Company Quick10K Filing
Quick10K
Sino Agro Food
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.14 50 $7
10-Q 2019-09-30 Quarter: 2019-09-30
10-Q 2019-06-30 Quarter: 2019-06-30
S-1 2019-06-27 Public Filing
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-11-19 Earnings, Exhibits
8-K 2019-08-28 Other Events, Exhibits
8-K 2019-08-27 Regulation FD, Exhibits
8-K 2019-08-14 Earnings, Exhibits
8-K 2019-07-10 Other Events
8-K 2019-05-17 Earnings, Exhibits
8-K 2019-05-06 Earnings, Regulation FD, Exhibits
8-K 2019-04-30 Officers
8-K 2019-04-17 Officers
8-K 2019-04-01 Officers
8-K 2018-12-04 Officers
8-K 2018-11-08 Officers
8-K 2018-10-15 Shareholder Vote
8-K 2018-08-14 Earnings, Regulation FD, Exhibits
8-K 2018-06-29 Accountant, Exhibits
8-K 2017-03-17 Off-BS Arrangement
KWBT Kiwa Bio-Tech 17
JSDA Jones Soda 13
BTHT Best Hometown Bancorp 12
BICX Biocorrx 11
MYHI Mountain High Acquisitions 2
FTXP Foothills Exploration 2
SKAS Saker Aviation Services 0
GGRO Golden Growers Cooperative 0
GRCR GRCR Partners 0
REAP Renewable Energy & Power 0
SIAF 2019-09-30
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Note 15A: Accounts Payables and Accrued Expenses Clarification:
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
EX-31.1 tm1919606d1_ex31-1.htm
EX-31.2 tm1919606d1_ex31-2.htm
EX-32.1 tm1919606d1_ex32-1.htm

Sino Agro Food Earnings 2019-09-30

SIAF 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tm1919606d1_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

  

FORM 10-Q

(Mark One)

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

 

For the quarterly period ended September 30, 2019

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 Ference LLP
1185 Avenue of the Americas, 37th Floor
New York, NY 10036
Attn: Marc J. 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 every Interactive Data File required to be submitted 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 such files). Yes x

 

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

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

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

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

 

As of September 30th 2019 there were 49,976,085 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   30 
Item 4.  Controls and Procedures   31 
         
PART II – OTHER INFORMATION     
Item 1.  Legal Proceedings   32 
Item 1A.  Risk Factors   32 
Item 2.  Unregistered Sale of Equity Securities and Use of Proceeds   32 
Item 3.  Defaults Upon Senior Securities   32 
Item 4.  Mine Safety Disclosures   33 
Item 5.  Other Information   33 
Item 6.  Exhibits   33 
SIGNATURES      34 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

 

QUARTERLY FINANCIAL STATEMENTS

 

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019

 

(Unaudited)

 

 

 

 

SINO AGRO FOOD, INC. AND SUBSIDIARIES

INDEX TO QUARTERLY FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019

(Unaudited)

 

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

F-4 to F-46

 

 

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED BALANCE SHEETS

 

   Note   September 30,
2019
   December  31,
2018
 
       (Unaudited)   (Audited) 
ASSETS               
Current assets               
Cash and cash equivalents   5   $671,544   $4,950,799 
Inventories   6    51,539,209    54,582,241 
Costs and estimated earnings in excess of billings on uncompleted contracts   18    250,828    250,828 
Deposits and prepayments   7    40,301,277    52,241,190 
Accounts receivable, net of allowance for doubtful accounts   8    109,996,856    101,652,131 
Other receivables   9    23,583,908    28,307,526 
Total current assets        226,343,622    241,984,715 
Non-current assets               
Plant and equipment, net of accumulated depreciation   10    237,870,893    230,645,659 
Construction in progress   11    10,427,213    12,515,527 
Land use rights, net of accumulated amortization   12    51,202,746    53,814,281 
Total non-current assets        299,500,852    296,975,467 
Other assets               
Goodwill   13    724,940    724,940 
Proprietary technologies, net of accumulated amortization   14    8,461,545    8,937,071 
Interest in unconsolidated investees   15    221,730,404    207,074,626 
Temporary deposits paid to entities for investments in Sino joint venture companies   16    34,900,349    34,905,960 
Total other assets        265,817,238    251,642,597 
                
Total assets       $791,661,712   $790,602,779 
                
LIABILITIES  AND STOCKHOLDERS’ EQUITY               
                
Current liabilities               
Accounts payable and accrued expenses       $9,103,501   $8,280,358 
Billings in excess of costs and estimated earnings on uncompleted contracts   18    5,386,711    5,348,293 
Due to a director        861,182    2,046,499 
Other payables   19    46,214,186    42,523,811 
Borrowings - Short term bank loan   20    4,524,246    4,589,828 
Derivative liability   21    -    2,100 
Convertible note payable   21    -    3,894,978 
         66,089,826    66,685,867 
                
Non-current liabilities               
Other payables   19    7,765,801    7,792,774 
Borrowings - Long term debts and bank loan   20    5,231,162    5,536,938 
         12,996,963    13,329,712 
                
Commitments and contingencies        -    - 
                
Stockholders’ equity               
Common stock:  $0.001 par value (50,000,000 shares authorized, 49,976,085  and 49,866,174 shares issued  and outstanding as of September  30, 2019 and  December 31, 2018, respectively)   22    49,977    49,866 
Additional paid - in capital        181,533,918    181,501,056 
Retained earnings        474,114,485    458,811,844 
Accumulated other comprehensive income        (23,088,296)   (10,415,786)
Treasury stock        (1,250,000)   (1,250,000)
Total Sino Agro Food, Inc. and subsidiaries stockholders’ equity        631,360,084    628,696,980 
Non - controlling interest        81,214,839    81,890,220 
Total stockholders’ equity        712,574,923    710,587,200 
Total liabilities and stockholders’ equity       $791,661,712   $790,602,779 

 

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

 

 F-1 

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

  

       Three months
ended
   Three months
ended
   Nine months
ended
   Nine months
ended
 
   Note   September 30,
2019
   September 30,
2018
   September 30,
2019
   September 30,
2018
 
Revenue                         
- Sale of goods       $37,431,314   $32,247,645   $103,571,897   $96,439,242 
- Consulting and service income from development contracts        -    6,502,372    1,719,247    10,036,762 
    3    37,431,314    38,750,017    105,291,144    106,476,004 
Cost of goods sold   3    (31,138,118)   (27,086,184)   (85,532,551)   (80,620,463)
Cost of services   3    -    (5,469,059)   (1,590,017)   (8,133,799)
                          
Gross profit        6,293,196    6,194,774    18,168,576    17,721,742 
General and administrative expenses        (3,445,170)   (3,991,962)   (10,397,047)   (11,787,745)
Net income from operations        2,848,026    2,202,812    7,771,529    5,933,997 
Other income (expenses)                         
                          
Government grant        449,094    43,796    741,516    176,643 
Share of income from unconsolidated equity investee        5,566,236    1,793,661    11,526,026    7,125,632 
Other income        -    57,580    -    117,318 
Loss on restructuring        -    -    (2,404,402)   - 
Non-operating expenses        (12,403)   -    (231,045)   (3,161,333)
Interest expense        (125,871)   (407,728)   (736,904)   (1,278,685)
Net income (expenses)        5,877,056    1,487,309    8,895,191    2,979,575 
                          
Net income  before income taxes        8,725,082    3,690,121    16,660,720    8,913,572 
Provision for income taxes   4    (2,613)   -    (6,518)   - 
                          
Net income        8,722,469    3,690,121    16,660,202    8,913,572 
Less: Net (income) loss attributable to  non - controlling interest        (605,923)   (224,559)   (1,357,561)   522,377 
Net income attributable to Sino Agro Food Inc. and subsidiaries        8,116,546    3,465,562    15,302,641    9,435,949 
Other comprehensive income (loss) - Foreign currency translation gain (loss)        (10,362,693)   (13,737,567)   (14,705,450)   (12,298,881)
Comprehensive income        (2,246,147)   (10,272,005)   597,191    (2,862,932)
Less: Other comprehensive (income) loss attributable to  non - controlling interest        2,002,068    2,837,539    2,032,940    1,987,133 
Comprehensive income attributable to the Sino Agro Food, Inc. and subsidiaries       $(244,079)  $(7,434,466)  $2,630,131   $(875,799)
                          
