10-Q 1 v393120_10q.htm FORM 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 September 30, 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 November 7, 2014, there were 168,128,043 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  56
Item 4. Controls and Procedures 56
     
PART II – OTHER INFORMATION  
Item 1. Legal Proceedings 56
Item 1A. Risk Factors 56
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 56
Item 3. Defaults Upon Senior Securities 56
Item 4. Mine Safety Disclosures 57
Item 5. Other Information 57
Item 6. Exhibits 57
SIGNATURES   58

 

 
 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

 

QUARTERLY FINANCIAL STATEMENTS

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014

(Unaudited)

 

 
 

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

INDEX TO QUARTERLY FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 - 41

 

 
 

 

SINO AGRO FOOD, INC.

CONSOLIDATED BALANCE SHEETS

 

   Note   September 30, 2014   December 31, 2013 
ASSETS        (Unaudited)    (Audited) 
Current assets               
   Cash and cash equivalents   5   $4,691,157   $1,327,274 
   Inventories   6    37,439,892    8,148,203 
   Cost and estimated earnings in excess of billings on uncompleted contracts   19    1,224,287    663,296 
   Deposits and prepaid expenses   7    55,610,463    51,291,708 
   Accounts receivable, net of allowance for doubtful accounts   8    122,773,881    82,057,942 
   Other receivables   9    16,475,508    3,782,771 
Total current assets        238,215,188    147,271,194 
Property and equipment               
   Property and equipment, net of accumulated depreciation   10    61,274,162    46,487,058 
   Construction in progress   11    69,088,637    59,134,732 
   Land use rights, net of accumulated amortization   12    58,995,505    60,705,829 
Total property and equipment        189,358,304    166,327,619 
Other non-current assets               
   Goodwill   13    724,940    724,940 
   Proprietary technologies, net of accumulated amortization   14    11,587,564    12,081,470 
   Temporary deposits paid to entities for investments in future Sino Joint
   Venture companies
   15    41,109,708    41,109,708 
   License rights   17    -    - 
Total other non- current assets        53,422,212    53,916,118 
Total assets       $480,995,704   $367,514,931 
LIABILITIES  AND STOCKHOLDERS' EQUITY               
Current liabilities               
   Accounts payable and accrued expenses       $16,477,918   $11,055,194 
   Other payables   18    11,177,713    10,768,786 
   Billings in excess of costs and estimated earnings on uncompleted contracts   19    3,373,432    3,146,956 
   Due to a director        4,244,519    1,793,768 
   Series F shares mandatory redemption payable   20    3,146,063    - 
   Bonds payable   22    1,725,000    - 
   Short term bank loan   21    -    4,100,377 
         40,144,645    30,865,081 
Non-current liabilities               
   Series F shares mandatory redemption payable   20    -    3,146,063 
   Long term debts   21    2,616,610    180,417 
   Bonds payable   22    -    1,725,000 
   Convertible note payable   23    6,982,667    - 
         9,599,277    5,051,480 
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  September 30, 2014 and December 31, 2013, respectively)               
   Series A preferred stock:  $0.001 par value   24    -    - 
   (100 shares designated, 100 shares issued and outstanding               
       as of  September 30, 2014 and December 31, 2013, respectively)               
   Series B convertible preferred stock:  $0.001 par value   24    7,000    7,000 
   (10,000,000 shares designated, 7,000,000 shares issued  and outstanding               
       as of  September 30, 2014 and December 31, 2013, respectively)               
   Series F Non-convertible preferred stock:  $0.001 par value   24           
   (1,000,000 shares designated, 0 shares issued  and outstanding        -    - 
       as of  September  30, 2014 and December 31, 2013, respectively)               
   Common stock:  $0.001 par value   24    168,128    137,602 

        (170,000,000 shares authorized, 167,128,223 and
       137,602,043 shares issued and outstanding as of  
       September 30, 2014 and December 31, 2013, respectively)

               
   Additional paid - in capital        118,514,375    104,913,676 
   Retained earnings        249,573,317    181,196,498 
   Accumulated other comprehensive income        6,244,379    6,260,131 
  Treasury stock   24    (1,250,000)   (1,250,000)
Total Sino Agro Food, Inc. and subsidiaries stockholders' equity        373,257,199    291,264,907 
Non - controlling interest        57,994,583    40,333,463 
Total stockholders' equity        431,251,782    331,598,370 
Total liabilities and stockholders' equity       $480,995,704   $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

 

 

      Three months ended   Three months ended   Nine months ended   Nine months ended 
   Note  September 30, 2014   September 30, 2013   September 30, 2014   September 30, 2013 
Revenue      (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited) 
- Sale of goods     $82,171,415   $61,667,275   $242,800,784   $140,368,479 
- Consulting and service income from development contracts      24,598,641    8,873,865    51,188,141    39,070,677 
- Commission income      450,003    166,557    1,191,427    776,621 
       107,220,059    70,707,697    295,180,352    180,215,777 
Cost of goods sold      (59,121,526)   (41,315,537)   (173,035,915)   (93,418,818)
Cost of services      (13,601,869)   (3,269,035)   (26,790,742)   (19,760,570)
                        
Gross profit      34,496,664    26,123,125    95,353,695    67,036,389 
                        
General and administrative expenses      (3,594,509)   (2,026,989)   (9,544,763)   (5,840,681)
Net income from operations      30,902,155    24,096,136    85,808,932    61,195,708 
                        
Other income (expenses)                       
                        
Government grant      57,340    343,481    295,012    423,240 
                        
Other income      155,032    41,264    159,555    107,171 
                        
Gain on extinguishment of debts  28   33,693    160,997    275,086    1,212,010 
                        
Interest expense      (263,664)   (286,376)   (483,157)   (398,386)
                        
Net income  (expenses)      (17,599)   259,366    246,496    1,344,035 
                        
Net income  before income taxes      30,884,556    24,355,502    86,055,428    62,539,743 
                        
Provision for income taxes  4   -    -    -    - 
                        
Net income      30,884,556    24,355,502    86,055,428    62,539,743 
Less: Net (income) loss attributable                       
  to  non - controlling interest      (6,382,694)   (5,602,728)   (17,678,609)   (13,077,257)
Net income from continuing operations attributable                       
 to Sino Agro Food, Inc. and subsidiaries      24,501,862    18,752,774    68,376,819    49,462,486 
Other comprehensive  (loss) income                       
     - Foreign currency translation (loss) income      869,931    822,349    (33,241)   2,258,890 
Comprehensive income      25,371,793    19,575,123    68,343,578    51,721,376 
Less: other comprehensive loss (income) attributable to                       
non - controlling interest      (139,032)   (165,987)   17,489    (331,758)
Comprehensive income attributable to                       
  Sino Agro Food, Inc. and subsidiaries     $25,232,761   $19,409,136   $68,361,067   $51,389,618 
                        
