customer C   9.63%   8.69%
Customer D   8.41%   10.23%
Customer E   7.31%   8.36%
    54.67%   48.41%

 

As of March 31, 2014, amounts due from customers A and B are $14,180,317 and $13,012,614, 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.

 

2.27IMPAIRMENT 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 March 31, 2014 and December 31, 2013, the Company determined no impairment losses were necessary.

 

2.28EARNINGS 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 March 31, 2014 and 2013, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amount to $0.15 and $0.16, respectively. For the three months ended March 31, 2014 and 2013, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.14 and $0.14, respectively.

 

F - 14
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.29ACCUMULATED 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.

   

2.30RETIREMENT BENEFIT COSTS

 

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

 

2.31STOCK-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.

 

2.32FAIR value of financial INSTRUMENTS

 

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

 

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

 

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

 

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

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value as of March 31, 2014 or December 31, 2013, 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 three months ended March 31, 2014 or 2013.  

 

F - 15
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.33NEW 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 2013, the FASB issued guidance on disclosure requirements for items reclassified out of Accumulated Other Comprehensive Income (“AOCI”). This new guidance requires entities to present (either on the face of the income statements or in the notes) the effects on the line items of the income statement for amounts reclassified out of AOCI. The new guidance will be effective for us beginning July 1, 2013. Other than requiring additional disclosures, we do not anticipate a material impact on the consolidated financial statements upon adoption.

 

In March 2013, the FASB issued guidance on a parent’s accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent releases any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for us beginning July 1, 2014. We do not anticipate a material impact on the consolidated financial statements upon adoption.

 

In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”. These amendments provide that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on the Company’s consolidated financial statements.

 

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

 

F - 16
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

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, and HU Plantation Division and Organic Fertilizer and Bread Grass Division, Cattle Development Division and Corporate and others. No geographic information is required as all revenue and assets are located in the P.R.C.

 

   Three months ended March 31, 2014     
   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  $43,764,265   $760,052   $28,975,083   $7,544,591   $9,883,798   $90,927,789 
                               
Net income (loss)  $10,310,638   $(25,268)  $10,018,030   $266,194   $218,325   $20,787,919 
                               
Total assets  $105,593,997   $49,175,247   $186,106,742   $47,176,963   $19,191,827   $407,244,776 

 

   Three months ended March 31, 2013 (Restated)     
   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  $26,039,669   $-   $14,877,899   $8,362,557   $5,827,626   $55,107,751 
                               
Net income (loss)  $8,953,122   $(241,138)  $3,663,262   $2,440,604   $1,562,922   $16,378,772 
                               
Total assets  $69,338,382   $38,569,045   $110,065,212   $36,472,976   $14,848,014   $269,293,629 

 

Note

(1)Operated by Capital Award, Inc. (“CA”). and Jiangmen City A Power Fishery Development Co., Limited (“JFD”).
(2)Operated by Jiangmen City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”).
(3)Operated by Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”), A Power Agro Agriculture Development (Macau) Limited (“APWAM”) and Hunan Shenghua A Power Agriculture Co., Limited (“HSA”).
(4)Operated by Jiangmen City Hang Mei Cattle Farm Development Co. Limited (“JHMC”) and Macau Meiji Limited (“MEIJI”).
(5)Operated by Sino Agro Food, Inc. (“SIAF”) and Sino Agro Food Sweden AB (publ) (“SAFS”).

 

F - 17
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

3.SEGMENT INFORMATION (CONTINUED)

Further analysis of revenue:

 

   Three months ended March 31, 2014     
   Fishery
Development
Division
   HU
Plantation
Division
   Organic
Fertilizer and
Bread Grass
Division
   Cattle Farm
Development
Division
   Corporate
and others
   Total 
Name of entity                              
Sale of goods                              
Capital Award, Inc. ("CA")  $31,108,785   $-   $-   $-   $-   $31,108,785 
Jiang Men City Heng Sheng Tai Agriculture                              
Development Co., Limited ("JHST")   -    760,052    -    -    -   $760,052 
Hunan Shenghua A Power                              
Agriculture Co., Limited ("HSA")   -    -    4,822,180         -   $4,822,180 
Qinghai Sanjiang A Power                              
Agriculture Co., Limited ("SJAP")   -    -    24,152,903         -   $24,152,903 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    7,544,591    -   $7,544,591 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    9,883,798   $9,883,798 
Consulting and service income for development contracts                              
Capital Award, Inc. ("CA")   12,243,202    -    -    -    -   $12,243,202 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    -    -    - 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    -    - 
Commission and management fee                              
Capital Award, Inc. ("CA")   412,278    -    -    -    -    412,278 
   $43,764,265   $760,052   $28,975,083   $7,544,591   $9,883,798   $90,927,789 

 

F - 18
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue (Continued):

 

   Three months ended March 31, 2013 (Restated)     
   Fishery
Development
Division
   HU
Plantation
Division
   Organic
Fertilizer and
Bread Grass
Division
   Cattle Farm
Development
Division
   Corporate
and others
   Total 
Name of entity                              
Sale of goods                              
Capital Award, Inc. ("CA")  $14,730,343   $-   $-   $-   $-   $14,730,343 
Jiang Men City Heng Sheng Tai                              
Agriculture Development Co., Limited ("JHST")   -    -    -    -    -    - 
Hunan Shenghua A Power                              
Agriculture Co., Limited ("HSA")   -    -    2,126,304         -   $2,126,304 
Qinghai Sanjiang A Power                              
Agriculture Co., Limited ("SJAP")   -    -    12,751,595         -   $12,751,595 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    3,080,876    -   $3,080,876 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    3,860,236    3,860,236 
Consulting and service income for development contracts                              
Capital Award, Inc. ("CA")   11,212,552    -    -    -    -   $11,212,552 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    5,281,681    -   $5,281,681 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    1,967,390    1,967,390 
Commission and management fee                       -      
Capital Award, Inc. ("CA")   96,774    -    -    -    -    96,774 
   $26,039,669   $-   $14,877,899   $8,362,557   $5,827,626   $55,107,751 

 

F - 19
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

3.SEGMENT INFORMATION (CONTINUED)

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

 

COST OF GOODS SOLD

 

   Three months ended March 31, 2014     
   Fishery
Development
Division
   HU
Plantation
Division
   Organic
Fertilizer and
Bread Grass
Division
   Cattle Farm
Development
Division
   Corporate and
others
   Total 
Name of entity                              
Sale of goods                              
Capital Award, Inc. ("CA")  $21,545,566   $-   $-   $-   $-   $21,545,566 
Jiang Men City Heng Sheng Tai  Agriculture   -    245,178    -    -    -    245,178 
Development Co., Limited ("JHST")                              
Hunan Shenghua A Power   -    -    2,727,978         -    2,727,978 
Agriculture Co., Limited ("HSA")                              
Qinghai Sanjiang A Power   -    -    15,529,206         -    15,529,206 
Agriculture Co., Limited ("SJAP")                              
Macau  Eiji Company Limited ("MEIJI")   -    -    -    7,220,836    -    7,220,836 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    8,595,765    8,595,765 
   $21,545,566   $245,178   $18,257,184   $7,220,836   $8,595,765   $55,864,529 

 

   Three months ended March 31, 2014     
   Fishery
Development
Division
   HU
Plantation
Division
   Organic
Fertilizer and
Bread Grass
Division
   Cattle Farm
Development
Division
   Corporate and
others
   Total 
                         
COST OF SERVICES                              
Name of entity                              
Consulting and service income for development contracts                              
Capital Award, Inc. ("CA")  $6,503,412   $-   $-   $-   $-   $6,503,412 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    -    -    - 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    -    - 
   $6,503,412   $-   $-   $-   $-   $6,503,412 

 

F - 20
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

3.SEGMENT INFORMATION (CONTINUED)

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

 

COST OF GOODS SOLD

 

   Three months ended March 31, 2013 (Restated)     
   Fishery
Development
Division
   HU
Plantation
Division
   Organic
Fertilizer and
Bread Grass
Division
   Cattle Farm
Development
Division
   Corporate and
others
   Total 
Name of entity                              
Sale of goods                              
Capital Award, Inc. ("CA")  $12,386,189   $-   $-   $-   $-   $12,386,189 
Jiang Men City Heng Sheng Tai                              
Agriculture Development Co., Limited ("JHST")   -    -    -    -    -    - 
Hunan Shenghua A Power                              
Agriculture Co., Limited ("HSA")   -    -    1,307,071         -    1,307,071 
Qinghai Sanjiang A Power                              
Agriculture Co., Limited ("SJAP")   -    -    6,565,462         -    6,565,462 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    1,733,588    -    1,733,588 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    3,772,336    3,772,336 
   $12,386,189   $-   $7,872,533   $1,733,588   $3,772,336   $25,764,646 

 

   Three months ended March 31, 2013 (Restated)     
   Fishery
Development
Division
   HU
Plantation
Division
   Organic
Fertilizer and
Bread Grass
Division
   Cattle Farm
Development
Division
   Corporate and
others
   Total 
                         
COST OF SERVICES                              
Name of entity                              
Consulting and service income for development contracts                              
Capital Award, Inc. ("CA")  $3,408,096   $-   $-   $-   $-   $3,408,096 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    3,864,451    -    3,864,451 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    547,741    547,741 
   $3,408,096   $-   $-   $3,864,451   $547,741   $7,820,288 

 

F - 21
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

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.

 

The Company failed to file US tax returns for the years ended December 31, 2007 through December 31, 2013 in compliance with US Treasury Internal Revenue Service Code. The Company has reviewed its tax position with the assistance of US tax professional and believes that there will be no taxes and no penalties assessed by the Internal Revenue Service in the United States of America. The Company has engaged a US tax professional to assist the Company to file these income tax returns.

 

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 since SIAF, CA, JHST, JHMC, JFD, HSA and SJAP are exempt from EIT for the three months ended March 31, 2014 and 2013 as they are within the agriculture, dairy and fishery sectors.