Earnings per share attributable to the Sino Agro Food, Inc. and subsidiaries common stockholders:                         
Basic   27   $0.16   $0.09   $0.31   $0.27 
Diluted   27   $0.16   $0.09   $0.31   $0.27 
                          
Weighted average number of shares outstanding:                         
                          
Basic   27    49,968,758    36,650,450    49,900,369    35,381,345 
Diluted   27    49,968,758    36,650,450    49,900,369    35,381,345 

  

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

 

 F-2 

 

 

SINO AGRO FOOD, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Nine months
ended September
30, 2019
   Nine months
ended September
30, 2018
 
Cash flows from operating activities          
Net income for the period  $16,660,202   $8,913,572 
Adjustments to reconcile net income for the period to net cash from operations:          
Share of income from unconsolidated equity investee   (11,526,026)   (7,125,632)
Depreciation   7,676,784    7,877,928 
Amortization   1,676,902    1,605,125 
Inventory written off   -    3,071,068 
Share based compensation cost   643,457    1,896,986 
Loss on restructuring   2,404,402      
Changes in operating assets and liabilities:          
(Decrease)/Increase in inventories   3,043,032    (6,852,017)
Decrease in cost and estimated earnings in excess of billings on uncompleted contacts   -    998,359 
Decrease in deposits and prepaid expenses   11,335,040    11,213,396 
(decrease) in due to a director   (1,185,317)   (107,074)
Increase in accounts payable and accrued expenses   823,143    5,504,887 
Increase in other payables   (2,638,078)   5,105,528 
Increase in accounts receivable   (8,344,725)   (11,912,622)
(Decrease) increase in billings in excess of costs and estimated earnings on uncompleted contracts   38,418    (389,900)
Increase in other receivables   4,723,618    (5,561,268)
Decrease in amount due from  unconsolidated  investee   (3,129,752)   (2,600,812)
Net cash (used in) provided by operating activities   22,201,100    11,637,524 
Cash flows from investing activities          
Purchases of property and equipment   (9,051,137)   (3,500)
Investment in unconsolidated equity investee   -    (52,258)
Payment for construction in progress   (9,642,084)   (6,832,839)
Net cash used in investing activities   (18,693,221)   (6,888,597)
Cash flows from financing activities          
Repayment of long term bank loan   (73,741)   - 
Net cash used in financing activities   (73,741)   - 
Effects on exchange rate changes on cash   (7,713,393)   (4,891,597)
           
Increase  in cash and cash equivalents   (4,279,255)   (142,670)
Cash and cash equivalents, beginning of period   4,950,799    560,043 
Cash and cash equivalents, end of period  $671,544   $417,373 
           
Supplementary disclosures of cash flow information:          
Cash paid for interest  $260,715   $437,200 
Non - cash transactions          
Common stock issued for services and  compensation  $-   $10,301,367 
Common stock issued for debts issue and trade facilities  $32,973   $739,796 
Transfer to plant and equipment from construction in progress  $12,756,424   $- 

 

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

 

 F-3 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. CORPORATE INFORMATION

 

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

 

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

 

On March 23, 2017, Qinghai Quanwang Investment Management Company Limited (“Quanwang”) acquired 8.3% equity interest in SJAP for total cash consideration of $459,137. As of June 30, 2019, APWAM owned 41.25% of SJAP, Garwor owned 50.45% and Quanwang owned the remaining 8.3%.

 

 F-4 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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 owned a 75% equity interest in JFD, representing majority of voting rights and controls its board of directors. On August 15, 2016, the acquisition agreement was executed by TRW for acquiring the other 25% equity in JFD which was a Sino Foreign Joint Venture Co. that TRW had 100% equity interest with effect on October 5, 2016. Upon the acquisitions of 3 additional prawn farms assets at fair value of $238.32 million from respective third parties and the master technology license at fair value of $30 million from Capital Award, Inc. by JFD, and the consideration of the above acquisitions were planned to be settled by the new issue shares of 99,990,000 TRW shares at $3.41 amounting to $340.53 million on or before June 30, 2017. As a result, SIAF’s equity interest in TRW was diluted from 100% to 23.89% with effective on October 5, 2016. The above transactions leaded the Company loss of control over TRW group, the Company’s investments in TRW and JFD were reclassified from a subsidiary to investments in unconsolidated equity investees as of October 5, 2016. The dilution of the Company’s investments in TRW group constituted a deemed disposal of the subsidiaries. The deemed gain on disposal of $56,947,005 was recorded in net income from discontinued operations of the consolidated statements of income and other comprehensive income of the Company for the year ended 31 December 2016. On October 1, 2016, SIAF took up all assets and liabilities of TRW and JFD except fish farm. The Company converted the amount due from unconsolidated equity investee into equity interest during the fourth quarter of 2017, which resulted in equity interest in TRW from 23.89% to 36.60%.

 

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. This remains the case as of the date of this report.

 

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%. On April 5, 2017, SJAP transferred all of its equity interest to MEIJI. This remains the case of the date of this report.

 

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 June 30, 2017, the Company invested $77,664 in SAFS. During the year ended December 31, 2016, SAFS changed from a public to a private company.

 

SJAP formed Qinghai Zhong He Meat Products Co., Limited (“QZH”) , with SJAP would owning 100% equity interest. On October 25, 2015, both QZH and new stockholder, Qinghai Quanwang Investment Management Co., Ltd (“QQI”) contributed additional capital of $4,157,682 and $769,941, respectively. As a result, SJAP decreased its equity interest from 100% to 85% and QQI owned a 14% equity interest. In addition, according to investment agreement between QZH and QQI, (i) QQI only enjoy interest 6% annually on its capital contribution and did not enjoy profit distribution; (ii) investment period was 3 years only, and (iii) SJAP shared 100% on profit or loss after deduction 6% interest to QQI and enjoyed 100% voting rights of QZH’s board and stockholders meetings. SJAP disposed its 85% equity interest in QZH for RMB2 (equivalent to $0) for cash and completed on December 30, 2017. As a result, QZH was derecognized as variable interest entity of the company.

 

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.

 

 F-5 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

  2.1 FISCAL YEAR

 

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

  

  2.2 REPORTING ENTITIES

 

Name of subsidiaries   Place of incorporation   Percentage of interest   Principal activities
             
Capital Award Inc. (“CA”)   Belize   100% (12.31.2018: 100%) directly   Fishery development and holder of A-Power Technology master license.
             
Capital Stage Inc. (“CS”)   Belize   100% (12.31.2018: 100%) indirectly   Dormant
             
Capital Hero Inc. (“CH”)   Belize   100% (12.31.2018: 100%) indirectly   Dormant
             
Sino Agro Food Sweden AB (“SAFS”)   Sweden   100% (12.31.2018: 100%) directly   Dormant
             
Macau Eiji Company Limited (“MEIJI”)   Macau, P.R.C.   100% (12.31.2018: 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% (12.31.2018: 100%) directly   Investment holding
             
Jiang Men City Heng Sheng Tai Agriculture Development Co. Ltd (“JHST”)   P.R.C.   75% (12.31.2018: 75%) indirectly   HylocereusUndatus Plantation (“HU Plantation”).
             
Jiang Men City Hang Mei Cattle Farm Development Co., Limited (“JHMC”)   P.R.C.   75% (12.31.2018:75%) indirectly   Beef cattle cultivation
             
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)   P.R.C.   76% (12.31.2018:76%) 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.   41.25% (12.31.2018: 41.25%) indirectly   Manufacturing of organic fertilizer, livestock feed, and beef cattle and plantation of crops and pastures

 

 F-6 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.3 BASIS OF PRESENTATION

 

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

 

  2.4 BASIS OF CONSOLIDATION

 

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

 

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

 

  2.5 BUSINESS COMBINATION

 

The Company adopted the accounting pronouncements relating to business combination (primarily contained in ASC Topic 805 “Business Combinations”), including assets acquired and liabilities assumed on arising from contingencies. These pronouncements established principles and requirement for how the acquirer of a business recognizes and measures in its financial statements 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-7 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.8 REVENUE RECOGNITION

 

On January 1, 2018, the Company adopted Topic 606, using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting under Topic 605. There was no adjustment to beginning retained earnings on January 1, 2018.

