10-Q 1 v423854_10q.htm FORM 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended September 30, 2015

OR

¨TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________________________ to ___________________________

 

Commission file number: 000-54191

 

SINO AGRO FOOD, INC.

 (Exact Name of Registrant as Specified in Its Charter)

 

Nevada   33-1219070

(State of Other Jurisdiction of Incorporation or

Organization)

  (I.R.S. Employer Identification Number)
     

Room 3801, Block A, China Shine Plaza

No. 9 Lin He Xi Road

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

  510610
(Address of Principal Executive Offices)   (Zip Code)

 

(860) 20 22057860

(Registrant’s Telephone Number, Including Area Code)

 

Copies to:

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, NY10006

Attn: Marc Ross, Esq.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” "non-accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

As of November 12, 2015, there were 19,363,757 shares of our common stock issued and outstanding.

 

 

 

 

TABLE OF CONTENTS

 

    Page
PART I – FINANCIAL INFORMATION  
Item 1. Financial Statements F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Plan of Operations 1
Item 3.  Quantitative and Qualitative Disclosures About Market Risk  47
Item 4. Controls and Procedures 47
     
PART II – OTHER INFORMATION  
Item 1. Legal Proceedings 48
Item 1A. Risk Factors 48
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 48
Item 3. Defaults Upon Senior Securities 48
Item 4. Mine Safety Disclosures 48
Item 5. Other Information 48
Item 6. Exhibits 48
SIGNATURES   49

 

 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

 

QUARTERLY FINANCIAL STATEMENTS

 

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015

(Unaudited)

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

QUATERLY FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

INDEX TO QUATERLY FINANCIAL STATEMENTS

 

    PAGES
INDEPENDENT ACCOUNTANT’S REPORT   F - 2
CONSOLIDATED BALANCE SHEETS   F - 3
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME   F - 4
CONSOLIDATED STATEMENTS OF CASH FLOWS   F - 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   F - 6 - F - 46

 

 F-1 
 

 

 

 

INDEPENDENT ACCOUNTANT’S REPORT 

 

To the Board of Directors and Stockholders of

Sino Agro Food, Inc.

(Incorporated in the State of Nevada, United States of America)

 

We have reviewed the consolidated balance sheets of Sino Agro Food, Inc. and subsidiaries as of September 30, 2015 and December 31, 2014, the related consolidated statements of income and other comprehensive income for the three-month and the nine-month periods ended September 30, 2015 and 2014, and cash flows for the nine-month periods ended September 30, 2015 and 2014. This interim financial information is the responsibility of the company's management.

 

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial information taken as a whole. Accordingly, we do not express such an opinion.

 

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

 

s/Anthony Kam & Associates Limited, CPA.
Anthony Kam & Associates Limited, CPA.
 
Hong Kong
November 16, 2015

 

 F-2 
 

 

SINO AGRO FOOD, INC.

CONSOLIDATED BALANCE SHEETS

 

      September 30,   December 31, 
      2015   2014 
   Note  (Unaudited)   (Audited) 
            
ASSETS             
Current assets             
Cash and cash equivalents  6  $9,551,180   $3,031,447 
Inventories  7   51,133,915    45,967,993 
Costs and estimated earnings in excess of billings on uncompleted contracts  19   1,306,885    - 
Deposits and prepayments  8   85,040,561    75,951,591 
Accounts receivable, net of allowance for doubtful accounts  9   129,257,822    104,503,071 
Other receivables  10   66,633,542    52,305,260 
Total current assets      342,923,905    281,759,362 
Plant and equipment             
Plant and equipment, net of accumulated depreciation  11   76,201,470    64,352,975 
Construction in progress  12   93,080,574    69,120,277 
Land use rights, net of accumulated amortization  13   59,965,379    63,322,202 
Total plant and equipment      229,247,423    196,795,454 
Other assets             
Goodwill  14   724,940    724,940 
Proprietary technologies, net of accumulated amortization  15   10,969,666    11,480,298 
Long term investment  16   786,040    817,127 
Temporary deposits paid to entities for investments in Sino joint venture companies  17   41,109,708    41,109,708 
Total other assets      53,590,354    54,132,073 
              
Total assets     $625,761,682   $532,686,889 
              
LIABILITIES  AND STOCKHOLDERS' EQUITY             
              
Current liabilities             
Accounts payable and accrued expenses     $20,461,324   $22,138,835 
Billings in excess of costs and estimated earnings on uncompleted contracts  19   3,874,480    8,060,580 
Due to a director      692,906    1,172,059 
Series F Non-convertible preferred stock redemption payable  20   -    3,146,063 
Other payables  21   8,059,260    11,695,982 
Borrowings - Short term bank loan  22   273,876    4,410,727 
Bonds payable  23   1,725,000    1,725,000 
Negotiable promissory notes  24   3,540,000    - 
       38,626,846    52,349,246 
              
Non-current liabilities             
Other payables  21   4,797,332    - 
Borrowings - Long term debts  22   1,942,757    2,306,057 
Convertible note payables  25   35,468,110    15,803,928 
       42,208,199    18,109,985 
              
Commitments and contingencies      -    - 
              
Stockholders' equity             
Preferred stock: $0.001 par value (10,000,000 shares authorized, 100 and 7,000,100 issued and outstanding as of September 30, 2015 and December 31, 2014, respectively)             
Series A preferred stock:  $0.001 par value (100 shares designated, 100 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively)  26   -    - 
Series B convertible preferred stock:  $0.001 par value (10,000,000 shares designated, 0 and 7,000,000 shares issued  and outstanding as of September 30, 2015 and December 31, 2014, respectively)  26   -    7,000 
Series F Non-convertible preferred stock:  $0.001 par value (1,000,000 shares designated, 0 shares issued  and outstanding as of September 30, 2015 and December 31, 2014, respectively)  26   -    - 
Common stock:  $0.001 par value (22,727,272 shares authorized 19,178,757 and 17,162,716 shares issued as of  September 30, 2015 and December 31, 2014, respectively)  26   19,179    17,162 
Additional paid - in capital      134,252,019    121,158,996 
Retained earnings      327,848,251    273,261,108 
Accumulated other comprehensive income  25   3,388,103    6,452,816 
Treasury stock  26   (1,250,000)   (1,250,000)
Total Sino Agro Food, Inc. and subsidiaries stockholders' equity      464,257,552    399,647,082 
Non - controlling interest      80,669,085    62,580,576 
Total stockholders' equity      544,926,637    462,227,658 
Total liabilities and stockholders' equity     $625,761,682   $532,686,889 

  

 F-3 
 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014 (UNAUDITED)

 

       Three months ended   Three months ended   Nine months ended   Nine months ended 
   Note   September 30, 2015   September 30, 2014   September 30, 2015   September 30, 2014 
                     
Revenue                         
- Sale of goods       $96,032,841   $82,171,415   $263,625,686   $242,800,784 
- Consulting and service income from development contracts        28,406,973    24,598,641    66,120,235    51,118,141 
- Commission and management fee        226,585    450,003    1,250,656    1,191,427 
    3    124,666,399    107,220,059    330,996,577    295,180,352 
Cost of goods sold   3    (75,264,268)   (59,121,526)   (200,762,654)   (173,035,915)
Cost of services   3    (17,151,938)   (13,601,869)   (40,468,368)   (26,790,742)
                          
Gross profit        32,250,193    34,496,664    89,765,555    95,353,695 
General and administrative expenses        (3,951,922)   (3,594,509)   (13,910,035)   (9,544,763)
Net income from operations        28,298,271    30,902,155    75,855,520    85,808,932 
Other income (expenses)                         
                          
Government grant        746,929    57,340    888,770    295,012 
                          
Other income        -    155,032    152,467    159,555 
                          
Gain of extinguishment of debts   4    -    33,693    -    275,086 
                          
Interest expense        (1,328,616)   (263,664)   (3,438,694)   (483,157)
Net income (expenses)        (581,687)   (17,599)   (2,397,457)   246,496 
                          
Net income (expenses) before income taxes        27,716,584    30,884,556    73,458,063    86,055,428 
Provision for income taxes   5    -    -    -    - 
                          
Net income        27,716,584    30,884,556    73,458,063    86,055,428 
Less: Net (income) loss attributable to the non - controlling interest        (6,194,484)   (6,382,694)   (18,870,920)   (17,678,609)
Net income from continuing operations attributable to the Sino Agro Food, Inc. and subsidiaries        21,522,100    24,501,862    54,587,143    68,376,819 
Other comprehensive income (loss) Foreign currency translation gain (loss)             (4,635,528 )     869,931       (3,847,123 )     (33,241 )
Comprehensive income        16,886,572    25,371,793    50,740,020    68,343,578 
Less: other comprehensive (income) loss attributable to the non - controlling interest        (643,103)   (139,032)   (782,411)   17,489 
Comprehensive income attributable to the Sino Agro Food, Inc. and subsidiaries       $16,243,469   $25,232,761   $49,957,609   $68,361,067 
                          
Earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders:                         
Basic   31   $1.14   $1.49   $3.02   $4.42 
Diluted   31   $1.14   $1.43   $3.02   $4.23 
                          
Weighted average number of shares outstanding:                         
                          
Basic        18,822,876    16,469,314    18,089,629    15,465,642 
Diluted        18,822,876    17,176,384    18,089,629    16,172,712 

 

 F-4 
 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014 (UNAUDITED)

 

   Nine months
 ended
   Nine months
 ended
 
   September 30,
2015
   September 30,
2014
 
         
Cash flows from operating activities          
Net income for the period  $73,458,063   $86,055,428 
Adjustments to reconcile net income from operations to net cash from operations:          
Depreciation   2,145,020    1,768,047 
Amortization   1,513,426    1,619,267 
Common stock issued for services   1,940,294    255,033 
Gain on extinguishment of debts   -    (275,086)
Other amortized cost   2,830,201    229,857 
Changes in operating assets and liabilities:          
(Increase) in inventories   (5,165,922)   (29,291,689)
(Increase) in costs and estimated earnings in excess of billings on uncompleted contacts   (1,306,885)   (560,991)
(Increase) in deposits and prepayments   (1,824,342)   (583,670)
Increase in due to a director   1,645,472    2,450,751 
(Decrease) increase in  accounts payable and accrued expenses   (1,677,511)   5,361,625 
Increase in  other payables   4,476,860    12,415,301 
(Increase) in accounts  receivable   (24,754,751)   (40,715,939)
(Decrease) increase in billings in excess of costs and estimated earnings on uncompleted contracts   (4,186,100)   226,476 
(Increase) in other receivables   (12,428,932)   (12,692,737)
Net cash provided by operating activities   36,664,893    26,261,673 
Cash flows from investing activities          
Purchases of plant and equipment   (3,949,521)   (3,418,741)
Payment for construction in progress   (40,594,640)   (22.227,905)
Net cash used in investing activities   (44,544,161)   (25,646,646)
Cash flows from financing activities          
Proceeds from long term debts   -    2,436,193 
Net proceeds from convertible note payable   -    5,237,000 
Short term bank loan repaid   (4,085,635)   (4,100,377)
Series F Non-convertible preferred stock redemption   (3,146,063)   - 
Director reimbursement for  cash originally deposited in due to a director          
-Net proceeds from convertible note payable   13,367,550    - 
-Net proceeds from negotiable promissory notes   3,540,000    - 
Net cash provided by financing activities   9,675,852    3,572,816 
Effects on exchange rate changes on cash   4,723,149    (823,960)
Increase in cash and cash equivalents   6,519,733    3,363,883 
Cash and cash equivalents, beginning of period   3,031,447    1,327,274 
Cash and cash equivalents, end of period  $9,551,180   $4,691,157 
Supplementary disclosures of cash flow information:          
Cash paid for interest  $504,846   $422,058 
Cash paid for income taxes  $-   $- 
Non - cash transactions          
Common stock issued for settlement of debts  $-   $12,006,374 
Common stock issued for services and employee compensation  $726,362   $2,519,232 
Common stock issued to decimal stockholders for rounding up shares holding  $2,772,281   $- 
Common stock issued to secure debts loan and  finance facilities  $9,496,665   $- 
Transfer to plant and equipment from construction in progress  $12,992,628    13,136,410 
Transfer to land use rights from deposits and prepayments  $-   $4,404,179 
Series B convertible preferred stock converted into common stock   7,000   $- 
Transfer to plant and equipment from deposits and prepayments expenses  $9,323   $513,272 
Reverse split adjustment  $5,639   $- 
Proceeds from convertible bond payables  paid to director and applied to operating activities  $17,823,400   $- 

  

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

 

 F-5 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

1. CORPORATE INFORMATION

 

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

 

The Company was engaged in the mining and exploration business but ceased its mining and exploring business on October 14, 2005. On August 24, 2007, the Company entered into a Merger and Acquisition Agreement with Capital Award Inc., a Belize corporation (“ CA ”) and its subsidiaries Capital Stage Inc. (“ CS ”) and Capital Hero Inc. (“ CH ”). Effective the same date, CA completed a reverse merger transaction with SIAF. SIAF acquired all the outstanding common stock of CA from Capital Adventure, a shareholder of CA, for 3,232,323 shares of the Company’s common stock.

 

On August 24, 2007 the Company changed its name from Volcanic Gold, Inc. to A Power Agro Agriculture Development, Inc. On December 8, 2007, the Company changed its name to Sino Agro Food, Inc.

 

On September 5, 2007, the Company acquired three existing businesses in the People’s Republic of China (the “P.R.C.” ):

 

(a)Hang Yu Tai Investment Limited (“ HYT ”), a company incorporated in Macau, the owner of 78% equity interest in ZhongXingNongMu Ltd (“ ZX ”), a company incorporated in the P.R.C.;

 

(b)Tri-way Industries Limited (“ TRW ”), a company incorporated in Hong Kong; and

 

(c)Macau Eiji Company Limited (“ MEIJI”), a company incorporated in Macau, the owner of 75% equity interest in Enping City Juntang Town Hang Sing Tai Agriculture Co. Ltd. (“ HST ”), a P.R.C. corporate Sino-Foreign joint venture. HST was dissolved in 2010.