Earnings per share attributable to Sino Agro Food, Inc.                       
  and subsidiaries common stockholders:                       
  Basic  30  $0.15   $0.15   $0.45   $0.43 
                        
  Diluted  30  $0.14   $0.15   $0.43   $0.40 
Weighted average number of shares outstanding:                       
                        
 Basic  30   163,046,209    122,057,655    153,109,854    115,580,104 
                        
 Diluted  30   170,046,206    129,057,655    160,109,854    123,525,159 

 

 

 

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

 

F - 2
 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

   Nine months ended   Nine months ended 
   September 30, 2014   September 30, 2013 
   (Unaudited)   (Unaudited) 
         
Cash flows from operating activities          
    Net income for the period  $86,055,428   $62,539,743 
           
   Adjustments to reconcile net income for the period to net cash from operations:          
      Depreciation   1,768,047    995,408 
      Amortization   1,619,267    1,469,457 
      Common stock issued for services   255,033    271,800 
      Gain on extinguishment of debts   (275,086)   (1,212,010)
      Other amortized cost   229,857    14,152 
   Changes in operating assets and liabilities:          
      Increase in inventories   (29,291,689)   (818,748)
      (Increase) decrease in cost and estimated earnings in excess of billings on
      uncompleted contacts
   (560,991)   577,059 
      Increase in deposits and prepaid expenses   (583,670)   (37,090,703)
      Increase  in due to a director   2,450,751    1,640,331 
      Increase in  accounts payable and accrued expenses   5,361,625    2,468,434 
      Increase in  other payables   12,415,301    17,952,791 
      Increase in accounts  receivable   (40,715,939)   (6,742,274)
      Increase (decrease) in billings in excess of costs and estimated earnings on
      uncompleted contracts
   226,476    (376,629)
      Increase in other receivables   (12,692,737)   (3,623,402)
Net cash provided by operating activities   26,261,673    38,065,409 
Cash flows from investing activities          
   Purchases of property and equipment   (3,418,741)   (4,188,660)
   Payment for construction in progress   (22,227,905)   (31,494,031)
   Acquisition of land use rights   -    (489,904)
Net cash used in investing activities   (25,646,646)   (36,172,595)
Cash flows from financing activities          
  Net proceeds from convertible note payable   5,237,000    - 
  Proceeds from long term debts   2,436,193    - 
  Short term bank loan repaid   (4,100,377)   (742,109)
  Net proceeds of bonds payable   -    339,884 
   Dividends paid   -    (951,308)
Net cash provided by (used in) financing activities   3,572,816    (1,353,533)
           
Effects on exchange rate changes on cash   (823,960)   624,869 
   Increase in cash and cash equivalents   3,363,883    1,164,150 
           
   Cash and cash equivalents, beginning of period   1,327,274    8,424,265 
   Cash and cash equivalents, end of period  $4,691,157   $9,588,415 
           
Supplementary disclosures of cash flow information:          
  Cash paid for interest  $422,058   $398,386 
           
  Cash paid for income taxes  $-   $- 
           
  Non - cash transactions          
 Common stock issued for settlement of debts  $12,006,374   $13,782,651 
 Common stock issued for services and compensation  $2,519,232   $133,744 
 Series  B convertible preferred stock cancelled  $-   $(3,000)
 Transfer construction in progress to property and equipment  $13,136,410    14,406,643 
 Transfer deposits and prepaid expenses to property and equipment  $513,272   $- 

 

 

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

 

F - 3
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.CORPORATE INFORMATION

 

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

 

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. HST was dissolved in 2010.

 

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

 

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 September 30, 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 September 30, 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 September 30, 2014, the Company’s total investment in SAFS was $77,664.

 

SJAP formed Qinghai Zhong He Meat Products Co., Limited (“QZH”) , with SJAP would owning 100% equity interest. Up to September 30, 2014, the SJAP’s total investment in QZH was $487,805.

 

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

 

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.   76% (12.31.2013: 76%) indirectly  Manufacturing of organic fertilizer, livestock feed, and beef cattle and sheep cultivation, and plantation of crops and pastures
          
Name of variable interest entities  Place of
incorporation
  Percentage
of interest
  Principal
activities
Qinghai Sanjiang A Power Agriculture Co., Ltd ("SJAP")  P.R.C.  45% (12.31.2013: 45%) indirectly  Manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures
          
Qinghai Zhong He Meat Products Co., Limited (“QZH”)  P.R.C.  100% (12.31.2013: 100%) indirectly  Slaughter of cattle

 

  

 

F - 6
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.3BASIS OF PRESENTATION

 

The unaudited consolidated financial statements for the nine months ended September 30, 2014 are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

 

The unaudited quarterly financials for the nine months ended September 30, 2014 results are for the nine 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, and SAFS and its variable interest entities SJAP and QZH. All material inter-company transactions and balances have been eliminated in consolidation.

 

SIAF, CA, CS, CH, TRW, MEIJI, JHST, JFD, JHMC, HSA, APWAM, QZH, 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

 

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

 

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 $1,673, $6,158, $13,490 and $18,640 for the three months and for the nine months ended September 30, 2014 and 2013, respectively.

  

2.11ADVERTISING

 

Advertising costs are included in general and administrative expenses, which totaled $708,049, $195, $1,661,103 and $1,200 for the three months ended and the nine months ended September 30, 2014 and 2013, respectively.

 

2.12FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME

 

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

 

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

 

Accumulated other comprehensive income in the consolidated statement of shareholders’ equity amounted to $6,244,379 as of September 30, 2014 and $6,260,131 as of December 31, 2013. The balance sheet amounts with the exception of equity as of September 30, 2014 and December 31, 2013 were translated using an exchange rate of RMB 6.15 to $1.00 and RMB 6.10 to $1.00, respectively. The average translation rates applied to the statements of income and other comprehensive income and of cash flows for the nine months ended September 30, 2014 and 2013 were RMB 6.15 to $1.00 and RMB 6.21 to $1.00, respectively.

 

F - 9
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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 P.R.C. are not insured or otherwise protected. Should any of those institutions holding the Company’s cash become insolvent, or should the Company become unable to withdraw funds for any reason, the Company could lose the cash on deposit with that institution.

 

2.14ACCOUNTS 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 September 30, 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

 

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

 

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

 

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

 

2.19CONSTRUCTION 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

 

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) the equity-at-risk is not sufficient to support the entity's activities;

 

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

 

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

 

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

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.24INCOME 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.