 

Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expect to be entitled to in exchange for those goods or services.

 

ASU 2014-09, “Revenue from Contracts with Customers” outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 outlines a five-step process for revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards, and also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Major provisions include determining which goods and services are distinct and represent separate performance obligations, how variable consideration (which may include change orders and claims) is recognized, whether revenue should be recognized at a point in time or over time and ensuring the time value of money is considered in the transaction price.

 

ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” clarifies the principal versus agent guidance in ASU 2014-09. ASU 2016-08 clarifies how an entity determines whether to report revenue gross or net based on whether it controls a specific good or service before it is transferred to a customer. ASU 2016-08 also reframes the indicators to focus on evidence that an entity is acting as a principal rather than as an agent.

 

ASU 2016-10, “Identifying Performance Obligations and Licensing” amends certain aspects of ASU 2014-09. ASU 2016-10 amends how an entity should identify performance obligations for immaterial promised goods or services, shipping and handling activities and promises that may represent performance obligations. ASU 2016-10 also provides implementation guidance for determining the nature of licensing and royalties arrangements.

 

ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients” also clarifies certain aspects of ASU 2014-09 including the assessment of collectability, presentation of sales taxes, treatment of noncash consideration, and accounting for completed contracts and contract modifications at transition.

 

ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” allows an entity to determine the provision for loss contracts at either the contract level or the performance obligation level as an accounting policy election. The company determines its provision for loss contracts at the contract level.

 

ASU 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” clarifies that the scope and application of ASC 610-20 on accounting for the sale or transfer of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales, applies only when the asset (or asset group) does not meet the definition of a business.

 

ASU 2017-13, “Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments” provides guidance related to the effective dates of the ASUs noted above.

 

We determine revenue recognition through the following steps:

 

  l identification of the contract, or contracts, with a customer;
  l identification of the performance obligations in the contract;
  l determination of the transaction price;
  l allocation of the transaction price to the performance obligations in the contract; and
  l recognition of revenue when, or as, we satisfy a performance obligation.

 

 F-8 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.8 REVENUE RECOGNITION (CONTINUED)

 

Consulting and service income from development contracts

 

The company recognizes consulting and service income from development contracts revenue over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. Consulting and service income from development contracts are generally accounted for as a single unit of account (a single performance obligation) and are not segmented between types of services. The company recognizes revenue using the percentage-of-completion method, based primarily on contract cost incurred to date compared to total estimated contract cost. The percentage-of-completion method (an input method) is the most faithful depiction of the company’s performance because it directly measures the value of the services transferred to the customer. Cost of revenue includes an allocation of depreciation and amortization. Customer-furnished materials, labor and equipment and, in certain cases, subcontractor materials, labor and equipment, are included in revenue and cost of revenue when management believes that the company is acting as a principal rather than as an agent (i.e., the company integrates the materials, labor and equipment into the deliverables promised to the customer). Customer-furnished materials are only included in revenue and cost when the contract includes construction activity and the company has visibility into the amount the customer is paying for the materials or there is a reasonable basis for estimating the amount. The company recognizes revenue, but not profit, on certain uninstalled materials that are not specifically produced, fabricated, or constructed for a project. Revenue on these uninstalled materials is recognized when the cost is incurred (when control is transferred). Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined as assessed at the contract level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the performance obligation being transferred to the client. Customer payments on consulting and service income from development contracts are typically due within 360 days of billing, depending on the contract.

 

Variable Consideration

 

The nature of the company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders; awards and incentive fees; and liquidated damages and penalties. The company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The company estimates the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above for claims accounting have been satisfied.

 

The company generally provides limited warranties for work performed under its engineering and construction contracts. The warranty periods typically extend for a limited duration following substantial completion of the company’s work on a project. Historically, warranty claims have not resulted in material costs incurred.

 

Revenue excludes sales and usage-based taxes where it has been determined that the Company is acting as a pass-through agent.

 

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.

 

 F-9 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.9 COST 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.

 

  2.10 SHIPPING AND HANDLING

 

Shipping and handling costs related to cost of goods sold are included in general and administrative expenses, which totaled $11,367 and $0, $156,103 and $2,745 for the three months and the nine months ended September 30, 2019 and 2018, respectively.

 

  2.11 ADVERTISING

 

Advertising costs are included in general and administrative expenses, which totaled $364,964 and $375,221, $956,056 and $1,175,724 for the three months ended and the nine months ended September 30, 2019 and 2018, respectively. 

 

  2.12 RESEARCH AND DEVELOPMENT EXPENSES

 

Research and development expenses are included in general and administrative expenses, which totaled $0 and $0, $426,115 and $0 for the three months ended and the nine months ended September 30, 2019 and 2018, respectively.

 

  2.13 FOREIGN 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 ($23,088,296) as of September 30, 2019 and ($10,415,786) as of December 31, 2018. The balance sheet amounts with the exception of equity as of September 30, 2019 and December 31, 2018 were translated using an exchange rate of RMB 7.07 to $1.00 and RMB 6.86 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, 2019, and 2018 were RMB 6.85 to $1.00 and RMB 6.51 to $1.00, respectively.

 

  2.14 CASH AND CASH EQUIVALENTS

 

The Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents. Cash and cash equivalents kept with financial institutions in the 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.

 

  2.15 ACCOUNTS RECEIVABLE

 

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

 

The standard credit period for most of the Company’s clients is three months. The collection period over 1 year is classified as long-term accounts receivable. Management evaluates the collectability of the receivables at least quarterly. Provision for doubtful accounts as of September 30, 2019 and December 31, 2018 are $0.

 

 F-10 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.16 INVENTORIES

 

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

 

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

 

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

 

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

 

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

 

  2.17 PLANT 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 - 30 years
Mature seeds and herbage cultivation 20 years
Furniture and equipment 2.5 - 10 years
Motor vehicles 4 - 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.

 

  2.18 GOODWILL

 

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

 

 F-11 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.19 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 20 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.

 

  2.20 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.

 

  2.21 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.

 

  2.22 EQUITY METHOD INVESTMENTS

 

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 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.

 

  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-12 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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.

 

 F-13 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  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.

 

  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, 2019 and December 31, 2018 amounted to $923,875 and $4,720,793, 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 whose business individually represented the following percentages of the Company’s total revenue for the period indicated:

 

   Three months ended
September 30, 2019
   Three months ended
September 30, 2018
   Nine months ended
September 30, 2019
   Nine months ended
September 30, 2018
 
                 
Customer A   31.05%   29.44%   30.64%   33.40%
Customer B   16.09%   15.09%   15.03%   17.73%
Customer C   35.65%   20.94%   33.11%   16.63%
Customer D   -%   16.74%   -%   5.22%
Customer E   4.67%   4.27%   4.66%   7.64%
Customer F   3.36%   -%   2.76%   -%
    90.82%   86.48%   86.20%   80.62%

 

 F-14 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.29 CONCENTRATION OF CREDIT RISK (CONTINUED)

 

      Percentage
of revenue
   Amount 
Customer A  Corporate and others Division   31.05%  $11,623,334 
Customer B  Cattle Farm Development Division   16.09%  $6,021,726 
Customer C  Corporate and others Division   35.65%  $13,345,198 

 

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, 2019   December 31, 2018 
Customer A   13.22%   12.76%
Customer B   13.11%   9.67%
Customer C   9.72%   10.05%
Customer D   -%   1.8%
Customer E   1.74%   -%
Customer F   56.87%   59.81%
    94.66%   94.09%

 

As of September 30, 2019, amounts due from customers A and B are $14,542,938 and $14,419,721, respectively. The Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any financial difficulties of its major customers.

 

  2.30 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, 2019 and December 31, 2018, the Company determined no impairment losses were necessary.

 

  2.31 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, 2019 and 2018, basic earnings per share attributable to Sino Agro Food, Inc. and subsidiaries common stockholders amounted to $0.16 and $0.09, respectively. For the three months ended September 30, 2019 and 2018, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.16 and $0.09, respectively.