 

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, since TRW did not earn any assessable profits arising in Hong Kong for the three months ended March 31, 2014 and 2013.

 

Macau

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 three months ended March 31, 2014 and 2013.

  

Sweden

 

No Sweden Corporate income tax has been provided in the consolidated financial statements since SAFS incurred a tax loss for the three months ended March 31, 2014.

 

No deferred tax assets and liabilities are of March 31, 2014 and December 31, 2013 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 - 22
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

4.INCOME TAXES (CONTINUED)

 

Provision for income taxes is as follows:

 

   Three months ended   Three months ended 
   March 31, 2014   March 31, 2013 
         
SIAF  $-   $- 
SAFS   -    - 
TRW   -    - 
MEIJI and APWAM   -    - 
JHST, JFD, JHMC, SJAP and HSA   -    - 
   $-   $- 

 

The Company did not recognize any interest or penalties related to unrecognized tax benefits in the three months ended March 31, 2014 and 2013. 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

 

   March 31, 2014   December 31, 2013 
           
Cash and bank balances  $18,766,877   $1,327,274 

 

6.INVENTORIES

 

As of March 31, 2014, inventories are as follows:

 

   March 31, 2014   December 31, 2013 
         
Sleepy cods, prawns, eels and marble goble  $8,126,961   $1,761,111 
Bread grass   374,773    580,955 
Beef cattle   6,481,807    1,951,962 
Organic fertilizer   1,274,820    895,670 
Forage for cattle and consumable   1,364,624    684,979 
Raw materials for bread grass and organic fertilizer   1,418,165    855,493 
Immature seeds   700,576    698,704 
Harvested HU plantation   -    719,329 
   $19,741,726   $8,148,203 

 

F - 23
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

7.DEPOSITS AND PREPAID EXPENSES

 

   March 31, 2014   December 31, 2013 
         
Deposits for          
-  purchases of equipment  $435,251   $4,886,048 
-  acquisition of land use rights   7,826,508    7,826,508 
- inventories purchases and miscellaneous   1,213,855    9,771,383 
- aquaculture contract   11,166,667    - 
- building materials   877,598    1,281,935 
- proprietary technologies   -    4,404,210 
- construction in progress   23,021,316    23,021,316 
Shares issued for employee compensation and overseas professional fee   66,872    100,308 
Temporary deposits paid to entities for investments in future Sino Foreign Joint Venture companies   41,109,708    41,109,708 
   $85,717,775   $92,401,416 

 

The Company made temporary deposits paid to entities for investments in future Sino Joint Venture companies for equity investments in future development of a trade and seafood centers, fish, prawn and cattle farms.

 

8.ACCOUNTS RECEIVABLE

 

The Company has performed an analysis on all of its accounts receivable and determined that all amounts are collectible by the Company. As such, all accounts receivable are reflected as a current asset and no allowance for bad debt has been recorded as of March 31, 2014 and December 31, 2013. Bad debts written off for the three months ended March 31, 2014 and 2013 are $0.

 

Aging analysis of accounts receivable is as follows:

 

   March 31, 2014   December 31, 2013 
         
0 - 30 days  $35,754,365   $20,864,404 
31 - 90 days   34,333,881    28,960,582 
91 - 120 days   9,323,424    23,941,294 
over 120 days and less than 1 year   13,346,289    8,291,662 
over 1 year   -    - 
   $92,757,959   $82,057,942 

 

F - 24
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

9.OTHER RECEIVABLES

 

   March 31, 2014   December 31, 2013 
         
Advanced to employees  $44,928   $109,278 
Advanced to suppliers   3,479,416    3,673,493 
Advanced to a customer   3,000,000    - 
   $6,524,344   $3,782,771 

 

  Loan to a customer is unsecured, interest free and repayable within two years.

 

10.PLANT AND EQUIPMENT

 

   March 31, 2014   December 31, 2013 
         
Plant and machinery  $5,267,349   $5,263,933 
Structure and leasehold improvements   38,012,265    36,308,860 
Mature seeds and herbage cultivation   7,278,449    6,294,372 
Furniture and equipment   393,054    391,608 
Motor vehicles   765,858    765,858 
    51,716,975    49,024,631 
           
Less: Accumulated depreciation   (3,072,376)   (2,537,573)
Net carrying amount  $48,644,599   $46,487,058 

 

Depreciation expense was $534,803 and $307,075 for the three months ended March 31, 2014 and 2013, respectively.

 

11.CONSTRUCTION IN PROGRESS

 

   March 31, 2014   December 31, 2013 
         
Construction in progress          
- Office, warehouse and organic  fertilizer plant in  HSA  $23,739,524   $22,761,164 
- Organic fertilizer and bread grass production plant and office building   7,274,004    8,600,187 
-  Rangeland for beef cattle and office building   31,055,080    26,054,582 
-  Fish pond   -    1,718,799 
   $62,068,608   $59,134,732 

 

12.LAND USE RIGHTS

 

Private ownership of agricultural land is not permitted in the PRC. Instead, the Company has leased six lots of land. The cost of the first lot of land use rights acquired in 2007 in Guangdong Province was $6,408,289 and consists of 180.23 acres with the lease expiring in 2067. The cost of the second lot of land use rights acquired in 2008 in Guangdong Province 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 93.64 acres in Guangdong Province, with the lease expiring in 2037. The cost of the fourth lot of land use rights acquired in 2011 was $35,405,750 which consisted of 287.21 acres in the Hunan Province, PRC 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, PRC 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 6.27 acres in Guangdong Province, the PRC and the lease expires in 2023.

  

   March 31, 2014   December 31, 2013 
         
Cost  $64,588,374   $65,192,615 
           
Less: Accumulated amortization   (4,849,310)   (4,486,786)
           
Net carrying amount  $59,739,064   $60,705,829 

 

   Expiry date  Location  Amount 
Balance @1.1.2013        $58,630,950 
Additons:           
2013  2023  Enping city, Guangdong  Province, the P.R.C.   489,904 
2013     Land improvement cost incurred   3,914,275 
Exchange difference         2,157,486 
Balance @12.31.2013        $65,192,615 
Exchange difference         (604,241)
Balance @3.31.2014        $64,588,374 

 

Land use rights are amortized on the straight-line basis over their respective lease periods. The lease period of agriculture land is 10 to 60 years. Amortization of land use rights was $362,524 and $228,660for the three months ended March 31, 2014 and 2013, respectively.

 

F - 25
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

13.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 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 sleep cod breeding technology license for to grow out sleep cod for $2,270,968 for 50 years. SJAP booked bacterial cellulose technology license and related trademark for $2,119,075 and amortized expenditures for 25 years starting from January 1, 2014.

 

   March 31, 2014   December 31, 2013 
         
Cost  $13,852,314   $13,896,168 
Less: Accumulated amortization   (1,961,254)   (1,814,698)
Net carrying amount  $11,891,060   $12,081,470 

 

Amortization of proprietary technologies was $146,556 and $109,207 for the three months ended March 31, 2014 and 2013, respectively. No impairment of proprietary technologies has been identified for the three months ended March 31, 2014 and 2013.

  

14.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, 2014   December 31, 2013 
         
Goodwill from acquisition  $724,940   $724,940 
Less: Accumulated impairment losses   -    - 
Net carrying amount  $724,940   $724,940 

 

15.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 PRC. Up to March 31, 2014, the Company 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.

 

F - 26
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

15.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 March 31, 2014, 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 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.

 

16.LICENSE RIGHTS

 

Pursuant to an agreement dated August 1, 2006 between Infinity Environmental Group Limited (“Infinity”) and the Company, the Company was granted an A Power Technology License with the condition that the Company was required to pay the license fee covering 500 units of APM as performance payment to Infinity on or before July 31, 2008. This license allows the Company to develop service, manage and supply A Power Technology Farms in the P.R.C. using the A Power Technology, but subject to a condition that the Company is required to pay a license fee to Infinity once the Company has sold the license to its customer. Under the said license, the Company has the right to authorize developers and/or joint venture partners to develop A Power Technology Farms in the P.R.C. Infinity is a company incorporated in Australia. An impairment loss made for the three months ended March 31, 2014 and 2013 are $0 and allowance for accumulated impairment losses has been recorded as of March 31, 2014 and December 31, 2013 are $1.

 

17.OTHER PAYABLES

 

   March 31, 2014   December 31, 2013 
         
Due to third parties  $4,310,472   $4,715,543 
Promissory notes issued to third parties   3,000,000    3,625,000 
Due to local government   2,406,495    2,428,243 
   $9,716,967   $10,768,786 

 

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

 

F - 27
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

18.CONSTRUCTION CONTRACT

 

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

 

   March 31, 2014   December 31, 2013 
         
Costs  $4,093,341   $3,527,975 
Estimated earnings   9,082,375    8,538,930 
Less:  Billings   (12,507,892)   (11,403,609)
Costs and estimated earnings in excess of billings on uncompleted contract  $667,824   $663,296 

 

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

 

   March 31, 2014   December 31, 2013 
         
Billings  $20,017,345   $8,406,900 
Less:  Costs   (2,805,900)   (2,179,410)
           Estimated earnings   (13,588,436)   (3,080,534)
Billing in excess of costs and estimated earnings on uncompleted contract  $3,623,009   $3,146,956 

 

(iii)Overall

 

   March 31, 2014   December 31, 2013 
         
Billings  $32,525,237   $19,810,509 
Less:  Costs   (6,899,241)   (5,707,385)
           Estimated earnings   (22,670,811)   (11,619,464)
Billing in excess of costs and estimated earnings on uncompleted contract  $2,955,185   $2,483,660 

 

19.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

 

   Interest rate  Term  March 31, 2014   December 31, 2013  
                    
Agricultural Development
Bank of China
  6%  August 30,  2013  - August 29, 2014
(August 30,  2012  - August 29, 2013)
             
Huangyuan County Branch,                   
Xining , Qinghai Province,                   
the P.R.C.        $4,063,653^*  $ 4,100,377 ^*

 

^personal and corporate guaranteed by third parties.
*secured by land use rights with net carrying amount of $507,289(12.31.2013: $515,026).