  

2.25POLITICAL AND BUSINESS RISK

 

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

 

2.26CONCENTRATION OF CREDIT RISK

 

Cash includes cash at banks and demand deposits in accounts maintained with banks within the P.R.C. Total cash in these banks as of September 30, 2014 and December 31, 2013 amounted to $4,575,685 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   Three  months   Nine  months   Nine  months 
   ended   ended   ended   ended 
   September 30,   September 30,   September 30,   September 30, 
   2014   2013   2014   2013 
                 
Customer A   24.57%   13.95%   28.24%   16.76%
Customer B   15.78%   11.38%   16.70%   8.24%
Customer C   14.33%   -    11.64%   - 
Customer D   8.33%   13.12%   7.12%   8.41%
Customer E   5.77%   -    -    3.80%
Customer F   -    17.99%   5.39%   17.21%
Customer G   -    7.29%   -    - 
    68.78%   63.73%   69.09%   54.42%

 

F - 13
 

  

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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   28.24%  $83,356,492 
Customer B  Organic Fertilizer and Bread Grass Division   16.70%  $49,309,009 
Customer C  Fishery Development Division   11.64%  $34,344,729 

 

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

 

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

 

   September 30, 2014   December 31, 2013 
         
Customer A   19.22%   8.69%
Customer B   11.32%   - 
Customer C   6.73%   12.86%
Customer D   6.30%   - 
Customer E   -    8.36%
Customer F   -    10.23%
Customer G   4.89%   8.27%
    48.46%   48.41%

 

As of September 30, 2014, amounts due from customers A, B and C are $23,600,631, $13,901,362 and $8,262,682, 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 September 30, 2014 and December 31, 2013, the Company determined no impairment losses were necessary.

 

F - 14
 

  

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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 September 30, 2014 and 2013, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amount to $0.15 and $0.15, respectively. For the nine months ended September 30, 2014 and 2013, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amount to $0.45 and $0.43, respectively. For the three months ended September 30, 2014 and 2013, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.14 and $0.15, respectively. For the nine months ended September 30, 2014 and 2013, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.43 and $0.40, respectively.

 

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.

 

F - 15
 

  

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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: 

 

Level1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

Level2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

Level3 Pricing inputs that are generally observable inputs and not corroborated by market data.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value as of September 30, 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 nine months ended September 30, 2014 or 2013.

 

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, there is no 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. there is no 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 Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward 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 carry forward, a similar tax loss, or a tax credit carry forward, except to the extent that a net operating loss carry forward, a similar tax loss, or a tax credit carry forward 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 does not expect to have a material impact on the Company's consolidated financial statements. 

 

F - 16
 

  

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.33NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

 

In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which provides a narrower definition of discontinued operations than under existing U.S. GAAP. ASU 2014-08 requires that only a disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on the reporting entity’s operations and financial results should be reported in the consolidated financial statements as discontinued operations. ASU 2014-08 also provides guidance on the consolidated financial statement presentations and disclosures of discontinued operations. The new guidance is effective prospectively for the Company to all new disposals of components and new classification as held for sale beginning April 1, 2015. The Company is evaluating the effects, if any, of the adoption of this guidance will have on the consolidated financial position, results of operations or cash flows.

  

In May 2014, the Financial Accounting Standards Board issued guidance related to revenue from contracts with customers. Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The updated standard will replace most existing revenue recognition guidance under GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard will be effective for us in the first quarter of 2017. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

 

In August 2014, the FASB issued ASU No. 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." ASU 2014-15 will explicitly require management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. Management is currently evaluating the impact of this pronouncement on our consolidated financial statements

 

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

 

F - 17
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION

 

The Company establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as business segments and major customers in consolidated financial statements. The Company operates in five principal reportable segments: Fishery Development Division, 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.

 

   For the three months ended September 30, 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  $47,780,135   $5,813,667   $33,700,137   $6,814,990   $13,111,130   $107,220,059 
                               
Net income (loss)  $13,754,241   $2,567,126   $6,994,954   $641,963   $543,578   $24,501,862 
                               
Total assets  $131,700,632   $55,471,908   $218,710,852   $39,995,639   $35,116,673   $480,995,704 

 

   For the three months ended September 30, 2013     
   Fishery
Development
Division (1)
   HU Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate and
others (5)
   Total 
                         
Revenue  $26,704,244   $10,534,960   $20,434,953   $4,639,397   $8,394,143   $70,707,697 
                               
Net income (loss)  $9,762,014   $5,322,211   $1,443,930   $575,134   $1,649,485   $18,752,774 
                               
Total assets  $79,561,093   $44,908,550   $131,498,783   $44,808,248   $27,027,247   $327,803,921 

 

F - 18
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

3.SEGMENT INFORMATION (CONTINUED)

 

   For the nine months ended September 30, 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   136,968,336   $9,085,607    95,459,852    21,483,496    32,183,061    295,180,352 
                               
Net income (loss)  $32,002,640   $3,752,283    25,914,779   $1,966,526    4,740,591   $68,376,819 
                               
Total assets  $131,700,632   $55,471,908   $218,710,852   $39,995,639   $35,116,673   $480,995,704 

 

   For the nine months ended September 30, 2013     
   Fishery
Development
Division (1)
   HU Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate and
others (5)
   Total 
                         
Revenue  $68,826,877   $14,089,946   $52,259,230   $19,423,115   $25,616,609   $180,215,777 
                               
Net income (loss)  $20,815,367   $7,533,778   $10,786,509   $3,945,015   $6,381,817   $49,462,486 
                               
Total assets  $79,561,093   $44,908,550   $131,498,783   $44,808,248   $27,027,247   $327,803,921 

 

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”) , Qinghai Zhong He Meat Products Co., Limited (“QZH”), A Power Agro Agriculture Development (Macau) Limited (“APWAM”) and Hunan Shenghua A Power Agriculture Co., Limited (“HSA”).
(4)Operated by 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 - 19
 

  

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

   Three months ended September 30, 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 
Name of entity                              
Sale of goods                              
Capital Award, Inc. ("CA")  $22,731,491   $-   $-   $-   $-   $22,731,491 
Jiang Men City Heng Sheng Tai Agriculture                              
Development Co., Limited ("JHST")   -    5,813,667    -    -    -   $5,813,667 
Hunan Shenghua A Power                              
Agriculture Co., Limited ("HSA")   -    -    5,794,162    -    -   $5,794,162 
Qinghai Zhong He Meat Products Co Limited                              
("QZH")   -    -    5,669,050    -    -    5,669,050 
Qinghai Sanjiang A Power                              
Agriculture Co., Limited ("SJAP")   -    -    22,236,925    -    -   $22,236,925 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    6,814,990    -   $6,814,990 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    13,111,130   $13,111,130 
Consulting and service income for development contracts                              
Capital Award, Inc. ("CA")   24,598,641    -    -    -    -   $24,598,641 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    -    -    - 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    -    - 
Commission and management fee                              
Capital Award, Inc. ("CA")   450,003    -    -    -    -    450,003 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    -    - 
   $47,780,135   $5,813,667   $33,700,137   $6,814,990   $13,111,130   $107,220,059 

