S-1 1 v401668_s1.htm FORM S-1

 

As filed with the Securities and Exchange Commission on February 27, 2015

Registration No. 333-_________

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

SINO AGRO FOOD, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada   2020   33-1219070

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(IRS Employer

Identification Number)

 

Sino Agro Food, Inc.

Room 3801, Block A, China Shine Plaza

No. 9 Lin He Xi Road

Tianhe District, Guangzhou City, P.R.C. 510610

(860) 20 22057860

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Solomon Lee

Chief Executive Officer

Sino Agro Food, Inc.

Room 3801, Block A, China Shine Plaza

No. 9 Lin He Xi Road

Tianhe District, Guangzhou City, P.R.C. 510610

(860) 20 22057860

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

Marc Ross, Esq.

Henry Nisser, Esq.

Sichenzia Ross Friedman Ference, LLP

61 Broadway, 32nd Floor

New York, New York 10006

Telephone: (212) 930-9700

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on the Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462 (c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering:  ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering:  ¨

 

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer  ¨ Smaller reporting company x

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of
Securities to Be Registered
  Amount to Be Registered (1)   Proposed Maximum Aggregate Offering Price (1)   Amount Of Registration Fee
10.5% Convertible Note due February 28, 2020   $15,516,667    $15,516,667     $1,803.04 
             
Common Stock, $0.001 par value   NA (2)   0(3)   0

 

(1) Equals the aggregate principal amount of the note being registered under this Registration Statement. Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
   
(2) There is being registered hereunder an indeterminate number of shares of common stock issuable upon conversion of the note. The convertible note is convertible at any time at an initial conversion price of $9.90 per shares of our common stock, subject to adjustments for certain events. Pursuant to Rule 416 under the Securities Act of 1933, as amended, such number of shares of common stock registered hereby shall also include an indeterminate number of shares of common stock that may be issued in connection with a stock split, stock dividend, recapitalization or similar event or adjustment in the number of shares of common stock issuable as provided in the note.
   
(3) Pursuant to Rule 457(i) under the Securities Act of 1933, no separate registration fee is required for the common stock issuable upon conversion of the note because no additional consideration will be received in connection with the exercise of any such conversion right.

 

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

 

 
 

 

The information in this prospectus is not complete and may be changed. The selling security holder may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. 

 

 PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED FEBRUARY 27, 2015

 

SINO AGRO FOOD, INC.

 

$15,516,667

 

10.5% Convertible Note due February 28, 2020 and Shares of Common Stock Issuable Upon Conversion of the Note

 

On August 29, 2014, we completed the closing of a private placement financing transaction with Euro China Capital AB, an accredited investor, which purchased a 10.5% Convertible Note in the aggregate principal amount of up to $33,300,000. The note carries an original issue discount of 25% over its term and matures on February 28, 2020.The investor agreed to make advances to us, in its sole discretion, based on the following schedule: up to (i) $5,000,000 on August 12, 2014, (ii) $5,000,000 on August 31, 2014, (iii) $5,000,000 on November, 2014, and (iv) $18,300,000 on February 28, 2015. We received the initial advance of $5,000,000 less the 25% discount on August 12, 2014. Since then, we have received additional advances of $10,516,667, less the 25% discount.

 

Interest on the note shall accrue on the outstanding principal balance of the note from August 29, 2014. Interest is payable quarterly on the last day of each of March, June, September and December commencing September 30, 2014; provided, however, that the investor may elect to require us to issue to it a promissory note (valued at 100% of the principal amount thereof) in lieu of cash in satisfaction of any interest due and payable at such time (which we refer to herein as an interest payment note). Any interest payment note shall be subject to the same terms as the note (except as set forth in the note).

 

The note is convertible, at the discretion of the investor, into shares of our common stock (i) at any time following an Event of Default (as defined in the note), or (ii) for a period of thirty (30) calendar days following October 1, 2015 and each anniversary thereof, at an initial conversion price per share of $9.90, subject to adjustment for stock splits, reverse stock splits, stock dividends and other similar transactions and subject to certain further adjustments as set forth in 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 investor, to purchase securities proposed to be offered and sold by us. The note is an unsecured obligation and ranks, in right of payment, the same as all of our existing and future unsecured indebtedness. The note is effectively subordinated to any secured indebtedness. Our obligations under the note are not guaranteed by any person.

 

This prospectus relates to resales of the note and shares of our common stock issuable upon conversion of the note. The note (including portions thereof) and shares of common stock issuable upon conversion of the note may be sold from time to time under this prospectus by and for the account of the selling securityholder. The selling securityholder may sell all or a portion of the note and any shares of common stock issuable upon conversion of the note from time to time in market transactions, in negotiated transactions or otherwise, and at prices and on terms which will be determined by the then prevailing market price for the shares of our common stock or at negotiated prices directly or through a broker, who may act as agent or as principal, or by a combination of such methods. See “Plan of Distribution.” We will not receive any of the proceeds from the sale of the note and any shares of common stock issued upon conversion of the note offered by the selling securityholders. The selling securityholders will receive all proceeds from these sales. No underwriter or person has been engaged to facilitate the sale of shares of our common stock in this offering. There are no underwriting commissions involved in this offering. We have agreed to pay all the costs of this offering other than customary brokerage and sales commissions.

 

Our common stock is eligible for quotation on the OTC QB under the symbol “SIAF.” On February 20, 2015, the last reported price of our common stock was $8.50 per share.

 

Investing in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described under the heading “Risk Factors” beginning on page 4 of this prospectus before making a decision to purchase our common stock.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.

 

The date of this prospectus is _____, 2015

 

 
 

 

TABLE OF CONTENTS

 

  Page
About This Prospectus 1
   
Summary 1
   
The Offering 3
   
Risk Factors 4
   
Cautionary Statement Regarding Forward-Looking Statements 19
   
Use of Proceeds 19
   
Market for Our Common Stock and Related Stockholder Matters 19
   
Management’s Discussion and Analysis of Results of Operations 21
   
Business 88
   
Directors and Executive Officers, Promoters and Control Persons 141
   
Certain Relationships and Related Transactions 145
   
Security Ownership of Certain Beneficial Owners and Management 145
   
Plan of Distribution 146
   
Selling Securityholders 148
   
Description of The Note and the Indenture 148
   
Description of Securities 155
   
U.S. Federal Tax Considerations 156
   
Experts 158
   
Legal Matters 158
   
Where You Can Find More Information 158
   
Index To Financial Statements F-1

 

 
 

 

ABOUT THIS PROSPECTUS

 

Before making your investment decision, you should read this entire prospectus carefully. This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission, or the SEC, using a “shelf” registration process. Under this shelf registration process, the selling securityholders may from time to time offer and sell portions of the note and the shares of common stock issuable upon conversion of the note described in this prospectus in the general manner described in “Plan of Distribution.”

 

You should read this prospectus together with additional information described under the heading “Where You Can Find More Information.”

 

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

 

Unless otherwise expressly provided herein, all share and per share numbers set forth herein relating to our common stock reflect a 1 for 9.9 reverse stock split of our common stock, which became effective on December 16, 2014.

 

SUMMARY

 

The following summary highlights information contained elsewhere in this prospectus. It may not contain all the information that may be important to you. You should read this entire prospectus carefully, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis or Plan of Operations,” and our historical financial statements and related notes included elsewhere in this prospectus.

 

In this prospectus, unless the context requires otherwise, references to the “Company,” “Sino Agro” “we,” “our company,” “our” and “us,” refer to Sino Agro Food, Inc., a Nevada corporation together with its subsidiaries.

 

Business Overview

We are a consulting, engineering and technology based company operating in the agriculture and aquaculture sectors with a vertically integrated business model as a developer, producer and distributor of organic agriculture and aquaculture produce and products through our operating subsidiaries in China.

 

Activities in 2011 concentrated on the building out of primary production activities in our feedstock, fertilizer fishery and cattle farm businesses leading into the initiation of basic infrastructure developed for our pre-wholesale and wholesale operations.

 

2012 was characterized by a marked expansion and continuation of our primary production activities and the development of wholesale operations, many delivering product sales, and by the build-out of the distribution network including import-export, as well as the start of retail operations.

 

We divide our operations into five standalone business divisions or units but in this section we will cover it as four divisions as follows: (1) fishery, (2) beef cattle, (3) fertilizer, enzymes and livestock feed, (4) Dragon Fruit (“HU”) flower plantation and (5) Corporate. The commonality between the divisions is that each operates in a comparatively slow growth consolidating market; our strategy is targeting niches of these markets with our products.

 

Company History

Our company, which was formerly known as Volcanic Gold, Inc. and A Power Agro Agriculture Development, Inc., was incorporated on October 1, 1974 in the State of Nevada. We were engaged in the mining and exploration business but ceased our mining and exploring business on October 14, 2005. On August 24, 2007, we entered into a Merger and Acquisition Agreement with Capital Award Inc., a Belize corporation and its subsidiaries Capital Stage Inc. and Capital Hero Inc. Effective the same date, Capital Award completed a reverse merger transaction with us. We acquired all the outstanding common stock of Capital Award from Capital Adventure, a shareholder of Capital Award, for 3,232,323 shares of our common stock.

 

On August 24, 2007 we changed our name from Volcanic Gold, Inc. to A Power Agro Agriculture Development, Inc. On December 8, 2007, we changed our name to Sino Agro Food, Inc. Our principal executive office is located at Room 3801, 38th Floor, Block A, China Shine Plaza, No. 9 Lin He Xi Road, Tianhe District, Guangzhou City, Guangdong Province, PRC, 510610.

 

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Cross-Listing on First North

We have taken steps to have our shares of common stock quoted (no new shares will be issued) on NASDAQ OMX First North in Stockholm, Sweden (“First North”). First North is an alternative market, operated by the different exchanges within NASDAQ OMX (the “Exchange”). It does not have the legal status as an EU-regulated market. Companies trading on First North are subject to the rules of First North and not the legal requirements for admission to trading on a regulated market. The risk in such an investment may be higher than on the main market.

 

Before trading in our shares of common stock can commence, an application must be submitted to the Exchange for approval. We have engaged Mangold Fondkommission AB (“MFAB”) to act as our financial advisor in connection with our efforts to have our shares of common stock quoted on First North. MFAB, based in Stockholm, is assisting us in the application process. Trading on First North is subject to a number of conditions including affiliation of our shares to Euroclear Sweden, sufficient shareholder distribution in Sweden and the approval of NASDAQ OMX. Our shares are currently eligible for quotation on the OTC QB in the United States and we expect them to continue to be traded on the OTC QB. There can be no assurance that our shares of common stock will trade on First North.

 

Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completions of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeded $700.0 million as of the prior June 30 th , and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We refer to the Jumpstart Our Business Startups Act of 2012 herein as the “JOBS Act” and references herein to “emerging growth company” shall have the meaning associated with it in the JOBS Act.

 

As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

 

  only two years of audited consolidated financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” disclosure;

 

  reduced disclosure about our executive compensation arrangements;

 

  no requirement that we hold non-binding advisory notes on executive compensation or golden parachute arrangements; and

 

  exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

 

We have taken advantage of some of these reduced burdens, and thus the information we provide stockholders may be different from what you might receive from other public companies in which you hold shares.

 

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

Reverse Split

On November 10, 2014, the board of directors of Sino Agro Food, Inc. approved an amendment to our Articles of Incorporation to effectuate a reverse stock split (the “Reverse Split”) of our common stock, par value $.001 per share, affecting both the authorized and issued and outstanding number of such shares by a ratio of 9.9 for 1. The Reverse Split became effective in the State of Nevada on December 16, 2014. The Market Effective Date of the Reverse Split was December 16, 2014, having been approved by the Financial Industry Regulatory Authority, Inc. (“FINRA”) on December 15, 2014. As a result of the Reverse Split, each 9.9 shares of common stock authorized as well as each such share issued and outstanding prior to the Reverse Split has been converted into 1 share of common stock, and all options, warrants, and any other similar instruments convertible into, or exchangeable or exercisable for, shares of common stock have been proportionally adjusted. All references to common stock have been retroactively restated.

 

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THE OFFERING

 

Securities offered   $15,516,667 aggregate principal amount of our 10.5% convertible note due February 28, 2020 and shares of our common stock issuable upon conversion of the note.
     
Selling Securityholders   The securities to be offered and sold under this prospectus will be offered and sold by the selling securityholder identified in this prospectus under “Selling Securityholders.”
     
Original issue date   August 29, 2014.
     
Interest   The note bears interest at 10.5% per annum on the principal amount, payable quarterly in arrears in cash on December 31, March 31, June 30 and September 30 of each year, beginning September 30, 2014.
     
Original issue discount   The note carries an original issue discount of 25%.
     
Maturity date   February 28, 2020.
     
Shares outstanding before the offering   17,162,716 as of the date of this prospectus.
     
Shares outstanding after the offering   18,730,056, assuming full conversion of the note (but excluding accrued but unpaid interest).
     
Conversion   The note is convertible at certain times at an initial conversion price of $9.90, subject to adjustment for certain events. See “Description of the Note – Conversion Rights.”
     
Ranking   The note is an unsecured obligation and ranks, in right of payment, the same as all of our existing and future unsecured indebtedness. The note is effectively subordinated to any secured indebtedness. Our obligations under the note are not guaranteed by any person.
     
Use of proceeds   We will not receive any of the proceeds from the sale by any selling securityholder of the note or the shares of common stock issuable upon conversion of the note. See “Selling Securityholders” for a list of the selling securityholders that may sell from time to time under this prospectus the note or the shares of common stock issuable upon conversion of the note.
     
Trading   The note sold under this prospectus will not be eligible for trading on any market. Our common stock is traded on OTC QB under the symbol “SIAF.” We do not intend to apply for listing of the note on any securities exchange or for the inclusion of the note in any automated system.
     
Risk factors   An investment in the note and the shares of common stock issuable upon conversion of the note involves risk. Prospective investors should carefully consider the information set forth under “Risk Factors” beginning on page 4 before deciding whether or not to invest in the note or shares of our common stock.

 

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RISK FACTORS

 

Investing in the note or the shares of common stock issuable upon conversion of the note involves a high degree of risk. Potential investors should consider carefully the risks and uncertainties described below together with all other information contained in this prospectus before making investment decisions with respect to the note or the shares of common stock issuable upon conversion of the note. If any of the following risks actually occur, our business, financial condition, results of operations and our future growth prospects would be materially and adversely affected. Under these circumstances, the trading price and value of our common stock could decline resulting in a loss of all or part of your investment. The risks and uncertainties described in this prospectus are the only material risks and uncertainties that we presently know to be facing our company.

 

This prospectus contains forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our customers’ or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements, to differ. ”Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as other sections in this prospectus, discuss the important factors that could contribute to these differences.

 

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

 

This prospectus also contains market data related to our business and industry. This market data includes projections that are based on a number of assumptions. If these assumptions turn out to be incorrect, actual results may differ from the projections based on these assumptions. As a result, our markets may not grow at the rates projected by these data, or at all. The failure of these markets to grow at these projected rates may have a material adverse effect on our business, results of operations, financial condition and the market price of our common stock.

 

Our current business operations are conducted in the PRC.  Because China’s economy and its laws, regulations and policies are different from those typically found in the West and are continually changing, we face certain risks, which are summarized below.

 

Risks Related to Our Company

 

The concentration of our current major customers could adversely affect our business if we were to lose one or more of them.

Four major customers for the Corporate division accounted for 51.49% of consolidated revenues during the fiscal year ended December 31, 2013. Two of those customers accounted for 33.11% of consolidated revenues, approximately evenly split. If one of our major customers were to go bankrupt, our associated accounts receivable would become difficult to collect or a loss.

 

Our largest customer represents a group of thirty separate live seafood wholesalers at the Guangzhou wholesale markets. Our second largest customer is Wholesale Center 1, or WSC 1, which is owned and operated by Guangzhou City A Power NaWei Trading Co. Ltd., or APNW. Capital Award was the consulting engineer responsible for the construction of WSC 1 and development of its business operation via a Consulting and Service Contract granted by APNW. APNW is now one of our main wholesalers to whom we bill our sales of seafood. APNW then distributes the seafood to other wholesalers in various cities in China.

 

We may be unable to maintain an effective system of internal control over financial reporting, and as a result we may be unable to accurately report our financial results.

Our reporting obligations as a public company place a significant strain on our management, operational and financial resources and systems. If we fail to maintain an effective system of internal control over financial reporting, we could experience delays or inaccuracies in reporting our financial information, or non-compliance with SEC reporting and other regulatory requirements. This could subject us to regulatory scrutiny and result in a loss of public confidence in our management, which could, among other things, cause our stock price to drop.

 

Because we will require additional financing to expand our vertically integrated operations according to our business plan and growth strategy, our failure to obtain necessary financing will impair our growth strategy; in addition, the risks of vertical integration are significant.

As of September 30, 2014, we had net working capital of $221,737,270, including cash and cash equivalents of $4,691,157. Our capital requirements to accomplish our planned vertically integrated development and growth plan of our business are significant.

 

In most developed countries, risks of agriculture operations are shared to a certain degree by different sectors in the industry. For example:

 

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  · Research and development are often initiated and supported by government departments;
  · Primary producers are mainly concerned with the growing risks of the produce;
  · Marketing companies assume the risks of marketing the produce;
  · Trading houses sell the produce and assume the credit risks of the sales; and
  · Logistics companies assume the risks of transporting the produce.

 

However, as a vertically integrated operator, we must assume all the above-mentioned risks. China is a developing country; compared to other developed nations, its agriculture industry is not modern. Thus, management believes that it is essential for us to develop our business operation in a vertically integrated manner so that we can achieve reasonable profit margins for our products. We believe that the multiple layers of profits generated through vertical integration may compensate to some degree for the variety of risks that we face through the multiple operations; however, the overall risks are much greater. At the same time, our five year plan for vertically integrated developments is not fully completed, and the remaining developments may require significant capital expenditures and management resources. Failure to implement these vertically integrated developments could hurt our ability to manage our growth and our financial position.

 

To accomplish the objectives discussed above and to execute our business strategy, we need access to capital on appropriate terms. We currently have no commitments with any third party to obtain such additional financing and we cannot assure you that we will be able to obtain the requisite additional financing on any terms and, if we are able to raise additional funds, it may be necessary for us to sell our securities at a price which is at a significant discount from the market price and on other terms which may be disadvantageous to us. In connection with any such financing, we may be required to provide registration rights to the investors and pay damages to the investors in the event that the registration statement is not filed or declared effective by specified dates. The price and terms of any financing which would be available to us could result in both the issuance of a significant number of shares and significant downward pressure on our stock price. We cannot assure you that our business objectives, particularly over the longer term, will be met on a timely basis, if at all. Consequently, we may be unable to meet fixed obligations and expenses that will be generated in the operation of our business, whether as presently in existence or as proposed. Any failure to obtain requisite financing on acceptable terms could have material and adverse effect on our business, financial condition and future prospects.

 

No assurance of successful expansion of operations.