 

F - 28
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

19.BORROWINGS (CONTINUED)

 

Long term debts

 

Name of lender  Interest rate  Term  March 31, 2014   December 31, 2013 
               
Gan Guo Village Committee  12.22%  June 2012 - June 2017          
Bo Huang Town                
Huangyuan County,                
Xining City,                
Qinghai Province, the P.R.C.        $178,800   $180,417 
                 
Agricultural Development
Bank of China
  6.40%   January 3, 2014 -
December 17, 2008
          
Huangyuan County Branch,                
Xining , Qinghai Province, the P.R.C.        $2,438,192^*#   - 
         $2,616,992   $180,417 

 

^personal and corporate guaranteed by third parties.
*

secured by land use rights with net carrying amount of $507,289 (12.31.2013: $515,026).

 

#

repayable $325,092, $650,184, $650,184 and $812,732 in 2015, 2016, 2017 and 2018, respectively.

 

20.SHAREHOLDERS’ EQUITY

 

The Group’s share capital as of March 31, 2014 and December 31, 2013 shown on the consolidated balance sheet represents the aggregate nominal value of the share capital of the Company as at that date.

 

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

 

The Series A preferred stock:

 

(i)does not pay a dividend;

 

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

 

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

 

The Company has designated 100 shares of Series A preferred stock with 100 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively.

 

F - 29
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

20.SHAREHOLDERS’ EQUITY (CONTINUED)

 

The Series B convertible preferred 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 $1.00 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 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 shares of Series B convertible preferred stock were cancelled.

 

There were 7,000,000 shares of Series B convertible preferred stock issued and outstanding as of March 31 , 2014 and December 31, 2013, respectively.

 

The Series F Non-Convertible preferred stock:

 

On August 1, 2012, the Company designated 1,000,000 shares of Series F Non-Convertible Preferred Stock with a par value per share of $0.001.

  

The Series F Non-Convertible Preferred Stock:

 

  (i) is not redeemable;

 

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

 

  (iii) except for (iv), shall not entitled to receive any dividend; and

 

  (iv) on May 30, 2014, 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 for every 100 shares  of Common Stock. Upon redemption, the Record Holder shall no longer own any shares of Series F that have been redeemed, and all such redeemed shares shall disappear and no longer exist on the books and records of the Company; redeemed shares of Series F which no longer exist upon redemption shall thereafter be counted toward the authorized but unissued “blank check” preferred stock of the Company.

 

On August 22, 2012, the Company’s Board of Directors declared that the Company’s stockholders were entitled to receive one share of restricted Series F Non-convertible Preferred Stock for every 100 shares of Common Stock owned by the stockholders as of September 28, 2012, with lesser or greater amounts being rounded up 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. During the year ended December 31, 2012 , the transfer agent of the Company recorded 924,180 shares of Series F Non-Convertible preferred stock on the account. On October 1, 2012, the Company did not issue physical shares but only issued coupons to notify respective shareholders on that date. These F shares of 924,180 shares, were based on numbers of shares of Common Stock as of September 28, 2012 of 91,931,287 shares, calculated at one share of Series F Non-Convertible preferred stock for every 100 shares of Common Stock with decimal number of shares being rounded up to one.

 

As a result, total issued and outstanding of Series F Non-Convertible Preferred Stock as of March 31, 2014 and December 31, 2013 are 0 shares.

  

F - 30
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

20.SHAREHOLDERS’ EQUITY (CONTINUED)

 

Common Stock:

 

On December 5, 2012, the Company obtained shareholder consent for the approval of an amendment to our articles of incorporation to increase our authorized shares of common stock, par value $0.001 per share, from 100,000,000 to 130,000,000. The board of directors believes that the increase in our authorized common stock will provide us with greater flexibility with respect to our capital structure for purposes including additional equity financings and stock based acquisitions. The certificate of amendment effectuating the vote by the shareholders was filed with the State of Nevada on January 24, 2013.

 

On March 28, 2013, the Company filed a prospectus related to a public offering of common stock of the Company for maximum aggregate gross proceeds of $26,250,000 within a period not to exceed 180 days from the date of effectiveness of the registration statement of which this prospectus formed a part. No common stock was offered to the public in respect of this public offering.

 

On October 4, 2013, the Company obtained shareholder consent for the approval of an amendment to our articles of incorporation to increase our authorized shares of common stock from 130,000,000 to 170,000,000. The board of directors believes that the increase in our authorized common stock will provide us with greater flexibility with respect to our capital structure for purposes including additional equity financings and stock based acquisitions. The certificate of amendment effectuating the vote by the shareholders was filed with the State of Nevada on November 1, 2013.

 

During the year ended December 31, 2013, the Company issued 37,299,984 shares of common stock for $18,030,632 at values ranging from $0.37 to $0.62 per share to settle debts due to third parties. The Company executed several agreements with third parties to settle debts by issuance of the Company’s common stock. The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts of $1,318,947 and $1,666,386 has been credited to consolidated statements of income as other income for the years ended December 31, 2013 and 2012, respectively; and (ii) 297,209 shares of common stock valued to employees at fair value of $0.45 per share for $133,744 for employee compensation. The fair value of the common stock issued was determined by using the trading price of the Company’s common stock on the date of issuance of $0.45 per share.

 

During the three months ended March 31, 2014, the Company issued 11,909,999 shares of common stock for $6,019,125 at values ranging from $0.46 to $0.55 per share to settle debts due to third parties. The Company executed several agreements with third parties to settle debts by issuance of the Company’s common stock. The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts of $43,020 and $552,988 has been credited to consolidated statements of income as other income for the three months ended March 31, 2014 and 2013, respectively.

 

The Company has common stock of 149,512,042 and 137,602,043 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively.

 

21.OBLIGATION UNDER OPERATING LEASES

 

The Company leases (i) 2,178 square feet of agriculture space used for offices for a monthly rent of $512 in Enping City, Guangdong Province, PRC, its lease expiring on March 31, 2014; (ii) 5,081 square feet of office space in Guangzhou City, Guangdong Province, PRC for a monthly rent of $11,838, its lease expiring on July 8, 2014; and (iii) 1,555 square feet of staff quarters in Linli District, Hunan Province, PRC for a monthly rent of $159, its lease expiring on May 1, 2014.

 

Lease expense was $37,527 and $38,002 for the three months ended March 31, 2014 and 2013, respectively. The future minimum lease payments as of March 31, 2014, are as follows:

 

Year ended December 31,2014  $35,673 
Thereafter   - 
   $35,673 

 

F - 31
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

22.BONDS PAYABLE

 

On July 1, 2013 , the Company offered a maximum of$21,000,000 of units (“Units”) for an aggregate of 840 Units; each Unit consisting of a $25,000 principal amount promissory note made by the Subscription Agreement and Confidential Private Placement Memorandum with maturity date two years from the Initial Closing Date of the Offering September 30, 2013. The interest rate of 5% is paid annually. Commissions, issue cost and discounts are amortized over 2 years from October 1, 2013.

 

On the same date, the Company issued 806,000 shares of common stock to a company to provide consulting services for the benefit of the Company.

 

Terms of the bonds are as follows:

 

Issue size:   $16,800,000
Number of units offered:   840 units
Number of units issued:   69 units
Principal value per unit:   $25,000 per unit
Net payable value /bond:   $20,000 per unit
Discounted value/bond:   $5,000 paid to bond holder
Maturity date:   2 years (September 30, 2015)
Participating interest:   5% per annum
Effective yield:   11.80% per annum

 

   March 31, 2014   December 31, 2013 
         
5% Participating zero coupon bonds      
repayable on September 30, 2015  $1,725,000   $1,725,000 

 

The Company calculated professional service compensation of $400,000 in respect of bond issue, and recognized $50,000 and $0 for the three months ended March 31, 2014 and 2013. As of March 31, 2014, the deferred compensation balance was $250,000 and the deferred compensation balance of $250,000 was to be amortized over 15 months beginning on April 1, 2014.

  

23.STOCK BASED COMPENSATION

 

On July 2, 2013, the Company issued employees a total of 297,209 shares of common stock valued at fair value of range from $0.45 per share for services rendered to the Company. The fair value of the common stock issued was determined by using the trading price of the Company’s common stock on the date of issuance of $0.45 per share.

 

The Company calculated stock based compensation of $405,544 and $2,501,457, and recognized $33,436 and $90,600 for the three months ended March 31, 2014 and 2013. As of March 31, 2014, the deferred compensation balance was $66,872 and the deferred compensation balance of $66,872 was to be amortized over 6 months beginning on April 1, 2014.

 

F - 32
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

 

24.CONTINGENCIES

 

As of March 31, 2014 and December 31, 2013, 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 cash flows.

 

25.GAIN ON EXTINGUISHMENT OF DEBTS

 

The Company executed several agreements with third parties to settle debts by issuance of the Company’s common stock. The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts of $43,020 and $552,988 has been credited to consolidated statements of income as other income for the three months ended March 31, 2014 and 2013, respectively.

 

26.RELATED PARTY TRANSACTIONS

 

In addition to the transactions and balances as disclosed elsewhere in these consolidated financial statements, during the three months ended March 31, 2014 and 2013, the Company had the following significant related party transactions:-

 

Name of related party   Nature of transactions
     

Mr. Solomon Yip Kun Lee, Chairman

 

  Included in due to a director, due to Mr. Solomon Yip Kun Lee is $901,353 and $1,793,768 as of March 31, 2014 and December 31, 2013, respectively. The amounts are unsecured, interest free and have no fixed term of repayment.