 

For the nine months ended September 30, 2019 and 2018, basic earnings per share attributable to Sino Agro Food Inc. and subsidiaries common stockholders amounted to $0.31 and $0.27, respectively. For the nine months ended September 30, 2019 and 2018, diluted earnings per share attributable to Sino Agro Food, Inc. and its subsidiaries’ common stockholders amounted to $0.31 and $0.27, respectively.

 

 F-15 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

  

  2.32 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.

 

  2.33 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.

 

  2.34 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.

 

  2.35 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, 2019 or December 31, 2018, nor gains or losses are reported in the statements of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the fiscal period ended September 30, 2019 or 2018.

 

 F-16 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

  2.36 NEW ACCOUNTING PRONOUNCEMENTS

 

In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (ASC Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, modifies and adds disclosure requirements for fair value measurements. The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the effects of this ASU on its financial statements and related disclosures and does not expect there to be a material impact.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance will require Companies to recognize an allowance for credit losses on available-for-sale debt securities rather than the current approach of recording a reduction to the carrying value of the asset. The ASU is effective for fiscal years beginning after December 15, 2019 and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2018 and interim periods therein. The Company is currently evaluating the effects of this ASU on its financial statements and related disclosures and does not expect there to be a material impact.

 

 F-17 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION

 

The Company establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as business segments and major customers in consolidated financial statements. The Company operates in five principal reportable segments: Fishery Development Division, 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, 2019 
   Fishery       Organic Fertilizer   Cattle Farm         
   Development   HU Plantation   and Bread Grass   Development   Corporate and     
   Division (1)   Division (2)   Division (3)   Division (4)   others (5)   Total 
Revenue  $-    803,352    5,588,247    13,394,653    17,645,062    37,431,314 
                               
Net income (loss)  $(127,139)   (609,383)   400,620    1,839,611    6,612,837    8,116,546 
                               
Total assets  $90,458,027    40,296,438    308,526,376    47,736,673    304,644,198    791,661,712 

 

   For the three months ended September 30, 2018 
   Fishery       Organic Fertilizer   Cattle Farm         
   Development   HU Plantation   and Bread Grass   Development   Corporate and     
   Division (1)   Division (2)   Division (3)   Division (4)   others (5)   Total 
Revenue  $6,502,373   $988,030   $5,933,042   $8,028,334   $17,298,238   $38,750,017 
                               
Net income (loss)  $906,175    (599,743)   399,756    992,139    1,766,595    3,465,562 
                               
Total assets  $87,021,604    45,899,308    326,860,510    39,856,112    283,736,237    783,373,768 

 

   For the nine months ended September 30, 2019 
   Fishery       Organic Fertilizer   Cattle Farm         
   Development   HU Plantation   and Bread Grass   Development   Corporate and     
   Division (1)   Division (2)   Division (3)   Division (4)   others (5)   Total 
                         
Revenue  $1,719,247    2,813,800    18,743,832    34,105,641    47,908,624    105,291,144 
                               
Net income (loss)  $(252,187)   (1,622,380)   470,344    4,644,679    11,275,072    15,302,641 
                               
Total assets  $90,458,027    40,296,438    308,526,376    47,736,673    304,644,198    791,661,712 

 

   For the nine months ended September 30, 2018 
   Fishery       Organic Fertilizer   Cattle Farm         
   Development   HU Plantation   and Bread Grass   Development   Corporate and     
   Division (1)   Division (2)   Division (3)   Division (4)   others (5)   Total 
                         
Revenue  $10,036,762   $3,082,503   $22,327,936   $19,100,254   $51,928,550   $106,476,004 
                               
Net income (loss)  $1,521,546   $(1,123,369)  $379,533   $1,687,951   $6,970,288   $9,435,949 
                               
Total assets  $81,997,442   $46,569,574   $341,912,724   $41,143,209   $283,736,237   $783,373,768 

 

 F-18 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION (CONTINUED)

  

  (1) Operated by Capital Award, Inc. (“CA”).

 

  (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”), 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 (“SAFS”).

 

 F-19 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

   For the three ended September 30, 2019 
   Fishery       Organic Fertilizer   Cattle Farm         
   Development   HU Plantation   and Bread Grass   Development   Corporate and     
   Division (1)   Division (2)   Division (3)   Division (4)   others (6)   Total 
Name of entity Sale of goods Capital Award, Inc. (“CA”)  $                           
                               
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)        803,352                   803,352 
                               
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)             2,121,458              2,121,458 
                               
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)             3,466,789              3,466,789 
                               
Qinghai Zhong He Meat Products Co., Limited (“QZH”)                              
                               
Macau Eiji Company Limited (“MEIJI”)                  13,394,653         13,394,653 
                               
Sino Agro Food, Inc. (“SIAF”)                       17,645,062    17,645,062 
                               
Consulting and service income for development contracts Capital Award, Inc. (“CA”)   -                        - 
                               
Commission and management fee Capital Award, Inc. (“CA”)                              
   $         -    803,352    5,588,247    13,394,653    17,645,062    37,431,314 

 

 F-20 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

    For the three months ended September 30, 2018  
    Fishery           Organic Fertilizer     Cattle Farm              
    Development     HU Plantation     and Bread Grass     Development     Corporate and        
    Division (1)     Division (2)     Division (3)     Division (4)     others (6)     Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ -  
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       988,029       -       -       -       988,029  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       2,390,188       -       -       2,390,188  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       3,542,853       -       -       3,542,853  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       -       -       -       -  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       8,028,333       -       8,028,333  
                                                 
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       17,298,242       17,298,242  
                                                 
Consulting and service income for development contracts Capital Award, Inc. (“CA”)     6,502,372       -       -       -       -       6,502,372  
                                                 
Commission and management fee Capital Award, Inc. (“CA”)     -       -       -       -       -       -  
    $ 6,502,372     $ 988,029     $ 5,933,041     $ 8,028,333     $ 17,298,242     $ 38,750,017  

 

 F-21 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

    For the nine months ended September 30, 2019  
    Fishery           Organic Fertilizer     Cattle Farm              
    Development     HU Plantation     and Bread Grass     Development     Corporate and        
    Division (1)     Division (2)     Division (3)     Division (4)     others (6)     Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $                                            
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)             2,813,800                               2,813,800  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)                     7,171,786                       7,171,786  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)                     11,572,046                       11,572,046  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)                                                
                                                 
Macau Eiji Company Limited (“MEIJI”)                             34,105,641               34,105,641  
                                                 
Sino Agro Food, Inc. (“SIAF”)                                     47,908,624       47,908,624  
                                                 
Consulting and service income for development contracts Capital Award, Inc. (“CA”)     1,719,247                                       1,719,247  
                                                 
Commission and management fee Capital Award, Inc. (“CA”)                                                
    $ 1,719,247       2,813,800       18,743,832       34,105,641       47,908,624       105,291,144  

 

 F-22 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  3. SEGMENT INFORMATION (CONTINUED)

 

Further analysis of revenue:-

 

    For the nine months ended September 30, 2018  
    Fishery           Organic Fertilizer     Cattle Farm              
    Development     HU Plantation     and Bread Grass     Development     Corporate and        
    Division (1)     Division (2)     Division (3)     Division (4)     others (6)     Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ -  
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       3,082,502       -       -       -       3,082,502  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       7,255,245       -       -       7,255,245  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       15,072,691       -       -       15,072,691  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       -       -       -       -  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       19,100,254       -       19,100,254  
                                                 
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       51,928,550       51,928,550  
                                                 
Consulting and service income for development contracts Capital Award, Inc. (“CA”)     10,036,762       -       -       -       -       10,036,762  
                                                 
Commission and management fee Capital Award, Inc. (“CA”)     -       -       -       -       -       -  
    $ 10,036,762     $ 3,082,502     $ 22,327,936     $ 19,100,254     $ 51,928,550     $ 106,476,004  

 

 F-23 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

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

 

COST OF GOODS SOLD

 

    For the three months ended September 30, 2019  
    Fishery           Organic Fertilizer     Cattle Farm     Corporate        
    Development     HU Plantation     and Bread Grass     Development     and others        
    Division (1)     Division (2)     Division (3)     Division (4)     (5)     Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $                                            
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)             623,169                               623,169  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)                     1,405,780                       1,405,780  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)                     2,498,199                       2,498,199  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)                                                
                                                 