 

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

 

On November 26, 2008, SIAF established Pretty Mountain Holdings Limited (“ PMH”), a company incorporated in Hong Kong with an 80% equity interest. On May 25, 2009, PMH formed a corporate Sino-Foreign joint venture, Qinghai Sanjiang A Power Agriculture Co. Ltd. (“ SJAP ”), incorporated in the P.R.C., of which PMH owns a 45% equity interest. At the time, the remaining 55% equity interest in SJAP was owned by the following entities:

 

Qinghai Province Sanjiang Group Company Limited (English translation) (“ Qinghai Sanjiang”), a company incorporated in the P.R.C with major business activities in the agriculture industry; and

 

Guangzhou City Garwor Company Limited (English translation) (“ Garwor”), a company incorporated in the P.R.C., specializing in sales and marketing.

 

SJAP is engaged in the business of manufacturing bio-organic fertilizer, livestock feed and development of other agriculture projects in the County of Huangyuan, in the vicinity of the Xining City, Qinghai Province, P.R.C.

 

In September 2009, the Company carried out an internal reorganization of its corporate structure and business, and formed a 100% owned subsidiary, A Power Agro Agriculture Development (Macau) Limited (“ APWAM ”), which was formed in Macau. APWAM then acquired PMH’s 45% equity interest in SJAP. By virtue of the acquisition, APWAM assumed all obligations and liabilities of PMH under the Sino Foreign Joint Venture Agreement. On May 7, 2010, Qinghai Sanjiang sold and transferred its equity interest in SJAP to Garwor. The State Administration for Industry and Commerce of Xining City Government of the PRC approved the sale and transfer. As a result, APWAM owned 45% of SJAP and Garwor owned the remaining 55%. This remains the case as of the date of this report (the “ Report”).

 

On September 9, 2010, an application was submitted by the Company to the Companies Registry of Hong Kong for deregistration of PMH under Section 291AA of the Hong Kong Companies Ordinance. On January 28, 2011, PMH was dissolved.

 

 F-6 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

1. CORPORATE INFORMATION (CONTINUED)

 

On February 15, 2011 and March 29, 2011, the Company entered into an agreement and a memorandum of understanding (an “ MOU” ), respectively, to sell 100% equity interest in HYT group (including HYT and ZX) to Mr. Xin Ming Sun, a director of ZhongXingNong Nu Co., Ltd for $45,000,000, with effective date of January 1, 2011.

 

On February 28, 2011, the Company applied to form Enping City Bi Tao A Power Prawn Culture Development Co Limited (“ EBAPCD ”) , and the Company would indirectly own a 25% equity interest in future Sino Joint Venture Company (pending approval).

 

On February 28, 2011, TRW applied to form a corporate joint venture, Enping City Bi Tao A Power Fishery Development Co., Limited (“ EBAPFD ”), incorporated in the PRC. TRW owned a 25% equity interest in EBAPFD. On November 17, 2011, TRW formed Jiang Men City A Power Fishery Development Co., Limited (“ JFD ”) in which it acquired a 25% equity interest, while withdrawing its 25% equity interest in EBAPFD. As of December 31, 2011, the Company had invested for total cash consideration of $1,258,607 in JFD. JFD operates an indoor fish farm. On January 1, 2012, the Company acquired an additional 25% equity interest in JFD for total cash consideration of $1,662,365. As of January 1, 2012, the Company had consolidated the assets and operations of JFD. On April 1, 2012, the Company acquired an additional 25% equity interest in JFD for the total cash consideration of $1,702,580. These acquisitions were at our option according the terms of the original development agreement. The Company presently owns a 75% equity interest in JFD, representing majority of voting rights and controls its board of directors.

 

On April 15, 2011, MEIJI applied to form Enping City A Power Cattle Farm Co., Limited (“ ECF ”), all of which the Company would indirectly own a 25% equity interest on November 17, 2011. On January 1, 2012, the Company had invested $1,076,489 in ECF and the amount was settled in contra against accounts receivable due from ECF. On September 17, 2012 MEIJI formed Jiang Men City Hang Mei Cattle Farm Development Co., Limited (“ JHMC ”) and acquired additional 50% equity interest for the total cash consideration of $2,944,176 on September 30, 2012 while withdrawing its 25% equity interest in ECF. This acquisition was at our option according to the terms of the original development agreement. The Company presently owns 75% equity interest in JHMC, representing majority of voting right and controls its board of directors. As of September 30, 2012, the Company had consolidated the assets and operations of JHMC. Up to September 30, 2015, MEIJI further invested $400,000 in JHMC.

 

On July 18, 2011, the Company formed Hunan Shenghua A Power Agriculture Co., Limited (“ HSA ”), in which the Company owns a 26% equity interest, and SJAP owns a 50% equity interest with the Chinese partner owning the remaining 24%. As of September 30, 2015, MEIJI and SJAP total investment in HSA were $857,808 and 629,344, respectively.

 

On November 12, 2013, the Company acquired a shell company, Goldcup9203 AB, incorporated in Sweden, in which the Company owns a 100% equity interest. Goldcup 9203 AB changed its name to Sino Agro Food Sweden AB (publ) (“ SAFS ”). As of September 30, 2015, the Company invested $77,664 in SAFS.

 

SJAP formed Qinghai Zhong He Meat Products Co., Limited (“QZH”) , with SJAP would owning 100% equity interest. As of September 30, 2015, the SJAP’s total investment in QZH was $487,805.

 

The Company’s principal executive office is located at Room 3801, Block A, China Shine Plaza, No. 9 Lin He Xi Road, Tianhe District, Guangzhou City, Guangdong Province, P.R.C., 510610.

 

The nature of the operations and principal activities of the Company and its subsidiaries are described in Note 2.2.

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

2.1FISCAL YEAR

 

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

 

 F-7 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

  2.2 REPORTING ENTITIES

 

Name of subsidiaries   Place of incorporation   Percentage of interest   Principal activities
             
Capital Award Inc. (“CA”)   Belize   100% (12.31.2014: 100%) directly   Fishery development and holder of A-Power Technology master license.
             
Capital Stage Inc. (“CS”)   Belize   100% (12.31.2014: 100%) indirectly   Dormant
             
Capital Hero Inc. (“CH”)   Belize   100% (12.31.2014: 100%) indirectly   Dormant
             
Sino Agro Food Sweden AB (“SAFS”)   Sweden   100% (12.31.2014: 100%) directly   Dormant
             
Tri-way Industries Limited (“TRW”)   Hong Kong, P.R.C.   100% (12.31.2014: 100%) directly   Investment holding, holder of enzyme technology master license for manufacturing of livestock feed and bio-organic fertilizer and has not commenced its planned business of fish farm operations.
             
Macau Eiji Company Limited (“MEIJI”)   Macau, P.R.C.   100% (12.31.2014: 100%) directly   Investment holding, cattle farm development, beef cattle and beef trading
A Power Agro Agriculture Development (Macau) Limited (“APWAM”)   Macau, P.R.C.   100% (12.31.2014: 100%) directly   Investment holding
             
Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd (“JHST”)   P.R.C.   75% (12.31.2014: 75%) indirectly   HylocereusUndatus Plantation (“HU Plantation”).
             
Jiang Men City A Power Fishery Development Co., Limited (“JFD”)   P.R.C.   75% (12.31.2014: 75%) indirectly   Fish cultivation
             
Jiang Men City Hang Mei Cattle Farm Development Co., Limited (“JHMC”)   P.R.C.   75% (12.31.2014: 75%) indirectly   Beef cattle cultivation
             
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   P.R.C.   76% (12.31.2014: 76%) indirectly   Manufacturing of organic fertilizer, livestock feed, and beef cattle and sheep cultivation, and plantation of crops and pastures
             
Name of variable interest entity   Place of incorporation   Percentage of interest   Principal activities
             
Qinghai Sanjiang A Power Agriculture Co., Ltd (“SJAP”)   P.R.C.   45% (12.31.2014: 45%) indirectly   Manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures
             
Qinghai Zhong He Meat Products Co., Ltd (“QZH”)   P.R.C.   100% (12.31.2014:100%) indirectly   Cattle slaughter

 

 F-8 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014 (UNAUDITED)

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.3 BASIS OF PRESENTATION

 

The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“ US GAAP ”).

 

Reverse stock split and new conversion rate of Series B preferred stock to share of common stock on December 16, 2014, the Company implemented a 9.9-for-1 reverse stock split. On December 17, 2014, the Company implemented new conversion rate of 9.9 for 1 share of common stock. All share information contained within this report, including consolidated balance sheets, consolidated statements of income and other comprehensive income, and footnotes have been retroactively adjusted for the effects of reverse stock split and new conversion rate of Series B preferred stock to share of common stock.

 

  2.4 BASIS OF CONSOLIDATION

 

The consolidated financial statements include the financial statements of the Company, its subsidiaries CA, CS, CH, TRW, MEIJI, JHST, JFD, JHMC, HSA, APWAM, SAFS and its variable interest entity SJAP and QZH. All material inter-company transactions and balances have been eliminated in consolidation.

 

SIAF, CA, CS, CH, TRW, MEIJI, JHST, JFD, JHMC, HSA, APWAM, SAFS, SJAP and QZH are hereafter referred to as (the “Company”).

 

  2.5 BUSINESS COMBINATION

 

The Company adopted the accounting pronouncements relating to business combination (primarily contained in ASC Topic 805 “Business Combinations”), including assets acquired and liabilities assumed on arising from contingencies. These pronouncements established principles and requirement for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquisition as well as provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In addition, these pronouncements eliminate the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and require an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. The Company’s adoption of these pronouncements will have an impact on the manner in which it accounts for any future acquisitions.

 

  2.6 NON - CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

  2.7 USE OF ESTIMATES

 

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

 

 F-9 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.8 REVENUE RECOGNITION

 

The Company’s revenue recognition policies are in compliance with ASC 605. Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured. These criteria are generally satisfied at the time of shipment when risk of loss and title passes to the customer.

 

Government grants are recognized when (i) the Company has substantially accomplished what must be done pursuant to the terms of the grant that are established by the local government; and (ii) the Company receives notification from the local government that the Company has satisfied all of the requirements to receive the government grants; and (iii) the amounts are received.

 

Multiple-Element Arrangements

 

To qualify as a separate unit of accounting under ASC 605-25 “ Multiple Element Arrangements ”, the delivered item must have value to the customer on a standalone basis. The significant deliverables under the Company’s multiple-element arrangements are consulting and service under development contract, commission and management service.

 

Revenues from the Company’s consulting and services under development contracts are performed under fixed-price contracts. Revenues under long-term contracts are accounted for under the percentage-of-completion method of accounting in accordance with the Financial Accounting Standards Board (“ FASB ”) Accounting Standards Codification (“ ASC ”) Topic 605, Revenue Recognition (“ASC 605”). Under the percentage-of-completion method, the Company estimates profit as the difference between total estimated revenue and total estimated cost of a contract and recognizes that profit over the contract term. The percentage of costs incurred determines the amount of revenue to be recognized. Payment terms are generally defined by the installation contract and as a result may not match the timing of the costs incurred by the Company and the related recognition of revenue. Such differences are recorded as either costs or estimated earnings in excess of billings on uncompleted contracts or billings in excess of costs and estimated earnings on uncompleted contracts. The Company determines a customer’s credit worthiness at the time an order is accepted. Sudden and unexpected changes in a customer’s financial condition could put recoverability at risk.

 

The percentage of completion method requires the ability to estimate several factors, including the ability of the customer to meet its obligations under the contract, including the payment of amounts when due. If the Company determines that collectability is not assured, the Company will defer revenue recognition and use methods of accounting for the contract such as the completed contract method until such time as the Company determines that collectability is reasonably assured or through the completion of the project.

 

For fixed-price contracts, the Company uses the ratio of costs incurred to date on the contract to management’s estimate of the contract’s total costs, to determine the percentage of completion on each contract. This method is used as management considers expended costs to be the best available measure of progression of these contracts. Contract costs include all direct material, subcontract and labor costs and those indirect costs related to contract performance, such as supplies, tool repairs and depreciation. The Company accounts for maintenance and repair services under the guidance of ASC 605 as the services provided relate to construction work. Contract costs incurred to date and expected total contract costs are continuously monitored during the term of the contract. Changes in job performance, job conditions, and estimated profitability arising from contract penalty, change orders and final contract settlements may result in revisions to the estimated profit ability during the contract. These changes, which include contracts with estimated costs in excess of estimated revenues, are recognized as contract costs in the period in which the revisions are determined. Profit incentives are included in revenues when their realization is reasonably assured. At the point the Company anticipates a loss on a contract, the Company estimates the ultimate loss through completion and recognizes that loss in the period in which the loss was identified.

 

The Company does not provide warranties to customers on a basis customary to the industry, however, customers can claim warranty directly from product manufacturers for defects in equipment or products. Historically, the Company has experienced no warranty claims.

 

The Company provides various management services to its customers in the P.R.C. based on a negotiated fixed-price contract. The clients usually pay the fees when the services contract is signed and services are rendered. The Company recognizes these services-based revenues from contracts when (i) management services are rendered; (ii) clients recognize the completion of services; and (iii) collectability is reasonably assured. Fees received in advance are recorded as deferred revenue under current liabilities.

 

 F-10 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.9COST OF GOODS SOLD AND COST OF SERVICES

 

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

 

2.10SHIPPING AND HANDLING

 

Shipping and handling costs related to cost of goods sold are included in general and administrative expenses, which totaled $1,260, $1,673, $9,952 and $13,490 for the three months and the nine months ended September 30, 2015 and 2014, respectively. 