 

27.SUBSEQUENT EVENT

 

On May 5, 2014, the Company requested the Securities and Exchange Commission to issue an order granting the withdrawal of the registration statement related to a public offering of common stock of the Company for maximum aggregate gross proceeds of $26,250,000 filed on March 28, 2013.

 

F-33
 

 

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

 

This Quarterly Report on Form 10-Q (the “Form 10-Q”) contains “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Forward-looking statements can be identified by the use of forward-looking terminology, such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause the Company’s actual results, performance or achievements in 2014 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 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 six (6) business divisions or units on a standalone basis, namely:

 

1)Fishery Division;
2)Plantation Division;
3)Beef Division;
4)Cattle Farm Division;
5)Organic Fertilizer Division; and
6)Corporate & Others Division

 

A summary of each business division is described below:

 

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

 

Capital Award generates revenue as being the sole marketing, sales and distribution agent of the fishery farms (covering both of the fish, prawns and eel farms) developed by Capital Award in China as follows:

 

(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). Seafood Sales

 

Capital Award generates revenue as the sole marketing, sales and distribution agent for the fish and prawn farms developed by Capital Award in China as follows:

 

(1)   Sales to Sino Foreign Joint Venture Companies (“SFJVC’s”) and sales derived from the SFJVC (currently, only the JFD subsidiary is an SFJVC) are being consolidated into Tri-way Industries Ltd. (Hong Kong) (TRW) as one entity.

 

1
 

 

(2)   Sales to and sales derived from un-incorporated companies (covering EBAPCD and ZSAPP) are accounted for independently as follows:

 

CA and EBAPCD: (a). CA purchases prawn fingerling and feed stocks from third party suppliers and resells to EBAPCD at variable small profit margins and (b). CA purchases matured prawns from EBAPCD and sells to third parties (in wholesale markets) at a gross profit margin approximating 15%.

 

CA and ZSAPP: (a). CA earns commission from the sale of prawn fingerlings that are sold by ZSAPP to third parties, and in this respect ZSAPP produces its own prawn fingerlings as compared to CA purchasing them for EBAPCD, as described above, and (b). CA purchases matured prawns from ZSAPP and sells to third parties (in wholesale markets) at a gross profit margin approximating 15%.

 

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

 

lBeef Division refers to the fattening and sale of beef cattle operations of Qinghai Sanjiang A Power Agriculture Co. Ltd. (“SJAP”) to wholesale and retail markets. SJAP’s financial statements are consolidated into the financial statements of A Power Agro Agriculture Development (Macau) Ltd. (“APWAM”) as one entity.

 

lCattle Farm Division refers to the operations of Cattle Farm (1) under Jiangmen City Hang Mei Cattle Farm Development Co. Ltd. (“JHMC”) where cattle is sold live to third party slaughterhouses or slaughtered in slaughterhouse operations. JHMC’s financial statements are consolidated into MEIJI as one entity along with MEIJI’s operation in the consulting and service for development of other cattle farms (i.e. Cattle Farm 2) or related projects.

 

lOrganic Fertilizer Division refers to (i) the operation of SJAP in manufacturing and sales of organic fertile, bulk livestock feed and, concentrated livestock feed and (ii) the operation of Hunan Shenghua A Power Agriculture Co. Ltd. (“HSA”) in manufacturing and sales of organic fertilizer. Financial statements of the both companies are being consolidated into APWAM as one entity.

 

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

 

2
 

 

MD & A OF CONSOLIDATED RESULTS OF OPERATIONS

Part A. Unaudited Income Statements of Consolidated Results of Operations for three months ended March 31, 2014 compared to for three months ended March 31, 2013.

 

A (1) Income Statements (Unaudited)

 

In $   Three months ended     Three months ended     Difference     Note  
    March 31,2014      March 31,2013              
Revenue     90,927,789       55,107,751       35,820,038       1  
Consulting, services, commission and management fee     12,655,480       18,558,397       -5,902,917          
Sale of goods     78,272,309       36,549,354       41,722,955          
                                 
Cost of goods sold and services     62,367,941       33,584,934       28,783,007       2  
Consulting, services, commission and management fee     6,503,412       7,820,288       -1,316,876          
Sale of goods     55,864,529       25,764,646       30,099,883          
                                 
Gross  Profit     28,559,848       21,522,817       7,037,031       3  
Consulting, services, commission and management fee     6,152,068       10,738,109       -4,586,041          
Sale of goods     22,407,780       10,784,708       11,623,072          
                                 
Other income -expenses)     50,403       593,884       -543,481          
General and administrative expenses     -2,668,394       -2,205,388       -463,006       4  
Net income     25,941,857       19,911,313       6,030,544          
                                 
EBITDA     27,094,847       20,613,307       34,081,789          
Depreciation and amortization -D&A)     -1,043,883       -644,942 )     -398,941       5  
                                 
EBIT     26,050,964       19,968,365       6,082,599          
Net  Interest     -109,107       -57,052       -52,055          
Tax     -       -       -          
Net  Income     25,941,857       19,911,313       6,030,544          
Non - controlling interest     -5,153,938       -3,532,541     -1,621,397       7  
                                 
Net  income  to  SIAF  Inc. and   subsidiaries     20,787,919       16,378,772       4,409,147          
Weighted   average  number  of  shares   outstanding                   0          
-  Basic     142,658,210       105,385,902       37,272,308          
-  Diluted     149,658,210       115,252,569       34,405,641          
                               
Earnings Per Share -EPS)                           8  
-  Basic     0.15       0.16       -0.01          
-  Diluted     0.14       0.14       -          

 

This Part A discusses and analyzes certain items (marked with notes) that we believe assist shareholders in obtaining a better understanding on the Company’s results of operations and financial condition:

 

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

 

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

 

3
 

 

Table (A.1)) below shows the items, quantities, average selling price and average unit cost of goods sold for three months ended March 31, 2014 (“Q1 2014”) compared to for the three months ended March 31, 2013 (“Q1 2013”).

 

Subsidiary     Description of items       2014 Q1       2013 Q1       Difference       Percent of change       Notes  
SJAP     Cattle Operation                                          
Production and Sales of  live  cattle     Heads       3,715       1,564       2,151       138 %        
Average selling price     US$/head       4,410       4,358       52       1 %        
Average unit cost     US$/head       3,050       2,424       626       26 %     A.1.1  
Production  and sales of   feedstock                                                
Bulk Livestock feed     MT       8,000       10,000       -2,000       -20 %     A.1.2  
Average selling price     US$/MT       168       152       16       11 %        
Average unit cost     US$/MT       87       60       27       45 %        
Concentrated livestock feed     MT       7,880       4,000       3,880       97 %        
Average Unit sales price     US$/MT       441       415       26       6 %        
Unit cost prices     US$/MT       258       250       8       3 %        
Production and sales of fertilizer     MT       15,991       15,851       140       1 %        
Averages selling price     US$/MT       184       174       10       6 %        
Average unit cost     US$/MT       92       74       18       24 %     A.1.3  
HS.A     Fertilizer and Cattle operation       -                                  
 Organic Fertilizer     MT       3,852       3,683       169       5 %        
Average selling price     US$/MT       256       239       17       7 %        
Average unit cost     US$/MT       187       180       7       4 %        
 Organic Mixed Fertilizer     MT       8,500       3,010       5,490       182 %     A.1.4  
Average selling price     US$/MT       451       414       37       9 %        
Average unit cost     US$/MT       236       214       22       10 %        
JHST     Plantation of HU Flowers and Immortal vegetables                                          
Fresh HU Flowers      Pieces               -       -                  
Average selling price     US$/Pieces               -       -                  
Average unit cost     US$/Pieces               -       -                  
Dried HU Flowers     MT               -       -                  
Average selling price     US$/MT               -       -                  
Average unit cost     US$/MT               -       -                  
Dried Immortal vegetables     MT       5       -       5                  
Averages selling price     US$/MT       152,010       -       152,010                  
Average unit cost     US$/MT       49,036       -       49,036                  
Other Value added products     Pieces       -       -                          
Average selling price     US$/Pieces       -       -                          
Average unit cost     US$/Pieces       -       -                          
CA     Production  and  sale (Inclusive contrated farms)  of live                                          
Fish (Sleepy cods)     MT       99       644       -545       -85 %        
Average selling price     US$/MT       16,018       16,229       -211       -1 %        
Average unit cost     US$/MT       12,739       13,652       -913       -7 %        
Eels     MT       956       323       632       195 %        
Average selling price     US$/MT       26,016       13,226       12,790       97 %     A.1.5  
Average unit cost     US$/MT       16,653       11,110       5,543       50 %     A.1.6  
Prawns     MT       374       -       374                  
Average selling price     US$/MT       12,462       -       12,462                  
Average unit cost     US$/MT       11,685       -       11,685                  
MEIJI     Production  and  sale   of  Live cattle (Aromatic)
Heads
      2,672       1,130       1,542       136 %        
Average selling price     US$/head       2,824       2,726       97       4 %        
Average unit cost     US$/head       2,702       1,534       1,168       76 %     A.1.7  
SIAF     Seafood  trading/import/export                                          
Mixed seafoods     MT       772       334       438       131 %        
Averages selling price     US$/MT       12,805       11,554       1,251       11 %     A.1.8  
Average unit cost     US$/MT       11,134       11,291       -156       -1 %        

 

4
 

 

Notes to Table (A.1)

 

A.1.1: SJAP’s Cost of goods sold of cattle increased to an average of $3,050/head in Q1 2014 as compared to $2,424/head in Q1 2013 due mainly to the reason of heavier cattle (averaging over 600 Kg/head) being purchased in the Q1 2014 instead of cattle (averaging over 500 Kg/head) that were purchased in Q1 2013; however, the weight at which cattle (at an average of over 850Kg/head) are being sold were similar between the Q1 2013 & 2014 such that their respective average selling price was mainly due to price fluctuation per cwt. Nurturing cattle from a higher weight point has increased the number of cattle being fattened and sold in a shorter period of time, thus enhancing sales due to the faster turn-over of cattle being fattened and sold in Q1 2014 as compared to Q1 2013.