Our significant increase in the scope and the scale of our operations, including the hiring of additional personnel, has resulted in significantly higher operating expenses. We anticipate that our operating expenses will continue to increase. Expansion of our operations may also make significant demands on our management, finances and other resources. Our ability to manage the anticipated future growth, should it occur, will depend upon a significant expansion of our accounting and other internal management systems and the implementation and subsequent improvement of a variety of systems, procedures and controls. We cannot assure that significant problems in these areas will not occur. Failure to expand these areas and implement and improve such systems, procedures and controls in an efficient manner at a pace consistent with our business could have a material adverse effect on our business, financial condition and results of operations. We cannot assure that attempts to expand our marketing, sales, manufacturing and customer support efforts will succeed or generate additional sales or profits in any future period. As a result of the expansion of our operations and the anticipated increase in our operating expenses, along with the difficulty in forecasting revenue levels, we expect to continue to experience significant fluctuations in its results of operations.

 

We may be unable to successfully expand our production capacity, which could result in material delays, quality issues, increased costs and loss of business opportunities, which may negatively impact our product margins and profitability.

Part of our future growth strategy is to increase our production capacity to meet increasing demand for our goods. Assuming we obtain sufficient funding to increase our production capacity, any projects to increase such capacity may not be constructed on the anticipated timetable or within budget. We may also experience quality control issues as we implement any production upgrades. Any material delay in completing these projects, or any substantial cost increases or quality issues in connection with these projects could materially delay our ability to bring our products to market and adversely affect our business, reduce our revenue, income and available cash, all of which could harm our financial condition.

 

Our business and operations are growing rapidly. If we fail to effectively manage our growth, our business and operating results could be harmed.

We have experienced, and may continue to experience, rapid growth in our operations. This has placed, and may continue to place, significant demands on our management, operational and financial infrastructure. If we do not manage our growth effectively, the quality of our products and services could suffer, which could negatively affect our operating results. To effectively manage our growth, we must continue to improve our operational, financial and management controls and reporting systems and procedures. These systems improvements may require significant capital expenditures and management resources. Failure to implement these improvements could hurt our ability to manage our growth and our financial position.

 

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If the Chinese government were to change its presently favorable policy toward the agriculture industry, we would no longer enjoy our present tax-related privileges, which would materially and adversely impact our sales performance, margins, and net profit and our costs structure.

As producers active in the agriculture industry, our subsidiaries are presently exempt from income tax and enjoy various incentive grants and subsidies given by the Chinese government. If the Chinese government were to change its presently favorable policy toward the agriculture industry, we would no longer enjoy our present tax-related privileges, which would materially and adversely impact our sales performance, margins, and net profit and our costs structure. We have experienced, and may continue to experience, quick changes of policies by the Chinese government. If we do not effectively and efficiently manage our growth on time due to lack of capital, we could suffer adversely from the consequences of any such policy changes.

 

Our intellectual property rights are valuable, and any inability to adequately protect, or uncertainty regarding validity, enforceability or scope of them could undermine our competitive position and reduce the value of our products, services and brand, and litigation to protect our intellectual property rights may be costly.

We attempt to strengthen and differentiate our product portfolio by developing new and innovative products and product improvements. As a result, our patents, trademarks, trade secrets, copyrights and other intellectual property rights are important assets to us. Various events outside of our control pose a threat to our intellectual property rights as well as to our products and services. For example, effective intellectual property protection may not be available in China and other countries in which our products are sold. Also, although we have registered our trademark in China, our efforts to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete and hurt our results of operation. Also, protecting our intellectual property rights is costly and time consuming. Policing unauthorized use of our proprietary technology can be difficult and expensive. Litigation might be necessary to protect our intellectual property rights. But due to the relative unpredictability of the Chinese legal system and potential difficulties to enforce a court’s judgment in China, there is no guarantee that litigation would result in a favorable outcome. Furthermore, any such litigation may be costly and may divert our management’s attention from our core business. An adverse determination in any lawsuit involving our intellectual property is likely to jeopardize our business prospects and reputation. Although we are not aware of any of such litigation, we have no insurance coverage against the litigation costs so we would be forced to bear all litigation costs if we cannot recover them from other parties. All foregoing factors could harm our business, financial condition, and results of operations. Any unauthorized use of our intellectual property could make it more expensive for us to do business and harm our operating results.

 

We may be exposed to infringement or misappropriation claims by third parties, which, if determined against us, could adversely affect our business and subject us to significant liability to third parties.

Our success mainly depends on our ability to use and develop our technology and product designs without infringing upon the intellectual property rights of third parties. We may be subject to litigation involving claims of patent infringement or violations of other intellectual property rights of third parties. Holders of patents and other intellectual property rights potentially relevant to our product offerings may be unknown to us, which may make it difficult for us to acquire a license on commercially acceptable terms. There may also be technologies licensed to us and that we rely upon that are subject to infringement or other corresponding allegations or claims by third parties which may damage our ability to rely on such technologies. In addition, although we endeavor to ensure that companies that work with us possess appropriate intellectual property rights or licenses, we cannot fully avoid the risks of intellectual property rights infringement created by suppliers of components used in our products or by companies we work with in cooperative research and development activities. Our current or potential competitors may have obtained or may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our products. The defense of intellectual property claims, including patent infringement suits, and related legal and administrative proceedings can be both costly and time consuming, and may significantly divert the efforts and resources of our technical personnel and management. These factors could effectively prevent us from pursuing some or all of our business operations and result in our customers or potential customers deferring, canceling or limiting their purchase or use of our products, which may have a material adverse effect on our business, financial condition and results of operations.

 

We rely on highly skilled personnel and the continuing efforts of our executive officers and, if we are unable to retain, motivate or hire qualified personnel, our business may be severely disrupted.

Our performance largely depends on the talents, knowledge, skills, know-how and efforts of highly skilled individuals and in particular, the expertise held by our chief executive officer, Solomon Lee. His absence, were it to occur, could impact development and implementation of our projects and businesses. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. Our continued ability to compete effectively depends on our ability to attract new technology developers and to retain and motivate our existing contractors. If one or more of our executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Therefore, our business may be severely disrupted, and we may incur additional expenses to recruit and retain new officers. In addition, if any of our executives joins a competitor or forms a competing company, we may lose some customers.

 

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Our financial and operating performance may be adversely affected by epidemics, adverse weather conditions, natural disasters and other catastrophes.

Our financial and operating performance may be affected adversely by epidemics, bad weather conditions, natural disasters and other catastrophes. For example, in early 2003, several economies in Asia, including China, were affected by the outbreak of severe acute respiratory syndrome, or SARS. In May-June 2003, many businesses in China were closed by the PRC government, to prevent transmission of SARS. Our business could be materially and adversely affected by the effects of H1N1 flu (swine flu), avian flu, SARS, or other epidemics or outbreaks. In April 2009, an outbreak of H1N1 flu first occurred in Mexico and quickly spread to other countries, including the U.S. and China. In the last decade, China has suffered health epidemics related to such outbreaks. Any prolonged occurrence or recurrence of H1N1 flu (swine flu), avian flu, SARS or other adverse public health developments in China may have a material adverse effect on our business and operations. These health epidemics could result in severe travel restrictions and closures that would restrict our ability to ship our products. Potential outbreaks could also lead to temporary closure of our manufacturing facilities, our suppliers’ facilities and/or our end-user customers’ facilities, leading to reduced production, delayed or cancelled orders, and decrease in demand for our products. Any future health epidemic or outbreaks that could disrupt our operations and/or restrict our shipping abilities may have a material adverse effect on our business and results of operations.

 

We do not expect to encounter any epidemics in our aquaculture fishery farms in districts of the Guangdong Province or cattle farms in Huangyuan District of the Qinghai Province. However in the event of epidemics, we expect that our marine animals and our cattle will be quarantined until such time as a sanitary certificate for clean bill of health is obtained, before any of our products will be sold. In an extreme situation where our products would fail to obtain the sanitary certificate, they will be destroyed subject to the direction of the Inspection Authorities of the Agriculture Department of China. There is compensation granted by the Chinese government for the destruction of our products but only for a fraction of our cost of production; as such the Company will bear virtually all losses under such circumstances.

 

Furthermore, the 2008 Sichuan earthquake also had a negative impact on many businesses in that region. Losses caused by epidemics, adverse weather conditions, natural disasters and other catastrophes, including SARS, avian flu, swine flu, earthquakes or typhoons, will adversely affect our operations. 

 

If we make any acquisitions, they may disrupt or have a negative impact on our business.

Although we have no present plans for any specific acquisitions, in the event that we make acquisitions, we could have difficulty integrating the acquired companies’ personnel and operations with our own. In addition, the key personnel of the acquired business may not be willing to work for us. We cannot predict the effect expansion may have on our core business. Regardless of whether we are successful in making an acquisition, the negotiations could disrupt our ongoing business, distract our management and employees and increase our expenses. In addition to the risks described above, acquisitions are accompanied by a number of inherent risks, including, without limitation, the following:

 

  · difficulty of integrating acquired products, services or operations;
  · potential disruption of the ongoing businesses and distraction of our management and the management of acquired companies;
  · difficulty of incorporating acquired rights or products into our existing business;
  · difficulties in disposing of the excess or idle facilities of an acquired company or business and expenses in maintaining such facilities;
  · difficulties in maintaining uniform standards, controls, procedures and policies;
  · potential impairment of relationships with employees and customers as a result of any integration of new management personnel;
  · potential inability or failure to achieve additional sales and enhance our customer base through cross-marketing of the products to new and existing customers;
  · effect of any government regulations which relate to the business acquired;
  · potential unknown liabilities associated with acquired businesses or product lines, or the need to spend significant amounts to retool, reposition or modify the marketing and sales of acquired products or the defense of any litigation, whether or not successful, resulting from actions of the acquired company prior to our acquisition.

 

Our business could be severely impaired if and to the extent that we are unable to succeed in addressing any of these risks or other problems encountered in connection with these acquisitions, many of which cannot be presently identified, these risks and problems could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations.

 

We face significant competition, including changes in pricing.

The markets for our products are both competitive and price sensitive. Many competitors have significant financial, operations, sales and marketing resources, plus experience in research and development, and compete with us by offering lower prices. Competitors could develop new technologies that compete with our products to achieve a lower unit price. If a competitor develops lower cost superior technology or cost-effective alternatives to our products and services, our business could be seriously harmed.

 

The markets for some of our products are also subject to specific competitive risks because these markets are highly price competitive. Our competitors have competed in the past by lowering prices on certain products. If they do so again, we may be forced to respond by lowering our prices. This would reduce sales revenues and increase losses. Failure to anticipate and respond to price competition may also impact sales and aggravate losses.

 

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Many of our competitors are larger and have greater financial and other resources than we do.

Our products compete and will compete with similar if not identical products produced by our competitors. These competitive products could be marketed by well-established, successful companies that possess greater financial, marketing, distribution personnel, and other resources than we do. Using said resources, these companies can implement extensive advertising and promotional campaigns, both generally and in response to specific marketing efforts by competitors. They can introduce new products to new markets more rapidly. In certain instances, competitors with greater financial resources may be able to enter a market in direct competition with us, offering attractive marketing tools to encourage the sale of products that compete with our products or present cost features that consumers may find attractive. 

 

Risks Related to our Industry

 

Our agricultural assets are situated in three provinces in China and crop disease, severe weather, natural disasters and other conditions affecting the environment, including the effects of climate change, could result in substantial losses and weaken our financial condition.

Our agricultural operations are situated in Qinghai Province, Hunan and Guangdong Province. Qinghai Province in particular is subject to occasional periods of drought. Crops require water in different quantities at different times during the growth cycle. The limited water resource at any given point can adversely impact production. In Qinghai our cropping and pasture land presently comprises over 5,000 acres, an area too big and too costly to afford drip irrigation systems for our crops. In Hunan, the district of Linli where we have over 300 acres of crop and pasture land may from time to time be subject to flooding that could affect our agriculture production. In Enping, Guangdong, our HU Plants are very susceptible to dry and wet seasonal variation that could also affect our agriculture production.

 

Crop disease, severe weather conditions, such as floods, droughts, windstorms and hurricanes, and natural disasters, may adversely affect our supply of one or more products, reduce our sales volumes, increase our unit production costs or prevent or impair our ability to ship products as planned. Since a significant portion of our costs are fixed and contracted in advance of each operating year, volume declines due to production interruptions or other factors could result in increases in unit production costs, which could result in substantial losses and weaken our financial condition. We may experience crop disease, insect infestation, severe weather and other adverse environmental conditions from time to time.

 

Severe weather conditions may occur with higher frequency or may be less predictable in the future due to the effects of climate change.

 

An occurrence of such an event might result in material disruptions to our operations, to the operations of our customers or suppliers, resulting in a decline in the agriculture industry. There can be no assurance that our facilities or products will not be affected by any such occurrence in the future, which occurrence may lead to adverse conditions to our operations and financial results.

 

Prices of agricultural products are subject to supply and demand, a market condition which is not predictable.

Because our agricultural products are commodities, we are not able to predict with certainty what price we will receive for our products. Additionally, the growth cycle of such products in many instances dictates when such products must be marketed to achieve the maximum profitability. Excessive supplies tend to cause severe price competition and lower prices throughout the industry affected. Conversely, shortages may drive the prices higher. Shortages often result from adverse growing conditions which can reduce the availability of the agricultural products affected. Since multiple variables can affect supply and demand, we cannot accurately predict or control from year to year what prices, either favorable or unfavorable, it will receive from the market.

 

In addition, general public perceptions regarding the quality, safety or health risks associated with particular food products could reduce demand and prices for some of our products. To the extent that consumer preferences evolve away from products that we produce for health or other reasons, and we are unable to modify our products or to develop products that satisfy new consumer preferences, there will be a decreased demand for our products. However, even if market prices are unfavorable, some of our agricultural products which are ready to be, or have been, harvested must be brought to market promptly. A decrease in the selling price received for our products due to the factors described above could have a material adverse effect on our business, results of operations and financial condition.

 

We could realize losses and suffer liquidity problems due to declines in sales prices for our agriculture products.

Sales prices for agricultural products are difficult to predict. It is possible that sales prices for our products will decline in the future, and sales prices for other agricultural products may also decline. In recent years, there has been increasing consolidation among food retailers, wholesalers and distributors. A significant portion of our costs is fixed, so that fluctuations in the sales prices have an immediate impact on our profitability. Our profitability is also affected by our production costs, which may increase due to factors beyond our control.

 

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We are subject to the risk of product contamination and product liability claims.

The sales of our products may involve the risk of injury to consumers. Such injuries may result from tampering by unauthorized personnel, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, or residues introduced during the growing, packing, storage, handling or transportation phases. While we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, including internal product safety policies, we cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our brand image. We do not maintain product liability insurance.

 

We may not be successful in the implementation of our new technologies and new products, and our new products may not be widely accepted.

Our new technologies such as our drip irrigation system for precision agriculture or the introduction, testing and promotion of new agricultural varieties, must be able to adapt to local conditions. The term “drip irrigation” refers to a system whereby the exact amount of water is supplied to the plants’ roots at the correct moment. On the one hand, there exists the failure risk due to not being suitable for the local environment and market conditions; on the other hand, there are risks of loss of competitive advantages due to the rising of producing similar products enterprises and other enterprises that follow to produce the similar products.

 

We are a holding company whose subsidiaries are given certain degree of independency and our failure to integrate our subsidiaries may adversely affect our financial condition.

According to the specific characteristics of agricultural production in China, we have given our subsidiary companies and their farms a certain degree of independency in decision-making. On one hand, this independency increases the sense of ownership at all levels, on the other hand it has also increased the difficulty of the integration of operation and management, which has resulted in increased difficulty of management integration. In the event we are not able to successfully manage our subsidiaries this will result in operating difficulties and have a negative impact on our business.

 

One or more distributors could engage in activities that harm our brand and our business.

Our products are sold primarily through distributors, who are responsible for ensuring that our products have the appropriate licenses to be sold to farmers in their provinces, and are stored at the correct temperature to ensure freshness and meet shelf life terms. If distributors do not obtain the appropriate licenses, their sales of our products in those provinces may be illegal, and we may be subject to government sanctions, including confiscation of illegal revenues and a fine of between two and three times the amount of such illegal revenues. Unlicensed sales in a province may also cause a delay for our other distributors in receiving a license from the authorities for their provinces, which could further adversely impact our sales. In addition, distributors may sell our products under another brand licensed in a particular province if our product is not licensed there. If our products are sold under another brand, the purchasers will not be aware of our brand name, and we will be unable to cross-market other seed varieties or other products as effectively to these purchasers. Moreover, our ability to provide appropriate customer service to these purchasers will be negatively affected, and we may be unable to develop our local knowledge of the needs of these purchasers and their environment. Furthermore, if any of our distributors sell inferior seeds produced by other companies under our brand name, our brand and reputation could be harmed, which could make marketing of our branded seeds more difficult. As of the date of this Annual Report, we are not aware of the occurrence of any of the potential violations by our distributors described above.

 

The PRC agricultural market is highly competitive and our growth and results of operations may be adversely affected if we are unable to compete effectively.

The agricultural market in China is highly fragmented, largely regional and highly competitive, and we expect competition to increase and intensify within the sector. We face significant competition in our lines of business. Many of our competitors have greater financial, research and development and other resources than we have. Competition may also develop from consolidation within our industry in China or the privatization of producers that are currently operated by local governments in China. Our competitors may be better positioned to take advantage of industry consolidation and acquisition opportunities than we are. The reform and restructuring of state-owned equity in enterprises involved primarily in producing sectors will likely lead to the reallocation of market share in the agriculture industry, and our competitors may increase their market share by participating in the restructuring of state-owned agriculture companies. Such privatization would likely result in increased numbers of market participants with more efficient and commercially viable business models. As competition intensifies, our margins may be compressed by more competitive pricing and we may lose our market share and experience a reduction in our revenues and profit.

 

We may not possess all of the licenses required to operate our business, or we may fail to maintain the licenses we currently hold. This could subject us to fines and other penalties, which could materially adversely affect our results of operations.

We are required to hold a variety of permits and licenses to conduct business in China. We may not possess all of the permits and licenses required for each of our business segments. In addition, the approvals, permits or licenses required by governmental agencies may change without substantial advance notice, and we could fail to obtain the approvals, permits or licenses required to expand our business. If we fail to obtain or to maintain such permits or licenses, or if renewals are granted with onerous conditions, we could be subject to fines and other penalties and be limited in the number or the quality of the products that we could offer. As a result, our business, results of operations and financial condition could be materially and adversely affected.

 

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Risks Related to Doing Business in China

 

Under PRC law, we are required to obtain and retain permits and business licenses, and our failure to do so would adversely impact our ability to conduct business in China.

We hold various permits, business licenses, and approvals authorizing our operations and activities, which are subject to periodic review and reassessment by the Chinese authorities. Standards of compliance necessary to pass such reviews change from time to time and differ from jurisdiction to jurisdiction, leading to a degree of uncertainty. If renewals, or new permits, business licenses or approvals required in connection with existing or new facilities or activities, are not granted or are delayed, or if existing permits, business licenses or approvals are revoked or substantially modified, we may not be able to continue to operate our facilities which would have a material adverse effect on our operations. If new standards are applied to renewals or new applications, it could prove costly for us to meet these new standards.

 

The PRC economic cycle may negatively impact our operating results.