 

  

F - 20
 

  

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

   Three months ended September 30, 2013     
   Fishery
Development
Division (1)
   HU
Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and others (5)
   Total 
Name of entity                              
Sale of goods                              
Capital Award, Inc. ("CA")  $19,598,282   $-   $-   $-   $-   $19,598,282 
Jiang Men City Heng Sheng Tai                              
Agriculture Development Co., Limited ("JHST")   -    10,534,960    -    -    -    10,534,960 
Hunan Shenghua A Power                              
Agriculture Co., Limited ("HSA")   -    -    3,104,578    -    -    3,104,578 
Qinghai Zhong He Meat Products Co Limited                              
("QZH")   -    -    -    -    -    - 
Qinghai Sanjiang A Power                              
Agriculture Co., Limited ("SJAP")   -    -    17,330,375    -    -    17,330,375 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    4,639,397    -    4,639,397 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    6,459,683    6,459,683 
Consulting and service income for development contracts                              
Capital Award, Inc. ("CA")   6,939,405    -    -    -    -    6,939,405 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    -    1,934,460    1,934,460 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    -    - 
Commission and management fee                       -      
Capital Award, Inc. ("CA")   166,557    -    -    -    -    166,557 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    -    - 
   $26,704,244   $10,534,960   $20,434,953   $4,639,397   $8,394,143   $70,707,697 

 

F - 21
 

  

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:

 

   Nine months ended September 30, 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 
Name of entity                              
Sale of goods                              
Capital Award, Inc. ("CA")  $86,218,455   $-   $-   $-   $-   $86,218,455 
Jiang Men City Heng Sheng Tai                              
Agriculture Development Co., Limited ("JHST")   -    9,085,607    -    -    -   $9,085,607 
Hunan Shenghua A Power                              
Agriculture Co., Limited ("HSA")   -    -    15,750,656    -    -   $15,750,656 
Qinghai Zhong He Meat Products Co Limited                              
("QZH")   -    -    7,467,877    -    -    7,467,877 
Qinghai Sanjiang A Power                              
Agriculture Co., Limited ("SJAP")   -    -    72,241,319    -    -   $72,241,319 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    21,483,496    -   $21,483,496 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    30,553,374    30,553,374 
Consulting and service income for development contracts                              
Capital Award, Inc. ("CA")   49,558,454    -    -    -    -   $49,558,454 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    -    1,629,687    1,629,687.00 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    -    - 
Commission and management fee                       -      
Capital Award, Inc. ("CA")   1,191,427    -    -    -    -    1,191,427 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    -    - 
   $136,968,337   $9,085,607   $95,459,852   $21,483,496   $32,183,061   $295,180,352 

 

F - 22
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:

 

   Nine months ended September 30, 2013     
   Fishery
Development
Division (1)
   HU
Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and others (5)
   Total 
Name of entity                              
Sale of goods                              
Capital Award, Inc. ("CA")  $44,462,877   $-   $-   $-   $-   $44,462,877 
Jiang Men City Heng Sheng Tai                              
Agriculture Development Co., Limited ("JHST")   -    14,089,946    -    -    -   $14,089,946 
Hunan Shenghua A Power                              
Agriculture Co., Limited ("HSA")   -    -    7,827,433    -    -   $7,827,433 
Qinghai Zhong He Meat Products Co Limited                              
("QZH")   -    -    -    -    -    - 
Qinghai Sanjiang A Power                              
Agriculture Co., Limited ("SJAP")   -    -    44,431,797    -    -   $44,431,797 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    12,309,334    -    12,309,334 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    17,247,092   $17,247,092 
Consulting and service income for development contracts                              
Capital Award, Inc. ("CA")   23,728,927    -    -    -    -    23,782,927 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    7,113,781    -   $7,113,781 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    8,173,969    8,173,969 
Commission and management fee                              
Capital Award, Inc. ("CA")   581,073    -    -    -    -    581,073 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    195,548    195,548 
   $68,826,877   $14,089,946   $52,259,230   $19,423,115   $25,616,609   $180,215,777 

 

F - 23
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

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

 

 

   Three months ended September 30, 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 
Cost of goods sold                              
Name of entity                              
Capital Award, Inc. ("CA")  $15,935,868   $-   $-   $-   $-   $15,935,868 
Jiang Men City Heng Sheng Tai  Agriculture                              
Development Co., Limited ("JHST")   -    1,704,741    -    -    -    1,704,741 
Hunan Shenghua A Power                              
Agriculture Co., Limited ("HSA")   -    -    4,698,541    -    -    4,698,541 
Qinghai Zhong He Meat Products Co Limited                              
("QZH")   -    -    3,519,966    -    -    3,519,966 
Qinghai Sanjiang A Power                              
Agriculture Co., Limited ("SJAP")   -    -    15,270,656         -    15,270,656 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    6,443,072    -    6,443,072 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    11,548,682    11,548,682 
   $15,935,868   $1,704,741   $23,489,163   $6,443,072   $11,548,682   $59,121,526 

 

   Three months ended September 30, 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 
                         
Cost of services                                    
Name of entity                              
Consulting and service income for development contracts                              
Capital Award, Inc. ("CA")  $13,601,869   $-   $-   $-   $-   $13,601,869 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    -    -    - 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    -    - 
   $13,601,869   $-   $-   $-   $-   $13,601,869 

 

F - 24
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

3.SEGMENT INFORMATION (CONTINUED)

 

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

 

   Three months ended September 30, 2013     
   Fishery
Development
Division (1)
   HU Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate and
others (5)
   Total 
Cost of goods sold                              
Name of entity                              
Capital Award, Inc. ("CA")  $14,208,181   $-   $-   $-   $-   $14,208,181 
Jiang Men City Heng Sheng Tai                              
Agriculture Development Co., Limited ("JHST")   -    4,832,794    -    -    -    4,832,794 
Hunan Shenghua A Power                              
Agriculture Co., Limited ("HSA")   -    -    1,937,860    -    -    1,937,860 
Qinghai Zhong He Meat Products Co Limited                              
("QZH")   -    -    -    -    -    - 
Qinghai Sanjiang A Power                              
Agriculture Co., Limited ("SJAP")   -    -    10,897,327    -    -    10,897,327 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    3,974,942    -    3,974,942 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    5,464,433    5,464,433 
   $14,208,181   $4,832,794   $12,835,187   $3,974,942   $5,464,433   $41,315,537 

 

   Three months ended September 30, 2013     
   Fishery
Development
Division (1)
   HU Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate and
others (5)
   Total 
                         