Macau Eiji Company Limited (“MEIJI”)                             10,926,470               10,926,470  
                                                 
Sino Agro Food, Inc. (“SIAF”)                                     15,684,500       15,684,500  
    $       -       623,169       3,903,979       10,926,470       15,684,500       31,138,118  

 

COST OF SERVICES

 

    For the three months ended September 30, 2019  
    Fishery           Organic Fertilizer     Cattle Farm     Corporate        
    Development     HU  Plantation     and Bread Grass     Development     and others        
    Division (1)     Division (2)     Division (3)     Division (4)     (5)     Total  
Name of entity                                                
                                                 
Consulting and service income for development contracts                                                
                                                         
Capital Award, Inc. (“CA”)                  -                     -                      -                -               -       -  
                                                 
    $ -     $ -     $ -     $ -     $ -     $ -  

 

 F-24 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

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

 

COST OF GOODS SOLD

 

    For the three months ended September 30, 2018  
    Fishery           Organic Fertilizer     Cattle Farm     Corporate        
    Development     HU Plantation     and Bread Grass     Development     and others        
    Division (1)     Division (2)     Division (3)     Division (4)     (5)     Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ -  
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       815,981       -       -       -       815,981  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       1,530,851       -       -       1,530,851  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       2,355,398       -       -       2,355,398  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       -       -       -       -  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       6,674,769       -       6,674,769  
                                                 
Sino Agro Food, Inc. (“SIAF”)     -       -       -       -       15,709,185       15,709,185  
    $      -     $ 815,981     $ 3,886,249     $ 6,674,769     $ 15,709,185     $ 27,086,184  

 

COST OF SERVICES

 

    For the three months ended September 30, 2018  
    Fishery           Organic Fertilizer     Cattle Farm     Corporate        
    Development     HU Plantation     and Bread Grass     Development     and others        
    Division (1)     Division (2)     Division (3)     Division (4)     (5)     Total  
Name of entity                                                
                                                 
Consulting and service income for development contracts                                                
                                                 
Capital Award, Inc. (“CA”)     5,469,059             -                  -             -           -       5,469,059  
    $ 5,469,059     $ -     $ -     $ -     $ -     $ 5,469,059  

 

 F-25 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

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

 

COST OF GOODS SOLD

 

    For the nine months ended September 30, 2019  
    Fishery
Development
Division (1)
    HU Plantation
Division (2)
    Organic Fertilizer
and Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and others
(5)
    Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $                                         -  
                                                              
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)             2,120,374                               2,120,374  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)                     4,656,829                       4,656,829  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)                     8,287,736                       8,287,736  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH “)                                             -  
                                                 
Macau Eiji Company Limited (“MEIJI”)                             27,890,578               27,890,578  
                                                 
Sino Agro Food, Inc. (“SIAF”)                                     42,577,034       42,577,034  
    $       -       2,120,374       12,944,565       27,890,578       42,577,034       85,532,551  

 

COST OF SERVICES

 

    For the nine months ended September 30, 2019  
    Fishery
Development
Division (1)
    HU Plantation
Division (2)
    Organic Fertilizer
and Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and others
(5)
    Total  
Name of entity Consulting and service income for development contracts                                                                                                                    
                                                 
Capital Award, Inc. (“CA”)     1,590,017                                       1,590,017  
                                                 
    $ 1,590,017                                       1,590,017  

 

 F-26 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

3. SEGMENT INFORMATION (CONTINUED)

 

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

 

COST OF GOODS SOLD

 

    For the nine months ended September 30, 2018  
    Fishery
Development
Division (1)
    HU
Plantation
Division (2)
    Organic Fertilizer
and Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and others
(5)
    Total  
Name of entity Sale of goods Capital Award, Inc. (“CA”)   $ -     $ -     $ -     $ -     $ -     $ -  
                                                 
Jiang Men City Heng Sheng Tai Agriculture Development Co., Limited (“JHST”)     -       2,569,886       -       -       -       2,569,886  
                                                 
Hunan Shenghua A Power Agriculture Co., Limited (“HSA”)     -       -       4,790,131       -       -       4,790,131  
                                                 
Qinghai Sanjiang A Power Agriculture Co., Limited (“SJAP”)     -       -       9,981,074       -       -       9,981,074  
                                                 
Qinghai Zhong He Meat Products Co., Limited (“QZH”)     -       -       -       -       -       -  
                                                 
Macau Eiji Company Limited (“MEIJI”)     -       -       -       16,711,195       -       16,711,195  
                                                 
Sino Agro Food, Inc. (“SIAF”)             -       -       -       -       46,568,177       46,568,177  
    $ -     $ 2,569,886     $ 14,771,205     $ 16,711,195     $ 46,568,177     $ 80,620,463  

 

COST OF SERVICES

 

    For the nine months ended September 30, 2018  
    Fishery
Development
Division (1)
    HU
Plantation
Division (2)
    Organic Fertilizer
and Bread Grass
Division (3)
    Cattle Farm
Development
Division (4)
    Corporate
and others
(5)
    Total  
Name of entity Consulting and service income for development contracts                                                
                                                 
Capital Award, Inc. (“CA”)     8,133,799           -               -                  -                 -       8,133,799  
                                                 
    $ 8,133,799     $ -     $ -     $ -     $ -     $ 8,133,799  

 

 F-27 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4. INCOME TAXES

 

United States of America

 

The Company was incorporated in the State of Nevada, in the United States of America. The Company has no trading operations in United States of America and no U.S. corporate tax has been provided for in the consolidated financial statements of the Company. However, see the discussion, below, under “Undistributed Earnings of Foreign Subsidiaries”.

 

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 but some of these profits may have to be used to satisfy U.S. income tax liabilities based on the operations of its controlled foreign subsidiaries. Prior to 2017, depending on how and where their controlled foreign corporations were operated, U.S. companies did not always have to pay tax on the earnings of their controlled foreign corporations, and the Company believes that prior to 2017 the earnings of its controlled foreign corporations were not taxable in the United States until distributed to the Company. Accordingly, the Company made no provision for U.S. Federal and State income tax. The Company filed yearly U.S. federal income tax returns from 2007 to 2017 on which it has reported that there was no no tax due to the United States.

 

However, the Tax Cuts and Jobs Act of 2017 (the “2017 Act”) now requires some U.S. companies (starting in 2018) to pay tax on the earnings of their controlled foreign corporations based on complex formulas. The Company has not yet analyzed the impact of these changes on the taxability in the United States of the earnings of its foreign subsidiaries and so does not know whether it has for 2018, or will have for 2019 and future years, any earnings subject to U.S. federal income tax. In addition, the 2017 Act required U.S. companies to repatriate, as of the end of 2017, their accumulated earnings to date. The Company has not yet determined whether it incurred a U.S. tax liability as of the end of 2017 under this repatriation provision of the 2017 Act. The Company is seeking professional advice from U.S. tax accountants as to the impact on the Company of the 2017 Act for 2017 and later years. In fiscal year 2017 the Company had an operating loss of $30,102,943 based on the consolidated financials of its controlled foreign corporations, but it has had operating profits in previous years.

 

 F-28 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

4. 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, HSA and SJAP since they are exempt from EIT for the nine months ended September 30, 2019 and 2018 as they are within the agriculture, and cattle sectors.

 

However, EIT has provide in the financial statements of SJAP since it has generated income from trading of agricultural products for the nine months ended September 30, 2019.

 

Belize

 

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

 

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 three months ended September 30, 2019 and 2018.

 

Sweden

 

No Sweden Corporate income tax has been provided in the consolidated financial statements of SAFS since SAFS incurred a tax loss for the three months ended September 30, 2019 and 2018.