We believe that the rapid growth of the PRC economy before 2008 generally led to higher levels of inflation. We believe that the PRC economy has more recently experienced a decrease in its growth rate. We believe that a number of factors have contributed to this deceleration, including appreciation of the RMB, the currency of China, which has adversely affected China’s exports. In addition, we believe the deceleration has been exacerbated by the recent global crisis in the financial services and credit markets, which has resulted in significant volatility and dislocation in the global capital markets. It is uncertain how long the global crisis in the financial services and credit markets will continue and the significance of the adverse impact it may have on the global economy in general or the Chinese economy in particular. Slowing economic growth in China could result in weakening growth and demand for our products, which could reduce our revenues and income. In the event of a recovery in the PRC, renewed high growth levels may again lead to inflation. The government’s attempts to control inflation may adversely affect the business climate and growth of private enterprise. In addition, our profitability may be adversely affected if prices for our products rise at a rate that is insufficient to compensate for the rise in inflation.

 

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

The exchange rate of the RMB is currently managed by the Chinese government. On July 21, 2005, the People’s Bank of China, with the authorization of the State Council of the PRC, announced that the RMB exchange rate would no longer be pegged to the U.S. Dollar and would float based on market supply and demand with reference to a basket of currencies. According to public reports, the governor of the People’s Bank has stated that the basket is composed mainly of the U.S. Dollar, the European Union Euro, the Japanese Yen and the South Korean Won. Also considered, but playing smaller roles, are the currencies of Singapore, the United Kingdom, Malaysia, Russia, Australia, Canada and Thailand. The weight of each currency within the basket has not been announced.

 

The initial adjustment of the RMB exchange rate was an approximate 2% revaluation from an exchange rate of 8.28 RMB per U.S. Dollar to 8.11 RMB per U.S. Dollar. The People’s Bank announced that the daily trading price of the U.S. Dollar against the RMB in the inter-bank foreign exchange market would float within a band of 0.3% around the central parity published by the People’s Bank, while trading prices of non-U.S. Dollar currencies against the RMB would be allowed to move within a certain band announced by the People’s Bank. The People’s Bank has stated that it will make adjustments of the RMB exchange rate band when necessary according to market developments as well as the economic and financial situation. In a later announcement published on May 18, 2007, the band was extended to 0.5%. Since July 2008, the RMB has traded at 6.83 RMB per U.S. Dollar. Recent reports indicate an upward revaluation in the value of the RMB against the U.S. Dollar may be allowed. The People’s Bank announced on June 19, 2010 its intention to allow the RMB to move more freely against the basket of currencies, which increases the possibility of sharp fluctuations in the value of the RMB in the near future and thus the unpredictability associated with the RMB exchange rate.

 

Despite this change in its exchange rate regime, the Chinese government continues to manage the valuation of the RMB. The value of our common stock will be indirectly affected by the foreign exchange rate between the U.S. dollar and the RMB. Appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue that will be exchanged into U.S. dollars, as well as earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.

 

The income statements of our operations are translated into U.S. dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currencies denominated transactions results in reduced revenue, operating expenses and net income for our international operations. Similarly, to the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions results in increased revenue, operating expenses and net income for our international operations. We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into U.S. dollars will lead to a translation gain or loss, which is recorded as a component of other comprehensive income. In addition, we have certain assets and liabilities that are denominated in currencies other than the relevant entity’s functional currency. Changes in the functional currency value of these assets and liabilities create fluctuations that will lead to a transaction gain or loss.

 

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Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

 

Uncertainties with respect to the PRC legal system could adversely affect us and we may have limited legal recourse under PRC law if disputes arise under our contracts with third parties.

Since 1979, we believe PRC legislation and regulations have significantly enhanced protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, sometimes we may not be aware of our violation of these policies and rules until sometime after violation.

 

The Chinese government has enacted laws and regulations dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, their experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims or to resolve commercial disputes is unpredictable. The resolution of these matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces unrelated to the legal merits of a particular matter or dispute may influence their determination. Any rights we may have to specific performance, or to seek an injunction under PRC law, in either of these cases, are severely limited, and without a means of recourse by virtue of the Chinese legal system, we may be unable to prevent these situations from occurring. The occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations.

 

Under the PRC EIT Law, we may be classified as a “resident enterprise” of the PRC. Such classification could result in tax consequences to the Company or our non-PRC resident shareholders.

On March 16, 2007, the National People’s Congress approved and promulgated a new tax law, the PRC Enterprise Income Tax Law, or “EIT Law,” which took effect on January 1, 2008. Under the EIT Law, enterprises are classified as resident enterprises and non-resident enterprises. An enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define “de facto management bodies” as a managing body that in practice exercises “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise; however, it remains unclear whether the PRC tax authorities would deem our managing body as being located within China. Due to the short history of the EIT Law and lack of applicable legal precedents, the PRC tax authorities determine the PRC tax resident treatment of a foreign company on a case-by-case basis.

 

If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of PRC tax consequences could follow. First, we could be subject to the enterprise income tax at a rate of 25 percent on our worldwide taxable income, as well as PRC enterprise income tax reporting obligations. Second, under the EIT Law and its implementing rules, dividends paid between “qualified resident enterprises” are exempt from enterprise income tax. As a result, if we are treated as a PRC “qualified resident enterprise,” all dividends paid from our Chinese subsidiaries to us would be exempt from PRC tax.

 

Finally, the new “resident enterprise” classification could result in a situation in which a 10% PRC tax is imposed on dividends we pay to our non-PRC stockholders that are not PRC tax “resident enterprises” and gains derived by hem from transferring our common stock, if such income is considered PRC-sourced income by the relevant PRC authorities. In such event, we may be required to withhold a 10% PRC tax on any dividends paid to non-PRC resident stockholders. Our non-PRC resident stockholders also may be responsible for paying PRC tax at a rate of 10% on any gain realized from the sale or transfer of our common stock in certain circumstances. We would not, however, have an obligation to withhold PRC tax with respect to such gain.

 

Moreover, the State Administration of Taxation (SAT) released Circular Guoshuihan No. 698 (“Circular 698”) on December 15, 2009 that reinforces the taxation of non-listed equity transfers by non-resident enterprises through overseas holding vehicles. Circular 698 addresses indirect share transfers as well as other issues. Circular 698 is retroactively effective from January 1, 2008. According to Circular 698, where a foreigner (non-PRC resident) who indirectly holds shares in a PRC resident enterprise through a non-PRC offshore holding company indirectly transfers equity interests in a PRC resident enterprise by selling the shares of the offshore holding company, and the latter is located in a country or jurisdiction where the effective tax burden is less than 12.5 percent or where the offshore income of his, her, or its residents is not taxable, the foreign investor is required to provide the PRC tax authority in charge of that PRC resident enterprise with certain relevant information within 30 days of the transfer. The tax authorities in charge will evaluate the offshore transaction for tax purposes. In the event that the tax authorities determine that such transfer is abusing forms of business organization and a reasonable commercial purpose for the offshore holding company other than the avoidance of PRC income tax liability is lacking, the PRC tax authorities will be able to re-assess the nature of the equity transfer under the doctrine of substance over form. A reasonable commercial purpose may be established when the overall international (including U.S.) offshore structure is set up to comply with the requirements of supervising authorities of international (including U.S.) capital markets. If the SAT’s challenge of a transfer is successful, it may deny the existence of the offshore holding company that is used for tax planning purposes and subject the seller to PRC tax on the capital gain from such transfer. Since Circular 698 has a relatively short history, there is uncertainty as to its application. We (or a foreign investor) may become at risk of being taxed under Circular 698 and may be required to expend valuable resources to comply with Circular 698 or to establish that we (or such foreign investor) should not be taxed under Circular 698, which could have a material adverse effect on our financial condition and results of operations (or such foreign investor’s investment in us).

 

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If any such PRC taxes apply, a non-PRC resident stockholder may be entitled to a reduced rate of PRC taxes under an applicable income tax treaty and/or a foreign tax credit against such stockholder’s domestic income tax liability (subject to applicable conditions and limitations). Prospective investors are encouraged to consult with their own tax advisors regarding the applicability of any such taxes, the effects of any applicable income tax treaties, and any available foreign tax credits.

 

Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may materially adversely affect us.

In October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents inside China, generally referred to as Circular 75. The policy announced in this notice required PRC residents to register with the relevant SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Failure to comply with the requirements of Circular 75 and any of its internal implementing guidelines as applied by SAFE in accordance with Notice 106 may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the SPV’s affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the SPV, or from engaging in other transfers of funds into or out of China.

 

We requested our shareholders who are PRC residents to make the necessary applications, filings and amendments as required under Circular 75 and other related rules. We attempt to comply, and attempt to ensure that our shareholders who are subject to these rules comply, with the relevant requirements. However, we cannot provide any assurances that our shareholders who are PRC residents will comply with our request to make any applicable registrations, and nor can we provide any assurances that our shareholders who are PRC residents will be able to obtain such applicable registration or comply with other requirements required by Circular 75 or other related rules or that, if challenged by government agencies, the structure of our organization fully complies with all applicable registrations or approvals required by Circular 75. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies. Failure by such PRC resident shareholders or future PRC resident shareholders to comply with Circular 75 or other related rules, if SAFE requires it, could subject these PRC resident shareholders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends, or affect our ownership structure, which could adversely affect our business and prospects.

 

Adverse changes in political and economic policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and materially and adversely affect our competitive position.

Our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including:

 

  · the amount of government involvement;
  · the level of development;
  · the growth rate;
  · the control of foreign exchange; and
  · the allocation of resources.

 

While the Chinese economy has grown significantly in the past 20 years, we believe the growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. We believe some measures benefit the overall Chinese economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.

 

The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of the productive assets in China is still owned by the Chinese government. The Chinese government also exercises significant control over Chinese economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

 

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Contract drafting, interpretation and enforcement in China involve significant uncertainty.

We have entered into numerous contracts governed by PRC law, many of which are material to our business. As compared with contracts in the United States, contracts governed by PRC law tend to contain less detail and to not be as comprehensive in defining contracting parties’ rights and obligations. As a result, contracts in China are more vulnerable to disputes and legal challenges. In addition, contract interpretation and enforcement in China is not as developed as in the United States, and the result of any contract dispute is subject to significant uncertainties. Therefore, we cannot assure you that we will not be subject to disputes under our material contracts, and if such disputes arise, we cannot assure you that we will prevail.

 

The application of PRC regulations relating to the overseas listing of PRC domestic companies is uncertain, and we may be subject to penalties for failing to request approval of the PRC authorities prior to listing our shares in the U.S.

On August 8, 2006, six PRC government agencies (the Ministry of Commerce (“MOFCOM”), the State Administration for Industry and Commerce (“SAIC”), the China Securities Regulatory Commission (“CSRC”), SAFE, the State-Owned Assets Supervision and Administration Commission, (“SASAC”), and the State Administration for Taxation (“SAT”), jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “New M&A Rules”), which became effective on September 8, 2006. The New M&A Rules purport, among other things, to require offshore “special purpose vehicles” that are (1) formed for the purpose of overseas listing of the equity interests of PRC companies via acquisition and (2) are controlled directly or indirectly by PRC companies and/or PRC individuals, to obtain the approval of the CSRC prior to the listing and trading of their securities on overseas stock exchanges. On September 21, 2006, pursuant to the New M&A Rules and other PRC Laws, the CSRC published on its official website relevant guidance with respect to the listing and trading of PRC domestic enterprises’ securities on overseas stock exchanges (the “Related Clarifications”), including a list of application materials regarding the listing on overseas stock exchanges by special purpose vehicles. We were and are not required to obtain the approval of CSRC under the new M&A Rules in connection with this transaction because we were and are not a special purpose vehicle formed or controlled by PRC individuals.

 

However, there are substantial uncertainties regarding the interpretation, application and enforcement of these rules, and CSRC has yet to promulgate any written provisions or formally to declare or state whether the overseas listing of a PRC-related company structured similar to ours is subject to the approval of CSRC. Any violation of these rules could result in fines and other penalties on our operations in China, restrictions or limitations on remitting dividends outside of China, and other forms of sanctions that may cause a material and adverse effect to our business, operations and financial conditions.

 

The New M&A Rules also established additional procedures and requirements that are expected to make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise that owns well-known trademarks or China’s traditional brands. We may grow our business in part by acquiring other businesses. Complying with the requirements of the New M&A Rules in completing this type of transaction could be time-consuming, and any required approval processes, including CSRC approval, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

 

We may face regulatory uncertainties that could restrict our ability to issue equity compensation to our directors and employees and other parties who are PRC citizens or residents under PRC law. The grant of stock options under any incentive plan that we adopt in the future would require registration with SAFE.

On April 6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Ownership Plan or Stock Option Plan of An Overseas Listed Company,” also known as “Circular 78”. It is not clear whether Circular 78 covers all forms of equity compensation plans or only those that provide for the grant of stock options. For any equity compensation plan which is so covered and is adopted by a non-PRC listed company after April 6, 2007, Circular 78 requires all participants who are PRC citizens to register with, and obtain the approval of, SAFE prior to their participation in any such plan. In addition, Circular 78 also requires PRC citizens to register with SAFE and make the necessary applications and filings if they participate in an overseas listed company’s covered equity compensation plan prior to April 6, 2007. As of the date of this filing, we have not adopted any incentive plans, but may do so in the future. Any such plan may grant equity compensation, including, but not limited to, stock options, to our PRC employees and/or directors. The grant of any equity compensation under such a plan to a PRC citizen, however, may under Circular 78 require the PRC citizen to register with and obtain approval of SAFE. We believe that the registration and approval requirements contemplated in Circular 78 will be burdensome and time consuming. If it is determined that our such a plan, or any equity compensation grant under such a plan, is subject to Circular 78, failure to comply with such provisions of Circular 78 may subject us and any recipients thereof to fines and legal sanctions and prevent us from being able to grant equity compensation to our PRC employees and/or directors. In that case, our ability to compensate our employees and directors through equity compensation would be hindered and/or prevented.

 

Capital outflow policies in the PRC may hamper our ability to remit income to the United States.

The PRC has adopted currency and capital transfer regulations. These regulations may require that we comply with complex regulations for the movement of capital and as a result we may not be able to remit all income earned and proceeds received in connection with our operations or from the sale of our operating subsidiary to the U.S. or to our stockholders.

 

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Our operations and assets in the PRC are subject to significant political and economic uncertainties.

Government policies are subject to rapid change and the government of the PRC may adopt policies that have the effect of hindering private economic activity and greater economic decentralization. There is no assurance that the government of China will not significantly alter its policies from time to time without notice in a manner with reduces or eliminates any benefits from its present policies of economic reform. In addition, a substantial portion of productive assets in China remains government-owned. For instance, all lands are state or rural collective economic organizations owned and leased to business entities or individuals through governmental grants of the land use rights. The grant process is typically based on government policies at the time of the grant, which could be lengthy and complex. This process may adversely affect our business. The government of China also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency and providing preferential treatment to particular industries or companies. Uncertainties may arise as a result of changing governmental policies and measures. In addition, changes in laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency, the nationalization or other expropriation of private enterprises, as well as adverse changes in the political, economic or social conditions in China, could have a material adverse effect on our business, results of operations and financial condition.

 

Our use of the allocated land may be subject to challenges in the future.

All land use rights that we own are land use rights relating to allocated land. The local governmental authorities have granted such land use rights to us for free use or at a discounted levy rate given our contribution to the development of the local economy. However, pursuant to the Catalogue on Allocated Land issued by the Ministry of Land Resources of the PRC (the “Catalogue”), the land use rights for allocated land may only be granted to those specific projects which are in compliance with the Catalogue, subject to the approval of the competent governmental authorities. We, as a privately owned agricultural producer, may not be qualified to be granted such land use rights for allocated land according to the Catalogue. Consequently, our use of such land may be subject to challenge in the future, and the legal consequences could include the confiscation of such land by the governmental authorities or a demand that we pay a market price for purchasing the land use rights for such land and converting the allocated land use right to a granted land use right.

 

Because Chinese law governs almost all of our material agreements, we may not be able to enforce our legal rights within China or elsewhere, which could result in a significant loss of business, business opportunities, or capital.

Chinese law governs almost all of our material agreements. We cannot assure you that we will be able to enforce any of our material agreements or that remedies will be available outside of China. The system of laws and the enforcement of existing laws in China may not be as certain in implementation and interpretation as in the United States. Our inability to enforce or obtain a remedy under any of our current or future agreements could result in a significant loss of business, business opportunities or capital. It will be extremely difficult to acquire jurisdiction and enforce liabilities against our officers, directors and assets based in China.

 

Substantially all of our assets will be located in the PRC and all of our officers and our present directors reside outside of the United States. As a result, it may not be possible for United States investors to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under federal securities laws. Moreover, we have been advised that China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States. Further, it is unclear if extradition treaties now in effect between the United States and China would permit effective enforcement of criminal penalties of the federal securities laws.

 

We do not have insurance coverage.

We currently do not purchase property insurance for our properties, including raw materials, semi-manufactured goods, manufactured goods, buildings and machinery equipment, livestock, and we currently do not carry any product liability or other similar insurance, nor do we have business liability or business disruption insurance coverage for our operations in the PR. There is no insurance covering risks incurred through seasonal variation consequences. In this respect, we as an engineering based company have qualified personnel and staffs to manage and to limited the happenings of these relevant risk factors; however there is no guarantee that accidents will not happen, and if they happen, the consequences may have a material adverse effect on our business, financial condition and results of operations.

 

Because our cash and cash equivalent are held in banks that do not provide capital guarantee insurance, the failure of any bank in which we deposit our funds could affect our ability to continue in business.

Banks and other financial institutions in the PRC do not provide insurance for funds held on deposit. A significant portion of our assets are in the form of cash deposited with banks in the PRC, and in the event of bank failure, we may not have access to, or may lose entirely, our funds on deposit. Depending upon the amount of cash we maintain in a bank that fails, our inability to have access to such cash deposits could impair our operations, and, if we are not able to access funds to pay our suppliers, employees and other creditors, we may be unable to continue in business.

 

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Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.

We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with us, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time to time in the PRC. We cannot assure you that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

 

Labor laws in the PRC may adversely affect our results of operations.

On June 29, 2007, the PRC government promulgated a new labor law, namely, the Labor Contract Law of the PRC, or the New Labor Contract Law, which became effective on January 1, 2008. The New Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce. Further, it requires that certain terminations be based upon seniority and not merit. In the event we decide to significantly change or decrease our workforce, the New Labor Contract Law could adversely affect our ability to effect such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of operations.

 

Your ability to bring an action against us or against our directors and officers, or to enforce a judgment against us or them, will be limited because we conduct substantially all of our operations in the PRC and because the majority of our directors and officers reside outside of the United States.

We are a Nevada holding company and substantially all of our assets are located outside of the United States. Substantially all current operations are conducted in the PRC. In addition, all but one of our directors and officers are nationals and residents of countries other than the United States. Substantial portions of the assets of these persons are located outside the United States. Thus, it may be difficult to effect service of process within the United States upon these persons. It may also be difficult to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, none of whom are residents in the United States and the substantial majority of whose assets are located outside of the United States. It is also uncertain whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Our PRC Legal Counsel has advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. Courts in the PRC may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based on treaties between the PRC and the country where the judgment is made or on reciprocity between jurisdictions. The PRC does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security or the public interest. It is uncertain whether a PRC court would enforce a judgment rendered by a court in the United States.