COST OF SERVICES                              
Name of entity                              
Consulting and service income for development contracts                              
Capital Award, Inc. ("CA")  $2,703,461   $-   $-   $-   $-   $2,703,461 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    -    -    - 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    565,574    565,574 
   $2,703,461   $-   $-   $0   $565,574   $3,269,035 

 

F - 25
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3.SEGMENT INFORMATION (CONTINUED)

 

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

 

COST OF GOODS SOLD

 

   Nine months ended September 30, 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 
Cost of goods sold                              
Name of entity                              
Capital Award, Inc. ("CA")  $54,861,550   $-   $-   $-   $-   $54,861,550 
Jiang Men City Heng Sheng Tai  Agriculture                              
Development Co., Limited ("JHST")   -    2,423,811    -    -    -    2,423,811 
Hunan Shenghua A Power                              
Agriculture Co., Limited ("HSA")   -    -    10,371,555         -    10,371,555 
Qinghai Zhong He Meat Products Co Limited                              
("QZH")   -    -    4,680,245    -    -    4,680,245 
Qinghai Sanjiang A Power                              
Agriculture Co., Limited ("SJAP")   -    -    48,552,223         -    48,552,223 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    20,418,345    -    20,418,345 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    31,728,186    31,728,186 
   $54,861,550   $2,423,811   $63,604,023   $20,418,345   $31,728,186   $173,035,915 

 

   Nine months ended September 30, 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 
                         
Cost of services                              
Name of entity                              
Consulting and service income for development contracts                              
Capital Award, Inc. ("CA")  $25,236,498   $-   $-   $-   $-   $25,236,498 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    -    -    - 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    1,554,244    1,554,244 
   $25,236,498   $-   $-   $-   $1,554,244   $26,790,742 

 

F - 26
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

3.SEGMENT INFORMATION (CONTINUED)

 

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

 

   Nine  months ended September 30, 2013     
   Fishery
Development
Division (1)
   HU Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate and
others (5)
   Total 
Cost of goods sold                              
Name of entity                              
Capital Award, Inc. ("CA")  $33,460,670   $-   $-   $-   $-   $33,460,670 
Jiang Men City Heng Sheng Tai                              
Agriculture Development Co., Limited ("JHST")   -    6,093,751    -    -    -    6,093,751 
Hunan Shenghua A Power                              
Agriculture Co., Limited ("HSA")   -    -    4,830,266    -    -    4,830,266 
Qinghai Zhong He Meat Products Co Limited                              
("QZH")   -    -    -    -    -    - 
Qinghai Sanjiang A Power                              
Agriculture Co., Limited ("SJAP")   -    -    26,770,503    -    -    26,770,503 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    7,369,379    -    7,369,379 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    14,894,249    14,894,249 
   $33,460,670   $6,093,751   $31,600,769   $7,369,379   $14,894,249   $93,418,818 

 

   Nine  months ended September 30, 2013     
   Fishery
Development
Division (1)
   HU Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate and
others (5)
   Total 
                         
Cost of services                              
Name of entity                              
Consulting and service income for development contracts                              
Capital Award, Inc. ("CA")  $11,805,864   $-   $-   $-   $-   $11,805,864 
Macau  Eiji Company Limited ("MEIJI")   -    -    -    5,519,294    -    5,519,294 
Sino Agro Food, Inc. ("SIAF")   -    -    -    -    2,435,412    2,435,412 
   $11,805,864   $-   $-   $5,519,294   $2,435,412   $19,760,570 

 

F - 27
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.INCOME TAXES

 

United States of America

 

The Company was incorporated in the State of Nevada, in the United States of America. The Company has no trading operations in United States of America and no US corporate tax has been provided for in the consolidated financial statements of the Company.

 

Undistributed Earnings of Foreign Subsidiaries

 

The Company intends to use the remaining accumulated and future earnings of foreign subsidiaries to expand operations outside the United States of America.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 appointed US tax professionals to assist in filing income tax returns for the years ended December 31, 2007 through December 31, 2012 in compliance with US Treasury Internal Revenue Code and we filed our Tax returns with the Internal Revenue Service (“ IRS”) of USA Government on June 2014.

 

At the same time, The Company reviewed its tax position with the assistance US tax professionals and believed that there would be no taxes and no penalties assessed by the IRS in the United States of America.

 

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, QZH and SJAP are exempt from EIT for the three months ended September 30, 2014 and 2013 and for the nine months ended September 30, 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 September 30, 2014 and 2013 and for the nine months ended September 30, 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 September 30, 2014 and 2013 and for the nine months ended September 30, 2014 and 2013.

 

Sweden

No Swedish Corporate income tax has been provided in the consolidated financial statements since SAFS incurred a tax loss for the three months ended September 30, 2014 and for the nine months ended September 30, 2014 and 2013.

 

No deferred tax assets and liabilities are of September 30, 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 - 28
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4.INCOME TAXES (CONTINUED)

 

Provision for income taxes is as follows:

 

   Three months ended   Three months ended   Nine  months ended   Nine  months ended 
   September 30, 2014   September 30, 2013   September 30, 2014   September 30, 2013 
                 
SIAF  $ -   $-   $-   $- 
SAFS   -    -    -    - 
TRW   -    -    -    - 
MEIJI and APWAM   -    -    -    - 
JHST, JFD, JHMC, SJAP, QZH and HSA   -    -    -    - 
   $-   $-   $-   $- 

 

The Company did not recognize any interest or penalties related to unrecognized tax benefits for the three months and the nine months ended September 30, 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

 

   September 30, 2014   December 31, 2013 
           
Cash and bank balances  $4,691,157   $1,327,274 

 

6.INVENTORIES

 

As of September 30, 2014, inventories are as follows:

 

   September 30, 2014   December 31, 2013 
         
Sleepy cods, prawns, eels and marble goble  $4,935,062   $1,761,111 
Bread grass   3,337,428    580,955 
Beef cattle   5,850,305    1,951,962 
Organic fertilizer   3,094,379    895,670 
Forage for cattle and consumable   3,591,769    684,979 
Raw materials for bread grass and organic fertilizer   13,411,046    855,493 
Beef and mutton   2,213,890    - 
Immature seeds   1,006,013    698,704 
Harvested HU plantation   -    719,329 
   $37,439,892   $8,148,203 

 

F - 29
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

7.DEPOSITS AND PREPAID EXPENSES

 

   September 30, 2014   December 31, 2013 
Deposits for          
-  purchases of equipment  $4,372,776   $4,886,048 
-  acquisition of land use rights   7,826,508    7,826,508 
- inventories purchases and  miscellaneous#   7,693,099    9,771,383 
- aquaculture contract   9,404,067    - 
- 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   2,415,099    100,308 
   $55,610,463   $51,291,708 

 

# Miscellaneous represents rental and utility deposits, and deposits for sundries purchases and sundries prepaid expenses.