 

No deferred tax assets and liabilities are of September 30, 2019 and December 31, 2018 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:

 

   Nine months ended
September 30, 2019
   Nine months ended
September 30, 2018
 
   (Unaudited)   (Unaudited) 
SIAF  $-   $- 
SAFS   -    - 
MEIJI and APWAM   -    - 
JHST, JHMC, SJAP, HSA   6,518    - 
   $6,518   $       - 

 

The Company did not recognize any interest or penalties related to unrecognized tax benefits in the nine months ended September 30, 2019 and 2018. 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-29 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

5. CASH AND CASH EQUIVALENTS

 

   September 30, 2019   December 31, 2018 
   (Unaudited)   (Audited) 
Cash and bank balances  $671,544   $4,950,799 

  

6. INVENTORIES

 

As of September 30, 2019, inventories are as follows:

 

   September 30, 2019   December 31, 2018 
   (Unaudited)   (Audited) 
Bread grass   397,525    744,378 
Beef cattle   14,985,211    11,561,117 
Organic fertilizer   12,554,853    14,266,923 
Forage for cattle and consumable   5,849,951    7,252,280 
Raw materials for bread grass and organic fertilizer   15,993,746    18,885,258 
Immature seeds   1,757,923    1,872,285 
   $51,539,209   $54,582,241 

  

7. DEPOSITS AND PREPAYMENTS

 

   September 30, 2019   December 31, 2018 
   (Unaudited)   (Audited) 
Deposits for          
- purchases of equipment  $1,198,969   $2,158,867 
- acquisition of land use rights   169,659    174,851 
- inventories purchases   6,676,335    16,921,188 
- construction in progress   3,862,859    4,789,035 
- issue of shares as collateral   25,761,658    24,928,324 
Shares issued for employee compensation and overseas professional and bond interest   -    643,457 
Others   2,631,797    2,625,468 
   $40,301,277   $52,241,190 

 

8. ACCOUNTS RECEIVABLE

 

The Company has performed an analysis on all of its accounts receivable and determined that all amounts are collectible by the Company. As such, all accounts receivable are reflected as a current asset and no allowance for bad debt has been recorded as of September 30, 2019 and December 31, 2018.

 

Aging analysis of accounts receivable is as follows:

 

   September 30, 2019   December 31, 2018 
   (Unaudited)   (Audited) 
0 - 30 days  $1,856,007   $7,447,269 
31 - 90 days   33,952,877    22,684,605 
91 - 120 days   10,686,718    16,456,895 
over 120 days and less than 1 year   4,659,565    11,773,454 
over 1 year   58,841,689    43,289,908 
   $109,996,856   $101,652,131 

 

 F-30 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

9. OTHER RECEIVABLES

 

   September 30, 2019   December 31, 2018 
   (Unaudited)   (Audited) 
Advanced to employees  $583,556   $561,330 
Advanced to suppliers   4,312,819    3,831,926 
Advanced to customers   14,136,055    14,114,249 
Advanced to developers   439,700    453,155 
Others   4,111,778    9,346,866 
   $23,583,908   $28,307,526 

 

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

 

10. PLANT AND EQUIPMENT

 

   September 30, 2019   December 31, 2018 
   (Unaudited)   (Audited) 
Plant and machinery  $17,559,162   $5,299,631 
Structure and leasehold improvements   195,526,199    200,734,812 
Mature seeds and herbage cultivation   61,408,570    54,643,255 
Furniture and equipment   692,452    695,461 
Motor vehicles   576,042    590,416 
    275,762,425    261,963,575 
           
Less: Accumulated depreciation   (37,891,532)   (31,317,916)
Net carrying amount  $237,870,893   $230,645,659 

 

Depreciation expense was $2,614,634 and $2,552,397, $7,676,784 and $7,877,928 for the three months ended and the nine months ended September 30, 2019 and 2018, respectively.

 

11. CONSTRUCTION IN PROGRESS

 

   September 30, 2019   December 31, 2018 
   (Unaudited)   (Audited) 
Construction in progress          
- Office, warehouse and organic  fertilizer plant in HSA        7,285 
- Organic fertilizer and bread grass production plant and office building        6,484,045 
- Rangeland for beef cattle and office building   10,427,213    6,024,197 
   $10,427,213   $12,515,527 

 

 F-31 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

12. LAND USE RIGHTS

 

   September 30, 2019   December 31, 2018 
   (Unaudited)   (Audited) 
Cost  $64,096,634   $65,779,178 
Less: Accumulated amortization   (12,893,888)   (11,964,897)
Net carrying amount  $51,202,746   $53,814,281 

 

   Amount 
Balance @1.1.2018  $65,573,223 
Exchange difference   205,955 
Balance @12.31.2018  $65,779,178 
Exchange difference   (1,682,544)
Balance @6.30.2019  $64,096,634 

 

Land use rights are amortized on the straight-line basis over their respective lease periods. The lease period of agriculture land is 10 to 60 years. Amortization of land use rights was $541,401, $325,169, $1,242,039 and $1,166,622 for the three months and the nine months ended September 30, 2019 and 2018 respectively.

 

13. GOODWILL

 

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

 

    September 30, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Goodwill from acquisition   $ 724,940     $ 724,940  
Less: Accumulated impairment losses     -       -  
Net carrying amount   $ 724,940     $ 724,940  

 

14. PROPRIETARY TECHNOLOGIES

 

By an agreement dated November 12, 2008, TRW acquired an enzyme technology master license, registered under a Chinese patent, for the manufacturing of livestock feed and bioorganic fertilizer and its related labels for $8,000,000. On October 1, 2015, the Company took up such assets at $5,473,720.

 

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 $2,270,000 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.

 

 F-32 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

14. PROPRIETARY TECHNOLOGIES (CONTINUED)

 

    September 30, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
             
Cost   $ 11,055,857     $ 11,113,267  
Less: Accumulated amortization     (2,594,312 )     (2,176,196 )
Net carrying amount   $ 8,461,545     $ 8,937,071  

  

Amortization of proprietary technologies was $144,497 and $145,062, $434,863 and $438,503 for the three months and the nine months ended September 30, 2019 and 2018, respectively.  No impairments of proprietary technologies have been identified for the three months and the nine months ended September 30, 2019 and 2018.

 

15. INTERESTS IN UNCONSOLIDATED EQUITY INVESTEES

 

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

 

On August 15, 2016, the acquisition agreement was executed by TRW for acquiring the other 25% equity in JFD which was a Sino Foreign Joint Venture Co. that TRW had 100% equity interest with effect on October 5, 2016. Upon the acquisitions of 3 additional prawn farms assets at fair value of $238.32 million from respective third parties and the master technology license at fair value of $30 million from Capital Award, Inc. by JFD, and the consideration of the above acquisitions were planned to be settled by the new issue shares of 99,990,000 TRW shares at $3.41 amounting to $340.53 million on or before June 30, 2017. As a result, SIAF’s equity interest in TRW was diluted from 100% to 23.89% with effective on October 5, 2016. The above transactions leaded the Company loss of control over TRW group, the Company’s investments in TRW and JFD were reclassified from a subsidiary to investments in unconsolidated equity investees as of October 5, 2016. The dilution of the Company’s investments in TRW group constituted a deemed disposal of the subsidiaries. The deemed gain on disposal of $56,947,005 was recorded in net income from discontinued operations of the consolidated statements of income and other comprehensive income of the Company for the year ended December 31, 2016. On October 1, 2016, SIAF took up all assets and liabilities of TRW and JFD except plant and equipment - fish farm. The Company converted the amount due from unconsolidated equity investee into equity interest during the fourth quarter of 2017, which resulted in equity interest in TRW from 23.89% to 36.60%.

 

    September 30, 2019     December 31, 2018  
    (Unaudited)     (Audited)  
Investments at cost                
-   TRW   $ 162,444,883     $ 149,720,418  
Amount due from a consolidated equity investee - TRW     59,285,521       57,354,208  
    $ 221,730,404     $ 207,074,626  

 

 F-33 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

Intended                    
unincorporated   Projects                
Investee   Engaged       September 30, 2019     December 31, 2018  
            (Unaudited)     (Audited)  
A   Trade center   *   $ 12,000,000     $ 12,000,000  
B   Fish Farm 2 GaoQiqiang Aquaculture   *     17,403,959       17,403,959  
C   Cattle farm 2   *     5,496,389       5,502,001  
            $ 34,900,349     $ 34,905,960  

 

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, 2019, the percentages of equity stakes of A (trade and seafood centers), B (fish farm 2 GaoQiqiang Aquaculture Farm) and C (cattle farm 2) are 31%, 23% 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.

 

17. 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, 2019, the Company has invested $4,054,421 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

 

17. 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 June 30, 2018, 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.