 

Risks Related to Ownership of our Common Stock

 

Volatility in our common stock price may subject us to securities litigation.

Stock markets, in general, have experienced in recent months, and continue to experience, significant price and volume volatility, and the market price of our common stock may continue to be subject to similar market fluctuations unrelated to our operating performance or prospects. This increased volatility, coupled with depressed economic conditions, could continue to have a depressing effect on the market price of our common stock. The following factors, many of which are beyond our control, may influence our stock price:

 

  · the status of our growth strategy including the building of our new production line with any proceeds we may be able to raise in the future;

  · announcements of technological or competitive developments;

  · regulatory developments in the PRC affecting us, our customers or our competitors;

  · announcements regarding patent or other intellectual property litigation or the issuance of patents to us or our competitors or updates with respect to the enforceability of patents or other intellectual property rights generally in the PRC or internationally;

  · actual or anticipated fluctuations in our quarterly operating results;

  · changes in financial estimates by securities research analysts;

  · changes in the economic performance or market valuations of our competitors;

  · additions or departures of our executive officers;

  · release or expiration of lock-up or other transfer restrictions on our outstanding common stock; and

  · sales or perceived sales of additional shares of our common stock.

 

In addition, the securities markets have, from time to time, experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. Any of these factors could result in large and sudden changes in the volume and trading price of our common stock and could cause our stockholders to incur substantial losses. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted securities class action litigation against that company. If we were involved in a class action suit or other securities litigation, it would divert the attention of our senior management, require us to incur significant expense and, whether or not adversely determined, have a material adverse effect on our business, financial condition, results of operations and prospects.

 

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One of our directors and officers controls a majority of our common stock and his interests may not align with the interests of our other stockholders.

Solomon Lee, our chairman, chief executive officer and president, controls our company and beneficially owns in excess of 50.1% of our issued and outstanding common stock. This significant concentration of share ownership may adversely affect the trading price of our common stock because investors often perceive a disadvantage in owning shares in a company with one or several controlling stockholders. Furthermore, our directors and officers, as a group, have the ability to significantly influence or control the outcome of all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. This concentration of ownership may have the effect of delaying or preventing a change in control of our company that could deprive our stockholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our common stock. In addition, without the consent of Mr. Lee, we could be prevented from entering into transactions that could be beneficial to us. Mr. Lee may cause us to take actions that are opposed by other stockholders as his interests may differ from those of other stockholders.

 

Future issuances of capital stock may depress the trading price of our common stock.

Any issuance of shares of our common stock (or common stock equivalents) after the date hereof could dilute the interests of our existing stockholders and could substantially decrease the trading price of our common stock. We may issue additional shares of our common stock in the future for a number of reasons, including financing our operations and business strategy (including in connection with acquisitions, strategic collaborations or other transactions).

 

Sales of a substantial number of shares of our common stock in the public market could depress the market price of our common stock, and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our common stock or other equity-related securities would have on the market price of our common stock.

We believe that the price of our shares in the OTC QB markets is adversely affected by the current stigma associated with Chinese companies quoted or listed publicly in the United States.

 

Although we managed to maintain our liquidity to a certain degree, our share price has suffered. Many Chinese companies suffer from this stigma, which tends to affect both market prices and liquidity, and our company is no exception. Reasons with varying degrees of legitimacy explain this stigma, including but not limited to: (i) investors’ experience of losses suffered in the course of investing in other Chinese companies, (ii) the difficulty some Chinese companies have had in preparing auditable financial statements, and (iii) the difficulty in enforcing US judgments in foreign courts generally. All of these have contributed to a negative perception by some US investors regarding all Chinese companies publicly traded on US markets. Regardless of the reasons for this perception, if it continues over a sustained period of time our market prices may continue to trade below net tangible asset value per share. This would increase risk that our shareholders could lose the funds they invested in our company. It could also impact our ability to maintain our growth plan on schedule, which would adversely affect our business and financial condition.

 

The issuance of any of our equity securities pursuant any equity compensation plan we may adopt may dilute the value of existing stockholders and may affect the market price of our stock.

In the future, we may issue to our officers, directors, employees and/or other persons equity based compensation under any equity compensation plan we may adopt to provide motivation and compensation to our officers, employees and key independent consultants. The award of any such incentives could result in an immediate and potentially substantial dilution to our existing stockholders and could result in a decline in the value of our stock price. The exercise of these options and the sale of the underlying shares of common stock and the sale of stock issued pursuant to stock grants may have an adverse effect upon the price of our stock. In addition, if the holders of outstanding convertible securities convert such securities into common stock, you will suffer further dilution; at present, the only convertible securities issued and outstanding are the 7,000,000 shares of Series B Preferred Stock, which are convertible into common stock on a 9.9 for 1 basis.

  

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

We are a public company and subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and the Sarbanes-Oxley Act of 2002. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting. For example, Section 404 of the Sarbanes-Oxley Act requires that our management report on the effectiveness of our internal controls structure and procedures for financial reporting. Section 404 compliance may divert internal resources and will take a significant amount of time and effort to complete. If we fail to maintain compliance under Section 404, or if in the future management determines that our internal control over financial reporting are not effective as defined under Section 404, we could be subject to sanctions or investigations by the NASDAQ Stock Market should we in the future be listed on this market, the SEC, or other regulatory authorities. Furthermore, investor perceptions of our company may suffer, and this could cause a decline in the market price of our common stock. Any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal controls from our independent auditors. We may need to hire a number of additional employees with public accounting and disclosure experience in order to meet our ongoing obligations as a public company, particularly if we become fully subject to Section 404 and its auditor attestation requirements, which will increase costs. Our management team and other personnel will need to devote a substantial amount of time to new compliance initiatives and to meeting the obligations that are associated with being a public company, which may divert attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.

 

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Our shares of common stock may be thinly traded, so you may be unable to sell at or near ask prices or at all.

We cannot predict the extent to which an active public market for our common stock will develop or be sustained. Our common stock is currently traded on the OTC QB where the shares have historically been thinly traded, meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent.

 

This situation may be attributable to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community who generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we have become more seasoned and viable. As a consequence, there may be periods of several days, weeks or months when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot assure you that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained or not diminish.

 

We may become involved in securities class action litigation that could divert management’s attention and harm our business.

The stock market in general, and the shares of early stage companies in particular, have experienced extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating performance of the companies involved. If these fluctuations occur in the future, the market price of our shares could fall regardless of our operating performance. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. If the market price or volume of our shares suffers extreme fluctuations, then we may become involved in this type of litigation, which would be expensive and divert management’s attention and resources from managing our business.

 

As a public company, we may also from time to time make forward-looking statements about future operating results and provide some financial guidance to the public markets. Our management has limited experience as a management team in a public company and as a result projections may not be made timely or set at expected performance levels and could materially affect the price of our shares. Any failure to meet published forward-looking statements that adversely affect the stock price could result in losses to investors, stockholder lawsuits or other litigation, sanctions or restrictions issued by the SEC.

 

Securities analysts may elect not to report on our common stock or may issue negative reports that adversely affect the stock price.

At this time, to our knowledge no securities analysts provide research coverage of our common stock, and securities analysts may not elect not to provide such coverage in the future. It may remain difficult for our company, with its small market capitalization, to attract independent financial analysts that will cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect the stock’s actual and potential market price. The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about our business. If one or more analysts elect to cover our company and then downgrade the stock, the stock price would likely decline rapidly. If one or more of these analysts cease coverage of our company, we could lose visibility in the market, which, in turn, could cause our stock price to decline. This could have a negative effect on the market price of our common stock.

 

Risks Relating to the Note

 

The note is unsecured and contains no financial covenants.

The note is not secured by our assets and will rank equal in right of payment with our existing and future unsecured indebtedness. Other than pursuant to the grant of a right of first refusal to the noteholder, the note does not restrict our ability to incur additional debt, including secured debt. The note will be effectively subordinated to any of our existing or future secured indebtedness to the extent of the assets securing such indebtedness. As of September 30, 2014, we and our subsidiaries had $9,115,583 in outstanding indebtedness as well as $27,655,631 in other current liabilities and an additional $2,616,610 in non-current liabilities. In addition, the note offered under this prospectus does not contain any financial covenants, restrict our ability to repurchase our securities, pay dividends or contain covenants or other provisions to afford holders protection in the event of a transaction that substantially increases our level of indebtedness. We could engage in certain types of transactions, such as acquisitions, that could substantially affect our capital structure and the value of the note and our common stock but would not constitute a fundamental change permitting holders to require us to repurchase their note under the indenture. The incurrence of additional indebtedness and, in particular, the granting of a security interest to secure the indebtedness, could adversely affect our ability to pay our obligations on the note.

 

We depend upon dividends from our subsidiaries to meet our debt service obligations.

We are a holding company and conduct all of our operations through our subsidiaries. Our ability to meet our debt service obligations depends upon our receipt of dividends from our subsidiaries. Subject to the restrictions contained in the loan documents entered into with the Agricultural Development Bank of China and the Gan Guo Village Committee, future borrowings by us and our subsidiaries could contain restrictions or prohibitions on the payment of dividends by our subsidiaries to us. In addition, under applicable law, our subsidiaries could be limited in the amounts that they are permitted to pay us as dividends on their capital stock. Further, the note is effectively subordinated to the foregoing indebtedness.

 

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Conversion of the note may affect the trading price of our common stock.

The conversion of all or some portion of the note and any sales in the public market of our common stock issued upon such conversion could adversely affect the market price of our common stock. In addition, the existence of the note may encourage short selling by market participants because the conversion of the note could depress our common stock price. In addition, the conversion price of the note could exert a negative impact on the upward price movement of our common stock.

 

The conversion rate of the note may not be adjusted for all dilutive events that may occur.

The conversion rate of the note is subject to adjustment for certain events including, but not limited to, the issuance of cash or stock dividends on our common stock, the issuance of certain rights or warrants, subdivisions or combinations of our common stock and certain distributions of assets, debt securities, capital stock or cash to holders of our common stock. The conversion rate will not be adjusted for other events, such as stock issuances for cash, which may adversely affect the trading price of the note.

 

If you hold a note, you will not be entitled to any rights with respect to our common stock, but you will be subject to all changes made with respect to our common stock.

If you hold a note, you will not be entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock), but you will be subject to all changes affecting the common stock. You will only be entitled to rights on the common stock if and when we deliver shares of common stock (if any) to you upon conversion of your note. For example, in the event that an amendment is proposed to our articles of incorporation requiring stockholder approval and the record date for determining the stockholders of record entitled to vote on the amendment occurs prior to delivery of the common stock, you may not be entitled to vote on the amendment, although you may nevertheless be subject to any changes in the powers, preferences or special rights of our common stock.

 

If an event of default occurs, the noteholder’s remedies are limited and the noteholder may not receive full payment of principal.

If an event of default occurs, the noteholder could accelerate the note and declare the principal and accrued but unpaid interest thereof payable immediately. However, we may not be able to satisfy any such demand. Consequently, the noteholder could lose all or a substantial amount of its investment if the note is accelerated.

 

Bankruptcy, conservatorship, receivership or insolvency of our company would result in delayed or reduced payments to the noteholder.

Bankruptcy, conservatorship, receivership or insolvency of our company would result in delayed or reduced payments to the noteholder; any such event would constitute an event of default under the note. If we were placed in bankruptcy, conservatorship, receivership or insolvency it would be highly unlikely that we could manage our business or perform our obligations under the note. Certain potential events of default are not within our control. As stated above, if an event of default occurs, the noteholder could accelerate the note and declare the principal and accrued but unpaid interest thereof payable immediately; however, if an event of default is declared and the note is accelerated under the circumstances described in this paragraph, it is likely that the noteholders would suffer a loss of all or a part of its investment in the note.

 

We cannot assure you that an active trading market will develop or be sustained for the note.

The note has not been registered under the Securities Act or any state securities laws. As a result, it may only be offered or sold if:

 

an applicable exemption from the registration requirements of the Securities Act and applicable state laws applies to the circumstances of the sale, or

 

a registration statement covering the resale of these securities is filed and declared effective.

 

There is only one note the resale of which we are attempting to register through the filing of the registration statement of which this prospectus forms a part. There can be no assurance that the registration statement will ever be declared effective or that the note will ever be reissued in multiple denominations, permitting for the possibility of a trading market to develop. We do not presently intend to apply for listing of the note on any national securities exchange or for quotation through any other market. As a result, it is highly unlikely that an active or sustained trading market will develop for the note(s) in the foreseeable future or, if a market develops, that holders will be able to resell the note at a price they deem satisfactory. Future trading prices, if any, for the note will depend on many factors, including, among other things, prevailing interest rates, the market for similar securities, economic conditions, the price of our common stock and our financial condition, performance and prospects.

  

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

 

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. These statements are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. We discuss many of the risks in greater detail under the heading “Risk Factors.” Also, these forward-looking statements represent our estimates and assumptions only as of the date of this prospectus. Except as required by law, we assume no obligation to update any forward-looking statements after the date of this prospectus.

 

This prospectus also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified the statistical and other industry data generated by independent parties and contained in this prospectus and, accordingly, we cannot guarantee their accuracy or completeness, though we do generally believe the data to be reliable. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

USE OF PROCEEDS

 

We will not receive any proceeds from the sale of the note or the underlying shares of common stock offered by the selling securityholder under this prospectus.

 

We have agreed to bear the expenses (other than any underwriting discounts or commissions or agent’s commissions) in connection with the registration of the note and the underlying common stock being offered hereby by the securityholder.

 

MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

 

On July 24, 2007, our Common Stock began to be quoted on the Pink OTC Markets under the symbol “SIAF.PK.” Commencing January 5, 2012, our common stock has been quoted on the OTC QB under the symbol of “SIAF.” The following table lists the high and low bid price for our Common Stock as quoted by the Pink OTC Markets, then the OTC QB during each quarter within the last two completed fiscal years. These quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not represent actual transactions. The figures below reflect the Reverse Split.

 

Year 2013  High   Low 
First Quarter  $6.63   $3.76 
Second Quarter  $5.44   $3.56 
Third Quarter  $5.84   $3.47 
Fourth Quarter  $5.54   $4.06 

 

Year 2014  High   Low 
First Quarter  $5.54   $4.55 
Second Quarter  $5.10   $3.74 
Third Quarter  $8.90   $3.86 
Fourth Quarter  $10.59   $6.87 

 

Year 2015  High   Low 
First Quarter to date  $9.50   $7.70 

  

The closing price of our common stock on the OTC QB on February 20, 2015 was $8.50 per share.

 

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Holders

As of February 18, 2015, an aggregate of 17,162,716 shares of our common stock were issued and outstanding and were owned by approximately 3,484 stockholders of record.

 

Dividends

On October 2, 2011, we declared cash dividends of US $0.01 per share of our common stock with a record date of October 31, 2010, and payment date of November 15, 2011. Subsequently, the dividend was fully paid to shareholders of record on November 15, 2011. On December 6, 2012, we declared cash dividends of US $0.01 per share of our common stock with a record date of December 26, 2012, and payment date of January 15, 2013. Subsequently, the dividend was fully paid to shareholders of record on January 15, 2013.

 

Equity Compensation Plan Information

The following table sets forth certain information as of December 31, 2014, with respect to compensation plans under which the Company’s equity securities are authorized for issuance:

 

   (a)   (b)    (c) 
   Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
   

The weighted-average exercise

price of outstanding options,

warrants and rights

    

Number of securities remaining

available for future issuance under

equity compensation plans (excluding

securities reflected in column (a))

 
              
Equity compensation Plans approved by Security holders  None   -    - 
              
Equity compensation Plans not approved By security holders  None   -    - 
Total             

 

- 20 -
 

 

 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This prospectus contains “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Forward-looking statements can be identified by the use of forward-looking terminology, such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause the Company’s actual results, performance or achievements in 2014 and beyond to differ materially from those expressed in, or implied by, such statements. Such statements, include, but are not limited to, statements contained in this prospectus relating to the Company’s business, financial performance, business strategy, recently announced transactions and capital outlook. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: a continued decline in general economic conditions nationally and internationally; decreased demand for our products and services; market acceptance of our products; the impact of any litigation or infringement actions brought against us; competition from other providers and products; the inability to raise capital to fund continuing operations; changes in government regulation; the ability to complete customer transactions, and other factors relating to our industry, our operations and results of operations and any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned. Readers of this prospectus should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, the Company undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

 

You should read the following discussion and analysis of the financial condition and results of operations of the Company together with the financial statements and the related notes presented herein.

 

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

 

 

The Company’s strategy is to manage and operate its businesses under six (6) business divisions or units on a standalone basis, namely:

 

1) Fishery Division;

2) Plantation Division;

3) Beef Division;

4) Cattle Farm Division;

5) Organic Fertilizer Division; and

6) Corporate & Others Division

 

A summary of each business division is described below:

 

l   Fishery Division refers to the operations of Capital Award Inc. (sometimes referred to as “CA”) covering its engineering, technology and consulting service management of fishery farms and seafood sales operations and marketing, where;

 

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

 

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

 

(B). Seafood Sales

 

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

 

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

 

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

 

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CA and EBAPCD: (a) CA purchases prawn fingerling and feed stocks from third party suppliers and resells them to EBAPCD at variable small profit margins and (b) CA purchases matured prawns from EBAPCD and sells them to third parties (wholesale markets)

 

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

 

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

 

l   Cattle Farm Division refers to the operations of Cattle farm (1) under Jiangmen City Hang Mei Cattle Farm Development Co. Ltd (“JHMC”) where Cattle are sold live to third party live-stock wholesalers who are selling them mainly in Guangzhou and Beijing live-stock wholesale markets. The financial statements of JHMC are consolidated into MEIJI as one entity along with MEIJI’s operation in the consulting and service for development of other cattle farms (i.e. Cattle Farm 2) or related projects.

 

l   Organic Fertilizer Division refers to (i) the operation of SJAP in manufacturing and sales of organic fertilizer, bulk livestock feed, concentrated livestock feed, and the sales of live cattle inclusive (a): Cattle that are not being slaughtered in our own slaughterhouse operated by Qinghai Zhong He Meat Products Co., Limited (“QZH”) are sold live to third party live-stock wholesalers and (b): Cattle that are sold to QZH and being slaughtered and de-boned and packed by QZH; and the sales of meats de-boned and packed by QZH that are sold to various meat distributors, wholesalers and super market chains and our own retail butcher stores. (ii) The operation of Hunan Shenghua A Power Agriculture Co. Ltd. (“HSA”) in manufacturing and sales of organic fertilizer. Also QZH is a fully owned subsidiary of SJAP as such financial statements of these three companies (SJAP, QZH and HSA) are being consolidated into APWAM as one entity.

 

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

 

MD & A OF CONSOLIDATED RESULTS OF OPERATIONS

Part A. Unaudited Income Statements of Consolidated Results of Operations for three months ended September 30, 2014 compared to the three months ended September 30, 2013.