 

8.ACCOUNTS RECEIVABLE

 

The Company has performed an analysis on all of its accounts receivable and determined that all amounts are collectible by the Company. As such, all accounts receivable are reflected as a current asset and no allowance for bad debt has been recorded as of September 30, 2014 and December 31, 2013. Bad debts written off for the three months ended and the nine months ended September 30, 2014 and 2013 are $0.

 

Aging analysis of accounts receivable is as follows:

 

   September 30, 2014   December 31, 2013 
         
0 - 30 days  $64,914,582   $20,864,404 
31 - 90 days   30,367,458    28,960,582 
91 - 120 days   16,046,506    23,941,294 
over 120 days and less than 1 year   11,445,335    8,291,662 
over 1 year   -    - 
   $122,773,881   $82,057,942 

 

9.OTHER RECEIVABLES

 

   September 30, 2014   December 31, 2013 
         
Advanced to employees  $277,298   $109,278 
Advanced to suppliers   7,552,844    3,673,493 
Advanced to subcontractors and suppliers of new prawn project in Zhongshan   8,645,366    - 
   $16,475,508   $3,782,771 

 

Advanced to employees and suppliers are unsecured, interest free and repayable within two years.

 

F - 30
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

10.PLANT AND EQUIPMENT

 

   September 30, 2014   December 31, 2013 
Plant and machinery  $5,344,326   $5,263,933 
Structure and leasehold improvements   49,841,748    36,308,860 
Mature seeds and herbage cultivation   9,234,439    6,294,372 
Furniture and equipment   393,411    391,608 
Motor vehicles   765,858    765,858 
    65,579,782    49,024,631 
Less: Accumulated depreciation   (4,305,620)   (2,537,573)
Net carrying amount  $61,274,162   $46,487,058 

 

Depreciation expense was $636,774 and $356,737 for the three months ended September 30, 2014 and 2013, respectively. Depreciation expense was $1,768,047 and $995,408 for the nine months ended September 30, 2014 and 2013, respectively.

 

11.CONSTRUCTION IN PROGRESS

 

   September 30, 2014   December 31, 2013 
Construction in progress          
  - Office, warehouse and organic  fertilizer plant in  HSA  $16,867,188   $22,761,164 
  - Organic fertilizer and bread grass production plant          
      and office building   18,009,803    8,600,187 
  - Oven room, road for production of dried flowers   276,288    - 
 -  Rangeland for beef cattle and office building   30,690,295    26,054,582 
 -  Fish pond   1,844,454    1,718,799 
 -  Beef and seafood distribution center   1,400,609    - 
   $69,088,637   $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.

 

F - 31
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

12.LAND USE RIGHTS (CONTINUED)

 

   September 30, 2014   December 31, 2013 
         
Cost  $64,637,958   $65,192,615 
           
Less: Accumulated amortization   (5,642,453)   (4,486,786)
           
Net carrying amount  $58,995,505   $60,705,829 

 

   Expiry date  Location  Amount 
Balance @1.1.2013          $58,630,950 

Additions:

           
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         (554,657)
Balance @9.30.2014        $64,637,958 

 

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 $395,633 and $405,361 for the three months ended September 30, 2014 and 2013, respectively. Amortization of land use rights was $1,155,667 and $1,173,698 for the nine months ended September 30, 2014 and 2013, respectively.

 

13.GOODWILL

 

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

 

   September 30, 2014   December 31, 2013 
         
Goodwill from acquisition  $724,940   $724,940 
Less: Accumulated impairment losses   -    - 
Net carrying amount  $724,940   $724,940 

 

F - 32
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

14.PROPRIETARY TECHNOLOGIES

 

By an agreement dated November 12, 2008, TRW acquired an enzyme technology master license, registered under a Chinese patent, for the manufacturing of livestock feed and bioorganic fertilizer and its related labels for $8,000,000. On March 6, 2012, MEIJI acquired an aromatic-feed formula technology for the production of aromatic cattle for $1,500,000. On October 1, 2013, SIAF was granted a license to exploit sleepy cod breeding technology license for to grow out sleepy 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.

 

   September 30, 2014   December 31, 2013 
         
Cost  $13,865,862   $13,896,168 
Less: Accumulated amortization   (2,278,298)   (1,814,698)
Net carrying amount  $11,587,564   $12,081,470 

 

Amortization of proprietary technologies was $166,775 and $87,802 for the three months ended September 30, 2014 and 2013, respectively. Amortization of proprietary technologies was $463,600 and $295,759 for the nine months ended September 30, 2014 and 2013, respectively. No impairment of proprietary technologies has been identified for the three months ended and for the nine months ended September 30, 2014 and 2013.

 

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

 

Intended              
unincorporated  Project           
investee  engaged     September 30, 2014   December 31, 2013 
A  Trade center  *  $4,086,941   $4,086,941 
A  Seafood center  *   1,032,914    1,032,914 
B 

Fish farm 2 Gao Qiqiang Aquaculture

  *   6,000,000    6,000,000 
C  Prawn farm 1  *   14,554,578    14,554,578 
D  Prawn farm 2  *   9,877,218    9,877,218 
E  Cattle farm 2  *   5,558,057    5,558,057 
         $41,109,708   $41,109,708 

 

The Company made temporary deposits paid to entities for equity investments in future Sino Joint Venture companies ("SJVCs") engaged in projects development of trade and seafood centers, fish, prawns and cattle farms. Such temporary deposits represented as deposits of the respective consideration required for the purchase of equity stakes of respective future SJVCs. The amounts were classified as temporary because legal procedures of formation of SJVCs have not yet been completed. As of September 30, 2014, the percentages of equity stakes of SFJVCs A (trade and seafood centers), B ( fish farm 2 Gao Qiqiang Aquaculture Farm ), C (prawn farm 1), D (pawn farm 2) and E (cattle farm 2) are 31%, 23%, 56%, 29% and 35% respectively.

 

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

 

16.VARIABLE INTEREST ENTITY

 

On September 28, 2009, APWAM acquired the PMH’s 45% equity interest in the Sino-Foreign joint venture company, Qinghai Sanjiang A Power Agriculture Co. Limited (“SJAP”), which was incorporated in the P.R.C. Up to September 30, 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 - 33
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

16.VARIABLE INTEREST ENTITY (CONTINUED)

 

The Company also quantitatively and qualitatively examined if SJAP is considered a VIE. Qualitative analyses considered the extent to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine if SJAP was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant managerial judgment because of the inherent limitations that relate to the use of historical data for the projection of future events. On September 30, 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. SJAP formed Qinghai Zhong He Meat Products Co., Limited (“QZH”) , with SJAP owning 100% equity interest. Up to September 30, 2014, the SJAP’s total investment in QZH was $487,805. QZH is engaged in its business of the slaughter of cattle.