 

A.1.2: The decrease in quantity of sales of Bulk Stock feed by 2,000 MT in Q1 2014 from the same quarter of 2013 is due to the fact that we kept most of the bulk stock feed for our own use (inclusive of our own cooperative farms) instead of selling a greater portion of it to the external farmers.

 

A.1.3: The increase of cost of production in SJAP’s fertilizer manufacturing in Q1 2014 at an average of $92/MT as compared to $ 74/MT in same quarter of 2013 is due mainly to the increase cost of raw materials due to scarcity of supplementary materials (i.e. Mushroom stems& stocks and other organic base byproducts etc.) that were affected by a drier winter.

 

A.1.4: The increase of sales of Organic Mixed Fertilizer from HSA in Q1 2014 by 5,490 MT as compared to same quarter of 2013 is due mainly to an increase in sales to the lake fish growers as our product becomes better known and popular among the lake fish growers in the district.

 

A.1.5 & 6: Increases in the average selling price and unit cost in Q1 2014 by $12,790/MT (in sale of eels) and $5,543/MT (in cost of eel) from the same quarter of 2013 were due to the variety of eels (i.e. 2014’s Flower Pattern eels have a much higher market price than the 2013’s dark ring circle eels and the sizes of the eels (i.e. 2014’s average of 3 Kg & above/eel that has much higher prices than the 2013’s average size of 1.25 Kg/eel).

 

A.1.7: MEIJI’s Cost of sales of cattle increased to an average of $2,702/head in Q1 2014 compared to $1,534/head in Q1 2013 due mainly to the reason of heavier cattle (averaging over 500 Kg/head) being purchased in Q1 2014 instead of cattle (averaging over 310 Kg/head) that were purchased similar between Q1 of 2013 & 2014 such that their respective average selling price was mainly due to price fluctuation per cwt. Nurturing cattle from a higher weight point has increased the number of cattle being fattened and sold in a shorter period of time, thus enhancing sales due to the faster turn-over of cattle being fattened and sold in Q1 2014 as compared to the same quarter in 2013.Over 60% of the total 2,672 cattle sold in the Q1 2014 were cattle being purchased from our contracted growers from Changchun Village Committee and sold to the Beijing wholesale markets, with the approximate 40% balance of product raised for sale by Cattle Farm (1).

 

A.1.8: The imported seafood sales were made up by varieties of seafood imported from various countries such that the whole sum is a mixture of multiple variables that changes from quarter to quarter due to seasonal availabilities of seafood from different countries.

 

5
 

 

Table (A.2) below shows the sale of goods, cost of goods sold and gross profit for the three months ended March 31, 2014 (Q1 2014) and the three months ended March 31, 2013 (Q1 2013).

 

In $ Sale of goods     Cost of Goods sold     Gross profit
        2014 Q1     2013 Q1       2014 Q1       2013 Q1       2014 Q1       2013 Q1  
Fishery                                                
 CA   Sales of                                            
    Fish (Sleepy cods)   1,585,812     10,452,075       1,261,184       8,792,392       324,628       1,659,683  
    Eels 
 
  24,862,185     4,278,268       15,914,258       3,593,797       8,947,926       684,471  
    Prawns    4,660,788     -       4,370,124       -       290,664       -  
    CA and Fishery Total   31,108,785     14,730,343       21,545,566       12,386,189       9,563,218       2,344,154  
Plantation                                                
 JHST   Sale of Fresh HU Flowers   -     -       -       -       -       -  
    Sale of Dried HU Flowers   -     -       -       -       -       -  
    Sale of Dried Immortal vegetables   760,052     -       245,178       -       514,874       -  
    Sale of Other Value added products   -     -       -       -       -       -  
    JHST and PlantationTotal   760,052     -       245,178       -       514,874       -  
Beef                                                
  SJAP   Sales of  live  cattle    16,384,494     6,815,921       11,332,306       3,791,829       5,052,187       3,024,092  
    Beef Total    16,384,494     6,815,921       11,332,306       3,791,829       5,052,187       3,024,092  
Organic fertizer                                            
  SJAP   Sale of   feedstock                                             
    Bulk Livestock feed   1,342,988     1,517,572       697,252       600,399       645,736       917,173  
     Concentrate livestock feed   3,477,413     1,660,000       2,029,979       1,000,000       1,447,435       660,000  
    Sale of   fertilizer    2,948,008     2,758,102       1,469,669       1,173,234       1,478,339       1,584,868  
    SJAP's Organic Frtilizer Total   7,768,409     5,935,674       4,196,900       2,773,633       3,571,510       3,162,041  
 HSA   Sale of  Organic fertilizer   987,593     880,298       719,522       662,999       268,071       217,299  
    Sale of Organic Mixed Fertilizer   3,834,587     1,246,006       2,008,456       644,072       1,826,131       601,935  
     HSA Total    4,822,180     2,126,304       2,727,978       1,307,071       2,094,202       819,234  
    Organic fertilizer Total   12,590,589     8,061,978       6,924,878       4,080,704       5,665,712       3,981,275  
Cattle farm                                            
  MEIJI   Sale   of  Live cattle (Aromatic)   7,544,591     3,080,876       7,220,836       1,733,588       323,755       1,347,288  
     MEIJI  and cattle farm total   7,544,591     3,080,876       7,220,836       1,733,588       323,755       1,347,288  
Corporate                                                
  SIAF   Sale of Seafood trading/import/export   9,883,798     3,860,236       8,595,765       3,772,336       1,289,695       87,900  
    SIAF and Corporate total   9,883,798     3,860,236       8,595,765       3,772,336       1,289,695       87,900  
 Group Total      78,272,309      36,549,354        55,864,529        25,764,646        22,409,441        10,784,709  

 

6
 

 

Table (A.3) below shows the percentage of gross profit the three months ended March 31, 2014 and the three months ended March 31, 2013.

 

 Gross Profit in % of sale of goods   2014Q1   2013Q1   Difference 
Fishery               
 CA               
 Fish (Sleepy cods)   20%   16%   5%
 Eels   36%   16%   20%
 Prawns   6%   -    - 
 CA and Fishery Gross Profit   31%   16%   15%
Planation               
 JHST               
Fresh HU Flowers               
Dried HU Flowers               
Dried Immortal vegetables   68%        - 
Other Value added products               
JHST and Plantation Gross Profit   68%        - 
Beef               
 SJAP               
Live  cattle   31%   44%   -14%
Beef Gross Profit   31%   44%   -14%
Organic fertilizer               
 SJAP               
Feedstock               
Bulk livestock feed   48%   60%   -12%
Concentrated livestock feed   42%   40%   2%
Fertilizer   50%   57%   -7%
SJAP Gross Profit   36%   49%   -13%
 HSA               
Fertilizer   27%   25%   2%
Organic mixed fertilizer   48%   48%   -1%
HSA Gross Profit   43%   39%   5%
Organic fertilizer Gross Profit   45%   49%   -4%
Cattle farm               
 MEIJI               
Sale of  live cattle (Aromatic)   4%   44%   -39%
MEIJI and Cattle farm Gross Profit   4%   44%   -39%
Corporate               
SIAF   13%   2%   11%
Seafood trading/import/export   13%   2%   11%
 Corporate  and SIAF Gross Profit               
                
 Group Total Gross Profit on sale of goods (excluding C,S,C &C))   29%   30%   -1%

 

Revenues (sale of goods)

Revenues generated from sale of goods increased by $41,724,617 (or 114 %) from $36,549,354 for Q1 2013 to $ 78,273,971 for Q1 2014. The increase was primarily due to increase of revenue from fishery by $16,378,442 and was attributable to 39% of total increase of 41,724,661. Revenue from fishery of $31,108,785 (Q1 2013: $14,730,343) was attributable to 40% (Q1 2013:40%) of total revenues of $78,273,971 (Q1 2013: $36,549,354).

 

7
 

 

Fishery: Revenue from fishery increased by $16,378,442 (or 111%) from $14,730,343 for Q1 2013 to $31,108,785 for Q1 2014. The increase in fishery was primarily due to our increase in revenue from the sale of eels and prawns. Sale of eels and prawns of $29,522,973 (Q1 2013: $4,278,268) contributing 95% (Q1 2013: 29%) of total revenue of fishery of $31,108,785 (Q1 2013: $14,730,343).

  

Plantation: Revenue from our plantation increased by $760,052 from $ 0 for Q1 2013 to $ 760,052 for Q1 2014. The increase was primarily due to the increase of sales of dried Immortal vegetables.

 

Beef: Revenue from beef increased by $9,568,573 (or 140%) from $6,815,921 for Q1 2013 to $16,384,494 for the Q1 2014. The increase was primarily due to shortening the fattening period of the cattle by stocking older cattle and increasing faster turnaround of sales (i.e. fattening 16 months and older cattle at the farm for 3 months in 2013 instead of fattening 14 - 15 months old cattle for 5 to 6 months). .

 

Organic fertilizer: Revenue from organic fertilizer increased by $4,528,611 from $8,061,978 for Q1 2013 to $12,590,589 for Q1 2014. The increase was primarily due to the increase of both volume of production (Q1 2013: 47,504MT) by 175% and the selling price of bulk live feed of $155/MT (Q1 2013: $132/MT) by 17%, organic fertilizer of $323/MT (Q1 2013: $210/MT) by 54% and organic mixed fertilizer of $413/MT (Q1 2013: $387/MT) by 7%.

 

Cattle farm: Revenue from cattle farm increased by $4,463,715 (or 145%) from $3,080,876 for Q1 2013 to $7,544,591 for Q1 2014. The increase was primarily due to the increase of the quantities of cattle being grown in the farm of 2,672 heads (Q1 2013: 1,130 head) by 136%.