 

2.11ADVERTISING

 

Advertising costs are included in general and administrative expenses, which totaled $712,614, $708,049, $1,421,458 and $1,661,103 for the three months and the nine months ended September 30, 2015 and 2014, respectively.

 

2.12RESEARCH AND DEVELOPMENT EXPENSES

 

Research and development expenses are included in general and administrative expenses, which totaled $549,020, $0, $549,020 and $0 for the three months and the nine months ended September 30, 2015 and 2014, respectively.

 

2.13FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME

 

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

 

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

 

Accumulated other comprehensive income in the consolidated statement of shareholders’ equity amounted to $3,388,103 as of September 30, 2015 and $6,452,816 as of December 31, 2014. The balance sheet amounts with the exception of equity as of September 30, 2015 and December 31, 2014 were translated using an exchange rate of RMB 6.36 to $1.00 and RMB 6.15 to $1.00, respectively. The average translation rates applied to the statements of income and other comprehensive income and of cash flows for the nine months ended September 30, 2015 and 2014 were RMB 6.11 to $1.00 and RMB 6.15 to $1.00, respectively.

 

2.14CASH AND CASH EQUIVALENTS

 

The Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents. Cash and cash equivalents kept with financial institutions in the P.R.C. are not insured or otherwise protected. Should any of those institutions holding the Company’s cash become insolvent, or should the Company become unable to withdraw funds for any reason, the Company could lose the cash on deposit with that institution.

 

2.15ACCOUNTS RECEIVABLE

 

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.

 

The standard credit period for most of the Company’s clients is three months. The collection period over 1 year is classified as long-term accounts receivable. Management evaluates the collectability of the receivables at least quarterly. Provision for doubtful accounts as of September 30, 2015 and December 31, 2014 are $0.

 

 F-11 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

2.16INVENTORIES

 

Inventories are valued at the lower of cost (determined on a weighted average basis) and net realizable value. Costs incurred in bringing each product to its location and conditions are accounted for as follows:

 

(a)raw materials - purchase cost on a weighted average basis;

 

  (b) manufactured finished goods and work-in-progress - cost of direct materials and labor and a proportion of manufacturing overhead based on normal operation capacity but excluding borrowing costs; and

 

  (c) retail and wholesale merchandise finished goods - purchase cost on a weighted average basis.

 

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs for completion and the estimated costs necessary to make the sale.

 

2.17PLANT AND EQUIPMENT

 

Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Such costs include the cost of replacing parts that are eligible for capitalization when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalization. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end.

 

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets.

 

Plant and machinery   5 - 10 years
Structure and leasehold improvements   10 - 20 years
Mature seeds and herbage cultivation   20 years
Furniture and equipment   2.5 - 10 years
Motor vehicles   5 - 10 years

 

An item of plant and equipment is removed from the accounts upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated statements of income in the period the item is disposed.

 

2.18GOODWILL

 

Goodwill is an asset representing the fair economic benefits arising from other assets acquired in a business combination that are not individually identified or separately recognized. Goodwill is tested for impairment on an annual basis at the end of the Company’s fiscal year, or when impairment indicators arise. The Company uses a fair-value-based approach to test for impairment at the level of each reporting unit. The Company directly acquired MEIJI, which is the holding company of JHST that operates the Hu Plantation. As a result of this acquisition, the Company recorded goodwill in the amount of $724,940. This goodwill represents the fair value of the assets acquired in these acquisitions over the cost of the assets acquired.

 

2.19LONG TERM INVESTMENT

 

On October 29, 2014, the Company invested in Huangyuan County Rural Credit Union (“RCU”), Huangyuan County , Xining City, Qinghai Province, the P.R.C. RCU is engaged in the financing and crediting business to agricultural projects for local farmers. The Company has a 5% stake in RCU. The Company has no representative on the board of directors to oversee corporate operations. The Company accounts for its long term investment at cost.

 

 F-12 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.20 PROPRIETARY TECHNOLOGIES

 

A master license of stock feed manufacturing technology was acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility has been established. Cost of acquisition of stock feed manufacturing technology master license is amortized using the straight-line method over its estimated life of 20 years.

 

An aromatic cattle-feeding formula was acquired and the costs of acquisition are capitalized as proprietary technologies when technological feasibility has been established. Cost of acquisition on aromatic cattle-feeding formula is amortized using the straight-line method over its estimated life of 25 years.

 

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

 

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

 

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

 

  2.21 CONSTRUCTION IN PROGRESS

 

Construction in progress represents direct costs of construction as well as acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to property and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until construction is completed and the asset is ready for its intended use.

 

  2.22 LAND USE RIGHTS

 

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

 

  2.23 CORPORATE JOINT VENTURE

 

A corporation formed, owned, and operated by two or more businesses as a separate and discrete business or project (venture) for their mutual benefit is considered to be a corporate joint venture. Investee entities, in which the Company can exercise significant influence, but not control, are accounted for under the equity method of accounting. Under the equity method of accounting, the Company’s share of the earnings or losses of these companies is included in net income.

 

A loss in value of an investment that is other than a temporary decline is recognized as a charge to operations. Evidence of a loss in value might include, but would not necessarily be limited to, the absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.

 

 F-13 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.24 VARIABLE INTEREST ENTITY

 

A variable interest entity (“ VIE ”) is an entity (investee) in which the investor has obtained less than a majority interest, according to the Financial Accounting Standards Board (FASB). A VIE is subject to consolidation if a VIE meets one of the following three criteria as elaborated in ASC Topic 810-10, Consolidation:

 

  (a) equity-at-risk is not sufficient to support the entity’s activities;
  (b) as a group, the equity-at-risk holders cannot control the entity; or
  (c) the economics do not coincide with the voting interest.

 

If a firm is the primary beneficiary of a VIE, the holdings must be disclosed on the balance sheet. The primary beneficiary is defined as the person or company with the majority of variable interests. A corporation formed, owned, and operated by two or more businesses (ventures) as a separate and discrete business or project (venture) for their mutual benefit is defined as a joint venture.

 

  2.25 TREASURY STOCK

 

Treasury stock means shares of a corporation’s own stock that have been issued and subsequently reacquired by the corporation. Converting outstanding shares to treasury shares does not reduce the number of shares issued but does reduce the number of shares outstanding. These shares are not eligible to receive dividends. Accounting for excesses and deficiencies on treasury stock transactions is governed by ASC 505-30-30.

 

State laws and federal agencies closely regulate transactions involving a company’s own capital stock, so the purchase of outstanding shares must have a legitimate purpose. Some of the most common reasons for purchasing outstanding shares are as follows:

 

  (a) to meet additional stock needs for various reasons, including newly implemented stock option plans, stock for convertible bonds or convertible preferred stock, or a stock dividend.
  (b) to make more shares available for acquisitions of other entities.

 

The cost method of accounting for treasury shares has been adopted by the Company. The purchase of outstanding shares and thus converting them into treasury shares is treated as a temporary reduction in shareholders’ equity in view of the expectation to reissue the shares instead of retiring them. When the Company reissues the treasury shares, the temporary account is eliminated. The cost of acquiring outstanding shares for converting into treasury shares is charged to a contra account, in this case a contra equity account that reduces the stockholder equity balance.

 

  2.26 INCOME TAXES

 

The Company accounts for income taxes under the provisions of ASC Topic 740 “Accounting for Income Taxes.” Under ASC Topic 740, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

 

The provision for income tax is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized.

 

Deferred income taxes are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

 

ASC Topic 740 also prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or for one expected to be taken, in a tax return. ASC Topic 740 also provides guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. Any interest and penalties accrued related to unrecognized tax benefits will be recorded as tax expense.

 

 F-14 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.27 POLITICAL AND BUSINESS RISK

 

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

 

  2.28 CONCENTRATION OF CREDIT RISK

 

Cash includes cash at banks and demand deposits in accounts maintained with banks within the P.R.C. Total cash in these banks as of September 30, 2015 and December 31, 2014 amounted to $9,439,685 and $2,814,677, respectively, none of which is covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks to its cash in bank accounts.

 

The Company had 5 major customers (A, B, C, D & E) whose business individually represented the following percentages of the Company’s total revenue for the period indicated:

 

   Three
months
   Three
months
   Nine
months
   Nine
months
 
   ended   ended   ended   ended 
   September
30, 2015
   September
30, 2014
   September
30, 2015
   September
30, 2014
 
                 
Customer A   16.51%   14.33%   15.21%   11.64%
Customer B   -%   24.57%   13.96%   28.24%
Customer C   7.20%   15.78%   10.27%   16.70%
Customer D   9.02%   8.33%   9.94%   -%
Customer E   13.17%   5.77%   9.80%   7.12%
Customer F   8.83%   -%   -%   5.39%
    54.73%   68.78%   59.18%   69.09%

 

      Percentage
of revenue
   Amount 
Customer A  Fishery Development Division   15.21%  $50,329,220 
Customer B  Fishery Development and Corporate and Others Divisions   13.96%  $46,205,071 
Customer C  Organic Fertilizer and Bread Grass Division   10.27%  $33,990,991 

    

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

 

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

 

   September 30, 2015   December 31, 2014 
Customer A   13.73%   10.23%
Customer B   11.97%   13.51%
Customer C   8.39%   21.21%
Customer D   7.49%   -%
Customer E   6.72%   9.68%
Customer F   -%   7.12%
    48.30%   61.75%

 

As of September 30, 2015, amounts due from customers A and B are $17,746,268 and $15,470,875, respectively. The Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any financial difficulties of its major customers.

 

 F-15 
 

  

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.29 IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS

 

In accordance with ASC Topic 360, “Property, Plant and Equipment,” long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company reviews the carrying amount of its long-lived assets, including intangibles, for impairment, during each reporting period. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is considered not recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of September 30, 2015 and December 31, 2014, the Company determined no impairment losses were necessary.

 

  2.30 EARNINGS PER SHARE

 

As prescribed in ASC Topic 260 “ Earnings per Share, ” Basic Earnings per Share (“ EPS ”) is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common stock shares outstanding during the year plus potential dilutive instruments such as stock options and warrants. The effect of stock options on diluted EPS is determined through the application of the treasury stock method, whereby proceeds received by the Company based on assumed exercises are hypothetically used to repurchase the Company’s common stock at the average market price during the period.

 

ASC 260-10-55 requires that stock dividends or stock splits be accounted for retroactively if the stock dividends or stock splits occur during the year, or retroactively if the stock dividends or stock splits occur after the end of the period but before the release of the financial statements, by considering it outstanding of the entirety of each period presented. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the year.

 

For the three months ended September 30, 2015 and 2014, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders amount to $1.14 and $1.49 respectively. For the three months ended September 30, 2015 and 2014, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $1.14 and $1.43, respectively,

 

For the nine months ended September 30, 2015 and 2014, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries’ common stockholders amount to $3.02 and $4.42 respectively. For the nine months ended September 30, 2015 and 2014, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $3.02 and $4.23, respectively,

 

  2.31 ACCUMULATED OTHER COMPREHENSIVE INCOME

 

ASC Topic 220 “Comprehensive Income” establishes standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income is defined as the change in stockholders’ equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The comprehensive income for all periods presented includes both the reported net income and net change in cumulative translation adjustments.

 

  2.32 RETIREMENT BENEFIT COSTS

 

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

 

  2.33 STOCK-BASED COMPENSATION

 

The Company has adopted both ASC Topic 718, “Compensation - Stock Compensation” and ASC Topic 505-50, “Equity-Based Payments to Non - Employees” using the fair value method in which an entity issues its equity instruments to acquire goods and services from employees and non-employees. Stock compensation for stock granted to non-employees has been determined in accordance with this accounting standard and the accounting standard regarding accounting for equity instruments that are issued to other than employees for acquiring, or in conjunction with selling goods or services, as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured. This accounting standard allows the “simplified” method to determine the term of employee options when other information is not available. Under ASC Topic 718 and ASC Topic 505-50, stock compensation expenses is measured at the grant date on the value of the option or restricted stock and is recognized as expenses, less expected forfeitures, over the requisite service period, which is generally the vesting period.

 

 F-16 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.34 FAIR VALUE OF FINANCIAL INSTRUMENTS

 

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

 

  Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
  Level 2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
  Level 3 Pricing inputs that are generally observable inputs and not corroborated by market data.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value as of September 30, 2015 or December 31, 2014, nor gains or losses are reported in the statements of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the nine months ended September 30, 2015 or 2014.

 

  2.35 NEW ACCOUNTING PRONOUNCEMENTS

 

The Company does not expect any recent accounting pronouncements to have a material effect on the Company’s financial position, results of operations, or cash flows.

 

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

 

 F-17 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.35 NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. As such, the updated standard will be effective for us in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. We are still evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

 

In June 2014, the FASB issued ASU 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. The guidance eliminates the definition of a development stage entity thereby removing the incremental financial reporting requirements from U.S. GAAP for development stage entities, primarily presentation of inception to date financial information. The provisions of the amendments are effective for annual reporting periods beginning after December 15, 2014, and the interim periods therein. However, early adoption is permitted. Accordingly, the Company has adopted this standard as of July 31, 2014.

 

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

 

In November 2014, FASB issued ASU No. 2014-17, (Business Combinations (Topic 805): Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force.) The amendments in this update provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The adoption of ASU 2014-17 did not have a material impact on the Company’s consolidated financial statements.

 

In January 2015, FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU 2015-01 to have material impact on the Company’s consolidated financial statements.

 

In February 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The new consolidation standard changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity ("VIE"), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The guidance is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2015. Early adoption is allowed, including early adoption in an interim period. A reporting entity may apply a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or may apply the amendments retrospectively. The Company is currently assessing the impact of the adoption of this guidance on the consolidated financial statements.

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, which simplifies presentation of debt issuance costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU No. 2015-03 will be effective for fiscal years beginning after December 15, 2015, with early adoption permitted. The Company has elected to adopt this ASU early and the adoption of this guidance did not have a material effect on its consolidated financial statements.