 

Continuous assessment of the VIE relationship with QZH

 

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

 

The Company also quantitatively and qualitatively examined if QZH is considered a VIE. Qualitative analyses considered the extent to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine if QZH was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant managerial judgment because of the inherent limitations that relate to the use of historical data for the projection of future events. On September 30, 2014, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of QZH’s expected losses or residual returns and that QZH qualifies as a VIE of the Company. As result, the Company has consolidated QZH as a VIE.

 

SJAP is sole stockholder of QZH and SJAP appointed sole director of QZH. Consequently, the Company indirectly control directorship of QZH, such that the Company now had a majority interest in the directorship of QZH. Also, and in accordance with the Company’s Sino Joint Venture Agreement, the Company’s management appointed the chief financial officer of QZH. As a result, the financial statements of QZH were included in the consolidated financial statements of the Company.

 

17.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 and the nine months ended September 30, 2014 and 2013 are $0 and allowance for accumulated impairment losses has been recorded as of September 30, 2014 and December 31, 2013 are $1.

 

F - 34
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

18.OTHER PAYABLES

 

   September 30, 2014   December 31, 2013 
         
Due to third parties  $8,258,819   $4,715,543 
Promissory notes issued to third parties   512,751    3,625,000 
Due to local government   2,406,143    2,428,243 
   $11,177,713   $10,768,786 

 

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

 

19.CONSTRUCTION CONTRACT

 

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

 

   September 30, 2014   December 31, 2013 
         
Costs  $19,505,718   $3,527,975 
Estimated earnings   18,642,769    8,538,930 
Less:  Billings   (36,924,200)   (11,403,609)
Costs and estimated earnings in excess of billings on uncompleted contracts  $1,224,287   $663,296 

 

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

 

   September 30, 2014   December 31, 2013 
         
Billings  $33,739,935   $8,406,900 
Less:  Costs   (12,992,409)   (2,179,410)
Estimated earnings   (17,374,094)   (3,080,534)
Billing in excess of costs and estimated earnings on uncompleted contracts  $3,373,432   $3,146,956 

 

(iii)Overall

 

   September 30, 2014   December 31, 2013 
         
Billings  $70,664,135   $19,810,509 
Less:  Costs   (32,498,127)   (5,707,385)
Estimated earnings   (36,016,863)   (11,619,464)
Billing in excess of costs and estimated earnings on uncompleted contracts  $2,149,145   $2,483,660 

 

F - 35
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

20.SERIES F SHARES MANDATORY REDEMPTION PAYABLE

 

On August 13, 2014, the Company filed a Certificate of the Designations, Powers, Preferences and Rights of the Series F Non-Convertible Preferred Stock (the “Certificate”) to its Articles of Incorporation, with the Secretary of State of the State of Nevada, setting forth the terms of its Preferred Stock. On June 10, 2014, the Company amended and restated the Certificate to (i) postpone the payment date of the dividend thereunder to May 30, 2015, (ii) to delete a reference to the redemption or declaration of any cash dividend or distribution on any Junior Securities, and (iii) make certain minor corrections to the Certificate. No share of Series F Non-Convertible Preferred Stock was ever issued. The Company believes it to be in the best interests of its shareholders to delay the cash payment until such time as its financial position would enable it to make the payment without harming its ability to develop its business in accordance with management’s plans.

 

   September 30, 2014   December 31, 2013 
Classified as current liabilities          
Series F shares mandatory redemption payable  $3,146,063   $- 
           
Classified as non-current liabilities          
Series F shares mandatory redemption payable   -    3,146,063 
   $3,146,063   $3,146,063 

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

 

Long term debts

 

Name of lender  Interest rate  Term  September 30, 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.        $178,774   $180,417 
                 
Agricultural Development  6.40%  January 3, 2014  - December 17, 2018          
Bank of China                
Huangyuan County Branch,                
Xining , Qinghai Province, the P.R.C.        $2,437,836^*#   - 
                 
         $2,616,610   $180,417 

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

 

^ personal and corporate guaranteed by third parties.

*secured by land use rights with net carrying amount of $500,712 (12.31.2013: $515,026).

#repayable $325,092, $650,184, $650,184 and $812,376 in 2015, 2016, 2017 and 2018, respectively.

 

 

F - 36
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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.

 

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 

 

 

   September 30, 2014   December 31, 2013 
Classified as current liabilities          

5% Participating zero coupon bonds repayable on September 30,  2015

  $1,725,000   $- 
           
Classified as non-current liabilities          

5 % Participating zero coupon bonds repayable on September 30,  2015

   -    1,725,000 
   $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 $50,000 for the three months ended September 30, 2014 and 2013 and $150,000 and $50,000 for the nine months ended September 30, 2014 and 2013. As of September 30, 2014, the deferred compensation balance was $150,000 and the deferred compensation balance of $150,000 was to be amortized over 9 months beginning on October 1, 2014.

 

F - 37
 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

23.CONVERTIBLE NOTE PAYABLE

 

On August 29, 2014, the Company completed the closing of a private placement financing transaction with an accredited investor, which purchased a 10.5% Convertible Note (the “Note”) in the aggregate principal amount of up to $33,300,000. The Company received the initial advance of $6,982,667. The Company shall offer investor a discount equal to 25% of the amount of the principal advanced by the investor.

 

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

 

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

 

   September 30, 2014   December 31, 2013 
           
10.5% convertible note of maturity date February 20, 2020  $6,982,667   $- 

 

The Company calculated the fair value of the convertible note and the beneficial conversion feature utilizing the Discounted Cash Flows model at the date of the issuance of promissory note. The relative fair values were allocated to the liability and equity components of the debt. Accordingly, a discount was created on the debt and this discount will be amortized to interest expense over the life of the debt. Debt discount amortization as of September 30, 2014 was $18,758.

 

As of December 31, 2013, there was $0 principal outstanding and accrued interest in the amount of $0 that was owed under the terms of the promissory notes.

 

As of September 30, 2014, there was $6,982,667 principal outstanding and accrued interest in the amount of $61,098 that was owed under the terms of the promissory notes.

 

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

 

The Company calculated professional service compensation of $1,500,000 in respect of convertible note issue, and recognized $0, $0, $0 and $0 for the three months ended and the nine month ended September 30, 2014 and 2013. As of September 30, 2014, the deferred compensation balance was $1,500,000 and the deferred compensation balance of $1,500,000 was to be amortized over 12 months beginning on October 1, 2014.

 

F - 38
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

24.SHAREHOLDERS’ EQUITY

 

The Company’s share capital as of September 30, 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 September 30, 2014 and December 31, 2013, respectively

 

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 September 30, 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.