 

A (1) Income Statements (Unaudited)

 

  Three months
ended
   Three months
ended
    
In $  September 30,
2014
   September 30,
2013
   Difference   Note
Revenue   107,220,059    70,707,697    36,512,362   1
Consulting, services, commission and management fee   25,048,644    9,040,422    16,008,222   1.1
Sale of goods   82,171,415    61,667,275    20,504,140   1.2
Cost of goods sold and services   72,723,395    44,584,572    28,138,823   2
Consulting, services, commission and management fee   13,601,869    3,269,035    10,332,834   2.1
Sale of goods   59,121,526    41,315,537    17,805,989   2.2
Gross Profit   34,496,664    26,123,125    8,373,539   3
Consulting, services, commission and management fee   11,446,775    5,771,387    5,675,388   3.1
Sale of goods   23,049,889    20,351,738    2,698,151   3.2
Other income (expenses)   (17,599)   259,366    (276,965)   
General and administrative expenses   (3,681,580)   (2,026,989)   (1,654,591)  4
Net income   30,884,556    24,355,502    6,529,054    
EBITDA   32,347,402    25,491,778    6,855,624    
Depreciation and amortization (D&A)   (1,199,182)   (849,900)   (349,282)  5
EBIT   31,148,220    24,641,878    6,506,342    
Net Interest   (263,664)   (286,376)   22,712    
Tax   -    -    -    
Net Income   30,884,556    24,355,502    6,529,054    
Non - controlling interest   (6,382,694)   (5,602,728)   (779,966)  7
Net income to SIAF and subsidiaries   24,501,862    18,752,774    5,749,088    
Weighted average number of shares outstanding                  
- Basic   16,469,314    12,329,056    4,140,257    
- Diluted   17,176,384    13,036,126    4,140,257    
Earnings Per Share (EPS)                 8
- Basic   1.49    1.52    -0.03    
- Diluted   1.43    1.44    -0.01    

 

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

 

Notes to Table A.1’s 1, 2 & 3:

 

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

 

    The Company’s revenues were generated from (A) Sale of Goods and (B) Consulting and Services provided in project and business developments covering engineering, construction, supervision, training, management and technology.

 

Table (A.2). Below shows segmental break-down figures of Sales, Cost of Goods Sold, and Gross Profits for the three months ended September 30, 2014 (Q3 2014) and the three months ended September 30, 2013 (Q3 2013).

 

Sales of goods     Cost of Goods sold     Sales of Goods' Gross profit  
    In US$   2014Q3     2013Q3     2014Q3     2013Q3     2014Q3     2013Q3  
                                         
SJAP   Sales of  live  cattle     17,599,116       8,164,934       12,572,988       6,112,264       5,026,129       2,052,670  
    Sales of   feedstock                                                
    Bulk Livestock feed     1,101,471       2,835,561       528,982       1,235,016       572,488       1,600,545  
    Concentrate livestock feed     3,095,750       3,490,520       1,957,093       2,195,694       1,138,656       1,294,826  
    Sales of   fertilizer     440,588       2,839,360       211,593       1,354,353       228,995       1,485,007  
    SJAP Total     22,236,925       17,330,375       15,270,656       10,897,327       6,966,269       6,433,048  
    * QZH’s (Slaughter & Deboning operation)     341,336             192,938             148,398         
    ** QZH's (Deboning operation)                                                
    on cattle & Lamb locally supplied     3,595,291       -       2,376,128       -       1,219,163       -  
    on imported beef and mutton     1,732,423       -       950,900       -       781,523       -  
    QZH  Total     5,669,050       -       3,519,966       -       2,149,084       -  
HSA   Sales of  Organic fertilizer     1,095,621       2,187,164       813,487       1,410,019       282,134       777,145  
    Sales of Organic Mixed Fertilizer     4,698,541       917,414       3,885,054       527,841       813,487       389,573  
    HSA Total     5,794,162       3,104,578       4,698,541       1,937,860       1,095,621       1,166,718  
    SJAP's & HSA/Organic
fertilizer total
    33,700,137       20,434,953       23,489,163       12,835,187       10,210,974       7,599,766  
JHST   Sales of Fresh HU Flowers     460,176       1,096,411       149,494.47       387,663       310,682       708,748  
    Sales of Dried HU Flowers     4,237,312       9,278,549       1,183,295       4,385,131       3,054,017       4,893,418  
    Sales of Dried Immortal vegetables     1,116,179       -       371,951       -       744,227       -  
    Sales of Other Value added products     -       160,000       -       60,000       -       100,000  
    JHST/Plantation Total     5,813,667       10,534,960       1,704,741       4,832,794       4,108,926       5,702,166  
CA   Sales of                                                
    Fish (Sleepy cods)     1,533,699       10,014,364       1,200,856       8,467,372       332,843       1,546,992  
    Eels     14,406,907       8,406,475       9,035,340       4,581,674       5,371,568       3,824,801  
    Prawns     6,790,885       1,177,443       5,699,673       1,159,135       1,091,213       18,308  
    CA/ Fishery total     22,731,491       19,598,282       15,935,868       14,208,181       6,795,623       5,390,101  
MEIJI                                                    
    Sale of  Live cattle (Aromatic)     6,814,990       4,639,397       6,443,072       3,974,942       371,918       664,455  
    MEIJI / Cattle farm Total     6,814,990       4,639,397       6,443,072       3,974,942       371,918       664,455  
SIAF                                                    
    Sales of goods through trading/import/export activities                                                
    on seafood     11,757,113       6,459,683       10,632,839       5,464,433       1,124,274       995,250  
    on imported beef and mutton     1,354,017       -       915,843       -       438,174       -  
    SIAF/ Others & Corporate  total     13,111,130       6,459,683       11,548,682       5,464,433       1,562,448       995,250  
                                                     
Group Total     82,171,415       61,667,275       59,121,526       41,315,537       23,049,889       20,351,738  

 

Table (A.3) below shows the percentage of gross profit the three months ended September 30, 2014 and the three months ended September 30, 2013. 

 

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Revenues (sale of goods))

 

Group’s revenues generated from sale of goods increased by $20,504,140 or 33% from $61,667,275 for Q3 2013 to $82,171,415 for Q3 2014. The increase was primarily due to increase of revenues from fishery, organic fertilizer, cattle farms and corporate sectors collectively.

 

Fishery: Revenue from fishery increased by $3,133,209 or 16% from $19,598,282 for Q3 2013 to $22,731,491 for Q3 2014. The increase in fishery was primarily due to our increase in productivities and in term increasing the sale of eels and prawns.

 

Plantation: Revenue from our plantation decreased by $4,721,293 or 45% from $10,534,960 for Q32013 to $5,813,667 for Q3 2014. The decrease was primarily due to this year’s wet season affecting the yields of the regional growers who we collected flowers from in past that we did not buy any fresh flowers from them for drying this quarter thus in term lowering our overall sales of dried flowers.

 

Organic fertilizer: Revenue from organic fertilizer increased by $13,265,184 or 65% from $20,434,953 for Q3 2013 to $33,700,137 for Q3 2014.The increase was primarily due to the increase of SJAP’s sales of live cattle, HSA’s increase of sales of fertilize and QZH’s increase of sale from slaughter and deboning operation. More details and information are presented in a subsequent section.

 

Cattle farm: Revenue from cattle farm increased by $2,175,593 or 47% from $4,639,397 for Q3 2013 to $6,814,990 for Q3 2014. The increase was primarily due to the combination of increase of cattle being grown in the farm and increase of number of cattle being fattened by sub-contracted growers. More details and information are presented in a subsequent section.

 

Corporate: Revenue from the corporate increased by $6,651,447 or 103% from $6,459,683 to $13,111,130 for Q3 2014. The increase was primarily due to more imported seafood being marketed. More details and information are presented in a subsequent section.

 

Cost of Goods Sold

 

Cost of goods sold increased by $17,805,989 or 43% from $41,315,537 for Q3 2013 to $59,121,526 for Q3 2014. The increase was primarily due to increase of cost of goods sold from fishery, organic fertilizer, cattle farms and corporate sectors collectively.

 

Fishery: Cost of goods sold from fishery increased by $1,727,687 or 12% from $14,208,181 for Q3 2013 to $15,935,868 for Q3 2014.The increase in cost of goods from fishery was primarily due to the increase in productivities and in term cost of production of eels and prawns.

 

Plantation: Cost of goods sold from plantation decreased by $3,128,053 or 65% from $4,832,794 for Q3 2013 to $1,704,741 for Q3 2014. The decrease was primarily due to the fact that there were no dried flowers processed from fresh flowers brought from and supplied by other regional growers due to short supply caused by the wet-season. More details and information are presented in a subsequent section.

 

Organic fertilizer: Cost of goods sold from organic fertilizer increased by $10,653,976 or 83% from $12,835,187 for Q3 2013 to $23,489,163 for Q3 2014. The corresponding increase was primarily due to the increase of cost of production in SJAP’s increase of productivities of live cattle, HSA’s increased productivities of fertilizer and QZH’s increase of cost of sales from slaughter and deboning operations.

 

Cattle farm: Cost of goods sold from cattle farm increased by $2,468,130 or 62% from $3,974,942 for Q3 2013 to $6,443,072 for Q3 2014. The increase was primarily due to the increase of sales of fattened cattle from sub-contracted growers (i.e. trading of cattle). More details and information are presented in a subsequent section.

 

Corporate: Cost of goods sold from corporate increased by $6,084,249 or 111% from $5,464,433 for Q3 2013 to $11,548,682 for Q3 2014. The increase was primarily due the corresponding increase of sales.

 

Note (3): Gross Profit (sale of goods)

 

Gross profit generated from goods sold increased by $2,698,151 or 13% from $20,351,738 for Q3 2013 to $23,049,889 for Q3 2014. The increase was primarily due to increase of gross profit from organic fertilizer by $2,611,208. Gross profit from organic fertilizer of $10,210,974 (Q3 2013: $7,599,766 attributed to 44% (Q3 2013: 37%) of total gross profit of $23,049,888 (Q3 2013: $20,351,738.).

 

Fishery: Gross profit from fishery increased by $1,405,522 or 26% from $5,390,101 for Q3 2013 to $6,795,623 for Q3 2014. Gross profit derived from sale of eels and prawns were $5,371,568 and $1,091,213 respectively in Q3 2014 compared to $3,824,801 and $18,308 respectively in Q3 2013.

 

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Plantation: Gross profit from our plantation decreased by $1,593,240 from $5,702,166 for the three months ended Sept. 30,2013 to $4,108,926 for the three months ended September 30, 2014. The decrease was primarily due to this year’s wet season affecting the yields of the regional growers who we collected flowers from in past that we didn’t buy any fresh flowers from them for drying this quarter thus in term lowering our overall sales of dried flowers.

  

Organic fertilizer: Gross profit from organic fertilizer increased by $2,611,208 or 34% from $7,599,766 for Q3 2013 to $10,210,974 for Q3 2014. The increase was primarily due to the increase of SJAP’s sales of live cattle, HSA’s increase of sales of fertilizer QZH’s increase of gross profit from slaughter and deboning operations.

 

Cattle farm: Gross profit from cattle decreased by $292,537 from $664,455 for Q3 2013 to $371,918 for Q3 2014. The decrease was primarily due to the increase of trading of cattle from contracted growers at Changchun Village committee were at lower margin compared to the cattle grown by own farms.

 

Corporate: Gross profit from the corporate increased by $567,198 or 57% from $995,250 for Q3 2013 to $1,562,448 for Q3 2014. The increase was primarily due to the more category of seafood being marketed in Q3 2014 and the overall cost saving on air-flights charges, packaging materials and lower mortality of live seafood upon arrival of sales destinations. More details and information are presented in a subsequent section. 

 

Table A.4.: (below) shows the itemized sales of goods and related cost of sales in quantity and unit price for the three months ended September 30, 2014 (Q3 2014) and the three months ended September 30, 2013 (Q3 2013).

 

    Description of items       2014Q3     2013Q3            
    Cattle Operation                   Difference      
    Production and Sales of live cattle   Head     4,777       2,600       2,177     A.4.1
    Average Unit sales price   $/head     3,684       3,140       544      
    Unit cost price   $/head     2,632       2,351       281      
    Production and sales of feedstock                         -      
    Bulk Livestock feed   MT     6,048       18,162       -12,114     A.4.2
    Average Unit sales price   $/MT     182       156       26      
    Unit cost price   $/MT     87       68       19      
    Concentrated livestock feed   MT     7,625       8,429       -804     A.4.3
    Average Unit sales price   $/MT     406       414       -8      
    Unit cost price   $/MT     257       260       -4      
    Production and sales of fertilizer   MT     2,348       16,366       -14,018     A.4.4
    Average unit sales price   $/MT     188       173       14      
    Unit cost price   $/MT     90       83       7      
* QZH (Slaughter & De-boning operation)                                
    Slaughter operation                                
    Slaughter of cattle   Head     845                     A.4.5
    Service fee   $/Head     8                      
    Sales of associated products   Pieces     999                      
    Average Unit sales price   $/Piece     335                      
    Unit cost price   $/Piece     193                      
    De-boning & Packaging activities                               A. 4.6.
    From Cattle supplied locally                                
    De-boned Meats   MT     286                      
    Average Unit sales price   $/MT     12,591                      
    Unit cost price   $/MT     8,321                      
    From imported beef   MT     84                      
    Average Unit sales price   $/MT     8,722                      
    Unit cost price   $/MT     4,610                      
    From imported lamb   MT     121                      
    Average of sales price   $/MT     8,263                      
    Average of cost price   $/MT     4,659                      
HSA   Fertilizer and Cattle operation                         -     A. 4.7.
    Organic Fertilizer   MT     4,080       6,378       -2,298      
    Average Unit sales price   $/MT     264       343       -79      
    Unit cost price   $/MT     198       221       -23      
    Organic Mixed Fertilizer   MT     10,383       2,200       8,183     A. 4.8.
    Average Unit sales price   $/MT     453       417       36      
    Unit cost price   $/MT     374       240       134      
    Retailing packed fertilizer (for super market sales)   MT     20       -       20     A. 4.8.a
    Average Unit sales price   $/MT     927       -       927      
    Unit cost price   $/MT     343       -       343      

 

    Description of items       2014Q3     2013Q3            
JHST   Plantation of HU Flowers and Immortal vegetables                                
    Fresh HU Flowers   Pieces     3,045,250       7,309,407       -4,264,157     A.4.9
    Average Unit sales price   $/Pieces     0.15       0.15       0.00      
    Unit cost price   $/Pieces     0.05       0.05       -      
    Dried HU Flowers   MT     307       757       -450     A.4.10
    Average Unit sales price   $/MT     13,802       12,257       1,545      
    Unit cost price   $/MT     3,854       5,793       -1,938      
    Dried Immortal vegetables   MT     15               15     A.4.11
    Average Unit sales price   $/MT     74,412               74,412      
    Unit cost price   $/MT     24,797               24,797      
    Other Value added products   Pieces     -       20,000.00       -20,000     A.4.12
    Average Unit sales price   $/Pieces     -       8       -8      
    Unit cost prices   $/Pieces     -       3       -3      
CA   Production and sale (inclusive of contracted farms) of live                                
    Fish (Sleepy cods)   MT     98       629       -531     A.4.13
    Average Unit sales price   $/MT     15,650       15,921       -271      
    Unit cost prices   $/MT     12,254       13,462       -1,208      
    Eels   MT     577       446       131     A.4.14
    Average Unit sales price   $/MT     24,958       18,850       6,108      
    Unit cost price   $/MT     15,652       10,274       5,379      
    Prawns   MT     483       112       371     A.4.15
    Average Unit sales price   $/MT     14,060       10,513       3,547      
    Unit cost price   $/MT     11,801       10,349       1,451      
MEIJI   Production and sale of Live cattle (Aromatic)   Head     2,846       1,500       1,346     A.4.16
    Average Unit sales price   $/head     2,395       3,093       -698      
    Unit cost prices   $/head     2,264       2,650       -386      
SIAF   Seafood trading from imports                                
    Mixed seafood   MT     728       450       278     A.4.17
    Average of sales price   $/MT     16,150       14,355       1,795      
    Average of cost prices   $/MT     14,606       12,143       2,462      
    Beef & Lambs trading from imports   MT     206       -              
    Average of sales price   $/MT     6,573       -              
    Average of cost price   $/MT     4,446                      

 

Notes to Table A.4.

 

A.4.1: There were 4,777 head of live cattle at an average weight of 727 Kg / head sold in Q3 2014 compared to 2,600 head at an average weight of 650 Kg / head sold in Q3 2013 representing an increase of 2,177 head as SJAP increases its number of cooperative farms from 2013’s 10 to its present number of 22. Unit sales prices of live cattle as an average has increased marginally from RMB29.5 / Kg (or $4.80 / Kg) in Q3 2013 to RMB31 / Kg (or $5.04 / Kg) in Q3 2014.

 

A.4.2: The decrease in sales of the Bulk livestock feed by 12,114 MT between Q3 2013’s 18,162 MT and Q3 2014’s 6,048 MT was due primarily to the decrease of external sales of Bulk livestock feed to non-cooperative regional farmers due mainly the good season of the Quarter, most of the non-cooperative farmers have plenty of feed.

 

A.4.3: The decrease in sales of the concentrated livestock feed by 804 MT between Q3 2013’s 8,429 MT and Q3 2014’s 7,625 MT was due primarily to the decrease of external sales to non-cooperative farmers for the similar reason explained above.

 

A.4.4: The decrease of sales in SJAP’s fertilizer was by 14,108 MT between Q3 2014’s 2,348 MT and Q3 2013’s 16,366 MT due mainly to the fact that SJAP is no longer needed to supply HSA with fertilizer because HSA has established and been operating its second fertilizer process plant in the Quarter.

 

- 25 -
 

 

A.4.5: Qinghai Zhong He Meat Products Co., Limited (QZH) is the fully owned subsidiary of SJAP formed early in the year to operate the Slaughterhouse and De-boning operational division of SJAP. During the quarter, it has slaughtered 845 head of cattle supplied by SJAP’s farm and external non-cooperative farmers collectively, part of which were de-boned, packed and sold (285 MT) of meat at an average price of RMB 77 / Kg (or $12.52 / Kg) with average cost at RMB51 / Kg (or $8.3 / Kg). Relatively, this shows that our locally produced beef are selling and costing at higher prices than the imported beef (see below A.4.6).However, the fact is that the local China domestic markets are willing to pay higher prices for local produced beef. Tesco sales are the evidence of that, as we are selling more SJAP produced beef than imported beef.

   

A.4.6: Also during the quarter, there were 84 MT of quarter- cut beef imported from Australia that were deboned, packed and sold at an average of RMB54 / Kg (or $8.8 / Kg) with cost at an average of RMB28.65 / Kg (or $4.66 / Kg) excluding import duties, tax and affiliated cost that was averaging 30% of cost, making total cost at RMB 37.25 / Kg (or $6.06 / Kg). At the same time, there were 121 MT of imported Mutton being packed, deboned and sold during the Quarter at an average of RMB50 / Kg (or $ 8.13 / Kg) at CIF cost of RMB28.65 / Kg (or $4.66 / Kg) plus import duties, taxes and associated charges at RMB 8.6 / Kg (or $1.4 / Kg) yielding gross profit margin at 25.5 %, on average. Nevertheless, prices of the imported beef and lamb are more accepted by the catering traders and the wholesalers compared to the domestic retail market’s preference for SJAP’s local produced beef.