 

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

 

 F-18 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

  3. SEGMENT INFORMATION

 

The Company establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as business segments and major customers in consolidated financial statements. The Company operates in five principal reportable segments: Fishery Development Division, HU Plantation Division, Organic Fertilizer and Bread Grass Division, Cattle Farm Development Division and Corporate and Others Division. No geographic information is required as all revenue and assets are located in the P.R.C.

 

   For the three months ended September  30, 2015     
           Organic             
   Fishery       Fertilizer and   Cattle Farm         
   Development   HU Plantation   Bread Grass   Development   Corporate and     
   Division (1)   Division (2)   Division (3)   Division (4)   Others Division (5)   Total 
                         
Revenue  $57,233,749   $7,375,393   $40,358,733   $9,636,919   $10,061,605   $124,666,399 
                               
Net income (loss)  $14,859,021   $3,532,872   $4,207,421   $921,276   $(1,998,490)  $21,522,100 
                               
Total assets  $142,302,901   $58,195,820   $303,489,428   $36,149,206   $85,624,327   $625,761,682 

 

   For the three months ended September 30, 2014     
           Organic             
   Fishery       Fertilizer and   Cattle Farm         
   Development   HU Plantation   Bread Grass   Development   Corporate and     
   Division (1)   Division (2)   Division (3)   Division (4)   Others Division (5)   Total 
                         
Revenue  $47,780,135   $5,813,667   $33,700,137   $6,814,990   $13,111,130   $107,220,059 
                               
Net income (loss)  $13,754,241   $2,567,126   $6,994,954   $641,963   $543,578   $24,501,862 
                               
Total assets  $131,700,632   $55,471,908   $218,710,852   $39,995,639   $35,116,673   $480,995,704 

   

 F-19 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

  3. SEGMENT INFORMATION (CONTINUED)

 

   For the nine months ended September 30, 2015     
           Organic             
   Fishery       Fertilizer and   Cattle Farm         
   Development   HU Plantation   Bread Grass   Development   Corporate and     
   Division (1)   Division (2)   Division (3)   Division (4)   Others Division (5)   Total 
                         
Revenue  $138,547,396   $11,568,406   $122,162,504   $27,424,589   $31,293,682   $330,996,577 
                               
Net income (loss)  $37,959,003   $4,482,153   $14,599,210   $1,895,794   $(4,349,017)  $54,587,143 
                               
Total assets  $142,302,901   $58,195,820   $303,489,428   $36,149,206   $85,624,327   $625,761,682 

 

   For the nine months ended September 30, 2014     
           Organic             
   Fishery       Fertilizer and   Cattle Farm         
   Development   HU Plantation   Bread Grass   Development   Corporate and     
   Division (1)   Division (2)   Division (3)   Division (4)   Others Division (5)   Total 
                         
Revenue  $136,968,336   $9,085,607   $95,459,852   $21,483,496   $32,183,061   $295,180,352 
                               
Net income (loss)  $32,002,640   $3,752,283   $25,914,779   $1,966,526   $4,740,591   $68,376,819 
                               
Total assets  $131,700,632   $55,471,908   $218,710,852   $39,995,639   $35,116,673   $480,995,704 

 

(1) Operated by Capital Award, Inc. (“CA”) and Jiang Men City A Power Fishery Development Co., Limited (“JFD”).

 

(2) Operated by Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”).

 

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

 

(4) Operated by Jiang Men City Hang Mei Cattle Farm Development Co. Limited (“JHMC”) and Macau Eiji Company Limited (“MEIJI”).

 

(5) Operated by Sino Agro Food, Inc. (“SIAF”) and Sino Agro Food Sweden AB (publ) (“SAFS”).

 

 F-20 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

  3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

   For the three months ended September 30, 2015     
   Fishery
Development
Division (1)
   HU Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate and
Others Division (5)
   Total 
Name of entity                              
Sale of goods                              
Capital Award, Inc. (“CA”)  $28,600,191   $-   $-   $-   $-   $28,600,191 
                               
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   -    7,375,393    -    -    -    7,375,393 
                               
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   -    -    4,871,273    -    -    4,871,273 
                               
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)   -    -    21,284,622    -    -    21,284,622 
                               
Qinghai Zhong He Meat Products Co., Limited (“QZH”)   -    -    14,202,838    -    -    14,202,838 
                               
Macau Eiji Company Limited (“MEIJI”)   -    -    -    9,636,919    -    9,636,919 
                               
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    10,061,605    10,061,605 
                               
Consulting and service income for development contracts                              
Capital Award, Inc. (“CA”)   28,406,973    -    -    -    -    28,406,973 
                               
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    -    - 
                               
Commission and management fee                              
Capital Award, Inc. (“CA”)   226,585    -    -    -    -    226,585 
                               
Macau Eiji Company Limited (“MEIJI”)   -    -    -    -    -    - 
                               
   $57,233,749   $7,395,393   $40,358,733   $9,636,919   $10,061,605   $124,666,399 

 

 F-21 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

  3. SEGMENT INFORMATION (CONTINUED)

 

  Further analysis of revenue (Continued):-

 

   For the three months ended September 30, 2014     
   Fishery
Development
Division (1)
   HU
Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and Others
Division (5)
   Total 
Name of entity                              
Sale of goods                              
Capital Award, Inc. (“CA”)  $22,731,491   $-   $-   $-   $-   $22,731,491 
                               
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   -    5,813,667    -    -    -   $5,813,667 
                               
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   -    -    5,794,162    -    -    5,794,162 
                               
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)   -    -    22,236,925    -    -    22,236,925 
                               
Qinghai Zhong He Meat Products Co., Ltd (“QZH”)   -    -    5,669,050    -    -    5,669,050 
                               
Macau Eiji Company Limited (“MEIJI”)   -    -    -    6,814,990    -    6,814,990 
                               
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    13,111,130    13,111,130 
                               
Consulting and service income for development contracts                              
Capital Award, Inc. (“CA”)   24,598,641    -    -    -    -    24,598,641 
                               
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    -    - 
                               
Commission and management fee                              
Capital Award, Inc. (“CA”)   450,003    -    -    -    -    450,003 
                               
Macau Eiji Company Limited (“MEIJI”)   -    -    -    -    -    - 
                               
   $47,780,135   $5,813,667   $33,700,137   $6,814,990   $13,111,130   $107,220,059 

  

 F-22 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

  3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue (Continued):-

 

   For the nine months ended September  30, 2015     
   Fishery
Development
Division (1)
   HU Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate and
Others Division (5)
   Total 
Name of entity                              
Sale of goods                              
Capital Award, Inc. (“CA”)  $74,962,479   $-   $-   $-   $-   $74,962,479 
                               
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   -    11,568,406    -    -    -   $11,568,406 
                               
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   -    -    13,962,447    -    -    13,962,447 
                               
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)   -    -    65,109,790    -    -    65,109,790 
                               
Qinghai Zhong He Meat Products Co., Ltd (“QZH”)   -    -    43,090,267    -    -    43,090,267 
                               
Macau Eiji Company Limited (“MEIJI”)   -    -    -    27,424,589    -    27,424,589 
                               
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    27,507,708    27,507,708 
                               
Consulting and service income for development contracts                              
Capital Award, Inc. (“CA”)   62,334,261    -    -    -    -    62,334,261 
                               
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    3,785,974    3,785,974 
                               
Commission and management fee                              
Capital Award, Inc. (“CA”)   716,588    -    -    -    -    716,588 
                               
Macau Eiji Company Limited (“MEIJI”)   534,068    -    -    -    -    534,068 
                               
   $138,547,396   $11,568,406   $122,162,504   $27,424,589   $31,293,682   $330,996,577 

 

 F-23 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

  3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue (Continued):-

  

   For the nine months ended September 30, 2014     
   Fishery
Development
Division (1)
   HU
Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and Others
Division (5)
   Total 
Name of entity                              
Sale of goods                              
Capital Award, Inc. (“CA”)  $86,218,455   $-   $-   $-   $-   $86,218,455 
                               
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   -    9,085,607    -    -    -   $9,085,607 
                               
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   -    -    15,750,656    -    -    15,750,656 
                               
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)   -    -    72,241,319    -    -    72,241,319 
                               
Qinghai Zhong He Meat Products Co., Ltd (“QZH”)   -    -    7,467,877    -    -    7,467,877 
                               
Macau Eiji Company Limited (“MEIJI”)   -    -    -    21,483,496    -    21,483,496 
                               
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    30,553,374    30,553,374 
                               
Consulting and service income for development contracts                              
Capital Award, Inc. (“CA”)   49,558,454    -    -    -    -    49,558,454 
                               
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    1,629,687    1,629,687 
                               
Commission and management fee                              
Capital Award, Inc. (“CA”)   1,191,427    -    -    -    -    1,191,427 
                               
Macau Eiji Company Limited (“MEIJI”)   -    -    -    -    -    - 
                               
   $136,968,336   $9,085,607   $95,459,852   $21,483,496   $32,183,061    $295,180,352 

 

 F-24 
 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

3. SEGMENT INFORMATION (CONTINUED)

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

COST OF GOODS SOLD

 

    For the three months ended September 30, 2015        
    Fishery
Development
Division (1)
    HU
Plantation
Division (2)
    Organic
Fertilizer and
Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and Others
Division (5)
    Total  
Name of entity                                                
Sale of goods                                                
Capital Award, Inc. (“CA”)   $ 23,144,284     $ -     $ -     $ -     $ -     $ 23,144,284  
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       2,447,904       -       -       -       2,447,904  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       2,955,147       -       -       2,955,147  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       17,967,937       -       -       17,967,937  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       10,809,198       -       -       10,809,198  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       8,996,149       -       8,966,149  
                                                 
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       8,943,649       8,943,649  
    $ 23,144,284     $ 2,447,904     $ 31,732,282     $ 8,996,149     $ 8,943,649     $ 75,264,268  

 

COST OF SERVICES

 

   For the three months ended September 30, 2015     
   Fishery
Development
Division (1)
   HU
Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and Others
Division (5)
   Total 
                         
Name of entity                              
Consulting and service income for development contracts                              
                               
Capital Award, Inc. (“CA”)  $17,151,938   $-   $-   $-   $-   $17,151,938 
                               
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    -    - 
   $17,151,938   $-   $-   $-   $-   $17,151,938 

 

 F-25 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

3. SEGMENT INFORMATION (CONTINUED)

 

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

COST OF GOODS SOLD

 

    For the three months ended September 30, 2014        
    Fishery
Development
Division (1)
    HU
Plantation
Division (2)
    Organic
Fertilizer and
Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and Others
Division (5)
    Total  
Name of entity                                                
Sale of goods                                                
Capital Award, Inc. (“CA”)   $ 15,935,868     $ -     $ -     $ -     $ -     $ 15,935,868  
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       1,704,741       -       -       -       1,704,741  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       4,698,541       -       -       4,698,541  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       15,270,656       -       -       15,270,656  
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       3,519,966       -       -       3,519,966  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       6,443,072       -       6,443,072  
                                                 
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       11,548,682       11,548,682  
    $ 15,935,868     $ 1,704,741     $ 23,489,163     $ 6,443,072     $ 11,548,682     $ 59,121,526  

 

COST OF SERVICES

 

    For the three months ended September 30, 2014        
    Fishery
Development
Division (1)
    HU Plantation
Division (2)
    Organic
Fertilizer and
Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and Others
Division (5)
    Total  
Name of entity                                                
Consulting and service income for development contracts                                                
                                                 
Capital Award, Inc. (“CA”)   $ 13,601,869     $ -     $ -     $ -     $ -     $ 13,601,869  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       -       -       -  
    $ 13,601,869     $ -     $ -     $ -     $ -     $ 13,601,869  

 

 F-26 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

3. SEGMENT INFORMATION (CONTINUED)

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

COST OF GOODS SOLD

 

   For the nine months ended September 30, 2015     
   Fishery
Development
Division (1)
   HU
Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and Others
Division (5)
   Total 
Name of entity                              
Sale of goods                              
Capital Award, Inc. (“CA”)  $57,904,256   $-   $-   $-   $-   $57,904,256 
                               
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   -    3,592,659    -    -    -    3,592,659 
                               
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   -    -    8,187,619    -    -    8,187,619 
                               
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)   -    -    49,816,505    -    -    49,816,505 
                               
Qinghai Zhong He Meat Products Co., Limited (“QZH”)   -    -    31,225,451    -    -    31,225,451 
Macau Eiji Company Limited (“MEIJI”)   -    -    -    26,121,572    -    26,121,572 
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    23,914,592    23,914,592 
   $57,904,256   $3,592,659   $89,229,575   $26,121,572   $23,914,592   $200,762,654 

 

COST OF SERVICES

 

   For the nine months ended  September 30, 2015     
   Fishery
Development
Division (1)
   HU Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and Others
Division (5)
   Total 
Name of entity                              
Consulting and service income for development contracts                              
                               
Capital Award, Inc. (“CA”)  $39,063,555   $-   $-   $-   $-   $39,063,555 
                               
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    1,404,813    1,404,813 
   $39,063,555   $-   $-   $-   $1,404,813   $40,468,368 

 

 F-27 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

3. SEGMENT INFORMATION (CONTINUED)

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

COST OF GOODS SOLD

 

   For the nine months ended September 30, 2014     
   Fishery
Development
Division (1)
   HU
Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and Others
Division (5)
   Total 
Name of entity                              
Sale of goods                              
Capital Award, Inc. (“CA”)  $54,861,550   $-   $-   $-   $-   $54,861,550 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)   -    2,423,811    -    -    -    2,423,811 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   -    -    10,371,555    -    -    10,371,555 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)   -    -    48,552,223    -    -    48,552,223 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)   -    -    4,680,245    -    -    4,680,245 
Macau Eiji Company Limited (“MEIJI”)   -    -    -    20,418,345    -    20,418,345 
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    31,728,186    31,728,186 
   $54,861,550   $2,423,811   $63,604,023   $20,418,345   $31,728,186   $173,035,915 

 

COST OF SERVICES

 

   For the nine months ended September 30, 2014     
   Fishery
Development
Division (1)
   HU
Plantation
Division (2)
   Organic
Fertilizer and
Bread Grass
Division (3)
   Cattle Farm
Development
Division (4)
   Corporate
and Others
Division (5)
   Total 
                         
Name of entity                              
Consulting and service income for development contracts                              
                               
Capital Award, Inc. (“CA”)  $25,236,498   $-   $-   $-   $-   $25,236,498 
                               
Sino Agro Food, Inc. (“SIAF”)   -    -    -    -    1,554,244    1,554,244 
   $25,236,498   $-   $-   $-   $1,554,244   $26,790,742 

 

 F-28 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

4. GAIN ON EXTINGUISHMENT OF DEBTS

 

The Company executed several agreements with third parties to settle debts by issuance of the Company’s common stock. The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts of $0, $33,693, $0 and $275,086 has been credited to consolidated statements of income as other income for the three months and the nine months ended September 30, 2015 and 2014, respectively.