 

As originally filed, the certificate of designation of the Series F Non-Convertible Preferred Stock stated that:

 

(i)it is not redeemable;

 

(ii)

except for (iv), with respect to dividend rights, rights on liquidation, winding up and dissolution, it shall 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), it 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.

 

F - 39
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

24.SHAREHOLDERS’ EQUITY (CONTINUED)

 

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 transfer agent of the Company recorded 924,180 shares of Series F Non-Convertible preferred stock on the account. But, the Company did not issue physical shares and only issued coupons to notify respective shareholders on that date. The figure 924,180 was 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. The recipients of the coupons were originally 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, which date was subsequently postponed to May 30, 2015 (the “Coupon Redemption Date”). Upon the Coupon Redemption Date, holders of the coupon shall be entitled to a lump sum cash payment directly from the Company equal to $3.40 for every coupon then held (the “Redemption”). Upon proper Redemption, the Series F Preferred Stock shall terminate and thereafter cease to exist. 

  

As a result, the issued and outstanding shares of Series F Non-Convertible Preferred Stock as of September 30, 2014 and December 31, 2013 is 0.

 

Common Stock: 

 

On December 5, 2012, the Company obtained stockholders 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 (the “Common Stock”), 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 registration statement 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 this registration statement. No Common stock was offered to the public under this registration statement.

 

On October 4, 2013, the Company obtained stockholder 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 three months ended September 30, 2013, the Company issued 8,092,730 shares of common stock for $3,327,000 at values ranging from $0.36 to $0.45 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 $160,997 and $641,831 has been credited to consolidated statements of income as other income for the three months ended September 30, 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 nine months ended September 30, 2013, the Company issued 28,261,707 shares of common stock for $13,782,651 at values ranging from $0.36 to $0.527 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 $1,212,010 and $1,459,343 has been credited to consolidated statements of income as other income for the nine months ended September 30, 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 September 30, 2014, the Company issued (i) 5,930,179 shares of common stock for $2,431,374 at values ranging from $0.40 to $0.41 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 $11,885 and $160,997 has been credited to consolidated statements of income as other income for the three months ended September 30, 2014 and 2013, respectively; and (ii) 2,000,000 shares of common stock valued to professionals at fair value of $0.75 per share for $1,500,000 for service 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 ranging from $0.75 per share.

 

F - 40
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

24.SHAREHOLDERS’ EQUITY (CONTINUED)

 

During the nine months ended September 30, 2014, the Company issued (i) 20,142,617 shares of common stock for $12,006,374 at values ranging from $0.40 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 $253,278 and $1,212,010 has been credited to consolidated statements of income as other income for the nine months ended September 30, 2014 and 2013, respectively; (ii) 1,292,620 shares of common stock valued to employees at fair value of $0.43 per share for $555,827 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 $0.43 per share; and (iii) 3,160,764 shares of common stock valued to professionals at fair value ranging from $0.40 to $0.75 per share for $1,964,306 for service 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 ranging from $0.40 to $0.75 per share.

 

The Company has common stock of 168,128,223 and 137,602,043 shares issued and 167,128,223 and 137,602,043 outstanding as of September 30, 2014 and December 31, 2013, respectively.

  

25.OBLIGATION UNDER OPERATING LEASES

 

The Company leases (i) 2,178 square feet of agriculture space used for offices for a monthly rent of $634 in Enping City, Guangdong Province, P.R.C., its lease expiring on March 31, 2017; (ii) 5,081 square feet of office space in Guangzhou City, Guangdong Province, P.R.C. for a monthly rent of $12,733, its lease expiring on July 8, 2016; and (iii) 1,555 square feet of staff quarters in Linli District, Hunan Province, P.R.C. for a monthly rent of $163, its lease expiring on May 1, 2016.

 

Lease expense was $40,591 and $38,002 for the three months ended September 30, 2014 and 2013, respectively. Lease expense was $118,709 and $114,006 for the nine months ended September 30, 2014 and 2013, respectively. The future minimum lease payments as of September 30, 2014, are as follows:

 

   $ 
     
Year ended December 31, 2014   40,591 
Year ended December 31, 2015   162,364 
Thereafter   86,561 
    289,516 

 

26.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.

 

On April 25, 2014, the Company issued employees a total of 1,292,620 shares of common stock valued at fair value of range from $0.43 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $0.43 per share.

 

On June 16, 2014, the Company issued professionals a total of 1,160,764 shares of common stock valued at fair value of range from $0.40 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $0.40 per share.

 

On September 16, 2014, the Company issued professionals a total of 2,000,000 shares of common stock valued at fair value of range from $0.75 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $0.75 per share.

 

The Company calculated stock based compensation of $2,653,876 and $405,544, and recognized $288,469, and $90,600, $355,341 and $271,800 for the three months ended September 30, 2014 and 2013 and for the nine months ended September 30, 2014 and 2013.

 

As of September 30, 2014, the deferred compensation balance for staff was $765,009 and was to be amortized over 9 months beginning on October 30, 2014 and the deferred compensation balance for professional services was $1,500,000 and was to be amortized over 12 months beginning on October 30, 2014.

 

F - 41
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

27.CONTINGENCIES

 

As of September 30, 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.

 

28.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 $33,693 and $160,997 has been credited to consolidated statements of income as other income for the three months ended September 30, 2014 and 2013, respectively. 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 $275,086 and $1,212,010 has been credited to consolidated statements of income as other income for the nine months ended September 30, 2014 and 2013, respectively.

 

   Three months ended   Three months ended 
   September 30, 2014   September 30, 2013 
         
Total amounts of debts to be settled   2,431,374    3,327,000 
Less: Aggregate market fair value of 5,930,179 (2013: 8,092,730) shares of common stock in exchange of the above debts for debts extinguishment   (2,397,681)   (3,166,003)
Gain on extinguishment of debts   33,693    160,997 

 

   Nine months ended   Nine months ended 
   September 30, 2014   September 30, 2013 
         
Total amounts of debts to be settled   12,006,374    13,782,651 
Less: Aggregate market fair value of 20,142,617 (2013: 28,261,707) shares of common stock in exchange of the above debts for debts extinguishment   (11,731,288)   (12,570,641)
Gain on extinguishment of debts   275,086    1,212,010 

 

29.RELATED PARTY TRANSACTIONS

 

In addition to the transactions and balances as disclosed elsewhere in these consolidated financial statements, during the nine months ended September 30, 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 $4,244,519 and $1,793,768 as of September 30, 2014 and December 31, 2013, respectively. The amounts are unsecured, interest free and have no fixed term of repayment.

 

F - 42
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

30.EARNINGS PER SHARE

 

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

 

   Three months ended
September 30, 2014
   Three months ended
September 30, 2013
 
BASIC          
Numerator for basic earnings per share attributable to the Company’s common stockholders:          
Net income used in computing basic earnings per share  $24,501,862   $18,752,774 
Basic earni