  

A.4.7/8: HSA increased its total sales of fertilizer by 5,885 MT to 14,463 in Q3 2014 compared to the 8,578 MT in Q3 2013.That is a growth of 68.6% having completed and operating its second production and fermentation plants and facilities during the quarter. Sales prices of the Mixed Organic Fertilizer increased marginally by 8.6% whereas related cost of production increased by over 55.8% mainly due to the raw material used to manufacture this fertilizer having been changed mainly to chicken manure that costs much higher than sheep manure, but more effective when the fertilizer is applied in the lakes increasing the growth of microorganisms at each depth level of the water thus providing better growth rates for the fish growing in the lakes.

 

A.4.9, 10, 11, 12: This season, the Guangdong district experienced a very wet season from April to August with constant rain falling practically every day that affected and delayed the growing of HU Flowers and immortal vegetables. As a result, most of the regional growers could not supply fresh flowers to us during the quarter, and, as such, most of the quarterly sales were from our own farm resulting from our earlier year’s preparation and work to improve the plantation, JHST harvested just under 20 million pieces of flowers and sold over 307 MT of dried HU flowers at an average price of $13,802 / MT. No further harvest is expected during the 4 th quarter like in the previous year after having been affected by the wet-season.

 

JHST dried and sold over 15 MT of Immortal Vegetables during the Quarter harvested from 70 Mu of plantation at prices same as in last quarter. JHST intends to further develop more land to grow more Immortal Vegetable with the coming Quarter to build up total cultivated area to 100 Mu from its existing 70 Mu.

 

A.4.13, 14, 15: This Quarter we sold many larger eels at an average of over 2.8 Kg / eel to Q2 2014’s average of 1.3 Kg / eel enhancing better sales price averaging at RMB150 / Kg to Q2 2014’s RMB116 / Kg for smaller eels. (In this respect sales of eels were generated collectively from our own FF(1), unincorporated PF(2) & FF(2) and few other sub-contracted growers).

 

Whereas, total prawn sales were generated from our FF(1), and unincorporated PF(1), PF(2) and other sub-contracted growers collectively. Effective Gross Profit margin in our own farms and unincorporated farms for eel production is at an average of 60% and for prawns production the margin is being kept at above 75% but varies from other sub-contracted growers. (See more details in later sections)

 

A.4.16: MEIJI’s sales revenue consists of the combination of trading of cattle from sub-contracted growers and the consolidated revenue from CF1. Since the gross profit margin on trading is low, the overall GP% of MEIJI is reduced, and in this respect, CF1and CF2 are achieving an average above 15% on its cattle rearing operation, which is lower than Q2 2014’s 20% due to the growth rate and the number of Southern Yellow cattle grown this Quarter were lower than the Simmental cattle grown in earlier Quarters.

 

A.4.17: The Corporate sector’s imported Sales increased from more varieties of seafood being imported from Madagascar in coordination with more markets being developed during the quarter. At the same time, sales are being developed for imported beef and lamb from Australia creating additional revenues. Both items are maintaining Gross Profit margins at an average of 11%.

 

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

 

Table (A.5) below shows the revenue, cost of services and gross profit generated from Consulting, services, commission and management fee for three months ended September 30,2014 (Q2 2014) and the three months ended September 30, 2013(Q2 2013).

 

   2014 Q3   2013 Q3   Difference   Description of work
Sales Revenues (Consulting and Services)               
                   
CA   24,598,641    6,939,405    17,659,236   Primarily on the Zhongshan new
 prawn project
SIAF   -    1,934,460    -1,934,460   Restaurant (4,5 & 6) and
renovation of Restaurant (1 & 2)
Group Total Revenues   24,598,641    8,873,865    15,724,776    
Cost of sales             -    
CA   13,601,869    2,703,461    10,898,408    
SIAF        565,574    -565,574    
Group Total Cost of sales   13,601,869    3,269,035    10,332,834    
Gross Profit             -    
CA   10,996,772    4,235,944    6,760,828    
SIAF   -    1,368,886    -1,368,886    
Group Total Gross Profit   10,996,772    5,604,830    5,391,942    

 

- 26 -
 

 

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

 

Revenues increased by $15,724,776 or 177% from $8,873,865 for Q3 2013 to $24,598,641 for Q3 2014. The increase was primarily due to an increase in revenue from the construction and development work done on the New Zhongshan Prawn project of $24,598,641, which contributed 100% of the total increase of revenue of $24,598,641.

 

CA (Fishery): Revenue from fishery increased by $15,724,776 or 177% from $8,873,865 for Q 32013 to $24,598,641 for Q3 2014.

 

SIAF (Corporate): Revenue from corporate decreased by $1,934,460 or 100% from $1,934,460 for Q3 2013 to $0 for Q3 2014. The reason for the decrease is because the slow work in progress for the construction of restaurant related work during the quarter.

 

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

 

Cost of services for consulting, service, commission and management fee increased by $10,332,834 or 316% from $3,269,035 for Q3 2013 to $13 601,869 for Q3 2014.

 

CA (Fishery): Cost of services from fishery increased by $10,898,408 or 403% from $2,703,461 for Q3 2013 to $13 601,869 for Q3 2014.

 

SIAF (Corporate): Cost of services from corporate decreased by $565,574 or 100 % from $565,574 for Q3 2013 to $0 for Q3 2014. The reason for the decrease is because the slow progress for the construction of restaurant related work during the quarter.

 

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

 

Gross profit of consulting, service, commission and management fees increased by $5,391,942, or 96%, from $5,604,830 for Q3 2013 to $10,996,772 for Q3 2014.

  

CA (Fishery): Gross profit from fishery increased by $6,760,828 or 160% from $4,235,944 for Q3 2013 to $10,996,772 for Q3 2014.

  

SIAF (Corporate): Gross profit from corporate decreased by $1,368,886 or 100% from $1,368,886 for Q3 2013 to $0 for Q3 2014.The reason for the decrease is because the slow progress for the construction of restaurant related work during the quarter.

 

Tables(A.6) below highlights on general information of ongoing Consulting and Services provided by Capital Award, MEIJI and SIAF respectively as of September 30 2014:

 

Name of the
developments
  Location of
development
  Designed capacity per
year
  Land area 
or
Built up
area
  Current Phase
& Stage
  Commencement
date of
development
  (Estimated)
development's
completion date on
or before
  Contractual
amount
  % of completion as
of
30.09.2014
  Notes
Fish Farm (1)   Enping City   1,200 MT   9,900 m2   fully operational    July 2010   June 2011    $5.3 million   Fully operational    
Prawn Farm (1)   Enping City   2013=400MT 2014=800MT 2015=1200 MT   23,100 m2   2 phases and road work   2 phases and road work and Phase 3 extension of grow-out farm & Phase 4 demonstrated hydroponic farm    Phase 1 on June 2011 Phase (2.1) Phase (2.2) Road work Started Aug. 2012   Phase (1) on December 2012 Phase (2) completed Q1 2013    Phase (1) $11.6 million Phase (2) 6.39 million Road work $2.94 million, Phase 3 US$5.2 million & Phase 4 US$1.6 million   Extension work 90% completed
Fish Farm (2) "The Fish & Eel Farm   Xin Hui District, Jiang Men.   2014=800 MT 2015= 1600 MT 2016=2000MT   165,000 m2   3 Phases   Phase 1 January 15, 2012 Bridge & Road Oct. 2012 Phase (3) 2013 & (4)2014   Phase 1 June 2014 Bridge & Road Dec. 2013 Phase (3) & (4) 2015    Phase (1) $8.73 million Bridge & Road $2.48 Phase (3) $4.38 M Phase (4) $10.63 Million   Phase (1) & Bridge and Road completed Jan. 2013 Phase (3) completed and Phase (4) not started.   Phase 4 work in progress
Prawn Farm (2) The Hatchery & Nursery & Grow-out prawn farm   San Jiao Town, Zhong San City,   2013=1.6 Billion Fingerling and 400MT of prawns increasing yearly and by 2015 = 3.2 billion fingerling and 1200 MT of Prawns   120,000 m2   2 phases    Phase (1) and Phase (2) May 2012 Phase (3) 2014   Phase (1) Dec. 2012 and Phase (2) December 2013.Phase (3) Dec. 2014    Phase (1) $9.26 m      and Phase (2) 8.42 Million  Phase (3) 11.5 Million   Phase (1) fully operational and Phase (2) in operation and Phase (3) not started   Phase 3 work in progress
Cattle Farm (1)   LiangXi Town, Enping City   165,013 m2   1,500 Head   2 phases    April 2011   December  2011   $3.0 million +$1.17 Million   Fully Operational    
Cattle Farm (2)   LiangXi Town, Enping City   230,300 m2   2,500 head   2 Phases   February  2012   March. 2014   $10.6 million   completed   operating
Cattle Farm (1) external road work   LiangXi Town, Enping City   4.5 Km road       One Phase   September  2012   March. 2013   $4.32 million   Completed    
Cattle Farm (2) External Road work.   LiangXi Town, Enping City   5.5 Km Road       One Phase   September  2012   March. 2013    $5.28 Million   Completed    
                                     
WHX Restaurants etc.   Guangzhou City   5,500 seatings in total       Phase (1) Stage (1)   June  2012   December  2015   $17.5 million   Work in progress   Restaurant 5 & 6 in operation
                                     
NaWei wholesale Center   Guangzhou City       5,000 m2   One Phase   July  2012   March. 2014   $ 9 million   Completed   Operating
    Shanghai City       3,000 m2   Two Phases   Sept. 2014   December. 2014   $5 million   Work in progress   Work in progress
New Zhongshan Prawn Project   Zhongshan City   Phase (1)S(1)= 10,000 MT S(2)= 30,000 MT Phase (2) S(1)=100,000 MT Phase (3) 200,000 MT   3600 MU land & BU area 3.57 million square meter   Phase (1) Stage (1)   Nov. 2013   10 years for 100,000 MT capacity & 20 years for whole integrated project   10 years for US$2.6 billion   minimal   Phase (1) Stage (1)'s farm construction work in progress

 

- 27 -
 

  

Note (4) to Table A 1 Other Income:

Table (Note 4.1) below shows the Gain / Loss on extinguishment of debts (or Debt Settlement) representing recent sales of unregistered securities and the issuance of shares for Q3 of 2014:

 

The Company entered into several agreements with third parties to settle debts by issuance of the Company’s common stock. The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. For the three months ended September 30 2014, the Company issued an aggregate of 7,930,179 shares of Common Stock for (i) in consideration for extinguishment of debt in the aggregate amount of $2,431,374 for the issuance of 5,930,179 shares, reporting gain as income of $33,693 from the extinguishment of debts and (ii) for settlement of consulting and service fee in aggregate amount of $1,500,000 for the issuance of 2,000,000 shares for the services rendered in successfully procuring the private placement note issued on August 29, 2014.

 

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

 

Date  Shares
issued/Bought
back
   Market price
when issued ($)
   Additional paid in
capital
   Consideration
received
   Income from
issuance of shares
   Note
As of July 1,
2014
   16,181,620         101,547,572.              
7/15/2014   220,282    3.96    870,136    894,125.    21,808   Debt settlement
8/12/2014   120,041.    3.96    474,176    487,249.    11,885.   Debt settlement
8/22/2014   258,684.    4.06    1,047,439.    1,050,000.    -   Debt settlement
9/16/2014   202,020    7.43    1,498,000    1,500,0000    -   Professional Services
                             
As of September 30, 2014   16,982,648         105,437,323    3,931,374.    33,693    

 

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

 

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

 

  We placed the requisite Regulation S restrictive legends on all certificates issued;

 

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

 

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

 

The other income for Q3 2014 amounted to $(17,599) and derived from the combination of (1) Gain on extinguishment of debt $33,693 (Note 4), Government Grant $57,340 and other income $155,032 less interest expenses of $263,664. Whereas the other income for Q3 2013, and derived from the combination of (1) Gain on extinguishment of debt $160,997 (Note 4), Government Grants $343,481 and other income $41,264 less interest expenses of $286,376.

 

- 28 -
 

 

Gain (loss) of extinguishment of debts

 

Any deficit (excess) of the fair value of the shares over the carrying cost of the debt has been reported as a gain (loss) on the extinguishment of debt of $33,693 and $160,997 has been credited (charged) to operations for the three months ended September 30, 2014 and 2013, respectively.

 

Note (5) to Table A 1 General and Administrative Expenses and Interest Expenses:

 

General and administrative and interest expenses (including depreciation and amortization) increased by $1,544,808 or 67% from $2,313,365 for Q3 2013 to $3,858,173 for Q3 2014. The increase was primarily due to increase in office and corporate expenses of $1,303,949 from $657,741 for Q3 2014 for Q3 2013 to $1,961,690 for Q3 2014, and the increase in others and miscellaneous of $185,139 from $259,626 for Q2 2013 to $444,765 for Q3 2014.

 

Table (to Note 5)

 

Category  2014Q3   2013Q3   Difference 
   $   $   $ 
Office and corporate expenses   1,961,690    657,741    1,303,949 
Wages and salaries   486,172    447,717    38,455 
Traveling and related lodging   20,647    19,332    1315 
Motor vehicles expenses and local transportation   48,635    47,704    931 
Entertainments and meals   33,030    34,384    (1,354)
Others and miscellaneous   444,765    259,626    185,139 
Depreciation and amortization   599,570    560,485    39,085 
Sub-total   3,594,509    2,026,989    1,567,520 
Interest expense   263,664    286,376    (22,712)
                
Total   3,858,173    2,313,365    1,544,808 

 

Note (6) to Table A 1 Depreciation and Amortization:

 

Depreciation and amortization increased by $349,282 or 41% to $1,199,182 for Q3 2014 from $849,900 for Q3 2013.The increase was primarily due to the increase of depreciation by $280,037 to $636,774 for Q3 2014 from depreciation of $356,737 for Q3 2013 whereas the decrease of amortization by $69,245 to $562,408 for Q3 2014 from amortization of $493,163 for Q3 2013.

 

In this respect, total depreciation and amortization amounted to $1,199,182 for Q3 2014, out of which amount $599,570 was reported under general and administration expenses and $599,612 was reported under cost of goods sold; whereas total depreciation and amortization was at $849,900 for Q3 2013 and out of which amount $560,485 was reported under General and Administration expenses and $289,415 was reported under cost of goods sold.

 

 Note (7) to Table A 1 Non-controlling interests:

 

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

 

Names of
intermediate holding
company
subsidiaries
  Capital
Award 
Inc.
(Belize)
  Macau EIJI Company Ltd. (Macau)     A Power Agro
Agriculture
Development
(Macau) Ltd.
          Tri-way
Industries
Ltd.(HK)
    Total
Abbreviated names   CA   (MEIJI)     (APWAM)           (TRW)      
                                             
% of equity holding on below subsidiaries (in China)   NA     75 %     75 %     26 %     45 %             75 %    
Name of China subsidiaries   None     Jiangmen City Heng Sheng Tai Agriculture Development Co. Ltd.(China)       Jiangmen City Hang Mei Cattle Farm Development Co. Ltd.(China)               Qinghai Sanjiang A Power Agriculture Co. Ltd. (China)       Qing Hai Zhong He Meat product  Co. Ltd (China)       Jiangmen City A Power Fishery Development Co. Ltd. (China)      
                                                         
Abbreviated names         (JHST)       (JHMC)       (HSA)       (SJAP)       (QZH)       (JFD)      
                          Hunan Shanghua A Power Agriculture Co. Ltd (China       50 %                    
                                                         
Net income of the P.R.C. subsidiaries for the period ended 30. Sept. 2014 in $       $ 3,418,943     $ 687,832     $ 1,759,083     $ 6,083,044     $ 2,123,246     $ 1,681,445      
                                                         
Equity % of non-controlling  interest         25 %     25 %     24 %     55 %     55 %     25 %    
                                                         
Non-controlling interest's shares of Net incomes in $       $ 854,736     $ 171,958     $ 422,180     $ 3,345,674     $ 1,167,785     $ 420,361   $ 6,382,694

 

The Net Income attributed to non-controlling interest is $6,382,694 shared by (JHST, JHMC, HSA, SJAP, QZH and JFD collectively) for Q3 2014 as shown in Table (F) above.

 

- 29 -
 

  

Note (8) to Table A 1 Earnings per shares (EPS):

 

Earnings per share decreased by $0.03 (basic) and $0.01(diluted) per share from EPS of $1.49 (basic) and $1.43 (diluted) Q3 2013 to EPS of $1.52 (basic) and $1.44 (diluted) for Q3 2014. The reason for the increase is primarily due to the increase of net income attributable to Sino Agro Food, Inc. and subsidiaries by $5.75 million from $18.75 million for Q3 2013 to $24.50 million for Q3 2014.

 

Part B. MD & A on Unaudited Consolidated Balance Sheet as of September 30, 2014 compared to December 31, 2013 (fiscal year 2013)

 

Consolidated Balance sheets  September
30, 2014
   December 31,
2013
   Changes +-   Note 
   $   $   $     
ASSETS                    
Current assets                    
Cash  and cash equivalents   4,691,157    1,327,274    3,363,883    B 
Inventories   37,439,892    8,148,203    29,291,689    9 
Costs and estimated earnings in excess of billings on uncompleted contracts   1,224,287    663,296    560,991      
Deposits and prepaid expenses   55,610,463    51,291,708    4,318,755    10 
Accounts receivable   122,773,881    82,057,941    40,715,940    11 
Other receivables   16,475,508    3,782,772    12,692,736      
Total current assets   238,215,188    147,271,194    90,943,994      
Property and equipment                    
Property and equipment, net of accumulated depreciation   61,274,162    46,487,058    14,787,104    12 
Construction in progress   69,088,637    59,134,732    9,953,905    13 
Land use rights, net of accumulated amortization   58,995,505    60,705,829    -1,710,324    14 
Total property and equipment   189,358,304    166,327,619    23,030,685      
Other assets                    
Goodwill   724,940    724,940    -      
Proprietary technologies, net of accumulated amortization   11,587,564    12,081,470    -493,906    15 
Temporary deposit paid to entities for investments in future Sino Joint Venture companies   41,109,708    41,109,708    -      
Total other assets   53,422,212    53,916,118    -493,906      
Total assets   480,995,704    367,514,931    113,480,773      
Current liabilities                  16 
Accounts payable and accrued expenses   16,477,918    11,055,194    5,422,724      
Billings in excess of  costs and estimated earnings on uncompleted contracts   3,373,432    3,146,956    226,476      
Due to a director   4,244,519    1,793,768    2,450,751      
Series F shares mandatory redemption payable   3,146,063    -    3,146,063      
Other payables   11,177,713    10,768,786    408,927      
                     
Short term bank loan   -    4,100,377    -4,100,377      
                     
Bonds payable   1,725,000    -    1,725,000      
Total current liabilities   40,144,645    30,865,081    9,279,564      
                     
Non-current liabilities                    
Series F shares mandatory redemption payable   -    3,146,063    -3,146,063      
Bonds payable   -    1,725,000    -1,725,000      
Long term debts   2,616,610    180,417    2,436,193      
Convertible note payable   6,982,667    -    6,982,667    16D
Total non-current liabilities   9,599,277    5,051,480    4,547,797      
Stockholders’ equity                    
Preferred stock                    
Series A  preferred stock   -    -    -      
Series B  convertible preferred  stock   7,000    7,000    -      
Series F Non-convertible preferred  stock   -    -    -    17 
Common stock   168,128    137,602    30,526      
Additional paid-in capital   118,514,375    104,913,676    13,600,699      
Retained earnings   249,573,317    181,196,498    68,376,819      
Accumulated other comprehensive income   6,244,379    6,260,131    -15,752      
Treasury stock   -1,250,000    -1,250,000    -      
Total SIAF Inc. and subsidiaries' equity   373,257,199    291,264,907    81,992,292      
Non-controlling interest   57,994,583    40,333,463    17,661,120      
Total stockholders' equity   431,251,782    331,598,370    99,653,412      
Total liabilities and stockholders' equity   480,995,704    367,514,931    113,480,773      

 

- 30 -
 

  

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

 

Note (B) Cash and Cash Equivalents

 

The change in cash and cash equivalent of $3,363,883 derived from cash and cash equivalent of $4,691,157 and $1,327,274 as of September 30, 2014 and December 31, 2013, respectively. In this respect it is a regular situation for cash & cash equivalent to get back into its normal pattern after the irregular pattern incurred due to seasonal impacts at the end of the year.