 

Corporate: Revenue from the corporate increased by $6,025,224 (or 156%) from $3,860,236 for Q1 2013 to $9,885,460 for Q1 2014. The increase was primarily due to more imported sea food being marketed in 2013.

 

Cost of Goods Sold (sale of goods)

 

Cost of goods sold increased by $30,099,883(or 117%) from $25,764,646 for Q1 2013 to $55,864,529 for Q1 2014. The increase was primarily due to increase of cost of goods sold from fishery of $9,159,377 contributing 31%of the total increase of $29,799,883. Cost of goods sold from fishery of $21,545,566 (Q1 2013: $12,836,189) attributed to 39% (Q1 2013: 50%) of total COGS of $55,864,529 (Q12013: $25,764,646).

 

Fishery: Cost of goods sold from fishery increased by $9,159,377(or 74%) from $12,386,189 for Q1 2013 to $21,545,566 for Q1 2014. The increase in cost of goods from fishery was primarily due to the increase in quantity of cost of goods sold of Eels of 956MT (Q1 2013: 323 MT) by 196% and prawns of 374MT (Q1 2013 Nil MT). Further, unit cost of eels increased $5,543 per MT by 50% to $16,653 per MT from (Q1 2013: $11,110 per MT).

 

Plantation: Cost of goods sold from plantation increased by $ 245,178 from $0 for Q1 2013 to $245,178 for Q1 2014. The increase was primarily due to the increase of sale of new product: Immortal vegetables.

 

Beef: Cost of goods sold from beef increased by $7,540,477 (or 199%) from $3,791,829 for Q1 2013 to $11,332,306 for Q1 2014. The increase was primarily due to the increase of quantity of cattle sold 4,611 head (Q1 2013: 1,564 head) increased by195% through shortening the fattening period of the cattle by stocking older cattle and increasing faster turnaround of sales (i.e. fattening 16 months and older cattle at the farm for 3 months in 2013 instead of fattening 14 - 15 months old cattle for 5 to 6 months) while the unit cost of cattle increased only slightly $2,458/head (Q1 2013: $2,424/head) by 1%.

 

Organic fertilizer: Cost of goods sold from organic fertilizer increased by $2,844,174 from $4,080,704 for Q1 2013 to $6,924,878 for Q1 2014. The increase was primarily due to the increase of both volume of production 36,343MT (Q1 2013: 36,544MT) by 175% and the unit cost of bulk live feed of $87/MT (Q1 2013: $60/MT) by 45%, organic fertilizer of $236/MT (Q1 2013: $214/MT) by 10%.

 

Cattle farm: Cost of goods sold from cattle farm increased by $5,487,248 (or 317%) from $1,733,588 for Q1 2013 to $7,220,836 for Q1 2014. The increase was primarily due to the increase of the quantities of cattle being grown in the farm of 2,672 head (Q1 2013: 1,130 head) by 136% and the unit cost increased to $2,702 per head (Q1 2013: $1,534 per head) by 76%.

 

Corporate: Cost of goods sold from corporate increased by $4,823,429 (or 128%) from $3,772,336 for Q1, 2013 to $8,595,765 for Q1 2014. The increase was primarily due to more imported sea food being marketed in Q1 2014. As a result, total weights of mixed sea foods sold of 772 MT (Q1 2013: 334MT) increased by 104%.

  

8
 

 

Gross Profit (sale of goods)

 

Gross profit generated from goods sold increased by $11,624,732 (or108%) from $10,784,709 for Q1 2013 to $22,409,441 for Q1 2014. The increase was primarily due to increase of gross profit from fishery by $7,219,064 and was attributable to 62% of total increase of 11,624,732.Gross profit from fishery of $9,563,219 (Q1 2013: $2,344,154 was attributable to 43% (Q1 2013: 22%) of total gross profit from fishery of $22,409,442 (Q1 2013: $10,784,709).

 

Fishery: Gross profit from fishery increased by $7,219,064 (or 308%) from $2,344,154 for Q1 2013 to $9,563,218 for Q1 2014. Gross profit from Eels of $8,947,926(Q1 2013: $684,471) was attributable to 94% (Q1 2013: 29%) of total gross profit. The increase of gross profit from Eels is primarily due to both the increase of quantities of Eels sold of 956MT (Q1 2013: 323MT) and the increase of average selling price of $26,016 per MT (Q1 2013: $13,226 per MT).

  

Plantation: Gross profit from our plantation increased by $514,874 from $0 for Q1 2013 to $514,874 for Q1 2014. The increase was primarily due to sale of new product: Immortal Vegetables in the three months ended March 31 2014 whereas nil in the same quarter of 2013.

 

Beef: Gross profit from beef increased by $2,028,095 (or67%) from $3,024,092 for Q1 2013 to $5,052,187 for the Q1 2014. The increase was primarily due to the increase of quantity of cattle of sold 4,611 head (Q1 2013: 1,564 head) by 195%.

 

 Organic fertilizer: Gross profit from organic fertilizer increased by $1,684,437(or 42%) from $3,981,275 for the three months ended March 31,2013 to $5,665,712for the three months ended March 31,2014. The increase was primarily due to the increase of both volume of production 36,343MT (Q1 2013: 36,544MT) by 175% and the unit cost of bulk live feed of $87/MT (Q1 2013: $60/MT) by 45%, organic fertilizer of $236/MT (Q1 2013: $214/MT) by 10%.

 

Cattle farm: Gross profit from cattle decreased by $1,023,533 from $1,347,288 for Q1 2013 to $323,755 for Q1 2014. The decrease was primarily due to the trading of cattle from contracted growers at Changchun Village committee at lower margins, and the higher mortality rate of cattle being fattened in Cattle Farm (1) due to the poor ability of certain cattle adapting to a hotter climate.

 

Corporate: Gross profit from the corporate increased by $1,201,795 (or 1,367%) from $87,900 for Q1 2013 to $1,289,695 for Q1 2014. The increase was primarily due to the more category of sea food being marketed in Q 1 2014 and the gross profit margin of 13% (Q1 2013: 2%) also increased by 11%.

 

 Table (A.4) below shows revenues, cost of services and gross profit generated from Consulting, services, commission and management fee for three months ended March 31,2014 and the three months ended March 31,2013.

 

9
 

 

    2014Q1   2013Q1 Difference    Description of work  Notes 

Revenues (Cobsulting, service, commission and management fee)

                     
CA   

12,655,480

    

11,309,326

 

     1,346,154

    Working in progress of PF(1), FF(2) and PF(2)  D1 & D3 
MEIJI   -    5,281,681  -5,281,681    Work in progress of CF(2) and Road work CF(1) & CF(2)  D2 
SIAF   -    1,967,390  -1,967,390    Work in progress of WHX and NAWei  D4 &D5 
Group Total Revenues   

12,655,480

    

18,558,397

 

18,558,397

      D6  
Cost of sales                     
CA   6,503,412    3,408,096  3,095,316         
MEIJI   -    3,864,451  -3,864,451         
SIAF   -    547,741  -547,741         
Group Total Cost of sales   6,503,412    7,820,288  -1,316,876         
Gross Profit                     
CA   5,739,790    7,804,456  -2,064,666         
MEIJI   -    1,417,230  -1,417,230         
SIAF   -    1,419,649  -1,419,649         
Group Total Gross Profit   5,739,790    10,641,335  -4,901,545         

 

Note:

D1.PF (1) is Prawn Farm (1) development at Enping City, FF(2) is the Fish Farm (2) development at Xin Hui City and PF(2) is Prawn Farm (2) development at Zhongshen City (San Jiao town).

 

D2.CF(1) and CF(2) are Cattle Farm (1) and Cattle Farm (2) development in Enping City, respectively.

 

D3.ZhongShen New Prawn Project ids the development of an agriculture, hydroponic cum industrial complex at Cui Ken Cun District of the Zhongshen City situated approximately 10 Km from PF (2).

 

D4.WHX is the construction and business development of central kitchen, bakery and restaurants and food outlets for Guangzhou City Wang Xiangcheng Enterprise management consulting Co., Ltd.

 

D5.NaWei is the construction and business development of wholesale centers,(covering live and frozen seafood and beef), cold and dried storages, offices and staff quarters etc. for Guangzhou City A Power Na Wei Trading Co., Ltd.

 

D6.During the Fiscal year 2012 and 2013, total Consulting and service work of $261 million was contracted (inclusive contracts obtained prior to December 2013 for $102 million (old contracts) and contracts obtained from December 2013 for $159 million (New Contracts)). As of December 31, 2013, there are $101 million of work has been done on the Old contracts (inclusive $9million of work being carried over from fiscal year 2011, such that on the Old contracts there are $10 million of work to be carried over to fiscal year 2014; and there are $153 million of work remaining on the new contracts that will be carried over to the fiscal year 2014 having done $6 million of work from the new contracts in the fiscal year 2013.

 

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

 

Revenues decreased by $5,902,917 (or -32%) from $18,558,397 for Q1 2013 to $12,655,480 for Q1 2014. The decrease was primarily due to a decrease in revenue from cattle farm of $5,281,681, which contributed 89% of the total decrease of revenue of $5,902,917. Revenue from cattle farm of $0 (Q1 2013: $5,281,681) is contributed to 0% (Q1 2013: 28%) of the total revenue of $12,655,480 (Q1 2013: $18,558,397).

 

Fishery: Revenue from fishery increased by $1,346,154(or12%) from $11,309,326 for Q1 2013 to $12,655,480 for Q1 2014. The increase was due to a higher volume of work.

 

10
 

 

Cattle farm: Revenue from cattle farm decreased by $5,281,681from $5,281,681 for Q1 2013 to $0 for Q1 2014.The reason for the decrease is because the work in progress on cattle farm (2) had been completed in 2013.