 

   Three months   Three months 
   ended   ended 
   September 30, 2015   September 30, 2014 
         
Total amounts of debts to be settled  $-   $2,431,374 
Less:  Aggregate market fair value of (9.30.2014: 599,008) shares of common stock in exchange of the above debts for debts extinguishment   -    (2,397,681)
           
Gain on extinguishment of debts  $-   $33,693 

 

   Nine months   Nine months 
   ended   ended 
   September 30, 2015   September 30, 2014 
         
Total amounts of debts to be settled  $-   $12,006,374 
Less:  Aggregate market fair value of (9.30.2014: 2,034,607) shares of common stock in exchange of the above debts for debts extinguishment   -    (11,731,288)
           
Gain on extinguishment of debts  $-   $275,086 

 

5. INCOME TAXES

 

United States of America

 

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

 

Undistributed Earnings of Foreign Subsidiaries

The Company intends to use the remaining accumulated and future earnings of foreign subsidiaries to expand operations outside the United States and accordingly, undistributed earnings of foreign subsidiaries are considered to be indefinitely reinvested outside the United States and no provision for U.S. Federal and State income tax or applicable dividend distribution tax has been provided thereon.

 

The Company appointed US tax professionals to assist in filing income tax returns for the years ended December 31, 2014 and 2013 in compliance with US Treasury Internal Revenue Code and we filed our Tax returns with the Internal Revenue Service (“ IRS”) of USA Government.

 

As of September 30, 2015, the Company reviewed its tax position with the assistance US tax professionals and believed that there would be no taxes and no penalties assessed by the IRS in the United States of America.

 

 F-29 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

5. INCOME TAXES (CONTINUED)

 

China

 

Beginning January 1, 2008, the new Enterprise Income Tax (“ EIT ”) law replaced the existing laws for Domestic Enterprises (“ DE’s ”) and Foreign Invested Enterprises (“ FIE’s ”). The new standard EIT rate of 25% replaced the 33% rate currently applicable to both DE’s and FIE’s. The Company is currently evaluating the impact that the new EIT will have on its financial condition. Beginning January 1, 2008, China unified the corporate income tax rule on foreign invested enterprises and domestic enterprises. The unified corporate income tax rate is 25%.

 

Under new tax legislation in China beginning in January 2008, the agriculture, dairy and fishery sectors are exempt from enterprise income taxes.

 

No EIT has been provided in the financial statements of SIAF, CA, JHST, JHMC, JFD, HSA, SJAP and QZH since they are exempt from EIT for the nine months ended September 30, 2015 and 2014 as they are within the agriculture, dairy and fishery sectors.

 

Belize

 

CA, CS and CH are international business companies incorporated in Belize, and are exempt from corporate tax in Belize.

 

Hong Kong

 

No Hong Kong profits tax has been provided in the consolidated financial statements of TRW, since these entities did not earn any assessable profits arising in Hong Kong for the nine months ended September 30, 2015 and 2014.

 

Macau

 

No Macau Corporate income tax has been provided in the consolidated financial statements of APWAM and MEIJI since these entities did not earn any assessable profits for the nine months ended September 30, 2015 and 2014.

 

Sweden

 

No Sweden Corporate income tax has been provided in the consolidated financial statements of SAFS since SAFS incurred a tax loss for the nine months ended September 30, 2015 and 2014.

 

No deferred tax assets and liabilities are of September 30, 2015 and December 31, 2014 since there was no difference between the financial statements carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the period in which the differences are expected to reverse.

 

Provision for income taxes is as follows:

 

   Three months   Three months   Nine months   Nine months 
   ended   ended   ended   ended 
   September 30, 2015   September30, 2014   September 30, 2015   September 30, 2014 
                 
SIAF  $-   $-   $-   $- 
SAFS   -    -    -    - 
TRW   -    -    -    - 
MEIJI and APWAM   -    -    -    - 
JHST, JFD.JHMC, QZH and HSA   -    -    -    - 
   $-   $-   $-   $- 

 

The Company did not recognize any interest or penalties related to unrecognized tax benefits in the nine months ended September 30, 2015 and 2014. The Company had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by the respective tax authorities.

 

 F-30 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

6. CASH AND CASH EQUIVALENTS

 

   September 30,
2015
   December 31,
2014
 
           
Cash and bank balances  $9,551,180   $3,031,447 

 

7. INVENTORIES

 

As of September 30, 2015, inventories are as follows:

 

   September 30,   December 31, 
   2015   2014 
         
Sleepy cods, prawns, eels and marble goby  $1,963,368   $3,051,606 
Beef and mutton   8,910,315    2,908,886 
Bread grass   1,815,981    2,336,308 
Beef cattle   10,533,023    8,362,763 
Organic fertilizer   9,129,378    7,292,389 
Forage for cattle and consumable   4,372,822    6,547,333 
Raw materials for bread grass and organic fertilizer   13,739,322    14,223,407 
Immature seeds   669,706    1,245,301 
   $51,133,915   $45,967,993 

 

8. DEPOSITS AND PREPAYMENTS

 

   September 30,   December 31, 
   2015   2014 
         
Deposits for          
  -  purchases of equipment  $4,670,256   $4,668,784 
  -  acquisition of land use rights   3,373,110    3,373,110 
  - inventories purchases   15,398,833    14,221,199 
  - aquaculture contracts   6,114,179    20,467,603 
  - building materials   877,598    877,598 
  - consulting service providers and others   20,408,374    5,188,473 
  - construction in progress   20,467,357    20,467,357 
Prepayments - debts discounts and others   11,961,367    3,827,401 
Shares issued for employee compensation and overseas professional and bond interest   1,769,487    2,860,066 
   $85,040,561   $75,951,591 

 

9. ACCOUNTS RECEIVABLE

 

The Company has performed an analysis on all of its accounts receivable and determined that all amounts are collectible by the Company. As such, all accounts receivable are reflected as a current asset and no allowance for bad debt has been recorded as of September 30, 2015 and December 31, 2014. Bad debts written off for the three months and the nine months ended September 30, 2015 and 2014 are $0.

 

Aging analysis of accounts receivable is as follows:

 

   September 30,   December 31, 
   2015   2014 
         
0 - 30 days  $48,795,815   $21,663,061 
31 - 90 days   35,626,953    38,324,554 
91 - 120 days   21,486,541    21,138,383 
over 120 days and less than 1 year   23,348,513    23,377,073 
over 1 year   -    - 
   $129,257,822   $104,503,071 

  

 F-31 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

10. OTHER RECEIVABLES

 

   September 30,   December 31, 
   2015   2014 
         
Advanced to employees  $635,214   $476,630 
Advanced to suppliers   7,362,410    9,910,682 
Advanced to customers   28,736,568    13,917,948 
Advanced to developers   28,000,000    28,000,000 
Advanced to convertible bond holder   1,899,350    - 
   $66,633,542   $52,305,260 

 

Advanced to employees, suppliers, customers and developers are unsecured, interest free and with no fixed terms of repayment.

 

The Company entered friendly loan agreements with suppliers, customers and developers to assist them to procure project loans.

 

11. PLANT AND EQUIPMENT

 

   September 30,   December 31, 
   2015   2014 
         
Plant and machinery  $5,573,254   $5,507,571 
Structure and leasehold improvements   62,579,026    51,650,906 
Mature seeds and herbage cultivation   13,769,650    10,794,289 
Furniture and equipment   653,406    629,055 
Motor vehicles   765,858    765,858 
    83,341,194    69,347,679 
           
Less: Accumulated depreciation   (7,139,724)   (4,994,704)
Net carrying amount  $76,201,470   $64,352,975 

 

Depreciation expense was $538,147, $636,774, $2,145,020 and $1,768,047 for the three months and the nine months ended September 30, 2015 and 2014, respectively.

 

12. CONSTRUCTION IN PROGRESS

 

   September 30,   December 31, 
   2015   2014 
         
Construction in progress          
- Office, warehouse and organic  fertilizer plant in  HSA  $31,511,246   $20,205,123 
- Oven room, road for production of dried flowers   47,163    539,304 
- Organic fertilizer and bread grass production plant and office building   11,111,744    12,325,685 
- Rangeland for beef cattle and office building   47,305,178    35,074,556 
- Fish pond   3,105,243    975,609 
   $93,080,574   $69,120,277 

 

13. LAND USE RIGHTS

 

Private ownership of agricultural land is not permitted in the P.R.C. Instead, the Company has leased seven lots of land. The cost of the first lot of land use rights acquired in 2007 in Guangdong Province, the P.R.C. was $6,408,289 and consists of 180.23 acres with the lease expiring in 2067. The cost of the second lot of land use rights acquired in 2008 in Guangdong Province, the P.R.C. was $764,128, which consists of 31.84 acres with the lease expiring in 2068. The cost of the third lot of land use rights acquired in 2011 was $12,040,571, which consists of 79.48 acres in Guangdong Province, the P.R.C. with the lease expires in 2037. The cost of the fourth lot of land use rights acquired in 2011 was $35,405,750 which consisted of 287.21 acres in the Hunan Province, the P.R.C. and the leases expire in 2051, 2054 and 2071. The cost of the fifth lot of land use rights acquired in 2012 was $528,240 which consisted of 21.09 acres in Qinghai Province, the P.R.C. and the lease expires in 2051. The cost of the sixth lot of land use rights acquired in 2013 was $489,904 which consisted of 6.27 acres in Guangdong Province, the P.R.C. and the lease expires in 2023. The cost of the seventh lot of land use rights acquired in 2014 was $4,453,665 which consisted of 33.28 acres in Guangdong Province, the P.R.C. and the lease expires in 2044.

 

 F-32 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

13. LAND USE RIGHTS (CONTINUED)

 

   September 30,   December 31, 
   2015   2014 
         
Cost  $67,145,859   $69,428,143 
Less: Accumulated amortization   (7,180,480)   (6,105,941)
Net carrying amount  $59,965,379   $63,322,202 

 

    Expiry date   Description   Amount  
               
Balance @1.1.2014           $ 65,192,615  
Additions                
2014   2044   Zhongshan City, Guangdong Province, the P.R.C.     4,453,665  
Exchange difference             (218,137 )
Balance @12.31.2014             69,428,143  
Exchange difference             (2,282,284 )
Balance @9.30.2015           $ 67,145,859  

 

Land use rights are amortized on the straight-line basis over their respective lease periods. The lease period of agriculture land is 30 to 60 years. Amortization of land use rights was $276,988 and $395,633, $1,074,539 and $1,155,667 for the three months and the nine months ended September 30, 2015 and 2014, respectively.

 

14. GOODWILL

 

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

 

   September 30,   December 31, 
   2015   2014 
         
Goodwill from acquisition  $724,940   $724,940 
Less: Accumulated impairment losses   -    - 
Net carrying amount  $724,940   $724,940 

 

15. PROPRIETARY TECHNOLOGIES

 

By an agreement dated November 12, 2008, TRW acquired an enzyme technology master license, registered under a Chinese patent, for the manufacturing of livestock feed and bioorganic fertilizer and its related labels for $8,000,000. On March 6, 2012, MEIJI acquired an aromatic-feed formula technology for the production of aromatic cattle for $1,500,000. On October 1, 2013, SIAF was granted a license to exploit sleepy cods breeding technology to grow out of sleepy cods for $2,270,968 for 50 years. SJAP booked bacterial cellulose technology license and related trademark for $2,119,075 and amortized expenditures for 20 years starting from January 1, 2014.

 

   September 30,   December 31, 
   2015   2014 
         
Cost  $13,814,353   $13,886,098 
Less: Accumulated amortization   (2,844,687)   (2,405,800)
Net carrying amount  $10,969,666   $11,480,298 

 

Amortization of proprietary technologies was $141,438, $166,775, $438,887 and $463,600 for the three months and the nine months ended September 30, 2015 and 2014, respectively. No impairments of proprietary technologies have been identified for the three months and nine months ended September 30, 2015 and 2014.

 

 F-33 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

16. LONG TERM INVESTMENT

 

   September 30,   December 31, 
   2015   2014 
         
Investment in Huangyuan County Rural Credit Union  $786,040   $817,127 
Less: Accumulated impairment losses   -    - 
   $786,040   $817,127 

 

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

 

Intended                    
unincorporated   Projects       September 30,     December 31,  
investee   Engaged       2015     2014  
A   Trade center   *   $ 4,086,941     $ 4,086,941  
A   Seafood center   *     1,032,914       1,032,914  
B   Fish Farm 2 GaoQiqiang Aquaculture   *     6,000,000       6,000,000  
C   Prawn farm 1   *     14,554,578       14,554,578  
D   Prawn farm 2   *     9,877,218       9,877,218  
E   Cattle farm 2   *     5,558,057       5,558,057  
            $ 41,109,708     $ 41,109,708  

 

The Company made temporary deposits paid to entities for equity investments in future Sino Joint Venture companies (“SJVCs”) engaged in projects development of trade and seafood centers, fish, prawns and cattle farms. Such temporary deposits represented as deposits of the respective consideration required for the purchase of equity stakes of respective future SJVCs. The amounts were classified as temporary because legal procedures of formation of SJVCs have not yet been completed. As of September 30, 2015, the percentages of equity stakes of A (trade and seafood centers), B ( fish farm 2 GaoQiqiang Aquaculture Farm ), C (prawn farm 1), D (pawn farm 2) and E (cattle farm 2) are 31%, 23%, 56%, 29% and 35% respectively.