 

Note (9) Break down on Inventories:

 

    September 30,
2014
    December 31,
2013
    Difference  
    $     $     $  
Sleepy cods, prawns, eels and marble goble     4,935,062       1,761,111       3,173,951  
Harvested HU plantation             719,329       -719,329  
Bread grass     3,337,428       580,954       2,756,474  
Beef cattle     5,850,305       1,951,962       3,898,343  
Organic fertilizer     3,094,379       895,670       2,198,709  
Forage for cattle and consumable     3,591,769       684,979       2,906,790  
Raw materials for bread grass and organic fertilizer     13,411,046       855,493       12,555,553  
Beef and mutton     2,213,890       -       2,213,890  
Immature seeds     1,003,013       698,704       304,309  
      37,436,892       8,148,203       29,288,689  

 

Note (10) Breakdown of Deposits and Prepaid Expenses:

 

Note (10.1):

 

   September
 30, 2014
   December 31,
2013
   Difference 
   $   $   $ 
Deposits for               
- purchases of equipment   4,372,776    4,886,048    -513,272 
- acquisition of land use right   7,826,508    7,826,508    0 
- inventory purchases   7,693,099    9,776,383    2,083,284 
- aquaculture contract   9,404,067    -    9,404,067 
- building materials   877,598    1,281,935    -404,337 
- proprietary technology   -    4,404,210    4,404,210 
- construction in progress   23,021,316    23,021,316    0 
Shares issued for employee compensation and overseas professional fee   2,415,099    100,308    2,314,791 
Temporary deposits paid to entities for investments in future Sino Foreign Joint Venture companies   41,109,708    41,109,708    0 
    96,720,171    92,406,416    4,313,755 

 

- 31 -
 

 

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

 

As of September 30, 2014, we have $77,826,508 for a deposit paid for the acquisition of a Land Use Right (“LUR”) derived from the following transactions:

  

$3,182,180 (or RMB20,000,000) was full payment made on June 6, 2012 for Land Use Right by HSA comprising a block of land measuring 150 Mu (or 25 acres of prime agriculture land) located at Linli District of Hunan Province within 10 Km of HSA’s complex. The process of application to register the said “Land Use Right” is in progress, and, as such, this payment is recorded as Deposit and Prepaid Expenses pending final authority estimated to be granted on or before September 30, 2014, as the new local ordinances on agriculture land delayed the processing of our application. Due to the delay in approving the LUR of the said block of land, HSA has revised and supplemented the contract of said land by a leasing agreement until such time, the said official approval will be granted, and in the interim, the deposit and pre-payment on said land would be treated as a rent-to-own lease arrangement providing pre-payment toward said land once approval is granted.

 

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

 

$4,453,398 (or RMB 27,989,606) was the full payment by Capital Award for the purchase of the Land Use Right on a block of prime agriculture land measuring 235 Mu (or 38.5 acres) located at the Cong Hua District Guangzhou City in late October 2010. This block of land is part of a larger block of land (of some 500 acres) which is under a subdivision application. However in 2011, the Land Law changed such that the said sub-division now requires the approval of the Central Government in Beijing, which means approval process is lengthened. Cong Hua District was rezoned as a suburb of the Guangzhou City in 2010 and within close proximity of the Guangzhou City and Management considers it as a valuable piece of land very suitable for the development of one of our agriculture projects. Our agreement with the Vendor requires that they use best efforts to speed up the said subdivision’s approval on or before June 30 2014, failing which they would replace the said land with another block of land to our satisfaction., In lieu of the land swap arrangement just mentioned, the Company has negotiated with the Vendor to be compensated $1 million since the Central Government approval remains pending as of September 30, 2014, which is scheduled to be paid on or before December 31, 2014.

 

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

 

Under account of      Estimated total  Estimated time  Current status   Deposit &
prepayments
made as of
September 30,
    Land Bank    % equivalent 
Subsidiary   Segment of   Project name  Asset value  of Acquisition  of Project    2014    or Built Up area    to equity paid 
            $      $    m2      
SIAF  Corporate  Trade Center  3.5 million  own development  30% completed   4,086,941    5,000    31%
                               
      Seafood Center            1,032,914           
                               
CA  Fishery  Fish Farm (1)  26.22 Million  2016  2 out 4 phases completed   6,000,000    23,100    23%
      Prawn Farm (1)  20.93 Million  2014  in operation   14,554,578    165,000    56%
      Prawn Farm (2)  29.18 Million  2014  Part operational Part work in progress   9,877,218    120,000 developed 96,000 m2 undeveloped    29%
                               
MEIJI  Cattle  Cattle Farm (2)  15.88 Million  2014  95% completed   5,558,057    230,300    35%
                   41,109,708           

  

During this quarter the Company has not paid further deposit and prepayment for investments in future assets and in future Sino Foreign Joint Venture companies; as such, there is no change in this respect.

 

- 32 -
 

  

Note (11): Breakdown of Accounts receivable:

 

   September 30,2014               over 120 days and 
   Accounts receivable   0-30 days   31-90 days   91-120 days   less than 1 year 
   $   $   $   $   $ 
Consulting and Service totaling                         
CA   21,779,206    21,779,206    -    -    - 
MEIJI   4,352,293    -    -    -    4,352,293 
SIAF   5,653,426    -    5,653,426    -    - 
                          
Sales of Live Fish, eels and prawns (from Farms) (CA)   14,532,324    14,532,324    -    -    - 
                          
Sales of imported seafood (SIAF)   7,090,129    7,090,129    -    -    - 
                          
Sales of Cattle and Beef Meats (from Enping Farm) (MEIJI)   12,472,160    5,479,701    2,254,887    4,737,572    - 
                          
Sales of HU Flowers (Fresh & Dried) (JHST)   10,943,896    2,427,678    3,383,155    1,656,844    3,476,220 
                          
Sales Fertilizer, Bulk Stock feed and Cattle by (SJAP)   31,051,474    7,333,436    14,455,842    7,940,308    1,321,888 
                          
Sales Fertilizer from (HSA)   9,761,599    2,061,234    3,730,104    1,711,178    2,259,084 
                          
Sales of Live Fish (JFD)   35,850    -    -    -    35,850 
         -    -    -    - 
Sales of Beef (QZH)   5,101,524    4,210,875    890,045    604    - 
                          
Total   122,773,881    64,914,582    30,367,458    16,046,506    11,445,335 

 

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

 

Our accounts receivable ageing is less than 12 months old. Receivables from revenue derived from consulting and services billed for work completed are within our normal trading terms of 180 days and therefore no diminution in value is required, as the credit quality of receivable is not in doubt.

 

Fish Sales: Most farmed fish are sold to wholesalers at prevailing daily market prices and ageing is within 90 days trading terms with a small portion at 180 days (for oversized fish, as the sale of oversized fish takes time to sell). We sold $23 million in live fish, eels and prawns (live seafood) to the wholesalers for the three months ended September 30, 2014 and as of September 30, 2013, accounts receivable of $ 0 was over 120 days. These debtors represent credit quality receivables as they are well established wholesalers, profitable and viable businesses with a good track record and therefore provision of diminution in value is not required as collection is not in doubt.

 

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

 

Information on Concentration of credit risk of account receivables:

 

We have 4 major long-term customers (referring to Customer A, B, C and D mentioned in the Financial Statements of this prospectus), who have accounted for 63.01% of our consolidated revenues for Q3 2014 as shown in the table below:

 

   Three months ended September 30, 2014 
   % of total Revenue   $   Total
Revenue
 
Customer A   24.57%      26,339,173 
Customer B   15.78%      16,914,528 
Customer C   14.33%      15,361,990 
Customer D   8.33%      8,931,618 
    63.01%      67,547,309 

  

- 33 -
 

  

Customer A is Guangzhou City A Power NaWei Trading Co. Ltd (“APNW”). In respect of the project for WSC1, CA was the consulting engineer responsible for the construction of this project and development of its business operation via a Consulting and Service Contract granted by APNW. APNW is now one of our main wholesalers, and to which we bill our sales of seafood (including live and frozen seafood). APNW distributes the seafood to other wholesalers in various cities in China. WSC 1 is ideally situated at the center of all interprovincial logistic services. At the same time, APNW has obtained all relevant Import Quotas and Permits by September 30, 2013. As such, SIAF relies on APNW’s import permits for its import and export trades to be carried out in China. Sales effected through WSC 1 contributes 24.57% of our total consolidated revenue, which is equivalent to $26,339,173 out of our total revenue of $107,220,059 derived collectively from the following segments of activities:

 

Customer A               Three months ended September 30, 2014  
with
Name of
company
  Segments   Operation Division   Abbreviation name   % of total
consolidated
Revenue
    Amount in
$
 
                         
CA   Fishery   Sales of fish (from Fish Farm 1)   Wholesale Center (1)     6.02 %     6,457,870  
        Sales of fish / eels from Contract Growers         6.31 %     6,770,173  
                             
SIAF   Corporate   Trading sales of seafood, beef & mutton         12.23 %     13,111,130  
                  24.57 %     26,339,173  

 

Customer B is one of our main agents, namely Mr. Li Hongzhen who distributes SJAP’s organic fertilizer, bulk livestock feed and concentrated livestock feed to our cooperative farmers and other regional farmers. During Q3 2014, Mr. Li had transacted 15.78% of our total consolidated revenue (equivalent to $16,914,528 out of our total revenue of $107,220,059 derived from the sale of SJAP’s organic fertile, bulk livestock feed and concentrated livestock feed under the segment of Organic Fertilizer and Bread Grass.

 

Customer C is one of our main agents, namely Mr. Xian Zhiming (Zhongshan new prawn farm) who we agreed to extend trading terms between 120 days to 180 days in the interim until such time as we assist them to procure a project loan of up to $60 million targeting on or before September 30, 2014.

 

Customer D is Cattle Wholesale represented by Mr. Zhen Runchi who buys our fattened cattle to sell them in the Guangdong and Beijing cattle markets and at the same time supplies to us with young cattle. During Q3 2014, transactions through Mr. Zhen Runchi generated 8.33 % of our total consolidated revenue (equivalent to $8,931,638 out of our total revenue of $107,220,059.

 

The Company had 4 major customers whose accounts receivable balance individually represented the following percentages of the Company’s total accounts receivable during Q3 2014:

 

   September 30, 2014   Total 
   % of total Accounts
receivables
   amount in $   Accounts
receivables
 
Customer A   19.22%        23,600,631 
Customer B   11.32%        13,901,362 
Customer C   6.73%        8,262,682 
Customer D   6.30%      7,734,588 
    43.57%      53,499,263 

 

Note (12) Property and equipment, net of accumulation depreciation:

 

   September 30, 2014 
   $ 
Plant and machinery   5,344,326 
Structure and lease hold improvements   49,841,748 
Mature seeds and herbage cultivation   9,234,439 
Furniture and equipment   393,411 
Motor vehicles   765,858 
    65,579,782 
      
Less: Accumulated depreciation   (4,305,620)
Net carrying amount   61,274,162 

  

- 34 -
 

 

Note (13) Construction in progress:

 

   September 30, 2014 
   $ 
     
Construction in progress    
 - Oven room , road for production of dried flowers   276,288 
 - Office, warehouse and organic fertilizer plant in HSA   16,867,188 
 - Organic fertilizer and bread grass production plant and office building   18,009,803 
 - Rangeland for beef cattle and office building   30,690,295 
 - Fish pond   1,844,454 
 - Beef and seafood distribution center   1,400,609 
    69,088,637

  

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

 

                                Monthly        
                Date       Expiry       amortization   2014.09.30   Nature of
Item   Owner   Location   Acres   Acquired   Tenure   dates   Cost   $   Balance $   ownership
                                         
Hunan

lot1
  HSA   Ouchi Village, Fenghuo Town, Linli County   31.92   2011-4-5   43   2054-4-4   242,703   470   222,948   Lease
                                         
Hunan

lot2
  HSA   Ouchi Village, Fenghuo Town, Linli County   247.05   2011-7-1   60   2071-6-30   36,666,141   50,925   34,680,058   Management Right
                                         

Hunan

lot3

  HSA   Ouchi Village, Fenghuo Town, Linli County   8.24   2011-5-24   40   2051-5-23   378,489   789   346,160   Land Use Rights
                                         

Guangdong

 

lot 1

  JHST   Yane Village, Liangxi Town, Enping City   8.23   2007-8-10   60   2067-8-9   1,064,501   1,478   937,352   Management Right
                                         

Guangdong

 

lot 2

  JHST   Nandu Village of Yane Village, Liangxi Town, Enping City   27.78   2007-3-14   60   2067-3-13   1,037,273   1,441   906,173   Management Right
                                         

Guangdong

 

lot 3

  JHST   Nandu Village of Yane Village, Liangxi Town, Enping City   60.72   2007-3-14   60   2067-3-13   2,267,363   3,149   1,980,794   Management Right
                                         

Guangdong

 

lot 4

  JHST   Nandu Village of Yane Village, Liangxi Town, Enping City   54.68   2007-9-12   60   2067-9-11   2,041,949   2,836   1,800,886   Management Right
                                         

Guangdong

 

lot 5

  JHST   Jishilu Village of Dawan Village, Juntang Town, Enping City   28.82   2007-9-12   60   2067-9-11   960,416   1,334   847,034   Management Right
                                         

Guangdong

 

lot 6

  JHST   Liankai Village of Niujiang Town, Enping   31.84   2008-1-1   60   2068-12-31   821,445   1,141   729,032   Management Right
                                         

Guangdong

 

lot 7

  JHST   Nandu Village of Yane Village, Liangxi Town, Enping City   41.18   2011-1-1   26   2037-12-31   5,716,764   18,323   4,892,231   Management Right
                                         

Guangdong

 

lot 8

  JHST   Shangchong Village of Yane Village, Liangxi Town, Enping City   11.28   2011-1-1   26   2037-12-31   1,566,393   5,020   1,340,471   Management Right
                                         

Guangdong

 

lot 9

  MEIJI   Xiaoban Village of Yane Village, Liangxi Town, Enping City   41.18   2011-4-1   20   2031-3-31   5,082,136   21,176   4,192,762   Management Right
                                         

Qinghai

 

lot 1

  SJAP   No. 498, Bei Da Road, Chengguan Town of Huangyuan County, Xining City, Qinghai Province   21.09   2011-11-1   40   2051-10-30   527,234   1,098   488,790   Land Use Right & Building ownership
                                         

Guangdong

 

lot 10

  JHST   Niu Jiang Town, Liangxi Town, Enping City   6.27   2013-3-4   10   2023-3-4   489,904   4,083   412,336   Management Right (lease)
                                         
    JHST   Land improvement cost Incurred       2013-12-1           3,914,275   6,155   3,852,730    
                                         
Exchange difference                           1,860,972       1,365,748    
            620               64,637,958   119,418   58,995,505    

 

- 35 -
 

 

Note (15) Other Receivables

 

   September 30, 2014   Note 
   $     
Advanced to employees   277,298      
Advanced to suppliers   7,552,844    15.A
Advanced to sub-contractors and suppliers working on the Zhongshan New Prawn Projects   8,645,366    15.B
    16,475508      

 

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

 

At SJAP it is a common practice to make cash advances to our cooperative growers (presently standing at 100 members) who are our suppliers, to carry them through respective growing periods (for cropping or pasturing or cattle growing purposes) before final harvests of produce or sale of their cattle. On average, it works out to less than $2,442 per member, which in our management’s opinion is a normal season to season process deemed fair and equitable. In this respect, as the said average increases it means that the average cooperative farmer is increasing his productivity (whether in the growing of crops or cattle), and in simple terms, it represents good progress indicating that SJAP’s revenue is also increasing.

 

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

 

Note (16) Current Liabilities:

 

   September 30, 2014   Note 
Current liabilities          
Accounts payable and accruals   16,477,918    16.A
Billings in excess of cost and estimated earnings on uncompleted contracts   3,373,432      
Series F shares mandatory redemption payable   3,146,063    16.B
Due to a director   4,244,519      
Other payables   11,177,713    16.C
Short term bank loan   -      
Bonds  payable   1,725,000      
    40,144,645      

 

- 36 -
 

 

Note 16A: Accounts payables and accrued expenses clarification:

 

Our current trading environment is limited to a number of suppliers who offer prolonged credit terms means that most purchases are paid for in cash or short credit terms (7 to 10 days), and in a way this allows us better bargaining ability to obtain cash discounts resulting in the low trade account payables balance of $16,477,918 about 15% of total sales of $107 million for the reasons stated below:

 

Our main Account Payables during Q3 2014 were generated from the following activities:

 

  1. We supply the following cost elements: our own staff, engineering and technology that enhanced our profit margins and reduced the overall cost of sales. Consulting and services (“C&S”) since inception is the major contributor of income to date and cost of goods sold averaging 47%,and 62%for CA and SIAF, respectively derived from its respective C&S during the fiscal year 2013.

 

  2. Implementation, supervision, training and associated management work and most of the building sub-contractors worked at fixed costs; consequently, profit margins are contained providing ample opportunity for expanded credit terms. For contracts related to the construction of farms we use plants, equipment, parts and components that were specially manufactured and made as per our own design and engineering by local manufacturers and suppliers (who carry a high amount of initial development costs and inventories for us based on the understanding that we would pay for the deliveries of goods sold within shorter trading terms such that they could afford to carry such costs). We pay promptly in this respect and believe that, as time has passed, our track record has earned our excellent credibility with all of our suppliers and sub-contractors.

 

  3. Fish sales started gradually in late 2011, and the cost of sales was averaged at 70% for Q3 2014, respectively (the bulk of the cost came from the supplies of baby fingerlings and the live-bait as the main fish feed), and customary trading terms of Chinese suppliers is on a cash on delivery basis, and suppliers who provide short credit terms presently is limited to no more than a select few.