 

 F-35 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

18.. CONSTRUCTION CONTRACT

 

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

 

   September 30,
2019
   December 31,
2018
 
   (Unaudited)   (Audited) 
Costs  $6,186,261   $6,186,261 
Estimated earnings   4,777,300    4,777,300 
Less:  Billings   (10,712,733)   (10,712,733)
Costs and estimated earnings in excess of billings on uncompleted contracts  $250,828   $250,828 

  

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

 

   September 30,
2019
   December 31,
2018
 
   (Unaudited)   (Audited) 
Billings  $49,175,412   $47,929,092 
Less:  Costs   (30,098,638)   (29,094,568)
Estimated earnings   (13,690,063)   (13,486,231)
Billing in excess of costs and estimated earnings on uncompleted contracts  $5,386,711   $5,348,293 

  

  (iii) Overall

 

   September 30,
2019
   December 31,
2018
 
   (Unaudited)   (Audited) 
Billings  $59,888,145   $58,641,825 
Less:  Costs   (36,284,899)   (35,280,829)
Estimated earnings   (18,467,363)   (18,263,531)
Billing in excess of costs and estimated earnings on uncompleted contracts  $5,135,883   $5,097,465 

  

19. OTHER PAYABLES

 

   September 30,
2019
   December 31,
2018
 
   (Unaudited)   (Audited) 
Due to third parties  $16,846,187   $13,068,387 
Straight note payable (note 23(i))   29,367,999    29,367,999 
Promissory notes issued to third parties   7,765,801    7,792,774 
Due to local government   -    87,425 
   $53,979,987   $50,316,585 
           
Less: Amount classified as non-current liabilities          
Promissory notes issued to third parties   (7,765,801)   (7,792,774)
Amount classified as current liabilities  $46,214,186   $42,523,811 

 

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

 

 F-36 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

20. BORROWINGS

 

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

 

Short term bank loan

 

Name of lender  Interest rate   Term  September 30,
2019
   December 31,
2018
 
          (Unaudited)   (Audited) 
China Development Bank
Qinghai Province, the P.R.C
   4.7306%  December 27, 2018 -
December 27, 2019
  $4,241,482   $4,371,265 
                   
                   
Add: current portion of long term bank loan          $282,764   $218,563 
            4,524,246    4,589,828 

 

Long term bank loan

 

Name of lender  Interest rate   Term  September 30,
2019
   December 31,
2018
 
          (Unaudited)   (Audited) 
China Development Bank        December 16, 2016 -            
Beijing City, the P.R,C.   5.39%  December 15, 2026  $5,513,926   $5,755,501 
Less: current portion of long term bank loan          $(282,764)  $(218,563)
            5,231,162    5,536,938 

  

On December 16, 2016, the Company obtained a 10-year long term loan of RMB40million (approximately $5.66million) from China Development Bank for the period from December 16, 2016 to December 15, 2026, bearing an annual interest rate at 110% of the benchmark rate of PBOC on the date of the loan agreement and will be adjusted in line with any adjustment of the benchmark rate which is 5.39% (12.31.2018: 5.39%). The loan was guaranteed by Mr. Zhao Yilin and Ms. Song Haixian, Mr. Zhao Yilin’s wife. The loan was also secured by land use right with net carrying amount of $376,669 as of September 30, 2019 (12.31.2018: 397,269) and a batch of plant, machinery and equipment with net carrying amount of $5,071,190 (12.31.2018: 5,326,385). On May 20, 2019, RMB500,000 (approximately $73K) was repaid. According to the loan agreement, 2 partial payments of RMB1,000,000 each, totaling of RMB2,000,000 (approximately $282,764) were scheduled to be repaid by November 20, 2019 and May 20, 2020 respectively.

 

On December 27, 2018, the Company obtained a 1-year short term loan of RMB30 million (approximately $4.24million) from China Development Bank for the period from the December 27, 2018 to December 27, 2019, bearing fixed interest at 4.7306% per annum. This loan was guaranteed by Xining City SME Guarantee Corporation.

 

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.

 

 F-37 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

21. 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 1”) 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, (price prior to reversed split) 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.

 

The Company and the note holder entered into a restructuring agreement regarding the settlement of the Note 1. Both parties have agreed to restructure the indebtedness represented by Note 1 as follows: (a) SIAF issues 5,196,333 shares of its common stock and transfer 400,000 shares of TRW to the note holder; and (b) SIAF executes a new promissory note in the principal amount of $15,589,000 to the note holder to be paid in installments over a period of time. However, both parties remain open to negotiate an all-cash settlement of the Note 1.

 

As a result, the amount outstanding under Note 1 was reclassified as other payables – straight note payable of $29,367,999 (see Note 19).

 

On October 20, 2017, the Company issued another Convertible Note (the "Note 2") with a principal amount of $4,000,000 due on February 28, 2018. The note holder had the option to convert all or any part of the outstanding note into the common stock of the Company (the "Primary Optional Conversion") or TRW (the "Secondary Optional Conversion") at any time for a period of eight months from the note's maturity date. The conversion price for Primary Optional Conversion is lesser of $1.5 per share or at 65% of the market share price of the Company. While the conversion price for Secondary Optional Conversion is $3.41 per share subject to equitable adjustment for stock split, stock dividend or right offerings.

 

Under the agreement, the Company shall pay the note holder 120,000 common shares of SIAF or 32,000 common shres of TRW as an origination fee. The note bears a flat interest payment which shall be settled by 200,000 common shares of SIAF or 55,000 common shares of TRW. As of September 30, 2019, no settlement for both origination fee and interest payment.

 

The Company and the note holder entered into a restructuring agreement regarding the settlement of the Note 2. Both parties have agreed to restructure the indebtedness represented by Note 2 where SIAF executes a new promissory note in the principal amount of $6,301,480 to the note holder to be paid in 3 installments by August 31, 2019, October 30, 2019 and December 31, 2019, respectively. As of September 30, 2018, no payment was made.

 

As a result, the amount outstanding under Note 2 was reclassified as other payables – straight note payable of $6,301,480 (see Note 19) and a loss on restructuring of $2,404,402 which representing the default interest incurred during the period.

  

   September 30,
2019
   December 31,
2018
 
   (Unaudited)   (Audited) 
         
Convertible note due December 31, 2018  $-   $3,894,978 
Less: classified as current liabilities   -    (3,894,978)
Non-current liabilities  $-   $- 

 

 F-38 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Company estimated the fair value of the derivative liabilities using the Binomial Option Pricing Model and the following key assumptions for the year ended December 31, 2018

 

   December 31,
2018
 
Expected dividends   - 
Expected term (years)   0.34 
Volatility   52.09% - 54.32% 
Risk-free rate   1.65% - 1.9% 

 

The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value as of December 31, 2018.

 

   Level 1   Level 2   Level 3   Total 
   $   $   $   $ 
LIABILITIES:                    
                     
Derivative liabilities as of December 31, 2018   -    -    2,100    2,100 

 

 F-39 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

22. SHAREHOLDERS’ EQUITY

 

The Group’s share capital as of September 30, 2019 and December 31, 2018 shown on the consolidated balance sheet represents the aggregate nominal value of the share capital of the Company as of that date.

  

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 December 31, 2014, 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.

 

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 22,727,272 to 27,000,000 and the amendment was filed on December 28, 2016. 

 

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 27,000,000 to 50,000,000 and the amendment was filed on August 24, 2017 with an effective date of August 25, 2017.

 

During the year ended December 31, 2018, the Company (i) issued 535,598 shares of common stock valued to employees and directors at ranging from $1 to $1.56 per share for $576,170 for employee compensation; (ii) issued 16,032,262 shares of common stock valued to professionals and contractors ranging from $ 0.55 to $1.00 per share for $9,723,720 for service compensation; and (iii) issued 3,935,439 shares of common stock valued at $ 0.30 to $ 0.50 per share for 1,478,029 for settlement of debts. 

 

During the nine months ended September 30, 2019, the Company (i) issued 109,911 shares of common stock valued at fair value of $0.3 per share for $32,973 for settling of debts; the shares issued by the Company were valued at the trading price of the stock on the date the shares were issued.

 

The Company has 49,976,085 and 49,866,174 shares of common stock issued and outstanding as of September 30, 2019 and December 31, 2018 respectively.