 

Corporate: Revenue from corporate decreased by $1,967,390 from $1,967,390 for Q1 2013 to $0 for Q1 2014. The reason for the decrease is because the work in progress had been completed in 2013.

 

Cost of services (consulting, service, commission and management fees)

 

Cost of services for consulting, service, commission and management fee decreased by $7,820,280 (or -17%) from $7,820,288 for Q1 2013 to $6,503,412 for Q1 2014. The decrease was primarily due to the decrease in cost of services for the cattle farm of $3,864,451which contributed 293% of total decrease of cost services of $1,316,876. Cost of services for the cattle farm of $0 (Q1 2013: $3,864,451) contributed 0% (Q1 2013: 49%) of the total cost of services of $6,503,412 (Q1 2013: $7,820,288).

 

Fishery: Cost of services from fishery increased by $3,095,316(or 91%) from $3,408,096 for Q1 2013 to $6,503,412 for Q1 2014. The increase was due to a higher volume of work.

 

Cattle farm: Cost of services from cattle farm decreased by $3,864,451 from $3,864,451 for Q1 2013 to $0 for Q1 2014. The reason for the decrease is because the work in progress had been completed in 2013.

 

Corporate: Cost of services from corporate decreased by $547,741 from $547,741 for Q1 2013 to $0 for Q1 2014. The reason for the decrease is because the work in progress had been completed in 2013.

 

Gross profit (consulting, service, commission and management fee)

 

Gross profit of consulting, service, commission and management fee decreased by $4,586,041(or -43%) from $10,738,109 for Q1 2013 to $6,152,068 for Q1 2014. The main reason for the decrease is because much of the work in progress had been completed in 2013.

 

Fishery: Gross profit from fishery decreased by $1,749,162 (or -22%) from $7,901,230 for Q1 2013 to $6,152,068 for Q1 2014. The reason for the decrease was the result of the project being in its final stage of development with less gross profit realized.

 

Cattle farm: Gross profit from cattle farm decreased by $1,417,230 from $1,417,230 for Q1 2013 to $0 for Q1 2014. The reason for the decrease is because the work in progress on cattle farm (2) had been completed in 2013.

 

Corporate: Gross profit from corporate decreased by $1,419,649 from $1,419,649 for Q1 2013 to $0 for Q1 2014. The reason for the decrease is because the work in progress had been completed in 2013.

 

 

Table (A.5) below highlights on general information of ongoing Consulting and Services provided by Capital Award, MEIJI and SIAF respectively in the Fiscal Year 2014:

 

11
 

 

Name of the developments   Location of development   Designed capacity per year   Land area or Built up area   Current    Phase & Stage    Commencement date of development   (Estimated) development's completion date on or before   Contractual amount   % of completion as of 31.03.2014
Fish Farm (1)   Enping City   1,200 MT   9,900 m2   fully operational    July 2010   June 2011    $5.3 million   Fully operational
Prawn Farm (1)   Enping City   2013=400MT 2014=800MT 2015=1200 MT   23,100 m2   2 phases and road work   2 phases and road work and Phase 3 extension of grow-out farm & Phase 4 demonstrated hydroponic farm    Phase 1 on June 2011 Phase (2.1) Phase (2.2) Road work Started Aug. 2012   Phase (1) on December 2012 Phase (2) completed Q1 2013    Phase (1) $11.6 million Phase (2) 6.39 million Road work $2.94 million, Phase 3 US$5.2 million & Phase 4 US$1.6 million
Fish Farm (2) "The Fish & Eel Farm   Xin Hui District, Jiang Men.   2014=800 MT 2015= 1600 MT 2016=2000MT   165,000 m2   3 Phases   Phase 1 January 15, 2012 Bridge & Road Oct. 2012 Phase (3) 2013 & (4)2014   Phase 1 June 2014 Bridge & Road Dec. 2013 Phase (3) & (4) 2015    Phase (1) $8.73 million Bridge & Road $2.48 Phase (3) $4.38 M Phase (4) $10.63 Million   Phase (1) & Bridge and Road completed Jan. 2013 Phase (3) completed and Phase (4) not started.
Prawn Farm (2) The Hatchery & Nusery & Grow-out prawn farm   San Jiao Town, Zhong San City,   2013=1.6 Billion Fingerling and 400MT of prawns increasing yearly and by 2015 = 3.2 billion fingerling and 1200 MT of Prawns   120,000 m2   2 phases    Phase (1) and Phase (2) May 2012 Phase (3) 2014   Phase (1) Dec. 2012 and Phase (2) December 2013.Phase (3) Dec. 2014    Phase (1) $9.26 m         and Phase (2) 8.42 Million  Phase (3) 11.5 Million   Phase (1) fully operational and Phase (2) in operation and Phase (3) not started
Cattle Farm (1)   LiangXi Town, Enping City   165,013 m2   1,500 Heads   2 phases    April 2011   December  2011   $3.0 million +$1.17 Million   Fully Operational
Cattle Fram (2)   LiangXi Town, Enping City   230,300 m2   2,500 heads   2 Phases   February  2012   March. 2014   $10.6 million   completed
Cattle Farm (1) external road work   LiangXi Town, Enping City   4.5 Km road       One Phase   September  2012   March. 2013   $4.32 million   Completed
Cattle Farm (2) External Road work.   LiangXi Town, Enping City   5.5 Km Road       One Phase   September  2012   March. 2013    $5.28 Million   Completed
WHX Restaurants etc.   Guangzhou City   5,500 seatings in total       Phase (1) Stage (1)   June  2012   December  2015   $17.5 million   Work in progress
NaWei wholesale Center   Guangzhou City   5,000 m2   One Phase   July  2012   March. 2014   $ 9 million   Completed

 

 

Note (4) Other Income

 

Table (Note 4.1) below shows the Gain/Loss on extinguishment of debts (or Debt Settlement) representing recent sales of unregistered securities and the issuance of shares for Q1 2014

 

12
 

 

Date   Shares issued/Bought back     Market Price when issuance     Par value    Additional paid in capital    Consideration received    Income from issuance of shares   Note
As at 01.01.2014   137,602,043              

108,038,413

              
1/3/2014   1,481,481    0.55    1,481    813,333    800,000    -14,815    Debt settlement
1/13/2014   1,296,296    0.50    1,296    646,852    700,000    51,852    Debt settlement
1/16/2014   1,700,000    0.52    1,700    882,300    850,000    -34,000    Debt settlement
2/10/2014   1,057,692    0.52    1,058    548,942    550,000    0    Debt settlement
3/8/2014   1,421,569    0.55    1,422    780,441    725,000    -56,863    Debt settlement
3/27/2014   3,061,224    0.46    3,061    1,405,102    1,500,000    91,837    Debt settlement
3/29/2014   1,891,737    0.47    1,892    

            887,226

    

894,126

    

            5,009

    Debt settlement
                                  
As of 03.31.2014   149,512,042         11,910    

114,002,609

    

         6,019,126

    

43,020

    

 

The Company entered into several agreements with third parties to settle debts by issuance of the Company’s common stock. The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. For the three months ended March 31, 2014, the Company issued an aggregate of 11,909,999 shares of Common Stock in consideration for extinguishment of debt in the aggregate amount of $6,019,126, reporting gain in income of $43,020 from the extinguishment of debts.

 

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

 

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

 

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

 

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

 

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

 

 

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

 

The other income for the three months ended March 31, 2014 amounted to $50,403 and derived from the combination of (1) Gain on extinguishment of debt $43,020 (Note 4), Government Grant $113,232 and other incomes $3,258 less interest expenses of $109,107. Whereas the other income for the three months ended March 31, 2013, and derived from the combination of (1) Gain on extinguishment of debt $552,988 (Note 4), Government Grants $79,759 and other incomes $18,189 less interest expenses of $57,052.

 

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 $43,020 and $552,988 has been credited (charged) to operations for the three months ended March 31, 2014 and 2013, respectively.

 

Note (5) General and Administrative Expenses and Interest Expenses

 

General and administrative and interest expenses (including depreciation and amortization) increased by $515,061 (or 5.6%) from $2,262,440 for Q1 2013 to $2,777,501 for Q1 2014. The increase was primarily due to increase in the depreciation and amortization of $363,869 from $584,098 for Q1 2013 to $947,967 for Q1 2014, and the increase in traveling office and related lodging of $60,217 from $15,375 for Q 1 2013 to $75,592 for the Q1 014.

 

13
 

 

Table (to Note 5)

 

Category   2014Q1   2013Q1   Difference 
                
Office and corporate expenses  $758,221   $738,480   $19,741 
                
Wages and Salaries  $592,275   $586,727   $5,548 
                
Traveling and related lodging  $75,592   $

15,375

   $

60,217

 
                
Motor vehicles expenses and local transportation  $35,795   $29,636   $6,159 
                
Entertainments and meals  $30,289   $28,018   $2,271 
                
Others and miscellaneous  $228,255   $223,054   $5,201 
                
Depreciation and amortization  $947,967   $584,098   $363,869 
                
Sub-total  $2,668,394   $2,205,388   $

463,006

 
                
Interest expenses  $109,107   $57,052   $

52,055

 
                
Total  $2,777,501   $2,262,440   $

515,061

 

 

Note (6) Depreciation and Amortization

Depreciation and amortization increased by $398,941 or 62% to $1,043,883 for Q1 2014 from $644,942 for Q1 2013. The increase was primarily due to the increase of depreciation by $227,728 to $534,803 for Q1 2014 from depreciation of $307,075 for Q1 2013 whereas the increase of amortization by $171,213 to $509,080 for Q1 2014 from amortization of $337,867 for Q1 2013.

 

In this respect, total depreciation and amortization amounted to $1,043,883 for Q1 2014, out of which amount, $947,967 was reported under general and administration expenses and $95,916 was reported under cost of goods sold; whereas total depreciation and amortization was at $644,942 for Q1 2013 and out of which amount $584,098 was reported under General and Administration expenses and $60,844 was reported under cost of goods sold.