 

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

 

18. VARIABLE INTEREST ENTITY

 

On September 28, 2009, APWAM acquired the PMH’s 45% equity interest in the Sino-Foreign joint venture company, Qinghai Sanjiang A Power Agriculture Co. Limited (“ SJAP ”), which was incorporated in the P.R.C. As of September 30, 2015, the Company has invested $2,251,359 in this joint venture. SJAP is engaged in its business of the manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures.

 

Continuous assessment of the VIE relationship with SJAP

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

 

 F-34 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

18. VARIABLE INTEREST ENTITY (CONTINUED)

 

The Company also quantitatively and qualitatively examined if SJAP is considered a VIE. Qualitative analyses considered the extent to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine if SJAP was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant managerial judgment because of the inherent limitations that relate to the use of historical data for the projection of future events. On September 30, 2015, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of SJAP’s expected losses or residual returns and that SJAP qualifies as a VIE of the Company. As result, the Company has consolidated SJAP as a VIE.

 

The reasons for the changes are as follows:

 

• Originally, the board of directors of SJAP consisted of 7 members; 3 appointees from Qinghai Sanjiang (one stockholder), 1 from Garwor (one stockholder), and 3 from the Company, such that the Company did not have majority interest represented on the board of directors of SJAP.

 

• On May 7, 2010, Qinghai Sanjiang sold and transferred its equity interest in SJAP to Garwor. The State Administration for Industry and Commerce of Xining City Government of the P.R.C. approved the sale and transfer.

 

Consequently Garwor and the Company agreed that the new board of directors of SJAP would consist of 3 members; 1 appointee from Garwor and 2 appointees from the Company, such that the Company now had a majority interest in the board of directors of SJAP. Also, and in accordance with the Company’s Sino Joint Venture Agreement, the Company’s management appointed the chief financial officer of SJAP. As a result, the financial statements of SJAP were included in the consolidated financial statements of the Company.

 

Continuous assessment of the VIE relationship with QZH

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

 

The Company also quantitatively and qualitatively examined if QZH is considered a VIE. Qualitative analyses considered the extent to which the nature of its variable interest exposed the Company to losses. For quantitative analyses, the Company also used internal cash flow models to determine if QZH was a VIE and, if so, whether the Company was the primary beneficiary. The projection of these cash flows and probabilities thereof requires significant managerial judgment because of the inherent limitations that relate to the use of historical data for the projection of future events. On September 30, 2015, the Company evaluated the above VIE testing results and concluded that the Company is the primary beneficiary of QZH’s expected losses or residual returns and that QZH qualifies as a VIE of the Company. As result, the Company has consolidated QZH as a VIE.

 

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

 

 F-35 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

19. CONSTRUCTION CONTRACT

 

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

 

   September 30,   December 31, 
   2015   2014 
         
Costs  $6,487,032   $- 
Estimated earnings   10,995,534    - 
Less:  Billings   (16,175,681)   - 
Costs and estimated earnings in excess of billings on
uncompleted contracts
  $1,306,885   $- 

  

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

 

   September 30,   December 31, 
   2015   2014 
         
Billings  $146,651,242   $102,199,674 
Less:  Costs   (80,630,325)   (46,648,989)
Estimated earnings   (62,146,437)   (47,490,105)
Billing in excess of costs and estimated earnings on uncompleted contracts  $3,874,480   $8,060,580 

  

  (iii) Overall

 

   September 30,   December 31, 
   2015   2014 
         
Billings  $162,826,923   $102,199,674 
Less:  Costs   (87,117,357)   (46,648,989)
Estimated earnings   (73,141,971)   (47,490,105)
Billing in excess of costs and estimated earnings on uncompleted contracts  $2,567,595   $8,060,580 

 

20. SERIES F SHARES MANDATORY REDEMPTION PAYABLE

 

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

 

21. OTHER PAYABLES

 

   September 30,   December 31, 
   2015   2014 
         
Due to third parties  $2,631,796   $8,176,469 
Due to debts loan   4,797,332    - 
Promissory notes issued to third parties   3,100,000    1,100,000 
Due to local government   2,327,464    2,419,513 
   $12,856,592   $11,695,982 
           
Less: Amount classified as non-current liabilities          
Due  to debts loan   (4,797,332)   - 
Amount classified as current liabilities  $8,059,260   $11,695,982 

 

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

 

The Company issued 753,304 shares of common stock ranging from $6.96 to $8.91 as collateral to secure debts loan of $4,797,332 from third party. The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued.

 

 F-36 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

22. BORROWINGS

 

There are no provisions in the Company’s bank borrowings and long term debts that would accelerate repayment of debt as a result of a change in credit ratings or a material adverse change in the Company’s business. Under certain agreements, the Company has the option to retire debt prior to maturity, either at par or at a premium over par.

 

Short term bank loans               September 30,     December 31,  
Name of lender   Interest rate     Term   2015     2014  
Agricultural Development Bank of China     6.4 %   January 3, 2014 - December 17, 2018   $ 273,876 ^*   $ 325,092 ^*
Huangyuan County Branch,
Xining City, Qinghai Province, the P.R.C.
                           
                             
Agricultural Development Bank of China     6.18 %   October 21, 2014 - October 20, 2015     - ^*     4,085,635 ^*
Huangyuan County Branch,                            
Xining City, Qinghai Province, the P.R.C.                            
                $ 273,876     $ 4,410,727  

  

Long term debts         September 30,   December 31, 
Name of lender  Interest rate   Term  2015   2014 
                
GanGuo Village Committee   12.22%  June 2012 - June 2017  $151,447   $179,768 
Bo Huang Town                  
Huangyuan County,                  
Xining City, Qinghai Province, the P.R.C.                  
                   
Agricultural Development Bank of China   6.4%  January 3, 2014 - December 17, 2018   2,065,186^*#   2,451,381^*#
Huangyuan County Branch,                  
Xining City, Qinghai Province, the P.R.C.                  
Less: The current portion reclassified as short term debts           (273,876)   (325,092)
           $1,942,757   $2,306,057 

 

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

 

  ^ personal and corporate guaranteed by third parties.
  * secured by land use rights with net carrying amount of $471,048 (2014: $499,856).
  #

repayable $273,876, $650,184, $650,184 and $490,942 in 2015, 2016, 2017 and 2018, respectively.

 

 F-37 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

23. BONDS PAYABLE

 

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

 

Terms of the bonds are as follows:

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

 

   September 30,   December 31, 
   2015   2014 
           
Bonds payable  $1,725,000   $1,725,000 

 

The Company calculated professional service compensation of $400,000 in respect of bond issue, and recognized $200,000 for the year ended December 31, 2014. As of December 31, 2014, the deferred compensation balance was $100,000 and the deferred compensation balance of $100,000 was to be amortized over 6 months beginning on January 1, 2015.

 

The Company calculated professional service compensation of $400,000 in respect of bond issue, and recognized $0, $50,000, $100,000 and $150,000 for the three months and the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015, the deferred compensation balance was $0.

 

24.NEGOTIABLE PROMISSORY NOTES

 

On August 29, 2015 , TRW issued negotiable promissory notes to three fund companies and one individual for $3,450,000 and the

company acted as guarantor for repayment.

 

   September 30,   December 31, 
   2015   2014 
           
Negotiable promissory notes  $3,450,000   $- 

 

Issuer:Tri-way Industries Limited ("TRW")
Principal amount:$3,450,000
Interest rate2.50% per month on principal amount. Interest shall be calculated on the basis of a 30/360 day count convention
Default interest rate15% per month on principal amount. Interest shall be calculated on the basis of a 30/360 day count convention
Interest paymentAccrued interest on the principal amount shall be paid by cash  in arrears on each interest payment date
Issue date:August 29, 2015
Repayment date:Repaid in full within 120 calendar days from the issue of notes
Conversion option:Notes holders can exercise at any time from and including the day falling 60 calendar days from the date of the notes, upon the note holders giving not less than 5 business day prior written notice to TRW and the Company., the principal amount shall be converted to shares of the Company. The TRW may at their own discretion choose to settle such conversion option with newly issue shares or existing shares, at their sole discretion. In the event a dividend, share split or consolidation or spin-off (each a Corporate Event") from the Company, the conversion price shall be adjusted to provide the same economic value to the notes holders as if such Corporate Event did not occur.
Security:Corporate guarantee by the Company

  

 F-38 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

25. CONVERTIBLE NOTE PAYABLES

 

On August 29, 2014, the Company completed the closing of a private placement financing transaction with an accredited investor, which purchased a 10.5% Convertible Note (the “Note”) in the aggregate principal amount of up to $33,300,000. The Company received the total advance of $11,632,450. The Company shall offer investor a discount equal to 25% of the amount of the principal advanced by the investor.

 

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

 

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

 

   September 30,   December 31, 
   2015   2014 
           
10.50% convertible note of maturity date February 28, 2020  $35,468,110   $15,803,928 

 

The Company calculated the fair value of the convertible note and the beneficial conversion feature utilizing the Discounted Cash Flows model at the date of the issuance of convertible note. The relative fair values were allocated to the liability and equity components of the debt. Accordingly, a discount was created on the debt and this discount will be amortized to interest expense over the life of the debt. Debt premium of $378,788, $18,758, $838,832 and $18,758 was amortized for the three months and the nine months ended September 30, 2015 and 2014, respectively.

 

As of December 31, 2014, there was $15,509,933 principal outstanding and accrued interest in the amount of $293,995 that was owed under the terms of the convertible note. As of September 30, 2015, there was $33,333,333 principal outstanding and accrued interest in the amount of $2,135,777 that was owed under the terms of the convertible note.

 

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

 

The Company calculated professional service compensation of $1,500,000 in respect of convertible note issue, and recognized $375,000, $0, $1,125,000 and $0 for the three months and the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015, the deferred compensation balance was $375,000 was to be amortized over 3 months beginning on October 1, 2015.

 

 F-39 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

26. SHAREHOLDERS’ EQUITY

 

The Group’s share capital as of September 30, 2015 and December 31, 2014 shown on the consolidated balance sheet represents the aggregate nominal value of the share capital of the Company as of that date.

 

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

 

The Series A preferred stock:

  (i) does not pay a dividend;
  (ii) votes together with the shares of Common Stock of the Corporation as a single class and, regardless of the number of shares of Series A Preferred Stock outstanding and as long as at least one of such shares of Series A Preferred Stock is outstanding, shall represent eighty percent (80%) of all votes entitled to be voted at any annual or special meeting of shareholders of the Corporation or action by written consent of shareholders. Each outstanding share of the Series A Preferred Stock shall represent its proportionate share of the 80%, which is allocated to the outstanding shares of Series A Preferred Stock; and
  (ii) ranks senior to common stockholders, holders of Series B convertible preferred stockholders and any other stockholders on liquidation.

 

The Company has designated 100 shares of Series A preferred stock with 100 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively.

 

 F-40 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

26. SHAREHOLDERS’ EQUITY (CONTINUED)

 

The Series B convertible preferred stock:

 

On March 22, 2010, the Company designated 7,000,000 shares of Series B convertible preferred stock at a par value per share of $0.001. The Series B convertible preferred stock is redeemable, the stockholders are not entitled to receive any dividend and voting rights but rank senior over common stockholders on liquidation, and can convert to common stock on a one for one basis at any time. On June 26, 2010, 7,000,000 shares of common stock were surrendered for cancellation and the Company issued 7,000,000 shares of Series B convertible preferred stock at $9.90 per share. Pursuant to share exchange agreement made as of December 22, 2012, between the Company and a stockholder, Capital Adventure Inc., a holder of 3,000,000 shares of common shares, with the consent of Board of Directors, to exchange for 3,000,000 shares of Series B convertible preferred stock on a one-for-one basis. As of December 23, 2012, 3,000,000 shares of Series B convertible preferred stock were issued to Capital Adventure Inc., for the exchange of its holding of 3,000,000 shares of common stocks. As of December 31, 2012, 3,000,000 shares of common stocks were still not returned to the Company. On March 27, 2013, 3,000,000 Series B convertible preferred stock were cancelled. On December 17, 2014, the Company approved an amendment to certificate designation in respect of Series B preferred stock. Pursuant to the above new amendment, each holder of Series B preferred stock shall have the rights, at any time or from time to time, to convert each 9.9 shares of Series B preferred to one fully paid and non assessable share of common stock of par value $0.001 per share. On June 15, 2015, Series B preferred stockholder exercised at the above conversion ratio to convert 7,000,000 shares of Series B preferred stock to 707,070 shares of common stock.

 

There were 0 and 7,000,000 shares of Series B convertible preferred stock issued and outstanding as of September 30, 2015 and December 31, 2014, respectively.

 

The Series F Non-Convertible Preferred Stock:

 

  (i) is not redeemable subject to (iv);
  (ii) except for (iv), with respect to dividend rights, rights on liquidation, winding up and dissolution, rank junior and subordinate to ( a) all classes of Common Stock,(b) all other classes of Preferred Stock and (c) any class or series of capital securities of the Company.
  (iii) shall not entitled to receive any further dividend; and
  (iv) on May 30, 2014, the holders of shares of Series F Non-Convertible Preferred Stock with coupon shall be entitled to a coupon payment directly from the Company at the redemption rate of $3.40 per share. Upon redemption, the Holder shall no longer own any shares of Series F with coupon that have been redeemed, and all such redeemed shares shall disappear and no longer exist on the books and records of the Company; redeemed shares of Series F which no longer exist upon redemption shall thereafter be counted toward the authorized but unissued “blank check” preferred stock of the Company.