 

 F-40 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

23. OBLIGATION UNDER OPERATING LEASES

 

The Company leases (i) 2,178 square feet of agriculture space used for offices for a monthly rent of $851 in Enping City, Guangdong Province, P.R.C., its lease expiring on March 31, 2019. The lease was renewed on March 28, 2019 for a monthly rent of $844 expired on March 31, 2022, and (ii) 5,081 square feet of office space in Guangzhou City, Guangdong Province, P.R.C. for a monthly rent of $12,197, its lease expiring on July 8, 2018. The lease was renewed on July 9, 2018 for a 2,695 square feet of office space for a monthly rent of $6,537 expired on July 8, 2020.

 

Lease expenses were $21,592 and $21,304, $65,879 and $102,851 for the three months ended and the nine months ended September 30, 2019 and 2018, respectively.

 

The future minimum lease payments as of September 30, 2019, are as follows:

 

Within 1 year   $ 68,710  
2 to 5 years     19,295  
Over 5 years     -  
    $ 88,005  

 

 

 F-41 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

24. STOCK BASED COMPENSATION

 

The Company calculated stock-based compensation of $643,457 and $2,952,327 and recognized $115,787, $546,496, $643,457 and $1,896,986 for the three months and the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, the deferred compensation balance for staff was nil. As of June 30, 2018, the deferred compensation balance for staff was $1,055,341 and were to be amortized over 6 months beginning on October 1, 2018.

  

25. CONTINGENCIES

 

On March 26, 2019, a shareholder derivative complaint was filed in the United States District Court for the Southern District of New York against the Company, as well as four of its current directors, styled Heng Ren Silk Road Investments LLC, Heng Ren Investments LP, derivatively on behalf of Sino Agro Food Inc. v. Sino Agro Food Inc., Lee Yip Kun Solomon, Tan Poay Teik, Chen Bor Hann, Lim Chang Soh, and Sino Agro Food Inc. , as the nominal defendant (Case No.: 1:19-cv-02680) (the “ Complaint ”). The Company filed its Motion to Dismiss the Complaint on June 24, 2019. After the Company filed its Motion to Dismiss, the Court, sue sponte, issued an Order requiring plaintiffs to either file an Amended Complaint by July 16, 2019 or serve their Opposition to the Motion to Dismiss by that date. The Court stated that if plaintiffs do not amend their Complaint, they then will not be given any further opportunity to amend the Complaint to address the issues raised in the Motion to Dismiss. Subsequently, Plaintiffs filed an Amended Complaint. The Amended Complaint alleges violations of the federal securities laws and breaches of fiduciary duties (including gross mismanagement of the Company) by the individual defendants, based on allegations concerning, inter alia, a material default of its obligations under a commercial loan agreement, misleading and false statements (including material omissions) by the individual defendants, and unauthorized issuance of new shares of Common Stock to pay debts that, in the view of the plaintiffs, has diluted shareholder ownership and oppressed shareholders of the Company.

 

On September 20, 2019, the Company filed a Motion to Dismiss the Amended Complaint. After the Company filed its Motion to Dismiss, the parties have had settlement discussions. As a result, the Court granted a request to adjourn the present motion briefing schedule. Plaintiffs’ Opposition is now due on or before January 3 2020, and the Company’s Reply Brief is due on January 24, 2020. Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot estimate the reasonably possible loss or range of loss that may result from this action. However, an unfavorable outcome may have a material adverse effect on our business, financial condition and results of operations. The Company believes that these claims are without merit and intend to vigorously defend the action.

 

26. RELATED PARTY TRANSACTIONS

 

In addition to the transactions and balances as disclosed elsewhere in these consolidated financial statements, during the three months ended September 30, 2019 and 2018, the Company had the following significant related party transactions:-

 

Name of related party   Nature of transactions
     

Mr. Solomon Yip
Kun Lee,
Chairman

 

Tri-way Industries

Limited, (“TRW’)

Unconsolidated

equity investee

 

Included in due to a director, due to Mr. Solomon Yip Kun Lee is $861,182 and $2,046,499 as of September 30, 2019 and December 31, 2018, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.

 

Included in interest in unconsolidated equity investee, due from Tri-way Industries Limited is $59,285,521 and $57,354,208 as of September 30, 2019 and December 31, 2018, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment.

 

Included in accounts receivable, due from Tri-way Industries Limited is $62,557,029 and $60,799,365 as of September 30, 2019 and December 31, 2018, respectively. The amounts are unsecured, interest free and have no fixed terms of repayment. 

 

The Company has consulting and service income from development contracts of $0 and $6,502,372, $1,719,247 and $10,036,762 from Tri-way Industries Limited for the three months and the nine months ended September 30, 2019 and 2018, respectively.

 

 F-42 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  27. 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, 2019
    Three months ended
September 30, 2018
 
BASIC                
                 
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
                 
Net income used in computing basic earnings per share -continuing and discontinued operations   $ 8,116,546     $ 3,465,562  
Net income used in computing basic earnings per share -continuing operations   $ 8,116,546     $ 3,465,562  
Basic earnings per share - continuing and discontinued operations   $ 0.16     $ 0.09  
Basic earnings per share - continuing operations   $ 0.16     $ 0.09  
Basic weighted average shares outstanding     49,968,758       36,650,450  

 

    Three months ended
September 30, 2019
    Three months ended
September 30, 2018
 
DILUTED                
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
Net income used in computing basic earnings per share - continuing and discontinued operations   $ 8,116,546     $ 3,465,562  
Convertible note interest     -       -  
Net income used in computing diluted earnings per share   $ 8,116,546     $ 3,465,562  
                 
Diluted earnings per share - continuing and discontinued operations   $ 0.16     $ 0.09  

 

    Three months ended
September 30, 2019
    Three months ended
September 30, 2018
 
             
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
Net income used in computing basic earnings per share - continuing operations   $ 8,116,546     $ 3,465,562  
Convertible mote interest     -       -  
Net income used in computing diluted earnings per share   $ 8,116,546     $ 3,465,562  
                 
Diluted earnings per share -  continuing operations   $ 0.16     $ 0.09  
                 
Basic weighted average shares outstanding     49,968,758       36,650,450  
                 
Add:                
weight average of common stock convertible from convertible note payables     -       -  
                 
Diluted weighted average shares outstanding     49,968,758       36,650,450  

 

 F-43 

 

 

SINO AGRO FOOD, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

27. EARNINGS PER SHARE (CONTINUED)

 

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:

 

    Nine months ended
September 30, 2019
    Nine months ended
September 30, 2018
 
BASIC                
                 
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
                 
Net income used in computing basic earnings per share -continuing and discontinued operations   $ 15,302,641     $ 9,435,949  
Net income used in computing basic earnings per share -continuing operations   $ 15,302,641     $ 9,435,949  
Basic earnings per share - continuing and discontinued operations   $ 0.31     $ 0.27  
Basic earnings per share - continuing operations   $ 0.31     $ 0.27  
Basic weighted average shares outstanding     49,900,369       35,381,345  

 

    Nine months ended
September 30, 2019
    Nine months ended
September 30, 2018
 
DILUTED                
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
Net income used in computing basic earnings per share - continuing and discontinued operations   $ 15,302,641     $ 9,435,949  
Convertible note interest     -       -  
Net income used in computing diluted earnings per share   $ 15,302,641     $ 9,435,949  
                 
Diluted earnings per share - continuing and discontinued operations   $ 0.31     $ 0.27  

 

    Nine months ended
September 30, 2019
    Nine months ended
September 30, 2018
 
Numerator for basic earnings per share attributable to the Company’s common stockholders:                
Net income used in computing basic earnings per share - continuing operations   $ 15,302,641     $ 9,435,949  
Convertible mote interest     -       -  
Net income used in computing diluted earnings per share   $ 15,302,641     $ 9,435,949  
                 
Diluted earnings per share -  continuing operations   $ 0.31     $ 0.27  
                 
Basic weighted average shares outstanding     49,900,369       35,381,345  
                 
Add:                
weight average of common stock convertible from convertible note payables     -       -  
                 
Diluted weighted average shares outstanding     49,900,369       35,381,345  

 

 F-44 

 

 

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