 

 

Note (7) Non-controlling interests

 

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

 

14
 

 

Names of intermediate holdco. subsidiaries   Capital Award Inc. (Belize)     Macau EIJI Company Ltd. (Macau)     A Power Agro Agriculture Development (Macau) Ltd.     Triway Industries Ltd.(HK)     Total  
Abbreviated names     CA     (MEIJI)       (APWAM)        (TRW)          
                                                         
% of equity holding on below subsidiaries (in China)     n.a.       75 %     75 %     26 %     45 %     75 %        
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)       Jiangmen City A Power Fishery Development Co. Ltd. (China)          
Abbreviated names             (JHST)       (JHMC)       (HSA)       (SJAP)       (JFD)          
                              Hunan Shanghua A Power Agriculture Co. Ltd (China       Description: T:\v377058\image_001.jpg50 %                
                                                         
Net income of the P.R.C. subsidiaries for the period ended 31. March 2014 in $     0     $ (25,137 )   $ 101,421     $ 1,599,292     $ 6,959,022     $ 3,694,299     $ 12,328,897  
                                                         
Equity % of non-controlling  interest     0 %     25 %     25 %     51.5 %     55 %     25 %     42 %
                                                         
Non-controlling interest's shares of Net incomes in $     0     $ (6,284 )   $ 25,355     $ 383,830     $ 3,827,462     $ 923,575     $ 5,153,938  

 

The Net Income attributed to non-controlling interest is $5,153,938 shared by JHST, JHMC, HSA, SJAP and JFD, collectively, for Q1 2014 is shown in Table (F) above.

 

Note (8) Earnings per shares (EPS)

 

Earnings per share reduced by $0.01 (basic) and $0 (diluted) per share from EPS of $0.16(basic) and $0.14 (diluted) for Q 2013 to EPS of $0.15 (basic) and $0.14 (diluted) for Q1 2014. The reason for the reduction is primarily due to the increment of issuance of common stock of 38 million shares from its weighted average number of shares outstanding of 105 million as of March31, 2013 to 143 million as of March31,2014.

 

15
 

 

Part B. MD&A on Unaudited Consolidated Balance Sheet of Continued Operations for the three months ended 31, March 2014 (Q1 2014) compared to the three months ended 31 March 2013 (Q1 2013)

 

Consolidated Balance  sheets   March 31, 2014  December 31,2013  Difference  Note 
ASSETS  $  $  $    
Current  assets             
Cash   and  cash equivalents   18,766,877   1,327,274   17,439,603   B 
Inventories   19,741,726   8,148,203   11,593,523   9 
Costs and  estimated  earnings in excess of billings  on  uncompleted  contracts   667,824   663,296   4,528     
Deposits  and  prepaid  expenses   85,717,775   92,401,416   (6,683,641)  10 
Accounts  receivable   92,757,959   82,057,941   10,700,018   11 
Other  receivables   6,524,344   3,782,772   2,741,572     
Total  current  assests   224,176,505   188,380,902   35,795,603     
Property  and  equipment                 
Property and equipment, net  of  accumulated  depreciation   48,644,599   46,487,058   2,157,541   12 
Construction  in  progress   62,068,608   59,134,732   2,933,876   13 
Land  use  rights,  net  of  accumulated  amortization   59,739,064   60,705,829   (966,765)  14 
Total  property  and  equipment   170,452,271   166,327,619   4,124,652     
Other  assets                 
Goodwill   724,940   724,940   -     
Proprietary  technologies,  net  of  accumulated  amortization   11,891,060   12,081,470   (190,410)  15 
Total  other  assets   12,616,000   12,806,410   (190,410)    
Total  assets   407,244,776   367,514,931   39,729,845     
Current  liabilities               16 
Accounts  payable  and  accrued  expenses   18,643,043   11,055,194   7,587,849     
Billings  in  excess  of   costs  and  estimated  earnings  on  uncompleted  contracts   3,623,009   3,146,956   476,053     
Due to a director   901,353   1,793,768   

(892,415

)    
Dividends  payable   3,146,987   3,146,987   -     
Other payables    9,716,967   10,768,786   (1,051,819)    
Short  term  bank  loan   4,063,653   4,100,377   (36,724)    
Total  current  liabilities   40,095,012   34,012,068   6,082,944     
Non-current  liabilities                 
Bonds payable   1,725,000   1,725,000   -     
Long  term  debts   2,616,992   180,417   2,436,575     
Total  non-current  liabilities   4,341,992   1,905,417   2,436,575     
Stockholders  equity                 
Preferred  stock                 
Series  A   preferred  stock   -   -   -     
Series  B   convertible preferred   stock   7,000   7,000   -     
Series  F  Non-convertible  preferred   stock   -   -   -   17 
Common  stock   149,512   137,602   11,910     
Additional  paid-in  capital   114,002,608   108,038,413   5,964,195     
Retained  earnings   198,858,756   178,070,837   20,787,919     
Accumulated  other  comprehensive  income   5,666,016   6,260,131   (594,115)    
Treasury  stock   (1,250,000)  (1,250,000)  -     
Total  SIAF  Inc.  and  subsidaries'  equity   317,433,892   291,263,983   26,169,909     
Non-controlling  interest   45,373,880   40,333,463   5,040,417     
Total  stockholders'  equity   362,807,772   331,597,446   31,210,326     
Total  liabilities  and  stockholders'  equity   407,244,776   367,514,931   39,729,845     

 

This Part B discusses and analyzes certain items (marked with notes) that we believe would assist shareholders in obtaining a better understanding on the Company’s results of operations and financial condition:

 

16
 

 

Note (B) Cash and Cash Equivalent

 

The change in cash and cash equivalent of $17,439,603 derived from cash and cash equivalent of $18,766,877 and $1,327,274 as of March 31, 2014 and 31 December 2013 respectively. The significant difference in cash and cash equivalent between these two quarters is mainly due to the following reasons:

 

As of December 31, 2013 our cash and cash equivalent balance was low as our suppliers billed for all work done up to December 31 with Chinese New Year approaching and we paid in full;

 

However, as of March 31, 2014 our cash and cash equivalent is higher as our collection of our receivables were positive and our suppliers billings were not billed in full this first quarter. Hence we expect the suppliers billings in full next quarter will mean our cash balance will decline accordingly.

 

Note (9) Break down on inventories

 

   As of March 31,2014   As of December 31,2013   Difference 
   $   $   $ 
Sleepy cods, prawns, eels and marble goble   8,126,961    1,761,111    6,365,850 
Harvested HU plantation   -    719,329    (719,329)
Bread grass   374,773    580,954    (206,182)
Beef cattle   6,481,807    1,951,962    4,529,845 
Organic fertilizer   1,274,820    895,670    379,150 
Forage for cattle and consumable   1,364,624    684,979    679,645 
Raw materials for bread grass and organic fertilizer   1,418,165    855,493    562,672 
Immature seeds   700,576    698,704    1,872 
                
    19,741,726    8,148,203    11,593,523 

 

Note (10) Breakdown of Deposits and Prepaid Expenses

 

   As of March 31,2014   As of December 31,2013   Difference   Note 
Deposits for  $   $   $     
   - purchases of equipment   4,372,466    4,886,048    (513,582)     
   - acquisition of land use right   7,826,508    7,826,508    -    10.1 
   - inventory purchases   3,627,317    9,776,383    (6,149,066)     
   - aquaculture contract   11,166,667    -    11,166,667      
   - building materials   877,598    1,281,935    (404,337)     
   - proprietary technology   -    4,404,210    (4,404,210)     
   - construction in progress   16,670,639    23,021,316    (6,350,677)     

Shares issued for employee compensation and oversea professional fee

   66,872    100,308    (33,436)     
Temporary deposits paid to entities for investments in future Sino Foreign Joint Venture companies   41,109,708    41,109,708    -    10.2 
                     
    85,717,775    92,406,416    (6,688,641)     

 

17
 

 

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

 

As of March 31, 2014, we have $7,826,508 for a deposit paid for the acquisition of a Land Use Right derived from the following transactions:

 

$3,182,180 (or RMB20,000,000) was full payment made on June 6, 2012 for Land Use Right by HSA comprising a block of land measuring 150 Mu (or 25 acres of prime agriculture land) located at Linli District of Hunan Province within 10 Km of HSA’s complex. The process of application to register the said “Land Use Right” is in progress, and, as such, this payment is recorded as Deposit and Prepaid Expenses pending final authority estimated to be granted on or before September 30, 2014, as the new local ordinances on agriculture land delayed the processing of our application.

 

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

 

$4,453,398 (or RMB 27,989,606) was the full payment by Capital Award for the purchase of the Land Use Right on a block of prime agriculture land measuring 235 Mu (or 38.5 acres) located at the Cong Hua District Guangzhou City in late October 2010. This block of land is part of a larger block of land (of some 500 acres) which is under a subdivision application. However in 2011, the Land Law changed such that the said sub-division now requires the approval of the Central Government in Beijing, which means approval process is lengthened. Cong Hua District was rezoned as a suburb of the Guangzhou City in 2010 and within close proximity of the Guangzhou City and Management considers it as a valuable piece of land very suitable for the development of one of our agriculture projects. Our agreement with the Vendor requires that they use best efforts speed up the said subdivision’s approval on or before June 30 2014, failing which they would replace the said land with another block of land to our satisfaction. Our preference is to wait further on the said approval, they would refund to us US$1 million (or its equivalent in RMB) in lieu of compensation for the delay.

 

Note (10.2) Information of “Temporary deposit and pre-payments for investments in future assets and in future Sino Foreign Joint Venture Companies”:

 

Under account of  Segment of  Project name  Estimated total  Estimated time  Current status  Deposit & prepayments  Land Bank   % equivalent 
Subsidiary        Asset value  of Acquisition  of Project  made as of 31. March 2014  or Built Up area   to equity paid 
         $