 

On August 22, 2012, the Company’s Board of Directors declared that the Company’s stockholders were entitled to receive one share of restricted Series F Non-convertible Preferred Stock for every 100 shares of Common Stock owned by the stockholders as of September 28, 2012, with lesser or greater amounts being rounded up to the nearest 100 shares of Common Stock for purpose of the computing the dividend. The holders of record of shares of Series F Non-Convertible Preferred Stock shall be entitled to a coupon payment directly from the Company at the redemption rate of $3.40 per share and be payable on May 30, 2014. However, the Company was unable to issue the Series F Non-convertible Preferred Stock as originally contemplated. Consequently, The Company’s transfer agent was instructed to note in its record date rather than actual issue the Preferred F shares. On June 14, 2014, the Company announced the delay in payment of the coupon until May 30, 2015. The company reserved the excess over the nominal amount of the Series F Non-convertible Preferred Stock of $3,124,737 as Series F Non-convertible Preferred Stock redemption payable. As of May 30, 2015, payment on the F series shares has been made, and respective shares cancelled, accordingly.

 

As a result, total issued and outstanding of Series F Non-Convertible Preferred Stock as of September 30, 2015 and December 31, 2014 are 0 shares and grand total issued and outstanding preferred stock as of September 30, 2015 and December 31, 2014 are 100 and 7,000,100 shares, respectively.

 

 F-41 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

26. SHAREHOLDERS’ EQUITY (CONTINUED)

 

Common Stock:

 

On November 10, 2014, the Company approved an amendment to the Corporation’s Articles of Incorporation to effectuate a reverse stock split (the “Reverse Split”) of the Corporation’s common stock, par value $0.001 per share (the “Common Stock”) 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. Subsequent to the balance sheet date, the Board of directors and the holders of a majority of the voting power of our stockholders of the company have approved an amendment to articles of incorporation to increase its authorized shares of Common Stock from 17,171,716 to 22,727,272.

 

During the year ended December 31. 2014, the Company issued (i) 2,734,625 shares of common stock for $13,006,373 at values ranging from $3.96 to $10.40 per share to settle debts due to third parties. The Company executed several agreements with third parties to settle debts by issuance of the Company’s common stock. The shares issued by the Company were valued at the trading price of the stock on the date the shares were issued. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts of $270,586 and $1,318,947 has been credited to consolidated statements of income as other income for the year ended December 31, 2014 and 2013, respectively; (ii) 130,568 shares of common stock valued to employees at fair value of $4.26 per share for $555,827 for employee compensation. The fair value of the common stock issued was determined by using the trading price of the Company’s common stock on the date of issuance of $4.26 per share; (iii) 400,008 shares of common stock valued to professionals at fair value ranging from $3.96 to $7.43 per share for $2,763,618 for service compensation. The fair value of the common stock issued was determined by using the trading price of the Company’s common stock on the date of issuance ranging from $3.96 to $9.90 per share; and (iv) 1,681 piecemeal shares of common stock valued at fair value of $9.49 per share for $15,951 for cancellation. The fair value of the common stock issued was determined by using the trading price of the Company’s common stock on the date of cancellation of $9.49 per share.

 

During the three months ended September 30, 2015, the Company issued 280,000 shares of common stock for $12.50 as collateral to secure trade finance facility amounting to the extent of $3,500,000, and cancelled 514 shares for $10.97 per share for reverse splits adjustments.. Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts of $0 and $33,693 has been credited to consolidated statements of income as other income for the three months ended September 30, 2015 and 2014, respectively.

 

During the nine months ended September 30, 2015, the Company executed several agreements with third parties to raise debts loan by issuance of the Company’s common stock. The Company issued (i) 753,304 shares of common stock ranging from $6.96 to $8.91 as collateral to secure debts loan of $4,797,332, and the shares issued by the Company were valued at the trading price of the stock on the date the shares were issued; (ii) 280,000 shares of common stock of $12.50 as collateral to secure trade finance facility amounting to the extent of $3,500,000, and the shares issued by the Company were valued at the trading price of the stock on the date the shares were issued; (iii) 153,392 shares at $11.13 per share and 75,002 shares at $14.20 per share to decimal stockholder to round up its shares holding; (iv) 47,787 shares of common stock valued to employees and directors at fair value of $15.20 per share for $726,315 for employee compensation; 7,000,000 shares of Series B preferred stock were converted into 707,070 shares under terms of issue; and cancelled 514 shares for $10.97 per share for reverse splits adjustments. .Any excess of the fair value of the shares over the carrying cost of the debt has been reported as a gain on the extinguishment of debts of $0 and $275,086 has been credited to consolidated statements of income as other income for the nine months ended September 30, 2015 and 2014, respectively.

  

The Company has 19,178,757 and 17,162,716 shares of common stock issued and outstanding as of September 30, 2015 and December 31, 2014, respectively.

 

 F-42 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

27. OBLIGATION UNDER OPERATING LEASES

 

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

 

Lease expense was $40,591, $40,591, $121,773 and $118,709 for the three months and the nine months ended September 30, 2015 and 2014, respectively.

 

The future minimum lease payments as of September 30, 2015, are as follows:

 

Year ending December 31, 2015  $40,591 
Thereafter   86,561 
   $127,152 

 

28. STOCK BASED COMPENSATION

 

On April 25, 2014, the Company issued employees a total of 130,567 shares of common stock valued at fair value of $4.26 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $4.26 per share.

 

On June 16, 2014, the Company issued professionals a total of 117,248 shares of common stock valued at fair value of $3.96 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $3.96 per share.

 

On September 16, 2014, the Company issued professionals a total of 202,020 shares of common stock valued at fair value of $7.43 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $7.43 per share.

 

 F-43 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

28. STOCK BASED COMPENSATION(CONTINUED)

 

On December 15, 2014, the Company issued professionals a total of 80,739 shares of common stock valued at agreed price of $9.90 per share for services rendered to the Company. The agreed prices of the common stock issued were determined by both parties and greater than the trading price of the Company’s common stock on the date of issuance of $9.90 per share.

 

On May 6, 2015, the Company issued directors and employees a total of 47,787 shares of common stock valued at fair value of $15.20 per share for services rendered to the Company. The fair values of the common stock issued were determined by using the trading price of the Company’s common stock on the date of issuance of $15.20 per share.

 

The Company calculated stock based compensation of $4,246,495, $133,744 as of September 30, 2015 and December 31, 2014, respectively.

 

The Company recognized $1,123,030, $288,469, $2,883,096 and $355,341 for the three months and the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015, the deferred compensation balance for staff was $1,107,272 and the deferred compensation balances of (i) $562,500; and (ii) $544,772 were to be amortized over 3 and 9 months respectively beginning on October 1, 2015.

 

29. CONTINGENCIES

 

As of September 30, 2015 and December 31, 2014, the Company did not have any pending claims, charges, or litigation that it expects would have a material adverse effect on its consolidated balance sheets, consolidated statements of income and other comprehensive income or consolidated statements of cash flows.

 

30. RELATED PARTY TRANSACTIONS

 

In addition to the transactions and balances as disclosed elsewhere in these consolidated financial statements, during the nine months ended September 30, 2015 and 2014, the Company had the following significant related party transactions:-

 

Name of related party   Nature of transactions
     
Mr. Solomon Yip
Kun Lee,
Chairman
  Included in due to a director, due to Mr. Solomon Yip Kun Lee is $692,906 and $1,172,059 as of September 30, 2015 and December 31, 2014, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.

 

 F-44 
 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

31. EARNINGS PER SHARE

 

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

 

   Three
months
ended
September 30, 2015
   Three
months
ended
September 30, 2014
 
BASIC          
Numerator for basic earnings per share attributable to the Company’s common stockholders:          
Net income used in computing basic earnings per share  $21,522,100   $24,501,862 
Basic earnings per share  $1.14   $1.49 
           
Basic weighted average shares outstanding   18,822,876    16,469,314 

 

   Three 
months
ended
 September 30, 2015
   Three
months
ended
 September 30, 2014
 
DILUTED          
Numerator for basic earnings per share attributable to the Company’s common stockholders:          
Net income used in computing basic earnings per share  $21,522,100   $24,501,862 
Add back interest on convertible notes   -    - 
Net income used in computing diluted earnings per share  $21,522,100   $24,501,862 
           
Diluted earnings per share  $1.14   $1.43 
           
Basic weighted average shares outstanding   18,822,876    16,469,314 
Add: weight average of common stock converted from Series B Convertible preferred shares outstanding   -    707,070 
Diluted weighted average shares outstanding   18,822,876    17,176,384 

   

   Nine 
months
ended
September 30, 2015
   Nine
months
ended
 September 30, 2014
 
BASIC          
Numerator for basic earnings per share attributable to the Company’s common stockholders:          
Net income used in computing basic earnings per share  $54,587,143   $68,376,819 
Basic earnings per share  $3.02   $4.42 
           
Basic weighted average shares outstanding   18,089,629    15,465,642 

 

   Nine
months
ended
September 30, 2015
   Nine 
months
ended
September  30, 2014
 
DILUTED          
Numerator for basic earnings per share attributable to the Company’s common stockholders:          
Net income used in computing basic earnings per share  $54,587,143   $68,376,819 
Add back interest on convertible notes   -    - 
Net income used in computing diluted earnings per share  $54,587,143   $68,376,819 
           
Diluted earnings per share  $3.02   $4.23 
           
Basic weighted average shares outstanding   18,089,629    15,465,642 
Add: weight average of common stock converted from Series B Convertible preferred shares outstanding   -    707,070 
Diluted weighted average shares outstanding   18,089,629    16,172,712 

  

For the three months ended September 30, 2015 and 2014, full dilution effect of convertible note of $597,813 (9.30.2014: $6,982,667) was not taken into account for calculation of the diluted earnings per share because convertible note holder is restricted to exercise shares before October 1, 2015 under terms of convertible note agreement.

 

For the nine months ended September 30, 2015 and 2014, full dilution effect of convertible note of $35,468,110 (9.30.2014: $6,982,667), was not taken into account for calculation of the diluted earnings per share because convertible note holder is restricted to exercise shares before October 1, 2015 under terms of convertible note agreement. 

 

 F-45 
 

  

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

 

32.SUBSEQUENT EVENTS

 

The Company obtained banking facilities from Agriculture Development Bank of China to the extent of $14,151,000.

 

 F-46 
 

 

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

 

This Quarterly Report on Form 10-Q (the “Form 10-Q”) contains “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Forward-looking statements can be identified by the use of forward-looking terminology, such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause the Company’s actual results, performance or achievements in 2015 and beyond to differ materially from those expressed in, or implied by, such statements. Such statements, include, but are not limited to, statements contained in this Form 10-Q relating to the Company’s business, financial performance, business strategy, recently announced transactions and capital outlook. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: a continued decline in general economic conditions nationally and internationally; decreased demand for our products and services; market acceptance of our products; the impact of any litigation or infringement actions brought against us; competition from other providers and products; the inability to raise capital to fund continuing operations; changes in government regulation; the ability to complete customer transactions, and other factors relating to our industry, our operations and results of operations and any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned. Readers of this Form 10-Q should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, the Company undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

 

You should read the following discussion and analysis of the financial condition and results of operations of the Company together with the financial statements and the related notes presented in Item 1 of this Form 10-Q.

 

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

 

The Company’s strategy is to manage and operate its businesses under five (5) business divisions or units on a standalone basis, namely:

 

Beef & Organic Fertilizer Division (SJAP, QZH and HSA)
Plantation Division (JHST)
Cattle Farm Division (MEIJI and JHMC)
Corporate & Others Division (SIAF)
Fishery Division (CA)

 

A summary of each business division is described below:

 

lBeef and 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 of: (a) cattle that are not being slaughtered in our own slaughter house operated by Qinghai Zhong He Meat Products Co., Limited (“QZH”) are sold live to third party livestock wholesalers and, (b) cattle that are sold to QZH and slaughtered and deboned and packed by QZH; and the sales of meats deboned and packed by QZH that are sold to various meat distributors, wholesalers and super market chains and our own retail butcher stores. QZH is a fully owned subsidiary of our partially owned subsidiary Qinghai Sanjiang A Power Agriculture Co., Ltd. (“SJAP”); as such, the financial statements of these three companies (SJAP, QZH and HSA) are consolidated into our wholly owned subsidiary, A Power Agro Agriculture Development (Macau) Limited (“APWAM”), as one entity. SJAP and QZH are both variable interest entities over which we exercise significant control.

 

(ii)The operation of Hunan Shenghua A Power Agriculture Co. Ltd. (“HSA”) in manufacturing and sales of organic fertilizer.

 

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

 

 1 
 

 

 

lCattle 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 livestock wholesalers who sell them mainly to Guangzhou and Beijing livestock wholesale markets. The financial statements of JHMC are consolidated into MEIJI as one entity along with MEIJI’s operation in the consulting and service for development of other cattle farms (e.g., Cattle Farm 2) or related projects.

 

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

 

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

 

Capital Award generates revenues from providing engineering consulting services as turnkey contractors to owners and developers of fishery projects that are being designed and engineered into turnkey contracts by Capital Award in China using its A Power Module Technology Systems (“APM”) as follows:

 

(A). 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 from CA’s projected farms

 

Capital Award generates following sales revenues from:

 

(1). Sales to JFD (“Fish Farm 1” or “FF1”), which is a Sino Foreign Joint Venture Company (“SFJVC”), and sales derived from seafood sold by JFD (currently, only the JFD subsidiary is a SFJVC), being consolidated into our wholly owned Hong Kong subsidiary Tri-way Industries Ltd. (“TRW”) as one entity.