 

  4. Cattle sales at SJAP’s own cattle stations and from its cooperative farmers started in 2011 at lower profit margins compared to the sales of fish and the cost of sales was averaged at 75% for Q3 2014; it is also customary in China to pay for the young live cattle by cash on delivery. The Enping cattle farm started to buy young cattle in 2011 and started sales of mature cattle in 2012; cost of sales is averaged at 88% for Q3 2014. Most of the young cattle supplies were from small primary producers (local small farmers) who did not have great financial resources; as such we paid for these supplies of young cattle in cash on delivery or short credit term after delivery.

 

  5. In SJAP, the bulk of our fertilizers were sold to farmers who are growing pastures and crops for us such that their fertilizer sales were kept as book entries that would be offset with the pastures and crops that we would buy back from them. In the case of HSA, which is a developing stage company in fertilizer manufacturing, prolonged credit term facilities have not been established for its purchase of raw materials.

 

  6. Bulk livestock feed are produced by regional cooperative growers under contract to us and they use our supply of fertilizer and seeds that represented the main cost components enhancing cost of sales, which average is at 51% for Q3 2014. Again, sale of fertilizer is held on credit against crops and pasture grass purchased from them, as well as bulk livestock feed sold to them for cattle rearing, and reconciled once cattle are purchased from them.

 

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 then 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 intended holders of record of shares of Series F Non - Convertible Preferred Stock were to be entitled to a coupon payment directly from the Company at the redemption rate of $3.40 per share and be payable on May 30, 2014. During Q1 2013, 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 the number of shares of Common Stock (prior to the Reverse Split) 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 numbers 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

 

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Note (16C): Analysis of Other Payables:

 

As of September 30, 2014, other payables totaling $11,177,713 was composed of the following:

 

During Q3 2014, the Company issued promissory notes amounting to $1,771,418 to unrelated third parties for advances granted by third parties collectively to the Company (and/or to its subsidiaries) that are personally guaranteed by a director, repayable within two (2) years at interest free term. Promissory notes could be repaid either by cash or in shares of the Company or a combination thereof. If shares settled debt amounts, the respective share conversion rates will be determined by both parties at the time of settlement. During Q3 2014 we redeemed $2,431,374 of promissory notes for advances granted by third parties in fiscal year 2012 as well as in early months of 2013 by the issuance of shares leaving a balance of $512,751 of promissory notes still due and outstanding as of September 30, 2014.

 

A grant of $2,406,143 was received from the Chinese government to SJAP for the development of a certain project; however if SJAP will not be able to complete the project, it will have to repay the grant to the Government. As of September 30 2014, as work is in progress on the said project but it is not yet completed, the grant is recorded as other payables.

 

Other advances provided by other unrelated third parties collectively to our subsidiaries with no fixed term of repayment at interest free terms that do not have any promissory note or agreement but verbal understandings. These sums amount to $8,258,819 unpaid and outstanding as of September 30, 2014.

 

Note (16 D): Convertible Note:

 

On August 29, 2014 the Company executed a Convertible Note with Euro China AB, or ECAB, of Stockholm Sweden, pursuant to which ECAB agreed to lend to the Company up to $25 Million based on the following principal terms and conditions:

 

  (i) Issuing Debt amount of $33,000,000 with a 25% discount netting loan proceeds to the Company of up to $25,000,000.
  (ii) Disbursement of loan is based on 4 tranches: each tranche of $5 million on or before August 14, 2014, August 29, 2014, and November 27, 2014 with the last tranche of $18 million on or before February 28, 2015 whereas ECAB can deduct the 25% discount on the principal issuing debt amount upon each tranche of disbursements.
  (iii) Tenure of 5 years
  (iv) Interest Rate is at 10.5% per annum
  (v) Conversion price is at $9.90 per share applicable to both principal loan amount and accrued interest at the option of ECAB.

 

The Convertible Note was filed with SEC on September 5, 2014.

 

As of September 30, 2014, the Company has received net proceeds of $5,237,000 under the Convertible Note payable.

 

Part C. Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013 (presented in summarized Charts below);

 

Revenue:

 

Revenues increased by $114,964,575 or 63.8 % to $295,180,352 for the nine months ended September 30, 2013 from $180,215,777 for the nine months ended September 30, 2013. The increase was primarily due to the increase of revenue generated from our fishery, beef, organic fertilizer, and cattle farm and corporate and others operations and the maturity of on-going divisional businesses improving their revenues.

 

- 38 -
 

 

The following chart illustrates the changes by category from the nine months ended September 30, 2014 to September 30, 2013.

 

Revenue            
   2014   2013     
Category  Q1- Q3   Q1-Q3   Difference 
   $   $   $ 
Fishery   136,968,336    68,826,877    68,141,459 
                
Plantation   9,085,607    14,089,946    -5,004,339 
                
Beef   60,053,322    22,288,842    37,764,480 
                
Organic fertilizer   35,406,530    29,970,388    5,436,142 
                
Cattle farm   21,483,496    19,423,115    2,060,381 
                
Corporate and others   32,183,061    25,616,609    6,566,452 
                
Total   295,180,352    180,215,777    114,964,575 

 

Cost of goods sold and service

 

Cost increased by $103,976,930 or 91.9% to $199,826,657 for the nine months ended September 30, 2014 from $113,179,388 for the nine months ended September 30, 2013. The increase was primarily due to the Company increased our fishery, beef, organic fertilizer, cattle farm and corporate and others operations for nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013.

 

The following chart illustrates the changes by category from the nine months ended September 30, 2014 to September 30, 2013.

 

Cost            
   2014   2013     
Category  Q1- Q3   Q1-Q3   Difference 
   $   $   $ 
Fishery   87,742,912    45,266,534    42,476,378 
                
Plantation   2,423,811    6,093,751    -3,669,940 
                
Beef   43,598,633    15,731,438    27,867,195 
                
Organic fertilizer   20,005,390    15,869,331    4,136,059 
                
Cattle farm   20,418,345    12,888,673    7,529,672 
                
Corporate and others   25,637,566    17,329,661    25,637,566 
                
Total   199,826,657    113,179,388    103,976,930 

 

Gross Profit

 

Gross profit increased by $28,317,306 or 42.24% to $95,353,694 for the nine months ended September 30, 2014 from $67,036,388 for the nine months ended September 30, 2013. The increase was primarily due to the corresponding increase in operation revenues. The increase was primarily due to the corresponding increase in scale of operation of revenues from fishery, beef and organic fertilizer.

 

The following chart illustrates the changes by category from the nine months ended September 30, 2014 to the nine months ended September 30, 2013.

 

The gross profit by category is as follows:

 

Category  Q1- Q3   Q1- Q3   Difference 
   $   $   $ 
Fishery   49,225,424    23,560,343    25,665,081 
                
Plantation   6,661,796    7,996,195    -1,334,399 
                
Beef   16,454,689    6,557,404    9,897,285 
                
Organic fertilizer   15,401,139    14,101,056    1,300,083 
                
Cattle farm   1,065,151    6,534,442    -5,469,291 
                
Corporate and others   6,545,495    8,286,948    -1,741,453 
                
Total   95,353,694    67,036,388    28,317,306 

 

- 39 -
 

 

General and Administrative Expenses and Interest Expenses

 

General and administrative expenses and interest expenses (including depreciation and amortization) increased by $3,788,853 or 61% to $10,027,920 for the nine months ended September 30, 2014 from $6,239,067 for the nine months ended September 30, 2013. The increase was primarily due to (i) increase in wages and salaries payments paid for incentives compensation to our staff by the issuance of shares amounting to $239,264 for the nine months ended September 30, 2014 as compared to $271,800 for the nine months ended September 30, 2013 and (ii) increase in office and corporate expenses paid for overseas professional services of $116,076 for the nine months ended September 30, 2014 from $Nil for the nine months ended September 30, 2013.

 

Category  2014
Q1-Q3
   2013
Q1-Q3
   Difference 
   $   $   $ 
Office and corporate expenses   4,915,961    1,986,403    2,929,558 
Wages and salaries   1,459,702    1,409,818    49,884 
Traveling and related lodging   111,991    54,330    57,661 
Motor vehicles expenses and local transportation   140,986    121,597    19,389 
Entertainments and meals   107,710    99,234    8,476 
Others and miscellaneous   794,347    560,507    233,840 
Depreciation and amortization   2,014,066    1,608,792    405,274 
Sub-total   9,544,763    5,840,681    3,704,082 
Interest expenses   483,157    398,386    84,771 
Total   10,027,920    6,239,067    3,788,853 

  

Depreciation and Amortization

 

Depreciation and amortization increase by $1,453,403 or 58.96% to $3,387,314 for the nine months ended September 30, 2014 from $2,464,865 for the nine months ended September 30, 2013. The increase was primarily due to the increase of depreciation by $772,639 to $1,768,047for the nine months ended September 30, 2014 from depreciation of $995,408 for the nine months ended September 30, 2013, and the increase of amortization by $149,810 to $1,619,267 for nine months ended September 30, 2014 from amortization of $1,469,457 for the nine months ended September 30, 2013.

 

In this respect, total depreciation and amortization amounted to $3,387,314 for the nine months ended September 30, 2014, out of which amount $2,014,066 was booked under general and administration expenses and $1,373,248 was booked under cost of goods sold; whereas total depreciation and amortization was at $2,464,865 for the nine months ended September 30, 2013 and out of which amount, $1,608,792 was booked under General and Administration expenses and $856,073 was booked under cost of goods sold.

 

Part D. Income Statements of Consolidated Results of Operations for the Fiscal year 2013 compared to the Fiscal year 2012

 

A (1) Income Statements

 

In $  Audited   Audited         
   2013   2012   Difference   Note 
                 
Revenue   261,425,813    138,613,639    122,812,174    1 
Consulting, services, commission and management fee   52,811,772    50,541,312    2,270,460      
Sale of goods   208,614,041    88,072,327    120,541,714      
Cost of goods sold and services   159,894,663    68,807,471    91,087,192    2 
Consulting, services, commission and management fee   20,548,608    18,248,957    2,299,651      
Sale of goods   139,346,055    50,558,514    88,787,541      
Gross Profit   101,531,150    69,806,168    31,724,982    3 
Consulting, services, commission and management fee   32,263,164    32,292,355    (29,191)     
Sale of goods   69,267,986    37,513,813    31,754,173      
Other income (expenses)   1,769,873    1,832,234    (62,361)   4 
General and administrative expenses   (8,859,777)   (8,385,862)   (473,915)   5 
Net income   94,441,246    63,252,540    31,188,706      
                     
EBITDA   98,337,535    65,922,130    34,081,789      
Depreciation and amortization (D&A)   (3,502,697)   (2,387,270)   (1,115,427)   6 
EBIT   94,834,838    63,534,860    31,299,976      
Net Interest   (393,592)   (282,320)   (111,272)     
Tax   -    -    -      
Net Income   94,441,246    63,252,540    31,188,704      
Non - controlling interest   (20,234,717)   (5,706,708)   (14,528,009    7 
Net income to SIAF Inc. and subsidiaries   74,206,529    57,545,832    16,660,695      
Weighted average number of shares outstanding                    
- Basic   12,093,973    8,284,536    3,809,437      
- Diluted   12,872,443    9,294,637    3,577,806      
Earnings Per Share (EPS)                  8 
- Basic   6.14    6.95    (0.81)     
- Diluted   5.76    6.19    (0.43)     

 

- 40 -
 

 

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

 

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

 

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

 

Table (A.1) below shows the items, quantities, average selling price and average unit cost of goods sold for the fiscal years 2013 and 2012

 

Subsidiary   Description of items      2013   2012   Difference   Percentage
of change
 
SJAP   Cattle Operation                         
    Production and Sales of live cattle   Heads    9,375    4,312    5,063    117%
    Average selling price   $/head    3,461    3,454    7    0%
    Average unit cost   $/head    2,265    2,649    (384)   (14)%
    Production and sales of feedstock                  -      
    Bulk Livestock feed   MT    38,194    10,134    28,060    277%
    Average selling price   $/MT    155    132    23    18%
    Average unit cost   $/MT    110    77    33    43%
    Concentrated livestock feed   MT    31,717    -    31,717      
    Average selling price   $/MT    418    -    418      
    Average unit cost   $/MT    257    -    257      
    Production and sales of fertilizer   MT    60,509    29,169    31,340    107%
    Average selling price   $/MT    175    168    7    4%
    Average unit cost   $/MT    80    81    (1)   (2)%
HSA   Fertilizer and Cattle operation                         
    Organic Fertilizer   MT    19,230    5,421    13,809    255%
    Average selling price   $/MT    323    210    113    54%
    Average unit cost   $/MT    238    176    62    35%
    Organic Mixed Fertilizer   MT    12,775    2,780    9,995    360%
    Average selling price   $/MT    413    387    26    7%
    Average unit cost   $/MT    193    276    (83)   (30)%
JHST   Plantation of HU Flowers and Immortal vegetables                         
    Fresh HU Flowers   Pieces    14,383,484    7,826,069    6,557,415    84%
    Average selling price   $/Pieces    0.15    0.13    0.02    13%
    Average unit cost   $/Pieces    0.05    0.03    0.01    35%
    Dried HU Flowers   MT    1,504    1,183    321    27%
    Average selling price   $/MT    12,412    9,151    3,261    36%
    Average unit cost   $/MT    5,843    4,033    1,811    45%
    Dried Immortal vegetables   MT    10    -    10      
    Average selling price   $/MT    152,534    -    152,534      
    Average unit cost   $/MT    48,942    -    48,942      
    Other Value added products   Pieces    60,000.00    -    60,000      
    Average selling price   $/Pieces    8    -    8      
    Average unit cost   $/Pieces    3    -    3      
CA   Production and sale of fish and prawns                         
    Fish (Sleepy cods)   MT    2,616    1,765    852    48%
    Average selling price   $/MT    15,170    25,608    (10,438)   (41)%
    Average unit cost   $/MT    12,450    13,324    (874)   (7)%
    Eels   MT    1,661    -    1,661      
    Average selling price   $/MT    16,590    -    16,590      
    Average unit cost   $/MT    8,925    -    8,925      
    Prawns   MT    417    -    417      
    Average selling price   $/MT    12,280    -    12,280      
    Average unit cost   $/MT    9,770    -    9,770      
MEIJI   Production and sale of live cattle (Aromatic)   Heads    5,597    1,655    3,942    238%
    Average selling price   $/head    3,157    3,600    (443)   (12)%
    Average unit cost   $/head    2,351    2,787    (436)   (16)%
SIAF   Seafood trading/import/export                         
    Mixed seafood   MT    1,521    322    1,198    372%
    Average selling price   $/MT    14,498    5,270    9,228    175%
    Average unit cost   $/MT    12,600    3,409    9,191    270%

 

- 41 -
 

 

Table (A.2) below shows the sale of goods, cost of sales and gross profit for the fiscal years 2012 and 2013

 

   In $  Sales of Goods   Costs of goods sold   Gross profit 
      2013   2012   2013   2012   2013   2012 
Fishery                                 
CA  Sales of fish and prawns                              
   Fish (Sleepy cods)   39,691,498    45,189,788    32,574,763    23,512,812    7,116,735    21,676,976 
   Eels   27,552,690    -    14,823,189    -    12,729,501    - 
   Prawns   5,118,792    -    4,072,524    -    1,046,268    - 
   CA and Fishery Total   72,362,980    45,189,788    51,470,476    23,512,812    20,892,504    21,676,976 
Plantation                                 
JHST  Sales of Fresh HU Flowers   2,193,971    1,052,844    660,550.36    265,555    1,533,420    787,289 
   Sales of Dried HU Flowers   18,668,070    10,825,755    8,788,077    4,770,400    9,879,993    6,055,355 
   Sales of Dried Immortal vegetables   1,464,327    -    469,844    -    994,483    - 
   Sales of Other Value added products   488,109    -    183,041    -    305,068    - 
   JHST and Plantation Total   22,814,476    11,878,599    10,101,512    5,035,955    12,712,964    6,842,644 
Beef                                 
SJAP  Sales of  live  cattle   32,448,531    14,892,310    21,234,097    11,421,676    11,214,435    3,470,634 
   Beef Total   32,448,531    14,892,310    21,234,097    11,421,676    11,214,435    3,470,634 
Organic fertilizer                                 
SJAP  Sales of  feedstock                              
   Bulk Livestock feed   5,930,401    1,337,709    4,208,387    780,951    1,722,013    556,758 
   Concentrate livestock feed   13,269,506    -    8,140,417    -    5,129,089    - 
   Sales of   fertilizer   10,579,242    4,904,507    4,828,517    2,372,145    5,750,725    2,532,362 
   SJAP Total   62,227,680    21,134,526    38,411,418    14,574,772    23,816,262    6,559,754 
HSA  Sales of  Organic fertilizer   6,213,256    1,138,134    4,573,209    955,994    1,640,047    182,140 
   Sales of Organic Mixed Fertilizer   5,277,139    1,074,904    2,467,261    767,037    2,809,878    307,867 
   HSA Total   11,490,395    2,213,038    7,040,470    1,723,031    4,449,925    490,007 
   Organic fertilizer Total   41,269,544    8,455,254    24,217,791    4,876,127    17,051,752    3,579,127 
Cattle farm                                 
MEIJI                                 
   Sale   of  Live cattle (Aromatic)   17,671,418    5,957,870    13,161,262    4,613,074    4,510,156    1,344,796 
   MEIJI  and  cattle farm Total   17,671,418    5,957,870    13,161,262    4,613,074    4,510,156    1,344,796 
Corporate                                 
SIAF                                 
   Sales of Seafood trading/import/export   22,047,092    1,698,506    19,160,917    1,098,870    2,886,175    599,636 
   SIAF  and Corporate total   22,047,092    1,698,506    19,160,917    1,098,870    2,886,175    599,636 
                                  
Group Total      208,614,041    88,072,327    139,346,055    50,558,514    69,267,986    37,513,813 

 

- 42 -
 

 

Table (A.3) below shows the percentage of gross profit for the fiscal year 2012 and 2013

 

<
Gross Profit in % of sale of goods  2013   2012   Difference 
Fishery               
CA               
Fish (Sleepy cods)   18%   48%   (30)%
Eels   46%   -    - 
Prawns   20%   -    - 
CA and Fishery Gross Profit   29%   48%   (19)%
                
Plantation               
JHST               
Fresh HU Flowers   70%   75%   (5)%
Dried HU Flowers   53%   56%   (3)%
Dried Immortal vegetables   68%   -    - 
Other Value added products   63%   -    - 
JHST and Plantation Gross Profit   56%   58%   (2)%
                
Beef               
SJAP               
Live cattle   35%   23%   12%
Beef Gross Profit   35%   23%   12%
                
Organic fertilizer               
SJAP               
Feedstock               
Bulk livestock feed   29%   42%   (13)%
Concentrated livestock feed   39%   -    - 
Fertilizer   54%   52%   2%
SJAP Gross Profit   38%   31%   7%
HSA               
Fertilizer   26%   16%   10%
Organic mixed fertilizer   53