 

FF1 generates sales from its production of (a) its in-door APM farm with 16 APM production units and (b) its open dam farms producing fish and prawns from 310 Mu (52 acres) of land leased from Zhongshan A Power Prawn Culture Farms Development Co. Ltd. (“ZSAPP,” “Prawn Farm 2” or “PF2”).

 

(2). Sales to and sales derived from seafood from the unincorporated companies, including Enping City A Power Prawn Culture Development Co. Ltd. (“EBAPCD,” “Prawn Farm 1” or “PF1”) and ZSAPP, are accounted for independently as follows:

 

CA and PF1: (a) CA purchases prawn and/or fish fingerling and feed stocks from third party suppliers and resells them to PF1 at variable small or no profit margins and (b) CA purchases matured prawns and fish from PF1 and sells to third parties (wholesale markets)

 

PF1 generates sales from its production of (a) its indoor APM farm with 4 APM production units in 2014 and 16 APM production units from Q3 2015 and (b) its open dam farms producing fish and prawns from a 290 Mu (or 48 acres) of land leased from PF2.

 

CA and PF2: (a) CA earns commission from the sale of prawn fingerlings that are sold by PF2 to third parties, and in this respect PF2 produces its own prawn fingerlings as compared to CA’s purchasing them from PF2 and reselling them to PF1 or FF1, as described above, and (b) CA purchases matured prawns and fish from PF2 and sells to third parties (wholesale markets).

 

PF2 has 6 indoor APM production units producing mainly prawn fingerling and an open dam farms situated on about 400 Mu (about 66 acres) producing prawns and fish.

 

 2 
 

 

CONSOLIDATED RESULTS OF OPERATIONS

 

Part A. Unaudited Income Statements of Consolidated Results of Operations for three months ended September 30, 2015 compared to for three months ended September 30, 2014.

 

A (1) Income Statements (Unaudited)

 

In $  Three months ended   Three months ended   Difference   Note 
   Sept. 30. 2015   Sept. 30. 2014         
Revenue   124,666,399    107,220,059    17,446,340    1 
Consulting, services, commission and management fee   28,633,558    25,048,644    3,584,914    1 
Sale of goods   96,032,841    82,171,415    13,861,426    1 
Cost of goods sold and services   92,416,206    72,723,395    19,692,811    2 
Consulting, services, commission and management fee   17,151,938    13,601,869    3,550,069    2 
Sale of goods   75,264,268    59,121,526    16,142,742    2 
Gross  Profit   32,250,193    34,496,664    (2,246,471)   3 
Consulting, services, commission and management fee   11,481,620    11,446,775    34,845    3 
Sale of goods   20,768,573    23,049,889    (2,281,316)   3 
Other income (expenses)   (581,687)   (17,599)   (564,088)     
General and administrative expenses   (3,951,922)   (3,594,509)   (357,413)   4 
Net income   27,716,584    30,884,556    (3,167,972)     
EBITDA   30,001,773    32,347,402    (2,345,629)     
Depreciation and amortization (D&A)   (956,573)   (1,199,182)   242,609    5 
EBIT   29,045,200    31,148,220    (2,103,020)     
Net  Interest   (1,328,616)   (263,664)   (1,064,952)     
Tax   0    0    0      
Net  Income   27,716,584    30,884,556    (3,167,972)     
Non - controlling interest   (6,194,484)   (6,382,694)   188,210    7 
Net  income  to  SIAF  Inc. and   subsidiaries   21,522,100    24,501,862    (2,979,762)     
Weighted   average  number  of  shares   outstanding                    
-  Basic   18,822,876    16,469,314    2,353,562      
-  Diluted   18,822,876    17,176,384    1,646,492      
Earnings Per Share (EPS)                  8 
-  Basic   1.14    1.49    -0.35      
-  Diluted   1.14    1.43    -0.29      

 

Overview of Q3 2015 compared to Q3 2014 (as illustrated in Table 1A above):

 

lOverall sales revenues of the quarter have been good, increasing by $17.4 million (or 16.27%) generating over $96.03 million from sales of goods and $28.6 million from Consulting and Service Division. However overall gross profit went down marginally by $2.25 million (or 6.5%) due mainly to SJAP’s sales of live cattle resulting in gross profit of $1.1 million instead of $5.03 million in 2014 (a difference of $3.93 million) in overall gross profit (please see below for more details).

 

lSales revenues from the Consulting & Services division increased by $3.58 million (or 14.3%) with a marginal increase in gross profit by $0.035 million due primarily to the fact that lower margins could only be generated from the development of the Zhongshen New Prawn Farm project because it is a much bigger project than any other project that Company has undertaken and it is reasonable to do so at a lower profit margin.

 

lThe other primary reasons causing the lower gross profits are:

 

The increase in general and administration expenses due mainly to the expenses incurred by the Corporate Division in carrying out various corporate exercises (e.g., seeking of new sources of financing, upgrading of listing status, etc.) increases by $0.37 million to $3.96 million compared to the already high expenses of $3.59 million of Q3 2014.

 

 3 
 

 

 

The increase in interest expenses by $1.06 million from $0.26 million in Q3 2014 to $1.33 million in Q3 2015.

 

Therefore, the overall results are within expectations showing improvements in all segments of the Company’s business activities except the live cattle division of SJAP and indicating that the Company’s business strategies are heading the right direction.

 

The fall of profit in SJAP’s live cattle sales was anticipated since Q2 2015 due mainly to the lowering of local cattle prices impacted by the heavy volumes of imports from other countries that was caused by the relaxed policies adapted by the Chinese Government to open up the local cattle and beef markets for some the exporting countries (i.e., Australia, New Zealand, Brazil and other South American countries). For more details please see below.

 

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:

 

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

 

Table (A.2). Below shows segmental break-down figures of Sales of Goods, related cost of sales and GPs for the three months ended September 30, 2015(Q3 2015) and the three months ended September 30, 2014 (Q3 2014).

 

lBeef and Organic Fertilizer Division refers to:

 

(i)The operations of SJAP in manufacturing and sales of organic fertilizer, bulk livestock feed, concentrated livestock feed, and the sale of live cattle inclusive of:

 

(a) Cattle that are not slaughtered in our own slaughter house operated by QZH are sold live to third party livestock wholesalers.

 

   In US$  Sales of goods   Cost of Goods sold   Sales of Goods' Gross profit 
      2015Q3   2014Q3   2015Q3   2014Q3   2015Q3   2014Q3 
                            
SJAP  Sales of live cattle   16,360,557    17,599,116    15,261,704    12,572,988    1,098,853    5,026,129 
   Sales of feedstock                              
   Bulk Livestock feed   1,623,585    1,101,471    753,825    528,982    869,760    572,488 
   Concentrate livestock feed   2,710,543    3,095,750    1,569,175    1,957,093    1,141,368    1,138,656 
   Sales of fertilizer   589,937    440,588    383,232    211,593    206,704    228,995 
   SJAP Total   21,284,622    22,236,925    17,967,937    15,270,656    3,316,685    6,966,269 
                                  
   % of increase or (decrease)   -4%    18%    -52% 

 

 4 
 

 

         2015Q3   2014Q3   Difference 
SJAP  Cattle Operation                  
   Production and Sales of live cattle  Heads   5,136    4,777    359 
   Average Unit sales price  US$/head   3,185    3,684    -499 
   Unit cost prices  US$/head   2,972    2,351    621 
   Production and sales of feedstock                - 
   Bulk Livestock feed  MT   8,939    6,048    2,891 
   Average Unit sales price  US$/MT   182    182    -0 
   Unit cost prices  US$/MT   84    87    -3 
   Concentrated livestock feed  MT   6,000    7,625    -1,625 
   Average Unit sales price  US$/MT   452    406    46 
   Unit cost prices  US$/MT   262    257    5 
   Production and sales of fertilizer  MT   3,000    2,348    652 
   Average Unit sales price  US$/MT   197    188    9 
   Unit cost prices  US$/MT   128    90    38 

 

The average of live cattle prices fell by $499/head based on average prices at RMB25/Kg (live weight) compared to the average of RMB32/Kg in same period of 2014 representing a drop of 21.87% in average live weight prices of local cattle.

 

The increase of bulk livestock feed sales by some 2,891 MT in the quarter is due mainly to the natural increases of cattle being kept by regional farmers in preparation for the coming winter season.

 

Overall sale revenues of SJAP’s operations decreased by $1 million (or 4.5%) from 2014’s $22.2 million to 2015’s $21.2 million and gross profit fell by $3.65 million (or 52%) from 2014’s $6.97 million to 2015’s $3.32 million because of the drop in live cattle prices.

 

(b) Cattle that are sold to QZH and being slaughtered and deboned and packed by QZH; and the sales of meats deboned and packed by QZH that are sold to various meat distributors, wholesalers and super market chains and our own retail butcher stores. QZH is a wholly owned subsidiary of SJAP; as such, the financial statements of these three companies (SJAP, QZH and HSA) are consolidated into APWAM as one entity.

 

 

      Sales of goods   Cost of Goods sold   Sales of Goods' Gross profit 
In US$  2015Q3   2014Q3   2015Q3   2014Q3   2015Q3   2014Q3 
QZH  * QZH's (Slaughter & Deboning operation)   438,911    341,337    215,417    192,938         148,399 
   ** QZH's (Deboning operation)                            - 
   (a)     on cattle & Lamb locally supplied   3,396,515    3,595,291    2,625,413    2,376,128    771,102    1,219,163 
   (b)     on imported beef and mutton   8,290,735    1,732,423    5,952,077    950,900    2,338,658    781,523 
   (C )     Sales of live cattle   2,076,677         2,016,291              - 
   QZH Total   14,202,838    5,669,051    10,809,198    3,519,966    3,393,640    2,149,085 
   % of Increase or (decrease)   151%    207%    58% 

 

 5 
 

 

* QZH (Slaughter & De-boning operation)

 

Slaughter operation                  
Slaughter of cattle  Heads   1,200    845    355 
Service fee  US$/Head   8    8    - 
Sales of associated products  Pieces   1,200    999    201 
Average Unit sales price  US$/Piece   358    335    23 
Unit cost prices  US$/Piece   180    193    -14 
De-boning & Packaging activities                  
From Cattle supplied locally                  
De-boned Meats  MT   301    286    15 
Average Unit sales price  US$/MT   11,284    12,591    -1,307 
Unit cost prices  US$/MT   8,722    8,321    401 
From imported beef  MT   996    84    912 
Average Unit sales price  US$/MT   8,324    8,722    -398 
Unit cost prices  US$/MT   5,976    4,610    1,366 
From imported lamb  MT        121      
Average of sales price  US$/MT        8,263      
Average of cost prices  US$/MT        4,659      
Production and Sales of live cattle  Heads   867           
Average Unit sales price  US$/head   2,395           
Unit cost prices  US$/head   2,326           

 

Lowering of live cattle prices impacts locally produced and dressed meat prices as well as imported meat prices. However, packed and dressed meat prices are not a simple derivation due mainly to different cuts of meats having different demand and pricing (e.g., the demand for and therefore the price of strip loin is much higher than those for cull-rolls).

 

QHZ increased sales revenues by $8.53 million (or 151%) from 2014’s $5.67 million to 2015’s $14.2 million due mainly to the increase in imported beef jumping from 2014’s $1.73 million to 2015’s $8.29 million representing an increase of $6.56 million (or 379.2%), which is a significant increase. In turn, gross profit increased by $1.24 million (or 58%).

 

(ii)The operations of HSA in manufacturing and sales of organic fertilizer.

 

In US$  Sales of goods   Cost of Goods sold   Sales of Goods' Gross profit 
       2015Q3   2014Q3   2015Q3   2014Q3   2015Q3   2014Q3
 HSA  Sales of Organic fertilizer   924,563    1,095,621    704,048    813,487    220,516    282,134 
  Sales of Organic Mixed Fertilizer   3,946,710    4,698,541    2,251,100    3,885,054    1,695,610    813,487 
   HSA Total   4,871,273    5,794,162    2,955,147    4,698,541    1,916,126    1,095,621 
                                  
   % of increase or (decrease)   -16%    -37%    75% 

 

 6 
 

 

HSA  Fertilizer and Cattle operation                  - 
  Organic Fertilizer   MT    3,355    4,080    -725 
   Average Unit sales price   US$/MT    264    264    0 
   Unit cost prices   US$/MT    204    198    6 
   Organic Mixed Fertilizer   MT    8,884    10,383    -1,499 
   Average Unit sales price   US$/MT    444    453    -8 
   Unit cost prices   US$/MT    253    374    -121 
   Retailing packed fertilizer (For super marlet sales)   MT    51    20    31 
   Average Unit sales price   US$/MT    738    927    -189 
   Unit cost prices   US$/MT    382    343    39 

 

Overall sales of organic mixed fertilizer (“OMF”) was reduced to $3.95 million compared to 2014’s $4.7 million resulting in a reduction of $ 1.75 million (or 15.95%), but that doesn’t mean that the demand for HSA’s OMF is decreasing since OMF is mainly sold to lake fishermen producing cheap species of fish, such as carp. They plan their fertilizer inventories, usually based on the quarter’s price of carp; however they have huge lakes with the capacity to grow the carps to meet the market demand. However, they must eventually increase the application of our OMF to provide enough nutrients in the lakes to maintain their production of carp. While we cannot predict accurately during which quarter this may happen, it usually occurs during one or two quarters annually.

 

HSA managed to reduce its cost of production of OMF by an average of $121/MT (or 32.35%) due to the lower cost of raw materials being sourced and applied, which represents a significant cost savings.

 

Overall gross profit has increased by $0.82 million (or 74.5%) from 2014’s $1.1 million to 2015’s $1.92 million due mainly to cost savings in raw materials.

 

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

 

In US$  Sales of goods   Cost of Goods sold   Sales of Goods' Gross profit 
      2015Q3   2014Q3   2015Q3   2014Q3